As filed with the Securities and Exchange Commission on May 1, 2003June 3, 2005
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
UNITED INDUSTRIES CORPORATION*
SPECTRUM BRANDS, INC.
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Charter)
| Wisconsin | 3692 | 22-2423556 | ||
(State or | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification | ||
Number) | ||||
Six Concourse Parkway, Suite 3300
Atlanta, Georgia 30328
(770) 829-6200
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant’s Principal Executive Offices)
SEE TABLE OF ADDITIONAL REGISTRANTS
James T. Lucke, Esq.
Spectrum Brands, Inc.
Six Concourse Parkway, Suite 3300
Atlanta, Georgia 30328
(770) 829-6200
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies of all communications, including communications sent to agent for service, should be sentCommunications to:
Margaret A. Brown, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Richard W. Porter, P.C.Robert M. HaywardChristopher A. ZiebarthKirkland & Ellis200 E. Randolph DriveChicago, IL 60601Telephone: (312) 861-200031st Floor
Boston, Massachusetts 02108
(617) 573-4800
* The co-registrants listed on the next page are also included in this Form S-4 Registration Statement as additional registrants. The co-registrants are all of the existing subsidiaries of the registrant and the guarantors of the notes to be registered hereby.
Approximate date of commencement of proposed sale to the public:As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Formform are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. box: o¨
If this Formform is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. offering: o¨
If this Formform is a post-effective amendment filed pursuant to Rule 462(d) under the Securities act,Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. offering: o¨
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Offering Price Per Unit | Proposed Maximum Aggregate Offering Price(1) | Amount of Registration Fee | ||||
|---|---|---|---|---|---|---|---|---|
| 97/8% Series D Senior Subordinated Notes due 2009 | $235,000,000 | 100% | $235,000,000 | $19,012 | ||||
| Guarantees on Senior Subordinated Notes(2) | $235,000,000 | — | — | (3) | ||||
| Title of Each Class of Securities To Be Registered | Amount To Be Registered | Proposed Maximum Offering Price Per Unit(1) | Proposed Maximum Aggregate Offering Price(1) | Amount of Registration Fee | |||||||||
7 3/8% Senior Subordinated Notes due 2015 | $ | 700,000,000 | 100 | % | $ | 700,000,000 | $ | 82,390 | |||||
Guarantees of the 7 3/8% Senior Subordinated Notes due 2015 | — | — | — | — | (2) | ||||||||
| (1) | Estimated pursuant to Rule 457(f) solely for the purpose of calculating the registration fee. |
| (2) | Pursuant to Rule 457(n), no separate fee is payable with respect to the guarantees of the notes being registered. |
The registrant and the co-registrants hereby amend this Registration Statementregistration statement on such date or dates as may be necessary to delay its effective date until the registrant and the co-registrants shall file a further amendment which specifically states that this Registration Statementregistration statement shall thereafter become effective in accordance with Sectionsection 8(a) of the Securities actAct of 1933 or until this Registration Statementthe registration statement shall become effective on such date as the Commission, acting pursuant to said Sectionsection 8(a), may determine.
TABLE OF ADDITIONAL REGISTRANTSTable of Co-Registrants
Exact Name of | Jurisdiction of Incorporation | Primary Standard Industrial Classification Code Number | I.R.S. Employer Identification | |||||||||
ROV Holding, Inc.* | Delaware | 551112 | 22-2423555 | |||||||||
Rovcal, Inc.* | California | 335900 | 52-2068284 | |||||||||
United Industries Corporation, 2150 Schuetz Road, St. Louis, Missouri 63146, (314) 427-0780 | Delaware | 325900 | 43-1025604 | |||||||||
AQ Holdings, Inc.** | Delaware | 551112 | 04-3429328 | |||||||||
Aquaria, Inc.** | California | 339900 | 95-2556867 | |||||||||
Aquarium Systems, Inc.** | Delaware | 339900 | 34-1820457 | |||||||||
DB Online, LLC** | Hawaii | N/A | N/A1 | |||||||||
Ground Zero, Inc. | Missouri | Inactive | 43-1807196 | |||||||||
IB Nitrogen, Inc., 10 Craig Street, Brantford, Ontario N3R7J1, (519) 757-0077 | 325300 | 52-2115627 | ||||||||||
JungleTalk International, Inc.** | Delaware | 321900 | 34-1839601 | |||||||||
Nu-Gro US Holdco Corporation*** | Delaware | 551112 | 20-0971051 | |||||||||
Nu-Gro America Corp. *** | Delaware | 551112 | 98-0191327 | |||||||||
Nu-Gro Technologies, Inc.*** | Delaware | 325300 | 14-1817561 | |||||||||
Perfecto Holding Corp. ** | Delaware | 551112 | 59-3380422 | |||||||||
Perfecto Manufacturing, Inc.** | Delaware | 339900 | 59-3380419 | |||||||||
Pets ‘N People, Inc.** | California | 453910 | 95-3603453 | |||||||||
Schultz Company** | Missouri | 325300 | 43-0625762 | |||||||||
Southern California Foam, Inc.** | California | 339900 | 95-4236597 | |||||||||
Sylorr Plant Corp. | Delaware | 325900 | 02-0644834 | |||||||||
United Pet Group, Inc.** | Delaware | 311110 | 11-2392851 | |||||||||
WPC Brands, Inc. | Wisconsin | 325900 | 39-1786169 | |||||||||
Tetra Holding (US), Inc., 3001 Commerce Street, Blacksburg, Virginia 24060, (540) 951-5400 | Delaware | 311119 | 42-1560545 | |||||||||
Willinger Bros., Inc.**** | Delaware | 311119 | 13-2847371 |
| * | Address and telephone number of principal executive offices are the same as those of Spectrum Brands, Inc. |
| ** | Address and telephone number of principal executive offices are the same as those of United Industries Corporation. |
| *** | Address and telephone number of principal executive offices are the same as those of IB Nitrogen, Inc. |
| **** | Address and telephone number of principal executive offices are the same as those of Tetra Holding (US), Inc. |
| 1 | Single member LLC disregarded for US tax purposes. |
*The address for each of the co-registrants is c/o United Industries Corporation, 2150 Schuetz Road, St. Louis, Missouri 63146, telephone (314) 427-0780. The name and address, including zip code, of the agent for service for each of the co-registrants is Daniel J. Johnston, Vice President and Director, 2150 Schuetz Road, St. Louis, Missouri 63146. The telephone number, including area code, of the agent for service for each of the co-registrants is (314) 427-0780.
SUBJECT TO COMPLETION, DATED MAY 1, 2003
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE 3, 2005
PROSPECTUS
UNITED INDUSTRIES CORPORATION
Spectrum Brands, Inc.
operating asOffer to Exchange
Offer to Exchange 97/8% Series D Senior Subordinated Notes due 2009For All Outstanding 97/8% Series B2015
for $700,000,000 Senior Subordinated Notes due 2009and 97/8% Series C Senior Subordinated Notes due 20092015
Material Terms of the Exchange Offer
We are offering, upon the terms and C notes. The terms of the Series D notes we will issue in the exchange offer are substantially similarsubject to the Series B and C notes except for the differencesconditions set forth in this prospectus and the "Exchange Offer—accompanying letter of transmittal, to exchange an aggregate principal amount of up to $700,000,000 of our new 7 3/8% Senior Subordinated Notes due 2015 (which we refer to as the “exchange notes”), for a like amount of the outstanding 7 3/8% Senior Subordinated Notes due 2015 issued by us under our former name, Rayovac Corporation (which we refer to as the “original notes”), in a transaction registered under the Securities Act of 1933, as amended (the “Securities Act”). The exchange offer will expire at 5:00 p.m., New York City time, on , 2005, unless extended.
Terms of the Exchange Offer" and "Summary of Key Differences Between the Indenture Governing the Series B Notes and the Indenture Governing the Series D Notes" sections of this prospectus. You should read these sections of the prospectus carefully.
For a discussion of certain factors that you should consider before participatingbe considered by holders prior to tendering their original notes in the exchange offer, see "Risk Factors"“Risk Factors” beginning on page 12 of this prospectus.18.
Neither the SECSecurities and Exchange Commission nor any state securities commission has approved or disapproved of the notes to be distributed inthese securities or determined if this exchange offerprospectus is truthful or passed upon the accuracy of this prospectus.complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 20032005
This prospectus incorporates by reference documents that contain important business and financial information about Spectrum Brands, Inc. that is not included in or delivered with this prospectus. These documents are available without charge to holders of the notes upon written or oral request to Spectrum Brands, Inc., Six Concourse Parkway, Suite 3300, Atlanta, Georgia 30328, Attention: James T. Lucke, Senior Vice President, General Counsel and Secretary, telephone number (770) 829-6200. To obtain timely delivery, note holders must request the information no later than five business days before the expiration date. The expiration date is , 2005.
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You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any other personanyone to provide you with different or additionalany other information. If anyone provides you with different or additionalreceive any other information, you should not rely on it. This prospectus is not an offer to sell, or a solicitation of an offer to buy, any of the securities to any person or by anyone in any jurisdiction where it is unlawful, where the person making the offer is not qualified to do so or to any person who cannot legally be offered the securities. You should not assume that the information included in this prospectus, including any information incorporated by reference, is accurate as of any date other than the date of this prospectus or the date of the document incorporated by reference.
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MARKET, RANKING AND OTHER DATA
The data included in or incorporated by reference into this prospectus regarding markets and ranking, including the size of certain markets and our position and the position of our competitors within these markets, are based on a variety of sources, including company research, third-party studies and surveys, industry and general publications and estimates based on our management’s knowledge and experience in the markets in which we operate. Our estimates have been based on information obtained from our customers, suppliers, trade and business organizations and other contacts in the markets in which we operate. We believe these estimates to be accurate as of the date of this prospectus or the document incorporated by reference, as applicable. However, this information may prove to be inaccurate because of issues relating to the methodology employed in formulating such estimates or because this information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. As a result, you should be aware that market, ranking and other similar data included in or incorporated by reference into this prospectus, and estimates and beliefs based on that data, may not be reliable. We cannot guarantee the accuracy or completeness of such information contained in or incorporated by reference into this prospectus.
Unless otherwise indicated, all our market share estimates are based on these sources of market data and reflect number of units sold, except for United Industries Corporation, where such estimates reflect dollar amounts.
INTELLECTUAL PROPERTY
We own or have rights to various trademarks, copyrights and trade names used in our business, including the following: RAYOVAC®, VARTA®, REMINGTON®, MAXIMUM®, MAXIMUM PLUS™, I-C3™, RENEWAL®, LOUD ‘N CLEAR®, PRO LINE®, RAYOVAC ULTRA®, WORKHORSE®, ROUGHNECK®, SPORTSMAN®, AIR 4000®, XCELL®, EXTRA®, PRODIGY®, MICROSCREEN®, MICROFLEX®, PRECISION®, REMINGTON TITANIUM™, SMOOTH & SILKY®, SPECTRACIDE®, TRIAZICIDE®, TRIPLESTRIKE™, SPECTRACIDE TERMINATE®, SPECTRACIDE PRO®, HOT SHOT®, GARDEN SAFE®, SCHULTZ™, RID-A-BUG®, BAG-A-BUG®, REAL-KILL®, NO-PEST®, REPEL®, VIGORO®, STA-GREEN®, BANDINI®, WILSON®, SO-GREEN®, GREENLEAF®, GREEN EARTH®, IB NITROGEN®, NITROFORM®, NUTRALENE®, S.C.U.®, ORGANIFORM®, CUTTER®, MARINELAND®, PERFECTO®, INSTANT OCEAN®, REGENT®, 8-IN-1®, NATURE’S MIRACLE®, DINGO®, WILD HARVEST®, ONE EARTH®, LAZY PET®, JUNGLETALK®, TETRA®, TETRAMIN®, TETRAFIN®, TETRAPOND®, WHISPER® and AQUASAFE®. The Rayovac, Remington, VARTA and Tetra trademarks are also registered in countries outside the U.S., including in Europe, Latin America and Asia. We also license the PETERS and PETERS PROFESSIONAL trademarks from The Scotts Company, CIL trademarks from ICI Canada Inc., PLANT-PROD trademarks from Plant Products Co. Ltd. and PICKSEED trademarks from Pickseed Canada Inc. This prospectus and the documents incorporated by reference also include trademarks, service marks and trade names of other companies.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
We report our consolidated financial statements in U.S. dollars and prepare our consolidated financial statements in accordance with U.S. GAAP. Financial statements and financial and other information concerning United contained or incorporated by reference in this prospectus have been derived from publicly filed annual and interim reports prepared by United or otherwise provided by United in U.S. dollars in accordance with U.S. GAAP. Financial statements and other information concerning Nu-Gro contained or incorporated by reference in this prospectus have been derived from annual and interim reports prepared by Nu-Gro or otherwise provided by Nu-Gro in Canadian dollars in accordance with U.S. GAAP. Financial statements and other information concerning Tetra contained or incorporated by reference in this prospectus have been derived from annual and interim reports prepared by Tetra or otherwise provided by Tetra in euros in accordance with International Financial Reporting Standards.
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In this prospectus and the documents incorporated by reference, except where otherwise indicated, all references to “$,” “dollars” or “U.S. dollars” are to the lawful currency of the United States, all references to “euro” or “€” are to the common currency of certain participating member countries of the European Union and all references to “Canadian $” are to Canadian dollars. The noon buying rate in The City of New York for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York on June 2, 2005 was $1.2266 to €1.00 and $0.8017 to Canadian $1.00.
Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated, may not be the arithmetic aggregation of the percentages that precede them.
We have made or implied certain forward-looking statements in this prospectus and the documents incorporated by reference in this prospectus. All statements other than statements of historical facts included or incorporated by reference in this prospectus, including the statements under “Prospectus Summary,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” regarding our business strategy, future operations, financial position, estimated revenues, projected costs, projected synergies, prospects, plans and objectives of management, as well as information concerning expected actions of third parties, are forward-looking statements. When used in this prospectus the words “anticipate,” “intend,” “plan,” “estimate,” “believe,” “expect,” “project,” “could,” “will,” “should,” “may,” “strategy,” “indicate,” “determine” and similar expressions are also intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.
Since these forward-looking statements are based upon current expectations of future events and projections and are subject to a number of risks and uncertainties, many of which are beyond our control, actual results or outcomes may differ materially from those expressed or implied herein, and you should not place undue reliance on these statements. Important factors that could cause our actual results to differ materially from those expressed or implied herein include, without limitation:
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Some of the above-mentioned factors are described in further detail in “Risk Factors” beginning on page 18. You should assume the information appearing in or incorporated by reference into this prospectus is accurate only as of the date on the front cover of this prospectus or the date of the document incorporated by reference. Ourreference, as applicable, as our business, financial condition, results of operations and prospects may have changed since then. We are not making an offer to sellthat date. Except as required by applicable law, including the securities offered by this prospectuslaws of the United States and the rules and regulations of the Securities and Exchange Commission, or SEC, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise to reflect actual results or changes in any jurisdiction where the offerfactors or sale is not permitted. See the "Where You Can Find More Information" section of this prospectus.assumptions affecting such forward-looking statement.
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Until , 2003, all dealers that buy, sell or trade the Series D notes, whether or not participating inThe following summary highlights selected information about our business and the exchange offer, may be requiredbut it does not include all the information you should consider before deciding whether to deliver a prospectus. This requirement is in addition toexchange your original notes for the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments and subscriptions.
Spectracide®, Spectracide Triazicide™, Spectracide Terminate®, Hot Shot®, Garden Safe™, Schultz®, Expert Gardener®, Rid-a-Bug®, Bag-a-Bug®, Real-Kill®, No-Pest®, Repel®, Gro Best®, Vigoro®, Sta-Green® and Bandini® are our trademarks and trade names. We also license certain Cutter® trademarks from Bayer A.G. and certain Peters® and Peters Professional® trademarks from The Scotts Company. Other trademarks and trade names used in this prospectus are the property of their respective owners.
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This summary highlights information contained elsewhere in this prospectus.exchange notes. You should read thethis entire prospectus carefully,in its entirety, including the "Risk Factors" sectiondocuments incorporated by reference, the information set forth under “Risk Factors” and the financial statements and related notes, before you decide whether to exchange your original notes for the exchange notes. Except asUnless specified otherwise required byor the context referencesrequires, information in this prospectus gives effect to "United,"our acquisition of all of the "company," "we," "us"equity interests of United Industries Corporation on February 7, 2005 and "our" eachall of the equity interests of Tetra Holding GmbH on April 29, 2005. Effective May 2, 2005, we changed our corporate name from Rayovac Corporation to Spectrum Brands, Inc. In this prospectus, unless specified otherwise or the context requires, “Spectrum” and “Rayovac” refer to Spectrum Brands, Inc. together with its subsidiaries, “United” refers to United Industries Corporation together with its subsidiaries, “Tetra” refers to Tetra Holding GmbH together with its subsidiaries, and the terms “we,” “us,” “our” and other similar terms refer to Spectrum and its consolidated subsidiaries.subsidiaries, giving effect to the acquisitions of United and Tetra and, therefore, include United and Tetra. While “Rayovac” and “Spectrum” refer to the same entities, Rayovac may be used in this prospectus to refer to the company in relation to periods prior to the name change. The acquisition of Tetra and the amendment of our senior credit facilities (and the borrowing thereunder to finance the acquisition of Tetra as described herein) are collectively referred to in this prospectus as the “Tetra transactions.” The description of our business, competitive strengths and strategies gives effect to the Tetra transactions. “You” refers to prospective investors in the exchange notes. “Original notes” refers to our existing 7 3/8% Senior Subordinated Notes due 2015; “exchange notes” refers to the 7 3/8% Senior Subordinated Notes due 2015 offered for exchange pursuant to this prospectus; and “notes” refers collectively to the exchange notes and the original notes. References to “fiscal” with respect to us refer to the results of operations for the twelve months ended September 30 of the applicable year.
Operating as Spectrum Brands, we
We are thea global branded consumer products company with leading market positions in our seven major product categories: consumer batteries; pet supplies; lawn and garden; electric shaving and grooming; household insect control; electric personal care products; and portable lighting. We are a leading worldwide manufacturer and marketer of value-orientedalkaline, zinc carbon and hearing aid batteries, a leading worldwide designer and marketer of rechargeable batteries and battery-powered lighting products and a leading worldwide designer and marketer of electric shavers and accessories, grooming products and hair care appliances. We are also a leading North American manufacturer and marketer of lawn fertilizers, herbicides, aquariums, pet health and beauty aid products and insecticides and repellents and a global leader in water life products and fish foods.
We sell our products in approximately 120 countries through a variety of trade channels, including retailers, wholesalers and distributors, hearing aid professionals, industrial distributors and original equipment manufacturers (“OEMs”) and enjoy strong name recognition in our markets under the Rayovac, VARTA and Remington brands, each of which has been in existence for more than 80 years, the consumerSpectracide, Cutter and 8-in-1 brands, which were acquired through our acquisition of United, and various Tetra brands, which were acquired through our acquisition of Tetra. We have 54 manufacturing and product development facilities located in the United States, Europe, China and Latin America. We manufacture alkaline and zinc carbon batteries, zinc air hearing aid batteries, lawn fertilizers, herbicides, pet supplies and insecticides and repellents in our company operated manufacturing facilities. Substantially all of our rechargeable batteries and chargers, electric shaving and grooming products, electric personal care products and portable lighting products are manufactured by third party suppliers, primarily located in China and Japan.
During fiscal 2004, we completed two acquisitions. On March 31, 2004, we completed the acquisition of an 85% equity interest in Ningbo Baowang (“Ningbo”), a Chinese producer of alkaline and zinc carbon batteries,
thereby gaining a Chinese presence and low-cost manufacturing capabilities. In March 2005, we signed an agreement to purchase the remaining 15% equity interest in Ningbo. On May 28, 2004, we completed the acquisition of 90.1% of the outstanding capital stock of Microlite S.A. (“Microlite”), a Brazilian producer of alkaline and zinc carbon batteries and battery-operated lighting products. As a result, we now own the rights to the Rayovac brand name in each of the countries where we do business.
On February 7, 2005, we completed our acquisition of all of the equity interests of United, which completed its acquisition of The Nu-Gro Corporation (“Nu-Gro”), a Canadian lawn and garden products company, and United Pet Group, Inc. (“United Pet Group”), a privately owned manufacturer and marketer of branded pet supplies, on April 30, 2004 and July 30, 2004, respectively.
On April 29, 2005, we completed our acquisition of all of the equity interests of Tetra, a German manufacturer, distributor and marketer of foods, equipment and care products for fish and reptiles, and accessories for home aquariums and ponds.
Our existing consumer battery, electric shaving and grooming, electric personal care and insect controlportable lighting business is organized and managed according to three geographic regions: (i) North America, (ii) Europe/Rest of World (“Europe/ROW”) and (iii) Latin America. We currently operate United and Tetra as separate business units.
Spectrum Brands, Inc. is a Wisconsin corporation. Our principal executive offices are located at Six Concourse Parkway, Suite 3300, Atlanta, Georgia, 30328 and our telephone number is (770) 829-6200. Our website address is www.spectrumbrands.com. Information contained on our website, or on any website referred to therein, is not part of this prospectus and is not incorporated by reference into this prospectus.
Industry Overview
We primarily compete in the following seven major consumer product categories:
Consumer Batteries
In 2003, the global consumer battery market generated approximately $24.0 billion in retail sales. Since 1990, the industry’s growth percentage has been in the mid-single digits. The consumer battery industry consists of alkaline batteries, zinc carbon batteries and specialty batteries, which include rechargeable batteries, hearing aid batteries, photo batteries and watch/calculator batteries. The majority of battery consumption comes from industrialized nations, with the U.S. accounting for roughly one-third of global consumption. As personal incomes grow, the markets in less industrialized countries continue the United States. Undergradual transition from zinc carbon batteries, which still account for a varietymajority of unit sales in such markets, to the better performing and higher-priced alkaline batteries, similar to the transition that occurred in North America over the past generation. Most branded consumer batteries are marketed under the following brand names,names: Rayovac, Duracell (a Gillette brand), Energizer and Panasonic (a Matsushita brand). In addition, batteries are also often marketed under retailers’ private label brands, particularly in Europe.
Pet Supplies
Within the overall $30 billion U.S. pet industry, we manufactureestimate that the pet supplies segment represented an $8.0 billion market in 2004 based on retail sales. Within the overall $20 billion European pet industry, we estimate that the pet supplies segment represented a $4.0 billion market in 2004 based on retail sales. This highly fragmented segment is comprised of pet treats and market one ofpet supplies for dogs, cats, birds, fish and other small
animals, including stain and odor removal products, grooming aids, bedding and lounging products, medications and vitamin supplements. In addition, pet supplies include aquarium kits, stand-alone tanks and stands, filtration systems, heaters, pumps, sea salt, aquarium hoods and lights and other aquatic supplies and accessories. According to management estimates, the broadest lines of pesticidespet supplies segment in the U.S. has grown approximately 6-8% annually since 1994. We believe that the recent market expansion has been driven by increasing pet ownership and the “humanization” of pets, which results in higher levels of spending, and the industry’s relative insensitivity to economic cycles, combined with innovative product development, increased retailer sophistication (i.e., pet superstores) and growth in dedicated retail square footage for pet supplies. We expect comparable market growth over the next several years due to the continuation of these trends. The industry including herbicidesis highly fragmented with, for example, over 500 manufacturers competing in the U.S. market, consisting primarily of small companies with limited product lines. Name brands in the pet supplies market include: Tetra, 8-in-1, Marineland, Nature’s Miracle, Vitakraft and indoor and outdoor insecticides, as well as insect repellents, fertilizers, growing media and soils. Our value brands are targeted toward consumers who want products and packaging that are comparable or superior to, and at lower prices than, premium-priced brands, while our opening price point brands are designed for cost conscious consumers who want quality products. Our products are marketed to mass merchandisers, home improvement centers, hardware chains, nurseries and garden centers. Our three largest customers are The Home Depot, Lowe's and Wal*Mart, which are leading and fast growing retailers in our larger segments.Hartz.
During the third quarter of 2002, we began reporting operating results using three reportable segments:
Lawn and Garden(73%
We estimate that retail sales of 2002 net sales). This segment includes dry, granular slow-releaseconsumer lawn fertilizers,and garden products were approximately $2.9 billion and $335 million in the U.S. and Canada, respectively, in 2003. Over the next several years, we expect the lawn fertilizer combinedand garden industry to continue to grow at approximately 4% annually due to favorable demographic trends, including the increasing number of persons over the age of 45, a group that typically engages in more lawn and garden activity than the general population, and the increasing shift in the population to areas more conducive to lawn and gardening activities, such as the southern and western regions of the United States. Approximately 85 million, or 80%, of the households in the United States participate in some form of lawn and garden activity. A significant portion of lawn and garden products are marketed under the following brand names: Spectracide, Vigoro and Sta-Green, and Scotts, Miracle-Gro and Ortho (brands of The Scotts Company).
Electric Shaving and Grooming
We estimate that retail sales of the global electric shaving and grooming industry exceeded $3.0 billion in 2003. Industry analysts believe that unit sales in the electric shaving and grooming industry will continue to grow at approximately 3% annually over the next several years due to new product and product feature introductions, which also drive higher selling prices. Electric shavers include men’s rotary and foil shavers and women’s foil shavers and are used with lawnelectric shaver accessories, such as shaver replacement parts (primarily foils and cutters), pre-shave products and cleaning agents. Electric grooming products include beard and mustache trimmers, nose and ear trimmers and haircut kits and related accessories. Electric shaving and grooming products are marketed primarily under one of the following brands: Remington, Braun (a Gillette brand) and Philips/Norelco.
Household Insect Control
According to management estimates, retail sales of household insect control products herbicides, water-solubletotaled approximately $1.0 billion in the United States in 2003. We estimate that the household insect control market has experienced recent historical growth of 4% per year and controlled-release gardenthat it will grow at rates in excess of historical rates over the next several years due to the expected increase in demand for insect control products resulting from general economic growth and indoor plant foods, plant careincreasing awareness of insect-spread illnesses such as the West Nile virus in the United States. A significant portion of household insect control products potting soils and other growing media products, and insecticide products. This segment includes, among others, our Spectracide, Garden Safe, Schultz, Vigoro, Sta-Green, Real-Kill and No-Pest brands.
Electric Personal Care Products
The electric personal care industry includes hair dryers, hair setters, curling irons, hair crimpers and straighteners, hot air brushes and lighted mirrors. We estimate that retail sales of global electric personal care
products exceeded $2.0 billion in 2003 and unit sales are projected to grow at 3% annually over the next several years. This growth rate is consistent with the industry’s historical growth rate and is driven by new product and product feature introductions, which result in higher selling prices. A significant portion of electric personal care products are marketed under the following brand names: Remington, Conair, Vidal Sassoon, Revlon and Hot.
Portable Lighting
We estimate that the global portable lighting market generated approximately $3.0 billion in retail sales in 2003, of which an estimated 50% is from sales of flashlights. The global portable lighting market is fragmented by region and includes few global branded companies. Recent growth in the portable lighting market has been relatively flat, and we believe that growth opportunities will be driven by product innovation. A few of the brand names in the portable lighting market include Rayovac, Eveready and Maglite.
Across the consumer products industry, recent differentiation among competitors has been based upon strong retailer relationships. Sales within these markets are driven by well-recognized brand names, as well as a numberconsistent new product introductions. As major retailers have rapidly expanded over the last 15 years, the concentration of private label and other products.
We compete in the $2.8 billion consumer lawn and garden retail market and are benefiting from a shifting of consumer preferences toward value-oriented products. We believe a key growth factor in the lawn and garden retail market is the aging of the United States population, as consumers over the age of forty-five represent the largest segment of lawn and garden care product users and typically have more leisure time and higher levels of discretionary income than the general population. We also believe the growth in the home improvement center and mass merchandiser channels has increased the popularity of do-it-yourself activities, including lawn and garden projects.
Our success is based on the following competitive strengths:
Strong Relationships with Leading and Fast Growing Retailers. Through our ability to add value for our retail customers, we have developed strong relationships with a number of leading national home centers and mass merchandisers. Three such retailers are our three largest customers—Wal-Mart, Carrefour, Target, The Home Depot, Lowe'sLowe’s and Wal*Mart. TheseGigante to continue the concentration of industry distribution. Furthermore, as global retailers each hold significant positionscontinue to reduce their number of suppliers, the ability to service these retailers with diverse product offerings and provide products globally through an expansive distribution system is increasingly important.
Competitive Strengths
The following strengths serve as a foundation for our business strategy:
Strong Diversified Global Brand Portfolio
We have a global portfolio of well-recognized consumer product brands. In the consumer battery and portable lighting categories, we use the Rayovac brand name principally in North America and Latin America and we primarily market these products in Europe under the VARTA brand. In the electric shaving and grooming and electric personal care products categories, we use the Remington brand in North America, the United Kingdom, Australia and select European countries. United historically marketed its products in the lawn and garden and household categories ininsect control segments as Spectrum Brands, which we competeincludes brand names such as Spectracide, Vigoro, Hot Shot and have together opened over 1,100 new stores
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in the last three years. AsCutter. We also sell our pet supplies under a result, we have been able to significantly increase our sales as these retailers have added new storeswide range of brands, including Tetra, 8-in-1, Dingo and captured greater market share.
"One-Stop" Supplier. We offer a broad product line of the value-oriented products that consumers demand as an alternative to premium-priced products. This product breadth, enhanced by our ability to create innovative products and to acquire and integrate products and businesses, improves our ability to be a "one-stop" supplier of branded, value-oriented products in both theMarineland. Our lawn and garden and household insect control brands are marketed primarily in North America. Our pet supply products are marketed primarily in North America and Europe. Many of these brands are well recognized in their categories, with market leading positions, and several of these brands have been used for our customers.
In-Store Category Management.over 50 years. We believe that each of our one-stepmajor brands generates strong brand awareness. We attribute the longevity and strong consumer awareness of our brand names to the high-quality and consistent value of our products and to the success of our marketing and merchandising initiatives. We believe that the strength of our brands positions us to extend our product lines and provide our retail customers with strong sell-through to consumers.
Strong Global Retail Relationships
We have well-established business relationships with many of the top global retailers, distributors and wholesalers, which have enabled us to expand our overall market penetration and promote sales. With the acquisitions of United and Tetra, we have further diversified our customer base and strengthened our existing relationships with important mass merchandisers, home centers and pet superstores, such as Wal-Mart, The
Home Depot, Lowe’s, PETsMART, Canadian Tire and PetCo. We intend to leverage cross-selling opportunities with both our new and existing customers. We have built and maintained strong retailer relationships by providing our customers with global sourcing, high quality and innovative products and attractive margins. In addition, these relationships are reinforced by our exclusive brand arrangements with leading retailers, including our Vigoro brand at The Home Depot and our Sta-Green brand at Lowe’s, as well as our position as the exclusive supplier for Wal-Mart’s Expert Gardener brand. On a pro forma basis, we rank among the top 50 current suppliers to Wal-Mart in the United States based on consumer purchases.
Expansive Distribution Network and Global Sourcing
We distribute our products in approximately 120 countries through a variety of trade channels, including retailers, wholesalers and distributors, hearing aid professionals, industrial distributors and OEMs. Our state-of-the-art battery packaging and distribution process,centers in which most shipments are made directly fromNorth America and Europe provide package-to-order capability for our facilitiesbattery products as well as rapid and cost-effective services to retail stores,customers for such products. We have an established global sourcing system for raw materials and product components for our direct in-store sales force enableproduct offerings, including maintaining an Asian sourcing organization located in Hong Kong, which is responsible for purchasing logistics and quality assurance for our products purchased from third party vendors. By moving production to Asia, we have been successful in reducing labor and material costs for consumer battery, electric shaving and grooming, electric personal care and portable lighting products. We distribute our lawn and garden, pet supplies and household insect control products in North America through a variety of trade channels, including retailers, wholesalers and distributors. The distribution network for our lawn and garden, pet supplies and household insect control businesses are designed to provide package-to-order capability. We plan to undertake initiatives to consolidate and streamline the United, Tetra and Spectrum distribution networks to achieve greater customer service capabilities and cost savings.
Innovative New Products, Packaging and Technologies
We have a long history of product and packaging innovations that have helped position us as an industry leader in each of our seven product categories. We have leading battery technologies in zinc air, consumer rechargeable and lithium coin cells. We have continued to improve the performance of our alkaline batteries, which has enabled us to manage customer relationships on a store-by-store basis better than other suppliers and help us compete aggressively with premium-priced suppliers for shelf space. Our sales representatives visit most home center locations on a weekly basisperform at levels comparable to merchandise shelf space, collect market data and educate in-store personnel about our products. This process facilitates regionally appropriate, real-time marketing and promotional decisions, helping to maximize store-level sales and profitability for categories whichmajor competitors without increasing consumer prices. We also have a high degreediverse portfolio of sensitivitycontrolled-release nitrogen technology and have been able to local weather patterns. In addition,offer customized fertilizer formulas to our sales force helps usleading customers. Our innovative packaging includes the first resealable alkaline battery multi-pack, the easy-open spin-and-lock dial hearing aid battery packaging and a handheld battery-operated spray system for use in lawn and garden, the first in its category. We continually seek to identify emerging trendsintroduce new products both as extensions of existing product lines and develop products to meet consumers' needs.as new product categories. For example, we recently introduced the Remington Titanium Smart System shaving system, Spectracide TripleStrike Grass & Weed Killer and the Remington Wet 2 Straight Professional Straightener hair straightener.
BroadWorld Class Information Technology Portfolio.Platform
We have close relationships with key global active ingredient suppliers and have access to a broad portfolio of chemistry due to our significant presenceinvested in the pesticide market. This broad-based access to technologyan SAP enterprise resource planning system, which enables us to developmore effectively manage manufacturing planning and execution, demand planning, the supply procurement to payment cycle, the customer order to cash collection cycle and the financial planning and reporting functions. The majority of our businesses utilize this system, which significantly enhances transactional processing and detailed analysis and reporting. The SAP platform provides information system standardization throughout our company, which has allowed for the integration and consolidation of past acquisitions with minimal additional capital investment, and which we expect will similarly assist in our integration of United and Tetra. Our IT system has proved to be an effective and efficient platform to support our business. We anticipate further cost savings and operational synergies from the transition of United to our IT platform.
Proven Integration Track Record
We have a long history of successfully integrating significant acquisitions. In 1999, we acquired and successfully assimilated the Latin American operations of ROV Limited, where we reduced costs by closing three zinc carbon manufacturing facilities and implementing new raw material purchasing programs. In fiscal 2003, in conjunction with the acquisition of VARTA, we announced a series of cost savings initiatives. We fully integrated VARTA within 12 months and realized annual cost savings of approximately $43.7 million. The Remington integration resulted in annual cost savings of approximately $35 million. These savings were the result of combining sales organizations, consolidating administrative functions and integrating the production and distribution of Remington products that differentiate betweeninto our various opening-price point offeringsexisting manufacturing facilities and distribution network. The integration plan was substantially completed in nine months. We will continue to apply our nationally distributed value brands while offering product efficacy that is competitiveexperience with premium-priced products.previous acquisitions in connection with the integration of United and Tetra.
StrongExperienced Management Team.Team
Our senior management team has extensive industrysubstantial consumer products experience and a proven track record of operations success and brand management. On average, senior management has more than 20 years of experience at Spectrum, VARTA, United and other branded consumer product companies such as General Electric, Gillette, Braun, Procter & Gamble and S.C. Johnson. Our management team has grown our business by developing and introducing new products, expanding our distribution channels, and acquiring new brands and products, while improving our operating efficiencies.operational efficiencies and making strategic acquisitions.
Our long-term strategic plan is to be a diversified global consumer products company that competes in high growth markets. We intend to accomplish this via a combination of organic growth and strategic acquisitions. With our acquisitions of ROV Limited in August 1999, VARTA in October 2002, Ningbo in March 2004 and Microlite in May 2004, we have become a global manufacturer and marketer of consumer batteries. These acquisitions provided us with battery manufacturing capabilities in Europe, Latin America and Asia. The Ningbo acquisition provided us with low-cost manufacturing capacity in China, and access to a growing Chinese market.
The Remington acquisition in September 2003 was the first step in diversifying our consumer product offerings. With this acquisition, we entered the electric shaving and grooming and electric personal care categories. During the current year, we are expanding distribution of these products in Europe and Latin America. Our acquisitions of United and Tetra continued our product diversification and extended our presence into the lawn and garden, pet supplies and household insect control categories. In addition, we expect that the acquisitions of United and Tetra will reduce the seasonality of our historic business, which, prior to the acquisitions, was weighted towards the Christmas season (our first quarter in its fiscal year), while demand for lawn and garden products typically peaks during the first six months of the calendar year. We believe all of these categories are in markets that represent attractive growth opportunities.
To further enhance our position in the branded consumer products market, we plan to build on our strengths and favorable industry trends to enhance our competitive position by implementingimplement the following key elements of our business strategy:
EnhanceIncrease Sales Through Expanded Customer Relationships with Leading Retailers.and Leveraging Our Distribution Network
We intend to increase our sales as a result of the broader product offering that resulted from the combinations of Spectrum, United and Tetra. We intend to capture incremental sales by leveraging strong customer relationships, which will facilitate the cross-selling of our full line of products. For example, we intend to leverage United’s more extensive relationships with home centers and pet stores in North America to increase sales of our branded products through these distribution channels. In addition, we will seek to leverageimprove the
utilization of our strong value brand positionexisting distribution channels to increase sales of United and operational expertiseTetra branded products. We believe we will strengthen existing relationships with overlapping customers, such as Wal-Mart, and will be able to serve these customers more efficiently. We also believe that we are well positioned to capitalize on the trend of global retail merchants who are continuing to consolidate their vendor base and focus on a reduced number of suppliers that can (1) provide high-value products, (2) efficiently and consistently fulfill logistical requirements and volume demands and (3) provide comprehensive product support from design to point of sale and after-market customer service.
Continue New Product Development and Packaging Innovation
We intend to continue our strategy of increasing sales through the introduction of new products and packaging designs in each of our seven product categories. Our research and development strategy is focused on new product development, performance improvements of our existing products and cost reductions in, and enhancements of, our products and packaging. We plan to continue to deliver more value to leading retailers thanuse our competitors. We focus on enhancing retailers' profitability in selling our products by being a low-cost provider and leveraging our one-step distribution process. We are able to compete as a low-cost provider due to our efficient marketing programs, high level of vertical integrationstrong brand names, established customer relationships and significant distribution leverage. We currently manufactureresearch and market opening price point brands for leading retailers such as Ace Hardware, Albertsons, Dollar General, The Home Depot, Lowe's, Target, Tru*Serv, Walgreens and Wal*Mart. We also believe our relationship as a supplier of "house brands" provides a basis for broadening our product offerings and we intend to seek out new strategies for enhancing our position with key customers.
Leverage Our Operating Model. We continually seek to build the strength of our distribution network and relationships with retailers. We have increased our sales and improved operating leverage by supplying complementary product lines to retailers. Our strategy is to continue to add new products either through new product development or by acquiring product lines.
Continue to Improve Operating Efficiencies
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We will continue to seek to improve our operational efficiencies and match manufacturing capacity and product costs to market demand. Over the last few years, we have undertaken various initiatives to reduce manufacturing, operating and other costs, such as increasing manufacturing utilization by reducing the number of our facilities, outsourcing the production of certain of our products and updating and centralizing certain packaging and distribution facilities. We believe that we can continue to reduce our cost of goods manufactured with continued focus on cost reduction initiatives. These initiatives include cost reductions through global purchasing, finished goods sourcing arrangements and improved productivity. We continue to lower operating costs as duplicative administrative support and sales and marketing functions are consolidated and overlapping functions are eliminated.
Acquisitions:Implement Integration Plan
We have identified key areas where we expect to achieve cost savings and operational synergies with the acquisitions of United and Tetra. These areas include manufacturing, distribution, sales and marketing, IT systems and administrative functions. We intend to rationalize our existing manufacturing plants, reduce freight costs by maximizing full truckloads and taking advantage of our existing distribution network, transition United and Tetra to our IT platform, consolidate purchasing and increase Asian sourcing, and integrate various selling, general and administrative functions.
Enhance Earnings and Cash Flow
We have generated high levels of cash flow from operations as a result of our earnings, cost reduction efforts and modest capital expenditure requirements. Through our integration efforts with VARTA and Remington we have streamlined our cost structure while continuing to introduce new high profit margin products. Through our integration efforts with United and Tetra, we anticipate further improvements. We intend to continue to focus on improving the efficiency of our organization to maximize earnings and cash flow from operations.
Pursue Strategic Acquisitions
Our brand acquisition strategy isfocuses on businesses or brands that will strengthen our current product offerings or enable us to selectively acquireexpand into complementary categories and geographic regions. In addition, we intend to pursue acquisitions of additional consumer product linesbrands that can benefit from our position as a "house" supplier, strongextensive distribution network product development expertise, accessand long-term retailer relationships. In particular, we believe that the pet supplies industry presents consolidation opportunities due to a broad technology portfolioits highly fragmented nature, and other competitive strengths. For example, we expect that the productsto pursue opportunities in this market.
The United Acquisition
On February 7, 2005, we acquired all of the equity interests of United for a purchase price, excluding fees and expenses, of $70 million in cash, 13.75 million shares of our Schultzcommon stock and WPC Brands acquisitions should benefitthe assumption of approximately $911.5 million of outstanding United indebtedness. The acquisition of United followed our long-term strategic plan to diversify our product categories, enter complementary categories and reduce our concentration in existing products categories.
In connection with the acquisition of United, we entered into a credit agreement consisting of a total of $1.03 billion in senior secured credit facilities, made up of aggregate term loan facilities of $730 million, of which $540 million is denominated in dollars, $140 million is denominated in Euros and $50 million is denominated in Canadian dollars, and a revolving credit facility of $300 million denominated in dollars. See “Description of Certain Indebtedness” for a more detailed description of these credit facilities. The proceeds from the offering of the original notes, together with the borrowings under our distribution leveragenew senior credit facilities, were used to finance the acquisition, retire United’s existing indebtedness and our then existing senior credit facilities and pay related fees and expenses.
On January 5, 2005, in connection with the acquisition of United, we commenced a tender offer to purchase for cash all outstanding United Notes. As of January 5, 2005, approximately $231.9 million aggregate principal amount of United Notes were outstanding. In connection with the tender offer, we also solicited consents to amend the indenture governing the United Notes to remove substantially all of the restrictive covenants thereunder. By January 19, 2005, we received the valid tenders and consents from holders representing approximately 94% of the aggregate principal amount of the United Notes, thereby permitting amendment of the indenture governing the United Notes. On April 1, 2005, we redeemed all United Notes not tendered pursuant to the tender offer in accordance with the terms and conditions of the amended indenture governing the United Notes. See “Recent Developments—Retirement of United Notes” for a more detailed description of the retirement of the United Notes and the tender offer and consent solicitation.
In connection with the acquisition of United, we entered into certain ancillary agreements with UIC Holdings, L.L.C. (“Holdings”), the majority stockholder of United as of the date Rayovac entered into the definitive agreement to acquire United, Thomas H. Lee Partners, L.P. (“THL”) and certain of its affiliates and certain other former stockholders of United. Those agreements, subject to certain exceptions, provide that we increase our board of directors from eight to ten members and cause each of the acquired fertilizer brands should helpnew director positions to be filled by persons designated by Holdings, impose certain obligations on us enhancewith respect to the nomination of Holdings’ designees for election to our existing relationships with key customers.
Maintainboard for as long as Holdings maintains certain ownership percentages of our common stock outstanding, restrict the ability of Holdings, THL and Enhance Technological Strength. We plancertain of its affiliates and certain of United’s former stockholders to continue to focus on building and maintaining a broad technology portfolio to enhance product differentiation and to maintain product efficacy. By increasing scale, we seek to leveragesell or transfer shares of our relationships with global active ingredient suppliers to maintain and expand our technologically advanced product offerings, with a focus on exclusive chemistry and new technology.
Focus and Coordinate Sales Efforts. We have established four customer-focused platform teams that are comprised of dedicated executive, sales, marketing, supply chain and finance personnel. Three of these teams are locatedcommon stock they receive in the citiesacquisition of United and restrict the ability of THL and certain of its affiliates to acquire a percentage ownership of our largest customers' headquarters while the fourth is based at our corporate headquarters to serve ourcapital stock outstanding in excess of 28% on a fully-diluted basis or engage in certain other accounts.activities. In addition, we have reorganized our direct retail sales forceagreed to improve serviceprovide the former stockholders of United with certain rights to key customers. This realignment, completed in 2002, allowsrequire us to provide separate, dedicated, individually tailored customer serviceprepare and file with the SEC a registration statement to permit the public offering and resale under the Securities Act of 1933 of shares of our key customerscommon stock received by those former stockholders in connection with the acquisition of United. On January
14, 2005, Holdings merged with and should position usinto United. Pursuant to respond more quicklythe terms of the applicable ancillary agreement referred to above, Holdings assigned its rights and proactivelyobligations under that agreement to their specific needs.THL and its affiliates.
The Tetra Acquisition
Increase Supply Chain Efficiency. We
On April 29, 2005, we acquired all of the equity interests of Tetra for total consideration of approximately $536 million, including estimated working capital and net of cash acquired as provided under the terms of the acquisition agreement. The acquisition of Tetra reflects our long-term strategic plan to leveragediversify our greater purchasing powerproduct categories, enter complementary categories and reduce our concentration in existing product categories. In connection with the acquisition of Tetra, we amended our credit agreement to provide for raw materials and active ingredients resulting from our organic growth and acquisitions to seek improved prices and terms from suppliers. In addition, we intend to selectively in-source or out-source products, based onborrowings of $500 million under an incremental term facility under the cost, quality and reliabilitycredit agreement.
See “Description of available alternatives. Toward that end, we recently improved costs and reliability by acquiring one fertilizer manufacturing plant and leasing another plant, which allows us to manufacture muchCertain Indebtedness” for a more detailed description of our granular fertilizer product, as opposed to relying on outsourcing arrangements.amended senior credit facilities.
Recent Acquisitions
The Exchange Offer
Over the last two years,
On February 7, 2005, we have broadened our product offerings through several acquisitions. These acquisitions have enhanced our ability to be a "one-stop" supplierissued $700,000,000 principal amount of branded value-oriented products in our categories.
In December 2001, we advanced our strategic plan for growth in the consumer lawn and garden category by acquiring leading consumer fertilizer brands Vigoro, Sta-Green and Bandini, as well as acquiring licensing rights to the Best® line of fertilizer products. These brands, which were formerly owned by or licensed to Pursell Industries, Inc., complement our consumer lawn, garden and insect control products.
In May 2002, we acquired Schultz, a manufacturer of horticultural products and specialty items and a distributor of potting soil, soil conditioners and charcoal. Schultz products are distributed primarily to retail outlets throughout the United States and Canada. The merger was executed to enhance our position in the garden fertilizer and soil product lines and to strengthen our presence at major customers.
In December 2002, we acquired WPC Brands, a manufacturer and distributor of various leisure-time consumer products, including a full line of insect repellents, institutional healthcare products and other proprietary and private label products. The acquisition was executed to enhance our insect repellent product lines and to strengthen our presence at major customers.
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We are a corporation organized under the laws of the State of Delaware and operate as Spectrum Brands. Our principal executive offices are located at 2150 Schuetz Road, St. Louis, Missouri 63146, and our telephone number is (314) 427-0780. Our website is/www.spectrumbrands.com.8 The information contained on or connected to our website is not part of this prospectus and is not incorporated in this prospectus by reference.
Unless otherwise indicated, all lawn and garden pesticide and household insecticide industry data and statistics contained in this prospectus are estimates contained in or derived from the National Gardening Survey, an independent survey conducted by Harris Interactive for The National Gardening Association, and The U.S. Lawn and Garden Market, an independent survey conducted by The Freedonia Group. Unless otherwise indicated, sales data relating to our products used throughout this prospectus were obtained from AC Nielsen Company and Triad Systems Corporation. Industry and sales publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We have not independently verified this industry and sales data.
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On March 27, 2003, we privately placed $85,000,000 of our 97/8% Series C Senior Subordinated Notes due 2009. We2015, the original notes to which the exchange offer applies, to a group of initial purchasers in reliance on exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable securities laws. In connection with the sale of the original notes to the initial purchasers, we entered into a registration rights agreement with the initial purchasers in the private offering inpursuant to which we agreed, among other things, to deliver this prospectus to you, to commence this exchange offer and to use our commercially reasonable best efforts to file a registration statementcomplete the exchange offer within 45270 days of the March 27, 2003 issue date, have the registration statement declared effective within 165 daysissuance of the issue dateoriginal notes. The summary below describes the principal terms and complete thisconditions of the exchange offer. Some of the terms and conditions described below are subject to important limitations and exceptions. See “The Exchange Offer” for a more detailed description of the terms and conditions of the exchange offer within 210 days after the issue date. We must pay liquidated damages to the holdersand “Description of the Series C notes if we do not meet these deadlines.Exchange Notes” for a more detailed description of the terms of the exchange notes.
| The Exchange Offer | We are offering to exchange up to | ||||
To exchange your original notes, you must properly tender them, and we must accept them. We will accept | |||||
| Resale of Original Notes | Based on interpretations by the staff of the SEC as detailed in a series of no-action letters issued to third parties, we believe that, as long as you are not a broker-dealer, the exchange notes offered in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act as long as: | ||||
• you are acquiring the exchange notes in the ordinary course of your business; | |||||
• you are not participating, do not intend to participate in and have no arrangement or understanding with any person to participate in a “distribution” of the exchange notes; and | ||||
• you are not an “affiliate” of ours within the meaning of Rule 405 of the Securities Act. | ||||
| If any of these conditions is not satisfied and you transfer any exchange notes issued to you in the exchange offer without delivering a proper prospectus or without qualifying for a registration exemption, you may incur liability under the Securities Act. Moreover, our belief that transfers of exchange notes would be permitted without registration or prospectus delivery under the conditions described above is based on SEC interpretations given to other, unrelated issuers in similar exchange offers. We cannot assure you that the SEC would make a similar interpretation with respect to our exchange offer. We will not be responsible for or indemnify you against any liability you may incur under the Securities Act. | ||||
| Any broker-dealer that acquires exchange notes for its own account in exchange for original notes must represent that the original notes to be exchanged for the exchange notes were acquired by it as a | ||||
Expiration Date | The exchange offer will expire at 5:00 | |||
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Accrued Interest on the | ||||
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The 97/8% Series D Senior Subordinated Notes due 2009
The exchange notes will | ||||
Conditions | The exchange offer is subject to customary conditions. We may assert or waive these conditions in our sole discretion. If we materially change the terms of the exchange offer, we will resolicit | |||
| tenders of the original notes. See “The Exchange Offers—Conditions to the Exchange Offer” for more information regarding conditions to the exchange offer. | ||
Procedures for Tendering Original Notes | Each holder of original notes that wishes to tender their original notes must either: | |
• complete, sign and date the accompanying letter of transmittal or a facsimile copy of the letter of transmittal, have the signatures on the letter of transmittal guaranteed, if required, and deliver the letter of transmittal, together with any other required documents (including the original notes), to the exchange agent; or | ||
• if original notes are tendered pursuant to book-entry procedures, the tendering holder must deliver a completed and duly executed letter of transmittal or arrange with Depository Trust Company, or DTC, to cause an agent’s message to be transmitted with the required information (including a book-entry confirmation) to the exchange agent; or | ||
• comply with the procedures set forth below under “—Guaranteed Delivery Procedures.” | ||
| Holders of original notes that tender original notes in the exchange offer must represent that the following are true: | ||
• the holder is acquiring the exchange notes in the ordinary course of its business; | ||
• the holder is not participating in, does not intend to participate in, and has no arrangement or understanding with any person to participate in a “distribution” of the exchange notes; and | ||
• the holder is not an “affiliate” of us within the meaning of Rule 405 of the Securities Act. | ||
| Do not send letters of transmittal, certificates representing original notes or other documents to us or DTC. Send these documents only to the exchange agent at the appropriate address given in this prospectus and in the letter of transmittal. We could reject your tender of original notes if you tender them in a manner that does not comply with the instructions provided in this prospectus and the accompanying letter of transmittal. See “Risk Factors—There are significant consequences if you fail to exchange your original notes” for further information. | ||
Special Procedures for Tenders by Beneficial Owners of Original Notes | If | |
• you beneficially own original notes; | ||
• those notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee; and | ||
• you wish to tender your original notes in the exchange offer; | ||
| please contact the registered holder as soon as possible and instruct it to tender on your behalf and comply with the instructions set forth in this prospectus and the letter of transmittal. | ||
Guaranteed Delivery Procedures | If you hold original notes in certificated form or if you own original notes in the form of a book-entry interest in a global note deposited with the trustee, as custodian for DTC, and you wish to tender those original notes but | |
• your original notes are not immediately available; | ||
• time will not permit you to deliver the required documents to the exchange agent by the expiration date; or | ||
• you cannot complete the procedure for book-entry transfer on time; | ||
| you may tender your original notes pursuant to the procedures described in “The Exchange Offer—Procedures for Tendering Original Notes—Guaranteed Delivery.” | ||
Withdrawal Rights | You may withdraw your tender of original notes under the exchange offer at any time before the exchange offer expires. Any withdrawal must be in accordance with the procedures described in “The Exchange Offer—Withdrawal Rights.” | |
Effect on Holders of Outstanding Original Notes | As a result of making this exchange offer, and upon acceptance for exchange of all validly tendered original notes, we will have fulfilled our obligations under the registration rights agreement. Accordingly, there will be no liquidated damages payable under the registration rights agreement if original notes were eligible for exchange, but not exchanged, in the exchange offer. | |
| If you do not tender your original notes or we reject your tender, your original notes will remain outstanding and will be entitled to the benefits of the indenture governing the notes. Under such circumstances, you would not be entitled to any further registration rights under the registration rights agreement, except under limited circumstances. Existing transfer restrictions would continue to apply to the original notes. | ||
| Any trading market for the original notes could be adversely affected if some but not all of the original notes are tendered and accepted in the exchange offer. | ||
Material U.S. Federal Tax Consequences | Your exchange of original notes for exchange notes will not be treated as a taxable event for U.S. federal income tax purposes. See “Material U.S. Federal Tax Consequences.” | |
Use of Proceeds | We will not receive any proceeds from the exchange offer or the issuance of the exchange notes. The net proceeds from the issuance of the original notes, together with borrowings under our new senior credit facilities, were used to finance the acquisition of United, to retire United’s existing indebtedness and Rayovac’s existing senior credit facilities and to pay related fees and expenses. | |
Acceptance of Original Notes and Delivery of Original Notes | We will accept for exchange any and all original notes properly tendered prior to the expiration of the exchange offer. We will complete the exchange offer and issue the exchange notes promptly after the expiration date. | |
Exchange Agent | U.S. Bank, National Association, is serving as exchange agent for the exchange offer. The address and telephone number of the exchange agent are provided in this prospectus under “The Exchange Offer—Exchange Agent” and in the letter of transmittal. | |
Summary of Terms of the Exchange Notes
The form and terms of the exchange notes will be identical in all material respects to the form and terms of the original notes, except that the exchange notes:
The exchange notes represent the same debt as the original notes and are governed by the same indenture, which is governed by New York law. A brief description of the material terms of the exchange notes follows:
| Issuer | Spectrum Brands, Inc. | |
| Securities | $700.0 million in principal amount of 7 3/8% senior subordinated notes due 2015. | |
| Maturity | February 1, 2015. | |
| Interest | Annual rate: 7 3/8%. | |
| Payment frequency: every six months on February 1 and August 1. | ||
| First payment: August 1, 2005. | ||
| Ranking | The | |
• behind any of our existing and future senior indebtedness, including borrowings under our new senior credit facilities; | ||
• equally with any of our current and future senior subordinated indebtedness, including our existing senior subordinated notes; | ||
• ahead of any of our future debt that expressly provides that it is subordinated to the notes; and | ||
• effectively subordinated to any existing and future indebtedness and other liabilities of our subsidiaries that are not guaranteeing the notes. | ||
| As of May 1, 2005, we had $1.444 billion of senior debt which will be senior to the exchange notes, and $350 million of senior subordinated notes other than the | ||
| Guarantees | Our existing and future domestic subsidiaries will be | |
The guarantees of the exchange notes are unsecured senior subordinated obligations of facilities, equal to all future senior subordinated indebtedness of the guarantors, including guarantees of our | |||
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As of | |||||
Optional Redemption | We | ||||
| Change of Control | If we experience | ||||
| Certain | |||||
• borrow money or sell preferred stock; | |||||
• create liens; | |||||
• pay dividends | |||||
• | make certain types of investments; | ||||
• | |||||
• restrict dividends or other payments from restricted subsidiaries; | |||||
• enter into transactions with affiliates; | |||||
• | |||||
• sell assets or merge with other companies. | |||||
| These covenants | |||||
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Absence of for the Exchange Notes | The original notes are presently eligible for trading through the PORTAL® Market of the Nasdaq Stock Market, Inc., but the exchange notes will be new securities for which there is currently no |
For more information about
You should refer to “Risk Factors” beginning on page 18 for an explanation of certain risks before deciding whether to participate in the Series D notes, see the "Descriptionexchange offer.
Summary Financial Data—Rayovac
The following table sets forth summary financial data of Rayovac. The condensed consolidated financial data as of September 30, 2002, 2003 and 2004 and for each of the Notes" sectionfiscal years then ended have been derived from Rayovac’s audited consolidated financial statements incorporated by referenced into this prospectus. The condensed consolidated data as of and for the six month periods ended March 28, 2004 and April 3, 2005 have been derived from Rayovac’s unaudited consolidated financial statements incorporated by reference in this prospectus. The historical results included below and elsewhere in this prospectus should not be viewed as indicative of our future performance. This information is only a summary and should be read in conjunction with our historical consolidated financial statements and the notes thereto incorporated by referenced into this prospectus.
| Fiscal Year Ended September 30, | Six Months Ended | |||||||||||||||||||
| 2002(1) | 2003(2)(3) | 2004(4) | March 28, 2004(5) | April 3, 2005(6) | ||||||||||||||||
| ($ in millions except per share data) | ||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Net sales | $ | 572.7 | $ | 922.1 | $ | 1,417.2 | $ | 732.0 | $ | 1,025.3 | ||||||||||
Cost of goods sold | 334.1 | 549.5 | 811.9 | 417.3 | 637.4 | |||||||||||||||
Restructuring and related charges-cost of goods sold | 1.2 | 21.1 | (0.8 | ) | (1.1 | ) | — | |||||||||||||
Gross profit | 237.4 | 351.5 | 606.1 | 315.9 | 387.9 | |||||||||||||||
Operating expenses | 174.4 | 280.4 | 437.7 | 237.7 | 290.8 | |||||||||||||||
Restructuring and related charges-operating expenses | — | 11.5 | 12.2 | 6.0 | 0.2 | |||||||||||||||
Operating income | 63.0 | 59.6 | 156.2 | 72.2 | 96.9 | |||||||||||||||
Income before income taxes(7) | 45.7 | 23.0 | 90.5 | 40.5 | 41.2 | |||||||||||||||
Loss from discontinued operations | — | — | 0.4 | 0.3 | — | |||||||||||||||
Net income | 29.2 | 15.5 | 55.8 | 24.8 | 26.0 | |||||||||||||||
Income from continuing operations per common share | 0.90 | 0.48 | 1.62 | 0.75 | 0.64 | |||||||||||||||
Other Financial Data: | ||||||||||||||||||||
Net cash provided by operating activities | $ | 66.8 | $ | 76.2 | $ | 104.9 | $ | 82.5 | $ | 11.1 | ||||||||||
Capital expenditures | 15.6 | 26.1 | 26.9 | 9.6 | 20.7 | |||||||||||||||
Depreciation and amortization (excluding amortization of debt issuance costs) | 19.0 | 31.6 | 35.3 | 22.8 | 16.9 | |||||||||||||||
Book value per share | 5.39 | 6.20 | 9.13 | 7.75 | 20.56 | |||||||||||||||
Ratio of earnings to fixed charges(8) | 3.9 | x | 1.6 | x | 2.4 | x | 2.2 | x | 1.7 | x | ||||||||||
Balance Sheet Data (at fiscal year end): | ||||||||||||||||||||
Cash and cash equivalents | $ | 9.9 | $ | 107.8 | $ | 15.8 | $ | 34.3 | $ | 44.3 | ||||||||||
Working capital(9) | 140.5 | 269.8 | 251.9 | 239.8 | 585.5 | |||||||||||||||
Total assets | 520.9 | 1,545.3 | 1,636.0 | 1,483.8 | 3,474.4 | |||||||||||||||
Total debt | 201.9 | 943.4 | 829.9 | 791.6 | 1,940.6 | |||||||||||||||
Total shareholders’ equity | 174.8 | 202.0 | 316.0 | 261.0 | 828.8 | |||||||||||||||
| (1) | Fiscal 2002 includes restructuring and related charges—cost of goods sold of $1.2 million. See Note 15 in the Notes to Rayovac’s Consolidated Financial Statements for the fiscal year ended September 30, 2004 incorporated herein by reference for further discussion. |
| (2) | Fiscal 2003 includes a net sales reduction of approximately $6.1 million related to North American retailer inventory repricing programs associated with the launch of our comprehensive new alkaline pricing program announced in 2003. These programs were launched in response to Duracell’s price reduction in the U.S. market on certain AA and AAA batteries. |
Fiscal 2003 includes restructuring and related charges—cost of goods sold of $21.1 million, and restructuring and related charges—operating expenses of $11.5 million. Fiscal 2003 also includes a non-operating expense of $3.1 million discussed in note (5) below. See Note 15 in the Notes to Rayovac’s Consolidated Financial Statements for the fiscal year ended September 30, 2004 incorporated herein by reference for further discussion.
| (3) | Fiscal 2003 is impacted by two acquisitions completed during the fiscal year. The VARTA acquisition was completed on October 1, 2002 and the Remington acquisition was completed on September 30, 2003. See further discussion of these acquisitions in “Management’s Discussion of Financial Condition and Results of Operations—Rayovac” included in our Annual Report on Form 10-K and in Note 16 in the Notes to Rayovac’s Consolidated Financial Statements for the fiscal year ended September 30, 2004 included therein incorporated herein by reference. |
| (4) | Fiscal 2004 is impacted by two acquisitions completed during the fiscal year. The Ningbo acquisition was completed on March 31, 2004 and the Microlite acquisition was completed on May 28, 2004. See further discussion of these acquisitions in “Management’s Discussion of Financial Condition and Results of Operations—Rayovac” included in our Annual Report on Form 10-K and in Note 16 in the Notes to Rayovac’s Consolidated Financial Statements for the fiscal year ended September 30, 2004 included therein incorporated herein by reference. |
Fiscal 2004 includes restructuring and related charges—cost of goods sold of $(0.8) million, and restructuring and related charges—operating expenses of $12.2 million. See Note 15 in the Notes to Rayovac’s Consolidated Financial Statements for the fiscal year ended September 30, 2004 incorporated herein by reference for further discussion.
| (5) | The six month period ended March 28, 2004 is impacted by two acquisitions completed during the period. The Ningbo acquisition was completed on March 31, 2004 and the Microlite acquisition was completed on May 28, 2004. See further discussion of these acquisitions in “Management’s Discussion of Financial Condition and Results of Operations—Rayovac” included in our Annual Report on Form 10-K and in Note 16 in the Notes to Rayovac’s Consolidated Financial Statements for the fiscal year ended September 30, 2004 included therein incorporated herein by reference. |
The six month period ended March 28, 2004 includes restructuring and related charges—cost of goods sold of $(1.1) million, and restructuring and related charges—operating expenses of $6.0 million. See Note 15 in the Notes to Rayovac’s Consolidated Financial Statements for the fiscal year ended September 30, 2004 incorporated herein by reference for further discussion.
| (6) | The six month period ended April 3, 2005 is impacted by the United acquisition completed on February 7, 2005. See “Recent Developments” for further discussion. |
The six month period ended April 3, 2005 includes a charge to Cost of goods sold of $27.7 million related to the fair value adjustment, required under generally accepted accounting principles in the United States of America, that was applied to United’s acquired inventory. The six month period ended April 3, 2005 also includes $12.0 million in debt issuance costs written off in connection with the debt refinancing that occurred at the time of the United acquisition.
| (7) | SFAS 145, which addresses, among other things, the income statement presentation of gains and losses related to debt extinguishments, requires such expenses to no longer be treated as extraordinary items, unless the items meet the definition of extraordinary per Accounting Principles Board (“APB”) Opinion No. 30. We adopted this statement on October 1, 2002. As a result, in fiscal 2003, we recorded a non-operating expense of $3.1 million for the write-off of unamortized debt issuance costs associated with the replacement of our previous credit facility in October 2002. |
| (8) | For purposes of calculating the ratio of earnings to fixed charges, (i) earnings is defined as income before income taxes plus fixed charges and (ii) fixed charges is defined as interest expense (including capitalized interest and amortization of debt issuance costs) and the portion of operating rental expense which management believes is representative of the interest component of rent expense. |
| (9) | Working capital is defined as current assets less current liabilities. |
Investing in the notes involves a number of risks. You should carefully consider the information set forth under "Risk Factors" as well asfollowing risk factors in addition to the other information contained in and data included inincorporated by reference into this prospectus before tendering your Series B or C notesand in exchange for Series D notes.
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Summary Historical and Pro Forma Financial Data
In the table below,any other documents to which we providerefer you with selected historical financial data from our audited consolidated financial statements, as well as unaudited pro forma financial data. 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, "Unaudited Pro Forma Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which are contained elsewhere in this prospectus. Our unaudited pro forma as adjusted statement of operations data set forth below is based on our historical audited consolidated financial statements adjusted to give effect to our acquisitions of Schultz and WPC Brands and the offering of our Series C notes and the application of the proceeds therefrom, as if each occurred on January 1, 2002. The as adjusted balance sheet data set forth below is based on our historical consolidated balance sheet adjusted to give effect to the offering of our Series C notes and the application of the proceeds therefrom, as if each occurred on December 31, 2002.
| | Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Historical | |||||||||||
| | Pro Forma As Adjusted 2002 | ||||||||||||
| | 2002 | 2001 | 2000 | ||||||||||
| | (dollars in thousands) | ||||||||||||
| Statement of Operations Data: | |||||||||||||
| Net sales before promotion expense | $ | 598,944 | $ | 521,286 | $ | 297,776 | $ | 288,618 | |||||
| Promotion expense | 42,468 | 41,296 | 24,432 | 22,824 | |||||||||
| Net sales | 556,476 | 479,990 | 273,344 | 265,794 | |||||||||
| Cost of goods sold(1) | 360,159 | 305,644 | 148,371 | 146,229 | |||||||||
| Selling, general and administrative expenses | 126,207 | 113,162 | 74,689 | 69,099 | |||||||||
| Operating income | 70,110 | 61,184 | 44,734 | 42,466 | |||||||||
| Interest expense, net | 39,237 | 32,410 | 35,841 | 40,973 | |||||||||
| Net income | 24,884 | 25,336 | 6,726 | 1,359 | |||||||||
Other Financial Data: | |||||||||||||
| Cash flows from operating activities | $ | 37,858 | $ | 25,035 | $ | 10,793 | |||||||
| Cash flows used for investing activities | (68,250 | ) | (45,416 | ) | (3,950 | ) | |||||||
| Cash flows used for financing activities | 40,710 | 20,381 | (6,843 | ) | |||||||||
| EBITDA(2) | $ | 81,825 | 71,424 | 49,652 | 47,727 | ||||||||
| Depreciation and amortization | 11,715 | 10,240 | 4,918 | 5,261 | |||||||||
| Capital expenditures(3) | 10,450 | 10,450 | 7,916 | 3,950 | |||||||||
As of December 31, 2002 | |||||||
|---|---|---|---|---|---|---|---|
| | As Adjusted(4) | Actual | |||||
| | (dollars in thousands) | ||||||
| Balance Sheet Data: | |||||||
| Cash and cash equivalents | $ | 40,264 | $ | 10,318 | |||
| Working capital(5) | 50,149 | 50,149 | |||||
| Total assets | 418,140 | 386,003 | |||||
| Total debt, including capital lease | 437,073 | 404,936 | |||||
| Stockholders' deficit | (96,236 | ) | (96,236 | ) | |||
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| | Year Ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Pro Forma As Adjusted 2002 | Historical | ||||||||||||
| | 2002 | 2001 | 2000 | |||||||||||
| Net income | $ | 24,884 | $ | 25,336 | $ | 6,726 | $ | 1,359 | ||||||
| Interest expense, net | 39,237 | 32,410 | 35,841 | 40,973 | ||||||||||
| Income tax expense | 5,989 | 3,438 | 2,167 | 134 | ||||||||||
| Depreciation and amortization | 11,715 | 10,240 | 4,918 | 5,261 | ||||||||||
| EBITDA | $ | 81,825 | $ | 71,424 | $ | 49,652 | $ | 47,727 | ||||||
| Interest expense less amortization | $ | (29,130 | ) | $ | (33,150 | ) | $ | (38,553 | ) | |||||
| Change in current assets and liabilities | (4,436 | ) | 8,533 | 2,801 | ||||||||||
| Non-cash reduction of capital lease | — | — | (1,182 | ) | ||||||||||
| Cash flows from operating activities | $ | 37,858 | $ | 25,035 | $ | 10,793 | ||||||||
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You should carefully consider each of the following factors and all of the other information set forth in this prospectus before deciding whether to participateexchange your original notes for exchange notes in the exchange offer. Any of the following risks could materially and adversely affect our business, financial condition, or results of operations.operations and liquidity and the risks described below are not the only risks that we may face. Additional risks and uncertainties not currently known to us or that we currently deemview as immaterial may also materially and adversely affect our business, operations.financial condition, results of operations or liquidity. 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.
Risks Associated with the Exchange Offer
Risks Relating to Exchange Offer
Your voting interest may be diluted as a result of theThere are significant consequences if you fail to exchange offer.
If all of the Series B and C notes are exchanged for the Series D notes, $235,000,000 aggregate principal amount of Series D notes will be outstanding following consummation of the exchange offer, and the Series D notes will be deemed to be a single series of notes outstanding under the indenture governing the Series D notes. In such case, any actions requiring the consent of each holder or the holders of a majority in outstanding principal amount of Series D notes under such indenture will therefore require the consent of each holder of Series D notes or the holders of a majority in aggregate principal amount of such outstanding Series D notes, as applicable, and the individual voting interest of each holder will accordingly be diluted.
Because there is no public market for the Series D notes, you may not be able to resell your original notes.
The Series D notes will be registered under the Securities Act, but will constitute a new issue of securities with no established trading market and will be subject to risks relating to:
If a trading market were to develop, the Series D notes might trade at higher or lower prices than their principal amount or purchase price, depending on many factors, including prevailing interest rates, the market for similar debentures and our financial performance.
We understand that the initial purchasers currently intend to make a market in the Series D notes. However, they are not obligated to do so, and any market-making activity with respect to the notes may be discontinued at any time without notice. In addition, any market-making activity will be subject to the limits imposed by the Securities Act and the Securities Exchange Act of 1934, and may be limited during the exchange offer or the pendency of an applicable shelf registration statement. An active trading market may not exist for the Series D notes and any trading market that does develop may not be liquid.
In addition, any outstanding note holder who tenders in the exchange offer for the purpose of participating in a distribution of the Series D notes may be deemed to have received restricted securities, and if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. For a description of these requirements, see "The Exchange Offer."
Holders of Series C notes that fail to exchange their notes may be unable to resell their notes.
We did not register the Series Coriginal notes under the federalSecurities Act or any state securities laws, nor do we intend to followingafter the exchange offer. As a result, the Series Coriginal notes may only be transferred in limited circumstances under the securities laws. If the holders of Series C notesyou do not exchange their
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your original notes in the exchange offer, theyyou will lose theiryour right to have the Series Coriginal notes registered under the federal securities laws,Securities Act, subject to certain limitations. As a result, a holder of Series CIf you continue to hold original notes after the exchange offer, you may be unable to sell the original notes. Original notes that are not tendered or otherwise transfer their notes.are tendered but not accepted will, following the exchange offer, continue to be subject to existing restrictions.
YourYou cannot be sure that an active trading market for the exchange notes will develop.
While the original notes are presently eligible for trading in the PORTALsm Market, there is no existing market for the exchange notes. We do not intend to apply for a listing of the exchange notes on any securities exchange. We do not know if an active public market for the exchange notes will develop or, if developed, will continue. If an active public market does not develop or is not maintained, the market price and liquidity of the exchange notes may be adversely affected. We cannot make any assurances regarding the liquidity of the market for the exchange notes, the ability of holders to sell their exchange notes or the price at which holders may sell their exchange notes. In addition, the liquidity and the market price of the exchange notes may be adversely affected by changes in the overall market for securities similar to the exchange notes, by changes in our financial performance or prospects and by changes in conditions in our industry.
You must follow the appropriate procedures to tender your original notes or they will not be accepted for exchange if you fail to follow the exchange offer procedures.exchanged.
The Series Dexchange notes will be issued to you in exchange for your Series B or Cthe original notes only after timely receipt by the exchange agent of:
documentation. If you want to tender your Series B or Coriginal notes in exchange for Series Dexchange notes, you should allow sufficient time to ensure timely delivery.
Neither we nor the exchange agent nor our company isare under any duty to give you notification of defects or irregularities with respect to tenders of Series B or Coriginal notes for exchange. Series COriginal 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 such notes.restrictions. In addition, if you tender your Series B or Cthe original notes in the exchange offer to participate in thea distribution of Series Dthe exchange notes, you will be required to comply with the registration and prospectus delivery requirements of the federal securities lawsSecurities Act in connection with any resale transaction. For additional information, please refer to "Thethe sections entitled “The Exchange Offer"Offer” and "Plan“Plan of Distribution" sections ofDistribution” later in this prospectus.
Risks Relating to the Series D Notes
Our Business
We may be unable to service our debt, including the Series D notes, as a result of our high level of indebtedness.
As shown below,participate in very competitive markets and we have now and will continue to have a significant amount of indebtedness.
| | As of April 23, 2003 | ||
|---|---|---|---|
| | (dollars in millions) | ||
| Indebtedness senior to the notes, including a capital lease | $ | 203.2 | |
| Total indebtedness, including a capital lease | $ | 438.2 | |
Our substantial indebtedness could have important consequences to you. For example, it could:
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Any of the above listed factors could materially adversely affect us. See "Description of the Notes" and "Description of Certain Indebtedness."
We may incur more debt senior to the Series D notes, which could further increase the risks described above.
We may incur substantial additional indebtedness in the future. As of April 23, 2003, we had $3.0 million of borrowings and $1.8 million in letters of credit outstanding under our revolving credit facility. We have approximately $85.2 million of availability under our revolving credit facility and all of those borrowings under our senior credit facility would be senior to the Series D 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 Certain Indebtedness."
In addition to permitted indebtedness, as defined in our indenture, we can incur additional indebtedness so long as our consolidated fixed charge coverage ratio, as defined in our indenture, is at least 2:1. As of April 23, 2003, our consolidated fixed charge coverage ratio was in excess of 2:1.
To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, including the Series D 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 eighteen months. 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 the Series D notes, or to fund our other liquidity needs. We are likely to need to refinance all or a portion of our indebtedness on or before maturity. However, we might not be able to refinance any or all of our indebtedness on commercially reasonable terms, 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 Series D notes are subordinated to our senior debt.compete successfully.
Your right
The markets in which we participate are very competitive. In the consumer battery market, our primary competitors are Duracell (a brand of Gillette), Energizer and Panasonic (a brand of Matsushita). In the lawn and
garden and household insect control markets, our principal national competitors are The Scotts Company, Central Garden & Pet Company, The Clorox Company, Bayer A.G. and S.C. Johnson. In the electric shaving and grooming and electric personal care product markets, our primary competitors are Braun (a brand of Gillette), Norelco (a brand of Philips), Vidal Sassoon, Revlon and Hot. In the pet supplies market, our primary competitors are The Hartz Mountain Corporation and Central Garden & Pet Company. In each of our markets, we also compete with numerous other competitors.
We and our competitors compete for consumer acceptance and limited shelf space based upon brand name recognition, perceived quality, price, performance, product packaging and design innovation, as well as creative marketing, promotion and distribution strategies. Our ability to receive paymentscompete in these consumer product markets may be adversely affected by a number of factors, including, but not limited to, the following:
Consolidation of retailers and our dependence on these Series D notesa small number of key customers for a significant percentage of our sales may negatively affect our profits.
During the past decade, retail sales of the consumer products we market have been increasingly consolidated into a small number of regional and national mass merchandisers and warehouse clubs. This trend towards consolidation is junior to our senior debt under our senior credit facility and capital lease obligations. We have $203.2 million of senior debt outstanding, includingoccurring on a capital lease, as of April 23, 2003. In addition, the Series D notes may rank behind our future borrowings, including debt under our senior credit facility and capital leases.worldwide basis. As a result upon any distributionof this consolidation, a significant percentage of our sales are attributable to a very limited group of retailer customers, including Wal-Mart, The Home Depot, Carrefour, Target, Lowe’s, PETsMART, Canadian Tire, PetCo and Gigante. Prior to our creditors in a bankruptcy or similar proceeding relating to us, the holdersacquisition of Tetra, Wal-Mart Stores, Inc., our largest retailer customer, accounted for approximately 18% of our senior debt will be entitled to be paidpro forma consolidated net sales in full in cash before any payment may befiscal 2004. Our sales generally are made through the use of individual purchase orders, consistent with respect to the Series D notes.
In addition, all payments on the Series D 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 or any guarantor, the holders of the notes will participate with 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
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be first paid to holders of senior debt, 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 the Series D notes may receive less, ratably, than the holders of senior debt.
The terms of our indebtedness impose operational and financial restrictions on us which, if breached, could result in an acceleration of indebtedness.
Our senior credit facility and the indentures for the Series B, C and D notes restrict our ability to:
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 or the indentures could lead to an event of default which could result in an acceleration of indebtedness. See "Description of Certain Indebtedness." There are a number of important exceptions to the covenants in our indentures, including, for example, our ability to make a significant amount of restricted payments. See "Description of the Notes."
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 Series D indenture. These requirements could delay or prevent a change of control of our company.
We will be required to offer to repurchase all outstanding Series D notes upon the occurrence of the following events:
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 the Series D 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. Our senior credit facility currently would prohibit a repurchase of the Series D notes. All or some of our obligations under our indenture or senior credit facility could delay, deter or prevent a sale of our company which might otherwise be advantageous to you and other holders of the Series D notes. See "Description of the Notes—Change of Control Offer."
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The guarantees of the Series D notes could be voided or subordinated to our guarantors' other debt if the guarantees constituted a fraudulent conveyance.
Under applicable provisions of the U.S. Bankruptcy Code or comparable provisions of state fraudulent transfer or conveyance laws, if any of our guarantors, at the time we issued the Series D notes:
then, in each case, a court of competent jurisdiction could void, in whole or in part, the guarantee, or, in the alternative, subordinate such guarantee to existing and future indebtedness of the guarantor. The measure of insolvency for purposes of the foregoing will vary depending upon the law applied in such case. Generally, however, a company would be considered insolvent if the sum of its debts, including contingent liabilities, was greater than all of its assets at fair valuation or if the present fair saleable value of its assets was less than the amount that would be required to pay the probable liability on its existing debts, including contingent liabilities, as they become absolute and matured.
We believe that, for purposes of the U.S. Bankruptcy Code and state fraudulent transfer or conveyance laws, the guarantees were issued without the intent to hinder, delay or defraud creditors and for proper purposes and in good faith and that the guarantors are not insolvent, will have sufficient capital for carrying on our business and will be able to pay their debts as they mature. This belief is not based on an opinion of counsel and we cannot assure you that a court passing on such questions would agree with our view.
The holders of a majority of the Series D 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 Series D notes then outstanding will have the right to:
These provisions of the indenture could allow actions affecting the Series D notes to be taken without the approval of all of the holders of the Series D notes and thus may have an adverse effect on the holders of the Series D notes who do not approve of such actions. See "Description of the Notes—Events of Default" and "—Modification of Indenture."
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Risks Relating to Our Business
industry practice. Because of the concentrationimportance of our sales to threethese key customers, thedemands for price reductions or promotions by such customers, reductions in their purchases, changes in their financial condition or loss of one or more of our top customers could adversely affect our financial results.
Our top three customers, The Home Depot, Lowe's and Wal*Mart, together accounted for approximately 74% (33%, 23% and 18%, respectively) of our 2002 net sales and approximately 62% of our outstandingtheir accounts receivable as of December 31, 2002. These customers hold significant positions in the retail lawn and garden market. The loss of, or reduction in orders from, The Home Depot, Lowe's, Wal*Mart or any other significant customer could have a material adverse effect on our business, financial condition and results of operations. In addition, as a result of the desire of retailers to more closely manage inventory levels, there is a growing trend among them to purchase our financial results, asproducts on a “just-in-time” basis. This requires us to shorten our lead-time for production in certain cases and more closely anticipate demand, which could customer disputes regarding shipments, fees, brand usein the future require us to carry additional inventories and positioning, merchandise condition orincrease our working capital and related matters. Our inability to collect accounts receivable from any of these customers could also have a material adverse effect.financing requirements. Furthermore, we do not have long-term purchase agreements or other contractual assurances as to future sales with any of our major retail customers.
Bankruptcy ofprimarily sell branded products and a major customer, supplier or party with whom we have a strategic relationship could have a material adverse effect on our financial condition.
Bankruptcy or a significant deterioration in the financial condition ofmove by one of our major customers suppliers or parties whom we have strategic relationshipsto sell significant quantities of private label products which directly compete with could have a material adverse effect on our sales, profitability, collections of receivables and cash flow. We continually monitor and evaluate the credit status of our customers and parties whom we have strategic relationships with and attempt to adjust terms as appropriate and permissible. Despite these efforts, a bankruptcy filing by a key customer, supplier or a party whom we have strategic relationships withproducts could have a material adverse effect on our business, financial condition and results of operations.
We cannot assure you that United and Tetra will be successfully integrated.
If we cannot successfully integrate the operations of United, including the operations of United Pet Group and Nu-Gro, and Tetra, we may experience material adverse consequences to our business, financial condition and results of operations. The integration of separately-managed companies operating in distinctly different markets involves a number of risks, including, but not limited to, the following:
Prior to the acquisitions of United and Tetra, Spectrum, United and Tetra operated as separate entities. In addition, United Pet Group and Nu-Gro operated as separate entities until acquired by United in 2004. We may not be able to maintain the levels of revenue, earnings or operating efficiency that any one of these entities had achieved or might achieve separately. The unaudited pro forma condensed consolidated financial results of operations of Rayovac and United presented in or incorporated by reference into this prospectus cover periods during which they were not under the same management and, therefore, may not be indicative of our future financial condition collectionsor operating results. Successful integration of receivableseach company’s operations will depend on our ability to manage those operations, realize opportunities for revenue growth presented by strengthened product offerings and cash flow.expanded geographic market coverage and, to some degree, eliminate redundant and excess costs. The anticipated savings opportunities are based on projections and assumptions, all of which are subject to change. We may not realize any of the anticipated benefits or savings to the extent or in the time frame anticipated, if at all, or such benefits and savings may require higher costs than anticipated.
WeatherWe may fail to identify suitable acquisition candidates, our acquisition strategy may divert the attention of management and our acquisitions may not be successfully integrated into our existing business.
We intend to pursue increased market penetration and expansion of our current product offerings through additional strategic acquisitions. We may fail to identify suitable acquisition candidates, and even if we do, acquisitions may not be completed on acceptable terms or successfully integrated into our existing business. Any acquisition we make could be of significant size and involve either domestic or international parties. The acquisition and integration of a separate organization would divert management attention from other business activities. Such a diversion, together with other difficulties we may encounter in integrating an acquired business, could have a material adverse effect on our business, financial condition and results of operations. In addition, we may borrow money or issue additional stock to finance acquisitions. Such funds might not be available on terms as favorable to us as our current borrowing terms and could increase our leveraged position.
If we are unable to improve existing products and develop new, innovative products, or if our competitors introduce new or enhanced products, our sales and market share may suffer.
Our future success will depend, in part, upon our ability to improve our existing products and to develop, manufacture and market new innovative products. If we fail to successfully introduce, market and manufacture new products or product innovations, our ability to maintain or grow our market share may be adversely affected, which in turn could materially adversely affect our business, financial condition and results of operations.
Both we and our competitors make significant investments in research and development. If our competitors successfully introduce new or enhanced products that eliminate technological advantages our products may have in a certain market segment or otherwise outperform our products, or are perceived by consumers as doing so, we may be unable to compete successfully in market segments affected by these changes. In addition, we may be
unable to compete if our competitors develop or apply technology which permits them to manufacture products at a lower relative cost. The fact that many of our principal competitors have substantially greater resources than us increases this risk. The patent rights or other intellectual property rights of third parties, restrictions on our ability to expand or modify manufacturing capacity or constraints on our research and development activity may also limit our ability to introduce products that are competitive on a performance basis.
Our foreign operations may expose us to a number of risks related to conducting business in foreign countries.
Our international operations and exports and imports to and from foreign markets are subject to a number of special risks. These risks include, but are not limited to:
In many of the developing countries in which we operate, there has not been significant governmental regulation relating to the environment, occupational safety, employment practices or other business matters routinely regulated in the United States. As such economies develop, it is possible that new regulations may increase the expense of doing business in such countries. In addition, social legislation in many countries in which we operate may result in significantly higher expenses associated with labor costs, terminating employees or distributors and with closing manufacturing facilities.
We may face a number of risks related to foreign currencies.
Our foreign sales and certain of our expenses are transacted in foreign currencies. With the exception of purchases of Remington products, which are denominated entirely in U.S. dollars, substantially all third-party materials purchases are transacted in the currency of the local operating unit. In fiscal 2004, on a pro forma basis, after giving effect to the acquisition of United (but excluding Tetra’s net sales), approximately 38% of our net sales and 33% of our operating expenses were denominated in currencies other than U.S. dollars. Our recent results benefited from increases in the value of the Euro against the U.S. dollar. Significant increases in the value of the U.S. dollar in relation to foreign currencies could have a material adverse effect on our business, financial condition and results of operations. While we generally hedge a portion of our foreign currency exposure, we are still vulnerable to the effects of currency exchange rate fluctuations. Changes in currency exchange rates may also affect our sales to, purchases from and loans to our subsidiaries as well as sales to, purchases from and bank lines of credit with our customers, suppliers and creditors that are denominated in foreign currencies. We expect that the amount of our revenues and expenses transacted in foreign currencies will increase as our Latin American, European and Asian operations grow and our exposure to risks associated with foreign currencies could increase accordingly.
Sales of our products are seasonal and may cause our quarterly operating results and working capital requirements to fluctuate; adverse business or economic conditions could adversely affect our business.
Sales of our battery, electric shaving and grooming, lawn and garden and household insect control products are seasonal. A large percentage of net sales for our battery and electric personal care products occur during the fiscal quarter ending on or about December 31, due to the impact of the December holiday season, and a large percentage of our net sales for our lawn and garden and household insect control products occur during the spring
and summer. As a result of this seasonality, our inventory and working capital needs relating to these businesses fluctuate significantly during the year. In addition, orders from retailers are often made late in the period preceding the applicable peak season, making forecasting of production schedules and inventory purchases difficult. Furthermore, adverse business or economic conditions during those applicable periods could materially adversely affect our business, financial condition and results of operations.
We may not be able to adequately establish and protect our intellectual property rights.
To establish and protect our intellectual property rights, we rely upon a combination of patent, trademark and trade secret laws, together with licenses, confidentiality agreements and other contractual covenants. The measures we take to protect our intellectual property rights may prove inadequate to prevent misappropriation of our technology or other intellectual property. We may need to resort to litigation to enforce or defend our intellectual property rights. If a competitor or collaborator files a patent application claiming technology also invented by us, or a trademark application claiming a trademark, service mark, or trade dress also used by us, in order to protect our rights, we may have to participate in an expensive and time consuming interference proceeding before the United States Patent and Trademark Office or any similar foreign agency. In addition, our intellectual property rights may be challenged by third parties. Even if our intellectual property rights are not directly challenged, disputes among third parties could lead to the weakening or invalidation of our intellectual property rights. Furthermore, competitors may independently develop technologies that are substantially equivalent or superior to our technology. Obtaining, protecting and defending intellectual property rights can be time consuming and expensive, and may require us to incur substantial costs, including the diversion of management and technical personnel. Moreover, the laws of certain foreign countries in which we operate or may operate in the future do not protect intellectual property rights to the same extent as do the laws of the U.S. which may negate our competitive or technological advantages in such markets. Also, some of the technology underlying our products is the subject of nonexclusive licenses from third parties. As a result, this technology could be made available to our competitors at any time. If this technology were licensed to a competitor, it could have a material adverse effect on our business, financial condition and results of operations.
Third-party intellectual property infringement claims against us could adversely affect our business.
From time to time we have been subject to claims that we are infringing upon the intellectual property of others and it is possible that third parties will assert infringement claims against us in the future. For example, we are a defendant in a patent infringement lawsuit in which Braun, a subsidiary of Gillette, has alleged our “Smart System” shaving system infringes two of Braun’s U.S. patents and we are also involved in a number of legal proceedings with Philips with respect to trademarks owned by Philips relating to the shape of the head portion of Philips’ three-head rotary shaver. An adverse finding against us in these or similar trademark or other intellectual property litigations may have a material adverse effect on our business, financial condition and results of operations. For more information, see “Business—Legal Proceedings.” Any such claims, with or without merit, could be time consuming and expensive, and may require us to incur substantial costs, including the diversion of management and technical personnel, cause product delays, or require us to enter into licensing or other agreements in order to secure continued access to necessary or desirable intellectual property. Our business will be harmed if we cannot obtain a necessary or desirable license, can obtain such a license only on terms we consider to be unattractive or unacceptable, or if we are unable to redesign or re-brand our products or redesign our processes to avoid actual or potential intellectual property infringement. In addition, an unfavorable ruling in an intellectual property litigation could subject us to significant liability, as well as require us to cease developing, manufacturing or selling the affected products or using the affected processes or trademarks. There can be no assurance that we would prevail in any intellectual property infringement action, will be able to obtain a license to any third party intellectual property on commercially reasonable terms, successfully develop non-infringing alternative technology, trademarks, or trade dress on a timely basis, or license non-infringing alternatives, if any exist, on commercially reasonable terms. Any significant intellectual property impediment to our ability to develop and commercialize our products could have a material adverse effect on our business, financial condition and results of operations.
Our dependence on a few suppliers located in Asia and one of our U.S. facilities for many of our electric shaving and grooming and electric personal care products makes us vulnerable to a disruption in the supply of our products.
Substantially all of our electric shaving and grooming and electric personal care products are manufactured by suppliers located in China and Japan. Although we have long-standing relationships with many of these suppliers, we do not have long-term contracts with them. Any adverse change in any of the following could have a material adverse effect on our business, financial condition and results of operations:
If our relationship with one of our key suppliers is adversely affected, we may not be able to quickly or effectively replace such supplier and may not be able to retrieve tooling and molds possessed by such supplier.
In addition, we manufacture the majority of our foil cutting systems for our shaving product lines, using specially designed machines and proprietary cutting technology, at one of our facilities. Damage to this facility, or prolonged interruption in the operations of this facility for repairs or other reasons, would have a material adverse effect on our ability to manufacture and sell our shaving products.
Our dependence on, and the price of, raw materials may adversely affect our profits.
The principal raw materials used to produce our products—including zinc powder, electrolytic manganese dioxide powder, steel and granular urea—are sourced on a global or regional basis, and the prices of those raw materials are susceptible to price fluctuations due to supply/demand trends, energy costs, transportation costs, government regulations and tariffs, changes in currency exchange rates, price controls, the economic climate and other unforeseen circumstances. We regularly engage in forward purchase and hedging transactions in an attempt to effectively manage our raw materials costs for the next six to twelve months. These efforts may not be effective and, if we are unable to pass on raw materials price increases to our customers, our future profitability may be materially adversely affected.
In addition, we have exclusivity arrangements and minimum purchase requirements with certain of our suppliers for our lawn and garden business, which increases our dependence upon and exposure to those suppliers. Also, certain agreements we have with our suppliers for our lawn and garden business are scheduled to expire in 2005 and 2006. Some of those agreements include caps on the price we pay for our supplies from the relevant supplier. In certain instances, these caps have allowed us to purchase materials at below market prices. Any renewal of those contracts may not include or reduce the effect of those caps and could even impose above market prices in an attempt by the applicable supplier to make up for any below market prices it had received from us prior to the renewal of the agreement. Any failure to timely obtain suitable supplies at competitive prices could materially adversely affect our business, financial condition and results of operations.
Adverse weather conditions during our peak selling season for our lawn and garden and household insecticide and repellent products could adversely impacthave a material adverse effect on our business, financial results.condition and results of operations.
Weather conditions in North America have a significant impact on the timing of sales of certain of our household products 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 pesticideinsecticide sales and therefore our business, financial results.condition and results of operations.
Our seasonalityWe depend on key personnel and quarterly fluctuations could impair our abilitymay not be able to make interest payments on the notes.retain those employees or recruit additional qualified personnel.
Our products
We are used primarilyhighly dependent on the continuing efforts of our current executive officers and we will likely depend on the senior management of any business we acquire in the springfuture. Our business, financial condition and summer, so our business is highly seasonal. During 2002, approximately 69%results of our net sales occurred inoperations could be materially adversely affected by the first and second quarters. Our working capital needs, and correspondingly our borrowings, begin to peak at the beginningloss of the second quarter. If cash on hand is insufficient to cover payments due on the notes andany of these persons or if we are also unable to drawattract and retain qualified replacements.
Class action lawsuits, regardless of their merits, could have an adverse effect on our senior credit facility or obtain other financing, this seasonality could adversely affect our ability to make interest payments as required by the notes.
Our quarterlybusiness, financial condition and results of operationsoperations.
Spectrum and certain of its officers and directors have been named in the past, and may also fluctuate significantlybe named in the future, as adefendants of class action lawsuits. Regardless of their subject matter or the merits, class action lawsuits may result in significant cost to us, which may not be covered by insurance, divert the attention of a variety of factors, including, among other things:
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These seasonal and quarterly fluctuations could negatively impacton our business, including our ability to pay our obligations on the notes or otherwise, as they come due.financial condition and results of operations.
We may be adversely affected by trends in the retail industry.exposed to significant product liability claims which our insurance may not cover and which could harm our reputation.
With the growing trend towards retail trade consolidation, we are increasingly dependent upon key retailers whose bargaining strength is growing. To the extent such concentration continues to occur, our net sales and operating income may be increasingly sensitive to a deterioration in the financial condition of, or other adverse developments involving our relationships with, one or more of our retailer customers. Our business may also be negatively affected by changes in the policies of our retailer customers, such as limitations on our direct in-store sales force, inventory destocking, limitations on access to shelf space, price demands and other conditions. In addition, as a result of the desire of retailers to more closely manage inventory levels, there is a growing trend among retailers to make purchases on a "just-in-time" basis. This requires us to shorten our lead time for production in certain cases and more closely anticipate demand, which could in the future require the carrying of additional inventories and increase our working capital and related financing requirements.
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 Scotts®, Ortho®, Roundup®, Miracle-Gro® and Hyponex® brand names; S.C. Johnson & Son, Inc., which markets products under the Raid® and OFF!® brand names; The Clorox Company, which markets products under the Combat® and Black Flag® brand names; Central Garden & Pet Company, which markets products under the AMDRO® and IMAGE® brand names; Bayer A.G., which markets lawn and garden products under the Bayer Advantage® brand name; and The Servicemaster Company, which markets lawn care, tree and shrub services under the TruGreensm, ChemLawnsm and BareFootsm service marks. Some of our competitors are larger, have longer operating histories and have greater financial resources, market recognition and research departments than us. We cannot assure you that we will be able to compete successfully.
Volatility in interest rates and in the prices of some of the raw materials we use could have a negative impact on us.
In the normalordinary course of business, we are exposed to fluctuations in interest rates and raw materials prices. We have established policies and procedures that govern the management of these exposures through the use of derivative hedging instruments, including swap agreements. Our objective in managing our exposure to such fluctuations is to decrease the volatility of earnings and cash flows associated with changes in interest rates and certain raw materials prices. To achieve this objective, we periodically enter into swap agreements with values that change in the opposite direction of anticipated cash flows. Derivative instruments related to forecasted transactions are considered to hedge future cash flows, and the effective portion of any gains or losses is included in accumulated other comprehensive income until earnings are affected by the variability of cash flows. Any remaining gain or loss is recognized currently in earnings.
During the first half of each year, the price of granular urea, a critical raw material component used in the production of fertilizer, tends to increase significantly in correlation with natural gas prices. The costs of granular urea have generally, but not always, declined during the second half of the year. As of December 31, 2002, we had hedged nearly 50%, and had purchase agreements to effectively fix an additional 23%, of our 2003 urea purchases. While we expect these instruments and agreements to
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manage our exposure to price fluctuations, we cannot assure that they will be effective in fully mitigating our exposure to these risks, nor can we assure that we will be successful in passing pricing increases on to our customers. In addition, our inability to effectively manage our exposure could cause our costs to be greater than our competitors, which may adversely affect our business.
The growth of our business, we may make it more difficultbe named defendants in lawsuits involving product liability claims. In some of these proceedings, plaintiffs may seek to manage.
Rapid growth may strain our ability to manage our businessrecover large and will strain our operational and financial resources and accounting controls. We have invested substantial time, money and resources in implementing an enterprise resource planning, or ERP, system. If the implementationsometimes unspecified amounts of the ERP system is not successful or does not result in the benefits and efficiencies we anticipate, it could adversely affect our business. In addition, 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 could be adversely affected if we lose our key personnel.
If we were to lose the services of Robert L. Caulk, Daniel J. Johnston, Kent J. Davies, John F. Timony or Robert S. Rubin or if one or more additional members of our management were to depart and subsequently compete with us, it could have a material adverse effect on our business. The loss of key personnel could have a material adverse effect on us. In addition, our future performance depends on our ability to attract and retain skilled employees. We cannot assure you that we will be able to retain our existing personnel or attract additional qualified employees in the future. 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, through UIC Holdings, L.L.C., 84% of our fully diluted 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 implementation of stock purchase programsdamages and the declaration of dividends. Certain decisions concerning our operations or financial structurematters may present conflicts of interest between the holders of our equity and the holders of the notes. For example, equity investors may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment could enhance their equity interest, even though such transactions might involve risk to the holders of the notes.
Our acquisition strategy involves a number of risks.
We have completed a number of acquisitions and strategic transactions since 1999 and intend to grow through the acquisition of additional companies. We are regularly engaged in acquisition discussions with a number of companies and anticipate that one or more potential acquisition opportunities, including those that could be material, may become available in the near future. If and when appropriate acquisition opportunities become available, we intend to pursue them actively. Further, acquisitions involve a number of special risks, including:
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remain unresolved for several years. These risksmatters could have a material adverse effect on our business, results of operations and financial condition if we are unable to successfully defend against or settle these matters or if our insurance coverage is insufficient to satisfy any judgments against us or settlements relating to these matters. Although we have product liability insurance coverage and cash flow.
We expect to face competition for acquisition candidates, which may limit the number of opportunities and may lead to higher acquisition prices. Wean excess umbrella policy, we cannot assure you that weour insurance policies will provide coverage for any claim against us or will be ablesufficient 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.
We may incur material capital and other costs due to environmental liabilities.
Because of the nature of our operations, our facilities are subject to a broad range of federal, state, local and foreign laws and regulations relating to the environment. These include laws and regulations that govern:
Risk of environmental liability is inherent in our business. As a result, material environmental costs may arise in the future. In particular, we may incur capital and other costs to comply with increasingly stringent environmental laws and enforcement policies. Although we believe that we are substantially in compliance with applicable environmental regulations at our facilities, we may not be in compliance with such regulations in the future, which could have a material adverse effect upon our business, financial condition and results of operations.
From time to time, we have been required to address the effect of historic activities on the environmental condition of our properties, including without limitation, the effect of the generation and disposal of wastes such as manganese, cadmium and mercury, which are or may be considered hazardous, and releases from underground storage tanks. We have not conducted invasive testing to identify acquire,all potential environmental liability risks. Given the age of our facilities and the nature of our operations, there can be no assurance that material liabilities will not arise in the future in connection with our current or manage profitably additional businessesformer facilities. If previously unknown
contamination of property underlying or in the vicinity of our manufacturing facilities is discovered, we could be required to integrate successfully any acquired businesses into our existing business without substantial costs, delays or other operations or financial difficulties. In future acquisitions, we also could incur additional indebtedness or pay consideration in excess of fair value, which couldmaterial unforeseen expenses. If this occurs, it may have a material adverse effect on our business, results of operations, financial condition and cash flow.
Public perceptions that the products we produce and marketresults of operations. We are not safe could adversely affect us.
We manufacture and marketcurrently engaged in investigative or remedial projects at a numberfew of complex chemical products, such as fertilizers, growing media, herbicides and pesticides, bearing our brands. On occasion, customers and some current or former employees have alleged that some products failed to perform up to expectations or have caused damage or injury to individuals or property. Public perceptionfacilities. There can be no assurance that our productsliabilities in respect of investigative or remedial projects at our facilities will not be material.
We have been, and in the future may be, subject to proceedings related to our disposal of industrial and hazardous material at off-site disposal locations or similar disposals made by other parties for which we are not safe, whether justifiedresponsible as a result of our relationship with such other parties. These proceedings are under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) or not, could impair our reputation, damage our brand namessimilar state laws that hold persons who “arranged for” the disposal or treatment of such substances strictly liable for costs incurred in responding to the release or threatened release of hazardous substances from such sites, regardless of fault or the lawfulness of the original disposal. Liability under CERCLA is typically joint and materially adversely affect our business.several, meaning that a liable party may be responsible for all of the costs incurred in investigating and remediating contamination at a site. As a practical matter, liability at CERCLA sites is shared by all of the viable responsible parties. While we currently have no pending CERCLA or similar state matters, we may be named as a potentially responsible party at sites in the future and the costs and liabilities associated with these sites may be material.
Compliance with environmentalvarious public health, consumer protection and other public health regulations applicable to our products and facilities could increase our costscost of doing business and expose us to additional requirements with which we may be unable to comply with.comply.
Local,
Certain of our products and facilities are regulated by the United States Environmental Protection Agency (the “EPA”), the United States Food and Drug Administration (the “FDA”) or other federal consumer protection and product safety regulations, as well as similar registration, approval and other requirements under state federal and foreign laws and regulations relating to environmental, health and safety matters affect usregulations. For example, in several ways. In the United States, all products containing pesticides must be registered with the United States Environmental Protection Agency (U.S. EPA)EPA and, in many cases, similar state and foreign agencies before they can be manufactured or sold. The inability to obtain or the cancellation of any registration could have an adverse effect on our business.business, financial condition and results of operations. The severity of the effect would depend on which products were involved, whether another product could be substituted and whether our competitors were similarly affected. We attempt to anticipate regulatory developments and maintain registrations of, and access to, substitute chemicals.chemicals and other ingredients. We may not always be able to avoid or minimize these risks.
The Food Quality Protection Act establishesestablished a standard for food-use pesticides, which is that a reasonable certainty of no harm will result from the cumulative effect of pesticide exposures. Under the Act, the U.S. EPA is evaluating the cumulative effects from dietary and non-dietary exposures to pesticides. The pesticides in certain of our products continue to be evaluated by the U.S. EPA as part of this exposure. It is possible that the U.S. EPA or a third party active ingredient registrant may decide that a pesticide we use in our products will be limited or made unavailable to us. For example, in 2000, Dow AgroSciences L.L.C., an active ingredient registrant, voluntarily agreed to a withdrawal of virtually all residential uses of chlorpyrifos, an active ingredient weUnited used in ourits lawn and garden products under the name Dursban™ until January 2001. This had a material adverse effect on ourUnited’s operations resulting in a charge of $8.0 million in 2001. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." We cannot predict the outcome or the severity of the effect of the U.S. EPA'sEPA’s continuing evaluations of active ingredients used in our products.
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In addition, to the regulations already described,use of certain pesticide and fertilizer products may be regulated by various local, state, federal and foreign agencies regulate the disposal, handling and storage of hazardous substances and hazardous waste, air and water discharges from our facilities and the remediation of contamination. If we do not fully comply with environmental regulations, or if a release of hazardous substances occurs at or from one of our facilities, we may be subject to penalties and/or held liable for the costs of remedying the condition.
We do not anticipate incurring material capital expenditures for environmental control facilities during 2003 or 2004. We currently estimate that the costs associated with compliance with environmental, health and safety regulations could total approximately $0.2 million annually for the next several years. The adequacy of our anticipated future expenditures is based on our operating in substantial compliance with applicable environmental and public health lawsagencies. These regulations may require that only certified or professional users apply the product or that certain products be used only on certain types of locations (such as “not for use on sod farms or golf courses”), or that users post notices on properties to which products have been or will be applied, notification to individuals in the vicinity that products will be applied in the future, may provide that the product cannot be applied for aesthetic purposes, or may ban the use of certain ingredients. Compliance with public health regulations could increase our cost of doing business and regulationsexpose us to additional requirements with which we may be unable to comply.
Public perceptions that some of the products we produce and the assumption that theremarket are not significant conditionssafe could adversely affect us.
We manufacture and market a number of potential contaminationcomplex chemical products bearing our brands relating to our lawn and garden and household insecticide and repellent products, such as fertilizers, growing media, herbicides and pesticides. On occasion, customers and some current or former employees have alleged that some products failed to perform up to expectations or have caused damage or injury to individuals or property. Public perception that our products are unknown to us. If there is a significant change in the factsnot safe, whether justified or not, could impair our reputation, damage our brand names and circumstances surrounding this assumption, or if we are found not to be in substantial compliance with applicable environmental public health laws and regulations, it could have a material impactadverse effect on future environmentalour business, financial condition and results of operations.
Risks Relating to the Notes
Our substantial indebtedness could adversely affect our business, financial condition and results of operations and prevent us from fulfilling our obligations under the notes.
We have, and we will continue to have, a significant amount of indebtedness. As of May 1, 2005 we would have had total outstanding indebtedness of approximately $2.5 billion (of which $700 million would have consisted of the notes, $1.386 billion would have consisted of borrowings under our senior credit facilities, $350 million would have consisted of other existing senior subordinated notes and $58 million would have consisted of other debt).
Our substantial indebtedness could have important consequences to you. For example, it could:
In addition, a substantial portion of our debt bears interest at variable rates. If market interest rates increase, variable-rate debt will create higher debt service requirements, which would adversely affect our cash flow. While we may enter into agreements limiting our exposure to higher debt service requirements, any such agreements may not offer complete protection from this risk.
We will require a significant amount of cash to service our indebtedness. Our ability to generate cash depends on many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, including the notes, and to fund planned capital expenditures and research and development efforts, will depend on our ability to generate cash in the future. This is subject to general economic, financial, competitive, legislative, regulatory and other environmental expenses and our results of operations, financial position and cash flows.
Wefactors that may be exposed to significant product liability claims whichbeyond our insurance may not cover and which could harm our reputation.
Although we have product liability insurance coverage in the aggregate amount of $2.0 million per occurrence, subject to a $500,000 per occurrence self-insured retention, and an umbrella policy for occurrences exceeding $2.0 million in the amount of $15.0 million, wecontrol. We cannot assure you that this insuranceour business will provide coverage for any claim against usgenerate sufficient cash flow from operations or that future borrowings will be available to us under our new senior credit facilities or otherwise in an amount sufficient to coverenable us to pay our debt, including the notes, or to fund our other liquidity needs. We may need to refinance 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 salesor a portion of our products. See "Business—Litigation."
If we are unable to use and protect our trademarksdebt, including the notes, on or product formulations, we may be exposed to modification and licensing costs.
Our ability to successfully compete in our markets depends significantly on our ability to use and protect our trademarks. There can be no assurance that our trademarks will be enforceable or adequately protect us from others using similar marks.before maturity. We therefore may not be able to maintain our proprietary position. In addition to trademarks, we also rely on a combination of patents, trade secrets, nondisclosure agreements and other contractual provisions and technical measures to protect our intellectual property rights. There can be no assurancecannot assure you that we will be able to maintainrefinance any of our proprietary position,debt, including our new senior credit facilities, our existing senior subordinated notes or the notes, on commercially reasonable terms or at all.
Your right to receive payments on the notes will be junior to our existing and future senior indebtedness and the guarantees of the notes will be junior to all of the guarantors’ existing and future senior indebtedness.
The notes and the guarantees rank behind all of our and the guarantors’ existing and future senior indebtedness. As of May 1, 2005, the notes and the guarantees would have been subordinated to approximately $1.390 billion of senior debt, $1.386 billion of which would have represented borrowings and guarantees under our senior credit facilities. In addition, our senior credit facilities would have permitted up to approximately $148 million of additional borrowings, subject to compliance with the covenants and conditions to borrowing under the new senior credit facilities, which borrowings would be senior to the notes and the guarantees. We will be permitted to borrow substantial other senior indebtedness in the future.
As a result of this subordination with respect to our senior indebtedness upon any distribution to our creditors or the creditors of the guarantors in a bankruptcy, liquidation or reorganization or similar proceedings relating to us or the guarantors of our or the guarantors’ property, the holders of our senior debt and the senior debt of the guarantors will be entitled to be paid in full in cash before any payment may be made with respect to the notes or the guarantees. In addition, all payments on the notes and the guarantees will be blocked in the event of a payment default on senior debt and may be blocked for up to 179 consecutive days in the event of certain non-payment defaults on designated senior debt. In the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to us or the guarantors, the indenture relating to the notes requires that thirdamounts otherwise payable to holders of the notes in a bankruptcy or similar proceeding be paid to holders of senior debt instead until the holders of senior debt are paid in full. As a result, holders of the notes may not receive all amounts owed to them and may receive less, ratably, than holders of trade payables and other unsubordinated indebtedness in any such proceeding.
We may incur additional indebtedness, which could increase the risks associated with our substantial indebtedness.
We may be able to incur substantial additional indebtedness in the future. Although the terms governing our senior credit facilities and the indentures governing our existing senior subordinated notes and the notes contain restrictions on the incurrence of additional indebtedness, debt incurred in compliance with these restrictions could be substantial. As of May 1, 2005, our senior credit facilities would have permitted additional borrowing of up to $148 million. If new indebtedness is added to our and our subsidiaries’ current indebtedness levels, the related risks that we face would be magnified. In addition, the indentures governing our existing senior subordinated notes and the notes do not prevent us from incurring obligations that do not constitute indebtedness.
The notes and the guarantees will be unsecured and effectively subordinated to our existing and future secured debt.
In addition to being contractually subordinated to all existing and future senior debt, holders of our secured debt will have claims that are prior to your claims as holders of the notes up to the value of the assets securing the secured debt. Notably, we and the guarantors are parties to the new senior credit facilities, which are secured by substantially all of our domestic assets and certain of our foreign assets. In the event of any distribution or payment of our assets in any foreclosure, dissolution, winding-up, liquidation, reorganization or other bankruptcy proceeding, holders of secured debt will have a prior claim to those assets that constitute their collateral. In any of the foregoing events, we cannot assure you that there will be sufficient assets to pay amounts due on the notes. As a result, holders of notes may receive less, ratably, than holders of secured debt.
We depend in part on the cash flow from our non-guarantor subsidiaries to meet our obligations, and your right to receive payment on the notes will be structurally subordinate to the obligations of these non-guarantor subsidiaries.
Our non-guarantor subsidiaries are separate and distinct legal entities with no obligation to pay any amounts due pursuant to the notes or the subsidiary guarantees or to provide us or the guarantors with funds for our payment obligations. Our cash flow and our ability to service our debt, including the notes, depends in part on the
earnings of our non-guarantor subsidiaries and on the distribution of earnings, loans or other payments to us by these subsidiaries. The non-guarantor subsidiaries, not circumventincluding those non-guarantor subsidiaries acquired in connection with the Tetra acquisition (which include all of our foreign subsidiaries), represented approximately 41% and 31% of our pro forma total net sales and assets, respectively, in fiscal 2004. In addition, the ability of these non-guarantor subsidiaries to make any proprietary protectiondividend, distribution, loan or other payment to us or a guarantor subsidiary could be subject to statutory or contractual restrictions. Payments to us or a guarantor subsidiary by these non-guarantor subsidiaries will also be contingent upon their earnings and their business considerations. Because we have. Althoughdepend in part on the cash flow of these non-guarantor subsidiaries to meet our obligations, these types of restrictions may impair our ability to make scheduled interest and principal payments on the notes.
Each of our domestic subsidiaries is a guarantor of our obligations under the notes. However, our foreign subsidiaries are not required by the indenture to guarantee the notes. The notes are structurally subordinated to all future liabilities, including trade payables, of our subsidiaries that do not guarantee the notes, and the claims of creditors of those subsidiaries, including trade creditors, have priority as to the assets and cash flows of those subsidiaries. In the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding of any of the non-guarantor subsidiaries, holders of their liabilities, including their trade creditors, are generally entitled to payment on their claims from assets of those subsidiaries before any assets are made available for distribution to us. As of April 3, 2005, our non-guarantor subsidiaries had approximately $349.6 million of indebtedness and other liabilities (excluding intercompany liabilities and excluding the impact of the Tetra acquisition), to which the exchange notes would be effectively subordinated. As of January 3, 2005, our non-guarantor subsidiaries had approximately $614.8 million of indebtedness and other liabilities (excluding intercompany liabilities and including the impact of the Tetra acquisition), to which the exchange notes would be effectively subordinated. Our non-guarantor subsidiaries are permitted to borrow substantial other indebtedness and incur liabilities in the future.
The terms of our indebtedness impose restrictions on us that may affect our ability to successfully operate our business and our ability to make payments on the notes.
The agreement governing our new senior credit facilities, the indentures governing our existing senior subordinated notes and the notes contain covenants that, among other things, limit our ability to:
Our new senior credit facilities also require us to comply with specified financial ratios and tests, including, but not limited to, minimum interest coverage ratio, maximum leverage ratio and minimum fixed charge coverage ratio.
These covenants could materially and adversely affect our ability to finance our future operations or capital needs and to engage in other business activities that may be in our best interest. These covenants may also restrict our ability to expand or pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control, such as prevailing economic conditions and changes in regulations, and if such events occur, we believecannot be sure that we will be able to comply. A breach of these covenants could result in a default under the indentures governing the notes and the existing senior subordinated notes and/or the agreement governing our new senior credit facilities. If there were an event of default under the indenture for the notes, the indenture for our existing senior subordinated notes and/or the agreement governing our new senior credit facilities, holders of such defaulted debt could cause all amounts borrowed under these instruments to be due and payable immediately.
Additionally, if we fail to repay the debt under the new senior credit facilities when it becomes due, the lenders under the senior credit facilities could proceed against certain of our assets and capital stock which we have pledged to them as security. We cannot assure you that our products doassets or cash flow will be sufficient to repay borrowings under the outstanding debt instruments, including the notes, in the event of a default thereunder.
We may not violatehave the patents, trademarks, trade dress or other proprietary rightsability to raise the funds necessary to finance any change of third parties,control offer required by the indenture governing the notes.
Upon the occurrence of certain specific kinds of change of control events, we will be required to offer to repurchase all outstanding notes at 101% of the principal amount thereof plus accrued and unpaid interest and liquidated damages, if any, to the date of repurchase. However, it is possible that competitorswe will not have sufficient funds at the time of the change of control to make the required repurchase of notes or others could claim this. Ifthat restrictions in our products are foundnew senior credit facilities will not allow such repurchases. The indenture governing our existing senior subordinated notes imposes a similar obligation on us to infringe onmake an offer to repurchase all of our outstanding existing senior subordinated notes if a change of control occurs. In addition, certain important corporate events, such as leveraged recapitalizations that would increase the rightslevel of competitorsour indebtedness, would not constitute a “change of control” under the indenture governing our existing senior subordinated notes or others, we couldthe indenture governing the notes. See “Description of Notes—Repurchase at the Option of Holders—Change of Control.”
Federal and state laws permit a court to void the guarantees under certain circumstances.
Our payment of consideration to finance a portion of the transactions (including the issuance of a guarantee of the notes by our subsidiary guarantors) may be subject to review under federal or state fraudulent transfer laws. While the relevant laws may vary from state to state, under such laws the issuance of a guarantee will be a fraudulent conveyance if (i) any of our subsidiaries issued guarantees, with the intent of hindering, delaying or defrauding creditors or (ii) any of the guarantors received less than reasonably equivalent value or fair consideration in return for issuing their respective guarantees, and, in the case of (ii) only, one of the following is also true:
Generally, an entity will be considered insolvent if:
If the payment of the consideration or the issuance of any guarantee were a fraudulent conveyance, a court could, among other things, void any of the guarantors’ obligations under their respective guarantees and require the repayment of any amounts paid thereunder.
We believe, however, that immediately after issuance of the notes and the guarantees, each of the guarantors will be solvent, will have sufficient capital to carry on its respective business and will be able to pay its respective debts as they mature. We cannot be sure, however, as to what standard a court would apply in making such products, pay fordeterminations or that a licensecourt would reach the same conclusions with regard to these issues.
The market price for the manufacture and sale of such products, which licensenotes may not be available on reasonable terms, or stop selling such products.
Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and other acts of violence or war may affect the markets in which the Series D notes trade, the markets in which we operate, our operations, profitability and cash flow.volatile.
Terrorist attacks or other acts
Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of violence or warsecurities similar to the notes offered hereby. The market for the notes, if any, may negativelybe subject to similar disruptions. Any such disruptions may adversely affect our operationsthe value of your notes.
SELECTED FINANCIAL DATA—RAYOVAC
The following table sets forth selected historical consolidated financial data of Rayovac. The selected historical consolidated financial data as of September 30, 2002, 2003 and your investment. There can be no assurance that there will2004 of the three fiscal years then ended have been derived from Rayovac’s audited consolidated financial statements incorporated herein by reference. The selected historical consolidated financial data as of September 30, 2000 and 2001 and for the each of the two fiscal years then ended have been derived from Rayovac’s audited financial statements. The condensed consolidated data as of and for the six month periods ended March 28, 2004 and April 3, 2005 have been derived from Rayovac’s unaudited consolidated financial statements incorporated by reference in this prospectus. The historical results included below and elsewhere in this prospectus should not be further terrorist attacks against the United States or U.S. businesses. These attacks may directly impact our physical facilities or thoseviewed as indicative of our suppliers or customers. Furthermore, these attacks may make travelfuture performance. The following selected financial data should be read in conjunction with the information contained elsewhere in this prospectus and the transportation of our suppliesconsolidated financial statements and products more difficult and more expensive and ultimately affect our operating results.
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Also as a result of terrorismthe notes thereto and other hostilities,financial information incorporated herein by reference.
| Fiscal Year Ended September 30, | Six Months Ended | |||||||||||||||||||||||||||
| 2000 | 2001(1) | 2002(2) | 2003(3)(4) | 2004(5) | March 28, 2004(6) | April 3, 2005(7) | ||||||||||||||||||||||
| ($ in millions except per share data) | ||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||
Net sales(8) | $ | 630.9 | $ | 616.2 | $ | 572.7 | $ | 922.1 | $ | 1,417.2 | $ | 732.0 | $ | 1,025.3 | ||||||||||||||
Cost of goods sold | 371.5 | 361.2 | 334.1 | 549.5 | 811.9 | 417.3 | 637.4 | |||||||||||||||||||||
Restructuring and related charges—cost of goods sold | — | 22.1 | 1.2 | 21.1 | (0.8 | ) | 1.1 | — | ||||||||||||||||||||
Gross profit(8) | 259.4 | 232.9 | 237.4 | 351.5 | 606.1 | 315.9 | 387.9 | |||||||||||||||||||||
Operating expenses | 170.1 | 178.3 | 174.4 | 280.4 | 437.7 | 237.7 | 290.8 | |||||||||||||||||||||
Restructuring and related charges—operating expenses | — | 0.2 | — | 11.5 | 12.2 | 6.0 | 0.2 | |||||||||||||||||||||
Operating income(9) | 89.3 | 54.4 | 63.0 | 59.6 | 156.2 | 72.2 | 96.9 | |||||||||||||||||||||
Income before income taxes(10) | 58.0 | 17.5 | 45.7 | 23.0 | 90.5 | 40.5 | 41.2 | |||||||||||||||||||||
Loss from discontinued operations | — | — | — | — | 0.4 | 0.3 | — | |||||||||||||||||||||
Net income | 38.4 | 11.5 | 29.2 | 15.5 | 55.8 | 24.8 | 26.0 | |||||||||||||||||||||
Income from continuing operations per common share | 1.32 | 0.39 | 0.90 | 0.48 | 1.62 | 0.75 | 0.64 | |||||||||||||||||||||
Other Financial Data: | �� | |||||||||||||||||||||||||||
Net cash provided by operating activities | $ | 32.8 | $ | 18.0 | $ | 66.8 | $ | 76.2 | $ | 104.9 | $ | 82.5 | $ | 11.1 | ||||||||||||||
Capital expenditures | 19.0 | 19.7 | 15.6 | 26.1 | 26.9 | 9.6 | 20.7 | |||||||||||||||||||||
Depreciation and amortization (excluding amortization of debt issuance costs)(9) | 19.9 | 21.1 | 19.0 | 31.6 | 35.3 | 22.8 | 16.9 | |||||||||||||||||||||
Book value per share | 2.78 | 5.31 | 5.39 | 6.20 | 9.13 | 7.75 | 20.56 | |||||||||||||||||||||
Ratio of earnings to fixed charges(11) | 2.9 | x | 1.7 | x | 3.9 | x | 1.6 | x | 2.4 | x | 2.2 | x | 1.7 | x | ||||||||||||||
Balance Sheet Data (at end of specified period): | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 9.8 | $ | 11.4 | $ | 9.9 | $ | 107.8 | $ | 15.8 | $ | 34.3 | $ | 44.3 | ||||||||||||||
Working capital(12) | 104.7 | 158.5 | 140.5 | 269.8 | 251.9 | 239.8 | 585.5 | |||||||||||||||||||||
Total assets(6) | 549.6 | 566.5 | 520.9 | 1,545.3 | 1,636.0 | 1,483.8 | 3,474.4 | |||||||||||||||||||||
Total debt | 317.6 | 258.0 | 201.9 | 943.4 | 829.9 | 791.6 | 1,940.6 | |||||||||||||||||||||
Total shareholders’ equity | 80.7 | 157.6 | 174.8 | 202.0 | 316.0 | 261.0 | 828.8 | |||||||||||||||||||||
| (1) | Fiscal 2001 includes restructuring and related charges—cost of goods sold of $22.1 million, and restructuring and related charges—operating expenses of $0.2 million. Fiscal 2001 also includes a non-operating expense of $8.6 million discussed in note (10) below. |
| (2) | Fiscal 2002 includes restructuring and related charges—cost of goods sold of $1.2 million. See Note 15 in the Notes to Rayovac’s Consolidated Financial Statements for the fiscal year ended September 30, 2004 incorporated herein by reference for further discussion. |
| (3) | Fiscal 2003 includes a net sales reduction of approximately $6.1 million related to North American retailer inventory repricing programs associated with the launch of our comprehensive new alkaline pricing program announced in 2003. These programs were launched in response to Duracell’s price reduction in the U.S. market on certain AA and AAA batteries. |
Fiscal 2003 includes restructuring and related charges—cost of goods sold of $21.1 million, and restructuring and related charges—operating expenses of $11.5 million. Fiscal 2003 also includes a non-operating expense of $3.1 million discussed in note (10) below. See Note 15 in the United States has entered into,Notes to Rayovac’s Consolidated Financial Statements for the fiscal year ended September 30, 2004 incorporated herein by reference for further discussion.
| (4) | Fiscal 2003 impacted by two acquisitions completed during the fiscal year. The VARTA acquisition was completed on October 1, 2002 and the Remington acquisition was completed on September 30, 2003. See further discussion of acquisitions in “Management’s Discussion of Financial Condition and Results of Operations—Rayovac” included elsewhere in this prospectus and in Note 16 in the Notes to Rayovac’s Consolidated Financial Statements for the fiscal year ended September 30, 2004 incorporated herein by reference. |
| (5) | Fiscal 2004 and the three month period ended January 2, 2005 are impacted by two acquisitions completed during the fiscal year. The Ningbo acquisition was completed on March 31, 2004 and the Microlite acquisition was completed on May 28, 2004. See further discussion of acquisitions in “Management’s Discussion of Financial Condition and Results of Operations—Rayovac” included elsewhere in this prospectus and in Note 16 in the Notes to Rayovac’s Consolidated Financial Statements for the fiscal year ended September 30, 2004 incorporated herein by reference. |
Fiscal 2004 and may enter into additional, armed conflicts which could havethe three month period ended January 2, 2005 include restructuring and related charges—cost of goods sold of $(0.8) million, and restructuring and related charges—operating expenses of $12.2 million. See Note 15 in the Notes to Rayovac’s Consolidated Financial Statements for the fiscal year ended September 30, 2004 incorporated herein by reference for further discussion.
| (6) | The six month period ended March 28, 2004 is impacted by two acquisitions completed during the period. The Ningbo acquisition was completed on March 31, 2004 and the Microlite acquisition was completed on May 28, 2004. See further discussion of these acquisitions in “Management’s Discussion of Financial Condition and Results of Operations—Rayovac” included in our Annual Report on Form 10-K and in Note 16 in the Notes to Rayovac’s Consolidated Financial Statements for the fiscal year ended September 30, 2004 included therein incorporated herein by reference. |
The six month period ended March 28, 2004 includes restructuring and related charges—cost of goods sold of $(1.1) million, and restructuring and related charges—operating expenses of $6.0 million. See Note 15 in the Notes to Rayovac’s Consolidated Financial Statements for the fiscal year ended September 30, 2004 incorporated herein by reference for further discussion.
| (7) | The six month period ended April 3, 2005 is impacted by the United acquisition completed on February 7, 2005. See “Recent Developments” for further discussion. |
The six month period ended April 3, 2005 includes a further impact on our sales, our supply chain, and our abilitycharge to deliver productCost of goods sold of $27.7 million related to our customers. Political and economic instability in some regions of the world may also result and could negatively impact our business. The consequences of any of these armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business or your investment. Morefair value adjustment, required under generally any of these events could cause consumer confidence and spending to decrease or result in increased volatilityaccepted accounting principles in the United States of America, that was applied to United’s acquired inventory. The six month period ended April 3, 2005 also includes $12.0 million in debt issuance costs written off in connection with the debt refinancing that occurred at the time of the United acquisition.
| (8) | Certain reclassifications have been made to reflect the adoption of the Emerging Issues Task Force (“EITF”) No. 01-09 for periods prior to adoption in fiscal 2002. EITF 01-09 addresses the recognition, measurement and income statement classification of various types of sales incentives, either as a reduction to revenue or as an expense. Concurrent with the adoption of EITF 01-09, we reclassified certain accrued trade incentives as a contra-receivable versus our previous presentation as a component of accounts payable. |
| (9) | Pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 142,Goodwill and Other Intangible Assets, we ceased amortizing goodwill on October 1, 2001. Upon initial application of SFAS 142, we reassessed the useful lives of our intangible assets and deemed only the trade name to have an indefinite useful life because it is expected to generate cash flows indefinitely. Based on this, we ceased amortizing the trade name on October 1, 2001. Goodwill and trade name amortization expense for 2000 and 2001 included in depreciation and amortization in operating income are as follows: |
| 2000 | 2001 | |||||
| (in millions) | ||||||
Goodwill amortization | $ | 1.2 | $ | 1.1 | ||
Trade name amortization | 2.3 | 2.3 | ||||
Total | $ | 3.5 | $ | 3.4 | ||
| (10) | SFAS 145, which addresses, among other things, the income statement presentation of gains and losses related to debt extinguishments, requires such expenses to no longer be treated as extraordinary items, unless the items meet the definition of extraordinary per APB Opinion No. 30. We adopted this statement on October 1, 2002. As a result, we recorded non-operating expenses within income before income taxes as follows during the fiscal years ended September 30, 2003 and 2001: |
| (11) | For purposes of calculating the ratio of earnings to fixed charges, (i) earnings is defined as income before income taxes plus fixed charges and (ii) fixed charges is defined as interest expense (including capitalized interest and amortization of debt issuance costs) and the portion of operating rental expense which management believes is representative of the interest component of rent expense. |
| (12) | Working capital is defined as current assets less current liabilities. |
The Acquisition of United
On February 7, 2005, we acquired all of the equity interests of United for a purchase price, excluding fees and economy. They also could resultexpenses, of $70 million in economic recessioncash, 13.75 million shares of our common stock and the assumption of approximately $911.5 million of outstanding United indebtedness. The acquisition of United followed our long-term strategic plan to diversify our product categories, enter complementary categories and reduce our concentration in existing product categories.
For more information regarding the purchase agreement between Rayovac and United, please refer to our Current Report on Form 8-K filed with the SEC on January 4, 2005, which is incorporated by reference in this prospectus.
The United Financing
In connection with the acquisition of United, we entered into a credit agreement consisting of a total of $1.03 billion in senior secured credit facilities, made up of aggregate term loan facilities of $730 million, of which $540 million is denominated in dollars, $140 million is denominated in Euros and $50 million is denominated in Canadian dollars, and a revolving credit facility of $300 million. See “Description of Certain Indebtedness” for a more detailed description of our credit facilities.
Also, in connection with the acquisition of United, we privately placed $700,000,000 of our 7 3/8% Senior Subordinated Notes due 2015. The proceeds from the offering of the original notes, together with the borrowings under our senior credit facilities, were used to finance the acquisition of United, retire United’s existing indebtedness and Rayovac’s existing senior credit facilities and pay related fees and expenses. The original notes are, and the exchange notes we are offering in the United States or abroad. Any of these occurrences could have a significant impact onexchange offer will be, guaranteed by our operating results, revenues, costs and cash flow and may result indomestic subsidiaries. Simultaneously with the volatilityprivate placement of the market price fororiginal notes, the subsidiary guarantors and Rayovac Corporation entered into a registration rights agreement with the initial purchasers of the original notes. Under the registration rights agreement, we must file the registration statement on or before June 7, 2005, use our securitiescommercially reasonable efforts to cause such registration statement to become effective no later than October 5, 2005, and, on the future price of our securities.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements other than statements of historical facts included inwhen such registration statement is effective, deliver this prospectus includingto the statementsholders of the original notes. We must use our commercially reasonable efforts to complete the exchange offer on or before the date that is 30 business days after the effective date of such registration statement. If we do not meet our obligations under the headings "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere regarding our strategy, future operations, financial position, estimated revenues, projected costs, projections, plans and objectives of management, are forward-looking statements. When used in this prospectusregistration statement, we must pay liquidated damages to the words "will," "believe," "plan," "may," "strategies," "goals," "anticipate," "intend," "estimate," "expect," "project" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only asholders of the date they were made. Neitheroriginal notes until we norhave cured our default. Pursuant to the guarantors ofexchange offer, you may exchange your original notes for exchange notes, which have substantially the Series D notes undertake any obligation to update or revise publicly any forward-looking statements, whethersame terms as a result of new information, future events or otherwise. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this prospectus are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved.
original notes. You should read carefully the factors describeddiscussion under the heading “Summary—The Original Notes” and “Description of the Original Notes” for further information regarding the exchange notes.
Retirement of United Notes
On January 5, 2005, in connection with the "Risk Factors" sectionacquisition of United, we commenced a tender offer to purchase for cash all outstanding United Notes. As of January 5, 2005, approximately $231.9 million aggregate principal amount of United Notes were outstanding. In connection with the tender offer, we also solicited consents to amend the indenture governing the United Notes to remove substantially all of the restrictive covenants thereunder. By January 19, 2005, we received the valid tenders and consents from holders representing approximately 94% of the aggregate principal amount of the United Notes, thereby permitting amendment of the indenture governing the United Notes. On April 1, 2005, we redeemed all United Notes not tendered pursuant to the tender offer in accordance with the terms and conditions of the amended indenture governing the United Notes.
The total consideration paid to holders that tendered their notes and delivered their consents prior to 5 p.m. (New York City time) on January 19, 2005, was equal to $1,053.13 per $1,000 principal amount of United Notes, which includes a consent payment of $30.00 per $1,000 principal amount, plus accrued but unpaid interest. Holders that tendered their notes after 5 p.m. (New York City time) on January 19, 2005, but prior to the expiration of the tender offer, received $1,023.13 per $1,000 principal amount of United Notes, plus accrued but unpaid interest.
The Acquisition of Tetra
On April 29, 2005, we acquired all of the equity interests of Tetra for total consideration of approximately $536 million, including estimated working capital and net of cash acquired as provided under the terms of the acquisition agreement. The acquisition of Tetra furthers our long-term strategic plan to diversify our product categories, enter complementary categories and reduce our concentration in existing product categories.
For more information regarding the purchase agreement between Rayovac and Tetra, please refer to our Current Report on Form 8-K filed with the SEC on March 17, 2005, which is incorporated by referenced in this prospectusprospectus.
The Tetra Financing
In connection with the acquisition of Tetra, we entered into an amendment to our credit agreement that provided for a $500 million incremental term facility under the credit agreement. See “Description of Certain Indebtedness” for a more detailed description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. Accordingly, you should not place undue reliance on forward-looking statements.our credit facilities.
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We will not receive any proceeds from the exchange offer. Because the exchange notes have substantially identical terms as the original notes, the issuance of the exchange notes will not result in any increase in our indebtedness. The exchange offer is intended to satisfy our obligations under the registration rights $700 million. Theagreement relating to the Series C notes. We will not receive any cashagreement. Gross proceeds from the issuance of the Series D notes. We used the gross proceeds of approximately $86,275,000 from the offering of the Series Coriginal notes in March 2003 to reduce our outstanding indebtedness under our senior credit facility as follows (dollars in thousands):Repayment of revolving credit facility $ 29,946 Repayment of Term Loan A(1) 28,250 Repayment of Term Loan B(2) 25,888 Fees and expenses 2,191 Total Uses $ 86,275 (1)Term Loan A, which was repaid in full, had an interest rate of 4.67% as of December 31, 2002.(2)Term Loan B, which matures in January 2006, had an interest rate of 5.42% as of December 31, 2002. Some of the borrowings under Term Loan B were used to finance a portion of the Schultz merger and WPC Brands acquisition. Some of the lenders under our senior credit facility were affiliates of the initial purchasers of the Series C notes. As of April 23, 2003, we had $3.0 million of borrowings and $1.8 million in letters of credit outstanding under our revolving credit facility. After the offering of the Series C notes and giving effect to the application of the proceeds therefrom, we had approximately $85.2 million of availability under our revolving credit facility. In the future we could re-borrow under our revolving credit facility to consummate acquisitions, repurchase our capital stock and for general corporate purposes. We are regularly engaged in acquisition discussions with a number of companies, although we have no definitive agreements at this time. We cannot guarantee that any acquisitions will be consummated. If we do consummate any acquisitions it could be material to our business and require us to incur additional debt under our revolving credit facility or otherwise. following table sets forth our cash and cash equivalents and capitalization as of December 31, 2002, on an actual basis and as adjusted to give effect to the offering of the Series C notes in March 2003 and to the use of proceeds therefrom, as if each had occurred on December 31, 2002. The information in this table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes, all of which are included elsewhere in this prospectus. As of December 31, 2002 Actual As Adjusted (dollars in thousands) Cash and cash equivalents $ 10,318 $ 40,264 Debt and capital lease, including current maturities: Revolving credit facility(1) $ — $ — Term Loan A 28,250 — Term Loan B 222,465 196,577 Capital lease obligation 4,221 4,221 97/8% Series B Senior Subordinated Notes 150,000 150,000 97/8% Series C Senior Subordinated Notes — 86,275 (2) Total debt 404,936 437,073 Total stockholders' deficit (96,236 ) (96,236 ) Total capitalization $ 308,700 $ 340,837 (1)Our revolving credit facility provides for borrowings of up to $90.0 million for working capital and general corporate purposes. As of April 23, 2003, we had $3.0 million of borrowings and $1.8 million in letters of credit under our revolving credit facility.(2)Includes the $85.0 million principal amount and $1.275 million in premium proceeds resulting from the Series C notes sold in March 2003 at 101.500% of face value.24UNAUDITED PRO FORMA FINANCIAL DATA Our unaudited pro forma consolidated statement of operations which follows is based on our historical audited financial statements and is adjusted on a pro forma basis to illustrate the estimated effects of the following transactions as if they had occurred on January 1, 2002:(1)the merger of a wholly-owned subsidiary with and into Schultz in May 2002;(2)the acquisition of WPC Brands in December 2002; and(3)the issuance and sale of the Series C notes and the application of the proceeds therefrom to reduce the outstanding indebtedness under our senior credit facility. The unaudited pro forma consolidated statement of operations reflects the application of the principles of purchase accounting to the merger of Schultz and acquisition of WPC Brands in accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations." Accordingly, the unaudited pro forma consolidated statement of operations was adjusted on a pro forma basis to illustrate the estimated effects of additional amortization expense on the acquired and allocated amortizable intangible assets, an adjustment to cost of goods sold as described in the notes below, interest expense for borrowings to finance the merger of Schultz and acquisition of WPC Brands, interest expense associated with the Series C notes, elimination of historical interest expense related to the debt repaid with the proceeds of the offering of the Series C notes and associated income tax effects. The allocations of purchase price related to the merger and acquisition are based, in part, on preliminary information, which are subject to adjustment upon obtaining complete valuation information of intangible assets and are subject to post-closing purchase price adjustments. We believe that the finalization of the allocations of purchase price will not have a material impact on our results of operations or financial position. The allocation of purchase price of Schultz is expected to be completed by May 15, 2003 and the allocation of purchase price of WPC Brands is expected to be completed by June 30, 2003. Our unaudited pro forma consolidated statement of operations for the year ended December 31, 2002 has been combined below with the unaudited statements of operations data of Schultz and WPC Brands for the period from January 1, 2002 through to the date of the respective transactions in 2002, for purposes of providing the pro forma combined statements of operations after giving effect to the transactions as if they had occurred on January 1, 2002. We provide the unaudited pro forma consolidated statement of operations for informational purposes only. The unaudited pro forma consolidated statement of operations do not purport to represent what our results of operations would actually have been if the transactions had, in fact, occurred on January 1, 2002 or which may be obtained in the future. The unaudited pro forma consolidated statement of operations should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and notes thereto, all of which are included elsewhere in this prospectus.25Unaudited Pro Forma Consolidated Statement of OperationsFor the Year Ended December 31, 2002 United
Industries
Historical
(1) Schultz
Company
Historical
(2) Pro Forma
Schultz
Adjustments WPC Brands
Historical
(3) Pro Forma
WPC Brands
Adjustments Series C
Notes
Offering
Adjustments Total (dollars in thousands) Net sales before promotion expense $ 521,286 $ 55,603 $ — $ 22,055 $ — $ — $ 598,944 Promotion expense 41,296 841 — 331 — — 42,468 Net sales 479,990 54,762 — 21,724 — — 556,476 Operating costs and expenses: Cost of goods sold 305,644 41,200 — 13,315 — — 360,159 Selling, general and administrative expenses 113,162 7,412 294 (4) 5,036 303 (4) — 126,207 Total operating costs and expenses 418,806 48,612 294 18,351 303 — 486,366 Operating income 61,184 6,150 (294 ) 3,373 (303 ) — 70,110 Interest expense, net 32,410 259 740 (5) 266 1,258 (5) 4,304 (6) 39,237 Income before income tax expense 28,774 5,891 (1,034 ) 3,107 (1,561 ) (4,304 ) 30,873 Income tax expense 3,438 2,620 (196) (7) 1,253 (298) (7) (828) (7) 5,989 Net income $ 25,336 $ 3,271 $ (838 ) $ 1,854 $ (1,263 ) $ (3,476 ) $ 24,884 (1)Our historical operating results for the year ended December 31, 2002 include the operating results of Schultz from May 9, 2002, the date of merger, and WPC Brands from December 6, 2002, the date of acquisition. Our historical results include a $1.5 million charge associated with the write-up of inventory acquired from Schultz to fair value.(2)Reflects operating results of Schultz from January 1, 2002 through May 8, 2002, which reflect similar seasonal characteristics as our operating results given the similarity of products and sales seasons.(3)Reflects operating results of WPC Brands from January 1, 2002 through December 5, 2002, which reflect similar seasonal characteristics as our operating results given similarity of products and sales seasons.(4)Represents amortization expense of intangible assets acquired in the Schultz merger and WPC Brands acquisition. Intangible assets are being amortized over periods ranging from 25 to 40 years.(5)Represents incremental interest expense related to additional borrowings of $60.0 million under our Term Loan B to finance the Schultz merger and WPC Brands acquisition. An effective interest rate of 5.5% was used. If the interest rate used in the calculation of incremental interest expense changed 125 basis points, interest expense would have changed by less than $0.1 million.(6)The offering adjustment of $4.3 million represents additional interest expense on the Series C notes which consists of the following (dollars in thousands):Add interest incurred on the Series C notes: 97/8% Series C Senior Subordinated Notes $ 8,394 Amortization of debt issuance costs 375 Amortization of premium on Series C notes (213 ) Commitment fee on unused revolving credit facility 450 9,006 Less interest expense on indebtedness repaid: Term Loan A (1,861 ) Term Loan B (1,761 ) Revolving credit facility (1,080 ) Total interest expense on indebtedness repaid (4,702 ) Total interest expense adjustment $ 4,304 The above adjustment does not include the write-off of deferred financing costs of $1.3 million associated with the borrowings repaid from net proceeds from the offering of the Series Coriginal notes were approximately $679.7 million, after deducting the initial purchasers’ discount and certain offering expenses, and, together with the proceeds from our new senior credit facilities, were used to finance the acquisition of United, to retire United’s existing indebtedness and to repay amounts outstanding under our existing senior credit facilities.
We primarily compete in the following seven major consumer product categories:
Consumer Batteries
In 2003, the global consumer battery market generated approximately $24.0 billion in retail sales. Since 1990, the industry’s growth percentage has been in the mid-single digits. The consumer battery industry consists of alkaline batteries, zinc carbon batteries and specialty batteries, which include rechargeable batteries, hearing aid batteries, photo batteries and watch/calculator batteries. The majority of battery consumption comes from industrialized nations, with the U.S. accounting for roughly one-third of global consumption. As personal incomes grow, the markets in less industrialized countries continue the gradual transition from zinc carbon batteries, which still account for a majority of unit sales in such markets, to the better performing and higher-priced alkaline batteries, similar to the transition that occurred in North America over the past generation. Most branded consumer batteries are marketed under the following brand names: Rayovac, Duracell (a Gillette brand), Energizer and Panasonic (a Matsushita brand). In addition, batteries are also often marketed under retailers’ private label brands, particularly in Europe.
Pet Supplies
Within the overall $30 billion U.S. pet industry, we estimate that the pet supplies segment represented an $8.0 billion market in 2004 based on retail sales. Within the overall $20 billion European pet industry, we estimate that the pet supplies segment represented a $4.0 billion market in 2004 based on retail sales. This highly fragmented segment is comprised of pet treats and pet supplies for dogs, cats, birds, fish and other small animals, including stain and odor removal products, grooming aids, bedding and lounging products, medications and vitamin supplements. In addition, pet supplies include aquarium kits, stand-alone tanks and stands, filtration systems, heaters, pumps, sea salt, aquarium hoods and lights and other aquatic supplies and accessories. According to management estimates, the pet supplies segment in the U.S. has grown approximately 6–8% annually since 1994. We believe that the recent market expansion has been driven by increasing pet ownership and the “humanization” of pets, which results in higher levels of spending, and the industry’s relative insensitivity to economic cycles, combined with innovative product development, increased retailer sophistication (i.e., pet superstores) and growth in dedicated retail square footage for pet supplies. We expect comparable market growth over the next several years due to the continuation of these trends. The industry is highly fragmented with, for example, over 500 manufacturers competing in the U.S. market, consisting primarily of small companies with limited product lines. Name brands in the pet supplies market include: Tetra, 8-in-1, Marineland, Nature’s Miracle, Vitakraft and Hartz.
Lawn and Garden
We estimate that retail sales of consumer lawn and garden products were approximately $2.9 billion and $335 million in the U.S. and Canada, respectively, in 2003. Over the next several years, we expect the lawn and garden industry to continue to grow at approximately 4% annually due to favorable demographic trends, including the increasing number of persons over the age of 45, a group that typically engages in more lawn and garden activity than the general population, and the increasing shift in the population to areas more conducive to lawn and gardening activities, such as the southern and western regions of the United States. Approximately 85 million, or 80%, of the households in the United States participate in some form of lawn and garden activity. A significant portion of lawn and garden products are marketed under the following brand names: Spectracide, Vigoro and Sta-Green, and Scotts, Miracle-Gro and Ortho (brands of The Scotts Company).
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Electric Shaving and Grooming
We estimate that retail sales in the global electric shaving and grooming industry exceeded $3.0 billion in 2003. Industry analysts believe that unit sales in the electric shaving and grooming industry will continue to grow
at approximately 3% annually over the next several years due to new product and product feature introductions, which also drive higher selling prices. Electric shavers include men’s rotary and foil shavers and women’s foil shavers and are used with electric shaver accessories, such as shaver replacement parts (primarily foils and cutters), pre-shave products and cleaning agents. Electric grooming products include beard and mustache trimmers, nose and ear trimmers and haircut kits and related accessories. Electric shaving and grooming products are marketed primarily under one of the following brands: Remington, Braun (a Gillette brand) and Philips/Norelco.
Household Insect Control
According to management estimates, retail sales of household insect control products totaled approximately $1.0 billion in the United States in 2003. We estimate that the household insect control market has experienced recent historical growth of 4% per year and that it will grow at rates in excess of historical rates over the next several years due to the expected increase in demand for insect control products resulting from general economic growth and increasing awareness of insect-spread illnesses such as the West Nile virus in the United States. A significant portion of household insect control products are marketed under the following brand names: Hot Shot, Cutter and Repel, Raid and OFF! (S.C. Johnson brands), Ortho (a Scotts brand) and Combat.
Electric Personal Care Products
The electric personal care industry includes hair dryers, hairsetters, curling irons, hair crimpers and straighteners, hot air brushes and lighted mirrors. We estimate that retail sales of global electric personal care products exceeded $2.0 billion in 2003 and unit sales are projected to grow at 3% annually over the next several years. This growth rate is consistent with the industry’s historical growth rate, and is driven by new product and product feature introductions, which result in higher selling prices. A significant portion of electric personal care products are marketed under the following brand names: Remington, Conair, Vidal Sassoon, Revlon and Hot.
Portable Lighting
We estimate that the global portable lighting market generated approximately $3.0 billion in retail sales in 2003, of which an estimated 50% is from sales of flashlights. The global portable lighting market is fragmented by region and includes few global branded companies. Recent growth in the portable lighting market has been relatively flat, and we believe that growth opportunities will be driven by product innovation. A few of the brand names in the portable lighting market include Rayovac, Eveready and Maglite.
Across the consumer products industry, recent differentiation among competitors has been based upon strong retailer relationships. Sales within these markets are driven by well-recognized brand names, as well as consistent new product introductions. As major retailers have rapidly expanded over the last 15 years, the concentration of purchasing power for all consumer products categories has increased significantly. We expect the continued growth of major retailers such as Wal-Mart, Carrefour, Target, The Home Depot, Lowe’s and Gigante to continue the concentration of industry distribution. Furthermore, as global retailers continue to reduce their number of suppliers, the ability to service these retailers with diverse product offerings and provide products globally through an expansive distribution system is increasingly important.
Overview
We are a global branded consumer products company with leading market positions in our seven major product categories: consumer batteries; pet supplies; lawn and garden; electric shaving and grooming; household insect control; electric personal care products; and portable lighting. We are a leading worldwide manufacturer and marketer of alkaline, zinc carbon and hearing aid batteries, a leading worldwide designer and marketer of
rechargeable batteries and battery-powered lighting products and a leading worldwide designer and marketer of electric shavers and accessories, grooming products and hair care appliances. We are also a leading North American manufacturer and marketer of lawn fertilizers, herbicides, aquariums, pet health and beauty aid products and insecticides and repellents.
We sell our products in approximately 120 countries through a variety of trade channels, including retailers, wholesalers and distributors, hearing aid professionals, industrial distributors and original equipment manufacturers (“OEMs”) and enjoy strong name recognition in our markets under the Rayovac, VARTA and Remington brands, each of which has been in existence for more than 80 years, the Spectracide, Cutter and 8-in-1 brands, which we acquired through our acquisition of United, and various Tetra brands, which were acquired through our acquisition of Tetra. We have 54 manufacturing and product development facilities located in the United States, Europe, China and Latin America. We manufacture alkaline and zinc carbon batteries, zinc air hearing aid batteries, lawn fertilizers, herbicides, pet supplies and insecticides and repellents in our company operated manufacturing facilities. Substantially all of our rechargeable batteries and chargers, electric shaving and grooming products, electric personal care products and portable lighting products are manufactured by third party suppliers, primarily located in China and Japan.
During fiscal 2004, we completed two acquisitions. On March 31, 2004, we completed the acquisition of an 85% equity interest in Ningbo, a Chinese producer of alkaline and zinc carbon batteries, thereby gaining a Chinese presence and low-cost manufacturing capabilities. In March 2005, we signed an agreement to purchase the remaining 15% interest in Ningbo. On May 28, 2004, we completed the acquisition of 90.1% of the outstanding indebtednesscapital stock of Microlite, a Brazilian producer of alkaline and zinc carbon batteries and battery-operated lighting products. As a result, we now own the rights to the Rayovac brand name in each of the countries where we do business.
On February 7, 2005, we completed our acquisition of all of the equity interests of United, which completed its acquisition of Nu-Gro, a Canadian lawn and garden products company, and United Pet Group, a privately owned manufacturer and marketer of branded pet supplies, on April 30, 2004 and July 30, 2004, respectively.
On April 29, 2005, we completed our acquisition of all of the equity interests of Tetra, a German manufacturer, distributor and marketer of foods, equipment and care products for fish and reptiles, and accessories for home aquariums and ponds.
Our existing consumer battery, electric shaving and grooming, electric personal care and portable lighting business is organized and managed according to three geographic regions: (i) North America, (ii) Europe/ROW and (iii) Latin America. We operate United and Tetra as separate business units.
Competitive Strengths
The following strengths serve as a foundation for our business strategy:
Strong Diversified Global Brand Portfolio
We have a global portfolio of well-recognized consumer product brands. In the consumer battery and portable lighting categories, we use the Rayovac brand name principally in North America and Latin America and we primarily market these products in Europe under the VARTA brand. In the electric shaving and grooming and electric personal care products categories, we use the Remington brand in North America, the United Kingdom, Australia and select European countries. United historically marketed its products in the lawn and garden and household insect control segments as Spectrum Brands, which includes brand names such as Spectracide, Vigoro, Hot Shot and Cutter. We also sell our senior credit facility.pet supplies under a wide range of brands, including Tetra, 8-in-1, Dingo and Marineland. Our lawn and garden and household insect control brands are marketed primarily in North America. Our pet supply products are marketed primarily in North America and Europe. Many of these brands are well recognized in their categories, with market leading positions, and several of these
brands have been used for over 50 years. We believe that each of our major brands generates strong brand awareness. We attribute the longevity and strong consumer awareness of our brand names to the high-quality and consistent value of our products and to the success of our marketing and merchandising initiatives. We believe that the strength of our brands positions us to extend our product lines and provide our retail customers with strong sell-through to consumers.
Strong Global Retail Relationships
We have well-established business relationships with many of the income tax benefit associatedtop global retailers, distributors and wholesalers, which have enabled us to expand our overall market penetration and promote sales. With the acquisitions of United and Tetra, we have further diversified our customer base and strengthened our existing relationships with important mass merchandisers, home centers and pet superstores, such as Wal-Mart, The Home Depot, Lowe’s, PETsMART, Canadian Tire and PetCo. We intend to leverage cross-selling opportunities with both our new and existing customers. We have built and maintained strong retailer relationships by providing our customers with global sourcing, high quality and innovative products and attractive margins. In addition, these relationships are reinforced by our exclusive brand arrangements with leading retailers, including our Vigoro brand at The Home Depot and our Sta-Green brand at Lowe’s, as well as our position as the exclusive supplier for Wal-Mart’s Expert Gardener brand. On a pro forma basis, we rank among the top 50 current suppliers to Wal-Mart in the United States based on consumer purchases.
Expansive Distribution Network and Global Sourcing
We distribute our products in approximately 120 countries through a variety of trade channels, including retailers, wholesalers and distributors, hearing aid professionals, industrial distributors and OEMs. Our state-of-the-art battery packaging and distribution centers in North America and Europe provide package-to-order capability for our battery products as well as rapid and cost-effective services to retail customers for such products. We have an established global sourcing system for raw materials and product components for our product offerings, including maintaining an Asian sourcing organization located in Hong Kong, which is responsible for purchasing logistics and quality assurance for our products purchased from third party vendors. By moving production to Asia, we have been successful in reducing labor and material costs for consumer battery, electric shaving and grooming, electric personal care and portable lighting products. We distribute our lawn and garden, pet supplies and household insect control products in North America through a variety of trade channels, including retailers, wholesalers and distributors. The distribution network for our lawn and garden, pet supplies and household insect control businesses are designed to provide package-to-order capability. We plan to undertake initiatives to consolidate and streamline the United, Tetra and Spectrum distribution networks to achieve greater customer service capabilities and cost savings.
Innovative New Products, Packaging and Technologies
We have a long history of product and packaging innovations that have helped position us as an industry leader in each of our seven product categories. We have leading battery technologies in zinc air, consumer rechargeable and lithium coin cells. We have continued to improve the performance of our alkaline batteries, which has enabled us to perform at levels comparable to our major competitors without increasing consumer prices. We also have a diverse portfolio of controlled-release nitrogen technology and have been able to offer customized fertilizer formulas to our leading customers. Our innovative packaging includes the first resealable alkaline battery multi-pack, the easy-open spin-and-lock dial hearing aid battery packaging and a handheld battery-operated spray system for use in lawn and garden, the first in its category. We continually seek to introduce new products both as extensions of existing product lines and as new product categories. For example, we recently introduced the Remington Titanium Smart System shaving system, Spectracide TripleStrike Grass & Weed Killer and the Remington Wet 2 Straight Professional Straightener hair straightener.
World Class Information Technology Platform
We have invested in an SAP enterprise resource planning system, which enables us to more effectively manage manufacturing planning and execution, demand planning, the supply procurement to payment cycle, the customer order to cash collection cycle and the financial planning and reporting functions. The majority of our businesses utilize this system, which significantly enhances transactional processing and detailed analysis and reporting. The SAP platform provides information system standardization throughout our company, which has allowed for the integration and consolidation of past acquisitions with minimal additional capital investment, and which we expect will similarly assist in Spectrum’s integration of United and Tetra. Spectrum’s IT system has proved to be an effective and efficient platform to support our business. We anticipate further cost savings and operational synergies from the transition of United to Spectrum’s IT platform.
Proven Integration Track Record
We have a long history of successfully integrating significant acquisitions. In 1999, we acquired and successfully assimilated the Latin American operations of ROV Limited, where we reduced costs by closing three zinc carbon manufacturing facilities and implementing new raw material purchasing programs. In fiscal 2003, in conjunction with the adjustments described hereinacquisition of VARTA, we announced a series of cost savings initiatives. We fully integrated VARTA within 12 months and realized annual cost savings of approximately $43.7 million. The Remington integration resulted in annual cost savings of approximately $35 million. These savings were the result of combining sales organizations, consolidating administrative functions and integrating the production and distribution of Remington products into our existing manufacturing facilities and distribution network. The integration plan was substantially completed in nine months. We will continue to arrive atapply our estimated pro forma 2002 effective tax rate of 19.4%.
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SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data as of December 31, 2002 and 2001 and for the years ended December 31, 2002, 2001 and 2000 have been prepared from our audited consolidated financial statements included elsewhere in this prospectus. The historical financial data as of December 31, 2000, 1999 and 1998 and for the years ended December 31, 1999 and 1998 have been derived from audited financial statements which do not appear herein. When reading this selected historical financial data, it is important that you read alongexperience with it the financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which are included elsewhere in this prospectus.
| | Year Ended December 31, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002(1) | 2001 | 2000 | 1999 | 1998 | |||||||||||||
| | (dollars in thousands) | |||||||||||||||||
| Statement of Operations Data: | ||||||||||||||||||
| Net sales before promotion expense | $ | 521,286 | $ | 297,776 | $ | 288,618 | $ | 304,048 | $ | 282,676 | ||||||||
| Promotion expense | 41,296 | 24,432 | 22,824 | 19,572 | 31,719 | |||||||||||||
| Net sales | 479,990 | 273,344 | 265,794 | 284,476 | 250,957 | |||||||||||||
| Operating costs and expenses: | ||||||||||||||||||
| Cost of goods sold(2)(3) | 305,644 | 148,371 | 146,229 | 150,344 | 140,445 | |||||||||||||
| Selling, general and administrative expenses | 113,162 | 74,689 | 69,099 | 80,496 | 61,066 | |||||||||||||
| Facilities and organizational rationalization(3) | — | 5,550 | — | — | — | |||||||||||||
| Dursban related expenses(4) | — | — | 8,000 | — | — | |||||||||||||
| Recapitalization transaction fees(5) | — | — | — | 10,690 | — | |||||||||||||
| Change of control bonuses(6) | — | — | — | 8,645 | — | |||||||||||||
| Severance charge(6) | — | — | — | 2,446 | — | |||||||||||||
| Litigation charges(7) | — | — | — | 1,647 | 2,321 | |||||||||||||
| Total operating costs and expenses | 418,806 | 228,610 | 223,328 | 254,268 | 203,832 | |||||||||||||
| Operating income | 61,184 | 44,734 | 42,466 | 30,208 | 47,125 | |||||||||||||
| Interest expense, net | 32,410 | 35,841 | 40,973 | 35,223 | 1,106 | |||||||||||||
| Income (loss) before provision for income taxes, discontinued operations and extraordinary item | 28,774 | 8,893 | 1,493 | (5,015 | ) | 46,019 | ||||||||||||
| Income tax expense | 3,438 | 2,167 | 134 | 4,257 | 992 | |||||||||||||
| Income (loss) from continuing operations, before extraordinary item(8) | $ | 25,336 | $ | 6,726 | $ | 1,359 | $ | (9,272 | ) | $ | 45,027 | |||||||
| Preferred stock dividends | $ | 6,880 | $ | 2,292 | $ | 320 | $ | — | — | |||||||||
| Net income (loss) available to common stockholders(9) | $ | 18,456 | $ | 4,434 | $ | 1,039 | $ | (11,597 | ) | $ | 46,741 | |||||||
Other Financial Data: | ||||||||||||||||||
| Cash flows from continuing operating activities | $ | 37,858 | $ | 25,035 | $ | 10,793 | $ | 24,504 | $ | 47,615 | ||||||||
| Cash flows used for continuing investing activities | (68,250 | ) | (45,416 | ) | (3,950 | ) | (3,038 | ) | (3,628 | ) | ||||||||
| Cash flows used for continuing financing activities | 40,710 | 20,381 | (6,843 | ) | (21,466 | ) | (45,940 | ) | ||||||||||
| EBITDA(10) | 71,424 | 49,652 | 47,727 | 34,923 | 50,963 | |||||||||||||
| Depreciation and amortization(11) | 10,240 | 4,918 | 5,261 | 4,715 | 3,838 | |||||||||||||
| Capital expenditures(12) | 10,450 | 7,916 | 3,950 | 3,038 | 3,628 | |||||||||||||
| Ratio of earnings to fixed charges(13) | 1.5x | 1.2x | 1.0x | 0.9x | 17.6x | |||||||||||||
Balance Sheet Data (end of period): | ||||||||||||||||||
| Cash and cash equivalents | $ | 10,318 | $ | — | $ | — | $ | — | $ | — | ||||||||
| Working capital(14) | 50,149 | 19,703 | 29,892 | 22,938 | 30,042 | |||||||||||||
| Total assets | 386,003 | 272,556 | 234,894 | 241,878 | 94,161 | |||||||||||||
| Total debt, including capital lease | 404,936 | 351,768 | 354,301 | 369,255 | 4,645 | |||||||||||||
| Stockholders' equity (deficit) | (96,236 | ) | (144,417 | ) | (170,763 | ) | (186,802 | ) | 58,257 | |||||||||
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Experienced Management Team
Our management team has substantial consumer products experience and a proven track record of operations success and brand management. On average, senior management has more than 20 years of experience at Spectrum, VARTA, United and other branded consumer product companies such as General Electric, Gillette, Braun, Procter & Gamble and S.C. Johnson. Our management team has grown our business by developing and introducing new products, expanding our distribution channels, improving our operational efficiencies and making strategic acquisitions.
Business Strategy
Our long-term strategic plan is to be a diversified global consumer products company that competes in high growth markets. We intend to accomplish this via a combination of organic growth and strategic acquisitions. With our acquisitions of ROV Limited in August 1999, VARTA in October 2002, Ningbo in March 2004 and Microlite in May 2002.
The Remington acquisition in September 2003 was the first step in diversifying our consumer product offerings. With this acquisition, we entered the electric shaving and grooming and electric personal care categories. During the current year, ended December 31, 2001, we recorded an $8.5 million charge,are expanding distribution of these products in Europe and Latin America. Our acquisitions of United and Tetra continued our product diversification and extended our presence into the lawn and garden, pet supplies and household insect control categories. In addition, we expect that the acquisitions of United and Tetra will reduce the seasonality of our historic business, which, $5.6 millionprior to the acquisitions, was recordedweighted towards the Christmas season (our first quarter in facilitiesits fiscal year), while demand for lawn and organizational rationalization, $2.7 million was recorded in cost of goods sold, and $0.2 million was recorded in selling, general and administrative expenses.
To further enhance our position in the branded consumer products market, we plan to us underimplement the trademark "Dursban™," entered into a voluntary agreement that provided for withdrawal of virtually all residential uses of chlorpyrifos in pesticide products. Formulation of chlorpyrifos products intended for residential use ceased by December 1, 2000 and formulators discontinued the sale of such products to retailers after February 1, 2001. Retailers were not allowed to sell chlorpyrifos products after December 31, 2001. Accordingly, a charge of $8.0 million was recorded in September 2000 for costs associated with this agreement, including customer markdowns, inventory write-offs and related disposal costs. Allfollowing key elements of our accrued costs associated with this agreementbusiness strategy:
Increase Sales Through Expanded Customer Relationships and additional amounts totaling under $0.1 million were incurred by December 31, 2002.
We intend to the issuance of debt were capitalized and are being amortized over the remaining term of the debt as interest expense. The fees and expenses relating to the equity transactions were charged directly to equity. Other transaction fees were allocated between debt and recapitalization transaction fees expense based onincrease our estimate of the related activities.
Continue New Product Development and Packaging Innovation
We intend to continue our strategy of increasing sales through the introduction of new products and packaging designs in each of our seven product categories. Our research and development strategy is focused on new product development, performance improvements of our existing products and cost reductions in, and enhancements of, our products and packaging. We plan to continue to use our strong brand names, established customer relationships and significant research and development efforts to introduce innovative products that offer enhanced value to consumers through new designs and improved functionality. For example, we recorded $1.5 millionintroduced over 200 new or improved products in the 2004 calendar year. We recently introduced the Remington Titanium Smart System shaving system, Spectracide TripleStrike Grass & Weed Killer and the Remington Wet 2 Straight Professional Straightener hair straightener. We will continue to focus on identifying new technologies and formulations necessary to meet and create consumer and retailer demand within the marketplace.
Continue to Improve Operating Efficiencies
We will continue to seek to improve our operational efficiencies and match manufacturing capacity and product costs to market demand. Over the last few years, we have undertaken various initiatives to reduce manufacturing, operating and other costs, such as increasing manufacturing utilization by reducing the number of litigation chargesour facilities, outsourcing the production of certain of our products and updating and centralizing certain packaging and distribution facilities. We believe that we can continue to primarily reserve for the expectedreduce our cost of an adverse judgmentgoods manufactured with continued focus on a counterclaim filed by defendants incost reduction initiatives. These initiatives include cost reductions through global purchasing, finished goods sourcing arrangements and improved productivity. We continue to lower operating costs as duplicative administrative support and sales and marketing functions are consolidated and overlapping functions are eliminated.
Implement Integration Plan
We have identified key areas where we expect to achieve cost savings and operational synergies with the caseacquisitions of United Industries Corporation vs. John Allman, Craig Jackman et al. This case was settled in July 1999. In 1998, we recorded litigation charges of $2.3 million relatedand Tetra. These areas include manufacturing, distribution, sales and marketing, IT systems and administrative functions. We intend to two separate lawsuits. In March 1998, a judgment was entered against us in a lawsuit filedrationalize our existing manufacturing plants, reduce freight costs by the spouse of a former employee claiming benefits from a United-owned key man life insurance policy. We recorded a charge of $1.2 million for this case in the first quarter of 1998maximizing full truckloads and an additional $0.1 million in the fourth quarter of 1999. We also incurred costs pertaining to certain litigation concerning the advertisingtaking advantage of our Spectracide Terminate product for which a settlement was negotiated. Costs relatedexisting distribution network, transition United and Tetra to this case amounted to $1.1 million.
Enhance Earnings and an extraordinary item.
We have included information concerning EBITDA as a measuregenerated high levels of liquidity because we believe certain investors use it as one measure of historical ability to fund operations and meet financial obligations. However, EBITDA is not presented to represent cash flow from operations as defined by accounting principles generally accepteda result of our earnings, cost reduction efforts and modest capital expenditure requirements. Through our integration efforts with VARTA and Remington we have streamlined our cost structure. Through our integration efforts with United and Tetra, we anticipate further improvements in our cost structure while continuing to introduce new high profit margin products. We intend to continue to focus on improving the efficiency of our organization to maximize earnings and cash flow from operations.
Pursue Strategic Acquisitions
Our acquisition strategy focuses on businesses or brands that will strengthen our current product offerings or enable us to expand into complementary categories and geographic regions. In addition, we intend to pursue acquisitions of additional consumer product brands that can benefit from our extensive distribution network and long-term retailer relationships. In particular, we believe that the pet supplies industry presents consolidation opportunities due to its highly fragmented nature, and we expect to pursue opportunities in this market.
Our Products
We compete in the United States, nor does management recommend that it be used as an alternative to, or superior measure of, operating income or income from continuing operations as an indicator offollowing seven major product categories:
Pro forma net sales data for our operating performance or cash flowproducts as a measurepercentage of liquidity or our ability to repay our debt obligations.pro forma consolidated net sales for fiscal 2004 is set forth below.
Consumer batteries | 37 | % | |
Lawn and garden | 20 | ||
Pet supplies | 19 | ||
Electric shaving and grooming | 11 | ||
Household insect and control | 6 | ||
Electric personal care products | 4 | ||
Portable lighting | 3 | ||
| 100 | % | ||
Consumer Batteries
General Batteries. Our general batteries category includes alkaline and zinc carbon. We have provided belowsell a reconciliationfull line of EBITDA to cash flows from continuing operating activities since we deem that it isalkaline batteries (AA, AAA, C, D and 9-volt sizes) for both consumers and industrial customers. Our alkaline batteries are marketed and sold primarily under the most directly comparable measure under generally accepted
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accounting principles. In addition, our definition of EBITDA may not be comparable to that reported by other companies. EBITDARayovac Maximum Plus brand and the reconciliationVARTA Universal, High Energy and MaxiTech brands. We also engage in private label manufacturing of alkaline batteries. Our zinc carbon batteries are designed for low- and medium-drain battery-powered devices such as flashlights.
Rechargeable Batteries, Chargers and Other. We sell our rechargeable batteries and chargers under the Rayovac and VARTA brands. We sell NiMH and rechargeable alkaline batteries and a variety of chargers, including our 15-minute I-C3 NiMH rechargeable system, introduced in August 2003.
Our specialty battery products include photo batteries, lithium batteries, silver oxide batteries and keyless entry batteries. We sell coin cells for use in watches, cameras, calculators, communications equipment and medical instrumentation. Our lithium coin cells are high-quality lithium batteries marketed for use in instrumentation, calculators and personal computer clocks and memory back-up systems.
Hearing Aid Batteries. We are currently the largest worldwide seller of hearing aid batteries. We sell our hearing aid batteries through retail trade channels and directly to cash flows from continuing operating activitiesprofessional audiologists under several brand names and under several private labels, including Beltone, Miracle Ear, Siemens and Starkey.
Pet Supplies
Our pet supplies business is as follows:
| | Years Ended December 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | 1999 | 1998 | ||||||||||||
| Income (loss) from continuing operations | $ | 25,336 | $ | 6,726 | $ | 1,359 | $ | (9,272 | ) | $ | 45,027 | ||||||
| Interest expense, net | 32,410 | 35,841 | 40,973 | 35,223 | 1,106 | ||||||||||||
| Income tax expense | 3,438 | 2,167 | 134 | 4,257 | 992 | ||||||||||||
| Depreciation and amortization | 10,240 | 4,918 | 5,261 | 4,715 | 3,838 | ||||||||||||
| EBITDA | 71,424 | 49,652 | 47,727 | 34,923 | 50,963 | ||||||||||||
| Interest expense less amortization | (29,130 | ) | (33,150 | ) | (38,553 | ) | (33,232 | ) | (1,106 | ) | |||||||
| Change in current assets and liabilities | (4,436 | ) | 8,533 | 2,801 | 9,423 | (1,250 | ) | ||||||||||
| Current income taxes | — | — | — | — | (992 | ) | |||||||||||
| Non-cash reduction of capital lease | — | — | (1,182 | ) | — | — | |||||||||||
| Deferred compensation plan (grantor trust) | — | — | — | 2,700 | — | ||||||||||||
| Recapitalization fees charged to equity | — | — | — | 10,690 | — | ||||||||||||
| Cash flows from continuing operating activities | $ | 37,858 | $ | 25,035 | $ | 10,793 | $ | 24,504 | $ | 47,615 | |||||||
Lawn and cash equivalents, less current liabilities, excluding short-term borrowings and current maturities of long-term debt.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
Garden Products
The discussion
Our lawn and analysisgarden business is comprised of our consolidated financial condition and resultsa number of operations included herein should be read in conjunction with the historical financial information included in the financial statements and the related notes thereto, which are included elsewhere in this prospectus. Future results could differ materially from those discussed below for many reasons, including the risks described in "Risk Factors" and elsewhere in this prospectus.
Overview
Doing business as Spectrum Brands, we are majority owned by UIC Holdings, L.L.C. and are the leading manufacturer and marketer of value-oriented products for the consumer lawn and garden care and insect control markets in the United States. Under a variety of brand names, we manufacture and market one of the broadest lines in the industry. Our operations are divided into three business segments: Lawn and Garden, Household and Contract. We believe that the key growth factors for the $2.8 billion consumer lawn and garden retail market include:
We do not believe that our historical financial condition and results of operations are accurate indicators of future results because of certain significant past events. Those events include mergers, acquisitions, strategic transactions and equity and debt financing transactions over the last several years. Furthermore, our sales are seasonal in nature and are susceptible to weather conditions that vary from year to year.
Critical Accounting Policies
Our significant accounting policies are described in Note 2 to the consolidated financial statements included elsewhere in this prospectus. While all of the significant accounting policies are important to our consolidated financial statements, some of these policies may be viewed as being critical. Such policies are those that are both most important to the portrayal of our financial condition and require our most difficult, subjective or complex estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and assumptions on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from these estimates and assumptions. We believe our most critical accounting policies are as follows:
Revenue Recognition. Net sales represent gross sales less any applicable customer discounts from list price, customer returns and promotion expense through cooperative programs with retailers. The provision for customer returns is based on historical sales returns and analysis of credit memo and other relevant information. If the historical or other data used to develop these estimates do not properly reflect future returns, net sales may need to be adjusted. Sales reductions related to returns were $7.4 million in 2002, $6.5 million in 2001 and $7.6 million in 2000. Amounts included in the allowance for doubtful accounts were $2.0 million as of December 31, 2002 and $0.4 million as of December 31, 2001.
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Inventories. Inventories are reported at the lower of cost or market. Cost is determined using a standard costing system that approximates the first-in, first-out method and includes raw materials, direct labor and overhead. An allowance for potentially obsolete or slow-moving inventory is recorded based on our analysis of inventory levels and future sales forecasts. In the event that our estimates of future usage and sales differ from actual results, the allowance for obsolete or slow-moving inventory may be adjusted. Amounts recorded for potentially obsolete or slow-moving inventory were $5.4 million in 2002, $2.7 million in 2001 and $0.3 million in 2000. The allowance for potentially obsolete or slow-moving inventory was $5.8 million as of December 31, 2002 and $2.7 million as of December 31, 2001.
Promotion Expense. We advertise and promote our products through national and regional media. Products are also advertised and promoted through cooperative programs with retailers. Advertising and promotion costs are expensed as incurred, although costs incurred during interim periods are generally expensed ratably in relation to revenues. Management develops an estimate of the amount of costs that have been incurred by the retailers under our cooperative programs based on an analysis of specific programs offered to retailers and historical information. Actual costs incurred may differ significantly from our estimates if factors such as the level of participation and success of the retailers' programs or other conditions differ from our expectations. Promotion expense, including cooperative programs with customers, is recorded as a reduction of sales and was $41.3 million in 2002, $24.4 million in 2001 and $22.8 million in 2000. Accrued advertising and promotion expense was $16.4 million as of December 31, 2002 and $12.1 million as of December 31, 2001. In addition, advertising costs are incurred irrespective of promotions. Such costs are included in selling, general and administrative expenses in our consolidated statements of operations and were $3.3 million in 2002, $1.3 million in 2001 and $2.4 million in 2000.
Income Taxes. Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting basis and the tax basis of assets and liabilities at enacted tax rates expected to be in effect when such amounts are recovered or settled. The judgment of management is required to determine income tax expense, deferred tax assets and any related valuation allowance and deferred tax liabilities. We have recorded a valuation allowance of $104.1 million as of December 31, 2002 due to uncertainties related to the ability to utilize some of the deferred tax assets, primarily consisting of certain net operating loss carryforwards that were generated in 1999 through 2002 and deductible goodwill recorded in connection with our recapitalization in 1999. The valuation allowance is based on our estimates of future taxable income by jurisdiction in which the deferred tax assets will be recoverable.
As previously noted, we generated net operating losses for tax purposes for each of the years 1999 through 2002. Our current estimates indicate that we will generate taxable income for 2003. If we achieve such results, 2003 would be the first year that taxable income would be generated since our recapitalization in 1999. In addition, as our budgets for future years indicate that we will continue to generate taxable income, it is possible the valuation allowance will need to be reduced. Any adjustment to the valuation allowance could materially impact our consolidated financial position and results of operations. In addition, we currently anticipate that our effective tax rate beginning in 2003 will be 38%, absent any reduction of the valuation allowance previously described.
Goodwill and Other Intangible Assets. We have acquired intangible assets or made acquisitions in the past that resulted in the recording of goodwill or intangible assets, including our acquisition of certain fertilizer brands in December 2001, our merger with Schultz in May 2002 and our acquisition of WPC Brands in December 2002. Under generally accepted accounting principles previously in effect, goodwill and intangibles were amortized over their estimated useful lives, and were tested periodically to determine if they were recoverable from their cash flows on an undiscounted basis over their useful lives.
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Effective in 2002, goodwill is no longer amortized and is subject to impairment testing at least annually. We evaluate the recoverability of long-lived assets, including goodwill and intangible assets, for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or changes in circumstances could include such factors as changes in technological advances, fluctuations in the fair value of such assets or adverse changes in relationships or vendors. If a review indicates that the carrying value of goodwill and other intangible assets are not recoverable, the carrying value of such asset is reduced to its estimated fair value. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect our evaluations. Therefore, impairment losses could be recorded in the future.
Recent Acquisitions
Schultz Company. On May 9, 2002, one of our wholly owned subsidiaries completed a merger with and into Schultz, a manufacturer of horticultural products and specialty items and a distributor of potting soil, soil conditioners and charcoal. Schultz products are distributed primarily to retail outlets throughout the United States and Canada. The merger was executed to achieve economies of scale and synergistic efficiencies. As a result of the merger, Schultz became a wholly owned subsidiary. The total purchase price included cash payments of $38.3 million, including related acquisition costs of $5.0 million, issuance of 600,000 shares of Class A voting common stock valued at $3.0 million and issuance of 600,000 shares of Class B nonvoting common stock valued at $3.0 million and the assumption of $20.6 million of outstanding debt which was repaid at closing. In exchange for cash, common stock and the assumption of debt, we received all of the outstanding shares of Schultz. We have preliminarily allocated 50% of the purchase price in excess of the fair value of net assets acquired to intangible assets ($19.7 million) and 50% to goodwill ($19.7 million), which is not deductible for tax purposes. The acquired intangible assets consist of trade names and other intellectual property which are being amortized over 25 to 40 years. In addition, we were required to write-up the value of inventory acquired from Schultz by $1.5 million to properly reflect its fair value.
This transaction was accounted for using the purchase method of accounting and, accordingly, the results of operations of the assets acquired and liabilities assumed have been included in the consolidated financial statements from the date of acquisition. The purchase price was allocated to assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation is based on preliminary information, which is subject to adjustment upon obtaining complete valuation information. While the final purchase price allocation may differ significantly from the preliminary allocation included in this report, we believe that finalization of the allocation will not have a material impact on the consolidated results of operations or our financial position. Completion of the purchase price allocation is expected by the second quarter of 2003.
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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition (dollars in thousands):
| Description | Amount | |||
|---|---|---|---|---|
| Current assets | $ | 40,856 | ||
| Equipment and leasehold improvements | 3,901 | |||
| Intangible assets | 20,632 | |||
| Goodwill | 19,744 | |||
| Other assets | 811 | |||
| Total assets acquired | 85,944 | |||
Current liabilities | 19,857 | |||
| Long-term debt | 20,662 | |||
| Other liabilities | 1,125 | |||
| Total liabilities | 41,644 | |||
| Net assets acquired | $ | 44,300 | ||
Our funding sources for the Schultz merger included an additional $35.0 million add-on to Term Loan B of our senior credit facility, an additional $10.0 million add-on to the revolving credit facility, the issuance of 1,690,000 shares of Class A voting common stock to UIC Holdings, L.L.C. for $8.5 million and the issuance of 1,690,000 shares of Class B nonvoting common stock to UIC Holdings, L.L.C. for $8.5 million. The issuance of shares to UIC Holdings, L.L.C. was a condition precedent to the amendment of the senior credit facility. The value of the shares issued was determined using $5 per share, the fair value of our common stock ascribed by an independent third party valuation.
WPC Brands, Inc. On December 6, 2002, one of our wholly owned subsidiaries completed the acquisition of WPC Brands, a manufacturer and distributor of various leisure-time consumer products, including, a full line of insect repellents, institutional healthcare products and other proprietary and private label products. The acquisition was executed to enhance our insect repellent product lines and to strengthen our presence at major customers. The total purchase price was $19.5 million in cash in exchange for all of the outstanding shares of WPC Brands. We have preliminarily allocated 75% of the purchase price in excess of the fair value of net assets acquired to intangible assets ($9.7 million) and 25% to goodwill ($3.2 million). The acquired intangible assets consist of trade names and other intellectual property which are being amortized over 25 to 40 years. In addition, we were required to write-up the value of inventory acquired from WPC Brands by $2.0 million to properly reflect its fair value.
This transaction was accounted for using the purchase method of accounting and, accordingly, the results of operations of the assets acquired and liabilities assumed have been included in the consolidated financial statements from the date of acquisition. The purchase price was allocated to assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation is based on preliminary information, which is subject to adjustment upon obtaining complete valuation information. While the final purchase price allocation may differ significantly from the preliminary allocation included in this report, we believe that finalization of the allocation will not have a material impact on the consolidated results of operations or our financial position. Completion of the purchase price allocation is expected by the third quarter of 2003.
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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition (dollars in thousands):
| Description | Amount | |||
|---|---|---|---|---|
| Current assets | $ | 7,987 | ||
| Equipment and leasehold improvements | 844 | |||
| Intangible assets | 11,294 | |||
| Goodwill | 3,222 | |||
| Other assets | 455 | |||
| Total assets acquired | 23,802 | |||
Current liabilities | 3,286 | |||
| Other liabilities | 1,016 | |||
| Total liabilities | 4,302 | |||
| Net assets acquired | $ | 19,500 | ||
Our funding source for the WPC Brands acquisition was a portion of the proceeds received from an additional $25.0 million add-on to Term Loan B of our senior credit facility.
In addition, we are currently considering selling certain or all of the non-core product lines received in the acquisition of WPC Brands. Total assets represented by these product lines are approximately $1.6 million with annual net sales in 2002 of approximately $6.2 million.
Recent Strategic Transactions
Acquisition of Brands. On December 17, 2001, we advanced our strategic plan for growth in the consumer lawn and garden category by acquiring leading consumer fertilizer brands Vigoro, Sta-Green and Bandini, as well as acquiring licensing rights to the Best® line of fertilizer products, for a cash purchase price of $37.5 million. The brands, which were formerly owned by or licensed to Pursell, complement our consumer lawn, garden and insect control products. In connection with financing this transaction, we issued 22,600 shares of preferred stock for $1,000 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method, and warrants to purchase 6,300,000 shares of common stock initially to UIC Holdings, L.L.C. for net cash proceeds of $22.0 million.
Strategic Relationship with Bayer. On June 14, 2002, we and Bayer consummated a strategic transaction. The strategic transaction allows us to gain access to certain Bayer active ingredient technologies through a Supply Agreement and to perform certain merchandising services for Bayer through an In-Store Service Agreement. In connection with the strategic transaction, Bayer acquired a minority ownership interest, approximately 9.3% of the issued and outstanding shares of our common stock, under the terms of an Exchange Agreement in exchange for promissory notes due to Bayer from Pursell and the execution of the Supply and In-Store Service Agreements.
We have the right to terminate the In-Store Service Agreement at any time without cause upon 60 days advance notice to Bayer. Following any such termination, we would have 365 days to exercise an option to repurchase all of our stock issued to Bayer. We could repurchase the stock at a price based on equations contained in the Exchange Agreement designed to represent in part the fair market value of the shares at the time such repurchase option is exercised and in part the original cost of such stock. In the event we exercise this repurchase option, Bayer would have the right to terminate the Supply Agreement. Because Bayer is both a competitor and a supplier, we are constantly reevaluating our relationship with Bayer and the value of this relationship to us, and may decide to terminate the In-Store Service Agreement and exercise our repurchase option at any time.
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In consideration for the Supply and In-Store Service Agreements, and in exchange for the promissory notes of Pursell, we issued to Bayer 3,072,000 shares of Class A voting common stock valued at $15.4 million and 3,072,000 shares of Class B nonvoting common stock valued at $15.4 million and recorded $0.4 million of related issuance costs. We reserved for the entire face value of the promissory notes due to Bayer from Pursell as we did not believe they were collectible and an independent third party valuation did not ascribe any value to them.
Based on the independent third party valuation, we assigned a fair value of $30.7 million on June 14, 2002 to the transaction components recorded relative to the common stock issued to Bayer as follows:
| Description | Amount | |||
|---|---|---|---|---|
| Common stock subscription receivable | $ | 27,321 | ||
| Supply Agreement | 5,694 | |||
| Repurchase option | 2,636 | |||
| In-Store Services Agreement | (4,931 | ) | ||
| $ | 30,720 | |||
Under the requirements of the agreements, Bayer will make payments to us which total $5.0 million annually through June 15, 2009, the present value of which equals the value assigned to the common stock subscription receivable, which is reflected in the equity section in our accompanying consolidated balance sheet as of December 31, 2002. The common stock subscription receivable will be repaid in 28 quarterly installments of $1.25 million, the first of which was received at closing on June 17, 2002. The difference between the value ascribed to the common stock subscription receivable and the installment payments will be reflected as interest income in our consolidated statements of operations through June 15, 2009.
Bayer has the right to put the shares received back to us under the terms of the Exchange Agreement. Bayer can terminate the Exchange Agreement within the first 36 months if we fail to meet certain performance guidelines as established in the In-Store Service Agreement. In conjunction with the termination, Bayer can put the shares received back to us within 30 days of the termination of the Exchange Agreement at a price provided for in the Exchange Agreement. We believe that the put price per share would represent in part the fair market value of the shares at the time such put option is exercised and in part the original cost of such shares.
The value of the Supply Agreement and the liability associated with the In-Store Service Agreement are being amortized over the period in which economic benefits under the Supply Agreement are utilized and the obligations under the In-Store Service Agreement are fulfilled. We are amortizing the asset associated with the Supply Agreement to cost of goods sold and currently anticipate the benefit will be recognized over a three to five-year period. We are amortizing the obligation associated with the In-Store Service Agreement to revenues over the seven-year life of the agreement. In December 2002, we and Bayer amended the In-Store Service Agreement to reduce the scope of services provided by approximately 80%. As a result, we reduced our obligation under the agreement accordingly and reclassified $3.6 million to additional paid-in capital to reflect the increase in value of the original agreement.
The independent third party valuation obtained by us also indicated that value should be ascribed to the repurchase option we have under the agreements. The repurchase option is reflected as a reduction of equity in the accompanying consolidated balance sheet as of December 31, 2002. This amount will be recorded as a component of additional paid-in capital upon exercise or expiration of the option.
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Pursell Transaction. In October 2002, we purchased certain assets from Pursell, which renamed itself U.S. Fertilizer subsequent to the agreement, for a cash purchase price of $12.1 million and forgiveness of the Pursell promissory notes previously obtained from Bayer, as described above. The assets acquired included certain inventory, equipment at two of Pursell's facilities and real estate at one of the two facilities. These facilities, located in Orrville, Ohio and Sylacauga, Alabama, previously fulfilled, and are expected to continue to fulfill, over half of our fertilizer manufacturing requirements.
Also in October 2002, we signed a tolling agreement with Pursell, whereby Pursell will supply us with fertilizer. The tolling agreement requires us to be responsible for all raw materials, certain capital expenditures and other related costs for Pursell to manufacture and supply us with fertilizer products. The agreement does not require a minimum volume purchase from Pursell, but does provide for a fixed monthly payment of $0.7 million through the term of the tolling agreement, which expires on September 30, 2007. The fixed monthly payment of $0.7 million through the term of the tolling agreement is included in our standard inventory costs and is not expensed monthly as a period cost. In addition, beginning on March 1, 2004 and on each anniversary thereafter, the fixed payment is subject to certain increases for labor, materials, inflation and other reasonable costs as outlined in the tolling agreement. The agreement provides us with certain termination rights without penalty upon a breach of the agreement by Pursell or upon our payment of certain amounts as set forth therein. As a result of our purchase of the Ohio plant and lease of the Sylacauga facility, we expect to be able to produce over one half of our fertilizer requirements. We expect that as a result of manufacturing our fertilizer our cost of goods sold will decrease although the decrease will be partially offset by an increase in selling, general and administrative expenses resulting from operation of these facilities.
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Results of Operations
The following table presents amounts and the percentages of net sales that items in the accompanying consolidated statements of operations constitute for the periods presented:
| | Year Ended December 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | ||||||||||||||
| | (dollars in thousands) | ||||||||||||||||
| Net sales by segment: | |||||||||||||||||
| Lawn and Garden | $ | 352,269 | 73.4 | % | $ | 169,267 | 61.9 | % | $ | 177,981 | 67.0 | % | |||||
| Household | 108,752 | 22.7 | % | 101,186 | 37.0 | % | 82,018 | 30.9 | % | ||||||||
| Contract | 18,969 | 4.0 | % | 2,891 | 1.1 | % | 5,795 | 2.1 | % | ||||||||
| Total net sales | 479,990 | 100.0 | % | 273,344 | 100.0 | % | 265,794 | 100.0 | % | ||||||||
| Operating costs and expenses: | |||||||||||||||||
| Cost of goods sold | 305,644 | 63.7 | % | 148,371 | 54.3 | % | 146,229 | 55.0 | % | ||||||||
| Selling, general and administrative expenses | 113,162 | 23.6 | % | 74,689 | 27.3 | % | 69,099 | 26.0 | % | ||||||||
| Facilities and organizational rationalization | — | 0.0 | % | 5,550 | 2.0 | % | — | 0.0 | % | ||||||||
| Dursban related expenses | — | 0.0 | % | — | 0.0 | % | 8,000 | 3.0 | % | ||||||||
| Total operating costs and expenses | 418,806 | 87.3 | % | 228,610 | 83.6 | % | 223,328 | 84.0 | % | ||||||||
| Operating income (loss) by segment: | |||||||||||||||||
| Lawn and Garden | 38,064 | 7.9 | % | 24,637 | 9.0 | % | 24,309 | 9.1 | % | ||||||||
| Household | 23,159 | 4.8 | % | 20,280 | 7.3 | % | 17,814 | 6.7 | % | ||||||||
| Contract | (39 | ) | 0.0 | % | (183 | ) | -0.1 | % | 343 | 0.2 | % | ||||||
| Total operating income | 61,184 | 12.7 | % | 44,734 | 16.4 | % | 42,466 | 16.0 | % | ||||||||
| Interest expense, net | 32,410 | 6.8 | % | 35,841 | 13.1 | % | 40,973 | 15.4 | % | ||||||||
| Income before income tax expense | 28,774 | 5.9 | % | 8,893 | 3.3 | % | 1,493 | 0.6 | % | ||||||||
| Income tax expense | 3,438 | 0.7 | % | 2,167 | 0.8 | % | 134 | 0.1 | % | ||||||||
| Net income | $ | 25,336 | 5.2 | % | $ | 6,726 | 2.5 | % | $ | 1,359 | 0.5 | % | |||||
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Net Sales. Net sales represent gross sales less any applicable customer discounts from list price, customer returns and promotion expense through cooperative programs with retailers. Net sales increased $206.7 million, or 75.6%, to $480.0 million for the year ended December 31, 2002 from $273.3 million for the year ended December 31, 2001. The increase, primarily in our Lawn and Garden segment, as well as the change in our sales mix by segment, were due mainly to our expanded product lines resulting from our acquisition of various fertilizer brands and our merger with Schultz in May 2002, coupled with an increase in sales of specific product lines described further below. This increase was partially offset by an increase in promotion expense and retailers maintaining lower inventory levels.
Net sales in the Lawn and Garden segment increased $183.0 million, or 108.0%, to $352.3 million for the year ended December 31, 2002 from $169.3 million for the year ended December 31, 2001. Net sales of this segment increased $137.4 million as a result of our acquisition of various fertilizer brands and $28.7 million as a result of our merger with Schultz. These increases were partially offset by lower sales volume of various other products in the Lawn and Garden segment. Net sales in the Household segment increased $7.6 million, or 7.5%, to $108.8 million for the year ended December 31, 2002 from $101.2 million for the year ended December 31, 2001. Net sales of this segment increased primarily due
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to increases in sales of our repellents and insecticides and in our private label products. Net sales in the Contract segment increased $16.1 million to $19.0 million for the year ended December 31, 2002 from $2.9 million for the year ended December 31, 2001. Net sales of this segment increased primarily due to our merger with Schultz.
Gross Profit. Gross profit increased $49.3 million, or 39.4%, to $174.3 million for the year ended December 31, 2002 from $125.0 million for the year ended December 31, 2001. The increase in gross profit was primarily due to our acquisition of various fertilizer brands and our merger with Schultz, coupled with favorable materials costs of key ingredients. The increase in gross profit was partially offset by the recognition of a $1.5 million purchase accounting inventory write-up in cost of goods sold related to the merger with Schultz. As a percentage of net sales, gross profit decreased to 36.3% for the year ended December 31, 2002 from 45.7% for the year ended December 31, 2001. The decrease in gross profit as a percentage of net sales was primarily due to our acquisition of various fertilizer brands and our merger with Schultz, which both have lower margins than our other products. Gross profit as a percentage of sales is expected to improve in 2003 as we continue to achieve operational and financial efficiencies resulting from our acquisitions and other strategic transactions in 2002.
Selling, General and Administrative Expenses. Selling, 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. Selling, general and administrative expenses increased $38.5 million, or 51.5%, to $113.2 million for the year ended December 31, 2002 from $74.7 million for the year ended December 31, 2001. The increase was primarily due to our acquisition of various fertilizer brands and our merger with Schultz. As a percentage of net sales, selling, general and administrative expenses decreased to 23.6% for the year ended December 31, 2002 from 27.3% for the year ended December 31, 2001. The decrease was primarily due to additional sales related to our acquisition of various fertilizer brands and our merger with Schultz, with a lesser corresponding increase in selling, general and administrative expenses.
Operating Income. Operating income increased $16.5 million, or 36.9%, to $61.2 million for the year ended December 31, 2002 from $44.7 million for the year ended December 31, 2001. The increase was due to the factors described above. As a percentage of net sales, operating income decreased to 12.7% for the year ended December 31, 2002 from 16.4% for the year ended December 31, 2001. The decrease was primarily in our Lawn and Garden segment due to lower margins on the products we acquired in our merger with Schultz and our acquisition of various fertilizer brands.
Operating income in the Lawn and Garden segment increased $13.5 million, or 54.9%, to $38.1 million for the year ended December 31, 2002 from $24.6 million for the year ended December 31, 2001. Operating income of this segment increased primarily due to our acquisition of various fertilizer brands and strong growth in our Spectracide brand. These increases were partially offset by lower sales volume and margins of various other products. Operating income in the Household segment increased $2.9 million, or 14.3%, to $23.2 million for the year ended December 31, 2002 from $20.3 million for the year ended December 31, 2001. Operating income of this segment increased primarily due to increases in sales of our Cutter and Hot Shot brands and in our private label products. Operating loss in the Contract segment decreased $0.2 million for the year ended December 31, 2002 from $0.2 million for the year ended December 31, 2001. Operating loss of this segment decreased primarily due to sales of new products acquired in our merger with Schultz.
Interest Expense, Net. Interest expense, net, decreased $3.4 million, or 9.5%, to $32.4 million for the year ended December 31, 2002 from $35.8 million for the year ended December 31, 2001. The decrease in net interest expense was due to a decline in our average variable borrowing rate of 1.68 percentage points to 7.71% for the year ended December 31, 2002 from 9.39% for the year ended December 31, 2001, resulting primarily from the effects of two unfavorable interest rate swaps terminated in 2002 and a general decline in variable borrowing rates. This decrease was also due to
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interest income recognized on payments received on the common stock subscription receivable from Bayer, coupled with an increase in our average cash balances available for investment during 2002. These decreases were partially offset by an increase in our average debt outstanding during 2002, which resulted from additional borrowings under our senior credit facility to increase liquidity in February 2002, finance our merger with Schultz and finance the acquisition of WPC Brands.
Income Tax Expense. For the year ended December 31, 2002, our effective income tax rate was 11.9%. This rate is lower than our statutory rate for federal taxes and state taxes, net of federal benefit, of 38.0% because it reflects our estimated utilization of our goodwill deduction in 2002. The goodwill deduction is related to the step up in tax basis that occurred in conjunction with our recapitalization in 1999.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Net Sales. Net sales increased $7.5 million, or 2.8%, to $273.3 million for the year ended December 31, 2001 from $265.8 million for the year ended December 31, 2000. This increase was driven by a combination of offsetting factors including the increase in demand for insect repellent, increased sales of Spectracide Terminate, increased sales in the hardware channel, decreased sales related to the loss of Kgro private label business for 2001 and decreased sales related to products that contain chlorpyrifos.
Net sales in the Lawn and Garden segment decreased $8.7 million, or 4.9%, to $169.3 million for the year ended December 31, 2001 from $178.0 million for the year ended December 31, 2000. Net sales of this segment decreased primarily due to lost sales of products that contained chlorpyrifos. During 2000, the U.S. EPA and manufacturers of the active ingredient chlorpyrifos, including Dow AgroSciences L.L.C. which sold the chlorphyrifos under the trademark "Dursban," entered into a voluntary agreement that provided for the withdrawal of virtually all residential uses of Dursban. These decreases were partially offset by increased sales of various other products in the Lawn and Garden segment. Net sales in the Household segment increased $19.2 million, or 23.4%, to $101.2 million for the year ended December 31, 2001 from $82.0 million for the year ended December 31, 2000. Net sales of this segment increased primarily due to increased demand for insect repellents by $11.0 million due to weather conditions and the introduction of new products. Net sales in the Contract segment decreased $2.9 million to $2.9 million for the year ended December 31, 2001 from $5.8 million for the year ended December 31, 2000. Net sales of this segment decreased primarily due to changes in sales mix.
Gross Profit. Gross profit increased $5.4 million, or 4.5%, to $125.0 million for the year ended December 31, 2001 compared to $119.6 million for the year ended December 31, 2000. As a percentage of net sales, gross profit increased to 45.7% as compared to 45.0% for the year ended December 31, 2000. The increase in gross profit as a percentage of sales was the result of a change in sales mix to value brands, which are higher margin products, and was partially offset by a $2.7 million inventory rationalization charge recorded during the fourth quarter of 2001.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $5.6 million, or 8.1%, to $74.7 million for the year ended December 31, 2001 from $69.1 million for the year ended December 30, 2000. As a percentage of net sales, selling, general and administrative expenses increased to 27.3% for the year ended December 31, 2001 from 26.0% for the year ended December 30, 2000. The increase is attributed to increased advertising spending to support the value brands, along with additional spending for in-store sales and support in home centers. Prior year selling, general and administrative expenses also reflect a cost reduction due to the impact of terminating a capital lease.
Facilities and Organizational Rationalization. During the fourth quarter of 2001, we recorded a non-recurring charge of $5.6 million. The components of the charge included severance cost of
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$2.1 million related to an early voluntary retirement program for 85 employees, a $3.7 million charge attributed to facility exit costs for warehouse and office consolidation and a $2.7 million charge for inventory rationalization which was recorded in cost of goods sold. There were no similar charges recorded during 2000.
Dursban Related Expenses. During 2000, we recorded a non-recurring charge of $8.0 million, including customer markdowns, inventory write-offs and related disposal costs which primarily affected our Lawn and Garden segment results, as a result of the voluntary agreement between the U.S. EPA and manufacturers of Dursban to discontinue inclusion of the active chemical in our products. There were no similar charges recorded during 2001.
Operating Income. Operating income increased $2.2 million, or 5.2%, to $44.7 million for the year ended December 31, 2001 from $42.5 million for the year ended December 31, 2000. As a percentage of net sales, operating income increased to 16.4% for the year ended December 31, 2001 from 16.0% for the year ended December 31, 2000. The increase was due to the factors described above.
Operating income in the Lawn and Garden segment increased $0.3 million, or 1.2%, to $24.6 million for the year ended December 31, 2001 from $24.3 million for the year ended December 31, 2000. Operating income of this segment increased primarily due to increased sales of Spectracide Terminate and increases in sales of various other products in the Lawn and Garden segment, partially offset by lost sales of products that contained chlorpyrifos. Operating income in the Household segment increased $2.5 million, or 15.3%, to $20.3 million for the year ended December 31, 2001 from $17.8 million for the year ended December 31, 2000. Operating income of this segment increased primarily due to increased sales of insect repellents. Operating income in the Contract segment decreased $0.5 million to an operating loss of $0.2 million for the year ended December 31, 2001 from operating income of $0.3 million for the year ended December 31, 2000. Operating income of this segment decreased primarily due to changes in sales mix.
Income Tax Expense. For the year ended December 31, 2001, our effective income tax rate was 24.4%. This rate is lower than our statutory rate for federal taxes and state taxes, net of federal benefit, of 38% because it reflects our estimated utilization of our goodwill deduction in 2001. The goodwill deduction is related to the step up in tax basis that occurred in conjunction with our recapitalization in 1999.
Liquidity and Capital Resources
Our principal liquidity requirements are for working capital, capital expenditures and debt service under the senior credit facility and the senior subordinated notes.
Operating Activities. Operating activities provided cash of $37.9 million during the year ended December 31, 2002 compared to $25.0 million for the year ended December 31, 2001. The increase in cash provided by operations was primarily due to increased profitability, offset by increased inventories of $19.9 million in the year ended December 31, 2002 compared to the year ended December 31, 2001. This increase was partially offset by an increase in our allowance for doubtful accounts of $2.1 million and an increase in our allowance for potentially obsolete and slow-moving inventory of $3.1 million during the year ended December 31, 2002. The seasonal nature of our operations generally requires cash to fund significant increases in working capital, primarily accounts receivable and inventories, during the first half of the year. Accounts receivable and accounts payable also build substantially in the first half of the year in line with increasing sales as the season begins. These balances liquidate over the latter part of the second half of the year as the lawn and garden season winds down. Net of effects from acquisitions, changes in current operating assets resulted in a decline in cash flows from operating activities of $7.2 million compared to 2001. Net of effects from acquisitions, changes in current operating liabilities resulted in a decline in cash flows from operating activities of $20.8 million
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compared to 2001. Operating activities in 2001 provided $14.2 million more cash than in 2000, primarily due to a $13.1 million net increase in current operating liabilities in 2001 over 2000, net of effects from acquisitions.
Charge for Facilities, Product Line and Organizational Rationalization. During the fourth quarter of 2001, we recorded an $8.5 million charge related to facilities, product line and organizational rationalization, which primarily affected our Lawn and Garden segment results. The components of the charge included $2.7 million for obsolete inventory primarily related to the discontinuance of our Spectracide Pro® product line and damaged product from the warehouse consolidation and move, which was recorded in costs of goods sold, $2.1 million for severance costs associated with an early voluntary retirement program that was offered to 85 employees during December 2001, a $3.5 million charge during the fourth quarter of 2001 related to the warehouse consolidation project, primarily attributable to facility exit costs and resultant duplicate rent payments in 2002 and $0.2 million was recorded in selling, general and administrative expenses. Approximately $3.1 million of this charge affected cash flows from operating activities during 2001 and $3.5 million affected cash flows from operating activities during 2002. The consolidation resulted in cost savings of approximately $1.8 million in 2002 with a return on investment expected by 2004.
Dursban Agreement. During the year ended December 31, 2000, the U.S. EPA and manufacturers of the active ingredient chlorpyrifos, including Dow AgroSciences L.L.C. which sold the chlorphyrifos under the trademark "Dursban," entered into a voluntary agreement that provided for withdrawal of virtually all residential uses of Dursban in pesticide products. Formulation of Dursban products intended for residential use ceased by December 1, 2000 and formulators discontinued the sale of such products to retailers after February 1, 2001. Retailers were not allowed to sell Dursban products after December 31, 2001. Accordingly, a charge of $8.0 million was recorded in September 2000 for costs associated with this agreement, including customer markdowns, inventory write-offs and related disposal costs, which primarily affected our Lawn and Garden segment results. All of our costs associated with this agreement were incurred by December 31, 2002. Approximately $1.9 million of this charge affected cash flows from operating activities during 2000, $6.0 million affected cash flows from operating activities during 2001, and $0.1 million affected cash flows from operating activities during 2002.
Investing Activities. Investing activities used cash of $68.3 million during the year ended December 31, 2002 compared to $45.4 million for the year ended December 31, 2001. The increase in cash used in investing activities was primarily the result of an increase in strategic transactions during 2002 compared to 2001. Cash flows associated with these transactions included the merger with Schultz for $38.3 million in May 2002 and the acquisition of WPC Brands for $19.5 million in December 2002. The purchase of fertilizer brands for $37.5 million was the only significant strategic transaction completed during 2001. Also contributing to the increase in cash used for investing activities was an increase of $2.5 million in purchases of equipment and leasehold improvements during the year ended December 31, 2002 compared to the year ended December 31, 2001. Investing activities in 2001 used $41.4 million more cash than in 2000, primarily due to payments for the purchase of fertilizer brands for $37.5 million in 2001 and an increase in purchases of equipment and leasehold improvements of $3.9 million in 2001 over 2000.
Financing Activities. Financing activities provided cash of $40.7 million during the year ended December 31, 2002 compared to $20.4 million for the year ended December 31, 2001. The increase in cash from financing activities was primarily due to borrowings of $90.0 million under Term Loan B of our senior credit facility during 2002 and proceeds from the issuance of common stock of $17.5 million, partially offset by repayments on borrowings of $59.0 million exclusive of cash overdrafts. A portion of the borrowings and the net proceeds of the issuance of common stock were used to finance a portion of the merger with Schultz and the acquisition of WPC Brands. Financing activities in 2001 provided $27.2 million more cash than in 2000, primarily due to an increase in the proceeds from the issuance of preferred stock of $7.0 million in 2001 over 2000, the decrease of repayments on borrowings exclusive
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of cash overdrafts of $15.9 million in 2001 over 2000 and the absence of treasury stock redemption costs in 2001 which were $12.2 million in 2000.
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 our recapitalization in 1999 and increased borrowings, we have significantly increased cash requirements for debt service relating to our senior subordinated notes and senior credit facility. We had total long-term debt and capital lease obligations outstanding of $404.9 million as of December 31, 2002 and $351.8 million as of December 31, 2001. We will rely on internally generated funds and, to the extent necessary, borrowings under our revolving credit facility to meet liquidity needs. As of December 31, 2002, we had unused availability of $88.1 million under our revolving credit facility.
We believe that cash flows from operations, together with available borrowings under our revolving credit facility, will be adequate to meet the anticipated requirements for working capital, capital expenditures and scheduled principal and interest payments for at least the next two years. We are regularly engaged in acquisition discussions with a number of companies, although we have no definitive agreements at this time. We cannot guarantee that any acquisitions will be consummated. If we do consummate any acquisitions it could be material to our business and require us to incur additional debt under our revolving credit facility or otherwise.
We cannot ensure that sufficient cash flow will be generated from operations to repay the notes and amounts outstanding under the senior credit facility at maturity without requiring additional financing. Our ability to meet debt service and clean-down obligations and reduce debt will be dependent on our future performance, which in turn, will be subject to general economic and weather conditions and to financial, business and other factors, including factors beyond our control. 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.
Capital Expenditures
Capital expenditures relate primarily to the enhancement of our existing facilities and the construction of additional capacity for production and distribution, as well as the implementation of our enterprise resource planning, or ERP, system. Cash used for capital expenditures was $10.5 million in 2002, $7.9 million in 2001 and $4.0 million in 2000. The increase in 2002 capital expenditures from 2001 is primarily related to our purchase of fertilizer manufacturing equipment from Pursell in October 2002, coupled with expenditures related to our ERP system. We expect to spend approximately $4.0 million in 2003 on our ERP system. No costs were incurred for the ERP system during 2000. During the year ended December 31, 2000, we executed a capital lease agreement for the lease of our corporate aircraft for $5.3 million.
Financing Activities
Senior Credit Facility. Our senior credit facility, as amended as of December 6, 2002, was provided by Bank of America, N.A. (formerly known as NationsBank, N.A.), Morgan Stanley Senior Funding, Inc. and Canadian Imperial Bank of Commerce and consists of (1) a $90.0 million revolving credit facility; (2) a $75.0 million term loan facility (Term Loan A); and (3) a $240.0 million term loan facility (Term Loan B). The revolving credit facility and Term Loan A mature on January 20, 2005 and Term Loan B matures on January 20, 2006. 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 during the period between August 1 and November 30 in each calendar year. As of December 31, 2002, the clean-down period had been completed and no amounts were outstanding under the revolving credit facility, nor were there any compensating balance requirements.
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On February 13, 2002, the senior credit facility was amended to increase Term Loan B from $150.0 million to $180.0 million and provide additional liquidity and flexibility for capital expenditures subsequent to our purchase of various fertilizer brands in December 2001. We incurred $1.1 million in fees related to the amendment which were recorded as deferred financing fees and are being amortized over the remaining term of the senior credit facility. The amendment did not change any other existing covenants of the senior credit facility.
On May 8, 2002, in connection with our merger with Schultz, the senior credit facility was amended to increase Term Loan B from $180.0 million to $215.0 million, increase the revolving credit facility from $80.0 million to $90.0 million and provide additional flexibility for capital expenditures. We incurred $2.2 million in fees related to the amendment which were recorded as deferred financing fees and are being amortized over the remaining term of the senior credit facility. The amendment did not change any other existing covenants of the senior credit facility.
On December 6, 2002, in connection with our acquisition of WPC Brands, the senior credit facility was amended to increase Term Loan B from $215.0 million to $240.0 million and provide additional flexibility for capital expenditures. We incurred $1.1 million in fees related to the amendment which were recorded as deferred financing fees and are being amortized over the remaining term of the senior credit facility. The amendment did not change any other existing covenants of the senior credit facility.
On March 19, 2003, in connection with the offering of the Series C notes, the senior credit facility was amended to permit us to issue the Series C and D notes. The amendment did not change any other existing covenants of the senior credit facility.
The principal amount of Term Loan A was scheduled to be repaid in 24 consecutive quarterly installments commencing June 30, 1999 with a final installment due January 20, 2005. However, the Term A loan was repaid in full with a portion of the proceeds of the offering of our Series C notes. The principal amount of Term Loan B is to be repaid in 28 consecutive quarterly installments commencing June 30, 1999 with a final installment due January 20, 2006.
The senior credit facility agreement contains restrictive affirmative, negative and financial covenants. Affirmative and negative covenants place restrictions on, among other things, levels of investments, indebtedness, insurance, capital expenditures and dividend payments. The financial covenants require the maintenance of certain financial ratios at defined levels. As of and during the years ended December 31, 2002 and 2001, we were in compliance with all covenants. While we do not anticipate an event of non-compliance in the foreseeable future, the effect of non-compliance would require us to request a waiver or an amendment to the senior credit facility. Amending the senior credit facility could result in changes to our borrowing capacity or our effective interest rates. Under the agreements, interest rates on the revolving credit facility, Term Loan A and Term Loan B range from 1.50% to 4.00% above LIBOR, depending on certain financial ratios. LIBOR was 1.38% as of December 31, 2002 and 1.88% as of December 31, 2001. Unused commitments under the revolving credit facility are subject to a 0.5% annual commitment fee. The interest rate of Term Loan A was 4.67% and 5.43% as of December 31, 2002 and 2001, respectively. The interest rate of Term Loan B was 5.42% and 5.93% as of December 31, 2002 and 2001, respectively.
The senior credit facility may be prepaid in whole or in part at any time without premium or penalty. During the year ended December 31, 2002, we made principal payments of $11.0 million on Term Loan A and $2.0 million on Term Loan B, which included optional principal prepayments of $6.3 million on Term Loan A and $1.1 million on Term Loan B. During the year ended December 31, 2001, we made principal payments of $9.2 million on Term Loan A and $1.4 million on Term Loan B, which included optional principal prepayments of $4.1 million on Term Loan A and $0.7 million on Term Loan B. The optional payments were made to remain two quarterly payments ahead of the regular payment schedule. According to the senior credit facility agreement, each prepayment on Term
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Loan A and Term Loan B can be applied to the next principal repayment installments. We paid Term Loan A in full with a portion of the proceeds of the offering of the Series C notes and we intend to pay a full year of principal installments in 2003 under Term Loan B in accordance with the terms of the senior credit facility.
Substantially all of the properties and assets of our current or future domestic subsidiaries collateralize obligations of the senior credit facility.
The carrying amount of our obligations under the senior credit facility approximates fair value because the interest rates are based on floating interest rates identified by reference to market rates.
97/8% Series B Senior Subordinated Notes. In November 1999, we issued $150.0 million in aggregate principal amount of 97/8% Series B senior subordinated notes due April 1, 2009. Interest accrues at a rate of 97/8% per annum, payable semi-annually on April 1 and October 1. The indenture governing the Series B senior subordinated notes, among other things, (1) restricts our ability and the ability of our subsidiaries to incur indebtedness, create liens, repurchase stock, pay dividends and make distributions or enter into transactions with affiliates and (2) places restrictions on our ability and the ability of our subsidiaries to merge or consolidate all of our assets.
The fair value of the Series B notes was $151.5 million as of December 31, 2002 and $141.0 million as of December 31, 2001, based on their quoted market price on such dates.
97/8% Series C Senior Subordinated Notes. In March 2003, we issued $85.0 million in aggregate principal amount of 97/8% Series C senior subordinated notes due April 1, 2009. Interest accrues at a rate of 97/8% per annum, payable semi-annually on April 1 and October 1. The indenture governing the Series C senior subordinated notes, among other things, (1) restricts our ability and the ability of our subsidiaries to incur indebtedness, create liens, repurchase stock, pay dividends and make distributions or enter into transactions with affiliates and (2) places restrictions on our ability and the ability of our subsidiaries to merge or consolidate all of our assets.
Stock Issuances. In connection with our merger with Schultz, the Board of Directors adopted resolutions, which were approved by our stockholders, to amend our Certificate of Incorporation to increase the number of shares of authorized Class A voting common stock from 37,600,000 shares to 43,600,000 shares and increase the number of shares of authorized Class B nonvoting common stock from 37,600,000 shares to 43,600,000 shares. In addition, as part of the purchase price, we issued 600,000 shares of Class A voting common stock valued at $3.0 million and 600,000 shares of Class B nonvoting common stock valued at $3.0 million. In addition, to raise equity to partially fund the merger, we issued 1,690,000 shares of Class A voting common stock to UIC Holdings, L.L.C. for $8.5 million and 1,690,000 shares of Class B nonvoting common stock to UIC Holdings, L.L.C. for $8.5 million.
In connection with our transaction with Bayer in June 2002, we issued 3,072,000 shares of Class A voting common stock valued at $15.4 million and 3,072,000 shares of Class B nonvoting common stock valued at $15.4 million and recorded $0.4 million of related issuance costs.
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Contractual Cash Obligations. The following table presents the aggregate amount of future cash outflows of our contractual cash obligations as of December 31, 2002, excluding amounts due for interest on outstanding indebtedness:
| | Obligations due in: | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Contractual Cash Obligations | Total | Less Than 1 Year | 1-3 Years | 4-5 Years | After 5 Years | |||||||||||
| | (dollars in thousands) | |||||||||||||||
| Senior credit facility | $ | 250,715 | $ | 9,222 | $ | 241,493 | $ | — | $ | — | ||||||
| 97/8% Series B Senior Subordinated Notes(1) | 150,000 | — | — | — | 150,000 | |||||||||||
| 97/8% Series C Senior Subordinated Notes(1) | 85,000 | — | — | — | 85,000 | |||||||||||
| Capital lease | 4,221 | 443 | 3,778 | — | — | |||||||||||
| Operating leases | 62,990 | 8,872 | 21,566 | 10,801 | 21,751 | |||||||||||
| Tolling agreement with Pursell(2) | 40,419 | 8,509 | 25,528 | 6,382 | — | |||||||||||
| Urea purchase agreements(3) | 4,853 | 4,853 | — | — | — | |||||||||||
| Urea hedging agreements(4) | 5,994 | 5,994 | — | — | — | |||||||||||
| Services agreements(5) | 6,650 | 2,550 | 2,600 | 1,500 | — | |||||||||||
| Total contractual cash obligations | $ | 610,842 | $ | 40,443 | $ | 294,965 | $ | 18,683 | $ | 256,751 | ||||||
We lease several of our operating facilities from Rex Realty, Inc., a company owned by our stockholders and operated by a former executive and past member of our Board of Directors. The operating leases expire at various dates through December 31, 2010. We have options to terminate the leases on an annual basis by giving advance notice of at least one year. As of December 31, 2002, notice had been given on one such lease. We lease a portion of our operating facilities from the same company under a sublease agreement expiring on December 31, 2005 with minimum annual rentals of $0.7 million. We have two five-year options to renew this lease, beginning January 1, 2006. Management believes that the terms of these leases are arms length. Rent expense under these leases was $2.3 million in 2002, $2.3 million in 2001 and $2.2 million in 2000.
We are obligated under additional operating leases for other operations and the use of warehouse space. The leases expire at various dates through December 31, 2015. Five of the leases provide for as
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many as five options to renew for five years each. During the years ended December 31, 2002, 2001 and 2000, aggregate rent expense under these leases was $3.8 million, $5.1 million and $5.0 million, respectively.
In March 2000, we entered into a capital lease agreement for $5.3 million for our aircraft. We are obligated to make monthly payments of $0.1 million, with a balloon payment of $3.2 million in February 2005. We have the option of purchasing the aircraft following the expiration of the lease agreement for a nominal amount.
Guarantees and Off-Balance Sheet Risk. In the normal course of business, we are a party to certain guarantees and financial instruments with off-balance sheet risk, such as standby letters of credit and indemnifications, which are not reflected in the accompanying consolidated balance sheets. At December 31, 2002, we had $1.9 million in standby letters of credit pledged as collateral to support the lease of our primary distribution facility in St. Louis, a United States customs bond, certain product purchases and various workers' compensation obligations. These agreements mature at varying dates through October 2003 and may be renewed as circumstances warrant. Such financial instruments are valued based on the amount of exposure under the instruments and the likelihood of performance being required. In our past experience, no claims have been made against these financial instruments nor do we expect any losses to result from them. As a result, we determined the fair value of such instruments to be zero and have not recorded any related amounts in our consolidated financial statements.
We are the lessee under a number of equipment and property leases, as described in Note 13 of the notes to our consolidated financial statements included elsewhere in this prospectus. It is common in such commercial lease transactions for us to agree to indemnify the lessor for the value of the property or equipment leased should it be damaged during the course of our operations. We expect that any losses that may occur with respect to the leased property would be covered by insurance, subject to deductible amounts. As a result, we determined the fair value of such instruments to be zero and have not recorded any related amounts in our consolidated financial statements.
Related Party Transactions
See "Certain Relationships and Related Transactions" for information regarding related party relationships and transactions.
Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 updates, clarifies and simplifies existing accounting pronouncements. We are required to adopt SFAS No. 145 during the first quarter of 2003. Adoption will not have a material impact on our consolidated financial statements. However, SFAS No. 145 could affect how we record certain expenses after December 31, 2002.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred rather than when a company commits to such an activity and also establishes fair value as the objective for initial measurement of the liability. SFAS No. 146 will be adopted for exit or disposal activities that are initiated after December 31, 2002. Adoption will not have a material impact on our consolidated
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financial statements. However, SFAS No. 146 will affect how we recognize exit costs after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Certain provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002 and other provisions are effective for fiscal years beginning after December 15, 2002. Unless we elect in the future to change from the intrinsic value method to the fair value method of accounting for stock-based employee compensation, SFAS No. 148 will not have a material impact on our consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). The disclosure requirements of FIN 45 are effective for our consolidated financial statements for the year ended December 31, 2002. For applicable guarantees issued after January 1, 2003, FIN 45 requires that a guarantor recognize a liability for the fair value of obligations undertaken in issuing guarantees.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which requires the consolidation of variable interest entities, as defined. FIN 46 is applicable to financial statements to be issued after 2002; however, disclosures are required currently if any variable interest entities are expected to be consolidated. The adoption of FIN 46 will not have a material effect on our consolidated financial statements as we do not have any variable interest entities that will be consolidated as a result of FIN 46.
Interest Rates and Raw Materials Prices
In the normal course of business, we are exposed to fluctuations in interest rates and raw materials prices. We have established policies and procedures that govern the management of these exposures through the use of derivative hedging instruments, including swap agreements. Our objective in managing our exposure to such fluctuations is to decrease the volatility of earnings and cash flows associated with changes in interest rates and certain raw materials prices. To achieve this objective, we periodically enter into swap agreements with values that change in the opposite direction of anticipated cash flows. Derivative instruments related to forecasted transactions are considered to hedge future cash flows, and the effective portion of any gains or losses is included in accumulated other comprehensive income until earnings are affected by the variability of cash flows. Any remaining gain or loss is recognized currently in earnings.
We have formally documented, designated and assessed the effectiveness of transactions that receive hedge accounting treatment. The cash flows of the derivative instruments are expected to be highly effective in achieving offsetting cash flows attributable to fluctuations in the cash flows of the hedged risk. Changes in the fair value of agreements designated as derivative hedging instruments are reported as either an asset or liability in the accompanying consolidated balance sheets with the associated unrealized gains or losses reflected in accumulated other comprehensive income. As of December 31, 2002 and 2001, unrealized losses of $32,000 and $0.5 million, respectively, related to derivative instruments designated as cash flow hedges were recorded in accumulated other comprehensive income. Such instruments at December 31, 2002 represent hedges on forecasted purchases of raw materials during the first half of 2003 and are scheduled to mature by May 2003. The
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amounts are subsequently reclassified into cost of goods sold in the same period in which the underlying hedged transactions affect earnings.
If it becomes probable that a forecasted transaction will no longer occur, any gains or losses in accumulated other comprehensive income will be recognized in earnings. We have not incurred any gains or losses for hedge ineffectiveness or due to excluding a portion of the value from measuring effectiveness. We do not enter into derivatives or other hedging arrangements for trading or speculative purposes.
The following table summarizes our derivative hedging contracts as of December 31, 2002:
| Number of Contracts | Maturity Date | Notional Amount in Tons | Weighted Average Contract Price | Contract Value Upon Effective Contract Date | Contract Value at December 31, 2002 | Gain (Loss) at December 31, 2002 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 3 | January 30, 2003 | 14,500 | $ | 133.00 | $ | 1,928,500 | $ | 1,916,465 | $ | (12,035 | ) | ||||||
| 3 | February 28, 2003 | 15,000 | 135.00 | 2,025,000 | 2,010,000 | (15,000 | ) | ||||||||||
| 2 | March 28, 2003 | 10,000 | 135.50 | 1,355,000 | 1,353,300 | (1,700 | ) | ||||||||||
| 1 | April 24, 2003 | 5,000 | 137.00 | 685,000 | 681,650 | (3,350 | ) | ||||||||||
| 9 | 44,500 | $ | 5,993,500 | $ | 5,961,415 | $ | (32,085 | ) | |||||||||
In April 2001, we entered into two interest rate swaps that fixed the interest rate as of April 30, 2001 for $75.0 million in variable rate debt under our senior credit facility. The interest rate swaps settled on April 30, 2002 and a derivative hedging loss of $0.5 million was reclassified from accumulated other comprehensive income into interest expense.
The following table summarizes information about our debt instruments that are sensitive to changes in interest rates as of December 31, 2002. The table presents future principal cash flows and related weighted-average interest rates by expected maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve at December 31, 2002 (dollars in thousands):
| Description | 2003 | 2004 | 2005 | 2006 | 2007 | Thereafter | Total | Fair Value | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Long-term debt: | ||||||||||||||||||||||||||
| Fixed rate debt | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 150,000 | $ | 150,000 | $ | 151,500 | ||||||||||
| Average interest rate | — | — | — | — | — | 9.875 | % | 9.875 | % | |||||||||||||||||
| Variable rate debt | $ | 9,222 | $ | 18,444 | $ | 168,439 | $ | 54,610 | — | — | $ | 250,715 | $ | 250,715 | ||||||||||||
| Average interest rate | 5.14 | % | 5.60 | % | 6.11 | % | 6.53 | % | — | — | — | |||||||||||||||
Exchange Rates
International sales during the years 2000 through 2002 comprised less than 1% of total net sales. We do not use derivative instruments to hedge foreign currency exposures as substantially all of our foreign currency transactions are denominated in U.S. dollars.
Operating as Spectrum Brands, we are the leading manufacturer and marketer of value-oriented products for the consumer lawn and garden care and insect control markets in the United States. Under a variety of brand names, 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, fertilizers, growing media and soils. Our value brands are targeted toward consumers who want products and packaging that are comparable or superior to, and at lower prices than, premium-priced brands, while our opening price point brands are designed for cost conscious consumers who want quality products. Our products are marketed to mass merchandisers, home improvement centers, hardware chains, nurseries and garden centers. Our three largest customers are The Home Depot, Lowe's and Wal*Mart, which are leading and fast growing retailers in our larger segments.
During the third quarter of 2002, we began reporting operating results using three reportable segments:
We compete in the $2.8 billion consumer lawn and garden retail market and are benefiting from a shifting of consumer preferences toward value-oriented products. We believe a key growth factorGreen Earth in the lawn and garden retail market iscategories, and IB Nitrogen, Nitroform, Nutralene, S.C.U. and Organiform in the aging of the United States population, as consumers over the age of forty-five represent the largest segment offertilizer technology category. Our lawn and garden care product users and typically have more leisure time and higher levels of discretionary income than the general population. We also believe the growth in the home improvement center and mass merchandiser channels has increased the popularity of do-it-yourself activities, including lawn and garden projects.
Competitive Strengths
Our success is based on the following competitive strengths:
Strong Relationships with Leading and Fast Growing Retailers. Through our ability to "add value" for our retail customers, we have developed strong relationships with a number of leading national home centers and mass merchandisers. Three such retailers are our three largest customers—The Home Depot, Lowe's and Wal*Mart. These retailers each hold significant positions in the lawn and garden and household categories in which we compete and have together opened over 1,100 new stores in the last three years. As a result, we have been able to significantly increase our sales as these retailers have added new stores and captured greater market share.
"One-Stop" Supplier. We offer a broad product line of the value-oriented products that consumers demand as an alternative to premium-priced products. This product breadth, enhanced by our ability to create innovative products and to acquire and integrate products and businesses, improves our ability to be a "one-stop" supplier of branded, value-oriented products in both the lawn and garden and household categories for our customers.
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In-Store Category Management. We believe that our one-step distribution process, in which most shipments are made directly from our facilities to retail stores, and our direct in-store sales force enable us to manage customer relationships on a store-by-store basis better than other suppliers and help us compete aggressively with premium-priced suppliers for shelf space. Our sales representatives visit most home center locations on a weekly basis to merchandise shelf space, collect market data and educate in-store personnel about our products. This process facilitates regionally appropriate, real-time marketing and promotional decisions, helping to maximize store-level sales and profitability for categories which have a high degree of sensitivity to local weather patterns. In addition, our sales force helps us to identify emerging trends and develop products to meet consumers' needs.
Broad Technology Portfolio. We have close relationships with key global active ingredient suppliers and have access to a broad portfolio of chemistry due to our significant presence in the pesticide market. This broad-based access to technology enables us to develop products that differentiate between our various opening-price point offerings and our nationally distributed value brands while offering product efficacy that is competitive with premium-priced products.
Strong Management Team. Our senior management team has extensive industry experience and has grown our business by developing and introducing new products, expanding our distribution channels and acquiring new brands and products, while improving our operating efficiencies.
Business Strategy
We plan to build on our strengths and favorable industry trends to enhance our competitive position by implementing the following key elements of our business strategy:
Enhance Relationships with Leading Retailers. We seek to leverage our strong value brand position and operational expertise to continue to deliver more value to leading retailers than our competitors. We focus on enhancing retailers' profitability in selling our products by being a low-cost provider and leveraging our one-step distribution process. We are able to compete as a low-cost provider due to our efficient marketing programs, high level of vertical integration and significant distribution leverage. We currently manufacture and market opening price point brands for leading retailers such as Ace Hardware, Albertsons, Dollar General, The Home Depot, Lowe's, Target, Tru*Serv, Walgreens and Wal*Mart. We also believe our relationship as a supplier of "house brands" provides a basis for broadening our product offerings and we intend to seek out new strategies for enhancing our position with key customers.
Leverage Our Operating Model. We continually seek to build the strength of our distribution network and relationships with retailers. We have increased our sales and improved operating leverage by supplying complementary product lines to retailers. Our strategy is to continue to add new products either through new product development or by acquiring product lines.
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Maintain and Enhance Technological Strength. We plan to continue to focus on building and maintaining a broad technology portfolio to enhance product differentiation and to maintain product efficacy. By increasing scale, we seek to leverage our relationships with global active ingredient suppliers to maintain and expand our technologically advanced product offerings, with a focus on exclusive chemistry and new technology.
Focus and Coordinate Sales Efforts. We have established four customer-focused platform teams that are comprised of dedicated executive, sales, marketing, supply chain and finance personnel. Three of these teams are located in the cities of our largest customers' headquarters while the fourth is based at our corporate headquarters to serve our other accounts. In addition, we have reorganized our direct retail sales force to improve service to key customers. This realignment, completed in 2002, allows us to provide separate, dedicated, individually tailored customer service to our key customers and should position us to respond more quickly and proactively to their specific needs.
Increase Supply Chain Efficiency. We plan to leverage our greater purchasing power for raw materials and active ingredients resulting from our organic growth and acquisitions to seek improved prices and terms from suppliers. In addition, we intend to selectively in-source or out-source products, based on the cost, quality and reliability of available alternatives. Toward that end, we recently improved costs and reliability by acquiring one fertilizer manufacturing plant and leasing another plant, which allows us to manufacture much of our granular fertilizer product, as opposed to relying on outsourcing arrangements.
Industry Overview
Retail sales of consumer lawn and garden products in the United States totaled approximately $2.8 billion during the year ended December 31, 2002. We believe that the industry will continue to grow over the next several years due to favorable demographic trends. According to a national, independent gardening survey conducted in 2001, approximately 85 million households in the United States, or 80% of all households in the United States, 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 have 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 faster rate than that of the total population. We believe that this demographic trend is likely to increase the number of lawn and garden care product users which will contribute to continued growth of the industry.
Our History
We were founded in 1969 and incorporated as a Delaware corporation in 1973. On January 20, 1999, UIC Holdings, L.L.C., which is owned by Thomas H. Lee Equity Fund IV, L.P. and its affiliates and some members of the management at that time, acquired substantially all of our capital stock in a recapitalization transaction. UIC Holdings, L.L.C. currently is the beneficial owner of approximately 84% of our capital stock on a fully diluted basis.
Acquisition of Brands. In 1973, we acquired the assets of Spray Chem, a contract manufacturer of liquid and aerosol insecticides and herbicides. In 1985, we acquired Real-Kill and entered into the manufacture and distribution of branded products. In 1988, we formed our core businesses through the acquisition of certain assets of various businesses of Chesebrough-Ponds. The acquired brands included Spectracide, Hot Shot, Rid-a-Bug, Bag-a-Bug and No-Pest. The acquisition of these brands expanded our products to include a wide array of value- oriented indoor and outdoor pesticides. In 1994, we acquired assets and licensing rights relating to Cutter from Miles, Inc. In 1995, we acquired assets from Alljack Company and Celex Corporation, including certain licensing rights and certain manufacturing rights of Kmart's opening price point brands.
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On December 17, 2001, we advanced our strategic plan for growth in the consumer lawn and garden category by acquiring leading consumer fertilizer brands Vigoro, Sta-Green and Bandini, as well as acquiring licensing rights to the Best line of fertilizer products. These brands, which were formerly owned by or licensed to Pursell Industries, Inc., complement our consumer lawn, garden and insect control products.
Schultz Company. On May 9, 2002, a wholly owned subsidiary of the company merged with Schultz, a manufacturer of horticultural products and specialty items and a distributor of potting soil, soil conditioners and charcoal. Schultz products are distributed primarily to retail outlets throughout the United States and Canada. The merger was executed to achieve economies of scale and synergistic efficiencies. As a result of the merger, Schultz became a wholly owned subsidiary of ours. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisitions."
WPC Brands, Inc. On December 6, 2002, we acquired WPC Brands, a manufacturer and distributor of various leisure-time consumer products, including a full line of insect repellents, institutional healthcare products and other proprietary and private label products. The acquisition was executed to enhance our insect repellent product lines and to strengthen our presence at major customers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisitions."
Strategic Relationship with Bayer. On June 14, 2002, we and Bayer Corporation and Bayer Advanced, L.L.C., together referred to herein as Bayer, consummated a strategic transaction. The strategic transaction allows us to gain access to certain Bayer active ingredient technologies through a Supply Agreement and to perform certain merchandising services for Bayer through an In-Store Service Agreement. Because Bayer is both a competitor and a supplier, we are constantly reevaluating our relationship with Bayer and the value of this relationship to us, and may decide to terminate the In-Store Service Agreement at any time. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Strategic Transactions."
Pursell Transaction. On October 3, 2002, we signed an asset purchase agreement to acquire certain assets from Pursell. The assets acquired included certain inventory, equipment at two of Pursell's facilities and real estate at one of the two facilities. These facilities, located in Orrville, Ohio and Sylacauga, Alabama, previously fulfilled, and are expected to continue to fulfill, over half of our fertilizer manufacturing requirements.
Also on October 3, 2002, we signed a tolling agreement with Pursell, whereby Pursell will supply us with the remainder of our fertilizer needs. The tolling agreement requires us to be responsible for all raw materials, certain capital expenditures and other related costs for Pursell to manufacture and supply us with fertilizer products. The agreement provides us with early termination rights without penalty upon a breach of the agreement by Pursell or upon our payment of certain amounts as set forth therein. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Strategic Transactions."
Products
Under a variety of brand names, we manufacture and market one of the broadest lines of pesticides in our industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents and fertilizers, growing media and soils. Most of our products are value oriented products, such as value brands and opening price point brands. Our value brands are targeted toward consumers who want products and packaging that are comparable or superior to, and sold at lower prices than, premium-priced brands, while our opening price point brands are designed for cost conscious
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cost-conscious consumers who want quality products. The following is a description of each of our major products by segment:
LawnElectric Shaving and GardenGrooming Products
Our Lawn and Garden segment includes
We market a broad line of brandselectric shaving and grooming products, including men’s rotary and foil shavers, women’s shavers, beard and mustache trimmers, nose and ear trimmers, haircut kits and related accessories. We market electric shaver accessories consisting of shaver replacement parts (primarily foils and cutters), pre-shave products and cleaning agents. Remington is the only brand of men’s electric shavers to offer both a foil-design product line and a variety of other value and private label products. Below is a description of some of these brands and products:
Household Insect Control
We sell a broad range
Our household insect control business is comprised of household insecticides and insect repellents and a number of private labelleading products that allow consumers to repel insects and other products. Below ismaintain a description of these brands and products.
Electric Personal Care Products
Our hair care products consist of hair dryers, hairsetters, curling irons, hair crimpers and straighteners, hot air brushes and lighted mirrors. Our wellness products consist primarily of paraffin wax hand spas and foot spas.
Portable Lighting
We sell our portable lighting products under the Rayovac and VARTA brand names, under other brand names and under licensing arrangements with third parties. We offer a varietybroad line of battery-powered lighting products, including those marketed especiallyflashlights, lanterns and similar portable devices, for use on all members of the family, including children.
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ContractSales and Distribution
The Contract segment includes our non-core products and various compounds and chemicals, such as cleaning solutions and other consumer products.
Customers
We sell our products through all major retaila variety of trade channels, including retailers, wholesalers and distributors, hearing aid professionals, industrial distributors and OEMs. Our pro forma sales to Wal-Mart Stores, Inc. for our 2004 fiscal year represented approximately 18% of our pro forma consolidated net sales for fiscal 2004 and no other customer accounted for more than 10% of our consolidated net sales in fiscal 2004.
North America
We align our internal sales force in North America by distribution channel. We maintain separate sales forces primarily to service (i) our retail sales and distribution channels, (ii) our hearing aid professionals and (iii) our industrial distributors and OEM sales and distribution channels. In addition, we use a network of independent brokers to service participants in selected distribution channels.
Europe/ROW
We maintain a separate sales force in Europe/ROW and utilize an international network of distributors to promote the sale of all of our products. We have sales operations throughout Europe/ROW organized by three sales channels: (i) food/retail, which includes mass merchandisers, discounters, drug and food stores and non-food stores; (ii) special trade, which includes clubs (cash/carry), consumer electronics stores, department stores, photography stores, hearing aid professionals and wholesalers/distributors, and (iii) industrial, government and OEMs.
Latin America
We align our internal sales force in Latin America by distribution channel or geographic territory. We sell primarily to large retailers, wholesalers, distributors, food and drug chains, and retail outlets in both urban and rural areas. In some countries where we do not maintain a separate internal sales force, we sell to distributors who sell our products to all channels in their particular market.
United and Tetra
We sell our lawn and garden, pet supplies and household insect control products to mass merchandisers, home improvement centers, mass merchandisers, hardware, stores, grocery and drug stores, wholesale clubschains, nurseries and garden centers.centers, pet superstores, independent pet stores and other retailers.
Manufacturing, Raw Materials and Suppliers
The principal raw materials used to produce our products—including zinc powder, electrolytic manganese dioxide powder, steel and granular urea—are sourced on a global or regional basis, and the prices of those raw materials are susceptible to price fluctuations due to supply/demand trends, energy costs, transportation costs, government regulations and tariffs, changes in currency exchange rates, price controls, the economic climate and other unforeseen circumstances. We are heavily dependent on The Home Depot, Lowe'sregularly engage in forward purchase and Wal*Marthedging transactions in an attempt
to effectively manage our raw materials costs for a substantial portionthe next six to twelve months. We believe we will continue to have access to adequate quantities of these materials.
Substantially all of our sales. The sales to these customers, as a percentage of net sales, were:
| | Year Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | |||||
| The Home Depot | 33 | % | 25 | % | 24 | % | ||
| Lowe's | 23 | % | 22 | % | 19 | % | ||
| Wal*Mart | 18 | % | 17 | % | 16 | % | ||
| Total | 74 | % | 64 | % | 59 | % | ||
We manufacturerechargeable batteries and supplychargers, portable lighting products to hundreds of customers representing more than 70,000 retail stores across the United States and in select locations of Canada, Puerto Ricohair care, wellness and the Caribbean. Our strong position in the home improvement centerother personal care products, and mass merchandiser channels is a key element to our pastelectric shaving and future success.
Seasonality
Our business is highly seasonal because ourgrooming products are manufactured by third party suppliers, primarily located in China and Japan. We maintain ownership of tooling and molds used primarily in the spring and summer seasons. For 2002, 2001 and 2000, approximately 69%, 71% and 73%, respectively,by many of our net sales have occurred in the firstsuppliers.
We continually evaluate our facilities’ capacity and second quarters, resulting in higher net revenues and results of operations during those quarters. Our working capital needs, and correspondingly our borrowings, generally peak in the first and second quarters of each year.
Backlog
Our backlog was $2.5 million as of December 31, 2002 and $0.3 million as of December 31, 2001. However, we do not believe that our backlog is a meaningful indicator of expected sales because of the short lead time between order entry and shipment. We expect our backlog to be filled within each approaching season, but there can be no assurance that backlog at any point in time will translate into sales in any particular subsequent period.
Sales and Marketing
We conduct sales activities through our exclusive direct sales force, which consists of market sales managers and merchandisers and area sales managers. Market sales managers typically visit accounts weekly to merchandise shelves. In addition, we support certain products through employing a seasonal in-store sales force.
Our marketing team leads our new product development process and develops consumer support plans to help drive sales through our distribution network. To promote our products to consumers, we advertise using television, radio and print media, develop consumer promotions and engage in market research efforts. We expect our promotion expense in 2003 to be significantly greater than our historical levels asrelated utilization. As a result of new advertising campaignssuch analyses, we have closed a number of manufacturing facilities during the past five years. In general, we believe our existing facilities are adequate for our present and our acquisitions of Schultz and WPC Brands.currently foreseeable needs.
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Research and Development
We spent $1.3 million in 2002, $2.4 million in 2001 and $1.0 million in 2000 on research and development activities.
Our research and development focusesstrategy is focused on applied research using the strength and knowledgenew product development, performance improvements of our active ingredient suppliersexisting products and strategic active ingredient partners.cost reductions in, and enhancements of, our packaging. We plan to continue to use our strong brand names, established customer relationships and significant research and development efforts to introduce innovative products that offer enhanced value to consumers through new designs and improved functionality.
On a pro forma basis, we invested approximately $19.9 million in product research and development for our 2004 fiscal year. These investments were supplemented by funds received from U.S. government contracts. These contracts enable us to investigate additional development opportunities.
Patents and Trademarks
We own or license from third parties a considerable number of patents and patent applications throughout the world for battery and electric personal care product improvements, additional features and manufacturing equipment. We have developed over 200 new products since 1999.a license through March 2022 to certain alkaline battery designs, technology and manufacturing equipment from Matsushita to whom we pay a royalty.
Raw MaterialsWe also use and Suppliersmaintain a number of trademarks in our business, including RAYOVAC®, VARTA®, REMINGTON®, MAXIMUM®, MAXIMUM PLUS™, I-C3™, RENEWAL®, LOUD ‘N CLEAR®, PRO LINE®, RAYOVAC ULTRA®, WORKHORSE®, ROUGHNECK®, SPORTSMAN®, AIR 4000®, XCELL®, EXTRA®, PRODIGY®, MICROSCREEN®, MICROFLEX®, PRECISION®, REMINGTON TITANIUM™, SMOOTH & SILKY®, SPECTRACIDE®, TRIAZICIDE®, TRIPLESTRIKE™, SPECTRACIDE TERMINATE®, SPECTRACIDE PRO®, HOT SHOT®, GARDEN SAFE®, SCHULTZ™, RID-A-BUG®, BAG-A-BUG®, REAL-KILL®, NO-PEST®, REPEL®, VIGORO®, STA-GREEN®, BANDINI®, WILSON®, SO-GREEN®, GREENLEAF®, GREEN EARTH®, IB NITROGEN®, NITROFORM®, NUTRALENE®, S.C.U.®, ORGANIFORM®, CUTTER®, MARINELAND®, PERFECTO®, INSTANT OCEAN®, REGENT®, 8-IN-1®, NATURE’S MIRACLE®, DINGO®, WILD HARVEST®, ONE EARTH®, LAZY PET®, JUNGLETALK®, TETRA®, TETRAMIN®, TETRAFIN®, TETRAPOND®, WHISPER® and AQUASAFE®. We rely on both registered and common law trademarks worldwide to protect our trademark rights. The Rayovac, Remington and VARTA trademarks are also registered in countries outside the U.S., including in Europe, Latin America and Asia. As a result of our acquisition of Microlite S.A. in May 2004, we now own the Rayovac trademark in Brazil. We also license the PETERS® and PETERS PROFESSIONAL® trademarks from The Scotts Company, CIL® trademarks from ICI Canada Inc., PLANT-PROD® trademarks from Plant Products Co. Ltd. and PICKSEED® trademarks from Pickseed Canada Inc.
As a result of the October 2002 sale by VARTA AG of substantially all of its consumer battery business to Rayovac and VARTA AG’s subsequent sale of its automotive battery business to Johnson Controls, Inc., we became the owner of the VARTA trademark in the consumer battery category and Johnson Controls acquired
ownership rights to the trademark in the automotive battery category. VARTA AG and its VARTA Microbatteries subsidiary continue to have ownership rights to use the trademark with travel guides, industrial batteries and micro batteries. The primary componentsfour owners of the VARTA trademark are parties to a Trademark and Domain Names Protection and Delimitation Agreement that governs ownership and usage rights and obligations of the parties relative to the trademark.
As a result of the common origins of the Remington entity we acquired and Remington Arms Company, Inc., the Remington trademark is owned by us and by Remington Arms, each with respect to its principal products as well as associated products. As a result of our acquisition of Remington, we own the Remington trademark for electric shavers, shaver accessories, grooming products include various specialty chemicals and packaging materials.personal care products, while Remington Arms owns the trademark for firearms, sporting goods and products for industrial use, including industrial hand tools. The terms of a 1986 agreement between Remington and Remington Arms provides for the shared rights to use the Remington trademark on products which are not considered “principal products of interest” for either company. We obtain raw materialsretain the Remington trademark for nearly all products which we believe can benefit from various suppliersthe use of the brand name in our distribution channels.
On February 12, 2004, United’s largest customer and we currently consider our arrayUnited executed a licensing, manufacturing and supply agreement. Under the agreement, United will license its Vigoro and related trademarks and be the exclusive manufacturer and supplier for certain products branded with such trademarks from January 1, 2004, the effective date of alternative vendorsthe agreement, through December 31, 2008 or such later date as is specified in the agreement. Provided the customer achieves certain required minimum purchase volumes and other conditions during such period, and the manufacturing and supply portion of the agreement is extended for an additional three-year period as specified in the agreement, United will assign the trademarks to be adequate. No single vendor is consideredthe customer not earlier than May 1, 2009, but otherwise within thirty days after the date upon which such required minimum purchase volumes are achieved. The carrying value of such trademarks as of February 12, 2004 was approximately $16.0 million. If the customer fails to be essential to our operationsachieve the required minimum purchase volumes or meet other certain conditions, assignment may occur at a later date, if certain conditions are met. In addition, as a result of executing the agreement, United has modified the trademarks’ initial amortization period of forty years and we have never experiencedwill record amortization in a significant interruption of supply. Several of our agreementsmanner consistent with suppliers provideprojected sales activity over five years, because United believes the customer will achieve all required conditions by May 2009. Amortization expense was $2.7 million for price adjustments and some agreements provide exclusivity rights, subject to certain conditions.the twelve months ended December 31, 2004.
Competition
Each
In our retail markets, companies compete for limited shelf space and consumer acceptance. Factors influencing product sales are brand name recognition, perceived quality, price, performance, product packaging and design innovation, as well as creative marketing, promotion and distribution strategies.
The battery marketplace is highly competitive. Most consumer batteries manufactured throughout the world are sold by one of our segments operatefour global companies: Spectrum; Energizer, a subsidiary of Energizer Holdings, Inc.; Duracell, a division of The Gillette Company; and Matsushita (manufacturer of the Panasonic brand). We also face competition from the private label brands of major retailers, particularly in highly competitive marketsEurope. The offering of private-label batteries by retailers may create pricing pressure and compete againstmay also increase consumer perceptions that batteries are a numbercommodity product. Typically, private-label brands are not supported by advertising or promotion, and retailers sell these private label offerings at retail prices below competing brands. The main barriers to entry for new competitors are investment in technology research, cost of nationalbuilding manufacturing capacity and regionalthe expense of building retail distribution channels and consumer brands. We believe
In the principal factors by which we compete are product quality and performance,U.S. alkaline battery category, Rayovac is positioned as a value brand strengthwhile Duracell and marketing. Energizer are positioned as premium brands. In Europe, the VARTA brand has premium positioning. In Latin America where lower disposable incomes prevail and zinc carbon batteries still outsell alkaline, Rayovac is positioned as a value brand.
Our principal nationalprimary competitors for our Lawnin the lawn and Gardengarden and Householdhousehold segments include: The Scotts Company, which markets lawn and garden products under the Scotts, Ortho, Roundup, Miracle-Gro and Hyponex brand names; Bayer A.G., which markets lawn and garden products under the Bayer Advanced brand name; and Central Garden & Pet Company, which markets garden products under the AMDRO, IMAGE and Pennington Seed brand names.
Our primary competitors in the electric shaving and grooming market are Koninklijke Philips Electronics NV (“Philips”) (which only sells and markets rotary shavers) and Braun (which only sells and markets foil shavers). Only Remington competes in both the foil and rotary segments.
The pet supply industry is highly fragmented with over 500 manufacturers in the U.S., consisting primarily of small companies with limited product lines. Some of our largest competitors in this product category are Hartz and Central Garden & Pet Company.
Our primary competitors in the household insect control market include: S.C. Johnson & Son, Inc., which markets insecticide and repellent products under the Raid and OFF! brand names; Bayer A.G.,The Scotts Company, which markets household insect control products under the Ortho brand name; and The Dial Corporation, which markets products under the Combat brand name.
Our major competitors in the electric personal care market are Conair, Wahl and Helen of Troy. Companies that are able to maintain or increase the amount of retail shelf space allocated to their respective products can gain competitive advantage.
Our primary competitors in the portable lighting category are Eveready and Maglite.
Some of our major competitors have greater financial and other resources and greater overall market share than we do. They have committed significant resources to protect their own market shares or to capture market share from us in the past and may continue to do so in the future. In some key product lines, our competitors may have lower production costs and higher profit margins than we do, which may enable them to compete more aggressively in advertising and in offering retail discounts and other promotional incentives to retailers, distributors, wholesalers, and, ultimately, consumers.
Seasonality
We expect that the acquisitions of United and Tetra will reduce the seasonality of our business, which, prior to the acquisitions, was weighted heavily towards the Christmas season (Spectrum’s first quarter in its fiscal year). Demand for lawn and garden products typically peaks during the first six months of the calendar year (Spectrum’s second and third quarters in its fiscal year) and pet supplies sales remain fairly constant throughout the year. More evenly distributed consumer demand will help balance the seasonality in Spectrum’s business and working capital needs.
Governmental Regulations and Environmental Matters
Due to the nature of our operations, our facilities are subject to a broad range of federal, state, local and foreign legal and regulatory provisions relating to the environment, including those regulating the discharge of materials into the environment, the handling and disposal of solid and hazardous substances and wastes, and the remediation of contamination associated with the releases of hazardous substances at our facilities. We believe that compliance with the federal, state, local and foreign regulations to which we are subject will not have a material effect upon our capital expenditures, financial position, earnings and competitive position.
From time to time, we have been required to address the effect of historic activities on the environmental condition of our properties, including without limitation, the effect of the generation and disposal of wastes, which are or may be considered hazardous. We have not conducted invasive testing to identify all potential
environmental liability risks. Given the age of our facilities and the nature of our operations, there can be no assurance that material liabilities will not arise in the future in connection with our current or former facilities. If previously unknown contamination of property underlying or in the vicinity of our manufacturing facilities is discovered, we could be required to incur material unforeseen expenses. If this occurs, it may have a material adverse effect on our business, financial condition and results of operations. Although we are currently engaged in investigative or remedial projects at a few of our facilities, we do not expect that such projects will cause us to incur material expenditures; however, there can be no assurance that our liability will not be material.
We have been, and in the future may be, subject to proceedings related to our disposal of industrial and hazardous material at off-site disposal locations or similar disposals made by other parties for which we are held responsible as a result of out relationships with such other parties. These proceedings are under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) or similar state laws that hold persons who “arranged for” the disposal or treatment of such substances strictly liable for costs incurred in responding to the release or threatened release of hazardous substances from such sites, regardless of fault or the lawfulness of the original disposal. Liability under CERCLA is typically joint and several, meaning that a liable party may be responsible for all costs incurred in investigating and remediating contamination at a site. As a practical matter, liability at CERCLA sites is shared by all of the viable responsible parties. While we currently have no pending CERCLA or similar state matters, we may be named as a potentially responsible party at sites in the future and the costs and liabilities associated with these sites may be material.
Certain of our products and facilities are regulated by the EPA, the FDA or other federal consumer protection and product safety regulations, as well as similar registration, approval and other requirements under state and foreign laws and regulations. For example, in the United States, all products containing pesticides must be registered with the EPA and, in many cases, similar state and foreign agencies before they can be manufactured or sold. The inability to obtain or the cancellation of any registration could have an adverse effect on our business, financial condition and results of operations. The severity of the effect would depend on which products were involved, whether another product could be substituted and whether our competitors were similarly affected. We attempt to anticipate regulatory developments and maintain registrations of, and access to, substitute chemicals and other ingredients. We may not always be able to avoid or minimize these risks.
The Food Quality Protection Act established a standard for food-use pesticides, which is that a reasonable certainty of no harm will result from the cumulative effect of pesticide exposures. Under the Act, the EPA is evaluating the cumulative effects from dietary and non-dietary exposures to pesticides. The pesticides in certain of our products continue to be evaluated by the EPA as part of this exposure. It is possible that the EPA or a third party active ingredient registrant may decide that a pesticide we use in our products will be limited or made unavailable to us. For example, in 2000, Dow AgroSciences L.L.C., an active ingredient registrant, voluntarily agreed to a withdrawal of virtually all residential uses of chlorpyrifos, an active ingredient United used in its lawn and garden products under the Bayer Advantage brand name; Central Garden & Pet Company, which markets insecticide and garden products undername Dursban™ until January 2001. This had a material adverse effect on United’s operations resulting in a charge of $8.0 million in 2001. We cannot predict the AMDRO and IMAGE brand names; The Clorox Company, which markets products underoutcome or the Combat and Black Flag brand names; and The Servicemaster Company, which markets lawn care, tree and shrub services underseverity of the TruGreen, ChemLawn and Barefoot service marks. Ineffect of the EPA’s continuing evaluations of active ingredients used in our Contract segment, we compete against a diverse group of companies. Some of our competitors in each segment have longer operating histories and greater financial resources, market recognition and research departments than we do.
Intellectual Propertyproducts.
We own and operate using a substantial number
Certain of trademarks and trade names including the following: Spectracide, Spectracide Triazicide, Spectracide Terminate, Hot Shot, Garden Safe, Schultz, Rid-a-Bug, Bag-a-Bug, Real-Kill, No-Pest, Repel, Gro Best, Vigoro, Sta-Green and Bandini, as well as the licensing rights to the Best line of fertilizer products. We also license certain Cutter trademarks from Bayer A.G. and certain Peters and Peters Professional trademarks from The Scotts Company. These licenses are royalty-free, perpetual and exclusive.
Employees
As of December 31, 2002, we had approximately 725 full-time employees. Approximately 300 of our employees are covered by a collective bargaining agreement with the Finishers, Maintenance Painters, Industrial and Allied Workers Local Union 980, AFL-CIO which expires in August 2005. We consider our current relationship with our employees, both unionized and non-unionized, to be good.
Environmental and Regulatory Considerations
We are subject to federal, state, local and foreign laws and regulations governing environmental, health and safety matters. Our manufacturing operations are subject to requirements to regulate air emissions, wastewater discharge, waste management and cleanup of contamination. Based on assessments conducted by independent environmental consultants, we believe we are generally and
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materially in compliance with these requirements. We may be subject to fines or penalties if we fail to comply with these requirements. We do not anticipate incurring material capital expenditures for environmental control facilities in 2003 or 2004.
Our pesticide products must be reviewed and registered by the U.S. EPA and similar state agencies or, in foreign jurisdictions, by foreign agencies, before they can be marketed. We devote substantial resources to maintaining compliance with these registration requirements. However, if we fail to comply with the regulatory requirements, registration of the affected pesticide could be suspended or canceled, and we could be subject to fines or penalties. Additionally, under the Food Quality Protection Act of 1996, the U.S. EPA is in the process of re-registering all pesticides and is requiring active ingredient suppliers and formulators to supply the U.S. EPA with additional data regarding their pesticides. Where possible, we are coordinating with trade associations and suppliers to reduce the costs of developing this data. While we can not estimate the ultimate costs of these activities nor can we control the scope of information that may be required by the U.S. EPA, we currently estimate that the costs associated with these activities could total approximately $0.2 million annually for the next several years.
Our fertilizer products must be reviewed and registered by each state prior to sale. Each state typically reviews 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 related product.
Our healthcare products and packaging materials are subject to regulations administered by the Food and Drug Administration (FDA).FDA. Among other things, the FDA enforces statutory prohibitions against misbranded and adulterated products, establishes ingredients and manufacturing procedures for certain products, establishes standards of identity for certain products, determines the safety of products and establishes labeling standards and requirements. In addition, various states regulate these products by enforcing federal and state standards of identity for selected products, grading products, inspecting production facilities, and imposing their own labeling requirements.
As
It is difficult to quantify with certainty the potential financial impact of December 31, 2002,actions regarding expenditures for environmental matters, particularly remediation, and future capital expenditures for environmental control equipment. Nevertheless, based upon the information currently available, we believe we were substantially in compliance with applicablethat our ultimate liability arising from such environmental and regulatory requirements.
Litigation
We are involved from time to time in routine legal matters, and other claims incidental to the business. When it appears probable in management's judgment that we will incur monetary damages or other costs in connection with such claims and proceedings, and such costs can be reasonably estimated, liabilities are recorded in the consolidated financial statements and charges are recorded against earnings. We believe that the resolution of such routine matters and other incidental claims, taking into account established reserves and insurance, willaccruals, should not have abe material adverse impact onto our consolidatedbusiness or financial position or results of operations.condition.
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Manufacturing, Distribution and Other FacilitiesProperties
Our
The following table lists our primary facilities are as follows:owned or leased manufacturing, packaging, and distribution facilities:
Facility | Function | Square Footage | |||||||||||
North America | |||||||||||||
Fennimore, Wisconsin(1) | Alkaline Battery Manufacturing | 176,000 | |||||||||||
Portage, Wisconsin(1) | Zinc Air Button Cell & Lithium Coin Cell Battery Manufacturing & Foil Shaver Component Manufacturing | 101,000 | |||||||||||
Dixon, Illinois(2) | Packaging & Distribution of Batteries and Lighting Devices & Distribution of Electric Shaver & Personal Care Devices | 576,000 | |||||||||||
Nashville, Tennessee(2) | Distribution of Batteries, Lighting Devices, Electric Shaver & Personal Care Devices | 266,700 | |||||||||||
St. Louis, | United Corporate Headquarters | 79,200 | |||||||||||
Vinita Park, | Household and Contract Production Facility | 32,800 | |||||||||||
Vinita Park, Missouri—Plant II(2) | Production | ||||||||||||
| 86,000 | |||||||||||||
Vinita Park, Missouri—Plant III(2) | Household Production | ||||||||||||
| 88,000 | |||||||||||||
Vinita Park, Missouri(2) | |||||||||||||
| 86,000 | |||||||||||||
Vinita Park, Missouri(2) | |||||||||||||
Vinita Park, Missouri(2) | Storage | 53,500 | |||||||||||
Bridgeton, | Storage | 75,000-150,000 | |||||||||||
Bridgeton, Missouri(2) | |||||||||||||
| 403,200 | |||||||||||||
Bridgeton, Missouri—Plant IV(2) | Lawn and Garden Production Facility | ||||||||||||
Akron, Ohio (2) | |||||||||||||
Orrville, Ohio(1) | Lawn and Garden Production Facility | ||||||||||||
Orrville, Ohio(1) | Lawn and Garden Distribution Center | ||||||||||||
Cincinnati, Ohio(2) | |||||||||||||
Mentot, Ohio(2) | Aquatics Production Facility | 88,000 | |||||||||||
Noblesville, Indiana(1) | Aquatics Production Facility | 400,000 | |||||||||||
Hoover, Alabama(2) | Lawn and Garden Office | ||||||||||||
Sylacauga, | Lawn and Garden Production Facility and Distribution Center | 71,000 | |||||||||||
Hauppauge, New York(2) | Specialty Pet Production Facility | 140,000 | |||||||||||
Gainesville, Georgia(2) | Distribution | ||||||||||||
Brad, California(2) | |||||||||||||
Ontario, California(2) | Distribution | ||||||||||||
| 61,000 | |||||||||||||
Moorpark, California(2) |
We believe our current facilities are generally well maintained and provide adequate production and distribution capacity for future operations. Our facilities primarily manufacture five types of product categories: aerosols, liquids, baits, water-soluble fertilizers, and granular fertilizers. Our typical manufacturing process consists of four stages: batch, fill, label and pack. We currently operate aerosol, liquid, bait, water-soluble fertilizer and granular fertilizer production lines. Our production lines are flexible and can operate at a variety of filling speeds and produce multiple shipping configurations. We also selectively outsource the manufacturing of certain of our products to contract manufacturers. Periodically, we evaluate the need to reposition our portfolio of products and facilities to meet the needs of the changing markets we serve.
Directors
The following table presents the members of the Board of Directors of United Industries Corporation. All directors are elected annually.
Hazelton, California(2) | ||
Brantford, Ontario(1) | ||
Woodstock, Ontario(1) | ||
Putnam, Ontario(1) | ||
The following presents biographical information with respect to each of the directors listed above as of March 31, 2003.
Robert L. Caulk, 51, joined United Industries in November 1999 as President and Chief Executive Officer. He was elected as Chairman of the Board of Directors during 2001. Prior to joining United Industries, Mr. Caulk spent over four years from 1995 to 1999 as the President and Executive Vice President of Clopay Building Products Company, Inc., a marketer and manufacturer of residential and commercial garage doors. Between 1989 and 1994, Mr. Caulk was President-North America, Vice President/General Manager and Director of Corporate Acquisitions and Planning at Johnson Worldwide Associates, a manufacturer of outdoor recreational products. From 1979 to 1989, Mr. Caulk held various management positions at S.C. Johnson & Son, Inc. Mr. Caulk is also a director of Sligh Furniture Company. Mr. Caulk received a Bachelor of Arts degree from the University of Delaware and an M.B.A. from the Harvard Graduate School of Business Administration.
Daniel J. Johnston, 45, became a director in January 1999. He was promoted to Executive Vice President in 2001 and has served as Chief Financial Officer with responsibility over information systems and administration as a Senior Vice President since 1997. Mr. Johnston joined United Industries as Controller in 1994 and has also held various other positions with responsibility over manufacturing, distribution and product supply during his tenure. Prior to joining United Industries, Mr. Johnston spent five years from 1990 to 1994 at Cooper Industries, Inc. in various financial positions at its corporate office and Bussmann Division. Before joining Cooper Industries, Inc., he worked for nine years at Price Waterhouse, LLP from 1982 to 1990. Mr. Johnston received a B.S. in Accountancy from the University of Missouri-Columbia.
C. Hunter Boll, 47, became a director in January 1999 in connection with our recapitalization. Mr. Boll is a Managing Director of Thomas H. Lee Partners, L.P., a private equity investment firm, which he joined in 1986. In addition, Mr. Boll is a Principal Managing Director and Member of Thomas H. Lee Advisors, L.L.C., 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 Thomas H. Lee Equity Fund V, L.P. He is Vice President of T. H. Lee Mezzanine II, the investment advisor to ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund II (Retirement Accounts), L.P. Mr. Boll also serves as a director of Cott Corporation, Metris Companies, Inc., and TransWestern Publishing, L.P. Mr. Boll received a
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B.A. in Economics from Middlebury College and an M.B.A. from Stanford Graduate School of Business.
Charles A. Brizius, 34, became a director in January 1999 in connection with our recapitalization. Mr. Brizius is a Vice President of Thomas H. Lee Partners, L.P. a private equity investment firm, where he was employed from 1993 to 1995, and which he rejoined in 1997. Mr. Brizius is also a Member of Thomas H. Lee Advisors, L.L.C., 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 Thomas H. Lee Equity Fund V, 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., Houghton Mifflin Company and TransWestern Publishing, L.P. Mr. Brizius received a B.B.A. in Finance and Accounting from Southern Methodist University and an M.B.A. from the Harvard Graduate School of Business Administration.
John W. Froman, 49, became a director in November 2002. Mr. Froman has been with Circuit City Stores, a specialty retailer, since 1986 and currently serves as its Executive Vice President and Chief Operating Officer. Prior to joining Circuit City, Mr. Froman was President of The Contempos Division of Craddock-Terry Shoe Corporation and, prior to that, Manager of U.S. Merchandising for Avon Products, Inc.
David A. Jones, 53, became a director in January 1999 and served as Chairman of the Board of Directors from June 1999 until 2001. Mr. Jones has been the President, Chief Executive Officer and Chairman of the Board of Directors of Rayovac Corporation, a consumer battery and lighting device company, 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. Mr. Jones is also a director of Tyson Foods.
Gary M. Rodkin, 50, became a director in February 2002. He has served as the Chairman and CEO of PepsiCo Beverages and Foods, a newly created $10 billion division of PepsiCo, Inc. which combines the Pepsi-Cola, Gatorade, Tropicana and Quaker Foods business units in the United States and Canada, since June 2002. Prior positions at PepsiCo include President and CEO Pepsi-Cola North America and President and CEO Tropicana. Before joining Tropicana in 1995, Mr. Rodkin held positions of increasing responsibility at General Mills, Inc. from 1979 to 1995, including President of Yoplait-Colombo.
Scott A. Schoen, 44, became a director in January 1999 in connection with our recapitalization. Mr. Schoen is a Managing Director of Thomas H. Lee Partners, L.P., a private equity investment firm, which he joined in 1986. In addition, Mr. Schoen is a Principal Managing Director and Member of Thomas H. Lee Advisors, L.L.C., 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 Thomas H. Lee Equity Fund V, L.P. He is Vice President of T. H. Lee Mezzanine II, the investment advisor to ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund II (Retirement Accounts), L.P. He is also a director of Affordable Residential Communities, Syratech Corporation, TransWestern Publishing, L.P., Wyndham International Inc., Axis Capital Holdings and several private corporations. Mr. Schoen received a B.A. in History from Yale University, a J.D. from Harvard Law School and an M.B.A. from the Harvard Graduate School of Business Administration.
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Executive Officers
The following table presents the executive officers of United Industries Corporation:
Blacksburg, Virginia(1) | ||||
The following presents biographical information as of March 31, 2003 with respect to each of the executive officers listed above who do not also serve as directors.
Europe/ROW Dischingen, Germany(2) Breitenbach, France(1) Washington, UK(2) Melle, Germany(1) Melle, Germany(2) Kent J. Davies, 39, has served as the Senior Vice President, Marketing since April 2001 and assumed additional responsibilities for the Research & Development and Regulatory Affairs groups in March 2002. Prior to joining United Industries, Mr. Davies spent seven years with Kimberly-Clark Corporation serving in various marketing and general management capacities including General Manager, Global Strategic Marketing from 2000 to 2001, General Manager, Global Surgical Products Business from 1999 to 2000, and General Manager, Professional Heath Care—Europe, while based in Brussels, Belgium, from 1998 to 1999. Prior to joining Kimberly-Clark, Mr. Davies held marketing positions with the 3M Company and various field sales roles with General Mills, Inc. Mr. Davies received a B.A. in History from the University of California at Berkeley and an M.B.A. from the University of Minnesota. Louis N. Laderman, 51, has served as the Vice President, Secretary and General Counsel since 2001. Prior to joining United Industries, from 1996 through 2000, Mr. Laderman was Vice President and General Counsel of Service Experts, Inc., an operator and consolidator of heating, air conditioning and ventilating contractors. Between 1976 and 1996, Mr. Laderman was engaged in the private practice of law in St. Louis, Missouri. Mr. Laderman received a B.S. in Industrial Management, with a minor in Industrial Engineering, from Purdue University and a J.D., cum laude, from St. Louis University. Robert S. Rubin, 36, has served in various capacities since 1995, including Vice President, Corporate Development, responsible for Mergers, Acquisitions and Strategic Alliance efforts; Vice President and General Manager—Strategic Accounts, Retail Sales and Retail Marketing; and Vice President, Marketing, R&D and Regulatory Affairs. Mr. Rubin joined United Industries in 1995 as a Brand Manager. Prior to joining United Industries, Mr. Rubin spent three years from 1992 to 1995 at Ralston Purina in various marketing roles. From 1988 to 1992, Mr. Rubin was employed by the advertising agency DMB&B/St. Louis. Mr. Rubin received a B.S. in Business Administration from Miami University, Oxford, Ohio. Steven D. Schultz, 55, has served as the Senior Vice President, Business Development since 2002. Prior to joining United Industries, Mr. Schultz worked at Schultz Company, where he started his career after college and held various management positions until 1982 when he became the President and Chief Executive Officer. Mr. Schultz maintained that position until Schultz merged with a wholly owned subsidiary of United Industries in May 2002. Mr. Schultz received a B.S. in Journalism from the University of Oklahoma. Rick K. Spurlock, 43, has served as the Vice President, Human Resources since 2002. Prior to joining United Industries, Mr. Spurlock was Vice President of Human Resources at Pursell60Industries, Inc., a national lawn and garden company, from 2000 to 2002. From 1984 to 2000, Mr. Spurlock had management responsibilities in the areas of human resources, organization development and manufacturing with the Mechanics Tools Division of The Stanley Works, an international manufacturer of hand tools. Prior to joining The Stanley Works, he was employed by Cincinnati Milacron in various roles from 1980 to 1984. Mr. Spurlock received a B.S. in Business Management from Wright State University. John F. Timony, 54, has served as the Senior Vice President, Operations since 2001. Prior to joining United Industries, Mr. Timony was Vice President—Operations for Rexam Medical Packaging from 1994 to 2000. From 1981 to 1994, Mr. Timony worked for Sterling Winthrop, Inc. in various engineering, management and executive positions, most recently as Vice President—Operations. Prior to joining Sterling Winthrop, Inc., Mr. Timony was an engineer for Container Corporation of America from 1978 to 1981 and a Lieutenant in the United States Navy from 1972 to 1978. Mr. Timony received a B.S. in Electrical Engineering from the United States Naval Academy, a Master's Degree in Electrical Engineering from the U.S. Naval Postgraduate School and an M.B.A. from Monmouth University.Summary Compensation Table The following table presents information regarding the compensation paid to our Chief Executive Officer and each of the other four most highly compensated executive officers during 2002 (collectively, the Named Executive Officers) for services rendered for the years ended December 31, 2002, 2001 and 2000:Annual CompensationLong-TermCompensationName and Principal PositionYearEndedDecember 31,Salary($)Bonus($)SecuritiesUnderlying Stock Options (#)All OtherCompensation($)(1)Robert L. CaulkChairman of the Board of Directors; President and Chief Executive Officer200220012000$500,000400,000400,000$320,000292,000120,000—1,600,000—$14,0825,100101,244(2)(3)Daniel J. JohnstonDirector; Executive Vice President and Chief Financial Officer200220012000335,000325,000300,000175,205259,875——700,000—7,0915,1005,100(4)Kent J. DaviesSenior Vice President, Marketing200220012000205,500134,103—105,99551,733——200,000—80,97266,705—(5)(6)John F. TimonySenior Vice President, Operations200220012000229,000198,564—117,17278,731——200,000—8,65615,636—(7)(8)Robert S. RubinVice President, Corporate Development200220012000202,500193,000185,500103,883139,26340,588100,000100,000—5,9045,1005,100(9)(1)Unless otherwise indicated, represents matching contributions under our 401(k) plan for each year of employment presented and reimbursement for long-term disability premiums in 2002.(2)Includes matching contributions under our 401(k) plan of $5,500 and reimbursement for long-term disability premiums of $8,582.(3)Includes relocation payments of $96,144.61(4)Includes matching contributions under our 401(k) plan of $5,500 and reimbursement for long-term disability premiums of $1,591.(5)Includes a loan forgiven of $75,000, matching contributions under our 401(k) plan of $5,500 and reimbursement for long-term disability premiums of $472.(6)Includes relocation payments of $66,705.(7)Includes matching contributions under our 401(k) plan of $5,500 and reimbursement for long-term disability premiums of $3,156.(8)Includes relocation payments of $15,636.(9)Includes matching contributions under our 401(k) plan of $5,500 and reimbursement for long-term disability premiums of $404.Stock Option Grants The following table presents individual grants of options to the Named Executive Officers during the year ended December 31, 2002. No stock appreciation rights have been granted or are outstanding under any of our long-term equity plans. Individual Grants Name Number of Securities
Underlying
Options (#)(1) % of Total Options Granted to Employees in 2002 Exercise Price ($/Share) Expiration Date Grant Date Present Value ($)(2) Robert L. Caulk — — $ — — $ — Daniel J. Johnston — — — — — Kent J. Davies — — — — — John F. Timony — — — — — Robert S. Rubin 50,000 5.3 % 3.25 1/31/12 55,950 50,000 5.3 % 5.00 8/06/12 64,450 (1)Of the options granted during 2002, one-third vests over a four-year period at a rate of 25% on each anniversary of the grant date. The remaining two-thirds vest based on performance targets over a three to ten year period from the date of grant.(2)The grant date present value is estimated on the date of grant using the Black-Scholes option-pricing model and the following weighted average assumptions for the year ended December 31, 2002: expected volatility of zero, weighted average risk-free interest rate of 4.61%, dividend yield of zero and an expected life of ten years.62Aggregated Option Exercises and Option Value Table The following table presents information concerning stock options held by the Named Executive Officers as of December 31, 2002:NameShares Acquired Upon Exercise(#)(1)Value Realized ($)Number of Securities Underlying Unexercised Options (#)Exercisable/UnexercisableValue of Unexercised In-the-Money Options ($)Exercisable/Unexercisable(2)Robert L. Caulk—$—693,361/906,639$1,480,083/$2,119,917Daniel J. Johnston— — 265,001/434,999Alkaline Battery Manufacturing186,000 Zinc Carbon Battery Manufacturing 165,000 Zinc Air Button Cell Battery Manufacturing & Distribution 63,000 Pet Food and Pet Care Manufacturing 67,000 Pet Food and Pet Care Distribution 64,000
Facility | Function | Square Footage | ||||||||
Ninghai, China(1) | Zinc Carbon & Alkaline Battery Manufacturing & Distribution | 274,000 | ||||||||
Ellwangen, Germany(2) | Battery Packaging | 187,000 | ||||||||
Ellwangen, Germany(2) | Battery Distribution | 125,000 | ||||||||
Latin America | ||||||||||
Guatemala City, Guatemala(1) | 105,000 | |||||||||
Ipojuca, Brazil(1) | ||||||||||
Jaboatoa, Brazil(1) | 516,000 | |||||||||
Manizales, Colombia(1) | ||||||||||
| (1) | Facility is owned. |
| (2) | Facility is leased. |
| (3) | Approximate square footage increases from 75,000 square feet during non-peak seasons to a maximum of 150,000 square feet during peak seasons. |
We also own, operate or contract with third parties to operate distribution centers, sales offices and administrative offices throughout the world in support of December 31, 2002, no outstanding options had been exercised.
Employees
We have approximately 10,000 full-time employees worldwide on a combined basis as of December 31, 2002, thus fair value was determinedMay 25, 2005. Approximately 16% of our total labor force is covered by collective bargaining agreements. We believe that our Board of Directors, based primarily on valuations obtained from independent appraisals.
The 2001 Stock Option PlanLegal Proceedings
We grant stock options to eligible employees, officers and directors pursuant to the 2001 Stock Option Plan, which is administered by the Compensation Committee of the Board of Directors. The 2001 Stock Option Plan superseded the 1999 Stock Option Plan which was terminated during 2001. Upon termination, all 3,096,000 issued and outstanding options under the 1999 Stock Option Plan were cancelled.
The 2001 Stock Option Plan provides for an aggregate of 5,800,000 shares of common stock that may be issued in the form of Class A voting common stock, Class B nonvoting common stock or a combination thereof. The options to purchase shares of common stockWe are subject to litigation from time and performance-based vesting schedules which generally range from four to ten years. Options are generally granted with an exercise price equal to or greater than the estimated fair value of common stock on the grant date and expire ten years thereafter. After termination of employment, unvested options are forfeited immediately, within thirty days or within one year, as provided under the plan agreement.
Deferred Compensation Plans
We sponsor two deferred compensation plans for certain members of our senior management team. The plans are administered by the Compensation Committee of our Board of Directors. The plans provide for the establishment of grantor trusts for the purpose of accumulating funds to purchase shares of our common stock for the benefit of the plan participants. One plan allows participants to contribute an unlimited amount of earnings to the plan while the other provides for contributions of up to 20% of a participant's annual bonus. We do not provide matching contributions to these plans and have the right to repurchase shares held in the grantor trusts under certain circumstances. The common stock held in the grantor trusts was valued at $2.7 million as of December 31, 2002 and 2001.
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Compensation of Directors
Messrs. Caulk and Johnston, who were the only directors that served as employees during 2002, did not receive any additional compensation for serving as a director or attending any meeting of the Board of Directors during 2002. During 2002, Mr. Jones received $30,000 in directorship fees and Mr. Rodkin received $25,833 in directorship fees. Messrs. Boll, Brizius and Schoen did not directly receive any directorship fees in 2002, but THL Equity Advisors, IV, LLC, the general partner of Thomas H. Lee Equity Fund IV, L.P., and Thomas H. Lee Capital, L.L.C., entities with whom Messrs. Boll, Brizius and Schoen are affiliated, received fees pursuant to a professional services agreement described below.
Employment Agreements
Each of the Named Executive Officers is employed under a separate employment agreement. With the exception of Mr. Caulk's agreement, which expires on January 1, 2005, none of the agreements are effective for a specified period of time. The following table presents the position, annual salary and stock options received, as well as the maximum potential annual bonus available, to each of the Named Executive Officers, under his employment agreement, as amended:
| Name | Position(s) | Annual Base Salary | Stock Options Received | Annual Bonus | |||||
|---|---|---|---|---|---|---|---|---|---|
| Robert L. Caulk | Chairman of the Board of Directors; President and Chief Executive Officer | $ | 500,000 | 1,600,000 | Up to $500,000 | ||||
| Daniel J. Johnston | Director; Executive Vice President and Chief Financial Officer | 335,000 | 700,000 | Up to $201,000 | |||||
| Kent J. Davies | Senior Vice President, Marketing | 205,000 | 200,000 | Up to $123,300 | |||||
| John F. Timony | Senior Vice President, Operations | 229,000 | 200,000 | Up to $137,400 | |||||
| Robert S. Rubin | Vice President, Corporation Development | 202,500 | 200,000 | Up to $121,500 | |||||
Each agreement provides for base salary and bonus increases at the discretion of the Compensation Committee of the Board of Directors. Annual incentive compensation is determined in accordance with the attainment of certain financial and performance targets. The agreements also provide that the officers are entitled to a monthly automobile allowance and to participate in any disability, pension or other benefit plan generally afforded to employees or executives.
Of the options issued to Mr. Caulk, 53,360 options vested immediately upon the grant date, 1,013,307 options vest over four years with 25% vesting on each anniversary after the grant date and the remaining 533,333 options vest based on performance targets through December 31, 2004, or otherwise after ten years from the grant date. Of the options issued to Mr. Johnston, 80,000 options vested immediately upon the grant date, 206,665 options vest over four years with 25% vesting on each anniversary after the grant date and 413,335 options vest based on performance targets through December 31, 2004, or otherwise after ten years from the grant date. Of the options granted to Messrs. Davies and Timony, one-third of the options vest over four years with 25% vesting on each anniversary after the grant date while the remaining two-thirds vest based on performance targets through December 31, 2004, or otherwise after ten years from the grant date. Of the options issued to Mr. Rubin, 4,000 vested immediately upon the grant date, 62,667 vest over four years with 25% vesting on each anniversary after the grant date and 133,333 options vest based on performance targets through December 31, 2004, or otherwise after ten years from the grant date.
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We may terminate an employment agreement at any time with or without cause. If an 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 for a period subsequent to his termination, which shall in no case be greater than two years from his termination. Each employment agreement includes non-compete, non-solicitation and confidentiality provisions through the later of one year after the executive's date of termination or the last date that severance payments are owed to the executive.
401(k) Plan
We have a 401(k) savings plan for substantially all of our employees with six months or more of continuous service. The 401(k) plan allows participants to defer a portion of eligible compensation on a tax-deferred basis. Under provisions of the plan, we match 50% of each employee's contributions up to 6% of gross earnings. The matching amount generally increases to 75% of such employee's contributions up to 6% of gross earnings after ten years of service. The aggregate matching contribution made by us was $0.7 million in 2002, $0.6 million in 2001 and $0.6 million in 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Professional Services Agreement
We have a professional services agreement with THL Equity Advisors IV, L.L.C. and Thomas H. Lee Capital, L.L.C., both affiliates of Thomas H. Lee Partners, L.P., which owns UIC Holdings, L.L.C., our majority owner. The professional services agreement has a term of three years, beginning January 20, 1999, and automatically extends for successive one-year periods thereafter, unless either party gives thirty days notice prior to the end of the term. Under the terms of the agreement, THL Equity Advisors IV, L.L.C. receives $62,500 per month for management and other consulting services provided to us and reimbursement of any related out-of-pocket expenses. During each of the years 2000 through 2002, we paid $0.75 million under this agreement, which is included in selling, general and administrative expenses in our consolidated statements of operations included elsewhere in this prospectus.
Stockholders Agreement
We have entered into a stockholders agreement with UIC Holdings, L.L.C. and certain other stockholders. Under the agreement, our Class A common stockholders are required to vote their shares of common stock for any sale or reorganization that has been approved by our 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 for sale to the public, subject to certain conditions and limitations. If we elect to register any of our equity securities under the Securities Act of 1933, as amended, the stockholders are entitled to notice of such registration, subject to certain conditions and limitations. Under the stockholders agreement, we are responsible to pay costs of the registration effected on behalf of the stockholders, other than underwriting discounts and commissions.
Recapitalization Agreement
The recapitalization agreement with UIC Holdings, L.L.C., which we entered into in connection with our recapitalization in 1999, 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 our recapitalization closing date and various closing conditions, including the continued accuracy of the representations and warranties. In general, these representations and warranties expired by April 15, 2000. However, representations and warranties with respect to (1) tax matters survive until thirty days after the expiration of the applicable statute of limitations; (2) environmental matters expired December 31, 2002; and (3) ownership of stock do not expire. The total consideration paid to redeem our common stock is subject to adjustments based on the excess taxes of our previous stockholders arising from our Section 338(h)(10) election under the IRS tax code.
Pursuant to our recapitalization, we redeemed a portion of our common stock held by certain stockholders and UIC Holdings, L.L.C. which were purchased by certain members of our senior management. In the recapitalization, certain executives collectively received an aggregate of $4.0 million in cash and an additional $2.7 million with which the officers purchased common stock through grantor trusts, which is reflected as a reduction of equity in our consolidated balance sheets included elsewhere in this prospectus.
Loans to Chief Executive Officer
On September 28, 2001, we entered into a loan agreement with Robert L. Caulk, our President, Chief Executive Officer and Chairman of the Board of Directors, for $400,000 which matures on September 28, 2006 (the 2001 loan). On March 8, 2002, we entered into a loan agreement with Mr. Caulk for $51,685 which matures on March 8, 2007 (the 2002 loan). The purpose for both loans
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was to allow Mr. Caulk to purchase shares of our common and preferred stock. Each loan bears interest at LIBOR on its effective date which is subsequently adjusted on each loan's respective anniversary date. The interest rate in effect for the 2002 loan was 1.96% as of December 31, 2002. The interest rate in effect for the 2001 loan was 1.81% as of December 31, 2002 and 2.59% as of December 31, 2001. Interest on both loans is payable annually, based on outstanding accrued amounts on December 31 of each year. Principal payments on both loans are based on 25% of the gross amount of each annual bonus awarded to Mr. Caulk and are immediately payable, except that principal payments on the 2002 loan are immediately payable only if all amounts due under the 2001 loan are fully paid. Any unpaid principal and interest on both loans is due upon maturity. The outstanding principal balance for the 2001 loan was $352,000 as of December 31, 2002 and $400,000 as of December 31, 2001. The outstanding principal balance of the 2002 loan was $51,685 as of December 31, 2002. The loans are reflected as a reduction of equity in the consolidated balance sheets included elsewhere in this prospectus.
Leases with Stockholder and Former Executive and Member of the Board of Directors
We lease several of our operating facilities from Rex Realty, Inc., a company that is owned by stockholders who own, in the aggregate, approximately 5% of our common stock and is operated by a former executive and past member of the Board of Directors. The operating leases expire at various dates through December 31, 2010. We have options to terminate the leases on an annual basis by giving advance notice of at least one year. As of December 31, 2002, notice had been given on one such lease. We lease a portion of our operating facilities from the same company under a sublease agreement expiring on December 31, 2005 with minimum annual rentals of $0.7 million. We have two five-year options to renew this lease, beginning January 1, 2006. We believe that the terms of these leases are similar to those that could be obtained from a non-related party in the ordinary course of business. Rent expense under these leases was $2.3 millionThe amount of any liability with respect to any litigation to which we are now subject cannot currently be determined. Other than the matters set forth below, we are not party to any pending legal proceedings which, in 2002, $2.3 million in 2001 and $2.2 million in 2000.
Equity Transactions with UIC Holdings, L.L.C.the opinion of management, are material or may be material to our business or financial condition.
To raise equity to partially fund our merger with Schultz
We are involved in May 2002, we issued 1,690,000 shares each of Class A voting and Class B nonvoting common stock to UIC Holdings, L.L.C., our majority owner, for $16.9 million.
In connection with the Pursell transaction in December 2001, we issued 22,600 shares of Class A nonvoting preferred stock to UIC Holdings, L.L.C. for $1,000 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method, for net cash proceeds of $22.0 million and stock purchase warrants for a 10-year option to purchase up to 3,150,000 shares each of our Class A voting and Class B nonvoting common stock for $3.25 per share, the fair value of the shares of our common stock at the time the warrants were issued as determined by the Board of Directors using a multiple of cash flows method.
In November 2000, we issued 15,000 shares of Class A nonvoting preferred stock to UIC Holdings, L.L.C. for $1,000 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method, for net cash proceeds of $15.0 million and stock purchase warrants for a 10-year option to purchase up to 1,600,000 shares each of our Class A voting and Class B nonvoting common stock for $2.00 per share, the fair value of the shares of our common stock at the time the warrants were issued as determined by the Board of Directors using a multiple of cash flows method.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information regarding the beneficial ownership of our Class A voting common stock by each of our directors and 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 Class A voting common stock as of March 31, 2003. Each director and Named Executive Officer owns a number of shares of Class B nonvoting common stock equal to their number of owned shares of Class A voting common stock. Unless otherwise indicated, the mailing address for each principal stockholder, officer and director is c/o United Industries Corporation, 2150 Schuetz Road, St. Louis, Missouri 63146.
| Name of Beneficial Owner(1) | Number of Class A Common Shares Owned | Number of Class A Common Shares Receivable Upon Exercise of Stock Options | Number of Class A Common Shares Receivable Upon Exercise of Stock Warrants | Number of Class A Common Shares Beneficially Owned | Percent of Class | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| UIC Holdings, L.L.C. | 27,158,000 | — | 4,673,957 | 31,831,957 | 84.2 | % | |||||
| Bayer Corporation(2) | 3,072,000 | — | — | 3,072,000 | 9.3 | % | |||||
| Robert L. Caulk | 125,000 | 800,000 | 13,938 | 938,938 | 2.8 | % | |||||
| C. Hunter Boll(3) | 27,158,000 | — | 4,673,957 | 31,831,957 | 84.2 | % | |||||
| Charles A. Brizius(3) | 27,158,000 | — | 4,673,957 | 31,831,957 | 84.2 | % | |||||
| John W. Froman | — | 5,000 | — | 5,000 | * | ||||||
| Daniel J. Johnston(4) | — | 350,000 | 27,876 | 377,876 | 1.1 | % | |||||
| David A. Jones | 100,000 | 300,000 | — | 400,000 | 1.2 | % | |||||
| Gary M. Rodkin | — | 5,000 | — | 5,000 | * | ||||||
| Scott A. Schoen(3) | 27,158,000 | — | 4,673,957 | 31,831,957 | 84.2 | % | |||||
| Kent J. Davies | — | 100,000 | 1,394 | 101,394 | * | ||||||
| John F. Timony | — | 100,000 | 4,181 | 104,181 | * | ||||||
| Robert S. Rubin | 3,500 | 100,000 | 2,091 | 105,591 | * | ||||||
| All Directors and Executive Officers as a group (17 persons)(3) | 27,686,500 | 1,885,000 | 4,737,375 | 34,308,875 | 86.3 | % |
In each of France (decision of June 13, 2003), Italy (decision of February 26, 2004) and Spain (decision of May 6, 2004), the respective First Instance Courts ordered that the various Philips trademarks be cancelled. The action in France commenced May 17, 2000, the action in Italy commenced May 15, 2000 and the action in Spain commenced March 12, 2003. These decisions have been appealed by Philips. In Portugal, Philips commenced a lawsuit against Rayovac’s distributor on December 12, 2003 seeking only an injunction to prevent the marketing and sale of the Remington shavers. The Commercial Court
in Portugal (decision of June 23, 2004) denied the request for an injunction. Philips initially appealed this decision in Portugal, but dropped its appeal in April 2005. |
In addition, The Gillette Company and its subsidiary, Braun GmbH, filed a complaint against Remington in the federal district court in Massachusetts on December 2, 2003 alleging that Remington’s “Smart Cleaner” automatic cleaning device on Remington’s Titanium Smart System shaving product infringes United States patent numbers 5,711,328 and 5,649,556 allegedly held by other stockholders subject toBraun (The Gillette Company and Braun GmbH v. Remington Consumer Products Company, LLC., Case No. 03 CV 12428 WGY). The complaint, which seeks injunctive relief and monetary damages, was served on Remington in March 2004. We have answered the stockholders agreement. Unless otherwise indicated,complaint denying all material allegations and we believe that each person has sole voting and investment power with regard to their shares listed as beneficially owned. The calculation of beneficial ownershipare vigorously defending ourselves in this matter. Trial is based on 33,143,000 shares of Class A voting common stock outstanding as of March 31, 2003.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Senior Credit FacilityFacilities
Our
General
On February 7, 2005, we entered into a credit agreement which provides for senior credit facility, as amended as of March 19, 2003, was provided by Bank of America, N.A. (formerly known as NationsBanc, N.A.facilities (the “Senior Credit Facility”), Morgan Stanleyincluding term loan facilities and a revolving credit facility in an initial aggregate amount of approximately $1.03 billion. The Senior Funding, Inc.Credit Facility includes aggregate term loan facilities of approximately $730 million consisting of an approximately $540 million U.S. Dollar Term Loan B Facility, U.S. $140 million Euro Term Loan B Facility and U.S. $50 million Canadian Imperial Bank of Commerce and consists of (1) our $90.0Dollar Term Loan B Facility. The Senior Credit Facility also includes a $300 million revolving credit facility withwhich will be available until the sixth anniversary of the initial borrowing under the Senior Credit Facility (the “Closing Date”). The revolving facility includes a $10.0 million sublimit for swing line borrowings and a $5.0 million sublimit for the issuance of letters of credit, (2) a $75.0 million Term Loan A and (3) a $240.0 million Term Loan B. The restrictions on indebtedness and the mandatory prepayment obligations imposed by our senior credit facility by its terms do not applyswingline loans (“Swingline Loans”) denominated in U.S. dollars (“Dollars”) or Euros as well as foreign currency sublimits equal to the offeringU.S. dollar equivalent of €25,000,000 for borrowings in Euros, the notes. AsU.S. dollar equivalent of April 23, 2003, we had $199.1 million outstanding£10,000,000 for borrowings in Pounds Sterling and amounts to be determined, if any, for borrowings in Yuan.
Rayovac (the “Borrower”) is the borrower under the Senior Credit Facility and certain of its subsidiaries, including Varta Consumer Batteries GmbH & Co. KGaA are co-borrowers. The Borrower can request up to five additional incremental term loan facilities in Dollars or, up to a Dollar equivalent sublimit in Euros, in an aggregate principal amount of not more than U.S. $500 million.
Interest
The interest rates per annum are calculated on a 360-day basis for London Interbank Offered Rate (“LIBOR”), the Eurocurrency Rate and Sterling LIBOR advances and on a 365-day basis for Base Rate (as defined below) advances. The interest rates per annum applicable to the Senior Credit Facility (other than in
respect of Swingline Loans) are LIBOR (or the Eurocurrency Rate, Sterling LIBOR or the Canadian Screen Rate in the case of advances made in Euros, Pounds Sterling or Canadian Dollars, respectively) plus the Applicable Margin (as defined below) or, at our senior credit facility, including $196.1 million outstanding onoption in the case of advances made in Dollars, the base rate (which is the higher of (x) the Bank of America prime rate and (y) the Federal Funds rate plus 0.5% (the “Base Rate”)) plus the Applicable Margin. We expect that Applicable Margin will mean, (i) with respect to the U.S. Dollar Term Loan B $3.0 millionFacility and the Canadian Term Loan B Facility (a) for the first six months after the Closing Date, 2.00% per annum in the case of borrowingsEurocurrency Rate advances and $1.8 millionwith respect to U.S. Dollar Term Loan B Facility only, 1.00% per annum in lettersthe case of credit outstandingBase Rate advances and (b) thereafter, a percentage per annum to be determined in accordance with a pricing grid based on debt ratings, (ii) with respect to the Euro Term Loan B Facility, 2.50% per annum, and (iii) with respect to the Revolving Credit Facility, (a) for the first six months after the Closing Date, 2.25% per annum in the case of Eurocurrency Rate advances and in the case of advances made in Dollars only, 1.25% per annum in the case of Base Rate advances and (b) thereafter, a percentage per annum to be determined in accordance with a pricing grid based on the Leverage Ratio. Each Swingline Loan denominated in Dollars bears interest at the Base Rate plus the Applicable Margin for Base Rate advances under our revolving credit facility.the Revolving Credit Facility.
Repayment. Outstanding commitments under our revolving credit, swing line
We are required to pay a quarterly commitment fee that shall initially be 0.50% and thereafter, to be subject to stepdowns determined in accordance with a pricing performance grid, on the unused portion of the Senior Credit Facility. A quarterly letter of credit terminate andfee equal to the Applicable Margin on Revolving Credit LIBOR Advances is also payable on the stated amount of outstanding letters of credit.
Maturity
The term loan facilities are subject to repayment according to a scheduled amortization, with the final payment of all amounts outstanding, thereunder are to repaid in full on January 20, 2005.plus accrued and unpaid interest due seven years after the Closing Date. The revolving credit facility will terminate six years after the Closing Date.
Prepayments
The Senior Credit Facility provides for annual mandatory prepayments, over and above the normal amortization as a result of “Excess Cash Flow” (as defined, less certain operating expenditures including scheduled principal payments of long-term debt). The Senior Credit Facility also provides for other mandatory prepayments as a result of issuance of debt (excluding certain permitted indebtedness) and sales of certain assets above an annual threshold.
Security and Guarantees
The Senior Credit Facility is also subjectsecured by substantially all of our domestic assets and certain of our foreign assets. The Borrower’s obligations under the Senior Credit Facility are guaranteed by certain of our subsidiaries, including all domestic subsidiaries.
Covenants
The Senior Credit Facility contains financial covenants with respect to a clean-down period duringdebt which include maintaining minimum interest and maximum leverage ratios. In accordance with the agreement, the limits imposed by such ratios become more restrictive over time. In addition, the agreement restricts our ability to incur additional indebtedness, create liens, make investments or specified payments, give guarantees, pay dividends, make capital expenditures and merge or acquire or sell assets.
Events of Default
The Senior Credit Facility contains customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to similar obligations,
certain events of bankruptcy and insolvency, judgment defaults, failure of any guaranty or security document supporting the agreement to be in full force and effect, change of control and customary ERISA defaults.
Incremental Term Facility
On April 29, 2005, we entered into an amendment to the Senior Credit Facility pursuant to which the lenders thereunder agreed to increase their commitments by $500 million under an incremental term facility. The increased commitments consisted of: (i) an increase in the U.S. Dollar Term Loan Facility by an aggregate principal amount outstandingnot to exceed U.S. $115 million, (ii) an increase in the Canadian Dollar Term Loan Facility by an aggregate principal amount not to exceed the equivalent in Canadian dollars of $20 million and (iii) an additional Euro Term Loan Facility in an aggregate principal amount not to exceed the equivalent in Euros of U.S. $365 million. Borrowings under the revolving creditincremental term facility shall not exceed $10.0were used to (a) pay the existing holders of the equity interests of the Tetra the cash consideration for their shares, (b) refinance the existing indebtedness of Tetra and its subsidiaries and (c) pay transaction fees and expenses incurred in connection with the acquisition of Tetra.
Senior Subordinated Notes Due 2013
We currently have outstanding $350 million for 30 consecutive days during the period between Augustin aggregate principal amount of 8.5% Senior Subordinated Notes due 2013. The notes pay interest semi-annually on April 1 and November 30October 1 of each year and are guaranteed by all of Spectrum’s domestic subsidiaries. The notes are unsecured senior subordinated obligations and rank junior to all of our senior debt. We may redeem the notes in each calendar year. We usedwhole or in part at any time on or after October 1, 2008, at specified redemption prices. In addition, under certain circumstances, we may redeem up to 35% of the notes before October 1, 2006. The terms of the notes restrict or limit our ability to, among other things: (i) pay dividends or make other restricted payments, (ii) incur additional indebtedness and issue preferred stock, (iii) create liens, (iv) incur dividend and other restrictions affecting subsidiaries, (v) enter into mergers, consolidations, or sales of all or substantially all of our assets, (vi) make asset sales, (vii) enter into transactions with affiliates, and (viii) issue or sell capital stock of our wholly owned subsidiaries. In addition, the holders of the notes may require us to repurchase all or a portion of the proceeds of the offering of the Series C notes to repay Term Loan A in full. The principal amount of Term Loan B is $240.0 million. This amount is to be repaid in quarterly installments, with a final installment due January 20, 2006.
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 current and 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 is at 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 Bank of America or the Federal Funds Rate, as defined in our senior credit facility plus1/2 of 1% (the Base Rate) plus the applicable borrowing margin. The applicable borrowing margin for Term Loan B is 2.50-3.00% for the Base Rate advances and 3.50-4.00% for Eurodollar advances. The applicable borrowing margin for our revolving credit facility and Term Loan A is between 1.50% and 2.50% for the Base Rate advances and between 2.50% and 3.50% 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, Term Loan A and Term Loan B are required to be prepaid and commitments under our revolving credit facility are required to be permanently reduced with:
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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:
Events of Default. Events of default under our senior credit facility include:
97/8% Series B and C Senior Subordinated Notes
In March 1999, we issued $150.0 million of our 97/8% Series A Senior Subordinated Notes due 2009. In October 1999, we consummated an exchange offer in which we exchanged all of our Series A notes for our 97/8% Series B Senior Subordinated Notes due 2009, which had been registered pursuant to the Securities Act.
In March 2003, we issued $85.0 million of our 97/8% Series C Senior Subordinated Notes due 2009.THE EXCHANGE OFFER
The principal terms
Purpose of the Series BExchange Offer
Simultaneously with the sale of the original notes, we entered into a registration rights agreement with the initial purchasers of the original notes—Banc of America Securities LLC, Citigroup Global Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and C notes areABN AMRO Incorporated. Under the same as the Series D notes being offered hereby, including the interest rate, the interest payment dates and the maturity date. The indentureregistration rights agreement, we agreed, among other things, to:
However, certain covenants and definitions in the indenture governing the Series D notes offered hereby, which also governs the Series C notes, are different from the corresponding covenants and definitions in the indenture governing the Series B notes. See "Summary of Key Differences Between the Indenture Governing the Series B Notes and the Indenture Governing the Series D Notes."
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In connection with thea registered exchange offer for the Series Doriginal notes we are required to conduct forwith the Series C notes, we are also offering to exchange allSEC no later than 120 days after the date of the outstanding Series B notes in return for Series D notes. If allissuance of the Series B and C notes are exchanged fororiginal notes;
We are conducting the exchange offer to be a single series of notes outstandingsatisfy our obligations under the indenture relatingregistration rights agreement. If we fail to the Series D notes. This would dilute your voting interest.
We are offering to accept both our Series B and C notes in exchange for the Series D notes in order to increase the liquidity of both series. However, we cannot assure you that all the Series B noteholders will participate in the exchange, in which case the Series B notes not exchanged for the Series D notes will continue as a separate series of notesmeet certain specified deadlines under a separate indenture.
This section of this prospectus describes the exchange offer.While we believe that the following description covers the material terms of this exchange offer, this summary may not contain all of the information that is important to you. For a more complete understanding of this exchange offer, you should carefully read the entire prospectus and the other documents to which we refer, including the registration rights agreement, we will be obligated to pay liquidated damages to the holders of the original notes. A copy of the registration rights agreement has been filed with the SEC as Exhibit 4.3 to Rayovac Corporation’s Current Report on Form 8-K dated February 7, 2005, and filed on February 11, 2005, and is incorporated by reference as an exhibit to the registration statement of which this prospectus is a part.
Purpose
The form and Effectterms of the Exchange Offer
We andexchange notes are the guarantors, referred to herein collectivelysame as the issuers, entered into aform and terms of the original notes, except that the exchange notes:
We are offering to exchange our Series D notes for up to 100% of our Series B and C notes on the terms set forth in this prospectus and in the accompanying letters of transmittal. We are including both the Series B and C notes in the exchange offer in order to increase the liquidity of both series. For each Series B or C note surrendered to us pursuant to the exchange offer, the holder of such note will receive a Series D note having a principal amount at maturity equal to that of the surrendered note.
Under existing SEC interpretations, the Series D notes would in general be freely transferable after the exchange offer without further registration under the Securities Act;provided that, in the case of broker-dealers, a prospectus meeting the requirements of the Securities Act be delivered as required. We have agreed for a period of 180 days after consummation of the exchange offer to make available a prospectus meeting the requirements of the Securities Act to any broker-dealer for use in connection with any resale of any such exchange notes acquired as described below. A broker-dealer which delivers such a prospectus to purchasers in connection with such resales will be subject to certain of the civil liability provisions under the Securities Act, and will be bound by the provisions of the registration rights agreement, including certain indemnification rights and obligations
Each holder of Series C notes that wishes to exchange such notes for Series D notes in the exchange offer will be required to make certain representations including representations that (1) any Series D notes to be received by it will be acquired in the ordinary course of its business, (2) it has no arrangement with any person to participate in the distribution of the Series D notes and (3) it is not an affiliate, as defined in Rule 405 of the Securities Act, of, or if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the holder is not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the Series D notes. If the holder is a broker-dealer that will receive Series D notes for its own account in exchange for Series B or C notes that were acquired as a
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result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes.
In the event that applicable interpretations of the Staff of the SEC do not permit the issuers to effect such an exchange offer, or if for any other reason theThe exchange offer is not consummated within 210 days ofextended to old note holders in any jurisdiction where the issue date of the Series C notes or, under certain circumstances, if the initial purchasers shall so request, we and the guarantors will, (a) as promptly as practicable, file a shelf registration statement covering resales of the Series C notes, (b) use our respective best efforts to cause the shelf registration statement to be declared effective under the Securities Act and (c) use our respective best efforts to keep effective the shelf registration statement until the earlier of the disposition of the Series C notes covered by the shelf registration statement or two years after the issue date of the Series C notes, or such earlier time when the Series C notes are eligible for resale pursuant to Rule 144(k) under the Securities Act. We and the guarantors will, in the event of the shelf registration statement, provide to each holder of the Series C notes copies of the prospectus which is a part of the shelf registration statement, notify each such holder when the shelf registration statement for the Series C notes has become effective and take certain other actions as are required to permit unrestricted resales of the Series C notes. A holder of the Series C notes that sells such notes pursuant to the shelf registration statement generally would be required to be named as a selling securityholder 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 registration rights agreement which are applicable to such a holder, including certain indemnification rights and obligations.
Although the issuers intend to file the registration statements described above, as necessary, such registration statement mayexchange offer does not be filed or, if filed, it may not become effective. If we fail to comply with the above provisionssecurities or if any such registration statement fails to become effective, the, as liquidated damages, additional interest shall become payable in respectblue sky laws of the Series C notes as follows:
(each such event referred to in clauses (1) through (3) above is a registration default), the sole remedy available to holders of the Series C notes will be the immediate assessment of additional interest as follows: the per annum interest rate on the Series C notes will increase by 0.25% for each 90-day period during which the registration default continues, up to a maximum additional interest rate of 2.00% per annum in excess of the interest rate shown on the cover of this prospectus. All additionalthat jurisdiction.
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interest will be payable to holders of the Series C notes in cash on each interest payment date, 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 notes will revert to the interest rate originally borne by the notes as shown on the cover of this prospectus. Holders of Series B notes have no right to receive such additional interest.
Terms of the Exchange Offer
Upon the terms and subject
We are offering to exchange up to $700,000,000 aggregate principal amount of exchange notes for a like aggregate principal amount of original notes. The original notes must be tendered properly in accordance with the conditions set forth in this prospectus and the accompanying letter of transmittal on or prior to the expiration date and not withdrawn as permitted below. In exchange for original notes properly tendered and accepted, we will issue a like total principal amount of up to $700,000,000 in exchange notes. This prospectus, together with the letter of transmittal, we will accept any andis first being sent on or about , 2005, to all Series B and C notes validly tendered and not withdrawn prior to 5:00 P.M., New York City time, on the expiration date of the exchange offer. We will issue $1,000 principal amount of Series D notes in exchange for each $1,000 principal amount of Series B and C notes accepted in the exchange offer. Any holder may tender some or all of its Series B and C notes pursuant to the exchange offer. However, Series B and C notes may be tendered only in integral multiples of $1,000.
The form and terms of the Series D notes are substantially similar to the form and terms of the Series B and C notes except that:
Original notes tendered in the Series D indenture, which also governsexchange offer must be in denominations of the Series Cprincipal amount of $1,000 and any integral multiple of $1,000 in excess thereof.
Holders of the original notes anddo not have any appraisal or dissenters’ rights in connection with the definitions related thereto, are different than the provisions contained in the Series B indenture, as described in the "Summary of Key Differences Between the Indenture Governing the Series B Notes and the Indenture Governing the Series D Notes" section of this prospectus.
The Series Dexchange offer. If you do not tender your original notes or if you tender original notes that we do not accept, your original notes will evidence the same debt as the tendered Series B and Cremain outstanding. Any original notes and will be entitled to the benefits of the Series D indenture.
As of the date of this prospectus, $235,000,000 aggregate principal amount of the Series B and C notes were outstanding. We have fixed the close of business on , 2003 as the record date for the exchange offer for purposes of determining the personsindenture but will not be entitled to whom this prospectus and the letter of transmittal will be mailed initially.
Holders of Series B and C notes do not have any appraisal or dissenters'further registration rights under the General Corporation Law of Delaware, or the indentures relatingregistration rights agreement, except under limited circumstances. Existing transfer restrictions would continue to apply to such original notes. See “Risk Factors—There are significant consequences if you fail to exchange your original notes” for more information regarding original notes in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC thereunder.
We will be deemed to have accepted validly tendered Series B and C notes when, as and if we have given oral or written notice thereof to the exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the Series D notes from us.
If any tendered Series B or C notes are not accepted for exchange because of an invalid tender, the occurrence of specified other events set forth in this prospectus or otherwise, the certificates for
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any unaccepted Series B and C notes will be returned, without expense, to the tendering holder thereof as promptly as practicableoutstanding after the expiration date of the exchange offer.
Holders who
After the expiration date, we will return to the holder any tendered original notes that we did not accept for exchange.
None of us, our board of directors or our management recommends that you tender Series B and Cor not tender original notes in the exchange offer will not be requiredor has authorized anyone to pay brokerage commissions or fees or, subjectmake any recommendation. You must decide whether to the instructionstender in the letterexchange offer and, if you decide to tender, the aggregate amount of transmittal, transfer taxes with respectoriginal notes to the exchange of Series B and C 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; Amendmentstender.
The term "expiration date" will meanexpiration date is 5:00 P.M.p.m., New York City time, on , 2003, unless we, in our sole discretion, extend the exchange offer, in which case the term "expiration date" will mean the latest2005, or such later date and time to which we extend the exchange offer.
We have the right, in accordance with applicable law, at any time:
In order
If we materially amend the exchange offer, we will makeas promptly as practicable distribute a press release or other public announcement, notifyprospectus supplement to the holders of the original notes disclosing the change and extend the exchange agentoffer.
If we exercise any of any extension bythe rights listed above, we will as promptly as practicable give oral or written notice of the action to the exchange agent and will mail tomake a public announcement of such action. In the registered holderscase of an extension, an announcement thereof, each prior to 5:will be made no later than 9:00 P.M.a.m., New York City time on the next business day after the previously scheduled expiration date.
We reserve
Acceptance of Original Notes for Exchange and Issuance of Original Notes
As promptly as practicable after the right, in our sole discretion, (1)expiration date, we will accept all original notes validly tendered and not withdrawn, and we will issue exchange notes registered under the Securities Act to delay accepting any Series B or Cthe exchange agent. The exchange agent might not deliver the exchange notes to extendall tendering holders at the same time. The timing of delivery depends upon when the exchange offer oragent receives and processes the required documents.
We will be deemed to terminate the exchange offer if any of the conditions set forth below under "—Conditions" have exchanged original notes validly tendered and not been satisfied, by givingwithdrawn when we give oral or written notice of any delay, extension or termination to the exchange agent or (2) to amend the termsof our acceptance of the tendered original notes, with written confirmation of any oral notice to be given promptly thereafter. The exchange offer in any manner. Such decision will also be communicated in a press release or other public announcement prior to 9:00 A.M., New York City time on the next business day following such decision. Any announcementagent is our agent for receiving tenders of delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders.
Interest on the Series D Notesoriginal notes, letters of transmittal and related documents.
Interest on the Series D
In tendering original notes, will accrue from the later of (1) the last interest payment date on which interest was paid on the notes surrenderedyou must warrant in exchange therefor or (2) if the notes are surrendered for exchange on a date in a period which includes the record date for an interest payment date to occur on or after the date of such exchange and as to which interest will be paid, the date of such interest payment date.
Interest on the exchange notes is payable semiannually in arrears on each of April 1 and October 1.
Procedures for Tendering
Only a registered holder of outstanding Series B or C 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 in an agent’s message (described below) that (i) you have full power and authority to tender, exchange, sell, assign and transfer original notes, (ii) we will acquire good, marketable and unencumbered title to the tendered original notes, free and clear of all
liens, restrictions, charges and other encumbrances and (iii) the original notes tendered for exchange are not subject to any adverse claims or proxies. You also must warrant and agree that you will, upon request, execute and deliver any additional documents requested by us or the exchange agent to complete the exchange, sale, assignment and transfer of the original notes.
Procedures for Tendering Original Notes
Valid Tender
When the holder of original notes tenders, and we accept, original notes for exchange, a facsimile thereof, havebinding agreement between us, on the signatures thereon guaranteed ifone hand, and the tendering holder, on the other hand, is created, subject to the terms and conditions set forth in this prospectus and the accompanying letter of transmittal. Except as set forth below, a holder of original notes who wishes to tender original notes for exchange must, on or prior to the expiration date:
In addition, on or prior to 5:00 P.M., New York City time, on the expiration date. Deliverydate:
The letter of transmittal or agent’s message may be delivered by mail, facsimile, hand delivery or overnight carrier, to the expiration date.exchange agent.
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The term "agent's message"“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,by DTC which states that the book-entry transfer facilityDTC has received an express acknowledgement from the participant in the book-entry transfer facility tendering the Series B and C notesacknowledgment that the participant has received and agrees: (1) to participate in the Automated Tender Option Program ("ATOP"); (2)tendering holder agrees to be bound by the terms of the letter of transmittal;transmittal and (3) that we may enforce the agreement against the participant.
The tender by a holder and our acceptance thereof will constitute agreement between the holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal or agent's message.against such holder.
The method of delivery of Series B or C
If you beneficially own original 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 Series B or C notes should be sent to us. Holders may request their respective brokers, dealers, commercial banks, trust companies or nominees to effect the above transactions for them.
Any beneficial owner whose Series B or Cthose notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee or custodian and who wishesyou wish to tender your original notes in the exchange offer, you should contact the registered holder promptlyas soon as possible and instruct the registered holderit to tender the original notes on your behalf and comply with the beneficial owner's behalf. See "Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" included withinstructions set forth in this prospectus and the letter of transmittal.
If you tender fewer than all of your original notes, you should fill in the amount of notes tendered in the appropriate box on the letter of transmittal. If you do not indicate the amount tendered in the appropriate box, we will assume you are tendering all original notes that you hold.
The method of delivery of the certificates for the original notes, the letter of transmittal and all other required documents is at the election and sole risk of the holders. If delivery is by mail, we recommend registered mail with return receipt requested, properly insured, or overnight delivery service. In all cases, you should allow sufficient time to assure timely delivery. No letters of transmittal or original notes should
be sent directly to us. Delivery is complete when the exchange agent actually receives the items to be delivered. Delivery of documents to DTC in accordance with DTC’s procedures does not constitute delivery to the exchange agent.
Signature Guarantees
Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed by a member of the Medallion System unless the Series B or Coriginal notes tendered pursuant to the letter of transmittalsurrendered for exchange are tendered (1) tendered:
An “eligible institution” is a member firm ofor other entity which is identified as an “Eligible Guarantor Institution” in Rule 17Ad-15 under the Medallion System. In the event thatExchange Act, including:
If signatures on a letter of transmittal or a notice of withdrawal as the case may be, are required to be guaranteed, the guaranteeguarantor must be by a member firm of the Medallion System.an eligible institution.
If original notes are registered in the lettername of transmittal is signed by a person other than the registered holdersigner of any Series B or Cthe letter of transmittal, the original notes the Series B or C notessurrendered for exchange must be endorsed or accompanied by a properly completed bond power, signedwritten instrument or instruments of transfer or exchange, in satisfactory form as determined by us in our sole discretion, duly executed by the registered holder as the registered holder's name appears on such notes with the holder’s signature thereon guaranteed by a member firman eligible institution.
Book-Entry Transfers
For tenders by book-entry transfer of the Medallion System.
If the letter of transmittal or any Series B or Coriginal notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, offices of corporations or others acting in a fiduciary or representative capacity, the person signing should so indicate when signing, and evidence satisfactory to us of its authority to so act must be submitted with the letter of transmittal.
We understand thatcleared through DTC, the exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the Series B and C notesan account at DTC for the purposepurposes of facilitating the exchange offer,offer. Any financial institution that is a DTC participant may make book-entry delivery of original notes by causing DTC to transfer the original notes into the exchange agent’s account at DTC in accordance with DTC’s procedures for transfer. The exchange agent and subject to the establishment thereof,DTC have confirmed that any financial institution that is a participant in DTC's systemDTC may use the Automated Tender Offer Program, or ATOP, procedures to tender original notes. Accordingly, any participant in DTC may make book-entry delivery of the Series B or Coriginal notes by causing DTC to transfer the Series B or Cthose original notes into the exchange agent'sagent’s account with respect to the Series B and C notes in accordance with DTC'sits ATOP procedures for transfer.
Notwithstanding the transfer. Althoughability of holders of original notes to effect delivery of the Series B and Coriginal notes may be effected through book-entry transfer into the exchange agent's account at DTC, unlesseither:
Guaranteed Delivery
If a holder wants to tender original notes in compliance with ATOP, an appropriate letter of transmittal properly completedthe exchange offer and duly executed with any required signature guarantee and(1) the certificates for the original notes are not immediately available or all other required documents must in each case be transmittedare unlikely to and received or confirmed byreach the exchange agent at its address set forth below on or prior to the expiration date, or (2) a book-entry transfer cannot be completed on a timely basis, the original notes may be tendered if the holder complies with the following guaranteed
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delivery procedures described below are complied with, within the time period provided under the procedures. Delivery of documents to DTC does not constitute delivery to the exchange agent.procedures:
All questions as to the validity, form, eligibility, including time of receipt, acceptance of tendered Series B and C notes and withdrawal of tendered Series B and C 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 Series B and C notes not properly tendered or any Series B and C notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right in our sole discretion to waive any defects, irregularities or conditions of tender as to particular Series B and C notes. 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 Series B and C notes must be cured within the time we determine. Although we intend to notify holders of defects or irregularities with respect to tenders of Series B and C notes, neither we, the exchange agent nor any other person will incur any liability for failure to give the notification. Tenders of Series B and C notes will not be deemed to have been made until the defects or irregularities have been cured or waived. Any Series B and C 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.
Guaranteed Delivery Procedures
Holders who wish to tender their Series B or C notes and (1) whose Series B or C notes are not immediately available, (2) who cannot deliver their Series B or C notes, the letter of transmittal or any other required documents to the exchange agent or (3) who cannot complete the procedures for book-entry transfer, prior to the expiration date, may effect a tender if:
Upon request
You may deliver the notice of guaranteed delivery by hand, facsimile, mail or overnight delivery to the exchange agent and you must include a Noticeguarantee by an eligible institution in the form described above in such notice.
Our acceptance of Guaranteed Deliveryproperly tendered original notes is a binding agreement between the tendering holder and us upon the terms and subject to the conditions of the exchange offer.
Determination of Validity
We, in our sole discretion, will resolve all questions regarding the form of documents, validity, eligibility, including time of receipt, and acceptance for exchange of any tendered original notes. Our determination of these questions as well as our interpretation of the terms and conditions of the exchange offer, including the letter of transmittal, will be sentfinal and binding on all parties. A tender of original notes is invalid until all defects and irregularities have been cured or waived. Holders must cure any defects and irregularities in connection with tenders of original notes for exchange within such reasonable period of time as we will determine, unless we waive the defects or irregularities. Neither us, any of our affiliates or assigns, the exchange agent nor any other person is under any obligation to holders who wishgive notice of any defects or irregularities in tenders nor will they be liable for failing to give any such notice.
We reserve the absolute right, in our sole and absolute discretion:
If any letter of transmittal, endorsement, bond power, power of attorney, or any other document required by the letter of transmittal 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, that person must indicate such capacity when signing. In addition, unless waived by us, the person must submit proper evidence satisfactory to us, in our sole discretion, of his or her authority to so act.
Resales of Original Notes
Based on interpretive letters issued by the SEC staff to third parties in transactions similar to the guaranteedexchange offer, we believe that a holder of exchange notes, other than a broker-dealer, may offer exchange notes for resale, resell and otherwise transfer the exchange notes without delivering a prospectus to prospective purchasers, if the holder acquired the exchange notes in the ordinary course of business, has no intention of engaging in a “distribution” (as defined under the Securities Act) of the exchange notes and is not an “affiliate” (as defined under the Securities Act) of Spectrum. We will not seek our own interpretive letter. As a result, we cannot assure you that the staff will take the same position on this exchange offer as it did in interpretive letters to other parties in similar transactions.
By tendering original notes, the holder, other than participating broker-dealers, as defined below, of those original notes will represent to us that, among other things:
If any holder or any such other person is an “affiliate” of Spectrum or is engaged in, intends to engage in or has an arrangement or understanding with any person to participate in a “distribution” of the exchange notes, such holder or other person:
77Each broker-dealer that receives exchange notes for its own account in exchange for original notes must represent that the original notes to be exchanged for the exchange notes were acquired by it as a result of market-making activities or other trading activities and acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any offer to resell, resale or other retransfer of the exchange notes pursuant to the exchange offer. Any such broker-dealer is referred to as a participating broker-dealer. However, by so acknowledging and by delivering a prospectus, the participating broker-dealer will not be deemed to admit that it is an “underwriter” (as defined under the Securities Act). If a broker-dealer acquired original notes as a result of market-making or other trading activities, it may use this prospectus, as amended or supplemented, in connection with offers to resell, resales or retransfers of exchange notes received in exchange for the original notes pursuant to the exchange offer. We have agreed that, during the period ending 180 days after the consummation of the exchange offer, subject to extension in limited circumstances, we will use all commercially reasonable efforts to keep the exchange offer registration statement effective and make this prospectus available to any broker-dealer for use in connection with any such resale. See “Plan of Distribution” for a discussion of the exchange and resale obligations of broker-dealers in connection with the exchange offer.
Withdrawal of TendersRights
Except as otherwise provided in this prospectus,
You can withdraw tenders of Series B and Coriginal notes may be withdrawn at any time prior to 5:00 P.M.p.m., New York City time, on the expiration date.
To withdraw
For a tender of Series B or C notes in the exchange offer,withdrawal to be effective, you must deliver a telegram, telex, letter or facsimile transmissionwritten notice of withdrawal must be received byto the exchange agent at its address set forth in this prospectus prior to 5:00 P.M., New York City time, on the expiration date of the exchange offer. Anyagent. The notice of withdrawal must:
If you delivered or otherwise identified original notes to the exchange agent, you must submit the serial numbers of the original notes to be withdrawn and
All questions aswithdrawal to the validity,exchange agent. You may not rescind withdrawals of tender; however, original notes properly withdrawn may again be tendered at any time on or prior to the expiration date.
We will determine all questions regarding the form andof withdrawal, validity, eligibility, including time of receipt, and acceptance of withdrawal notices. Our determination of these questions as well as our interpretation of the notices will be determined by us, which determinationterms and conditions of the exchange offer (including the letter of transmittal) will be final and binding on all parties. Any Series B and CNeither us, any of our affiliates or assigns, the exchange agent nor any other person is under any obligation to give notice of any irregularities in any notice of withdrawal, nor will they be liable for failing to give any such notice.
In the case of original notes sotendered by book-entry transfer through DTC, the original notes withdrawn or not exchanged will be deemed notcredited to have been validly tendered for purposes of the exchange offer and no Series Dan account maintained with DTC. Withdrawn original notes will be issued with respect thereto unless the Series B and C notes so withdrawn are validly retendered. Any Series B and C notes which have been tendered but which are not accepted for exchange will be returned to the holder thereof without costafter withdrawal. The original notes will be returned or credited to the holderaccount maintained with DTC as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Any original notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to the holder.
Properly withdrawn outstanding Series B and Coriginal notes may again be retenderedtendered by following one of the procedures described above under "—“—Procedures for Tendering"Tendering Original Notes” above at any time prior to 5:00 p.m., New York City time, on the expiration date.
Conditions to the Exchange Offer
Notwithstanding any other termprovision of the exchange offer, we willare not be required to accept for exchange, or to issue exchange notes in exchange for, any Series B or Coriginal notes, and we may prior to the expiration of the exchange offer, terminate or amend the exchange offer, as provided in this prospectus beforeif at any time prior to 5:00 p.m., New York City time, on the acceptanceexpiration date, we determine that the exchange offer violates applicable law or SEC policy.
The foregoing conditions are for our sole benefit, and we may assert them regardless of the Series Bcircumstances giving rise to any such condition, or we may waive the conditions, completely or partially, whenever or as many
times as we choose, in our reasonable discretion. The foregoing rights are not deemed waived because we fail to exercise them, but continue in effect, and C notes, if:we may still assert them whenever or as many times as we choose. If we determine that a waiver of conditions materially changes the exchange offer, the prospectus will be amended or supplemented, and the exchange offer extended, if appropriate, as described under “—Terms of the Exchange Offer.”
In addition, at a time when any actionstop order is threatened or proceeding is instituted or threatened in any court or by or before any governmental agencyeffect with respect to the exchange offerregistration statement of which we reasonably believe might materially impair our ability to proceed with the exchange offerthis prospectus constitutes a part or any material adverse development has occurred in any existing action or proceeding with respect to us or any of our subsidiaries; or
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If we determine in our sole discretion that any of the conditions are not satisfied, we may (1) refuse to accept any Series B or C notes and return all tendered Series B and C notes to the tendering holders, (2) extend the exchange offer and retain all Series B and C notes tendered prior to the expiration of the exchange offer, subject, however, to the rights of holders to withdraw the Series B and C notes (see "—Withdrawal of Tenders") or (3) waive the unsatisfied conditions with respect to the qualification of the indenture under the Trust Indenture Act of 1939, as amended, we will not accept for exchange any original notes tendered, and no exchange notes will be issued in exchange for any such original notes.
If we terminate or suspend the exchange offer based on a determination that the exchange offer violates applicable law or SEC policy, the registration rights agreement requires that we, as soon as practicable after such determination, use our commercially reasonable efforts to cause a shelf registration statement covering the resale of the original notes to be filed and accept all properly tendered Series B or C notes which have not been withdrawn.declared effective by the SEC. See “—Registration Rights and Additional Interest on the Original Notes.”
Exchange Agent
We appointed U.S. Bank National Association has been appointed as exchange agent for the exchange offer. U.S. Bank National Association also serves as trustee under the indentures for the Series B, C and D notes. QuestionsYou should direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for Noticenotices of Guaranteed Delivery should be directedguaranteed delivery to the exchange agent addressedat the address and phone number as follows:
By Registered or Certified Mail, Hand Delivery or Overnight Delivery: U.S. Bank National Association EP-MN-WS2N 60 Livingston Avenue St. Paul, MN | |||
Telephone: | |||
(800) 934-6802 | |||
(651) 495-8158 or (651) 495-8159 (Eligible Institutions Only) Confirmation by Telephone: | |||
(800) 934-6802 |
Delivery
If you deliver letters of transmittal and any other required documents to an address or facsimile number other than set forththose listed above, will not constitute a valid delivery.your tender is invalid.
Fees and Expenses
The registration rights agreement provides that we will bear all expenses in connection with the performance of our obligations relating to the registration of the exchange notes and the conduct of the exchange offer. These expenses include registration and filing fees, accounting and legal fees and printing costs, among others. We will bearpay the exchange agent reasonable and customary fees for its services and reasonable out-of-pocket expenses. We will also reimburse brokerage houses and other custodians, nominees and fiduciaries for customary mailing and handling expenses incurred by them in forwarding this prospectus and related documents to their clients that are holders of soliciting tenders. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telecopy, telephoneoriginal notes and for handling or in person by our and our affiliates' officers and regular employees.tendering for such clients.
We have not retained any dealer-manager in connection with the exchange offer and will not makepay any paymentsfee or commission to brokers, dealersany broker, dealer, nominee or others soliciting acceptances of the exchange offer. We will, however, payother person, other than the exchange agent, reasonable and customary fees for its services andsoliciting tenders of original notes pursuant to the exchange offer.
Transfer Taxes
Holders who tender their original notes for exchange will reimburse it for its reasonable out-of-pocket expenses incurrednot be obligated to pay any transfer taxes in connection with these services.
We will pay the cash expensesexchange. If, however, exchange notes issued in the exchange offer are to be incurreddelivered to, or are to be issued in the name of, any person other than the holder of the original notes tendered, or if a transfer tax is imposed for any reason other than the exchange of original notes in connection with the exchange offer. Such expenses include fees and expensesoffer, then the holder must pay any such transfer taxes, whether imposed on the registered holder or on any other person. If
satisfactory evidence of payment of, or exemption from, such taxes is not submitted with the exchange agent and trustee, accounting and legal fees and printing costs, among others.
Accounting Treatment
The Series D notesletter of transmittal, the amount of such transfer taxes will be recorded atbilled directly to the same carrying value as the Series B or C notes, which is face value, as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes as a result of the exchange offer. The expenses of the exchange offer will be expensed over the term of the Series D Notes.tendering holder.
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Consequences of Failure to Exchange Original Notes
The Series C
Holders who desire to tender their original notes in exchange for exchange notes should allow sufficient time to ensure timely delivery. Neither the exchange agent nor Spectrum is under any duty to give notification of defects or irregularities with respect to the tenders of notes for exchange.
Original notes that are not exchanged for Series D notes pursuant totendered or are tendered but not accepted will, following the consummation of the exchange offer, will remain restricted securitiescontinue to be subject to the provisions in the indenture regarding the transfer and exchange of the original notes and the existing restrictions on transfer set forth in the legend on the original notes and in the offering memorandum dated January 21, 2005, relating to the original notes. Except in limited circumstances with respect to specific types of holders of original notes, we will have no further obligation to registerprovide for the Series C notes. Accordingly, the Series C notes may be resold only:
Upon completion of the exchange offer, holders of the original notes will not be entitled to another exemption fromany further registration rights under the registration requirementsrights agreement, except under limited circumstances. Holders of the exchange notes and any original notes which remain outstanding after consummation of the exchange offer will vote together as a single class for purposes of determining whether holders of the requisite percentage of the class have taken certain actions or exercised certain rights under the indenture.
Consequences of Exchanging Original Notes
Under existing interpretations of the Securities Act which other exemption is based upon an opinion of counsel reasonably acceptable to us;
Because the Series B notes were registered pursuant to the Securities Act in October 1999, among the potential consequences of not exchanging your Series B notes will be that the liquidity of your Series B notes could be adversely affected.
Resale of the Series D Notes
With respect to resales of Series D notes, based on interpretations by the Staff of the SEC set forthSEC’s staff contained in several no-action letters issued to third parties, we believe that a holderthe exchange notes may be offered for resale, resold or other person who receives Series D notes, whether or nototherwise transferred by holders after the person is the holder,exchange offer other than a person thatby any holder who is one of our affiliate within the meaning of“affiliates” (as defined in Rule 405 under the Securities Act). Such notes may be offered for resale, resold or otherwise transferred without compliance with the registration and prospectus delivery provisions of the Securities Act, inif:
a. such exchange for Series B or C notes are acquired in the ordinary course of businesssuch holder’s business; and who is not participating, does not intend to participate, and
b. such holder, other than broker-dealers, has no arrangement or understanding with any person to participate in the distribution of the Series D notes, will be allowed to resellexchange notes.
However, the Series D notes to the public without further registration under the Securities Act and without delivering to the purchasers of the Series D notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires Series D notes inSEC has not considered the exchange offer forin the purposecontext of distributing or participatinga no-action letter and we cannot guarantee that the staff of the SEC would make a similar determination with respect to the exchange offer as in such other circumstances. Each holder, other than a broker-dealer, must furnish a written representation, at our request, that:
a. it is not an affiliate of Spectrum;
b. it is not engaged in, and does not intend to engage in, a distribution of the Series Dexchange notes and has no arrangement or understanding to participate in a distribution of exchange notes; and
c. it is acquiring the holder cannot rely on the position of the Staff of the SEC expressedexchange notes in the no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirementsordinary course of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, eachits business.
Each broker-dealer that receives Series Dexchange notes for its own account in exchange for Series B or Coriginal notes where the Series B or Cmust acknowledge that such original notes were acquired by thesuch broker-dealer as a result of market-making activities or other trading activities must acknowledgeand that it will deliver a prospectus in connection with any resale of such exchange notes. See “Plan of Distribution “for a discussion of the exchange notes.
Appraisal Rights
You will not have any right to dissent and receive appraisalresale obligations of your Series B or C notesbroker-dealers in connection with the exchange offer.
SUMMARY OF KEY DIFFERENCES BETWEEN THE INDENTURE GOVERNING THESERIES B NOTES AND THE INDENTURE GOVERNING THE SERIES D NOTES
While the Series B indenture and Series D indenture are substantially similar, and the Series C and D notes are pursuant to the same indenture, the Series D indenture differs in some respects from the Series B indenture.While we believe that the following summary of the key differences between the Series B indenture and the Series D indenture is complete, this summary may not contain all of the information that is important to you.For a more complete understanding of the differences summarized below, you should read the Series B indenture and the Series D indenture. You can find definitions of certain capitalized terms used in the following summary under the applicable indentures and, with respect to the Series D notes only, under "Description of the Notes—Certain Definitions."
Amount of Notes. The Series B indenture limits the amount of notes issuable under such indenture to an aggregate principal amount of $150,000,000. There is no such limit under the Series D indenture. Any notes, including any outstanding Series C and D notes, previously issued or issued in the future under the Series D indenture will be treated as a single class for all purposes under the Series D indenture. All notes issued under the Series D indenture vote together as one series of notes under the indenture.
Optional Redemption. The Series B indenture provides that we could redeem in the aggregate up to 40% of the original principal amount of Series B notes at any time and from time to time prior to April 1, 2002 out of the net proceeds of one or more Qualified Public Offerings. As the April 1, 2002 deadline has passed, this section and the definition of Qualified Public Offering has been deleted from the Series D indenture.
Limitation of Preferred Stock of Restricted Subsidiaries. The Series B indenture prohibits any Restricted Subsidiary from (1) issuing any Preferred Stock or (2) permitting any person to hold any such Preferred Stock, except to or by us or to or by another Restricted Subsidiary, unless we or such Restricted Subsidiary would be entitled to incur or assume Indebtedness under the Series B indenture in an aggregate principal amount equal to the aggregate liquidation value of the Preferred Stock to be issued. The Series D indenture carves out acquired Guarantors from the prohibition in (2) above.
Limitation on Restricted Payments. We clarified the treatment of the common stock issued to Bayer in June 2002 under the Limitation on Restricted Payments in the Series D indenture. Under certain circumstances, we may repurchase the Bayer Stock (a newly defined term in the Series D indenture), and in limited circumstances we may be required to repurchase the Bayer Stock, in exchange for both cash or a note and for cancelling our rights under certain agreements. The Series D indenture provides that, if a portion of the Bayer Stock would qualify as "Disqualified Stock" at the time we are repurchasing the Bayer Stock, then, for purposes of that repurchase only, the threshold for the Limitation on Restricted Payments is nonetheless increased by an amount equal to the Net Proceeds or fair market value of securities or other property received by us from the issue and sale of that portion of the Bayer Stock. Also, the definition of "Disqualified Capital Stock" in the Series D indenture clarifies that from and after the date on which the Bayer Stock is no longer redeemable at the option of the holder, no portion of the Bayer Stock shall be considered Disqualified Capital Stock for purposes of calculating the threshold for the Limitation on Restricted Payments.
Asset Sale. In the Series B indenture, "Asset Sale" is defined to mean the sale, transfer or other disposition, including any Sale and Lease-Back Transaction, other than to us or any of our Restricted Subsidiaries, in any single transaction or series of related transactions having a fair market value in excess of $1,500,000 of (1) our Capital Stock or other equity interest in any of our Restricted Subsidiaries or (2) any other property or assets of us or of any of our Restricted Subsidiaries. In the Series D indenture, the threshold for the fair market value of such transaction or series of related transactions is in excess of $2,000,000.
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Change of Control. The definition of a Change of Control in the Series D indenture changes the definition contained in the Series B indenture by excluding a transaction from being a change in control if it is a merger or consolidation of us in which a THL Group Member holds, directly or indirectly, at least a majority of the Common Stock of the surviving corporation immediately after such consolidation or merger. In the Series D indenture, "THL" includes Thomas H. Lee Partners, L.P. and Thomas H. Lee Equity Fund V, L.P. in addition to Thomas H. Lee Equity Fund IV, L.P.
Consolidated Fixed Charges. The calculation to determine the Consolidated Fixed Charges in the Series B indenture is equal to the sum of (1) Consolidated Interest Expense (excluding amortization or write-off of debt issuance costs relating to the Recapitalization and the financing therefore 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 such 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 such 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 such Person, expressed as a decimal. In the Series D indenture, the exclusion in (2)(a) above of dividends paid in Capital Stock is expanded to include dividends that accumulate and compound as if paid in kind. As a result, accumulating dividends on the preferred stock issued to UIC Holdings, L.L.C. are not Consolidated Fixed Charges.
Foreign Subsidiary. Under the Series B indenture, a "Foreign Subsidiary" means a Restricted Subsidiary (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. Under the Series D indenture, a "Foreign Subsidiary" means a Restricted Subsidiary that is organized in a jurisdiction other than the United States of America or a state thereof or the District of Columbia, provided that for purposes of the Limitation on Creation of Subsidiaries contained in the Series D indenture, if a Restricted Subsidiary guarantees, grants a lien or enters into a similar agreement for the benefit of any of our Indebtedness or any other Restricted Subsidiary (other than a Foreign Subsidiary), such Restricted Subsidiary will not be deemed a Foreign Subsidiary.
Indebtedness. The Series B indenture includes in the definition of "Indebtedness" any Disqualified Capital Stock of such Person or any Restricted Subsidiary thereof. In the Series D indenture, any Bayer Stock that may be Disqualified Capital Stock is excluded from the definition of "Indebtedness."
Permitted Investments. In the Series B indenture, the definition of "Permitted Investments" definition includes Investments by us, or by a Restricted Subsidiary thereof, in us or a Restricted Subsidiary. In the Series D indenture, a proviso has been added that that investments in Foreign Subsidiaries shall not exceed $10,000,000 in the aggregate.
The Series B indenture also allows investments as "Permitted Investments" in an aggregate amount, as valued at the time each such Investment is made, not exceeding $10,000,000 for all such Investments from and after March 24, 1999. This amount is increased from time to time (1) to the extent any return of capital is received by us or a Restricted Subsidiary on an Investment previously made in reliance on this clause after March 24, 1999, in each case, up to, but not exceeding, the amount of the original Investment but only to the extent such return of capital is excluded from Consolidated Net Income and (2) by 100% of the aggregate net proceeds of any equity contribution received after March 24, 1999 by us (other than in return for Disqualified Capital Stock) from a holder of our Capital Stock, net of any amounts thereof used to calculate amounts available for Restricted Payments or previously relied upon to make any Permitted Investments pursuant to this clause. In the Series D indenture, clause (2) above also includes 100% of the aggregate net proceeds of any issuance
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or sale of Capital Stock (other than Disqualified Capital Stock). The Series D indenture clarifies that equity contributions and stock issuances are the same by providing that clause (2) above also increases by 100% of the aggregate net proceeds of any issuance or sale of Capital Stock (other than Disqualified Capital Stock).
In addition to the differences described above, there are a number of technical differences between the Series B indenture and the Series D indenture and certain of the definitions in the Series D indenture have been updated.
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We issued the Series Coriginal notes, and will issue the Series Dexchange notes under an indenture dated March 27, 2003Indenture (the "Indenture"“Indenture”), among us,Rayovac Corporation, the Initial Subsidiary Guarantors and U.S. Bank National Association, as trustee (the "Trustee"“Trustee”). The followingA copy of the Indenture has been filed with the SEC as Exhibit 4.1 to our Current Report on Form 8-K dated February 7, 2005, and filed on February 11, 2005, and is incorporated by reference as an exhibit to the registration statement of which this Prospectus is a summary of the material terms and provisions of the Series D notes. It does not include all of the provisions of the Indenture. We urge you to read the Indenture because it defines your rights.part. The terms of the Series D notesNotes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust“Trust Indenture Act"Act”),. The terms of the exchange notes are the same as the terms of the original notes, except that (i) we registered the exchange notes under the Securities Act, (ii) the exchange notes will not bear restrictive legends restricting their transfer under the Securities Act, (iii) holders of the exchange notes are not entitled to certain rights under the registration rights agreement and (iv) the exchange notes will not contain provisions relating to liquidated damages in effect onconnection with the dateoriginal notes under circumstances related to the timing of the exchange offer.
The following description is a summary of the material provisions of the Indenture. ToIt does not restate that agreement in its entirety. We urge you to read the Indenture in its entirety because it, and not this description, defines your rights as holders of the Notes. Anyone who receives this Prospectus may obtain a copy of the Indenture referwithout charge by writing to the "Where You Can Find More Information" section of this prospectus. Spectrum Brands, Inc., Six Concourse Parkway, Suite 3300, Atlanta, Georgia 30328, Attention: Chief Financial Officer.
You can find the definitions of certain capitalized terms used in this description under the following summary under "—subheading “—Certain Definitions" and throughoutDefinitions.” Certain defined terms used in this description. Capitalized terms that are useddescription but not otherwise defined hereinbelow under “—Certain Definitions” have the meanings assigned to them in the IndentureIndenture. In this description, the word “Company” refers only to Spectrum Brands, Inc. and such definitions are incorporated herein by reference. For purposes of this "Description of the Notes," the term "United" means United Industries Corporation, exclusivenot to any of its subsidiaries and except as otherwise required by the context, references“Notes” refers to the "notes" refer toexchange notes.
Brief Description of the Series D notes offered by this prospectus.
GeneralNotes
The notes will beNotes:
| • | arepari passu in right of payment with all existing and any future senior subordinated Indebtedness of the Company; |
The notes will be unconditionally guaranteed, on aAs of May 1, 2005, the Company would have had $1.444 billion of Senior Debt and $350.0 million of other senior subordinated basis, byindebtedness. As of April 3, 2005, the Company’s non-guarantor subsidiaries had approximately $349.6 million of indebtedness and other liabilities (excluding intercompany liabilities and excluding the impact of the Tetra acquisition), to which the exchange notes would be effectively subordinated. As of January 3, 2005, the Company’s non-guarantor subsidiaries had approximately $614.8 million of indebtedness and other liabilities (excluding intercompany liabilities and including the impact of the Tetra acquisition), to which the exchange notes would be effectively subordinated.
As of the date of the Indenture, all of our existing subsidiaries were “Restricted Subsidiaries.” However, under the circumstances described below under the subheading “—Certain Covenants—Designation of Restricted and Unrestricted Subsidiaries,” we are permitted to designate certain of our future domestic Restrictedsubsidiaries as “Unrestricted Subsidiaries.” Any Unrestricted Subsidiaries as described underwill not be subject to any of the covenant described under "Limitation on Creation of Subsidiaries."restrictive covenants in the Indenture and will not guarantee the Notes.
Principal, Maturity Interest and PrincipalInterest
United will issue notes in this exchange offer in
The Indenture provides for the issuance by the Company of Notes with an aggregateunlimited principal amount, of up to $235,000,000.which $700.0 million will be issued in this offering. The notes will mature on April 1, 2009. Subject to the covenants described below under "Covenants," UnitedCompany may issue additional notes (the “Additional Notes”) from time to time after this offering. Any offering of Additional Notes is subject to the covenant described below under the Indenture.caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock.” The notes offered herebyNotes and any additional notesAdditional Notes subsequently issued under the Indenture would be treated as a single seriesclass for all purposes under the Indenture.Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. The Company will issue Notes in denominations of $1,000 and integral multiples of $1,000. The Notes will mature on February 1, 2015.
The notesInterest on the Notes will bear interestaccrue at athe rate of 977 3/8% per annum whichand will be payable semiannuallysemi-annually in arrears on each AprilFebruary 1 and OctoberAugust 1, commencing Aprilon August 1, 2003,2005. The Company will make each interest payment to holdersthe Holders of record of the notes at the close of business on the immediately preceding MarchJanuary 15 and SeptemberJuly 15.
Interest on the Notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
Methods of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to the Company, the Company will pay all principal, interest and premium and Liquidated Damages, if any, on that Holder’s Notes in accordance with those instructions. All other payments on Notes will be made at the office or agency of the Paying Agent and Registrar within the City and State of New York unless the Company elects to make interest payments by check mailed to the Holders at their addresses set forth in the register of Holders.
Paying Agent and Registrar for the Notes
The Trustee will initially act as Paying Agent and Registrar. The Company may change the Paying Agent or Registrar without prior notice to the Holders, and the Company or any of its Subsidiaries may act as Paying Agent or Registrar.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture and the procedures described in “Notice to Investors.” The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 respectively. Interestdays before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all purposes.
Note Guarantees
The Notes are guaranteed, jointly and severally, by all of the Domestic Subsidiaries of the Company. Each Note Guarantee:
| • | ispari passu in right of payment with all existing and any future senior subordinated Indebtedness of the Guarantor; and |
Each Note Guarantee will be subordinated to the prior payment in full of all Senior Debt of that Guarantor. The obligations of each Guarantor under its Note Guarantee will be limited as necessary to prevent that Note Guarantee from constituting a fraudulent conveyance under applicable law. See “Risk Factors—Federal and state laws permit a court to void the guarantees under certain circumstances.” As of May 1, 2005, the Guarantors would have had $1.390 billion of Senior Debt, of which $1.386 billion would have been guarantees of Indebtedness under the Credit Agreement, and $350.0 million of other senior subordinated indebtedness consisting of Guarantees of the Company’s existing senior subordinated notes due 2013.
If the Company or any of its Restricted Subsidiaries acquires or creates another Domestic Subsidiary on or after the date of the Indenture, then that newly acquired or created Domestic Subsidiary must become a Guarantor and execute a supplemental indenture and deliver an Opinion of Counsel to the Trustee.
Subordination
The payment of principal, interest and premium and Liquidated Damages, if any, on the Notes will be subordinated to the prior payment in full of all Senior Debt of the Company, including Senior Debt of the Company incurred after the date of the Indenture.
The holders of Senior Debt of the Company will be entitled to receive payment in full of all Obligations due in respect of Senior Debt of the Company (including interest after the commencement of any bankruptcy proceeding at the rate specified in the applicable Senior Debt of the Company) before the Holders of Notes will be entitled to receive any payment with respect to the Notes (except that Holders of Notes may receive and retain Permitted Junior Securities and payments made from the trust described under “—Legal Defeasance and Covenant Defeasance”), in the event of any distribution to creditors of the Company in connection with:
| (1) | any liquidation or dissolution of the Company; |
| (2) | any bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property; |
| (3) | any assignment for the benefit of creditors; or |
| (4) | any marshaling of the Company’s assets and liabilities. |
The Company also may not make any payment in respect of the Notes (except in Permitted Junior Securities or from the trust described under “—Legal Defeasance and Covenant Defeasance”) if:
| (1) | a payment default on Designated Senior Debt of the Company occurs and is continuing; or |
| (2) | any other default occurs and is continuing on any series of Designated Senior Debt of the Company that permits holders of that series of Designated Senior Debt of the Company to accelerate its maturity and the Trustee receives a notice of such default (a “Payment Blockage Notice”) from the Company or the holders of such Designated Senior Debt (a “nonpayment default”). |
Payments on the Notes may and shall be resumed:
| (1) | in the case of a payment default on Designated Senior Debt of the Company, upon the date on which such default is cured or waived; and |
| (2) | in case of a nonpayment default on Designated Senior Debt of the Company, the earlier of the date on which such default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of such Designated Senior Debt of the Company has been accelerated. |
No new Payment Blockage Notice may be delivered unless and until:
| (1) | 360 days have elapsed since the delivery of the immediately prior Payment Blockage Notice; and |
| (2) | all scheduled payments of principal, interest and premium and Liquidated Damages, if any, on the Notes that have come due have been paid in full in cash. |
No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice.
If the Trustee or any Holder of the Notes receives a payment in respect of the Notes (except in Permitted Junior Securities or from the trust described under “—Legal Defeasance and Covenant Defeasance”) when:
| (1) | the payment is prohibited by these subordination provisions; and |
| (2) | the Trustee or the Holder has actual knowledge that the payment is prohibited; |
the Trustee or the Holder, as the case may be, shall hold the payment in trust for the benefit of the holders of Senior Debt of the Company. Upon the proper written request of the holders of Senior Debt of the Company, the Trustee or the Holder, as the case may be, shall deliver the amounts in trust to the holders of Senior Debt of the Company or their proper representative.
The Company must promptly notify holders of its Senior Debt if payment of the Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of a bankruptcy, liquidation or reorganization of the Company, Holders of Notes may recover less ratably than creditors of the Company who are holders of Senior Debt of the Company.
Payments under the Note Guarantee of each Guarantor will be subordinated to the prior payment in full of all Senior Debt of such Guarantor, including Senior Debt of such Guarantor incurred after the date of the Indenture, on the same basis as provided above with respect to the subordination of payments on the Notes by the Company to the prior payment in full of Senior Debt of the Company. See “Risk Factors—Your right to receive payments on the notes will accrue frombe junior to our existing and future senior indebtedness and the most recent dateguarantees of the notes will be junior to which interest has been paid.all of the guarantors’ existing and future senior indebtedness.”
“Designated Senior Debt” means:
| (1) | any Indebtedness outstanding under the Credit Agreement; and |
| (2) | after payment in full of all Obligations under the Credit Agreement, any other Senior Debt permitted under the Indenture the principal amount of which is $50.0 million or more and that has been designated by the Company as “Designated Senior Debt.” |
“Permitted Junior Securities” means:
| (1) | Equity Interests in the Company or any Guarantor or any other business entity provided for by a plan of reorganization; and |
| (2) | debt securities of the Company or any Guarantor or any other business entity provided for by a plan of reorganization that are subordinated to all Senior Debt and any debt securities issued in exchange for Senior Debt to substantially the same extent as, or to a greater extent than, the Notes and the Note Guarantees are subordinated to Senior Debt under the Indenture. |
“Senior Debt” means:
| (1) | all Indebtedness of the Company or any Guarantor outstanding under Credit Facilities and all Hedging Obligations with respect thereto; |
| (2) | any other Indebtedness of the Company or any Guarantor permitted to be incurred under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes or any Note Guarantee; and |
| (3) | all Obligations with respect to the items listed in the preceding clauses (1) and (2). |
Notwithstanding anything to the contrary in the preceding paragraph, Senior Debt will not include:
| (1) | any liability for federal, state, local or other taxes owed or owing by the Company or any Guarantor; |
| (2) | any Indebtedness of the Company or any Guarantor to any of their Subsidiaries or other Affiliates; |
| (3) | any trade payables; |
| (4) | the portion of any Indebtedness that is incurred in violation of the Indenture; |
| (5) | any Indebtedness of the Company or any Guarantor that, when incurred, was without recourse to the Company or such Guarantor; |
| (6) | any repurchase, redemption or other obligation in respect of Disqualified Stock; or |
| (7) | the 8½% Senior Subordinated Notes due 2013 of the Company. |
Optional Redemption
The notes are not redeemable before April
At any time prior to February 1, 2004. On2008, the Company may redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture (including any Additional Notes) at a redemption price of 107.375% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the redemption date, with the net cash proceeds of one or more occasions thereafter, UnitedEquity Offerings;provided that:
| (1) | at least 65% of the aggregate principal amount of Notes issued under the Indenture (including any Additional Notes) remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and |
| (2) | the redemption occurs within 45 days of the date of the closing of such Equity Offering. |
Except pursuant to the preceding paragraph, the Notes will not be redeemable at the Company’s option prior to February 1, 2010.
On or after February 1, 2010, the Company may redeem all or a part of the notes, in whole or in part,Notes upon not less than 30 nor more than 60 days’ notice, at the following redemption prices expressed(expressed as a percentagepercentages of principal amount,amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on AprilFebruary 1 of each year listedthe years indicated below:
| Year | Percentage | ||
|---|---|---|---|
| 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.
Year | Percentage | ||
2010 | 103.688 | % | |
2011 | 102.458 | % | |
2012 | 101.229 | % | |
2013 and thereafter | 100.000 | % |
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In the event that United chooses to redeemIf less than all of the notes, selection ofNotes are to be redeemed at any time, the notesTrustee will select Notes for redemption willas follows:
| (1) | if the Notes are listed, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or |
| (2) | if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate. |
No Notes of $1,000 or less shall be made by the Trustee either:
Noticepart. Notices of redemption willshall be mailed by first-classfirst class mail at least 30 but not more than 60 days before the redemption date to each holderHolder of Notes to be redeemed at its registered address. On and afterNotices of redemption may not be conditional.
If any redemption date, interest will cease to accrue on the notes or portions thereof called for redemption unless United fails to redeem any such note.
Asset Drop-Down
The Equity Investor, 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 (the "New Operating Company"), at which time the New Operating Company would assume all or substantially all of the liabilities of United (including the notes) (collectively, the "Asset Drop-Down"). As a result of the Asset Drop-Down, United would become a holding company (as such, the "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 "Description of the Notes" and the indenture, the New Operating Company would be "United." 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 continueNote is to be guaranteed by Restricted Subsidiaries of the New Operating Company as described below under "Guarantees."
Subordination
The indebtedness represented by the notes and the Guarantees will be subordinateredeemed in right of payment to the prior payment in full in cash of all existing and future Senior Indebtedness of United and Guarantor Senior Indebtedness, respectively, andpari passu with all other senior subordinated indebtedness of United and the Guarantors, respectively, including the Series B notes and the guarantees thereof. As of April 23, 2003, the principal amount of outstanding Senior Indebtedness of United, on a consolidated basis, was $203.2 million and United could incur substantial additional Indebtedness, which could be Senior Indebtedness.
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:
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For purposes of this section, all Senior Indebtedness now or hereafter existing and all Obligations relating thereto will not be deemed to have been paid in full unless and until all of the Obligations of any holder thereof have been indefeasibly paid in full in cash (including, without limitation, all Accrued Bankruptcy Interest) and all of the commitments thereunder have been terminated and, in the case of Letter of Credit Obligations, such Obligations have been fully drawn and paid in full in cash or 100% cash collateralized.
As a result of such 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 such prohibition shall continue until the Payment Default is cured, waived in writing or ceases to exist or such 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 (a "Payment Blockage Period") beginning on the date the Trustee receives written notice from the Representative of the Non-Payment Event of Default until (subject to any blockage under the preceding paragraph) the earliest of
No Payment Blockage Period can extend beyond 179 days from the date the Trustee receivespart only, the notice (the "Initial Blockage Period"). Any number of additional Payment Blockage Periods may be commenced duringredemption that relates to that Note shall state 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. No event of default with respect to Designated Senior Indebtedness (other than a Payment Default) 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 Guarantor Senior Indebtedness of the respective Guarantor, including obligations of such Guarantor with respect to the Senior Credit Facility (including any guarantee thereof), 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. See "Events of Default."
By accepting these notes, each holder agrees to be bound by such 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 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.
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Certain 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 (including Acquired Indebtedness and including Disqualified Capital Stock); provided that United or any of the Guarantors may incur Indebtedness (including Acquired Indebtedness or Disqualified Capital Stock) if
Notwithstanding the foregoing, United and its Restricted Subsidiaries may incur Permitted Indebtedness; provided that neither United nor any Guarantor will incur any Permitted Indebtedness that ranks junior in right of payment to the notes or any Guarantee, as the case may be, 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 hereof. 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, as the case may be) that is both:
For purposes of this covenant, Indebtedness is deemed to be senior in right of payment to the notes or the Guarantees, as the case may be, if it is notpari passu with or subordinated in right of payment to the notes or such Guarantees.
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:
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For purposes of determining under clause (3) above the amount expended for Restricted Payments, cash distributed shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value determined, in good faith, by the Board of Directors of United.
The sum of amounts provided under clauses (3)(a), (b), (c) and (e) above through December 31, 2002 was in excess of $105 million, although United has made no Restricted Payments.
The provisions of this covenant will not prohibit:
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Indebtedness owed to a Subsidiary) of United or any Guarantor that is Refinancing Indebtedness;
(viii) Restricted Payments made pursuant to the Recapitalization Agreement;
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expenses, the amount of which distributions pursuant to subclauses (A) and (B) of this clause (x) in any fiscal year in an amount not to exceed $500,000; and
Notwithstanding the foregoing,
Not later than the date of making any Restricted Payment, United shall deliver to the Trustee an Officers' Certificate stating that such 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), which 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
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 (other than Permitted Liens) 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 hereafter acquired, which secures Indebtednesspari passu with or subordinated to the notes or any Guarantee unless:
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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 (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate (including entities in which United or any of its Restricted Subsidiaries owns a minority interest) (an "Affiliate Transaction") or extend, renew, waive or otherwise modify the terms of any Affiliate Transaction entered into prior to the date hereof if such 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 Issue Date unless
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 such 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:
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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:
provided, however, that each Restricted Subsidiary that is not a Foreign 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 such Restricted Subsidiary will become a Guarantor, which Guarantee shall be subordinated to all Guarantor Senior Indebtedness of such Restricted Subsidiary to the same extent as the notes are subordinated to United's Senior Indebtedness. Notwithstanding the foregoing, any such Guarantee shall provide by its terms that it shall 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 Certain Asset Sales
United will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
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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 (an "Excess Proceeds Offer") the notes from the holders of notes and all holders of other Indebtedness that ispari passu with the notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of asset sales to purchase the maximum principal amount of notes and such otherpari passu Indebtedness that may be purchased out of the Available Asset Sale Proceeds. The offer price in any Excess Proceeds Offer will be equal to 100%portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the Holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption.
Mandatory Redemption
The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of that Holder’s Notes pursuant to a Change of Control Offer on the terms set forth in the Indenture. In the Change of Control Offer, the Company will offer a Change of Control Payment in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the date of repurchase and will be payable in cash. If United is required to make an Excess Proceeds Offer, United will mail, withinpurchase. Within 30 days following any Change of Control, the Reinvestment Date,Company will mail a notice to each Holder describing the holderstransaction or transactions that constitute the Change of the notes stating, among other things:
The Excess Proceeds Offer shall remain open for a period
On the Change of 20 Business Days following its commencement.Control Payment Date, the Company will, to the extent lawful:
| (1) | accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer; |
| (2) | deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered; and |
| (3) | deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. |
UnitedThe Paying Agent will promptly mail or wire transfer to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any;provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof.
Prior to complying with any of the provisions of this “Change of Control” covenant, but in any event within 30 days following a Change of Control, the Company will either repay all outstanding Senior Debt or obtain the
requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this covenant. The Company will publicly announce the results of the Excess ProceedsChange of Control Offer on or as soon as practicable after the Purchase Date by sending a press release toChange of Control Payment Date.
The Credit Agreement prohibits 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 retainCompany from purchasing any Notes, and also provides that portioncertain change of the Available Asset Sale Proceeds not required to repurchase notes and otherpari passu Indebtedness and use such portion for general corporate purposes, and such retained portion shall not be considered in the calculation of "Available Asset Sale Proceeds"control events with respect to any subsequent offerthe Company constitute a default under the Credit Agreement. Any future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its senior lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company’s failure to purchase notes.tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under such Senior Debt. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes.
The provisions described above that require the Company to make a Change of Control Offer following a Change of Control will be applicable regardless of whether any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of “all or substantially all” of the properties or assets of the Company and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of Notes to require the Company to repurchase such Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
| (1) | the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; |
| (2) | such fair market value is determined by the Company’s Board of Directors and evidenced by a resolution of the Board of Directors set forth in an Officers’ Certificate delivered to the Trustee; and |
| (3) | at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or Replacement Assets or a combination of both. For purposes of this provision, each of the following shall be deemed to be cash: |
| (a) | any liabilities (as shown on the Company’s or such Restricted Subsidiary’s most recent balance sheet), of the Company or any Restricted Subsidiary (other than contingent liabilities, Indebtedness that is by its terms subordinated to the Notes or any Note Guarantee and liabilities to the extent owed to the Company or any Affiliate of the Company) that are assumed by the |
transferee of any such assets pursuant to a written novation agreement that releases the Company or such Restricted Subsidiary from further liability; and |
| (b) | any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received in that conversion) within 90 days of the applicable Asset Sale. |
Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds at its option:
| (1) | to repay Senior Debt and, if the Senior Debt repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto; or |
| (2) | to purchase Replacement Assets or make a capital expenditure in or that is used or useful in a Permitted Business. |
Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute “Excess Proceeds.” Within 10 days after the aggregate amount of Excess Proceeds exceeds $20.0 million, the Company will make an Asset Sale Offer to all Holders of Notes and all holders of other Indebtedness that ispari passu with the Notes or any Note Guarantee containing provisions similar to those set forth in the Indenture with respect to offers to purchase with the proceeds of sales of assets, to purchase the maximum principal amount of Notes and such otherpari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount of the Notes and such otherpari passu Indebtedness plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of notesNotes and such otherpari passu Indebtedness tendered into such Excess ProceedsAsset Sale Offer exceeds the amount of Available Asset Sale Proceeds required to be applied to such Excess Proceeds, Offer, the notesNotes and such otherpari passu Indebtedness to be purchased willshall be purchased on a pro rata basis.basis based on the principal amount of Notes and such otherpari passu Indebtedness tendered. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sales provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the Indenture by virtue of such compliance.
The Credit Agreement prohibits the Company from purchasing any Notes, and also provides that certain asset sale events with respect to the Company constitute a default under the Credit Agreement. Any future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event an Asset Sale occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its senior lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company’s failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under such Senior Debt. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes.
Certain Covenants
Restricted Payments
(A) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:
| (1) | declare or pay any dividend or make any other payment or distribution on account of the Company’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than dividends, payments or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary of the Company); |
| (2) | purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any Restricted Subsidiary of the Company held by Persons other than the Company or any of its Restricted Subsidiaries, other than the purchase, redemption or acquisition or retirement for value of any of (x) all of the Equity Interests in VARTA not held by the Company or any of its Restricted Subsidiaries pursuant to, and in accordance with the terms of, the VARTA Joint Venture Agreement as in effect on the date of the Indenture to the extent the cash purchase price does not exceed €5.0 million; (y) all of the Equity Interests of Ningbo Baowang not held by the Company or any of its Restricted Subsidiaries to the extent the cash purchase price does not exceed $5.0 million; and (z) all of the Equity Interests of Microlite not held by the Company or any of its Restricted Subsidiaries pursuant to, and in accordance with the terms of, the Microlite Purchase Agreement as in effect on the date of the Indenture to the extent the cash purchase price does not exceed $10.0 million; |
| (3) | make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes or the Note Guarantees, except a payment of interest or principal on or after the Stated Maturity thereof or on Indebtedness permitted to be incurred pursuant to clause (6) of the definition of Permitted Debt; or |
| (4) | make any Restricted Investment (all such payments and other actions set forth in clauses (1) through (4) above being collectively referred to as “Restricted Payments”), |
unless, at the time of and after giving effect to such Restricted Payment:
| (1) | no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and |
| (2) | the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock;” and |
| (3) | such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (2), (3) (4) (to the extent such dividends are paid to the Company or any of its Restricted Subsidiaries) and (5) of the next succeeding paragraph (B)), is less than the sum, without duplication, of: |
| (a) | 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of the Indenture to the end of the Company’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit),plus |
| (b) | 100% of the aggregate net cash proceeds received by the Company since the date of the Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company);plus |
| (c) | with respect to Restricted Investments made by the Company and its Restricted Subsidiaries after the date of the Indenture, an amount equal to the net reduction in Investments (other than reductions in Permitted Investments) in any Person resulting from repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary or from the net cash proceeds from the sale of any such Investment (except, in each case, to the extent any such payment or proceeds are included in the calculation of Consolidated Net Income, from the release of any Guarantee (except to the extent any amounts are paid under such Guarantee) or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries, not to exceed, in each case, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary,plus |
| (d) | $50.0 million. |
(B) So long as no Default has occurred and is continuing or would be caused thereby, the preceding provisions will not prohibit:
| (1) | the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; |
| (2) | the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness of the Company or any Guarantor or of any Equity Interests of the Company or any Guarantor in exchange for, or out of the net cash proceeds of a contribution to the common equity of the Company or a substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (3) (b) of the preceding paragraph (A); |
| (3) | the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of the Company or any Guarantor with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; |
| (4) | the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; |
| (5) | Investments acquired as a capital contribution to, or in exchange for, or out of the net cash proceeds of a substantially concurrent offering of, Equity Interests (other than Disqualified Stock) of the Company;provided that the amount of any such net cash proceeds that are utilized for any such acquisition or exchange shall be excluded from clause (3) (b) of the preceding paragraph (A); |
| (6) | the repurchase of Capital Stock deemed to occur upon the exercise of options or warrants if such Capital Stock represents all or a portion of the exercise price thereof; |
| (7) | the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company held by any employee, former employee, director or former director of the Company (or any of its Restricted Subsidiaries) upon the death, disability or termination of employment of any of the foregoing pursuant to the terms of any employee equity subscription agreement, stock option agreement or similar agreement;provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests in any fiscal year shall not exceed the sum of (x) $5.0 million and (y) the amount of Restricted Payments permitted but not made pursuant to this clause (7) in the immediately preceding fiscal year; or |
| (8) | the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of any Restricted Subsidiary of the Company from the minority stockholders (or other holders of minority interest, however designated) of such Restricted Subsidiary for fair market value;provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $20.0 million. |
The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued to or by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers’ Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this “Restricted Payments” covenant were computed, together with a copy of any fairness opinion or appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, incur any Indebtedness (including Acquired Debt), and the Company will not permit any of its Restricted Subsidiaries to issue any preferred stock;provided, however, that the Company or any Restricted Subsidiary of the Company may incur Indebtedness, if the Fixed Charge Coverage Ratio for the Company’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred at the beginning of such four-quarter period.
So long as no Default shall have occurred and be continuing or would be caused thereby, the first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, “Permitted Debt”):
| (1) | the incurrence by the Company or any Restricted Subsidiary of the Company of Indebtedness under Credit Facilities (and the incurrence of Guarantees thereof) in an aggregate principal amount at any one time outstanding pursuant to this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder) not to exceed $1.6 billion,less the aggregate amount of all Net Proceeds of Asset Sales applied by the Company or any Restricted Subsidiary to permanently repay any such Indebtedness (and, in the case of any revolving credit Indebtedness, to effect a corresponding commitment reduction thereunder) pursuant to the covenant “—Repurchase at the Option of Holders—Asset Sales;” |
| (2) | the incurrence of Existing Indebtedness; |
| (3) | the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the related Note Guarantees to be issued on the date of the Indenture and the Exchange Notes and the related Note Guarantees to be issued pursuant to the Registration Rights Agreement; |
| (4) | the incurrence by the Company or any Restricted Subsidiary of the Company of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Guarantor, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (4), not to exceed, at any time outstanding, the greater of (a) $50.0 million and (b) 10% of Consolidated Net Tangible Assets of the Company; |
| (5) | the incurrence by the Company or any Restricted Subsidiary of the Company of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace |
Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under the first paragraph of this covenant or clauses (2) (other than the 9 7/8% Senior Subordinated due 2009 of United Industries Corporation incurred in connection with its acquisition by the Company), (3), (4), (5), or (8) of this paragraph; |
| (6) | the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness owing to and held by the Company or any of its Restricted Subsidiaries;provided, however, that: |
| (a) | if the Company or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be unsecured and expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes, in the case of the Company, or the Note Guarantee, in the case of a Guarantor; |
| (b) | Indebtedness owed to the Company or any Guarantor must be evidenced by an unsubordinated promissory note, unless the obligor under such Indebtedness is the Company or a Guarantor; and |
| (c) | (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary thereof and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary thereof, shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); |
| (7) | the Guarantee by the Company or any Restricted Subsidiary of the Company of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; |
| (8) | the incurrence by the Company or any Restricted Subsidiary of the Company of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (8), not to exceed $50.0 million; and |
| (9) | the incurrence of Indebtedness by the Company or any Restricted Subsidiary of the Company arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business;provided that such Indebtedness is extinguished within five business days of incurrence. |
For purposes of determining compliance with this “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant, in the event that any proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (9) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company will be permitted to classify at the time of its incurrence such item of Indebtedness in any manner that complies with this covenant. Indebtedness under Credit Facilities outstanding on the date on which Notes are first issued under the Indenture shall be deemed to have been incurred on such date in reliance on the exception provided by clause (1) of the definition of Permitted Debt. In addition, any Indebtedness originally classified as incurred pursuant to clauses (1) through (9) above may later be reclassified by the Company such that it will be deemed as having been incurred pursuant to another of such clauses to the extent that such reclassified Indebtedness could be incurred pursuant to such new clause at the time of such reclassification.
Notwithstanding any other provision of this “Limitation on Indebtedness” covenant, the maximum amount of Indebtedness that may be Incurred pursuant to this “Limitation on Indebtedness” covenant will not be deemed to be exceeded, with respect to any outstanding Indebtedness due solely to the result of fluctuations in the exchange rates of currencies.
Limitation on Preferred Stock of Restricted SubsidiariesSenior Subordinated Debt
United
The Company will not incur any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of the Company unless it ispari passu or subordinate in right of payment to the Notes to the same extent. No Guarantor will incur any Indebtedness that is subordinate or junior in right of payment to the Senior Debt of such Guarantor unless it ispari passu or subordinate in right of payment to such Guarantor’s Note Guarantee to the same extent. For purposes of the foregoing, no Indebtedness will be deemed to be subordinate or junior in right of payment to any other Indebtedness of the Company or any Guarantor, as applicable, solely by reason of any Liens or Guarantees arising or created in respect thereof or by virtue of the fact that the holders of any secured Indebtedness have entered into intercreditor agreements giving one or more of such holders priority over the other holders in the collateral held by them.
Liens
The Company will not, and will not permit any of its Restricted SubsidiarySubsidiaries to, issuecreate, incur, assume or otherwise cause or suffer to exist or become effective any Preferred Stock (except Preferred Stock to United or a Restricted Subsidiary) or, other than with respect to an acquired Guarantor, permitLien of any Personkind securing Indebtedness (other than UnitedPermitted Liens) upon any of their property or a Restricted Subsidiary) to hold any such Preferred Stockassets, now owned or hereafter acquired, unless United or such Restricted Subsidiary would be entitled to incur or assume Indebtednessall payments due under the "LimitationIndenture and the Notes are secured on Additional Indebtedness" covenant in an aggregate principal amount equal to the aggregate liquidation value of the Preferred Stock to be issued.
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Limitation on Capital Stock of Subsidiaries
United will not:
The foregoing restrictions will not apply to an Asset Sale made in complianceratable basis 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.obligations so secured until such time as such obligations are no longer secured by a Lien.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
United
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or sufferpermit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary of United to:
| (1) | pay dividends or make any other distributions on its Capital Stock (or with respect to any other interest or participation in, or measured by, its profits) to the Company or any of its Restricted Subsidiaries or pay any liabilities owed to the Company or any of its Restricted Subsidiaries; |
| (2) | make loans or advances to the Company or any of its Restricted Subsidiaries; or |
| (3) | transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. |
However, the preceding restrictions do not apply 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
| (1) | the Credit Agreement, Existing Indebtedness or any other agreements in effect on the date of the Indenture and any amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacements or refinancings thereof,provided that the encumbrances and restrictions in any such amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, than those in effect on the date of the Indenture; |
| (2) | applicable laws, rules, regulations or orders; |
| (3) | any Person or the property or assets of a Person acquired by the Company or any of its Restricted Subsidiaries existing at the time of such acquisition and not incurred in connection with or in contemplation of such acquisition, 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 and any amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacements or refinancings thereof,provided that the encumbrances and restrictions in any such amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, than those contained in the Credit Agreement, Existing Indebtedness or such other agreements as in effect on the date of the acquisition; |
| (4) | in the case of clause (3) of the first paragraph of this covenant: |
| (a) | provisions that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset; |
| (b) | restrictions existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the Indenture; or |
| (c) | restrictions arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary; |
| (5) | provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business; |
| (6) | any agreement for the sale or other disposition of all or substantially all of the capital stock of, or property and assets of, a Restricted Subsidiary that restricted distributions by that Restricted Subsidiary pending such sale or other disposition; and |
| (7) | Indebtedness of a Foreign Subsidiary permitted to be incurred under the Indenture;provided that (a) such encumbrances or restrictions are ordinary and customary with respect to the type of Indebtedness being incurred and (b) such encumbrances or restrictions will not affect the Company’s ability to make principal and interest payments on the Notes, as determined in good faith by the Board of Directors of the Company. |
Merger, Consolidation or no more restrictive in any material respect (including without limitation pursuant to the Senior Credit FacilitySale of Assets
The Company will not, directly or Series B Indenture),
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| (1) | either: (a) the Company is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made (i) is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia and (ii) assumes all the obligations of the Company under the Notes, the Indenture and the Registration Rights Agreement pursuant to agreements reasonably satisfactory to the Trustee; |
| (2) | immediately after giving effect to such transaction no Default or Event of Default exists; |
| (3) | immediately after giving effect to such transaction on a pro forma basis, the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition shall have been made, will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock”; and |
| (4) | each Guarantor, unless such Guarantor is the Person with which the Company has entered into a transaction under this “Consolidation, Merger or Sale of Assets” covenant, shall have by amendment to its Note Guarantee confirmed that its Note Guarantee shall apply to the obligations of the Company or the surviving Person in accordance with the Notes and the Indenture. |
In addition, neither the Company nor any Restricted Subsidiary may, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. Clause (3) above of this “Merger, Consolidation or Sale of Assets” covenant will not apply to any merger, consolidation or sale, assignment, transfer, conveyance or other disposition of assets between or among the Company and any of its Restricted Subsidiaries.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into, make, amend, renew or extend any transaction, contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any Affiliate (each, an “Affiliate Transaction”), unless:
| (1) | such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable arm’s-length transaction by the Company or such Restricted Subsidiary with a Person that is not an Affiliate of the Company; and |
| (2) | the Company delivers to the Trustee: |
| (a) | with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, a resolution of the Board of Directors set forth in an Officers’ Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with this covenant and that such Affiliate Transaction or series of related Affiliate Transactions has been approved by a majority of the disinterested members of the Board of Directors; and |
| (b) | with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25.0 million, an opinion as to the fairness to the Company or such Restricted Subsidiary of such Affiliate Transaction or series of related Affiliate Transactions from a financial point of view issued by an independent accounting, appraisal or investment banking firm of national standing. |
The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:
| (1) | transactions between or among the Company and/or its Restricted Subsidiaries; |
| (2) | payment of reasonable and customary fees and compensation to, and reasonable and customary indemnification arrangements and similar payments on behalf of, directors of the Company; |
| (3) | Restricted Payments that are permitted by the provisions of the Indenture described above under the caption “—Restricted Payments;” |
| (4) | any sale of Capital Stock (other than Disqualified Stock) of the Company; |
| (5) | loans and advances to officers and employees of the Company or any of its Restricted Subsidiaries for bona fide business purposes in the ordinary course of business consistent with past practice; |
| (6) | any employment, consulting, service or termination agreement, or reasonable and customary indemnification arrangements, entered into by the Company or any of its Restricted Subsidiaries with officers and employees of the Company or any of its Restricted Subsidiaries and the payment of compensation to officers and employees of the Company or any of its Restricted Subsidiaries (including amounts paid pursuant to employee benefit plans, employee stock option or similar plans), in each case in the ordinary course of business and consistent with past practice; and |
| (7) | any agreements or arrangements in effect on the date of the Indenture, or any amendment, modification, or supplement thereto or any replacement thereof, as long as such agreement or |
arrangement, as so amended, modified, supplemented or replaced, taken as a whole, is not more disadvantageous to the Company and its Restricted Subsidiaries than the original agreement as in effect on the date of the Indenture, as determined in good faith by the Company’s Board of Directors, and any transactions contemplated by any of the foregoing agreements or arrangements. |
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary;provided that:
| (1) | any Guarantee by the Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated will be deemed to be an incurrence of Indebtedness by the Company or such Restricted Subsidiary (or both, if applicable) at the time of such designation, and such incurrence of Indebtedness would be permitted under the covenant described above under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock;” |
| (2) | the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary being so designated (including any Guarantee by the Company or any Restricted Subsidiary of any Indebtedness of such Subsidiary) will be deemed to be a Restricted Investment made as of the time of such designation and that such Investment would be permitted under the covenant described above under the caption “—Certain Covenants—Restricted Payments;” |
| (3) | such Subsidiary does not own any Equity Interests of, or hold any Liens on any Property of, the Company or any Restricted Subsidiary; |
| (4) | the Subsidiary being so designated: |
| (a) | is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; |
| (b) | is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; |
| (c) | has not Guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries, except to the extent such Guarantee or credit support would be released upon such designation; and |
| (d) | has at least one director on its Board of Directors that is not a director or officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or officer of the Company or any of its Restricted Subsidiaries; and |
| (5) | no Default or Event of Default would be in existence following such designation. |
Any designation of a Restricted Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the preceding conditions and was permitted by the Indenture. If, at any time, any Unrestricted Subsidiary would fail to meet any of the preceding requirements described in clause (4) above, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness, Investments, or Liens on the property, of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary.
The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;provided that:
| (1) | such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if such Indebtedness is permitted under the covenant described under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock,” calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; |
| (2) | all outstanding Investments owned by such Unrestricted Subsidiary will be deemed to be made as of the time of such designation and such Investments shall only be permitted if such Investments would be permitted under the covenant described above under the caption “—Certain Covenants—Restricted Payments;” |
| (3) | all Liens upon property or assets of such Unrestricted Subsidiary existing at the time of such designation would be permitted under the caption “—Certain Covenants—Liens;” and |
| (4) | no Default or Event of Default would be in existence following such designation. |
Limitation on SaleIssuances and Lease-Back TransactionsSales of Equity Interests in Restricted Subsidiaries
United shall
The Company will not transfer, convey, sell, lease or otherwise dispose of, and shallwill not permit any of its Restricted Subsidiaries to, issue, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Restricted Subsidiary of the Company to enter into any Sale and Lease-Back Transaction unless:
| (1) | if, immediately after giving effect to such issuance, transfer, conveyance, sale, lease or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect to such issuance or sale would have been permitted to be made under the “Restricted Payments” covenant if made on the date of such issuance or sale and the cash Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales;” or |
| (2) | other sales of Capital Stock of a Restricted Subsidiary by the Company or a Restricted Subsidiary,provided that the Company or such Restricted Subsidiary complies with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales.” |
Guarantees
If the Company or any of its Restricted Subsidiaries acquires or creates another Domestic Subsidiary on or after the date of the property sold, as determined, in good faith, byIndenture, then that newly acquired or created Domestic Subsidiary must become a Guarantor and execute a supplemental indenture and deliver an Opinion of Counsel to the BoardTrustee.
The Company will not permit any of Directorsits Restricted Subsidiaries, directly or indirectly, to Guarantee or pledge any assets to secure the payment of United, and
A Guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than the Company or another Guarantor, unless:
| (1) | immediately after giving effect to that transaction, no Default or Event of Default exists; and |
| (2) | either: |
| (a) | the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia and assumes all the obligations of that Guarantor under the Indenture, its Note Guarantee and the Registration Rights Agreement pursuant to a supplemental indenture satisfactory to the Trustee; or |
| (b) | such sale or other disposition or consolidation or merger complies with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales.” |
The Note Guarantee of a Guarantor will be could incur the Attributable Indebtedness in respect of such Sale and Lease-Back Transaction in compliance with the "Limitation on Additional Indebtedness" covenant.
| (1) | in connection with any sale or other disposition of all of the Capital Stock of a Guarantor to a Person that is not (either before or after giving effect to such transaction) an Affiliate of the Company, if the sale of all such Capital Stock of that Guarantor complies with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales;” |
| (2) | if the Company properly designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary under the Indenture; or |
| (3) | solely in the case of a Note Guarantee created pursuant to the second paragraph of this covenant, upon the release or discharge of the Guarantee which resulted in the creation of such Note Guarantee pursuant to this covenant “—Certain Covenants—Guarantees,” except a discharge or release by or as a result of payment under such Guarantee. |
Payments for ConsentChange of Control
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 ofIf a Change of Control Unitedoccurs, each Holder of Notes will be obligatedhave the right to makerequire the Company to repurchase all or any part (equal to $1,000 or an offerintegral multiple thereof) of that Holder’s Notes pursuant to purchase (the "Changea Change of Control Offer")Offer on the outstanding notes atterms set forth in the Indenture. In the Change of Control Offer, the Company will offer a purchase priceChange of Control Payment in cash equal to 101% of the aggregate principal amount thereof together with anyof Notes repurchased plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the date of purchase. Within 30 days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the Change of Control Payment Date (as hereinafter defined) (such applicable purchase price being hereinafter referred to as the "Change of Control Purchase Price")specified in accordance with the procedures set forth in this covenant.
Within 30 days following the firstsuch notice, which 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:
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On the Change of Control Payment Date, Unitedthe Company will, to the extent lawful:
| (1) | accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer; |
| (2) | deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered; and |
| (3) | deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. |
The Paying Agent will promptly mail or wire transfer to each Holder of Notes so tendered the Change of Control Offer;
The Indenture will require that if the Senior Credit Facility is in effect, or any amounts are owing thereunder or in respect thereof, at the timeunpurchased portion of the occurrenceNotes surrendered, if any;provided that each such new Note will be in a principal amount of a Change of Control, prior$1,000 or an integral multiple thereof.
Prior to the mailingcomplying with any of the notice to holders described above,provisions of this “Change of Control” covenant, but in any event within 30 days following the first date on which United has knowledge of anya Change of Control, United covenants to
requisite consentconsents, if any, under theall agreements governing outstanding Senior Credit FacilityDebt to permit the repurchase of Notes required by this covenant. The Company will publicly announce the notesresults of the Change of Control Offer on or as described above.
United will be deemed
The Credit Agreement prohibits the Company from purchasing any Notes, and also provides that certain change of control events with respect to have knowledge of all filings with the SEC. United must first comply withCompany constitute a default under the covenant described inCredit Agreement. Any future credit agreements or other agreements relating to Senior Debt to which the preceding paragraph before it shall be required to purchase notes in
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Company becomes a party may contain similar restrictions and provisions. In the event of a Change of Control; providedControl occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its senior lenders to the purchase of Notes or could attempt to refinance the borrowings that United'scontain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company’s failure to comply with the covenant described in the preceding paragraph constitutespurchase tendered Notes would constitute an Event of Default described in clause (3) under "Events of Default" below if not cured within 60 days after the notice required by such clause. As a result of the foregoing, 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 Indenture which would, in turn, constitute a default under such Senior Credit Facility. Failure by UnitedDebt. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes.
The provisions described above that require the Company to make a Change of Control Offer when required byfollowing a Change of Control will be applicable regardless of whether any other provisions of 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:
The Company will not consummate any such offer or distribution with respectbe required to such subordinated Indebtedness or Preferred Stock until such time as United shall have paid the Change of Control Purchase Price in full to the holders of notes that have accepted United'smake a Change of Control Offer and shall otherwise have consummatedupon a Change of Control if a third party makes the Change of Control Offer made to holders of the notes and
Inrequirements set forth in the event thatIndenture applicable to a Change of Control occursOffer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of “all or substantially all” of the properties or assets of the Company and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of Notes to require the Company to repurchase such Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
| (1) | the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; |
| (2) | such fair market value is determined by the Company’s Board of Directors and evidenced by a resolution of the Board of Directors set forth in an Officers’ Certificate delivered to the Trustee; and |
| (3) | at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or Replacement Assets or a combination of both. For purposes of this provision, each of the following shall be deemed to be cash: |
| (a) | any liabilities (as shown on the Company’s or such Restricted Subsidiary’s most recent balance sheet), of the Company or any Restricted Subsidiary (other than contingent liabilities, Indebtedness that is by its terms subordinated to the Notes or any Note Guarantee and liabilities to the extent owed to the Company or any Affiliate of the Company) that are assumed by the |
transferee of any such assets pursuant to a written novation agreement that releases the Company or such Restricted Subsidiary from further liability; and |
| (b) | any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received in that conversion) within 90 days of the applicable Asset Sale. |
Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds at its option:
| (1) | to repay Senior Debt and, if the Senior Debt repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto; or |
| (2) | to purchase Replacement Assets or make a capital expenditure in or that is used or useful in a Permitted Business. |
Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute “Excess Proceeds.” Within 10 days after the aggregate amount of Excess Proceeds exceeds $20.0 million, the Company will make an Asset Sale Offer to all Holders of Notes and all holders of notes exercise their rightother Indebtedness that ispari passu with the Notes or any Note Guarantee containing provisions similar to require Unitedthose set forth in the Indenture with respect to offers to purchase notes,with the proceeds of sales of assets, to purchase the maximum principal amount of Notes and such otherpari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount of the Notes and such otherpari passu Indebtedness plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such purchase constitutesExcess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and such otherpari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Notes and such otherpari passu Indebtedness shall be purchased on a "tender offer" for purposespro rata basis based on the principal amount of Rule 14e-1 underNotes and such otherpari passu Indebtedness tendered. Upon completion of each Asset Sale Offer, the Exchange Actamount of Excess Proceeds shall be reset at that time, Unitedzero.
The Company will comply with the requirements of Rule 14e-1 as thenunder the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in effectconnection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sales provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the Indenture by virtue of such compliance.
The Credit Agreement prohibits the Company from purchasing any Notes, and also provides that certain asset sale events with respect to the Company constitute a default under the Credit Agreement. Any future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event an Asset Sale occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its senior lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such repurchase.prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company’s failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under such Senior Debt. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes.
Certain Covenants
Restricted Payments
(A) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:
| (1) | declare or pay any dividend or make any other payment or distribution on account of the Company’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than dividends, payments or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary of the Company); |
| (2) | purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any Restricted Subsidiary of the Company held by Persons other than the Company or any of its Restricted Subsidiaries, other than the purchase, redemption or acquisition or retirement for value of any of (x) all of the Equity Interests in VARTA not held by the Company or any of its Restricted Subsidiaries pursuant to, and in accordance with the terms of, the VARTA Joint Venture Agreement as in effect on the date of the Indenture to the extent the cash purchase price does not exceed €5.0 million; (y) all of the Equity Interests of Ningbo Baowang not held by the Company or any of its Restricted Subsidiaries to the extent the cash purchase price does not exceed $5.0 million; and (z) all of the Equity Interests of Microlite not held by the Company or any of its Restricted Subsidiaries pursuant to, and in accordance with the terms of, the Microlite Purchase Agreement as in effect on the date of the Indenture to the extent the cash purchase price does not exceed $10.0 million; |
| (3) | make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes or the Note Guarantees, except a payment of interest or principal on or after the Stated Maturity thereof or on Indebtedness permitted to be incurred pursuant to clause (6) of the definition of Permitted Debt; or |
| (4) | make any Restricted Investment (all such payments and other actions set forth in clauses (1) through (4) above being collectively referred to as “Restricted Payments”), |
unless, at the time of and after giving effect to such Restricted Payment:
| (1) | no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and |
| (2) | the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock;” and |
| (3) | such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (2), (3) (4) (to the extent such dividends are paid to the Company or any of its Restricted Subsidiaries) and (5) of the next succeeding paragraph (B)), is less than the sum, without duplication, of: |
| (a) | 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of the Indenture to the end of the Company’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit),plus |
| (b) | 100% of the aggregate net cash proceeds received by the Company since the date of the Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company);plus |
| (c) | with respect to Restricted Investments made by the Company and its Restricted Subsidiaries after the date of the Indenture, an amount equal to the net reduction in Investments (other than reductions in Permitted Investments) in any Person resulting from repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary or from the net cash proceeds from the sale of any such Investment (except, in each case, to the extent any such payment or proceeds are included in the calculation of Consolidated Net Income, from the release of any Guarantee (except to the extent any amounts are paid under such Guarantee) or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries, not to exceed, in each case, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary,plus |
| (d) | $50.0 million. |
(B) So long as no Default has occurred and is continuing or would be caused thereby, the preceding provisions will not prohibit:
| (1) | the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; |
| (2) | the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness of the Company or any Guarantor or of any Equity Interests of the Company or any Guarantor in exchange for, or out of the net cash proceeds of a contribution to the common equity of the Company or a substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (3) (b) of the preceding paragraph (A); |
| (3) | the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of the Company or any Guarantor with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; |
| (4) | the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; |
| (5) | Investments acquired as a capital contribution to, or in exchange for, or out of the net cash proceeds of a substantially concurrent offering of, Equity Interests (other than Disqualified Stock) of the Company;provided that the amount of any such net cash proceeds that are utilized for any such acquisition or exchange shall be excluded from clause (3) (b) of the preceding paragraph (A); |
| (6) | the repurchase of Capital Stock deemed to occur upon the exercise of options or warrants if such Capital Stock represents all or a portion of the exercise price thereof; |
| (7) | the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company held by any employee, former employee, director or former director of the Company (or any of its Restricted Subsidiaries) upon the death, disability or termination of employment of any of the foregoing pursuant to the terms of any employee equity subscription agreement, stock option agreement or similar agreement;provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests in any fiscal year shall not exceed the sum of (x) $5.0 million and (y) the amount of Restricted Payments permitted but not made pursuant to this clause (7) in the immediately preceding fiscal year; or |
| (8) | the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of any Restricted Subsidiary of the Company from the minority stockholders (or other holders of minority interest, however designated) of such Restricted Subsidiary for fair market value;provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $20.0 million. |
The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued to or by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers’ Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this “Restricted Payments” covenant were computed, together with a copy of any fairness opinion or appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, incur any Indebtedness (including Acquired Debt), and the Company will not permit any of its Restricted Subsidiaries to issue any preferred stock;provided, however, that the Company or any Restricted Subsidiary of the Company may incur Indebtedness, if the Fixed Charge Coverage Ratio for the Company’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred at the beginning of such four-quarter period.
So long as no Default shall have occurred and be continuing or would be caused thereby, the first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, “Permitted Debt”):
| (1) | the incurrence by the Company or any Restricted Subsidiary of the Company of Indebtedness under Credit Facilities (and the incurrence of Guarantees thereof) in an aggregate principal amount at any one time outstanding pursuant to this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder) not to exceed $1.6 billion,less the aggregate amount of all Net Proceeds of Asset Sales applied by the Company or any Restricted Subsidiary to permanently repay any such Indebtedness (and, in the case of any revolving credit Indebtedness, to effect a corresponding commitment reduction thereunder) pursuant to the covenant “—Repurchase at the Option of Holders—Asset Sales;” |
| (2) | the incurrence of Existing Indebtedness; |
| (3) | the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the related Note Guarantees to be issued on the date of the Indenture and the Exchange Notes and the related Note Guarantees to be issued pursuant to the Registration Rights Agreement; |
| (4) | the incurrence by the Company or any Restricted Subsidiary of the Company of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Guarantor, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (4), not to exceed, at any time outstanding, the greater of (a) $50.0 million and (b) 10% of Consolidated Net Tangible Assets of the Company; |
| (5) | the incurrence by the Company or any Restricted Subsidiary of the Company of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace |
Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under the first paragraph of this covenant or clauses (2) (other than the 9 7/8% Senior Subordinated due 2009 of United Industries Corporation incurred in connection with its acquisition by the Company), (3), (4), (5), or (8) of this paragraph; |
| (6) | the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness owing to and held by the Company or any of its Restricted Subsidiaries;provided, however, that: |
| (a) | if the Company or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be unsecured and expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes, in the case of the Company, or the Note Guarantee, in the case of a Guarantor; |
| (b) | Indebtedness owed to the Company or any Guarantor must be evidenced by an unsubordinated promissory note, unless the obligor under such Indebtedness is the Company or a Guarantor; and |
| (c) | (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary thereof and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary thereof, shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); |
| (7) | the Guarantee by the Company or any Restricted Subsidiary of the Company of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; |
| (8) | the incurrence by the Company or any Restricted Subsidiary of the Company of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (8), not to exceed $50.0 million; and |
| (9) | the incurrence of Indebtedness by the Company or any Restricted Subsidiary of the Company arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business;provided that such Indebtedness is extinguished within five business days of incurrence. |
For purposes of determining compliance with this “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant, in the event that any proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (9) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company will be permitted to classify at the time of its incurrence such item of Indebtedness in any manner that complies with this covenant. Indebtedness under Credit Facilities outstanding on the date on which Notes are first issued under the Indenture shall be deemed to have been incurred on such date in reliance on the exception provided by clause (1) of the definition of Permitted Debt. In addition, any Indebtedness originally classified as incurred pursuant to clauses (1) through (9) above may later be reclassified by the Company such that it will be deemed as having been incurred pursuant to another of such clauses to the extent that such reclassified Indebtedness could be incurred pursuant to such new clause at the time of such reclassification.
Notwithstanding any other provision of this “Limitation on Indebtedness” covenant, the maximum amount of Indebtedness that may be Incurred pursuant to this “Limitation on Indebtedness” covenant will not be deemed to be exceeded, with respect to any outstanding Indebtedness due solely to the result of fluctuations in the exchange rates of currencies.
Limitation on Senior Subordinated Debt
The Company will not incur any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of the Company unless it ispari passu or subordinate in right of payment to the Notes to the same extent. No Guarantor will incur any Indebtedness that is subordinate or junior in right of payment to the Senior Debt of such Guarantor unless it ispari passu or subordinate in right of payment to such Guarantor’s Note Guarantee to the same extent. For purposes of the foregoing, no Indebtedness will be deemed to be subordinate or junior in right of payment to any other Indebtedness of the Company or any Guarantor, as applicable, solely by reason of any Liens or Guarantees arising or created in respect thereof or by virtue of the fact that the holders of any secured Indebtedness have entered into intercreditor agreements giving one or more of such holders priority over the other holders in the collateral held by them.
Liens
The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind securing Indebtedness (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired, unless all payments due under the Indenture and the Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:
| (1) | pay dividends or make any other distributions on its Capital Stock (or with respect to any other interest or participation in, or measured by, its profits) to the Company or any of its Restricted Subsidiaries or pay any liabilities owed to the Company or any of its Restricted Subsidiaries; |
| (2) | make loans or advances to the Company or any of its Restricted Subsidiaries; or |
| (3) | transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. |
However, the preceding restrictions do not apply to encumbrances or restrictions existing under or by reason of or with respect to:
| (1) | the Credit Agreement, Existing Indebtedness or any other agreements in effect on the date of the Indenture and any amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacements or refinancings thereof,provided that the encumbrances and restrictions in any such amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, than those in effect on the date of the Indenture; |
| (2) | applicable laws, rules, regulations or orders; |
| (3) | any Person or the property or assets of a Person acquired by the Company or any of its Restricted Subsidiaries existing at the time of such acquisition and not incurred in connection with or in contemplation of such acquisition, 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 and any amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacements or refinancings thereof,provided that the encumbrances and restrictions in any such amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, than those contained in the Credit Agreement, Existing Indebtedness or such other agreements as in effect on the date of the acquisition; |
| (4) | in the case of clause (3) of the first paragraph of this covenant: |
| (a) | provisions that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset; |
| (b) | restrictions existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the Indenture; or |
| (c) | restrictions arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary; |
| (5) | provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business; |
| (6) | any agreement for the sale or other disposition of all or substantially all of the capital stock of, or property and assets of, a Restricted Subsidiary that restricted distributions by that Restricted Subsidiary pending such sale or other disposition; and |
| (7) | Indebtedness of a Foreign Subsidiary permitted to be incurred under the Indenture;provided that (a) such encumbrances or restrictions are ordinary and customary with respect to the type of Indebtedness being incurred and (b) such encumbrances or restrictions will not affect the Company’s ability to make principal and interest payments on the Notes, as determined in good faith by the Board of Directors of the Company. |
Merger, Consolidation or Sale of Assets
United
The Company will not, nor will it permit any Guarantor to,directly or indirectly: (1) consolidate with,or merge with or into another Person (whether or not the Company is the surviving corporation) or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person or Persons, unless:
| (1) | either: (a) the Company is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made (i) is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia and (ii) assumes all the obligations of the Company under the Notes, the Indenture and the Registration Rights Agreement pursuant to agreements reasonably satisfactory to the Trustee; |
| (2) | immediately after giving effect to such transaction no Default or Event of Default exists; |
| (3) | immediately after giving effect to such transaction on a pro forma basis, the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition shall have been made, will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock”; and |
| (4) | each Guarantor, unless such Guarantor is the Person with which the Company has entered into a transaction under this “Consolidation, Merger or Sale of Assets” covenant, shall have by amendment to its Note Guarantee confirmed that its Note Guarantee shall apply to the obligations of the Company or the surviving Person in accordance with the Notes and the Indenture. |
In addition, neither the Company nor any Restricted Subsidiary may, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. Clause (3) above of this “Merger, Consolidation or Sale of Assets” covenant will not apply to any merger, consolidation or sale, assignment, transfer, conveyance or other disposition of assets between or among the Company and any of its Restricted Subsidiaries.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into, make, amend, renew or extend any transaction, contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any Affiliate (each, an “Affiliate Transaction”), unless:
| (1) | such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable arm’s-length transaction by the Company or such Restricted Subsidiary with a Person that is not an Affiliate of the Company; and |
| (2) | the Company delivers to the Trustee: |
| (a) | with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, a resolution of the Board of Directors set forth in an Officers’ Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with this covenant and that such Affiliate Transaction or series of related Affiliate Transactions has been approved by a majority of the disinterested members of the Board of Directors; and |
| (b) | with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25.0 million, an opinion as to the fairness to the Company or such Restricted Subsidiary of such Affiliate Transaction or series of related Affiliate Transactions from a financial point of view issued by an independent accounting, appraisal or investment banking firm of national standing. |
The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:
| (1) | transactions between or among the Company and/or its Restricted Subsidiaries; |
| (2) | payment of reasonable and customary fees and compensation to, and reasonable and customary indemnification arrangements and similar payments on behalf of, directors of the Company; |
| (3) | Restricted Payments that are permitted by the provisions of the Indenture described above under the caption “—Restricted Payments;” |
| (4) | any sale of Capital Stock (other than Disqualified Stock) of the Company; |
| (5) | loans and advances to officers and employees of the Company or any of its Restricted Subsidiaries for bona fide business purposes in the ordinary course of business consistent with past practice; |
| (6) | any employment, consulting, service or termination agreement, or reasonable and customary indemnification arrangements, entered into by the Company or any of its Restricted Subsidiaries with officers and employees of the Company or any of its Restricted Subsidiaries and the payment of compensation to officers and employees of the Company or any of its Restricted Subsidiaries (including amounts paid pursuant to employee benefit plans, employee stock option or similar plans), in each case in the ordinary course of business and consistent with past practice; and |
| (7) | any agreements or arrangements in effect on the date of the Indenture, or any amendment, modification, or supplement thereto or any replacement thereof, as long as such agreement or |
arrangement, as so amended, modified, supplemented or replaced, taken as a whole, is not more disadvantageous to the Company and its Restricted Subsidiaries than the original agreement as in effect on the date of the Indenture, as determined in good faith by the Company’s Board of Directors, and any transactions contemplated by any of the foregoing agreements or arrangements. |
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary;provided that:
| (1) | any Guarantee by the Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated will be deemed to be an incurrence of Indebtedness by the Company or such Restricted Subsidiary (or both, if applicable) at the time of such designation, and such incurrence of Indebtedness would be permitted under the covenant described above under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock;” |
| (2) | the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary being so designated (including any Guarantee by the Company or any Restricted Subsidiary of any Indebtedness of such Subsidiary) will be deemed to be a Restricted Investment made as of the time of such designation and that such Investment would be permitted under the covenant described above under the caption “—Certain Covenants—Restricted Payments;” |
| (3) | such Subsidiary does not own any Equity Interests of, or hold any Liens on any Property of, the Company or any Restricted Subsidiary; |
| (4) | the Subsidiary being so designated: |
| (a) | is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; |
| (b) | is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; |
| (c) | has not Guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries, except to the extent such Guarantee or credit support would be released upon such designation; and |
| (d) | has at least one director on its Board of Directors that is not a director or officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or officer of the Company or any of its Restricted Subsidiaries; and |
| (5) | no Default or Event of Default would be in existence following such designation. |
Any designation of a Restricted Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the preceding conditions and was permitted by the Indenture. If, at any time, any Unrestricted Subsidiary would fail to meet any of the preceding requirements described in clause (4) above, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness, Investments, or Liens on the property, of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness, Investments or Liens are not permitted to be incurred as of such date under the Indenture, the Company shall be in default under the Indenture.
The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;provided that:
| (1) | such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if such Indebtedness is permitted under the covenant described under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock,” calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; |
| (2) | all outstanding Investments owned by such Unrestricted Subsidiary will be deemed to be made as of the time of such designation and such Investments shall only be permitted if such Investments would be permitted under the covenant described above under the caption “—Certain Covenants—Restricted Payments;” |
| (3) | all Liens upon property or assets of such Unrestricted Subsidiary existing at the time of such designation would be permitted under the caption “—Certain Covenants—Liens;” and |
| (4) | no Default or Event of Default would be in existence following such designation. |
Limitation on Issuances and Sales of Equity Interests in Restricted Subsidiaries
The Company will not transfer, convey, sell, lease or otherwise dispose of, and will not permit any of its Restricted Subsidiaries to, issue, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Restricted Subsidiary of the Company to any Person (other than the Company or a Restricted Subsidiary of the Company or, if necessary, shares of its Capital Stock constituting directors’ qualifying shares or issuances of shares of Capital Stock of foreign Restricted Subsidiaries to foreign nationals, to the extent required by applicable law), except:
| (1) | if, immediately after giving effect to such issuance, transfer, conveyance, sale, lease or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect to such issuance or sale would have been permitted to be made under the “Restricted Payments” covenant if made on the date of such issuance or sale and the cash Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales;” or |
| (2) | other sales of Capital Stock of a Restricted Subsidiary by the Company or a Restricted Subsidiary,provided that the Company or such Restricted Subsidiary complies with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales.” |
Guarantees
If the Company or any of its Restricted Subsidiaries acquires or creates another Domestic Subsidiary on or after the date of the Indenture, then that newly acquired or created Domestic Subsidiary must become a Guarantor and execute a supplemental indenture and deliver an Opinion of Counsel to the Trustee.
The Company will not permit any of its Restricted Subsidiaries, directly or indirectly, to Guarantee or pledge any assets to secure the payment of any other Indebtedness of the Company or any Restricted Subsidiary thereof, other than Foreign Subsidiaries, unless such Restricted Subsidiary is a Guarantor or simultaneously executes and delivers a supplemental indenture providing for the Guarantee of the payment of the Notes by such Restricted Subsidiary, which Guarantee shall be senior to orpari passu with such Subsidiary’s Guarantee of such other Indebtedness unless such other Indebtedness is Senior Debt, in which case the Guarantee of the Notes may be subordinated to the Guarantee of such Senior Debt to the same extent as the Notes are subordinated to such Senior Debt. The form of the Note Guarantee will be attached as an exhibit to the Indenture.
A Guarantor may not sell or otherwise dispose of all or substantially all of its assets (as an entiretyto, or substantially as an entirety in one transaction or a series of related transactions) to, any Person unless (in the case of United or any Guarantor):
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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 Trustee, an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and the supplemental Indenture in respect thereof comply with this provision and that all conditions precedent herein provided for relating to such transaction or transactions have been complied with.
Guarantees
Payment of the principal of, premium, if any, and interest on, the notes will be unconditionally guaranteed, jointly and severally, on a senior subordinated basis by the Initial Subsidiary Guarantors, which are the only Restricted Subsidiaries of United existing on the Issue Date. In addition, each future Restricted Subsidiary of United other than a Foreign Subsidiary at the time it has either assets or stockholder's equity in excess of $200,000 will unconditionally guarantee, jointly and severally, the payment of the principal of, premium, if any, and interest on, the notes pursuant to the covenant described under "Limitation on Creation of Subsidiaries." On the date of the Indenture, all Subsidiaries of United will be Guarantors.
The Guarantee of a Guarantor:
The obligations of each Guarantor are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor (including, without limitation, any Guarantees of Senior Indebtedness) 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 such other Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, result in the obligations of such 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 (a) at least 80% of its Capital Stock is sold (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) a Restricted Subsidiary of United in a transaction in compliance with the covenant described under "Limitation on Certain Asset Sales,"provided that such release shall not be effective unless and until such Guarantor is similarly released from its guarantee under the Senior Credit Facility and the Series B Indenture (if any), (b) the Guarantor mergesmerge with or into or consolidates with United or another Guarantor in a transaction in compliance with "Merger, Consolidation or Sale of Assets," and (c) United properly designates the Guarantor as an Unrestricted
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Subsidiary in accordance with the terms of the Indenture, and, in each case, such Guarantor has delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent herein provided for relating to such transaction have been complied with.
Events of Default
The following events will be defined in the Indenture as "Events of Default":
| (1) | immediately after giving effect to that transaction, no Default or Event of Default exists; and |
| (2) | either: |
| (a) | the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia and assumes all the obligations of that Guarantor under the Indenture, |
| (b) | such sale or other disposition or consolidation or merger complies with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales.” |
The Note 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) shall 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
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provided, however, that after such acceleration but before a judgment or decree based on such acceleration is obtained by the Trustee, the holders of a majority in aggregate principal amount of outstanding notes may, under certain circumstances, rescind and annul such 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 certain 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 thereunder, unless such holder shall have previously given to the Trustee written notice of a continuing Event of Default and unless also the holders of at least 25% in aggregate principal amount of the outstanding notes shall have made written request and offered indemnity satisfactory to the Trustee to institute such proceeding as a trustee, and unless the Trustee shall not have received from the holders of a majority in aggregate principal amount of the outstanding notes a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days. However, such limitations do not apply to a suit instituted on such note on or after the respective due dates expressed in such note.
Defeasance and Covenant Defeasance
The Indenture will provide that United may elect either
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Modification of Indenturereleased:
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 thereby,
Reports to Holders
| (1) | in connection with any sale or other disposition of all of the Capital Stock of a Guarantor to a Person that is not (either before or after giving effect to such transaction) an Affiliate of the Company, if the sale of all such Capital Stock of that Guarantor complies with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales;” |
So long as United is subject to the periodic reporting requirements of the Exchange Act, it will continue to furnish the information required thereby 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.
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Compliance Certificate
| (2) | if the Company properly designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary under the Indenture; or |
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.
| (3) | solely in the case of a Note Guarantee created pursuant to the second paragraph of this covenant, upon the release or discharge of the Guarantee which resulted in the creation of such Note Guarantee pursuant to this covenant “—Certain Covenants—Guarantees,” except a discharge or release by or as a result of payment under such Guarantee. |
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 such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such 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 such person's own affairs. The Trustee is also a trustee under the Series B Indenture.
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 registered holder of a note may be treated as the owner of it for all purposes.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the covenants contained in the Indenture. We refer you to the Indenture for the full definition of all such terms as well as any other capitalized terms used herein for which no definition is provided.
"Accrued Bankruptcy Interest" means, with respect to any Indebtedness of any Person, all interest accrued or accruing on such Indebtedness after the commencement of any bankruptcy, reorganization, insolvency, receivership or similar proceeding, whether voluntary or involuntary, against such Person in accordance with and at the contract rate (including, without limitation, any rate applicable upon default) specified in the agreement or instrument creating, evidencing or governing such Indebtedness, whether or not, pursuant to applicable law or otherwise, the claim for such interest is allowed as a claim in such proceeding.
"Acquired Indebtedness" means Indebtedness of a Person (including an Unrestricted Subsidiary) existing at the time such Person becomes a Restricted Subsidiary or assumed in connection with the acquisition of the outstanding equity interests on, or assets from, such Person.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of the amount by which
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any Subsidiary of such Guarantor in respect of the obligations of such Subsidiary under the Guarantee), excluding Indebtedness in respect of the Guarantee, as they become absolute and matured.
"Affiliate" of any specified Person means any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.
"Asset Acquisition" means
"Asset Drop-Down" means the transaction described under "Asset Drop-Down" above.
"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 $2,000,000 of
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"Asset Sale Proceeds" means, with respect to any Asset Sale,
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction means, as at the time of determination, the greater of
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"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the aggregate Asset Sale Proceeds from such 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."
"Bayer Stock" means the 3,072,000 shares of Class A voting common stock and the 3,072,000 shares of Class B nonvoting common stock issued pursuant to that certain Exchange Agreement dated as of June 14, 2002 or Capital Stock (other than Disqualified Capital Stock) issued with respect thereto in a reorganization or recapitalization of United.
"Board of Directors" means
"Business Day" means any day except a Saturday, Sunday or other day on which (1) commercial banks in the City of New York are authorized or required by law to close or (2) the New York Stock Exchange is not open for trading.
"Capital Stock" means, with respect to any Person, any and all shares or other equivalents (however designated and whether or not voting) of capital stock, partnership interests or any other participation, right or other interest in the nature of an equity interest in such Person or any option, warrant or other security convertible into or exercisable for any of the foregoing.
"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 such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP.
"Change of Control" means, at
If a Change of Control occurs, each Holder of Notes will have the right to require the Company to repurchase all or any time afterpart (equal to $1,000 or an integral multiple thereof) of that Holder’s Notes pursuant to a Change of Control Offer on the Issue Date,terms set forth in the occurrenceIndenture. In the Change of one or moreControl Offer, the Company will offer a Change of Control Payment in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the date of purchase. Within 30 days following events:
On the Change of Control Payment Date, the Company will, to the extent lawful:
| (1) | accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer; |
| (2) | deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered; and |
| (3) | deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. |
The Paying Agent will promptly mail or wire transfer to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be consummatedtransferred by book entry) to each Holder a new Note equal in principal amount to any consolidationunpurchased portion of the Notes surrendered, if any;provided that each such new Note will be in a principal amount of $1,000 or mergeran integral multiple thereof.
Prior to complying with any of Unitedthe provisions of this “Change of Control” covenant, but in which United is notany event within 30 days following a Change of Control, the continuingCompany will either repay all outstanding Senior Debt or surviving corporationobtain the
requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this covenant. The Company will publicly announce the results of the Change of Control Offer on or pursuantas soon as practicable after the Change of Control Payment Date.
The Credit Agreement prohibits the Company from purchasing any Notes, and also provides that certain change of control events with respect to the Company constitute a default under the Credit Agreement. Any future credit agreements or other agreements relating to Senior Debt to which the Common StockCompany becomes a party may contain similar restrictions and provisions. In the event a Change of UnitedControl occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its senior lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company’s failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under such Senior Debt. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes.
The provisions described above that require the Company to make a Change of Control Offer following a Change of Control will be applicable regardless of whether any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of “all or substantially all” of the properties or assets of the Company and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of Notes to require the Company to repurchase such Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
| (1) | the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; |
| (2) | such fair market value is determined by the Company’s Board of Directors and evidenced by a resolution of the Board of Directors set forth in an Officers’ Certificate delivered to the Trustee; and |
| (3) | at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or Replacement Assets or a combination of both. For purposes of this provision, each of the following shall be deemed to be cash: |
| (a) | any liabilities (as shown on the Company’s or such Restricted Subsidiary’s most recent balance sheet), of the Company or any Restricted Subsidiary (other than contingent liabilities, Indebtedness that is by its terms subordinated to the Notes or any Note Guarantee and liabilities to the extent owed to the Company or any Affiliate of the Company) that are assumed by the |
transferee of any such assets pursuant to a written novation agreement that releases the Company or such Restricted Subsidiary from further liability; and |
| (b) | any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received in that conversion) within 90 days of the applicable Asset Sale. |
Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds at its option:
| (1) | to repay Senior Debt and, if the Senior Debt repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto; or |
| (2) | to purchase Replacement Assets or make a capital expenditure in or that is used or useful in a Permitted Business. |
Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute “Excess Proceeds.” Within 10 days after the aggregate amount of Excess Proceeds exceeds $20.0 million, the Company will make an Asset Sale Offer to all Holders of Notes and all holders of other Indebtedness that ispari passu with the Notes or any Note Guarantee containing provisions similar to those set forth in the Indenture with respect to offers to purchase with the proceeds of sales of assets, to purchase the maximum principal amount of Notes and such otherpari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount of the Notes and such otherpari passu Indebtedness plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and such otherpari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Notes and such otherpari passu Indebtedness shall be purchased on a pro rata basis based on the principal amount of Notes and such otherpari passu Indebtedness tendered. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sales provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the Indenture by virtue of such compliance.
The Credit Agreement prohibits the Company from purchasing any Notes, and also provides that certain asset sale events with respect to the Company constitute a default under the Credit Agreement. Any future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event an Asset Sale occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its senior lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company’s failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under such Senior Debt. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes.
Certain Covenants
Restricted Payments
(A) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:
| (1) | declare or pay any dividend or make any other payment or distribution on account of the Company’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than dividends, payments or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary of the Company); |
| (2) | purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any Restricted Subsidiary of the Company held by Persons other than the Company or any of its Restricted Subsidiaries, other than the purchase, redemption or acquisition or retirement for value of any of (x) all of the Equity Interests in VARTA not held by the Company or any of its Restricted Subsidiaries pursuant to, and in accordance with the terms of, the VARTA Joint Venture Agreement as in effect on the date of the Indenture to the extent the cash purchase price does not exceed €5.0 million; (y) all of the Equity Interests of Ningbo Baowang not held by the Company or any of its Restricted Subsidiaries to the extent the cash purchase price does not exceed $5.0 million; and (z) all of the Equity Interests of Microlite not held by the Company or any of its Restricted Subsidiaries pursuant to, and in accordance with the terms of, the Microlite Purchase Agreement as in effect on the date of the Indenture to the extent the cash purchase price does not exceed $10.0 million; |
| (3) | make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes or the Note Guarantees, except a payment of interest or principal on or after the Stated Maturity thereof or on Indebtedness permitted to be incurred pursuant to clause (6) of the definition of Permitted Debt; or |
| (4) | make any Restricted Investment (all such payments and other actions set forth in clauses (1) through (4) above being collectively referred to as “Restricted Payments”), |
unless, at the time of and after giving effect to such Restricted Payment:
| (1) | no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and |
| (2) | the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock;” and |
| (3) | such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (2), (3) (4) (to the extent such dividends are paid to the Company or any of its Restricted Subsidiaries) and (5) of the next succeeding paragraph (B)), is less than the sum, without duplication, of: |
| (a) | 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of the Indenture to the end of the Company’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit),plus |
| (b) | 100% of the aggregate net cash proceeds received by the Company since the date of the Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company);plus |
| (c) | with respect to Restricted Investments made by the Company and its Restricted Subsidiaries after the date of the Indenture, an amount equal to the net reduction in Investments (other than reductions in Permitted Investments) in any Person resulting from repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary or from the net cash proceeds from the sale of any such Investment (except, in each case, to the extent any such payment or proceeds are included in the calculation of Consolidated Net Income, from the release of any Guarantee (except to the extent any amounts are paid under such Guarantee) or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries, not to exceed, in each case, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary,plus |
| (d) | $50.0 million. |
(B) So long as no Default has occurred and is continuing or would be converted into cash, securitiescaused thereby, the preceding provisions will not prohibit:
| (1) | the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; |
| (2) | the redemption, repurchase, retirement, defeasance or |
| (3) | the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of the Company or any Guarantor with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; |
| (4) | the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; |
| (5) | Investments acquired as a capital contribution to, or in exchange for, or out of the net cash proceeds of a substantially concurrent offering of, Equity Interests (other than Disqualified Stock) of the Company;provided that the amount of any such net cash proceeds that are utilized for any such acquisition or exchange shall be excluded from clause (3) (b) of the preceding paragraph (A); |
| (6) | the repurchase of Capital Stock deemed to occur upon the exercise of options or warrants if such Capital Stock represents all or a portion of the exercise price thereof; |
| (7) | the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company held by any employee, former employee, director or former director of the Company (or any of its Restricted Subsidiaries) upon the death, disability or termination of employment of any of the foregoing pursuant to the terms of any employee equity subscription agreement, stock option agreement or similar agreement;provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests in any fiscal year shall not exceed the sum of (x) $5.0 million and (y) the amount of Restricted Payments permitted but not made pursuant to this clause (7) in the immediately preceding fiscal year; or |
| (8) | the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of any Restricted Subsidiary of the Company from the minority stockholders (or other holders of minority interest, however designated) of such Restricted Subsidiary for fair market value;provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $20.0 million. |
The amount of all Restricted Payments (other than a merger or consolidation of United in which either a THL Group Member orcash) shall be the holdersfair market value on the date of the Common StockRestricted Payment of United outstanding immediately priorthe asset(s) or securities proposed to be transferred or issued to or by the Company or such Subsidiary, as the case may be, pursuant to the consolidationRestricted Payment. The fair market value of any assets or merger hold,securities that are required to be valued by this covenant shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers’ Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this “Restricted Payments” covenant were computed, together with a copy of any fairness opinion or appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, incur any Indebtedness (including Acquired Debt), and the Company will not permit any of its Restricted Subsidiaries to issue any preferred stock;provided, however, that the Company or any Restricted Subsidiary of the Company may incur Indebtedness, if the Fixed Charge Coverage Ratio for the Company’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred would have been at least 2.0 to 1, determined on a majoritypro forma basis (including a pro forma application of the Common Stock ofnet proceeds therefrom), as if the surviving corporation immediately after such consolidation or merger, or
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So long as no Default shall have occurred and be continuing or would be caused thereby, the first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, “Permitted Debt”):
| (1) | the incurrence by the Company or any Restricted Subsidiary of the Company of Indebtedness under Credit Facilities (and the incurrence of Guarantees thereof) in an aggregate principal amount at any one time outstanding pursuant to this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder) not to exceed $1.6 billion,less the aggregate amount of all Net Proceeds of Asset Sales applied by the Company or any Restricted Subsidiary to permanently repay any such Indebtedness (and, in the case of any revolving credit Indebtedness, to effect a corresponding commitment reduction thereunder) pursuant to the covenant “—Repurchase at the Option of Holders—Asset Sales;” |
| (2) | the incurrence of Existing Indebtedness; |
| (3) | the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the related Note Guarantees to be issued on the date of the Indenture and the Exchange Notes and the related Note Guarantees to be issued pursuant to the Registration Rights Agreement; |
| (4) | the incurrence by the Company or any Restricted Subsidiary of the Company of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Guarantor, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (4), not to exceed, at any time outstanding, the greater of (a) $50.0 million and (b) 10% of Consolidated Net Tangible Assets of the Company; |
| (5) | the incurrence by the Company or any Restricted Subsidiary of the Company of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace |
Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under the first paragraph of this covenant or clauses (2) (other than the 9 7/8% Senior Subordinated due 2009 of United Industries Corporation incurred in connection with its acquisition by the Company), (3), (4), (5), or (8) of this paragraph; |
| (6) | the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness owing to and held by the Company or any of its Restricted Subsidiaries;provided, however, that: |
| (a) | if the Company or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be unsecured and expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes, in the case of the Company, or the Note Guarantee, in the case of a Guarantor; |
| (b) | Indebtedness owed to the Company or any Guarantor must be evidenced by an unsubordinated promissory note, unless the obligor under such Indebtedness is the Company or a Guarantor; and |
| (c) | (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary thereof and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary thereof, shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); |
| (7) | the Guarantee by the Company or any Restricted Subsidiary of the Company of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; |
| (8) | the incurrence by the Company or any Restricted Subsidiary of the Company of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (8), not to exceed $50.0 million; and |
| (9) | the incurrence of Indebtedness by the Company or any Restricted Subsidiary of the Company arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business;provided that such Indebtedness is extinguished within five business days of incurrence. |
For purposes of determining compliance with this “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant, in the event that any proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (9) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company will be permitted to classify at the time of its incurrence such item of Indebtedness in any manner that complies with this covenant. Indebtedness under Credit Facilities outstanding on the date on which Notes are first issued under the Indenture shall be deemed to have been incurred on such date in reliance on the exception provided by clause (1) of the definition of Permitted Debt. In addition, any Indebtedness originally classified as incurred pursuant to clauses (1) through (9) above may later be reclassified by the Company such that it will be deemed as having been incurred pursuant to another of such clauses to the extent that such reclassified Indebtedness could be incurred pursuant to such new clause at the time of such reclassification.
Notwithstanding any other provision of this “Limitation on Indebtedness” covenant, the maximum amount of Indebtedness that may be Incurred pursuant to this “Limitation on Indebtedness” covenant will not be deemed to be exceeded, with respect to any outstanding Indebtedness due solely to the result of fluctuations in the exchange rates of currencies.
Limitation on Senior Subordinated Debt
The Company will not incur any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of the Company unless it ispari passu or subordinate in right of payment to the Notes to the same extent. No Guarantor will incur any Indebtedness that is subordinate or junior in right of payment to the Senior Debt of such Guarantor unless it ispari passu or subordinate in right of payment to such Guarantor’s Note Guarantee to the same extent. For purposes of the foregoing, no Indebtedness will be deemed to be subordinate or junior in right of payment to any other Indebtedness of the Company or any Guarantor, as applicable, solely by reason of any Liens or Guarantees arising or created in respect thereof or by virtue of the fact that the holders of any secured Indebtedness have entered into intercreditor agreements giving one or more of such holders priority over the other holders in the collateral held by them.
Liens
The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind securing Indebtedness (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired, unless all payments due under the Indenture and the Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:
| (1) | pay dividends or make any other distributions on its Capital Stock (or with respect to any other interest or participation in, or measured by, its profits) to the Company or any of its Restricted Subsidiaries or pay any liabilities owed to the Company or any of its Restricted Subsidiaries; |
| (2) | make loans or advances to the Company or any of its Restricted Subsidiaries; or |
| (3) | transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. |
However, the preceding restrictions do not apply to encumbrances or restrictions existing under or by reason of or with respect to:
| (1) | the Credit Agreement, Existing Indebtedness or any other agreements in effect on the date of the Indenture and any amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacements or refinancings thereof,provided that the encumbrances and restrictions in any such amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, than those in effect on the date of the Indenture; |
| (2) | applicable laws, rules, regulations or orders; |
| (3) | any Person or the property or assets of a Person acquired by the Company or any of its Restricted Subsidiaries existing at the time of such acquisition and not incurred in connection with or in contemplation of such acquisition, 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 and any amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacements or refinancings thereof,provided that the encumbrances and restrictions in any such amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, than those contained in the Credit Agreement, Existing Indebtedness or such other agreements as in effect on the date of the acquisition; |
| (4) | in the case of clause (3) of the first paragraph of this covenant: |
| (a) | provisions that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset; |
| (b) | restrictions existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the Indenture; or |
| (c) | restrictions arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary; |
| (5) | provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business; |
| (6) | any agreement for the sale or other disposition of all or substantially all of the capital stock of, or property and assets of, a Restricted Subsidiary that restricted distributions by that Restricted Subsidiary pending such sale or other disposition; and |
| (7) | Indebtedness of a Foreign Subsidiary permitted to be incurred under the Indenture;provided that (a) such encumbrances or restrictions are ordinary and customary with respect to the type of Indebtedness being incurred and (b) such encumbrances or restrictions will not affect the Company’s ability to make principal and interest payments on the Notes, as determined in good faith by the Board of Directors of the Company. |
Merger, Consolidation or Sale of Assets
The Company will not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation) or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person or Persons, unless:
| (1) | either: (a) the Company is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made (i) is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia and (ii) assumes all the obligations of the Company under the Notes, the Indenture and the Registration Rights Agreement pursuant to agreements reasonably satisfactory to the Trustee; |
| (2) | immediately after giving effect to such transaction no Default or Event of Default exists; |
| (3) | immediately after giving effect to such transaction on a pro forma basis, the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition shall have been made, will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock”; and |
| (4) | each Guarantor, unless such Guarantor is the Person with which the Company has entered into a transaction under this “Consolidation, Merger or Sale of Assets” covenant, shall have by amendment to its Note Guarantee confirmed that its Note Guarantee shall apply to the obligations of the Company or the surviving Person in accordance with the Notes and the Indenture. |
In addition, neither the Company nor any Restricted Subsidiary may, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. Clause (3) above of this “Merger, Consolidation or Sale of Assets” covenant will not apply to any merger, consolidation or sale, assignment, transfer, conveyance or other disposition of assets between or among the Company and any of its Restricted Subsidiaries.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into, make, amend, renew or extend any transaction, contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any Affiliate (each, an “Affiliate Transaction”), unless:
| (1) | such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable arm’s-length transaction by the Company or such Restricted Subsidiary with a Person that is not an Affiliate of the Company; and |
| (2) | the Company delivers to the Trustee: |
| (a) | with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, a resolution of the Board of Directors set forth in an Officers’ Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with this covenant and that such Affiliate Transaction or series of related Affiliate Transactions has been approved by a majority of the disinterested members of the Board of Directors; and |
| (b) | with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25.0 million, an opinion as to the fairness to the Company or such Restricted Subsidiary of such Affiliate Transaction or series of related Affiliate Transactions from a financial point of view issued by an independent accounting, appraisal or investment banking firm of national standing. |
The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:
| (1) | transactions between or among the Company and/or its Restricted Subsidiaries; |
| (2) | payment of reasonable and customary fees and compensation to, and reasonable and customary indemnification arrangements and similar payments on behalf of, directors of the Company; |
| (3) | Restricted Payments that are permitted by the provisions of the Indenture described above under the caption “—Restricted Payments;” |
| (4) | any sale of Capital Stock (other than Disqualified Stock) of the Company; |
| (5) | loans and advances to officers and employees of the Company or any of its Restricted Subsidiaries for bona fide business purposes in the ordinary course of business consistent with past practice; |
| (6) | any employment, consulting, service or termination agreement, or reasonable and customary indemnification arrangements, entered into by the Company or any of its Restricted Subsidiaries with officers and employees of the Company or any of its Restricted Subsidiaries and the payment of compensation to officers and employees of the Company or any of its Restricted Subsidiaries (including amounts paid pursuant to employee benefit plans, employee stock option or similar plans), in each case in the ordinary course of business and consistent with past practice; and |
| (7) | any agreements or arrangements in effect on the date of the Indenture, or any amendment, modification, or supplement thereto or any replacement thereof, as long as such agreement or |
arrangement, as so amended, modified, supplemented or replaced, taken as a whole, is not more disadvantageous to the Company and its Restricted Subsidiaries than the original agreement as in effect on the date of the Indenture, as determined in good faith by the Company’s Board of Directors, and any transactions contemplated by any of the foregoing agreements or arrangements. |
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary;provided that:
| (1) | any Guarantee by the Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated will be deemed to be an incurrence of Indebtedness by the Company or such Restricted Subsidiary (or both, if applicable) at the time of such designation, and such incurrence of Indebtedness would be permitted under the covenant described above under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock;” |
| (2) | the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary being so designated (including any Guarantee by the Company or any Restricted Subsidiary of any Indebtedness of such Subsidiary) will be deemed to be a Restricted Investment made as of the time of such designation and that such Investment would be permitted under the covenant described above under the caption “—Certain Covenants—Restricted Payments;” |
| (3) | such Subsidiary does not own any Equity Interests of, or hold any Liens on any Property of, the Company or any Restricted Subsidiary; |
| (4) | the Subsidiary being so designated: |
| (a) | is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; |
| (b) | is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; |
| (c) | has not Guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries, except to the extent such Guarantee or credit support would be released upon such designation; and |
| (d) | has at least one director on its Board of Directors that is not a director or officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or officer of the Company or any of its Restricted Subsidiaries; and |
| (5) | no Default or Event of Default would be in existence following such designation. |
Any designation of a Restricted Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the preceding conditions and was permitted by the Indenture. If, at any time, any Unrestricted Subsidiary would fail to meet any of the preceding requirements described in clause (4) above, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness, Investments, or Liens on the property, of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness, Investments or Liens are not permitted to be incurred as of such date under the Indenture, the Company shall be in default under the Indenture.
The Board of Directors of United (together withthe Company may at any new directors whose election by such Boardtime designate any Unrestricted Subsidiary to be a Restricted Subsidiary;provided that:
| (1) | such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if such Indebtedness is permitted under the covenant described under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock,” calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; |
| (2) | all outstanding Investments owned by such Unrestricted Subsidiary will be deemed to be made as of the time of such designation and such Investments shall only be permitted if such Investments would be permitted under the covenant described above under the caption “—Certain Covenants—Restricted Payments;” |
| (3) | all Liens upon property or assets of such Unrestricted Subsidiary existing at the time of such designation would be permitted under the caption “—Certain Covenants—Liens;” and |
| (4) | no Default or Event of Default would be in existence following such designation. |
Limitation on Issuances and Sales of DirectorsEquity Interests in Restricted Subsidiaries
The Company will not transfer, convey, sell, lease or whose nomination for election by the shareholdersotherwise dispose of, United has been approved by a majorityand will not permit any of its Restricted Subsidiaries to, issue, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Restricted Subsidiary of the directors then still in office who either were directors atCompany to any Person (other than the beginning of such periodCompany or whose election or recommendation for election was previously so approved) cease to constitute a majorityRestricted Subsidiary of the BoardCompany or, if necessary, shares of Directorsits Capital Stock constituting directors’ qualifying shares or issuances of United.
"Commodity Hedge Agreement" shall mean any option, hedge or other similar agreement or arrangement designed to protect against fluctuations in commodity or materials prices.
"Common Stock"shares of any Person means all Capital Stock of such Person that is generally entitledforeign Restricted Subsidiaries to
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of (a) EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior foreign nationals, to the extent required by applicable law), except:
| (1) | if, immediately after giving effect to such issuance, transfer, conveyance, sale, lease or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect to such issuance or sale would have been permitted to be made under the “Restricted Payments” covenant if made on the date of such issuance or sale and the cash Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales;” or |
| (2) | other sales of Capital Stock of a Restricted Subsidiary by the Company or a Restricted Subsidiary,provided that the Company or such Restricted Subsidiary complies with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales.” |
Guarantees
If 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 (b) Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to:
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The Company will not permit any of its Restricted Subsidiaries, directly or indirectly, guaranteesto Guarantee or pledge any assets to secure the payment of any other Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such PersonCompany or any Restricted Subsidiary thereof, other than Foreign Subsidiaries, unless such Restricted Subsidiary is a Guarantor or simultaneously executes and delivers a supplemental indenture providing for the Guarantee of the payment of the Notes by such Restricted Subsidiary, which Guarantee shall be senior to orpari passu with such Subsidiary’s Guarantee of such other Indebtedness unless such other Indebtedness is Senior Debt, in which case the Guarantee of the Notes may be subordinated to the Guarantee of such Senior Debt to the same extent as the Notes are subordinated to such Senior Debt. The form of the Note Guarantee will be attached as an exhibit to the Indenture.
A Guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than the Company or another Guarantor, unless:
| (1) | immediately after giving effect to that transaction, no Default or Event of Default exists; and |
| (2) | either: |
| (a) | the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia and assumes all the obligations of that Guarantor under the Indenture, its Note Guarantee and the Registration Rights Agreement pursuant to a supplemental indenture satisfactory to the Trustee; or |
| (b) | such sale or other disposition or consolidation or merger complies with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales.” |
The Note Guarantee of a Guarantor will be released:
| (1) | in connection with any sale or other disposition of all of the Capital Stock of a Guarantor to a Person that is not (either before or after giving effect to such transaction) an Affiliate of the Company, if the sale of all such Capital Stock of that Guarantor complies with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales;” |
| (2) | if the Company properly designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary under the Indenture; or |
| (3) | solely in the case of a Note Guarantee created pursuant to the second paragraph of this covenant, upon the release or discharge of the Guarantee which resulted in the creation of such Note Guarantee pursuant to this covenant “—Certain Covenants—Guarantees,” except a discharge or release by or as a result of payment under such Guarantee. |
Payments for Consent
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of 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 and is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the Commission, so long as any Notes are outstanding, the Company will prepare and furnish to the Holders of Notes, within the time periods specified in the Commission’s rules and regulations:
| (1) | 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 the Company 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 on the annual financial statements by the Company’s certified independent accountants; and |
| (2) | all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports. |
In addition, whether or not required by the SEC, the Company will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the SEC’s rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company and the Guarantors have agreed that, for so long as any Notes remain outstanding, they will furnish to the Holders and to prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by this covenant shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company.
Events of Default and Remedies
Each of the following is an Event of Default:
| (1) | default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Notes whether or not prohibited by the subordination provisions of the Indenture; |
| (2) | default in payment when due (whether at maturity, upon acceleration, redemption or otherwise) of the principal of, or premium, if any, on the Notes, whether or not prohibited by the subordination provisions of the Indenture; |
| (3) | failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described under the captions “—Repurchase at the Option of Holders—Change of Control,” “—Repurchase at the Option of Holders—Asset Sales” or “—Certain Covenants—Merger, Consolidation or Sale of Assets” or the provisions described in the third paragraph under the caption “—Certain Covenants—Guarantees;” |
| (4) | failure by the Company or any of its Restricted Subsidiaries for 60 days after written notice by the Trustee or Holders representing 25% or more of the aggregate principal amount of Notes outstanding to comply with any of the other agreements in the Indenture; |
| (5) | default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created after the date of the Indenture, if that default: |
| (a) | is caused by a failure to make any payment of principal at the final maturity of such Indebtedness (a “Payment Default”); or |
| (b) | results in the acceleration of such Indebtedness prior to its express maturity, |
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25.0 million or more;
| (6) | failure by the Company or any of its Restricted Subsidiaries to pay final judgments (to the extent such judgments are not paid or covered by insurance provided by a carrier that has acknowledged coverage in writing and has the ability to perform) aggregating in excess of $25.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; |
| (7) | except as permitted by the Indenture, any Note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or |
any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Note Guarantee; and |
| (8) | certain events of bankruptcy or insolvency with respect to the Company, any Guarantor or any Significant Subsidiary of the Company (or any Restricted Subsidiaries that together would constitute a Significant Subsidiary). |
In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Guarantor or any Significant Subsidiary of the Company (or any Restricted Subsidiaries that together would constitute a Significant Subsidiary), all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately.
Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest or Liquidated Damages) if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or Liquidated Damages on, or the principal of, the Notes. The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or the Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders of Notes not joining in the giving of such direction and may take any other action it deems proper that is not inconsistent with any such direction received from Holders of Notes. A Holder may not pursue any remedy with respect to the Indenture or the Notes unless:
| (1) | the Holder gives the Trustee written notice of a continuing Event of Default; |
| (2) | the Holders of at least 25% in aggregate principal amount of outstanding Notes make a written request to the Trustee to pursue the remedy; |
| (3) | such Holder or Holders offer the Trustee indemnity satisfactory to the Trustee against any costs, liability or expense; |
| (4) | the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and |
| (5) | during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Notes do not give the Trustee a direction that is inconsistent with the request. |
However, such limitations do not apply to the right of any Holder of a Note to receive payment of the principal of, premium or Liquidated Damages, if any, or interest on, such Note or to bring suit for the enforcement of any such payment, on or after the due date expressed in the Notes, which right shall not be impaired or affected without the consent of the Holder.
In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the
extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to February 1, 2010, by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to February 1, 2010, then the premium specified in the first paragraph of “—Optional Redemption” shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes.
The Company is required to deliver to the Trustee annually within 90 days after the end of each fiscal year a statement regarding compliance with the Indenture. Upon becoming aware of any Default or Event of Default, the Company is required to deliver to the Trustee a statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantors under the Notes, the Indenture, the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Notes and all obligations of the Guarantors discharged with respect to their Note Guarantees (“Legal Defeasance”) except for:
| (1) | the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium and Liquidated Damages, if any, on such Notes when such payments are due from the trust referred to below; |
| (2) | the Company’s obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust; |
| (3) | the rights, powers, trusts, duties and immunities of the Trustee, and the Company’s and the Guarantors’ obligations in connection therewith; and |
| (4) | the Legal Defeasance provisions of the Indenture. |
In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and the Guarantors released with respect to certain covenants that are described in the Indenture (“Covenant Defeasance”) and thereafter any omission to comply with those covenants shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under “Events of Default” will no longer constitute Events of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
| (1) | the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, or interest and premium and Liquidated Damages, if any, on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; |
| (2) | in the case of Legal Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; |
| (3) | in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; |
| (4) | no Default or Event of Default shall have occurred and be continuing either: (a) on the date of such deposit; or (b) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 123rd day after the date of deposit; |
| (5) | such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; |
| (6) | the Company must have delivered to the Trustee an Opinion of Counsel to the effect that, (1) assuming no intervening bankruptcy of the Company or any Guarantor between the date of deposit and the 123rd day following the deposit and assuming that no Holder is an “insider” of the Company under applicable bankruptcy law, after the 123rd day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, including Section 547 of the United States Bankruptcy Code and (2) the creation of the defeasance trust does not violate the Investment Company Act of 1940; |
| (7) | the Company must deliver to the Trustee an Officers’ Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; |
| (8) | if the Notes are to be redeemed prior to their stated maturity, the Company must deliver to the Trustee irrevocable instructions to redeem all of the Notes on the specified redemption date; and |
| (9) | the Company must deliver to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. |
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of the Holders of at least 75% of the principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), an amendment or waiver may not amend or modify any of the provisions of the Indenture or the
related definitions affecting the subordination or ranking of the Notes or any Note Guarantee in any manner adverse to the holders of the Notes or any Note Guarantee.
Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder):
| (1) | reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; |
| (2) | reduce the principal of or change the fixed maturity of any Note or alter the provisions, or waive any payment, with respect to the redemption of the Notes; |
| (3) | reduce the rate of or change the time for payment of interest on any Note; |
| (4) | waive a Default or Event of Default in the payment of principal of, or interest or premium, or Liquidated Damages, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration); |
| (5) | make any Note payable in money other than U.S. dollars; |
| (6) | make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest or premium or Liquidated Damages, if any, on the Notes; |
| (7) | release any Guarantor from any of its obligations under its Note Guarantee or the Indenture, except in accordance with the terms of the Indenture; |
| (8) | impair the right to institute suit for the enforcement of any payment on or with respect to the Notes or the Note Guarantees; |
| (9) | amend, change or modify the obligation of the Company to make and consummate an Asset Sale Offer with respect to any Asset Sale in accordance with the “Repurchase at the Option of Holders—Asset Sales” covenant after the obligation to make such Asset Sale Offer has arisen, or the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control in accordance with the “Repurchase at the Option of Holders—Change of Control” covenant after such Change of Control has occurred, including, in each case, amending, changing or modifying any definition relating thereto; |
| (10) | except as otherwise permitted under the “Merger, Consolidation and Sale of Assets” covenant, consent to the assignment or transfer by the Company of any of its rights or obligations under the Indenture; or |
| (11) | make any change in the preceding amendment and waiver provisions. |
Notwithstanding the preceding, without the consent of any Holder of Notes, the Company, the Guarantors and the Trustee may amend or supplement the Indenture or the Notes:
| (1) | to cure any ambiguity, defect or inconsistency; |
| (2) | to provide for uncertificated Notes in addition to or in place of certificated Notes; |
| (3) | to provide for the assumption of the Company’s or any Guarantor’s obligations to Holders of Notes in the case of a merger or consolidation or sale of all or substantially all of the Company’s or such Guarantor’s assets; |
| (4) | to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder; |
| (5) | to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act; |
| (6) | to comply with the provisions described under “Certain Covenants—Guarantees;” |
| (7) | to evidence and provide for the acceptance of appointment by a successor Trustee; or |
| (8) | to provide for the issuance of Additional Notes in accordance with the Indenture. |
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder, when:
| (1) | either: |
| (a) | all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or |
| (b) | all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium and Liquidated Damages, if any, and accrued interest to the date of maturity or redemption; |
| (2) | no Default or Event of Default shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound; |
| (3) | the Company or any Guarantor has paid or caused to be paid all sums payable by it under the Indenture; and |
| (4) | the Company has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be. |
In addition, the Company must deliver an Officers’ Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
Concerning the Trustee
If the Trustee becomes a creditor of the Company or any Guarantor, the Indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue or resign.
The Indenture provides that in case an Event of Default shall occur and be continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.
Book-Entry, Delivery and Form
Except as set forth below, the exchange notes will be issued in registered, global form in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. Notes will be issued at the closing of the exchange offer only against surrender of original notes.
The exchange notes initially will be represented by one or more notes in registered, global form without interest coupons attached (the “Global Note”). On the date of the closing of the exchange offer, the Global Note will be 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 in DTC as described below.
Unless definitive exchange notes are issued, the Global Note may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Note 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.”
Ownership of interests in the Global Note (“Book-Entry Interests”) will be limited to persons that have accounts with DTC, or persons that hold interests through such Participants (as defined below). Except under the limited circumstances described below, beneficial owners of Book-Entry Interests will not be entitled to physical delivery of exchange notes in definitive form.
Book-Entry Interests will be shown on, and transfers thereof will be effected only through, records maintained in book-entry form by DTC or DTC’s nominees and Participants. In addition while the exchange notes are in global form, holders of Book-Entry Interests will not be considered the owners or “holders” of exchange notes for any purpose. So long as the exchange notes are held in global form, DTC or its nominees will be considered the sole holders of the Global Note for all purposes under the indenture. In addition, Participants must rely on the procedures of DTC and Indirect Participants (as defined below) must rely on the procedures of DTC and the Participants through which they own Book-Entry Interests to transfer their interests or to exercise any rights of holders under the indenture. Transfers of beneficial interests in the Global Note will be subject to the applicable rules and procedures of DTC and its Participants or Indirect Participants, which may change from time to time.
Depository Procedures
The following description of the operations and procedures of DTC is provided solely as a matter of convenience. These operations and procedures are solely within the control of DTC and are subject to change. Neither we nor the trustee take any responsibility for or are liable for these operations and procedures including the records relating to Book-Entry Interests and we urge investors to contact DTC or its participants directly to discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company organized under the laws of the State of New York, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the Uniform Commercial Code and a “Clearing Agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC was created to hold securities for its participating organizations (collectively, the “Participants”) and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to 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 interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established by it:
| (1) | upon deposit of the Global Notes, DTC will credit the accounts of Participants pursuant to the corresponding letters of transmittal with portions of the principal amount of the Global Notes; and |
| (2) | ownership of these 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 interest in the Global Notes). |
We understand that under existing industry practice, in the event that we request any action of holders of exchange notes, or an owner of a beneficial interest in the Global Note desires to take any action that DTC, as the holder of such Global Note, is entitled to take, DTC would authorize the Participants to take the action and the Participants would authorize beneficial owners owning through the Participants to take the action or would otherwise act upon the instruction of the beneficial owners. Neither we nor the trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of notes by DTC, or for maintaining, supervising or reviewing any records of DTC relating to the notes.
All interests in a Global Note may be subject to the procedures and requirements of DTC. The laws of some jurisdictions, including certain states of the United 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 will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants, the ability of a Person having beneficial interests in a Global Note to pledge such interests to Persons 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.
Except as described below, owners of interest 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 interest and premium 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 of the Global Note under the Indenture. Under the terms of the Indenture, the Company 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 payments and for all other purposes. Consequently, neither the Company, the Trustee nor any agent of the Company or the Trustee has or will have any responsibility or liability for:
| (1) | any aspect of DTC’s records or any Participant’s or Indirect Participant’s records relating to or payments made on account of beneficial ownership interest in the Global Notes or for maintaining, supervising or reviewing any of DTC’s records or any Participant’s or Indirect Participant’s records relating to the beneficial ownership interests in the Global Notes; or |
| (2) | any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. |
DTC has advised the Company that its 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 unless DTC has reason to believe it will not receive payment on such payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of 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 be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the Notes, and the Company and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.
Transfer between Participants in DTC will be effected in accordance with DTC’s procedures, and will be settled in same-day Funds.
DTC has advised the Company 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 DTC has credited the interests in the Global Notes 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 there is an Event of Default under the Notes, DTC reserves the right to exchange the Global Notes for legended Notes in certificated form, and to distribute such Notes to its Participants.
Although DTC has agreed to the foregoing procedures to facilitate transfers of interests in the Global Note among participants in DTC, DTC is under no obligation to perform or to continue to perform such procedures, and may discontinue such procedures at any time. Neither the Company nor the Trustee nor any of their respective agents will have any responsibility for the performance by DTC or its Participants or Indirect Participants of their respective obligations under the rules and procedures governing DTC’s operations.
Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for definitive Notes in registered certificated form (“Certificated Notes”) if:
| (1) | DTC (a) notifies the Company that it is unwilling or unable to continue as depositary for the Global Notes or (b) has ceased to be a clearing agency registered under the Exchange Act, and in each case the Company fails to appoint a successor depositary; |
| (2) | the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Certificated Notes; or |
| (3) | there shall have occurred and be continuing a Default or Event of Default with respect to the Notes. |
In addition, beneficial interests in a Global Note may be exchanged for Certificated Notes upon prior written notice given to the Trustee by or on behalf of DTC in accordance with the Indenture. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures).
Exchange of Certificated Notes for Global Notes
Certificated Notes may not be exchanged for beneficial interests in any Global Note unless the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that such transfer will comply with the appropriate transfer restrictions applicable to such Notes.
Redemption of the Global Note
In the event the Global Note, or any portion thereof, is redeemed, DTC will redeem an equal amount of the Book-Entry Interests in such Global Note from the amount received by it in respect of the redemption of such Global Note. The redemption price payable in connection with the redemption of such Book-Entry Interests will
be equal to the amount received by DTC in connection with the redemption of such Global Note or any portion thereof. We understand that, under existing practices of DTC, if fewer than all of the exchange notes are to be redeemed at any time, DTC will credit its Participants’ accounts on a proportionate basis, with adjustments to prevent fractions, or by lot or on such other basis as DTC deems fair and appropriate; provided, however, that no Book-Entry Interest of $1,000 principal amount or less may be redeemed in part.
Same Day Settlement and Payment
The Company will make payments in respect of the Notes represented by the Global Notes (including principal, premium, if any, and interest) by wire transfer of immediately available funds to the accounts specified by the Global Note Holder. The Company will make all payments of principal, interest and premium with respect to Certificated Notes by wire transfer of immediately available funds to the accounts specified by the Holders thereof or, if no such account is specified, by mailing a check to each such Holder’s registered address. The Notes represented by the Global Notes are expected to trade in DTC’s Same-Day Funds Settlement System, and any permitted secondary market trading activity in such Notes will, therefore, be required by DTC to be settled in immediately available funds. The Company expects that secondary trading in any Certificated Notes will also be settled in immediately available funds.
The amount of the Liquidated Damages will increase by an additional one-quarter of one percent (0.25%) per annum on the principal amount of Notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages for all Registration Defaults of 1.0% per annum.
All accrued Liquidated Damages will be paid by the Company and the Guarantors on each interest payment date to the Global Note Holder by wire transfer of immediately available funds or by federal funds check and to Holders of Certificated Notes by wire transfer to the accounts specified by them or by mailing checks to their registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to the Company (as described in the Registration Rights Agreement) in order to participate in the Exchange Offer and will be required to deliver certain 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 Registration Rights Agreement in order to have their Notes included in the Shelf Registration Statement and benefit from the provisions regarding Liquidated Damages set forth above. By acquiring Notes, a Holder will be deemed to have agreed to indemnify the Company and the Guarantors against certain losses arising out of information furnished by such Holder in writing for inclusion in any Shelf Registration Statement. Holders of Notes will also be required to suspend their use of the prospectus included in the Shelf Registration Statement under certain circumstances upon receipt of written notice to that effect from the Company.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided.
“Acquired Debt” means, with respect to any specified Person:
| (1) | Indebtedness of any other Person existing at the time such other Person is merged with or into, or becomes a Subsidiary of, such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and |
| (2) | Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. |
“Affiliate” of any specified Person means (1) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person or (2) any executive officer or director of such specified Person. For purposes of this definition, “control,” as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, had directly incurredwhether through the ownership of voting securities, by agreement or otherwise assumedotherwise;provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms “controlling,” “controlled by” and “under common control with” shall have correlative meanings;provided further that each of Paula Grundstücksverwaltungsgesellschaft mbH & Co. Vermietungs-KG, Mannheim and ROSATA Grundstücksvermietungsgesellschaft mbH & Co. Object Dischingen KG, Düsseldorf, shall not be deemed Affiliates of the Company or any of its Restricted Subsidiaries solely by virtue of the beneficial ownership by the Company or its Restricted Subsidiaries of up to 20% of the Voting Stock of each entity.
“Asset Sale” means:
| (1) | the sale, lease, conveyance or other disposition of any property or assets;provided that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption “—Repurchase at the Option of Holders—Change of Control” and/or the provisions described above under the caption “—Certain Covenants—Merger, Consolidation or Sale of Assets” and not by the provisions of the Asset Sale covenant; and |
| (2) | the issuance of Equity Interests by any of the Company’s Restricted Subsidiaries or the sale by the Company or any Restricted Subsidiary of Equity Interests in any of its Subsidiaries. |
Notwithstanding the preceding, the following items shall be deemed not to be Asset Sales:
| (1) | any single transaction or series of related transactions that involves assets having a fair market value of less than $10.0 million; |
| (2) | a transfer of assets between or among the Company and its Restricted Subsidiaries; |
| (3) | an issuance of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary; |
| (4) | the sale, lease or other disposition of equipment, inventory, accounts receivable or other assets in the ordinary course of business; |
| (5) | the sale or other disposition of Cash Equivalents; |
| (6) | a Restricted Payment that is permitted by the covenant described above under the caption “—Certain Covenants—Restricted Payments;” |
| (7) | any sale or disposition of any property or equipment that has become damaged, worn out, obsolete or otherwise unsuitable or no longer required for use in the ordinary course of the business of the Company or its Restricted Subsidiaries; |
| (8) | the licensing of intellectual property in the ordinary course of business; |
| (9) | any sale or other disposition deemed to occur with creating or granting a Lien not otherwise prohibited by the Indenture; and |
| (10) | upon the termination of the VARTA joint venture with VARTA AG, the sale, transfer or other disposition of the Equity Interests in FinanceCo (as defined in the VARTA Joint Venture Agreement) and the forgiveness of any loans owed by VARTA AG, in each case pursuant to, and in accordance with the terms of, the VARTA Joint Venture Agreement as in effect on the date of the Indenture. |
“Beneficial Owner” has the meaning assigned to such guaranteed Indebtedness.
Furthermore,term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating "Consolidated Fixed Charges" for purposesthe beneficial ownership of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio,"
“Board of Directors” means:
| (1) | with respect to a corporation, the board of directors of the corporation; |
| (2) | with respect to a partnership, the Board of Directors of the general partner of the partnership; and |
| (3) | with respect to any other Person, the board or committee of such Person serving a similar function. |
“Capital Lease Obligation” means, at the time any determination thereof is to be made, the amount of the liability in respect of a fixed rate per annum equalcapital lease that would at that time be required to the rate of interest on such Indebtedness in effect on the Transaction Date; and
“Capital Stock” means:
| (1) | in the case of a corporation, corporate stock; |
| (2) | in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; |
| (3) | in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and |
| (4) | any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. |
“Cash Equivalents” means:
| (1) | United States dollars, Euros and British Pounds Sterling; |
| (2) | securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition; |
| (3) | certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers’ acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of “B” or better; |
| (4) | repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; |
| (5) | commercial paper having the highest rating obtainable from Moody’s Investors Service, Inc. or Standard & Poor’s Rating Services and in each case maturing within nine months after the date of acquisition; |
| (6) | marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof having the highest ratings obtainable from Moody’s or S&P and maturing within six months from the date of acquisition thereof; |
| (7) | money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (6) of this definition; and |
| (8) | in the case of a Foreign Subsidiary, local currency held by such Foreign Subsidiary from time to time in the ordinary course of business and Euros and British Pounds Sterling. |
“Change of Control” means the extent such interest is covered by one or more Interest Rate Agreements, shall be deemed to accrue atoccurrence of any of the rate per annum resulting after giving effect to the operation of such agreements.
| (1) | the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries, taken as a whole, to any “person” (as that term is used in Section 13(d)(3) of the Exchange Act); |
| (2) | the adoption of a plan relating to the liquidation or dissolution of the Company; |
| (3) | any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) becomes the ultimate Beneficial Owner, directly or indirectly, of 50% or more of the voting power of the Voting Stock of the Company; |
| (4) | the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors; or |
| (5) | the Company consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where (A) the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance) and (B) immediately after such transaction, no “person” or “group” (as such terms are used in Section 13(d) and 14(d) of the Exchange Act) becomes, directly or indirectly, the ultimate Beneficial Owner of 50% or more of the voting power of the Voting Stock of the surviving or transferee Person. |
"“Consolidated Fixed ChargesCash Flow”" means, with respect to any specified Person for any period, the sum of
| (1) | provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income;plus |
| (2) | Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that any such Fixed Charges were deducted in computing such Consolidated Net Income;plus |
| (3) | depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any restructuring and related charges referred to in clauses (4), (5), (6) and (7), without giving effect to the provisos, and any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income;plus |
| (4) | restructuring and related charges and other non-recurring charges incurred by the Company in the fiscal year ended September 30, 2004, to the extent such charges were deducted in computing Consolidated Net Income for such period;provided that the maximum aggregate amount of such charges shall not exceed $25.0 million;plus |
| (5) | for any period prior to the acquisition of Microlite, any operating losses and non-recurring charges incurred in such period by Microlite, to the extent such operating losses and non-recurring charges were reflected in computing Consolidated Net Income for such period;provided that the maximum aggregate amount of such operating losses and charges shall not exceed $8.1 million;plus |
| (6) | for any period prior to the acquisition of United Industries Corporation, restructuring and related charges incurred in such period by United Industries Corporation related to its acquisition of United Pet Group, Inc. or The Nu-Gro Company, to the extent such charges were deducted in computing Consolidated Net Income for such period;provided that the maximum aggregate amount of such charges shall not exceed $31.1 million;plus |
| (7) | restructuring and related charges related to the acquisition of United Industries Corporation or any other acquisition, incurred during any period after September 30, 2004, and prior to September 30, 2008, to the extent such charges were deducted in computing Consolidated Net Income for such period;provided that the maximum aggregate amount of such charges shall not exceed $100.0 million;minus |
| (8) | non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue consistent with past practice, in each case, on a consolidated basis and determined in accordance with GAAP. |
Notwithstanding the preceding, the provision for taxes based on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Restricted Subsidiary determined onof the Company shall be added to Consolidated Net Income to compute Consolidated Cash Flow of the Company (A) in the same proportion that the Net Income of such Restricted Subsidiary was added to compute such Consolidated Net Income of the Company and (B) only to the extent that a consolidated basis (other than dividends paid in Capital Stock (other than Disqualified Capital Stock) or dividends that accumulate and compound as if paid in kind) paid, accrued or scheduledcorresponding amount would be permitted at the date of determination to be paiddividended or accrued duringdistributed to the Company by such period times (b) a fraction,Restricted Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the numeratorterms of which is oneits charter and the denominator of which is one minus the then current effective consolidated federal, stateall agreements, instruments, judgments, decrees, orders, statutes, rules and local tax rate of such Person, expressed as a decimal.
"“Consolidated Interest ExpenseNet Income”" 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 such 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 thereof) or premium, if
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any, and all other non-cash interest expense (other than interest amortized to cost of sales)) plus, without duplication, all net capitalized interest for such period and all interest incurred or paid under any guarantee of Indebtedness (including a guarantee of principal, interest or any combination thereof) 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.
"Consolidated Net Income" means, with respect to anyspecified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP;provided however, that that:
shall be included only to the extent of the amount of dividends or distributions paid to the Person in question or the Restricted Subsidiary,
| (1) | the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary thereof; |
| (2) | the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its equityholders; |
| (3) | the Net Income of any Person acquired during the specified period for any period prior to the date of such acquisition shall be excluded; |
| (4) | the cumulative effect of a change in accounting principles shall be excluded; and |
| (5) | notwithstanding clause (1) above, the Net Income (but not loss) of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the specified Person or one of its Subsidiaries. |
“Consolidated Net Tangible Assets” of any Person acquired in a poolingmeans, as of interests transaction for any period prior todate, the date of such acquisition and (b) any net gain (but not loss) 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,
which internal financial statements are available, less (1) all intangible assets, including, without limitation, goodwill, organization costs, patents, trademarks, copyrights, franchises, and research and development costs and (2) current liabilities.
“Continuing Directors” means, as of any Restricted Subsidiary in an amount that corresponds to the percentage ownership interest in the incomedate of such Restricted Subsidiary not owned on the last day of such period, directly or indirectly, by such Person shall be excluded,
| (1) | was a member of such Board of Directors on the date of the Indenture; or |
| (2) | was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. |
“Credit Agreement” means that certain Credit Agreement, dated the date of the Indenture, by and among the Company, certain subsidiaries of the Company, including Varta Consumer Batteries GmbH & Co. KGaA, Bank of America, N.A., as Administrative Agent, and the other Lenders named therein, including any related notes, Guarantees, collateral documents, instruments and agreements executed in accordanceconnection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time, regardless of whether such amendment, modification, renewal, refunding, replacement or refinancing is with the terms thereof,
“Credit Facilities” means, one or more debt facilities (including, without duplication, any charges related tolimitation, the Recapitalization shall be excluded.
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"Currency Agreement" means any foreign exchange contract, currency swap agreementCredit Agreement) or commercial paper facilities, in each case with banks or other similar agreementinstitutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or arrangement, which may include the useto special purpose entities formed to borrow from such lenders against such receivables) or letters of derivatives, designedcredit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to protect against fluctuations in currency values.time.
"
Default“Default”" means any condition or event that is, or with the passingpassage of time or the giving of any notice expressly required under the Indenture (or both)or both would be, an Event of Default.
"
Designated Senior Indebtedness," as to United or any Guarantor, as the case may be, means
"“Disqualified Capital StockStock”" means any Capital Stock of United or a Restricted Subsidiary thereof which,that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder)holder thereof), or upon the happening of any event,
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 such employee's employment with United and/or United's performance shall not be deemed to be Disqualified Capital Stock solely by virtue of such call option and/or put option; provided further, for the avoidance of doubt, to the extent the Bayer Stock is Disqualified Capital Stock, from andone year after the date on which the Notes mature, except to the extent such BayerCapital Stock is no longersolely redeemable with, or solely exchangeable for, any Equity Interests of the Company that are not Disqualified Stock. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption “—Certain Covenants—Restricted Payments.” The term “Disqualified Stock” shall also include any options, warrants or other rights that are convertible into Disqualified Stock or that are redeemable at the option of the holder, or required to be redeemed, prior to the maturity date ofthat is one year after the date on which the Notes such Bayer Stock shall be deemed to be converted into Capital Stock that is not Disqualified Capital Stock for purposes of clause 3(b) of the "Limitation on Restricted Payments" covenant. Without limitation of the foregoing, Disqualified Capital Stock will be deemed to include (a)mature.
“Domestic Subsidiary” means 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 anyCompany other than a Restricted Subsidiary that is issued with(1) a “controlled foreign corporation” under Section 957 of the benefitInternal Revenue Code or (2) a Subsidiary of provisions requiring (i) a change of control offer or asset sale proceeds offer to be made forany such controlled foreign corporation.
“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
“Equity Offering” means a public or private offer and sale of common stock (other than Disqualified Stock) of the Company (other than common stock sold to a Subsidiary of the Company).
“Existing Indebtedness” means the aggregate principal amount of Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the event of a change of control of or asset sale by United or such Restricted Subsidiary, which provisions have substantially the same effect as the provisionsdate of the Indenture described under "Change of Control" or "Limitation on Certain Asset Sales," as the case
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may be or (ii) payment of dividends or redemption only after the notes have been fully paid, shall not be deemed to be Disqualified Capital Stock solely by virtue of such provisions.
"EBITDA" means, for any Person, for any period, an amount equal to
“fair market value” means the price that would be paid in computing net lossan arm’s-length transaction between an informed and willing seller under clause (a) hereof, plus
all for such Person and its Subsidiariesbuy, as determined in accordance with GAAP, except that with respect to United eachgood faith by the Board of the foregoing itemsDirectors, whose determination shall be determined onconclusive if evidenced by 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 such Person shall be included only
"Equity Investor" means UIC Holdings, L.L.C., a Delaware limited liability company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.Board Resolution.
"fair market value"
“Fixed Charge Coverage Ratio” means with respect to any assetspecified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or property,any of its Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness or issues, repurchases or redeems preferred stock subsequent to the pricecommencement of the period for which couldthe Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “Calculation Date”), then the Fixed Charge Coverage Ratio shall be negotiated in an arm's-length, free market transaction,calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period.
In addition, for cash, between a willing seller and a willing and able buyer, neitherpurposes of whom is under undue pressurecalculating the Fixed Charge Coverage Ratio:
| (1) | acquisitions and dispositions of business entities or property and assets constituting a division or line of business of any Person that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated on a pro forma basis in accordance with Regulation S-X under the Securities Act, but without giving effect to clause (3) of the proviso set forth in the definition of Consolidated Net Income; |
| (2) | the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, shall be excluded; |
| (3) | the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Subsidiaries following the Calculation Date; and |
| (4) | consolidated interest expense attributable to interest on any Indebtedness (whether existing or being incurred) computed on a pro forma basis and bearing a floating interest rate shall be computed as if the rate in effect on the Calculation Date (taking into account any interest rate option, swap, cap or similar agreement applicable to such Indebtedness if such agreement has a remaining term in excess of 12 months or, if shorter, at least equal to the remaining term of such Indebtedness) had been the applicable rate for the entire period. |
“Fixed Charges” means, with respect to any specified Person for any period, the sum, without duplication, of:
| (1) | the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original |
issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net of the effect of all payments made, received or accrued in connection with Hedging Obligations;plus |
| (2) | the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period;plus |
| (3) | any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon;plus |
| (4) | the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of Disqualified Stock or preferred stock of such Person or any of its Restricted Subsidiaries, other than (i) dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or (ii) dividends to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP; |
provided that Fixed Charges shall not include any interest expense of, or compulsiondividends paid by, VARTA to completeVARTA AG to the transaction.
"Foreign Subsidiary" meansextent that the Company or a Restricted Subsidiary of United that is organizedthe Company receives interest or dividends in a jurisdictioncash from VARTA AG in connection with the VARTA Joint Venture Agreement as in effect on the date of the Indenture.
“Foreign Subsidiary” means any Restricted Subsidiary of the Company other than the United States of America or a state thereof or the District of Columbia; provided that for purposes of the "Limitation on Creation of Subsidiaries" covenant, if a Restricted Subsidiary guarantees, grants a lien or enters into a similar agreement for the benefit of any Indebtedness of United or any other Restricted Subsidiary (other than a Foreign Subsidiary), such Restricted Subsidiary will not be deemed to be a ForeignDomestic Subsidiary.
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"GAAP“GAAP”" means generally accepted accounting principles consistently appliedset forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, the opinions and pronouncements of the Public Company Accounting Oversight Board and in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect inon the United States from time to time.
"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 termsdate of the Indenture.
"Guarantor" means each Initial Subsidiary Guarantor and each other U.S. Restricted Subsidiary of United that hereafter becomes a Guarantor pursuant to the Indenture, and "Guarantors" means such entities, collectively.
"Guarantor Representative“Guarantee”" means
"Guarantor Senior Indebtedness" means, the principal of and premium, if any, and interest (including, without limitation, Accrued Bankruptcy 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,
Notwithstanding anything to the contrary in the foregoing, Guarantor Senior Indebtedness of a Guarantor will not include
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"“Guarantors” means:Holding Company" means
| (1) | each direct or indirect Domestic Subsidiary of the Company on the date of the Indenture; and |
| (2) | any other subsidiary that executes a Note Guarantee in accordance with the provisions of the Indenture; |
and their respective successors and assigns until released from their obligations under their Note Guarantees and the parent companyIndenture in accordance with the terms of the New Operating Company followingIndenture.
“Hedging Obligations” means, with respect to any specified Person, the Asset Drop-Down.obligations of such Person under:
"
| (1) | interest rate swap agreements, interest rate cap agreements, interest rate collar agreements and other agreements or arrangements designed for the purpose of fixing, hedging or swapping interest rate risk; |
| (2) | commodity swap agreements, commodity option agreements, forward contracts and other agreements or arrangements designed for the purpose of fixing, hedging or swapping commodity price risk; and |
| (3) | foreign exchange contracts, currency swap agreements and other agreements or arrangements designed for the purpose of fixing, hedging or swapping foreign currency exchange rate risk. |
incur“incur”" means, with respect to any Indebtedness, or other obligation of any Person, to incur, create, issue, incur (by conversion, exchange or otherwise), assume, guaranteeGuarantee or otherwise become directly or indirectly liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness;provided that (1) any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary of the Company will be deemed to be incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary of the Company and (2) neither the accrual of interest nor the accretion of original issue discount nor the payment of interest in respectthe form of suchadditional Indebtedness with the same terms and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock (to the extent provided for when the Indebtedness or other obligationDisqualified Stock on which such interest or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "incurrence," "incurred," "incurrable" and "incurring"dividend is paid was originally issued) shall have meanings correlative to the foregoing); provided that a change in GAAP that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be deemedconsidered an incurrence of such Indebtedness.Indebtedness;provided that in each case the amount thereof is for all other purposes included in the Fixed Charges and Indebtedness of the Company or its Restricted Subsidiary as accrued.
"Indebtedness"“Indebtedness” means, (without duplication), with respect to any specified 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 such Person, whether or only to a portion thereof), 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) not contingent:
| (1) | in respect of borrowed money; |
| (2) | evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof), but excluding obligations with respect to letters of credit (including trade letters of credit) securing obligations entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed no later than the fifth Business Day following receipt by such Person of a demand for reimbursement); |
| (3) | in respect of banker’s acceptances; |
| (4) | in respect of Capital Lease Obligations; |
| (5) | in respect of the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; |
| (6) | representing Hedging Obligations, other than Hedging Obligations that are incurred in the ordinary course of business for the purpose of fixing, hedging or swapping interest rate, commodity price or foreign currency exchange rate risk (or to reverse or amend any such agreements previously made for such purposes), and not for speculative purposes, and that do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in interest rates, commodity prices or foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; or |
| (7) | representing Disqualified Stock valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends; |
if and to the extent that any of the foregoing indebtednesspreceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of suchthe specified Person prepared in accordance with GAAP, and shall also include, toGAAP. In addition, the extent not otherwise included:
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measured by, the fair market value of such Disqualified Stock, such fair market value shall be determined in good faith by the Board of Directors of the issuer of such Disqualified Stock.
The amount of any Indebtedness outstanding as 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:and shall be:
| (1) | the accreted value thereof, in the case of any Indebtedness issued with original issue discount; and |
| (2) | the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness; |
providedthat Indebtedness shall not include include:
| (i) | any liability for federal, state, local or other taxes; |
| (ii) | performance, surety or appeal bonds provided in the ordinary course of business; or |
| (iii) | agreements providing for indemnification, adjustment of purchase price or similar obligations, or Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in any case incurred in connection with the disposition of any business, assets or Restricted Subsidiary (other than Guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition), so long as the principal amount does not exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition. |
“Investments” means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans or other taxes.
Notwithstanding any other provisionextensions of the foregoing definition, any trade payable arising from the purchase of goodscredit (including Guarantees, but excluding advances to customers or materials or for services obtainedsuppliers in the ordinary course of business shall not be deemed to be "Indebtedness" of Unitedthat are, in conformity with GAAP, recorded as accounts receivable, prepaid expenses or any Restricted Subsidiary for purposes of this definition. Furthermore, guarantees of (or obligations with respect to letters of credit supporting) Indebtedness otherwise included indeposits on the determination of such amount shall not also be included.
"Individual Investors" means the Persons who made the Management Contribution and, without duplication, the Persons who hold the Retained Equity as of March 24, 1999.
"Initial Subsidiary Guarantor" means Schultz Company, a Missouri corporation, Ground Zero Inc., a Missouri corporation, Sylorr Plant Corporation, a Delaware corporation, and WPC Brands, Inc., a Wisconsin corporation, eachbalance sheet of the Company or its Restricted Subsidiaries of United existing on the Issue Date.
"Interest Rate Agreement" shall mean any interestand endorsements for collection or foreign currency rate swap, cap, collar, option, hedge, forward rate or other similar agreement or arrangement designed to protect against fluctuations in interest rates or currency exchange rates.
"Investments" means, directly or indirectly, any advance, account receivable (other than an account receivabledeposit arising in the ordinary course of business or acquired as part of the assets acquired by United in connectionbusiness), advances (excluding commission, travel, payroll and similar advances to officers and employees made consistent with an acquisition of assets which is otherwise permitted by the terms of the Indenture)past practices), loan or capital contribution tocontributions (by means of transfersany transfer of cash or other property to others paymentsor any payment for property or services for the account or use of othersothers), purchases or otherwise), the purchaseother acquisitions for consideration of any stock, bonds, notes, debentures, partnership or joint venture interestsIndebtedness, Equity Interests or other securities, of, the acquisition, by purchasetogether with all items that are 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 creditwould be classified as investments on commercially reasonable termsa balance sheet prepared in accordance with normal trade practices. ForGAAP.
If 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 such 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 such Unrestricted Subsidiary is designated a Restricted Subsidiary. If UnitedCompany or any Restricted Subsidiary of Unitedthe Company sells or otherwise disposes of any Common StockEquity Interests of any direct or indirect Restricted Subsidiary of Unitedthe Company such that, after giving effect to any such sale or disposition, Unitedsuch Person is no longer owns, directly or indirectly, greater than 50%a Restricted Subsidiary of the outstanding Common Stock of such Restricted Subsidiary, UnitedCompany, the Company 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 ofInvestment in such Restricted Subsidiary not sold or disposed of.
"Issue Date" meansof in an amount determined as provided in the datefinal paragraph of the notes are first issued by United and authenticatedcovenant described above under the caption “—Certain Covenants—Restricted Payments.” The acquisition by the Trustee under the Indenture.
"Letter of Credit Obligations" means all Obligations in respect of Indebtedness of UnitedCompany or any Restricted Subsidiary of its Restricted Subsidiaries with respect to lettersthe Company of credit issued pursuant to the Senior Indebtedness which Indebtednessa Person that holds an Investment in a third Person shall be deemed to consistbe an Investment by the Company or such Restricted Subsidiary in such third Person only if such Investment was made in contemplation of, (a)or in connection with, the aggregate maximum amount then available to be drawn under all such letters of credit (the determinationacquisition of such maximumPerson by the Company or such Restricted Subsidiary and the amount to assume
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compliance with all conditions for drawing) and (b)of any such Investment shall be determined as provided in the aggregate amount that has then been paid by, and not reimbursed to,final paragraph of the issuerscovenant described above under such letters of credit.the caption “—Certain Covenants—Restricted Payments.”
"Lien"“Lien” means, with respect to any property or assets of any Person,asset, any mortgage, or deed of trust,lien, 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),charge, security interest lien, charge, easement or encumbrance of any kind in respect of such asset, whether or nature whatsoever onnot filed, recorded or with respect to such property or assets (including, without limitation,otherwise perfected under applicable law, including any Capitalized Lease Obligation, conditional sales,sale or other title retention agreement, having substantiallyany lease in the same economic effect as nature thereof,
any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the foregoing).Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
“Microlite” means Microlite S.A. and its successors or assigns.
"Moody's"“Microlite Purchase Agreement” means Moody's Investors Service,the Share Purchase Agreement by and among Rayovac Corporation, ROV Holdings, Inc. and its successors.the shareholders of Microlite S.A. dated February 21, 2004.
"“Net Income"Income” means, with respect to any specified Person, for any period, the net income (loss) of such Person, determined in accordance with GAAP.GAAP and before any reduction in respect of preferred stock dividends, excluding, however:
| (1) | any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with: (a) any sale of assets outside the ordinary course of business of such Person; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and |
| (2) | any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss. |
"“Net Proceeds"Proceeds” means:
"New Operating Company" means the newly-formed Wholly-Owned Subsidiary of United participating in the Asset Drop-Down.accordance with GAAP.
"Non-Payment Event of Default"“Ningbo Baowang” means Ningbo Baowang Battery Company, Ltd. and its successors or assigns.
“Obligations” means any event (other than a Payment Default) the occurrence of which entitles (or, in the case of certain 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 suchany Indebtedness.
"Officers' Certificate"“Permitted Business” means with respectany business conducted or proposed to any Person, a certificate signedbe conducted (as described in the prospectus) by the Chief Executive Officer,Company and its Restricted Subsidiaries on the President or any Vice President and the Chief Financial Officer or any Treasurer of such Person that shall comply with applicable provisionsdate of the Indenture and delivered to the Trustee.other businesses similar or reasonably related, ancillary or incidental thereto or reasonable extensions thereof.
"Payment Default"“Permitted Investments” means:
| (1) | any Investment in the Company or in a Restricted Subsidiary of the Company; |
| (2) | any Investment in Cash Equivalents; |
| (3) | any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment: |
| (a) | such Person becomes a Restricted Subsidiary of the Company; or |
| (b) | such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; |
| (4) | any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales;” |
| (5) | Investments to the extent acquired in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; |
| (6) | Hedging Obligations that are incurred in the ordinary course of business for the purpose of fixing, hedging or swapping interest rate, commodity price or foreign currency exchange rate risk (or to reverse or amend any such agreements previously made for such purposes), and not for speculative purposes, and that do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in interest rates, commodity prices or foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; |
| (7) | stock, obligations or securities received in satisfaction of judgments; |
| (8) | Investments in securities of trade debtors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers or in good faith settlement of delinquent obligations of such trade debtors or customers or in compromise or resolution of litigation, arbitration or other disputes with Persons who are not Affiliates; and |
| (9) | other Investments in any Person that is not an Affiliate of the Company (other than a Restricted Subsidiary) having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (9) since the date of the Indenture, not to exceed $30.0 million. |
“Permitted Liens” means:
| (1) | Liens on the assets of the Company and any Guarantor securing Senior Debt that was permitted by the terms of the Indenture to be incurred; |
| (2) | Liens in favor of the Company or any Restricted Subsidiary; |
| (3) | Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Restricted Subsidiary of the Company;provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or the Restricted Subsidiary; |
| (4) | Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company,provided that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any property other than the property so acquired by the Company or the Restricted Subsidiary; |
| (5) | Liens existing on the date of the Indenture; |
| (6) | Liens securing Permitted Refinancing Indebtedness;providedthat such Liens do not extend to any property or assets other than the property or assets that secure the Indebtedness being refinanced; |
| (7) | Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $25.0 million at any one time outstanding; and |
| (8) | Liens on the assets of a Foreign Subsidiary securing Indebtedness of a Foreign Subsidiary that was permitted by the terms of the Indenture to be incurred. |
“Permitted Refinancing Indebtedness” means any default, whether or not any requirement for the giving of notice, the lapse of time or both, or any other condition to such 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,
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"Permitted Indebtedness" means:
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defease or self-insurance, orrefund other Indebtedness with respect to reimbursement type obligations regarding workers' compensation or other similar claims;
intercompany Indebtedness);"Permitted Investments"provided that: means, for any Person, Investments made on or after March 24, 1999 consisting of:
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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) thereof, United shall deliver to the Trustee an Officers' Certificate stating that such Permitted Investment is permitted and setting forth in reasonable detail the date, amount and nature of the purchase or contribution being relied upon.
| (1) | the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest thereon and the amount of any reasonably determined premium necessary to accomplish such refinancing and such reasonable expenses incurred in connection therewith); |
| (2) | such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; |
| (3) | if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes or the Note Guarantees, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; |
| (4) | if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded ispari passu in right of payment with the Notes or any Note Guarantees, such Permitted Refinancing Indebtedness ispari passu with, or subordinated in right of payment to, the Notes or such Note Guarantees; and |
| (5) | such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. |
"Permitted Liens"“Person” means
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"Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government (including any agency or political subdivision thereof).other entity.
"Preferred Stock"“Replacement Assets” means (1) non-current assets that will be used or useful in a Permitted Business or (2) all or substantially all of the assets of a Permitted Business or a majority of the Voting Stock of any Person engaged in a Permitted Business that will become on the date of acquisition thereof a Restricted Subsidiary.
“Restricted Investment” means an Investment other than a Permitted Investment.
“Restricted Subsidiary” of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.
“sale and leaseback transaction” means, with respect to any Person, any transaction involving any of the assets or properties of such Person whether now owned or hereafter acquired, whereby such Person sells or transfers such assets or properties and then or thereafter leases such assets or properties or any part thereof or any other assets or properties which such Person intends to use for substantially the same purpose or purposes as the assets or properties sold or transferred.
“Significant Subsidiary” means any Subsidiary that would constitute a “significant subsidiary” within the meaning of Article 1 of Regulation S-X of the Securities Act.
“Stated Maturity” means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
“Subsidiary” means, with respect to any specified Person:
| (1) | any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and |
| (2) | any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). |
“Unrestricted Subsidiary” means any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution in compliance with the covenant described under the caption “—Certain Covenants—Designation of Restricted and Unrestricted Subsidiaries,” and any Subsidiary of such Subsidiary.
“VARTA” means Varta Geratebatterie GmbH and its successors or assignees.
“VARTA Joint Venture Agreement” means the agreement among VARTA AG, the Company and ROV German Limited GmbH dated July 28, 2002, as amended.
The Company conducts its German operations through VARTA, a 51% owned joint venture, which is a Restricted Subsidiary of the Company. The remaining interest is held by VARTA AG. VARTA and another Restricted Subsidiary of the Company, FinanceCo (as defined in the VARTA Joint Venture Agreement) receive interest payments from VARTA AG in connection with loans owed by VARTA AG to such entities. VARTA pays dividends and interest to VARTA AG in amounts that substantially offset the monies received by VARTA AG on an after-tax basis. Pursuant to the VARTA Joint Venture Agreement, the Company can terminate the joint venture from August 1, 2005 to October 31, 2005 and VARTA AG can terminate at any time on or after January 1, 2006 or under certain other circumstances. Upon termination of the joint venture, the Equity Interests of VARTA owned by VARTA AG will be redeemed or exchanged for the shares of FinanceCo and a €1.0 million cash payment. In addition, upon termination all loans between the parties will be forgiven.
“Voting Stock” of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
| (1) | the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by |
| (2) | the then outstanding principal amount of such Indebtedness. |
“Wholly Owned Restricted Subsidiary” of any specified Person means a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceedsRestricted Subsidiary of such Person overall of the holders of otheroutstanding Capital Stock issuedor other ownership interests of which (other than directors’ qualifying shares or Investments by such Person.
"Property" of any Person means all types of real, personal, tangible, intangible or mixed propertyforeign nationals mandated by applicable law) shall at the time be owned by such Person whether or not included in the most recent consolidated balance sheetby one or more Wholly Owned Restricted Subsidiaries of such Person and itsone or more Wholly Owned Restricted Subsidiaries under GAAP.of such Person.
CONSIDERATIONS
"Purchase Money Indebtedness" means
The following is a summary of the U.S. federal income tax consequences to a holder of original notes who exchanges original notes for exchange notes pursuant to the exchange offer. This summary is based on existing U.S. federal income tax law, which is subject to change, possibly with retroactive effect. This summary does not discuss any Indebtedness incurredstate, local or non-U.S. tax considerations. Each holder of original notes is urged to consult its tax advisor regarding the U.S. federal, state, local and Non-U.S. income and other tax consequences of the exchange offer.
Exchange of Original Notes for Exchange Notes
An exchange of original notes for exchange notes pursuant to the exchange offer will be ignored for U.S. federal income tax purposes. Consequently, a holder of original notes will not recognize gain or loss upon the exchange of original notes for exchange notes pursuant to the exchange offer. In addition, (i) the holding period of the exchange notes will be the same as the holding period of the original notes, (ii) the tax basis in the exchange notes will be the same as the adjusted basis in the original notes, in each case as determined at the time of the exchange and (iii) a holder will recognize interest income in respect of the exchange notes in the same amounts and at the same times as such holder would have recognized in respect of the original notes.
The following is a summary of certain considerations associated with the acquisition of United and holding of the notes by (a) employee benefit plans that are subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), (b) plans, including individual retirement accounts, Keogh plans and other arrangements, that are subject to Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”), or provisions under any federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of the Code or ERISA (collectively, “Similar Laws”) and (c) entities whose underlying assets are considered to include “plan assets” of such plans, accounts and arrangements (each of (a), (b) and (c), a “Plan”).
General Fiduciary Matters
ERISA and the Code impose certain duties on persons who are fiduciaries of a Plan subject to Title I of ERISA or Section 4975 of the Code and prohibit certain transactions involving the assets of such Plan and its fiduciaries or other interested parties. Under ERISA and the Code, any person who exercises any discretionary authority or control over the administration of such a Plan or the management or disposition of the assets of such a Plan, or who renders investment advice to such a Plan for a fee or other compensation, is generally considered to be a fiduciary of the Plan.
In considering an investment in the notes, a Plan fiduciary should determine whether the investment is in accordance with the documents and instruments governing the Plan and the applicable provisions of ERISA, the Code or any Similar Law relating to a fiduciary’s duties to the Plan including, without limitation, the prudence, diversification, delegation of control and prohibited transaction provisions of ERISA, the Code or any other applicable Similar Laws.
Any insurance company proposing to invest assets of its general account in the notes should consider the extent that each investment would be subject to the requirements of ERISA in light of the U.S. Supreme Court’s decision inJohn Hancock Mutual Life Insurance Co. v.Harris Trust and Savings Bank and under any subsequent legislation or other guidance that has or may become available relating to that decision, including the enactment of Section 401(c) of ERISA by the Small Business Job Protection Act of 1996 and the regulations promulgated thereunder.
Prohibited Transaction Issues
Section 406 of ERISA and Section 4975 of the Code prohibit Plans subject to Title I of ERISA or Section 4975 of the Code from engaging in specified transactions involving plan assets with persons or entities who are “parties in interest,” within the meaning of ERISA, or “disqualified persons,” within the meaning of Section 4975 of the Code, unless an exemption is available. A party in interest or disqualified person who engages in a non-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code. In addition, the fiduciary of the Plan that engages in such a non-exempt prohibited transaction may be subject to penalties and liabilities under ERISA and the Code. The acquisition and/or holding of notes by a PersonPlan with respect to finance (within 90 dayswhich the issuer is considered a party in interest or a disqualified person may constitute or result in a direct or indirect prohibited transaction under Section 406 of ERISA and/or Section 4975 of the Code, unless the investment is acquired and is held in accordance with an applicable statutory, class or individual prohibited transaction exemption. In this regard, the U.S. Department of Labor (the “DOL”) has issued prohibited transaction class exemptions, or PTCEs, that may apply to the acquisition and holding of the notes. These class exemptions include, without limitation, PTCE 84-14 respecting transactions determined by independent qualified professional asset managers, PTCE 90-1 respecting insurance company pooled separate accounts, PTCE 91-38 respecting bank collective investment trust partnerships, PTCE 95-60 respecting life insurance company general accounts and PTCE 96-23 respecting transactions determined by in-house asset managers, although there can be no assurance that all of the conditions of any such exemptions will be satisfied. Because of the foregoing, the notes should not be acquired or held by any person investing “plan assets” of any Plan, unless such acquisition and holding will not constitute a non-exempt prohibited transaction under ERISA and the Code or similar violation of any applicable Similar Laws.
Representations
Accordingly, by acquiring a note, each acquiring person and each subsequent transferee of a note will be deemed to have represented and warranted that either (i) no portion of the assets used by such acquiring person or transferee to acquire the notes constitutes assets of any Plan, including without limitation, as applicable, an insurance company general account, or (ii) the acquisition and holding of the notes by such acquiror or transferee does not and will not constitute or otherwise result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code, or similar violation under any applicable Similar Laws.
General Investment Considerations
The foregoing discussion is general in nature and is not intended to be all-inclusive. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries, or other persons acquiring notes on behalf of, or with the assets of, any Plan, consult with their counsel regarding the potential applicability of ERISA, Section 4975 of the Code and any Similar Laws to the acquisition or holding of the notes and whether an exemption would be applicable to such acquisition or holding. Moreover, each Plan fiduciary should take into account, among other considerations, whether the fiduciary has the authority to make the investment, whether the investment constitutes a direct or indirect transaction with a party in interest or disqualified person, the composition of the Plan’s portfolio with respect to diversification by type of asset, the Plan’s funding objectives, the tax effects of the investment, and whether under the general fiduciary standards of investment prudence and diversification an investment in the notes is appropriate for the Plan, taking into account the overall investment policy of the Plan and the composition of the Plan’s investment portfolio.
Governmental plans and certain church plans are generally not subject to the fiduciary responsibility provisions of ERISA or the provisions of Section 4975 of the Code. However, such plans may be subject to substantially similar rules under state or other federal law, and may also be subject to the prohibited transaction rules of Section 503 of the Code.
The sale of notes to a Plan shall not be deemed a representation by us or the initial purchasers that such an investment meets all relevant legal requirements with respect to Plans generally or any particular Plan.
The exchange offer is not being made to, nor will we accept surrenders of original notes for exchange from, incurrence)holders of original notes in any jurisdiction in which the cost (includingexchange offer or the costacceptance thereof would not be in compliance with the securities or blue sky laws of constructionsuch jurisdiction.
The distribution of this prospectus and the offer and sale of the exchange notes may be restricted by law in certain jurisdictions. Persons who come into possession of this prospectus or improvement)any of an itemthe exchange notes must inform themselves about and observe any such restrictions. You must comply with all applicable laws and regulations in force in any jurisdiction in which you purchase, offer or sell the exchange notes or possess or distribute this prospectus and, in connection with any purchase, offer or sale by you of Propertythe exchange notes, must obtain any consent, approval or permission required under the laws and regulations in force in any jurisdiction to which you are subject or in which you make such purchase, offer or sale.
In reliance on interpretations of the staff of the SEC set forth in no-action letters issued to third parties in similar transactions, we believe that the exchange notes issued in the exchange offer in exchange for the original notes may be offered for resale, resold and otherwise transferred by holders without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the exchange notes are acquired in the ordinary course of business, the principal amount of which Indebtedness does not exceed the sum of
"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 named therein, Unitedholders’ business and the Equity Investor.
"Redeemable Dividend" means, forholders are not engaged in and do not intend to engage in and have no arrangement or understanding with any dividend orperson to participate in a distribution with regard to Disqualified Capital Stock,(within the quotientmeaning 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 issuerSecurities Act) of such 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 or a Restricted Subsidiary 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:
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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 such Indebtedness being refunded, refinanced or extended and (c) the amount of customary fees, expenses and costs related to the incurrence of such Refinancing Indebtedness, and
"Representative" means (a) so long as the Senior Credit Facility remains outstanding or any commitments thereunder remain in effect, the agent (or if there is more than one agent therefor, the administrative agent for the lender parties thereunder) and (b) thereafter the agent, indenture trustee, other trustee or other representative for any Senior Indebtedness.
"Restricted Payment" means any of the following:
For purposes of determining the amount expended for Restricted Payments, cash distributed or invested shall be valued at the face amount thereof 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:
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additional Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on Additional Indebtedness" covenant and
United shall 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 such Restricted Subsidiary to such Person in contemplation of such leasing.
"S&P" means Standard & Poor's Corporation and its successors.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"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 thereto, Bank of America, N.A. (formerly known as NationsBank, N.A.), as the Swing Line Bank and the Initial Issuing Bank thereunder, Bank of America, N.A. (formerly known as NationsBanc), Montgomery Securities LLC and Morgan Stanley Senior Funding, Inc., as the Co-Arrangers therefor, Canadian Imperial Bank of Commerce, as Documentation Agent therefor, Morgan Stanley Senior Funding, Inc., as Syndication Agent thereunder, NationsBanc Montgomery Securities LLC, as Lead Arranger and Book Manager therefor, and NationsBank, N.A., as Administrative Agent for the lender parties thereunder, together with all "Loan Documents" as defined therein and all other documents related thereto (including, without limitation, any notes, guarantee agreements, security documents and Interest Rate Agreements), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, renewing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding Subsidiaries of United as additional borrowers or guarantors thereunder), in whole or in part, all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders or other party thereto.
"Senior Indebtedness" means the principal of and premium, if any, and interest (including, without limitation, Accrued Bankruptcy 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
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Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness will not include
"Series B Indenture" means an indenture, dated as of March 24, 1999, between United and State Street Bank and Trust Company (n/k/a U.S. Bank National Association).
"Series B notes" means 97/8% Series B Senior Subordinated Notes due 2009 of United issued under the Series B Indenture.holder that is
"Subsidiary" of any specified Person means any corporation, partnership, limited liability company, joint venture, association or other business entity, whether now existing or hereafter organized or acquired,
"Temporary Cash Investments" means
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"THL" means Thomas H. Lee Partners, L.P., Thomas H. Lee Equity Fund IV, L.P. and Thomas H. Lee Equity Fund V, L.P.
"THL Fees" means
"THL Group Member" means THL and any Affiliate thereof (including any equity fund advised by any such Affiliate) (other than any of their portfolio companies).
"Unrestricted Subsidiary" of any Person means
The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such 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
The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if
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Any such designation by the Board of Directors shall be evidenced by the board resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions.
The Trustee shall be given prompt notice by United of each board resolution of United under this provision, together with a copy of each such resolution adopted.
"Wholly-Owned Subsidiary" of a specified Person means any Subsidiary (or, if such specified Person is United, a Restricted Subsidiary), all of the outstanding voting securities (other than directors' qualifying shares) of which are owned, directly or indirectly, by such Person.
Book-Entry, Delivery and Form
The Global Notes
Initially, the notes will be represented by one or more registered notes in global form, without interest coupons (collectively, the "Global Notes"). The Global Notes will be deposited upon issuance with, or on behalf of, The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee of DTC, or will remain in the custody of the Trustee pursuant to the FAST Balance Certificate Agreement between DTC and the Trustee.
Except as set forth below, the Global Notes may be transferred, in whole and not in part, solely 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 Series D notes in physical, certificated form ("Certificated Notes") except in the limited circumstances described below.
All interests in the Global Notes, including those held through Euroclear Bank S.A./N.V., as operator of the Euroclear System ("Euroclear"), or Clearstream Banking, S.A. ("Clearstream"), may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Clearstream may also be subject to the procedures and requirements of such systems.
Certain Book-Entry Procedures for the Global Notes
The descriptions of the operations and procedures of DTC, Euroclear and Clearstream set forth below are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and, are subject to change by them from time to time. United does not take any responsibility for these operations or procedures, and noteholders are urged to contact the relevant system or its participants directly to discuss these matters.
DTC has advised United that it is (1) a limited purpose trust company organized under the laws of the State of New York, (2) a "banking organization" within the meaning of the New York Banking Law, (3) a member of the Federal Reserve System, (4) a "clearing corporation" within the meaning of the Uniform Commercial Code, as amended, and (5) a "clearing agency" registered pursuant to Section 17A of the Exchange Act. DTC was created to hold securities for its participants (collectively, the "Participants") and facilitates the clearance and settlement of securities transactions between Participants through electronic book-entry changes to the accounts of its Participants, thereby eliminating the need for physical transfer and delivery of certificates. DTC's Participants include securities brokers and dealers (including the initial purchasers), banks and trust companies, clearing corporations and certain other organizations. Indirect access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Investors who are not Participants may beneficially own securities held by or on behalf of DTC only through Participants or Indirect Participants.
United expects that pursuant to procedures established by DTC (1) upon deposit of each Global Note, DTC will credit the accounts of Participants designated by the initial purchasers with an interest
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in the Global Note and (2) ownership of the notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the interests of Participants) and the records of Participants and the Indirect Participants (with respect to the interests of persons other than Participants).
The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Accordingly, the ability to transfer interests in the notes represented by a Global Note to such persons may be limited. In addition, because DTC can act only on behalf of its Participants, who in turn act on behalf of persons who hold interests through Participants, the ability of a person having an interest in notes represented by a Global Note to pledge or transfer such interest to persons or entities that do not participate in DTC's system, or to otherwise take actions in respect of such interest, may be affected by the lack of a physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the notes represented by the Global Note for all purposesRule 405 under the Indenture. Except as provided below, owners of beneficial interests in Securities Act; or
Payments with respect to the principal of, and premium, if any, and interest on, any notes represented by a Global Note registered in the name of DTC or its nominee on the applicable record date will be payable by the Trustee to or at the direction of DTC or its nominee in its capacity as the registered holder of the Global Note representing such notes under the Indenture. Under the terms of the Indenture, United and the Trustee may treat the persons in whose names the notes, including the Global Notes, are registered as the owners thereof for the purpose ofAll broker-dealers receiving payment thereon and for any and all other purposes whatsoever. Accordingly, neither United nor the Trustee has or will have any responsibility or liability for the payment of such amounts to owners of beneficial interests in a Global Note (including principal, premium, if any, and interest). Payments by the Participants and the Indirect Participants to the owners of beneficial interests in a Global Note will be governed by standing instructions and customary industry practice and will be the responsibility of the Participants or the Indirect Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds. Transfers between participants in Euroclear or Clearstream 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, cross-market transfers between the Participants in DTC, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary; however, such cross-market transactions
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will require delivery of instructions to Euroclear or Clearstream, 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 Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Notes in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositaries for Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a Participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. Cash received in Euroclear or Clearstream as a result of sales of interest in a Global Security by or through a Euroclear or Clearstream participant 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 Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC's settlement date.
Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures to facilitate transfers of interests in the Global Notes among participants in DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. Neither United nor the Trustee will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.
Certificated Notes
If (1) United notifies the Trustee in writing that DTC is no longer willing or able to act as a depositary or DTC ceases to be registered as a clearing agency under the Exchange Act and a successor depositary is not appointed within 90 days of such notice or cessation, (2) United, at its option, notifies the Trustee in writing that it elects to cause the issuance of notes in definitive form under the Indenture or (3) upon the occurrence of certain other events as provided in the Indenture, then, upon surrender by DTC of the Global Notes, Certificated Notes will be issued to each person that DTC identifies as the beneficial owner of the notes represented by the Global Notes. Upon any such issuance, the Trustee is required to register such Certificated Notes in the name of such person or persons (or the nominee of any thereof) and cause the same to be delivered thereto. Transfers of Certificated Notes must be made in compliance with any transfer restrictions.
Neither United nor the Trustee shall be liable for any delay by DTC or any Participant or Indirect Participant in identifying the beneficial owners of the related notes and each such person may conclusively rely on, and shall be protected in relying on, instructions from DTC for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of the notes to be issued).
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material U.S. federal income tax consequences of the acquisition, ownership and disposition of the Series D notes, but does not purport to be a complete analysis of all the potential tax considerations. Except as otherwise required by the context, references to the "notes" refer to the Series D notes offered by this prospectus. This summary is based upon the Internal Revenue Code of 1986, the Treasury Department regulations promulgated or proposed thereunder and administrative and judicial interpretations thereof, all as of the date hereof and all of which are subject to change, possibly on a retroactive basis. This summary is limited to the tax consequences of those persons who are original beneficial owners of the notes, who purchase notes at their original issue price for cash and who hold such notes as capital assets within the meaning of Section 1221 of the Code ("Holders"). This summary does not purport to deal with all aspects of U.S. federal income taxation that might be relevant to particular Holders in light of their particular investment circumstances or status, nor does it address specific tax consequences that may be relevant to particular persons (including, for example, financial institutions, broker-dealers, insurance companies, tax-exempt organizations and persons that have a functional currency other than the U.S. Dollar or persons in special situations, such as those who have elected to mark securities to market or those who hold notes as part of a straddle, hedge, conversion transaction or other integrated investment). In addition, this summary does not address U.S. federal alternative minimum tax consequences or consequences under the tax laws of any state, local or foreign jurisdiction. We have not sought any ruling from the Internal Revenue Service (the "IRS") with respect to the statements made and the conclusions reached in this summary, and we cannot assure you that the IRS will agree with such statements and conclusions.
Because the consequences of holding notes may be impacted by the particular set of facts and circumstances that apply to a noteholder, we recommend that each noteholder consult their tax advisors concerning the U.S. federal income taxation and other tax consequences to them of acquiring, owning, exchanging and disposing of the notes, as well as the application of state, local and foreign income and other tax laws.
U.S. Federal Income Taxation of U.S. Holders
The following summary is limited to the U.S. federal income tax consequences relevant to a Holder that is (1) a citizen or individual resident of the United States; (2) a corporation or other entity taxable as a corporation created or organized under the laws of the United States or any political subdivision thereof; (3) an estate, the income of which is subject to U.S. federal income tax regardless of the source or (4) a trust, if a court within the United States is able to exercise primary supervision over the trust's administration and one or more U.S. persons have the authority to control all its substantial decisions or if a valid election to be treated as a U.S. person is in effect with respect to such trust (a "U.S. Holder").
A "Non-U.S. Holder" is a Holder that is neither a U.S. Holder nor a partnership for U.S. federal income tax purposes.
A partnership for U.S. federal income tax purposes is not subject to income tax on income derived from holding the notes. A partner of the partnership may be subject to tax on such income under rules similar to the rules for U.S. Holders or non-U.S. Holders depending on whether (1) the partner is a U.S. or a non-U.S. person, and (2) the partnership is or is not engaged in a U.S. trade or business to which income or gain from the notes is effectively connected. If you are a partner of a partnership acquiring the notes, you are encouraged to consult your tax advisor about the U.S. federal income tax consequences of holding and disposing of the notes.
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Payment of Interest
The semi-annual payments of interest on the notes will be "qualified stated interest," and will generally be includable in the income of a U.S. Holder in accordance with the U.S. Holder's regular method of accounting for U.S. federal income tax purposes.
Disposition of Notes
Upon the sale, exchange redemption or other disposition of a note, a U.S. Holder generally will recognize taxable gain or loss equal to the difference between (1) the sum of cash plus the fair market value of all other property received on such disposition (except to the extent such cash or property is attributable to accrued but unpaid interest, which is treated as interest as described above) and (2) such Holder's adjusted tax basis in the note. A U.S. Holder's adjusted tax basis in a note generally will equal the cost of the note to such Holder, less any principal payments received by such Holder.
Gain or loss recognized on the disposition of a note generally will be capital gain or loss, and will be long-term capital gain or loss if, at the time of such disposition, the U.S. Holder's holding period for the note is more than 12 months. The maximum federal long-term capital gain rate is 20% for noncorporate U.S. Holders and 35% for corporate U.S. Holders. The deductibility of capital losses by U.S. Holders is subject to limitations.
Exchange of Notes
The exchange of Series B or C notes for Series D notes in the exchange offer will not constitute a taxable event for U.S. Holders. Consequently, a U.S. Holder will not recognize gain upon receipt of a Series D note in exchange for Series B or C notes in the exchange offer, the U.S. Holder's basis in the Series D note received in the exchange offer will be the same as its basis in the corresponding Series B or C note immediately before the exchange and the U.S. Holder's holding period in the Series D note will include its holding period in the Series B or C note.
We are obligated to pay additional interest on the Series C notes under certain circumstances described under "The Exchange Offer—Purpose and Effect of the Exchange Offer." Although the matter is not free from doubt, such additional interest should be taxable as ordinary income at the time it accrues or is received in accordance with the U.S. Holder's regular method of accounting for federal income tax purposes. It is possible, however, that the IRS may take a different position, in which case the timing and amount of income inclusion may be different from that described above. U.S. Holders are encouraged to consult their own tax advisors about payments of additional interest.
U.S. Federal Income Taxation of Non-U.S. Holders
Payment of Interest
Subject to the discussion of backup withholding below, payments of principal and interest on the notes by us or any of our agents to a Non-U.S. Holder will not be subject to U.S. federal withholding tax, provided that:
127
"U.S. person" (as defined in the Code) and provides its name and address, or (b) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "financial institution") and holds the notes on behalf of the beneficial owner certifies to us or our agent, under penalties of perjury, that such a statement has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and furnishes us with a copy thereof (the "Portfolio Interest Exemption").
If a Non-U.S. Holder cannot satisfy the requirements of the Portfolio Interest Exemption, payments of interest made to such Non-U.S. Holder will be subject to a 30% withholding tax unless the beneficial owner of the note provides us or our agent, as the case may be, with a properly executed:
The certificationprospectus delivery requirement described above also may require a non-U.S. Holder that provides an IRS form, or that claims a Treaty Exemption, to provide its U.S. taxpayer identification number. The applicable regulations generally also require, in the case of a note held by a foreign partnership, that:
Further, a look-through rule will apply in the case of tiered partnerships.
We encourage you to consult your tax advisor about the specific methods for satisfying these requirements. A claim for exemption will not be valid if the person receiving the applicable form has actual knowledge that the statements on the form are false.
If interest on the note is effectively connected with a U.S. trade or business of the beneficial owner, the Non-U.S. Holder, although exempt from the withholding tax described above, will be subject to U.S. federal income tax on such interest on a net income basis in the same manner as if it were a U.S. Holder. In addition, if such Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits for the taxable year, subject to adjustments. For this purpose, interest on a note will be included in such foreign corporation's earnings and profits.
Disposition of Notes
No withholding of U.S. federal income tax will be required with respect to any gain or income realized by a Non-U.S. Holder upon the sale, exchange or disposition of a note.
A Non-U.S. Holder will not be subject to U.S. federal income tax on gain realized on the sale, exchange or other disposition of a note unless (1) the Non-U.S. Holder is an individual who is present in the United States for a period or periods aggregating 183 or more days in the taxable yearresales of the disposition and certain other conditions are met, (2) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law applicable to certain U.S. expatriates or (3) such gain or income is effectively connected with a U.S. trade or business.
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Exchange of Notes
The exchange of Series B or C notes for Series D notes in thenotes. Each broker-dealer receiving exchange offer will not constitute a taxable event for a Non-U.S. Holder for U.S. federal income tax purposes.
Information Reporting and Backup Withholding
U.S. Holders
For each calendar year in which the notes are outstanding, we are required to provide the IRS with certain information, including the beneficial owner's name, address and taxpayer identification number, the aggregate amount of interest paid to that beneficial owner during the calendar year and the amount of tax withheld, if any. This obligation, however, does not apply with respect to certain payments to U.S. Holders, including corporations and tax-exempt organizations, provided that they establish entitlement to an exemption.
In the event that a U.S. Holder subject to the reporting requirements described above fails to supply its correct taxpayer identification number in the manner required by applicable law or underreports its tax liability, we, our agents or paying agents or a broker may be required to "backup" withhold a tax at a rate of up to 30% of each payment of interest and principal (and premium or liquidated damages, if any) on the notes. This backup withholding is not an additional tax and may be credited against the U.S. Holder's U.S. federal income tax liability, provided that the required information is furnished to the IRS.
Non-U.S. Holders
Under current Treasury Regulations, U.S. backup withholding tax will not apply to payments on a note to a Non-U.S. Holder if the statement described in "U.S. Federal Income Taxation of Non-U.S. Holders—Payment of Interest" is duly provided by such Holder or the Holder otherwise establishes an exemption, provided that the payor does not have actual knowledge that the Holder is a U.S. person or that the conditions of any claimed exemption are not satisfied. Certain information reporting may still apply to interest payments even if an exemption from backup withholding is established.
Generally, information reporting requirements and backup withholding tax will not apply to any payment of the proceeds of the sale of a note effected outside the United States by a foreign office of a "broker" (as defined in applicable Treasury regulations), unless the broker is (1) a U.S. person; (2) a foreign person that derives 50% or more of its gross income for certain periods from activities that are effectively connected with the conduct of a trade or business in the United States; (3) a controlled foreign corporation for U.S. federal income tax purposes; or (4) a foreign partnership more than 50% of the capital or profits of which is owned by one or more U.S. persons or which engages in a U.S. trade or business. Payment of the proceeds of any such sale effected outside the United States by a foreign office of any broker that is described in (1), (2), (3) or (4) of the preceding sentence will generally not be subject to backup withholding tax, but will be subject to information reporting requirements unless such broker has documentary evidence in its records that the beneficial owner is a non-U.S. Holder and certain other conditions are met or the beneficial owner otherwise establishes an exemption. Payment of the proceeds of any such sale to or through the U.S. office of a broker is subject to information reporting and backup withholding requirements, unless the beneficial owner of the note provides the statement described in "U.S. Federal Income Taxation of Non-U.S. Holders—Payment of Interest" or otherwise establishes an exemption.
Each participating broker-dealer that receives Series D notes for its own account pursuant toin the exchange offer must acknowledgerepresent that it will deliver a prospectus in connection with any resale of such Series D notes. This prospectus, as it maythe original notes to be amended or supplemented from time to time, may be used by a participating broker-dealer in connection with resales ofexchanged for the exchange notes received in exchange for outstanding notes where such outstanding notes were acquired by it as a result of market-making activities or other trading activities.activities and acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any offer to resell, resale or other retransfer of the exchange notes pursuant to the exchange offer. However, by so acknowledging and by delivering a prospectus, the participating broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. We have agreed that, for a period of 180 days after the consummation of the exchange offer, subject to extension under limited circumstances, we will use all commercially reasonable efforts to keep the exchange offer registration statement effective and make this prospectus, as amended or supplemented, available to any participating broker-dealer for use in connection with any such resale.resales. To date, the SEC has taken the position that broker-dealers may use a prospectus such as this one to fulfill their prospectus delivery requirements with respect to resales of exchange notes received in an exchange such as the exchange pursuant to the exchange offer, if the original notes for which the exchange notes were received in the exchange were acquired for their own accounts as a result of market-making or other trading activities.
We will not receive any proceeds from any salessale of the Series Dexchange notes by participating broker-dealers. Series DBroker-dealers acquiring exchange notes received by participating broker-dealers for their own account pursuant toaccounts may sell the exchange offer may be sold from time to timenotes in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Series Dexchange 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 at 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 Series Dexchange notes.
Any participating broker-dealer that resells the Series Dheld original notes that were received by itacquired for its own account pursuant toas a result of market-making activities or other trading activities, that received exchange notes in the exchange offer, and any broker or dealer that participates in a distribution of such Series Dexchange notes may be deemed to be an "underwriter"“underwriter” within the meaning of the Securities Act and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the exchange notes. Any profit on any such resalethese resales of Series Dexchange notes and any commissions or concessions received by any such personsa broker-dealer in connection with these resales 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"“underwriter” within the meaning of the Securities Act.
For a period
We have agreed to pay all expenses incident to our participation in the exchange offer, including the reasonable fees and expenses of 180 days afterone counsel for the consummationholders of original notes and the initial purchasers, other than commissions or concessions of any broker-dealers and will indemnify holders of the original notes, including any broker-dealers, against specified types of liabilities, including liabilities under the Securities Act. We note, however, that in the opinion of the SEC, indemnification against liabilities under federal securities laws is against public policy and may be unenforceable.
The validity of the exchange offer we will promptly send additional copies of this prospectusnotes and any amendment or supplement to this prospectus to any participating broker-dealer that requests such documents in the letter of transmittal.
Certaincertain legal matters relating to the issuance of the Series D notes and the related guaranteesin connection with this offering will be passed upon on our behalffor us by KirklandJames T. Lucke, General Counsel of Spectrum, and by Cades Schutte LLP, Foley & Ellis, a partnership that includes professional corporations, Chicago, Illinois.Lardner LLP and Thompson Coburn LLP. Certain other legal matters relating to the issuance of the guarantees of the Series D notes by Ground Zero Inc. and Schultz Companyin connection with this exchange offer will be passed upon for us by Thompson CoburnSkadden, Arps, Slate, Meagher & Flom LLP. Certain legal matters relating to the issuance of the guarantees of the Series D notes by WPC Brands, Inc. will be passed upon by Reinhart Boerner Van Deuren S.C.
Our
The consolidated financial statements of Rayovac Corporation as of December 31, 2002September 30, 2004 and December 31, 2001,2003, and for each of the three years in the three-year period ended September 30, 2004, have been incorporated by reference herein and in the Registration Statement in reliance upon the report of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements incorporated in this Prospectus by reference to Rayovac’s Current Report on Form 8-K/A dated May 28, 2004 of Microlite S.A. for the year ended December 31, 2002, included in this prospectus2003 have been so includedincorporated in reliance on the report (which contains an explanatory paragraph relating to the Company's addition of certain guarantor information as described in Note 25 to the consolidated financial statements) of PricewaterhouseCoopers LLP,Auditores Independentes, an independent accountants,registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements incorporated in this Prospectus by reference to Rayovac’s Current Report on Form 8-K dated April 27, 2005 of the Schultz Company and its subsidiary as of September 30, 2001, andUnited Industries Corporation for the year then ended included in this prospectusDecember 31, 2004 have been so includedincorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent accountants,registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
The financial statements incorporated in this Prospectus by reference to Rayovac’s Current Report on Form 8-K/A dated February 7, 2005 of United Pet Group, Inc. for the year ended December 31, 2003 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
We file annual, quarterly
The financial statements incorporated in this Prospectus by reference to Rayovac’s Current Report on Form 8-K dated April 27, 2005 of The Nu-Gro Corporation for the year ended September 30, 2003 have been so incorporated in reliance on the report of Ernst & Young LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and current reportsaccounting.
The consolidated financial statements of Tetra Holding (US), Inc. and other information withsubsidiary as of December 31, 2004 and for the SEC. In this document, we "incorporate by reference" the information that we file with the SEC, which means that we can disclose important information to you by referring to that information. The informationyear ended December 31, 2004 have been incorporated by reference is considered to be partherein and in the Registration Statement in reliance upon the report of this prospectus. We incorporateKPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
The following documents listed below as well as all future filings madewhich Rayovac has filed with the SEC under Sectionsthe Exchange Act are incorporated by reference in this prospectus:
All documents filed by us with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act untilsubsequent to the date of this exchange offer is completed:
We have agreed that, whether or not we are required to do so by the rules and regulationstermination of the SEC, for so long as any of the Series D notes remain outstanding, we will furnish the holders of the Series D notes and file with the SEC, unless the SEC will not accept the filing, following the consummation of the exchange offer, all annual, quarterly and current reports that we are or wouldoffering shall also be requireddeemed to file with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.
You can also inspect, read and copy these reports and other information at the public reference facilities the SEC maintains at: Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. You can obtain information on the operation of the public reference facilities by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site (http://www.sec.gov) that makes available reports and other information regarding companies that file electronically with it.
In addition, we will provide you without charge copies of our annual, quarterly and current reportsbe incorporated by reference ininto this prospectus (otherand to be a part hereof from the date of filing of such documents. Any statement herein or in a document incorporated or deemed to be incorporated herein by reference shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in any subsequently filed document which also is incorporated or deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus.
We will provide, without charge, to each person to whom a copy of this prospectus is delivered, upon request of such person, a copy of any documents incorporated into this prospectus by reference other than exhibits to such reportsthereto unless such exhibits are specifically incorporated by reference therein)in the document that this prospectus incorporates. Requests for such copies should be directed to Spectrum, care of Vice President, Investor Relations, Spectrum Brands, Inc., our Series D notes and the Series D indenture. You may request copies of these reports and documentsSix Concourse Parkway, Suite 3300, Atlanta, Georgia 30328, via electronic mail atinvestorrelations@spectrumbrands.com, or by contacting us at: United Industries Corporation, 2150 Schuetz Road, St. Louis, Missouri 63146, Attention: Legal Department; (314) 427-0780.the Vice President, Investor Relations at 770-829-6200.
If you would likeAVAILABLE INFORMATION
We are subject to request any of these reports or documents, please do so at least five days before you make your decision to exchange your notes.
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F-1
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directorsthe reporting and Stockholders ofUnited Industries Corporation and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income, of cash flows, and of changes in stockholders' deficit present fairly, in all material respects, the financial position of United Industries Corporation and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for eachother information requirements of the three years inExchange Act and file annual, quarterly and current reports, proxy statements and other information with the period ended December 31, 2002 in conformitySEC. Such reports, proxy statements and other information filed by us may be inspected and copied at the public reference facility maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call 1-800-SEC-0330 for further information on the public reference room. The SEC maintains a site on the World Wide Web containing reports, proxy materials, information statements and other information regarding issuers that file electronically with accounting principles generally accepted in the United States of America. These financialSEC at www.sec.gov. Spectrum’s reports, proxy statements areand other information can also be inspected and copied at the responsibilityoffices of the Company's management;New York Stock Exchange, on which our responsibilitycommon stock is to express an opinionlisted (symbol: SPC). We maintain a site on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which requireWorld Wide Web containing information that we plan and performfile with the auditSEC at www.spectrumbrands.com.
Spectrum Brands, Inc.
Offer 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.Exchange
The Company has revised its financial statements to include the information set forth in Note 25 that is required by Rule 3-10 of Securities and Exchange Commission Regulation S-X regarding the guarantee of the Company's
$700,000,000 7 3/8% Senior Subordinated Notes by the Company's subsidiaries.
/s/ PricewaterhouseCoopers LLP
St. Louis, MissouriFebruary 12, 2003, except for Note 25 which is as of April 29, 2003
F-2
UNITED INDUSTRIES CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Dollars in thousands, except share data)
| | December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | |||||||
| ASSETS | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 10,318 | $ | — | |||||
| Accounts receivable, less allowance for doubtful accounts of $3,171 and $1,147, respectively | 23,321 | 21,585 | |||||||
| Inventories | 87,762 | 49,092 | |||||||
| Prepaid expenses and other current assets | 11,350 | 6,491 | |||||||
| Total current assets | 132,751 | 77,168 | |||||||
| Equipment and leasehold improvements, net | 34,218 | 27,930 | |||||||
| Deferred tax asset | 105,141 | 112,505 | |||||||
| Goodwill and intangible assets, net | 100,868 | 43,116 | |||||||
| Other assets, net | 13,025 | 11,837 | |||||||
| Total assets | $ | 386,003 | $ | 272,556 | |||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||||
| Current liabilities: | |||||||||
| Current maturities of long-term debt and capital lease obligation | $ | 9,665 | $ | 5,711 | |||||
| Accounts payable | 27,063 | 23,459 | |||||||
| Accrued expenses | 45,221 | 34,006 | |||||||
| Short-term borrowings | — | 23,450 | |||||||
| Total current liabilities | 81,949 | 86,626 | |||||||
| Long-term debt, net of current maturities | 391,493 | 318,386 | |||||||
| Capital lease obligation, net of current maturities | 3,778 | 4,221 | |||||||
| Other liabilities | 5,019 | 7,740 | |||||||
| Total liabilities | 482,239 | 416,973 | |||||||
| Commitments and contingencies | |||||||||
| Stockholders' deficit: | |||||||||
| Preferred stock (37,600 shares of $0.01 par value Class A issued and outstanding, 40,000 shares authorized) | — | — | |||||||
| Common stock (33.1 million shares each of $0.01 par value Class A and Class B issued and outstanding, 43.6 million shares of each authorized at December 31, 2002; 27.7 million shares of each issued and outstanding and 37.6 million shares of each authorized at December 31, 2001) | 664 | 556 | |||||||
| Warrants and options | 11,745 | 11,745 | |||||||
| Additional paid-in capital | 210,480 | 152,943 | |||||||
| Accumulated deficit | (287,592 | ) | (306,048 | ) | |||||
| Common stock subscription receivable | (25,761 | ) | — | ||||||
| Common stock repurchase option | (2,636 | ) | — | ||||||
| Common stock held in grantor trust | (2,700 | ) | (2,700 | ) | |||||
| Loans to executive officer | (404 | ) | (400 | ) | |||||
| Accumulated other comprehensive loss | (32 | ) | (513 | ) | |||||
| Total stockholders' deficit | (96,236 | ) | (144,417 | ) | |||||
| Total liabilities and stockholders' deficit | $ | 386,003 | $ | 272,556 | |||||
See accompanying notes to consolidated financial statements.
F-3
UNITED INDUSTRIES CORPORATION AND SUBISIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(Dollars in thousands)
| | Years Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | |||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS: | ||||||||||
| Net sales before promotion expense | $ | 521,286 | $ | 297,776 | $ | 288,618 | ||||
| Promotion expense | 41,296 | 24,432 | 22,824 | |||||||
| Net sales | 479,990 | 273,344 | 265,794 | |||||||
| Operating costs and expenses: | ||||||||||
| Cost of goods sold | 305,644 | 148,371 | 146,229 | |||||||
| Selling, general and administrative expenses | 113,162 | 74,689 | 69,099 | |||||||
| Facilities and organizational rationalization | — | 5,550 | — | |||||||
| Dursban related expenses | — | — | 8,000 | |||||||
| Total operating costs and expenses | 418,806 | 228,610 | 223,328 | |||||||
| Operating income | 61,184 | 44,734 | 42,466 | |||||||
| Interest expense, net | 32,410 | 35,841 | 40,973 | |||||||
| Income before income tax expense | 28,774 | 8,893 | 1,493 | |||||||
| Income tax expense | 3,438 | 2,167 | 134 | |||||||
| Net income | $ | 25,336 | $ | 6,726 | $ | 1,359 | ||||
| Preferred stock dividends | $ | 6,880 | $ | 2,292 | $ | 320 | ||||
| Net income available to common stockholders | $ | 18,456 | $ | 4,434 | $ | 1,039 | ||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME: | ||||||||||
| Net income | $ | 25,336 | $ | 6,726 | $ | 1,359 | ||||
| Other comprehensive income, net of tax: | ||||||||||
| Income (loss) on interest rate swap | 513 | (513 | ) | — | ||||||
| Loss on derivative hedging instruments | (32 | ) | — | — | ||||||
| Comprehensive income | $ | 25,817 | $ | 6,213 | $ | 1,359 | ||||
See accompanying notes to consolidated financial statements.
F-4
UNITED INDUSTRIES CORPORATION AND SUBISIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Dollars in thousands)
| | Years Ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | |||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net income | $ | 25,336 | $ | 6,726 | $ | 1,359 | ||||||||
| Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||||||||
| Depreciation and amortization | 10,240 | 4,918 | 5,261 | |||||||||||
| Amortization of deferred financing fees | 3,280 | 2,691 | 2,420 | |||||||||||
| Deferred income tax expense | 3,438 | 2,167 | 134 | |||||||||||
| Noncash reduction of capital lease obligation | — | — | (1,182 | ) | ||||||||||
| Changes in operating assets and liabilities, net of effects from acquisitions: | ||||||||||||||
| Accounts receivable | 26,579 | (1,641 | ) | (779 | ) | |||||||||
| Inventories | (19,894 | ) | (2,085 | ) | 6,236 | |||||||||
| Prepaid expenses and other current assets | (3,283 | ) | (134 | ) | (716 | ) | ||||||||
| Other assets | 5,995 | 9 | (137 | ) | ||||||||||
| Accounts payable and accrued expenses | (6,162 | ) | 11,126 | (7,869 | ) | |||||||||
| Facilities and organizational rationalization charge | (3,216 | ) | 5,158 | — | ||||||||||
| Dursban related expenses | (82 | ) | (5,984 | ) | 6,066 | |||||||||
| Other operating activities, net | (4,373 | ) | 2,084 | — | ||||||||||
| Net cash flows from operating activities | 37,858 | 25,035 | 10,793 | |||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Purchases of equipment and leasehold improvements | (6,450 | ) | (7,916 | ) | (3,950 | ) | ||||||||
| Purchase of facilities and equipment from Pursell | (4,000 | ) | — | — | ||||||||||
| Payments for purchase of fertilizer brands | — | (37,500 | ) | — | ||||||||||
| Payments for Schultz merger, net of cash acquired | (38,300 | ) | — | — | ||||||||||
| Payments for WPC Brands acquisition, net of cash acquired | (19,500 | ) | — | — | ||||||||||
| Net cash flows used for investing activities | (68,250 | ) | (45,416 | ) | (3,950 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||||
| Proceeds from additional term debt | 90,000 | 8,450 | 15,000 | |||||||||||
| Repayment (borrowings) on cash overdraft | (5,620 | ) | 945 | 4,103 | ||||||||||
| Repayment of debt assumed in Schultz merger | (20,577 | ) | — | — | ||||||||||
| Repayment of borrowings on term debt | (14,943 | ) | (10,983 | ) | (26,888 | ) | ||||||||
| Repayments of short-term borrowings | (23,450 | ) | — | — | ||||||||||
| Payments for debt issuance costs | (4,700 | ) | — | (1,883 | ) | |||||||||
| Proceeds from issuance of common stock | 17,500 | — | — | |||||||||||
| Payments received for common stock subscription receivable | 2,500 | — | — | |||||||||||
| Payments for treasury stock redemption costs | — | — | (12,175 | ) | ||||||||||
| Proceeds from issuance of preferred stock | — | 21,969 | 15,000 | |||||||||||
| Net cash flows from (used for) financing activities | 40,710 | 20,381 | (6,843 | ) | ||||||||||
| Net increase in cash and cash equivalents | 10,318 | — | — | |||||||||||
| Cash and cash equivalents, beginning of period | — | — | — | |||||||||||
| Cash and cash equivalents, end of period | $ | 10,318 | $ | — | $ | — | ||||||||
| Noncash financing activities: | ||||||||||||||
| Common stock issued related to Schultz merger | $ | 6,000 | $ | — | $ | — | ||||||||
| Common stock issued related to Bayer agreements | $ | 30,720 | $ | — | $ | — | ||||||||
| Debt assumed in Schultz merger | $ | 20,577 | $ | — | $ | — | ||||||||
| Preferred stock dividends accrued | $ | 6,880 | $ | 2,292 | $ | 320 | ||||||||
| Execution of capital lease | $ | — | $ | — | $ | 5,344 | ||||||||
See accompanying notes to consolidated financial statements.
F-5
UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(Dollars in thousands)
| | Class A Nonvoting Preferred Stock | Class A Voting Common Stock | Class B Nonvoting Common Stock | | | | | | | | | | | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Warrants and Options | | | Common Stock Subscription Receivable | Common Stock Repurchasing Option | Common Stock Held Grantor Trust | | Accumulated Other Comprehensive Loss | | ||||||||||||||||||||||||||||||||||||
| | Additional Paid-in Capital | Accumulated Deficit | Loans to Executive Officer | Total Stockholders' Deficit | |||||||||||||||||||||||||||||||||||||||||
| | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2000 | — | $ | — | 27,650,000 | $ | 277 | 27,650,000 | $ | 277 | — | $ | — | $ | 126,865 | $ | (311,521 | ) | $ | — | $ | — | $ | (2,700 | ) | $ | — | $ | — | $ | (186,802 | ) | ||||||||||||||
| Net income | — | — | — | — | — | — | — | — | — | 1,359 | — | — | — | — | — | 1,359 | |||||||||||||||||||||||||||||
| Issuance of preferred stock and common stock warrants | 15,000 | — | — | — | — | — | 3,200 | 2,784 | 12,216 | — | — | — | — | — | — | 15,000 | |||||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | — | — | — | — | — | — | (320 | ) | — | — | — | — | — | (320 | ) | |||||||||||||||||||||||||||
| Balance at December 31, 2000 | 15,000 | — | 27,650,000 | 277 | 27,650,000 | 277 | 3,200 | 2,784 | 139,081 | (310,482 | ) | — | — | (2,700 | ) | — | — | (170,763 | ) | ||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | — | 6,726 | — | — | — | — | — | 6,726 | |||||||||||||||||||||||||||||
| Issuance of common stock | — | — | 71,000 | 1 | 71,000 | 1 | — | — | (2 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
| Issuance of common stock options | — | — | — | — | — | — | 600 | 456 | — | — | — | — | — | — | — | 456 | |||||||||||||||||||||||||||||
| Issuance of preferred stock and common stock warrants | 22,600 | — | — | — | — | — | 6,300 | 8,505 | 13,464 | — | — | — | — | — | — | 21,969 | |||||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | — | — | — | — | — | — | (2,292 | ) | — | — | — | — | — | (2,292 | ) | |||||||||||||||||||||||||||
| Loan to executive officer | — | — | — | — | — | — | — | — | 400 | — | — | — | — | (400 | ) | — | — | ||||||||||||||||||||||||||||
| Unrealized loss on interest rate swap, net of taxes | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (513 | ) | (513 | ) | |||||||||||||||||||||||||||
| Balance at December 31, 2001 | 37,600 | — | 27,721,000 | 278 | 27,721,000 | 278 | 10,100 | 11,745 | 152,943 | (306,048 | ) | — | — | (2,700 | ) | (400 | ) | (513 | ) | (144,417 | ) | ||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | — | 25,336 | — | — | — | — | — | 25,336 | |||||||||||||||||||||||||||||
| Issuance of common stock for Schultz acquisition and related financing | — | — | 2,290,000 | 24 | 2,290,000 | 24 | — | — | 22,866 | — | — | — | — | — | — | 22,914 | |||||||||||||||||||||||||||||
| Issuance of common stock | — | — | 60,000 | — | 60,000 | — | — | — | 600 | — | — | — | — | — | — | 600 | |||||||||||||||||||||||||||||
| Issuance of common stock to Bayer | — | — | 3,072,000 | 30 | 3,072,000 | 30 | — | — | 30,430 | — | (27,321 | ) | (2,636 | ) | — | — | — | 533 | |||||||||||||||||||||||||||
| Amendment to Bayer agreement | — | — | — | — | — | — | — | — | 3,641 | — | — | — | — | — | — | 3,641 | |||||||||||||||||||||||||||||
| Proceeds for subscription receivable, net of interest | — | — | — | — | — | — | — | — | — | — | 1,560 | — | — | — | — | 1,560 | |||||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | — | — | — | — | — | — | (6,880 | ) | — | — | — | — | — | (6,880 | ) | |||||||||||||||||||||||||||
| Loan to executive officer | — | — | — | — | — | — | — | — | — | — | — | — | — | (52 | ) | — | (52 | ) | |||||||||||||||||||||||||||
| Payment on loan to executive officer | — | — | — | — | — | — | — | — | — | — | — | — | — | 48 | — | 48 | |||||||||||||||||||||||||||||
| Realized loss on interest rate swap, net of taxes | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 513 | 513 | |||||||||||||||||||||||||||||
| Changes in fair value of derivative hedging instruments | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (32 | ) | (32 | ) | |||||||||||||||||||||||||||
| Balance at December 31, 2002 | 37,600 | $ | — | 33,143,000 | $ | 332 | 33,143,000 | $ | 332 | 10,100 | $ | 11,745 | $ | 210,480 | $ | (287,592 | ) | $ | (25,761 | ) | $ | (2,636 | ) | $ | (2,700 | ) | $ | (404 | ) | $ | (32 | ) | $ | (96,236 | ) | ||||||||||
See accompanying notes to consolidated financial statements.
F-6
UNITED INDUSTRIES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except share data)
Note 1—Description of Business
Under a variety of brand names, the Company manufactures and markets one of the broadest lines of pesticides in the industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents, fertilizer, growing media and soils. Our value brands are targeted toward consumers who want products and packaging that are comparable or superior to, and at lower prices than, premium price brands, while our opening price point brands are designed for conscious consumers who want quality products. Our products are marketed to mass merchandisers, home improvement centers, hardware chains, nurseries and garden centers.
As described further in Note 18, the Company's operations are divided into three business segments: Lawn and Garden, Household and Contract. The Company's lawn and garden brands include, among others, Spectracide®, Garden Safe®, Real-Kill® and No-Pest® in the controls category, as well as Sta-Green®, Vigoro®, Schultz® and Bandini® brands in the lawn and garden fertilizer and growing media categories. The Company's household brands include, among others, Hot Shot®, Cutter® and Repel®. The Contract segment represents non-core products and includes various compounds and chemicals such as, among others, charcoal, water purification tablets, first-aid kits, barbeque sauce, fish attractant, cleaning solutions and automotive products.
Note 2—Summary of Significant Accounting Policies
Basis of Consolidation$700,000,000 Senior Subordinated Notes due 2015
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated during consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. These investments are recorded at cost which approximates market value.
Inventories
Inventories are reported at the lower of cost or market. Cost is determined using a standard costing system that approximates the first-in, first-out method and includes raw materials, direct labor and overhead. An allowance for potentially obsolete or slow-moving inventory is recorded based on the Company's analysis of inventory levels and future sales forecasts. In the event that estimates of future usage and sales differ from actual results, the allowance for obsolete or slow-moving inventory may be adjusted. For the years ended December 31, 2002, 2001 and 2000, amounts recorded for potentially obsolete or slow-moving inventory were $5.4 million, $2.7 million and $0.3 million, respectively. As of
F-7
December 31, 2002 and 2001, the allowance for potentially obsolete or slow-moving inventory was $5.8 million and $2.7 million, respectively.
Capitalized Software Costs
Capitalized software costs are included in equipment and leasehold improvements in the accompanying consolidated balance sheets. Once the underlying assets are placed into service, costs are amortized using the straight-line method over periods of related benefit ranging from three to five years. As of December 31, 2002 and 2001, the Company had $4.4 million and $3.5 million, respectively, in unamortized capitalized software costs related primarily to the Company's enterprise resource planning (ERP) implementation, including capitalized internal costs in 2002 of $0.4 million. No internal costs were capitalized in 2001. The Company expects to place certain modules of the ERP system into service and begin recognizing amortization expense thereon in the fourth quarter of 2003 and finalize the implementation in 2004. Related amortization expense was $0.1 million during each of the years ended December 31, 2002, 2001 and 2000.
Equipment and Leasehold Improvements
Expenditures for equipment and leasehold improvements and those that substantially increase the useful lives of assets are capitalized and recorded at cost. 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 any related gains or losses are reflected in earnings. Depreciation is recorded using the straight-line method over management's estimate of the useful lives of the related 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 the shorter of the lease term or the useful life of the related asset which generally ranges from five to thirty-nine years. Property held under capital lease is amortized over the term of the lease.
Goodwill and Intangible Assets
The Company has acquired intangible assets or made acquisitions in the past that resulted in the recording of goodwill or intangible assets. Under generally accepted accounting principles previously in effect, these assets were amortized over their estimated useful lives, and were tested periodically to determine if they were recoverable from operating earnings on an undiscounted basis over their useful lives. Beginning in 2002, the Company ceased to amortize goodwill but evaluates it annually for impairment as part of its annual planning process, or if events or changes in circumstances indicate the carrying amount may not be recoverable. If recovery is not reasonably assured, an appropriate adjustment using current market values, estimates of discounted future cash flows and other methods is made. Prior to 2002, goodwill was amortized using the straight-line method over 40 years and recorded in selling, general and administrative expenses (see Note 7).
Long-Lived Assets
On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long lived assets to be disposed of and supersedes SFAS
F-8
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance with SFAS No. 144, the Company periodically evaluates the recoverability of long-lived assets, including equipment and leasehold improvements for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If a review indicates that the carrying value of such asset is not recoverable based on its undiscounted future cash flows, a loss is recognized for the difference between the fair value of the asset and its carrying value. Adoption of SFAS No. 144 did not have a material impact on the Company's consolidated financial statements.
Derivative Instruments and Hedging Activities
The Company periodically uses interest rate and commodity price derivative hedging instruments to reduce fluctuations in cash flows. Using these agreements, the Company agrees to exchange, at specified intervals, the difference between fixed and variable amounts calculated by reference to an agreed-upon notional amount or index. Derivative hedging instruments are recorded in the consolidated balance sheets as assets or liabilities, as applicable, measured at fair value. The Company does not enter into derivatives or other hedging arrangements for trading or speculative purposes.
Revenue Recognition
Net sales represent gross sales less any applicable customer discounts from list price, customer returns and promotion expense through cooperative programs with retailers. The provision for customer returns is based on historical sales returns and analysis of credit memo and other relevant information. If the historical or other data used to develop these estimates do not properly reflect future returns, net sales may need to be adjusted. Sales reductions related to returns were $7.4 million, $6.5 million and $7.6 million for the years ended December 31, 2002, 2001 and 2000, respectively. Amounts included in the allowance for doubtful accounts for product returns were $2.0 million and $0.4 million as of December 31, 2002 and 2001, respectively.
Promotion Expense
The Company advertises and promotes its products through national and regional media. Products are also advertised and promoted through cooperative programs with retailers. Advertising and promotion costs are expensed as incurred, although costs incurred during interim periods are generally expensed ratably in relation to revenues. Management develops an estimate of the amount of costs that have been incurred by the retailers under cooperative programs based on an analysis of specific programs offered to retailers and historical information. Actual costs incurred may differ significantly from estimates if factors such as the level of participation and success of the retailers' programs or other conditions differ from expectations. Promotion expense, including cooperative programs with customers, is recorded as a reduction of sales and was $41.3 million, $24.4 million and $22.8 million for the years ended December 31, 2002, 2001 and 2000, respectively. Accrued advertising and promotion expense was $16.4 million and $12.1 million as of December 31, 2002 and 2001, respectively. In addition, advertising costs are incurred irrespective of promotions. Such costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and were $3.3 million, $1.3 million and $2.4 million for the years ended December 31, 2002, 2001 and 2000, respectively.
F-9
Research and Development
Research and development costs are expensed as incurred and are included in selling, general and administrative expenses in the accompanying consolidated statements of operations. For the years ended December 31, 2002, 2001 and 2000, research and development costs were $1.3 million, $2.4 million and $1.0 million, respectively.
Shipping and Handling Costs
Certain shipping and handling costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations. These costs primarily comprise personnel and other general and administrative costs associated with the Company's distribution facilities, and to a lesser extent, some costs related to goods shipped between the Company's facilities. For the years ended December 31, 2002, 2001 and 2000, these costs were $15.7 million, $13.4 million and $12.9 million, respectively. The remaining shipping and handling costs comprise those costs associated with goods shipped to customers and supplies received from vendors and are included in cost of goods sold in the accompanying consolidated statements of operations.
Stock-Based Compensation
The Company accounts for stock options issued to employees in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and applies the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," and SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123." Under APB No. 25 and related interpretations, compensation expense is recognized using the intrinsic value method for the difference between the exercise price of the options and the estimated fair value of the Company's common stock on the date of grant. See Note 19 for information regarding stock option activity during the years ended December 31, 2002, 2001 and 2000.
The following table presents net income, as reported, using the intrinsic value method and stock-based compensation included therein, stock-based compensation expense that would have been recorded using the fair value method and pro forma net income that would have been reported had the fair value method been applied:
| | Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | ||||||
| Net income, as reported | $ | 25,336 | $ | 6,726 | $ | 1,359 | |||
| Stock-based compensation expense includedin net income, as reported, net of tax | — | — | — | ||||||
| Stock-based compensation expense using the fair method, net of tax | 2,709 | 251 | 492 | ||||||
| Pro forma net income | 22,627 | 6,475 | 867 | ||||||
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
F-10
between the financial reporting basis and the tax basis of assets and liabilities at enacted tax rates expected to be in effect when such amounts are recovered or settled. Management judgment is required to determine income tax expense, deferred tax assets and any related valuation allowance and deferred tax liabilities. The Company has recorded a valuation allowance of $104.1 million as of December 31, 2002 due to uncertainties related to the ability to utilize some of the deferred tax assets, primarily consisting of certain net operating loss carryforwards generated in 1999 through 2002 and deductible goodwill recorded in connection with the Company's recapitalization in 1999. The valuation allowance is based on management's estimates of future taxable income by jurisdiction in which the deferred tax assets will be recoverable. In the event that actual results differ from those estimates, or the estimates are adjusted in future periods, the valuation allowance may need to be adjusted, which could materially impact the Company's consolidated financial position and results of operations.
Earnings Per Share
Earnings per share information is not required for presentation as the Company does not have publicly traded stock.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial conditions. The Company is dependent on three customers for the majority of its sales, as presented in the following table:
| | Years Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | |||||
| The Home Depot | 33 | % | 25 | % | 24 | % | ||
| Lowe's | 23 | % | 22 | % | 19 | % | ||
| Wal-Mart | 18 | % | 17 | % | 16 | % | ||
| Total | 74 | % | 64 | % | 59 | % | ||
As of December 31, 2002 and 2001, these three customers were responsible for 62% and 60% of accounts receivable, respectively.
Supplemental Cash Flow Information
During the years ended December 31, 2002, 2001 and 2000, the Company paid interest of $32.4 million, $36.0 million and $40.9 million, respectively, and recognized interest income (which is included in interest expense, net in the consolidated statements of operations) of $1.4 million, $0.1 million and $0.2 million, respectively. During the years ended December 31, 2002, 2001 and 2000, the Company paid income taxes of $0.6 million, $0.1 million and $0.2 million, respectively.
Reclassifications
Certain reclassifications have been made to the prior years' amounts to conform to the current year presentation. In addition, the Company has reclassified its borrowing on cash overdrafts to financing activities from operating activities.
F-11
Note 3—Acquisitions
Schultz Company
On May 9, 2002, a wholly owned subsidiary of the Company completed a merger with and into Schultz Company (Schultz), a manufacturer of horticultural products and specialty items and a distributor of potting soil, soil conditioners and charcoal. Schultz products are distributed primarily to retail outlets throughout the United States and Canada. The merger was executed to achieve economies of scale and synergistic efficiencies. As a result of the merger, Schultz became a wholly owned subsidiary of the Company. The total purchase price included cash payments of $38.3 million, including related acquisition costs of $5.0 million, issuance of 600,000 shares of Class A voting common stock valued at $3.0 million and issuance of 600,000 shares of Class B nonvoting common stock valued at $3.0 million and the assumption of $20.6 million of outstanding debt, which was immediately repaid by the Company at closing. In exchange for cash, common stock and the assumption of debt, the Company received all of the outstanding shares of Schultz. The Company has preliminarily allocated 50% of the purchase price in excess of the fair value of net assets acquired to intangible assets ($19.7 million) and 50% to goodwill ($19.7 million), which is not deductible for tax purposes. The acquired intangible assets consist of trade names and other intellectual property which are being amortized over 25 to 40 years. In addition, the Company was required to write-up the value of inventory acquired from Schultz by $1.5 million to properly reflect its fair value.
This transaction was accounted for using the purchase method of accounting and, accordingly, the results of operations of the assets acquired and liabilities assumed have been included in the consolidated financial statements from the date of acquisition. The purchase price was allocated to assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation is based on preliminary information, which is subject to adjustment upon obtaining complete valuation information. While the final purchase price allocation may differ significantly from the preliminary allocation included in this report, management believes that finalization of the allocation will not have a material impact on the consolidated results of operations or financial position of the Company. Completion of the purchase price allocation is expected by the second quarter of 2003.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition:
| Description | Amount | |||
|---|---|---|---|---|
| Current assets | $ | 40,856 | ||
| Equipment and leasehold improvements | 3,901 | |||
| Intangible assets | 20,632 | |||
| Goodwill | 19,744 | |||
| Other assets | 811 | |||
| Total assets acquired | 85,944 | |||
Current liabilities | 19,857 | |||
| Long-term debt | 20,662 | |||
| Other liabilities | 1,125 | |||
| Total liabilities assumed | 41,644 | |||
| Net assets acquired | $ | 44,300 | ||
F-12
The Company's funding sources for the Schultz merger included an additional $35.0 million add-on to Term Loan B of the Company's Senior Credit Facility (see Note 12), an additional $10.0 million add-on to the Company's Revolving Credit Facility, the issuance of 1,690,000 shares of Class A voting common stock to UIC Holdings, L.L.C. for $8.5 million and the issuance of 1,690,000 shares of Class B nonvoting common stock to UIC Holdings, L.L.C. for $8.5 million. The issuance of shares to UIC Holdings, L.L.C. was a condition precedent to the amendment of the Senior Credit Facility. The value of the shares issued was determined using $5 per share, the fair value of the Company's common stock ascribed by an independent third party valuation.
WPC Brands, Inc.
On December 6, 2002, a wholly owned subsidiary of the Company completed the acquisition of WPC Brands, Inc. (WPC Brands), a manufacturer and distributor of various leisure-time consumer products, including a full line of insect repellents, institutional healthcare products and other proprietary and private label products. The acquisition was executed to enhance the Company's insect repellent product lines and to strengthen its presence at major customers. The total purchase price was $19.5 million in cash in exchange for all of the outstanding shares of WPC Brands. The Company has preliminarily allocated 75% of the purchase price in excess of the fair value of net assets acquired to intangible assets ($9.7 million) and 25% to goodwill ($3.2 million), which is not deductible for tax purposes. The acquired intangible assets consist of trade names and other intellectual property which are being amortized over 25 to 40 years. In addition, the Company was required to write-up the value of inventory acquired from WPC Brands by $2.0 million to properly reflect its fair value.
This transaction was accounted for using the purchase method of accounting and, accordingly, the results of operations of the assets acquired and liabilities assumed have been included in the consolidated financial statements from the date of acquisition. The purchase price was allocated to assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation is based on preliminary information, which is subject to adjustment upon obtaining complete valuation information. While the final purchase price allocation may differ significantly from the preliminary allocation included in this report, management believes that finalization of the allocation will not have a material impact on the consolidated results of operations or financial position of the Company. Completion of the purchase price allocation is expected by the third quarter of 2003.
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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition:
| Description | Amount | |||
|---|---|---|---|---|
| Current assets | $ | 7,987 | ||
| Equipment and leasehold improvements | 844 | |||
| Intangible assets | 11,294 | |||
| Goodwill | 3,222 | |||
| Other assets | 455 | |||
| Total assets acquired | 23,802 | |||
Current liabilities | 3,286 | |||
| Other liabilities | 1,016 | |||
| Total liabilities assumed | 4,302 | |||
| Net assets acquired | $ | 19,500 | ||
The Company's funding source for the WPC Brands acquisition was a portion of the proceeds received from an additional $25.0 million add-on to Term Loan B of the Company's Senior Credit Facility.
In addition, the Company is currently considering selling certain or all of the non-core product lines received in the acquisition of WPC Brands. Total assets represented by these product lines are approximately $1.6 million with annual net sales in 2002 of approximately $6.2 million.
The Company's unaudited consolidated results of operations on a pro forma basis, as if these transactions had occurred on January 1, 2001, include net sales of $556.5 million and $388.3 million for the years ended December 31, 2002 and 2001, respectively, and net income of $28.4 million and $6.8 million for the years ended December 31, 2002 and 2001, respectively. This unaudited pro forma financial information does not purport to be indicative of the consolidated results of operations that would have been achieved had this transaction been completed as of the assumed dates or which may be obtained in the future.
Note 4—Strategic Transactions
On June 14, 2002, the Company and Bayer Corporation and Bayer Advanced, L.L.C. (together referred to herein as Bayer) consummated a strategic transaction. The strategic transaction allows the Company to gain access to certain Bayer active ingredient technologies through a Supply Agreement and to perform certain merchandising services for Bayer through an In-Store Service Agreement. In connection with the strategic transaction, Bayer acquired a minority ownership interest, approximately 9.3% of the issued and outstanding shares of the Company's common stock, under the terms of an Exchange Agreement in exchange for promissory notes due to Bayer from Pursell Industries, Inc. (Pursell) and the execution of the Supply and In-Store Service Agreements.
The Company has the right to terminate the In-Store Service Agreement at any time without cause upon 60 days advance notice to Bayer. Following any such termination, the Company would have 365 days to exercise an option to repurchase all of its stock issued to Bayer and could repurchase the stock at a price based on equations contained in the Exchange Agreement designed in part to represent
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the fair market value of the shares at the time such repurchase option is exercised and in part to represent the original cost. In the event the Company exercises this repurchase option, Bayer would have the right to terminate the Supply Agreement. Because Bayer is both a competitor and a supplier, the Company is constantly reevaluating its relationship with Bayer and the value of this relationship to it, and may decide to terminate the In-Store Service Agreement and exercise its repurchase option at any time.
In consideration for the Supply and In-Store Service Agreements, and in exchange for the promissory notes of Pursell, the Company issued to Bayer 3,072,000 shares of Class A voting common stock valued at $15.4 million and 3,072,000 shares of Class B nonvoting common stock valued at $15.4 million and recorded $0.4 million of related issuance costs. The Company reserved for the entire face value of the promissory notes due to Bayer from Pursell as the Company did not believe they were collectible and an independent third party valuation did not ascribe any significant value to them.
Based on the independent third party valuation, the Company assigned a fair value of $30.7 million on June 14, 2002 to the transaction components recorded relative to the common stock issued to Bayer as follows:
| Description | Amount | |||
|---|---|---|---|---|
| Common stock subscription receivable | $ | 27,321 | ||
| Supply Agreement | 5,694 | |||
| Repurchase option | 2,636 | |||
| In-Store Services Agreement | (4,931 | ) | ||
| $ | 30,720 | |||
Under the requirements of the agreements, Bayer will make payments to the Company which total $5.0 million annually through June 15, 2009, the present value of which equals the value assigned to the common stock subscription receivable, which is reflected in the equity section in the Company's accompanying consolidated balance sheet as of December 31, 2002. The common stock subscription receivable will be repaid in 28 quarterly installments of $1.25 million, the first of which was received at closing on June 17, 2002. The difference between the value ascribed to the common stock subscription receivable and the installment payments will be reflected as interest income in the Company's consolidated statements of operations through June 15, 2009.
Bayer has the right to put the shares received back to the Company under the terms of the Exchange Agreement. Bayer can terminate the Exchange Agreement within the first 36 months if the Company fails to meet certain performance guidelines as established in the In-Store Service Agreement. In conjunction with the termination, Bayer can put the shares received back to the Company within 30 days of the termination of the Exchange Agreement at a price provided for in the Exchange Agreement. The Company believes that the put price per share would represent in part the fair market value of the shares at the time such put option is exercised and in part the original cost.
The value of the Supply Agreement and the liability associated with the In-Store Service Agreement are being amortized over the period in which economic benefits under the Supply Agreement are utilized and the obligations under the In-Store Service Agreement are fulfilled. The Company is amortizing the asset associated with the Supply Agreement to cost of goods sold and currently anticipates the benefit will be recognized over a three to five-year period. The Company is amortizing the obligation associated with the In-Store Service Agreement to revenues over the
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seven-year life of the agreement. In December 2002, the Company and Bayer amended the In-Store Service Agreement to reduce the scope of services provided by approximately 80%. As a result, the Company reduced its obligation under the agreement accordingly and reclassified $3.6 million to additional paid-in capital to reflect the increase in value of the original agreement.
The independent third party valuation obtained by the Company also indicated that value should be ascribed to the repurchase option it has under the agreements. The repurchase option is reflected as a reduction of equity in the accompanying consolidated balance sheet as of December 31, 2002. This amount will be recorded as a component of additional paid-in capital upon exercise or expiration of the option.
Fertilizer Brands
On December 17, 2001, the Company advanced its strategic plan for growth in the consumer lawn and garden category by acquiring leading consumer fertilizer brands Vigoro, Sta-Green and Bandini, as well as acquiring licensing rights to the Best® line of fertilizer products, for a cash purchase price of $37.5 million. The brands, which were formerly owned by or licensed to Pursell, complement the Company's consumer lawn, garden and insect control products. Pursell continues to manufacture, warehouse and distribute certain fertilizer products for the Company under a long-term agreement. In connection with financing this transaction, the Company issued 22,600 shares of preferred stock for $1,000 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method, and warrants to purchase 6,300,000 shares of common stock initially to UIC Holdings, L.L.C. for net cash proceeds of $22.0 million.
Fertilizer Assets
On October 3, 2002, the Company purchased certain assets from Pursell, which renamed itself U.S. Fertilizer subsequent to the agreement, for a cash purchase price of $12.1 million and forgiveness of the Pursell promissory notes previously obtained from Bayer, as described above in the discussion of the strategic transaction with Bayer. The assets acquired included certain inventory, equipment at two of Pursell's facilities and real estate at one of the two facilities.
Also on October 3, 2002, the Company executed a tolling agreement with Pursell, whereby Pursell supplies the Company with fertilizer. The tolling agreement requires the Company to be responsible for certain raw materials, capital expenditures and other related costs for Pursell to manufacture and supply the Company with fertilizer products. The agreement does not require a minimum volume purchase from Pursell, but provides for a fixed monthly payment of $0.7 million through the term of the tolling agreement, which expires on September 30, 2007. The fixed monthly payment is included in the standard costs of our inventories and is not expensed monthly as a period cost. In addition, beginning on March 1, 2004 and on each anniversary thereafter, the fixed payment is subject to certain increases for labor, materials, inflation and other reasonable costs as outlined in the tolling agreement. The agreement provides the Company with certain termination rights without penalty upon a breach of the agreement by Pursell or upon the Company's payment of certain amounts as set forth therein.
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Note 5—Inventories
Inventories consist of the following:
| | December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | ||||||
| Raw materials | $ | 27,853 | $ | 11,104 | ||||
| Finished goods | 65,750 | 40,688 | ||||||
| Allowance for obsolete and slow-moving inventory | (5,841 | ) | (2,700 | ) | ||||
| Total inventories | $ | 87,762 | $ | 49,092 | ||||
Note 6—Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of the following:
| | December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | ||||||
| Machinery and equipment | $ | 39,609 | $ | 30,279 | ||||
| Office furniture, equipment, and capitalized software | 26,299 | 15,181 | ||||||
| Automobiles, trucks and aircraft | 6,313 | 6,157 | ||||||
| Leasehold improvements | 9,512 | 7,405 | ||||||
| Land and buildings | 1,099 | — | ||||||
| 82,832 | 59,022 | |||||||
| Accumulated depreciation and amortization | (48,614 | ) | (31,092 | ) | ||||
| Total equipment and leasehold improvements, net | $ | 34,218 | $ | 27,930 | ||||
For the years ended December 31, 2002, 2001 and 2000, depreciation expense was $7.3 million, $4.7 million and $5.1 million, respectively. As of December 31, 2002 and 2001, the cost of the aircraft held under capital lease was $5.3 million and related accumulated amortization was $3.2 million and $2.0 million, respectively.
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Note 7—Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following:
| | | December 31, 2002 | December 31, 2001 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Amortization Period | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | |||||||||||||||
| Intangible assets: | ||||||||||||||||||||||
| Trade names | 25-40 | $ | 64,025 | $ | (1,918 | ) | $ | 62,107 | $ | 37,500 | $ | — | $ | 37,500 | ||||||||
| Supply agreement | 4 | 5,694 | (894 | ) | 4,800 | — | — | — | ||||||||||||||
| Other intangible assets | 25 | 5,401 | (52 | ) | 5,349 | — | — | — | ||||||||||||||
| Total intangible assets | $ | 75,120 | $ | (2,864 | ) | 72,256 | $ | 37,500 | $ | — | 37,500 | |||||||||||
| Goodwill | 28,612 | 5,616 | ||||||||||||||||||||
| Total goodwill and intangible assets, net | $ | 100,868 | $ | 43,116 | ||||||||||||||||||
On January 1, 2002, the Company adopted SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and broadens the criteria for recording intangible assets separately from goodwill. SFAS No. 142, among other things, eliminates the amortization of goodwill and indefinite-lived intangible assets and requires them to be tested for impairment at least annually. During 2002, both at adoption and at the end of the year, the Company performed an impairment analysis of its goodwill. No impairment charges resulted from these analyses. Prospectively, the Company will test goodwill for impairment annually, or more frequently as warranted by events or changes in circumstances.
For the year ended December 31, 2002, goodwill recorded in connection with acquisitions was $23.0 million. No amounts were recorded during 2001 or 2000. Changes in the carrying value of goodwill, allocated by segment, for the year ended December 31, 2002 are as follows:
| | Lawn and Garden | Household | Contract | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at January 1, 2002 | $ | 3,478 | $ | 2,079 | $ | 59 | $ | 5,616 | ||||
| Goodwill acquired during the year | 17,668 | 4,417 | 911 | 22,996 | ||||||||
| Balance at December 31, 2002 | $ | 21,146 | $ | 6,496 | $ | 970 | $ | 28,612 | ||||
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As prescribed by SFAS No. 142, prior period operating results were not restated. However, a reconciliation follows which reflects net income as reported by the Company and adjusted to reflect the impact of SFAS No. 142, as if it had been effective for the periods presented:
| | Years Ended December 31, | |||||
|---|---|---|---|---|---|---|
| | 2001 | 2000 | ||||
| Net income, as reported | $ | 6,726 | $ | 1,359 | ||
| Amortization of goodwill, net of tax | 46 | 46 | ||||
| Net income, as adjusted | $ | 6,772 | $ | 1,405 | ||
Intangible assets include patents, trade names and other intangible assets, which are valued at acquisition through independent appraisals where material, or using other valuation methods. Patents, trade names and other intangible assets are amortized using the straight-line method over periods ranging from 25 to 40 years. The useful lives of intangible assets were not revised as a result of the adoption of SFAS No. 142.
As described in Note 3, on May 9, 2002, a wholly owned subsidiary of the Company completed a merger with and into Schultz. The purchase price included cash payments of $38.3 million, including related acquisition costs of $5.0 million, issuance of 600,000 shares of Class A voting common stock valued at $3.0 million and issuance of 600,000 shares of Class B nonvoting common stock valued at $3.0 million and the assumption of $20.6 million of outstanding debt. The Company has preliminarily allocated 50% of the purchase price in excess of the fair value of net assets acquired to intangible assets and 50% to goodwill. The acquired intangible assets are being amortized over 25 to 40 years.
Also as described in Note 3, on December 6, 2002, a wholly owned subsidiary of the Company completed the acquisition of WPC Brands. The purchase price was $19.5 million in cash. The Company has preliminarily allocated 75% of the purchase price in excess of the fair value of net assets acquired to intangible assets and 25% to goodwill. The acquired intangible assets are being amortized over 25 to 40 years.
As described in Note 4, on December 17, 2001, the Company acquired the Vigoro, Sta-Green and Bandini brand names, as well as licensing rights to the Best line of fertilizer products from Pursell for $37.5 million. The acquired brand names and licensing rights are being amortized over 40 years.
For the years ended December 31, 2002, 2001 and 2000, aggregate amortization expense related to intangible assets was $2.9 million, $0.2 million and $0.2 million, respectively. The following table presents estimated amortization expense for intangible assets during each of the next five years:
| Years Ended December 31, | Amount | ||
|---|---|---|---|
| 2003 | $ | 3,175 | |
| 2004 | 3,175 | ||
| 2005 | 3,175 | ||
| 2006 | 3,175 | ||
| 2007 | 1,850 | ||
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Note 8—Other Assets
Other assets consist of the following:
| | December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | ||||||
| Deferred financing fees | $ | 22,432 | $ | 18,067 | ||||
| Accumulated amortization | (10,382 | ) | (7,102 | ) | ||||
| Deferred financing fees, net | 12,050 | 10,965 | ||||||
| Other | 975 | 872 | ||||||
| Total other assets, net | $ | 13,025 | $ | 11,837 | ||||
Note 9—Accrued Expenses
Accrued expenses consist of the following:
| | December 31, | ||||||
|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | |||||
| Advertising and promotions | $ | 16,401 | $ | 12,125 | |||
| Facilities rationalization | 1,563 | 3,500 | |||||
| Dursban related expenses | — | 82 | |||||
| Interest | 3,777 | 3,763 | |||||
| Cash overdraft | 1,506 | 7,126 | |||||
| Noncompete agreement | 1,770 | 1,060 | |||||
| Preferred stock dividends | 9,492 | 2,612 | |||||
| Salaries and benefits | 4,357 | 1,983 | |||||
| Severance costs | 869 | 1,679 | |||||
| Other | 5,486 | 76 | |||||
| Total accrued expenses | $ | 45,221 | $ | 34,006 | |||
Note 10—Charge for Facilities and Organizational Rationalization
During the fourth quarter of 2001, the Company recorded a charge of $8.5 million which included $5.6 million related to facilities and organizational rationalization which primarily affected the Company's Lawn and Garden segment results $2.7 million of inventory obsolescense recorded as cost of goods sold and $0.2 million of miscellaneous costs recorded as selling, general and administrative expense. In connection therewith, 85 employees were terminated and provided severance benefits. Approximately $3.5 million of costs associated with the facilities and organizational rationalization, which related primarily to facility exit costs and resultant duplicate rent payments in 2002, were incurred by December 31, 2002. Amounts remaining in the facilities and organizational rationalization accrual as of December 31, 2002 represent duplicate rent payments expected through May 2003 and costs associated with the restoration of leased facilities to their original condition. Such amounts are expected to be incurred by second quarter of 2003.
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The following table presents amounts charged against the facilities and organizational rationalization accrual:
| | Facilities Rationalization | Severance Costs | Total Costs | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at January 1, 2001 | $ | — | $ | — | $ | — | |||||
| Provision charged to accrual | 3,500 | 2,050 | 5,550 | ||||||||
| Charges against the accrual | — | (392 | ) | (392 | ) | ||||||
| Balance at December 31, 2001 | 3,500 | 1,658 | 5,158 | ||||||||
| Charges against the accrual | (1,937 | ) | (1,279 | ) | (3,216 | ) | |||||
| Balance at December 31, 2002 | $ | 1,563 | $ | 379 | $ | 1,942 | |||||
Note 11—Dursban Related Expenses
During the year ended December 31, 2000, the U.S. Environmental Protection Agency (EPA) and manufacturers of the active ingredient chlorpyrifos, including Dow AgroSciences L.L.C. which sold chlorphyrifos to the Company under the trademark "Dursban™," entered into a voluntary agreement that provided for withdrawal of virtually all residential uses of chlorpyrifos. Formulation of chlorpyrifos products intended for residential use ceased by December 1, 2000 and formulators discontinued the sale of such products to retailers after February 1, 2001. Retailers were not allowed to sell chlorpyrifos products after December 31, 2001. Accordingly, a charge of $8.0 million was recorded in September 2000 for costs associated with this agreement, including customer markdowns, inventory write-offs and related disposal costs, which primarily affected the Company's Lawn and Garden segment results. All of the Company's accrued costs associated with this agreement and additional amounts totaling under $0.1 million were incurred by December 31, 2002.
The following table presents amounts charged against the Dursban accrual:
| | 2002 | 2001 | 2000 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at beginning of year | $ | 82 | $ | 6,066 | $ | — | |||||
| Provision charged to accrual | — | — | 8,000 | ||||||||
| Charges against the accrual | (82 | ) | (5,984 | ) | (1,934 | ) | |||||
| Balance at end of year | $ | — | $ | 82 | $ | 6,066 | |||||
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Note 12—Long-Term Debt
Long-term debt, excluding capital lease obligations, consists of the following:
| | December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | ||||||||
| Senior Credit Facility: | ||||||||||
| Term Loan A | $ | 28,250 | $ | 39,205 | ||||||
| Term Loan B | 222,465 | 134,488 | ||||||||
| Revolving Credit Facility | — | 23,450 | ||||||||
| 97/8% Series B Senior Subordinated Notes | 150,000 | 150,000 | ||||||||
| 400,715 | 347,143 | |||||||||
| Less current maturities and short-term borrowings | (9,222 | ) | (28,757 | ) | ||||||
| Total long-term debt, net of current maturities | $ | 391,493 | $ | 318,386 | ||||||
Senior Credit Facility
The Senior Credit Facility, as amended as of December 6, 2002, was provided by Bank of America, N.A. (formerly known as NationsBank, N.A.), Morgan Stanley Senior Funding, Inc. and Canadian Imperial Bank of Commerce and consists of (1) a $90.0 million revolving credit facility (the Revolving Credit Facility); (2) a $75.0 million term loan facility (Term Loan A); and (3) a $240.0 million term loan facility (Term Loan B). The Revolving Credit Facility and Term Loan A mature on January 20, 2005 and Term Loan B matures on January 20, 2006. 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 during the period between August 1 and November 30 in each calendar year. As of December 31, 2002, the clean-down period had been completed and no amounts were outstanding under the Revolving Credit Facility, nor were there any compensating balance requirements.
On February 13, 2002, the Senior Credit Facility was amended to increase Term Loan B from $150.0 million to $180.0 million and provide additional liquidity and flexibility for capital expenditures subsequent to the acquisition of various fertilizer brands in December 2001. The Company incurred $1.1 million in fees related to the amendment which were recorded as deferred financing fees and are being amortized over the remaining term of the Senior Credit Facility. The amendment did not change any other existing covenants of the Senior Credit Facility.
On May 8, 2002, in connection with the Company's merger with Schultz, the Senior Credit Facility was amended to increase Term Loan B from $180.0 million to $215.0 million, increase the Revolving Credit Facility from $80.0 million to $90.0 million and provide additional flexibility for capital expenditures. The Company incurred $2.2 million in fees related to the amendment which were recorded as deferred financing fees and are being amortized over the remaining term of the Senior Credit Facility. The amendment did not change any other existing covenants of the Senior Credit Facility.
On December 6, 2002, in connection with the Company's acquisition of WPC Brands, the Senior Credit Facility was amended to increase Term Loan B from $215.0 million to $240.0 million and provide additional flexibility for capital expenditures. The Company incurred $1.1 million in fees related
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to the amendment which were recorded as deferred financing fees and are being amortized over the remaining term of the Senior Credit Facility. The amendment did not change any other existing covenants of the Senior Credit Facility.
The principal amount of Term Loan A is to be repaid in 24 consecutive quarterly installments commencing June 30, 1999 with a final installment due January 20, 2005. The principal amount of Term Loan B is to be repaid in 28 consecutive quarterly installments commencing June 30, 1999 with a final installment due January 20, 2006.
The Senior Credit Facility agreement contains restrictive affirmative, negative and financial covenants. Affirmative and negative covenants place restrictions on, among other things, levels of investments, indebtedness, insurance, capital expenditures and dividend payments. The financial covenants require the maintenance of certain financial ratios at defined levels. As of and during the years ended December 31, 2002 and 2001, the Company was in compliance with all covenants. While the Company does not anticipate an event of non-compliance in the foreseeable future, the effect of non-compliance would require the Company to request a waiver or an amendment to the Senior Credit Facility. Amending the Senior Credit Facility could result in changes to the Company's borrowing capacity or its effective interest rates. Under the agreements, interest rates on the Revolving Credit Facility, Term Loan A and Term Loan B range from 1.50% to 4.00% above LIBOR, depending on certain financial ratios. LIBOR was 1.38% as of December 31, 2002 and 1.88% as of December 31, 2001. Unused commitments under the revolving credit facility are subject to a 0.5% annual commitment fee. The interest rate of Term Loan A was 4.67% and 5.43% as of December 31, 2002 and 2001, respectively. The interest rate of Term Loan B was 5.42% and 5.93% as of December 31, 2002 and 2001, respectively.
The Senior Credit Facility may be prepaid in whole or in part at any time without premium or penalty. During the year ended December 31, 2002, the Company made principal payments of $11.0 million on Term Loan A and $2.0 million on Term Loan B, which included optional principal prepayments of $6.3 million on Term Loan A and $1.1 million on Term Loan B. During the year ended December 31, 2001, the Company made principal payments of $9.2 million on Term Loan A and $1.4 million on Term Loan B, which included optional principal prepayments of $4.1 million on Term Loan A and $0.7 million on Term Loan B. The optional payments were made to remain two quarterly payments ahead of the regular payment schedule. According to the Senior Credit Facility agreement, each prepayment on Term Loan A and Term Loan B can be applied to the next principal repayment installments. Management intends to pay a full year of principal installments in 2003 in accordance with the terms of the Senior Credit Facility.
The Senior Credit Facility is secured by substantially all of the properties and assets of the Company and its current and future domestic subsidiaries. The borrowings under the Senior Credit Facility are fully and unconditionally guaranteed on a joint and several basis by each of the Company's current subsidiaries and future subsidiaries that may be formed by the Company.
The carrying amount of the Company's obligation under the Senior Credit Facility approximates fair value because the interest rates are based on floating interest rates identified by reference to market rates.
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Senior Subordinated Notes
In November 1999, the Company issued $150.0 million in aggregate principal amount of 97/8% Series B senior subordinated notes (the Senior Subordinated Notes) due April 1, 2009. Interest accrues at a rate of 97/8% per annum, payable semi-annually on April 1 and October 1.
The Company's indenture governing the Senior Subordinated Notes contain a number of significant covenants that could adversely impact the Company's business. In particular, the indenture of the Senior Subordinated Notes limit the Company's ability to:
Furthermore, in accordance with the indenture governing the Senior Subordinated Notes, the Company is required to maintain specified financial ratios and meet financial tests. The ability to comply with these provisions may be affected by events beyond the Company's control. The breach of any of these covenants will result in a default under the applicable debt agreement or instrument and could trigger acceleration of the debt under the applicable agreement. Any default under the Company's indenture governing the Senior Subordinated Notes might adversely affect the Company's growth, financial condition and results of operations and the ability to make payments on the Senior Subordinated Notes.
The fair value of the Senior Subordinated Notes was $151.5 million and $141.0 million as of December 31, 2002 and 2001, respectively, based on their quoted market price on such dates.
Aggregate future principal payments of long-term debt, excluding capital lease obligation, as of December 31, 2002 are as follows:
| Years Ended December 31, | Amount | ||
|---|---|---|---|
| 2003 | $ | 9,222 | |
| 2004 | 18,444 | ||
| 2005 | 168,439 | ||
| 2006 | 54,610 | ||
| 2007 | — | ||
| Thereafter | 150,000 | ||
| $ | 400,715 | ||
Note 13—Commitments
The Company leases several of its operating facilities from Rex Realty, Inc., a company owned by stockholders and operated by a former executive and past member of the Board of Directors of the
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Company. The operating leases expire at various dates through December 31, 2010. The Company has options to terminate the leases on an annual basis by giving advance notice of at least one year. As of December 31, 2002, notice had been given on one such lease. 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 of $0.7 million. The Company has two five-year options to renew this lease, beginning January 1, 2006. During the years ended December 31, 2002, 2001 and 2000, rent expense under these leases was $2.3 million, $2.3 million and $2.2 million, respectively.
The Company is obligated under additional operating leases for other operations and the use of warehouse space. The leases expire at various dates through December 31, 2015. Five of the leases provide for as many as five options to renew for five years each. During the years ended December 31, 2002, 2001 and 2000, aggregate rent expense under these leases was $3.8 million, $5.1 million and $5.0 million, respectively.
In March 2000, the Company entered into a capital lease agreement for $5.3 million for its aircraft. The Company is obligated to make monthly payments of $0.1 million, with a balloon payment of $3.2 million in February 2005. The Company has the option of purchasing the aircraft following the expiration of the lease agreement for a nominal amount.
The following table presents future minimum payments due under operating and capital leases as of December 31, 2002:
| | Operating Leases | | | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Years Ended December 31, | Capital Lease | | ||||||||||||
| Affiliate | Other | Total | ||||||||||||
| 2003 | $ | 1,726 | $ | 7,146 | $ | 818 | $ | 9,690 | ||||||
| 2004 | 1,766 | 6,348 | 818 | 8,932 | ||||||||||
| 2005 | 1,806 | 5,492 | 3,343 | 10,641 | ||||||||||
| 2006 | 1,847 | 4,307 | — | 6,154 | ||||||||||
| 2007 | 1,887 | 3,525 | — | 5,412 | ||||||||||
| Thereafter | 10,241 | 16,899 | — | 27,140 | ||||||||||
| Total minimum lease payments | $ | 19,273 | $ | 43,717 | 4,979 | $ | 67,969 | |||||||
| Less amount representing interest | (758 | ) | ||||||||||||
| Present value of net minimum lease payments, including current portion of $443 | $ | 4,221 | ||||||||||||
Note 14—Contingencies
In the normal course of business, the Company is a party to certain guarantees and financial instruments with off-balance sheet risk, such as standby letters of credit and indemnifications, which are not reflected in the accompanying consolidated balance sheets. At December 31, 2002, the Company had $1.9 million in standby letters of credit pledged as collateral to support the lease of its primary distribution facility in St. Louis, a United States customs bond, certain product purchases and various workers' compensation obligations. These agreements mature at varying dates through October 2003 and may be renewed as circumstances warrant. Such financial instruments are valued based on the amount of exposure under the instruments and the likelihood of performance being required. In the
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Company's past experience, no claims have been made against these financial instruments nor does management expect any losses to result from them.
The Company is the lessee under a number of equipment and property leases, as described above. It is common in such commercial lease transactions for the Company to agree to indemnify the lessor for the value of the property or equipment leased should it be damaged during the course of the Company's operations. The Company expects that any losses that may occur with respect to the leased property would be covered by insurance, subject to deductible amounts.
The Company has entered into certain derivative hedging instruments and other purchase commitments to purchase granular urea during its peak production season in 2003. See Note 16 for information regarding these commitments.
The Company is involved from time to time in routine legal matters and other claims incidental to its business. 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, liabilities are recorded in the consolidated financial statements and charges are recorded against earnings. Management believes that it is remote the resolution of such routine matters and other incidental claims, taking into account established reserves and insurance, will have a material adverse impact on the Company's consolidated financial position, results of operations or liquidity.
Note 15—Stockholders' Equity
In connection with its merger with Schultz in May 2002, the Board of Directors adopted resolutions, which were approved by the Company's stockholders, to amend the Company's Certificate of Incorporation to increase the Company's total authorized Class A voting common stock from 37,600,000 shares to 43,600,000 shares and increase the Company's total authorized Class B nonvoting common stock from 37,600,000 shares to 43,600,000 shares. In addition, as part of the purchase price, the Company issued 600,000 shares of Class A voting common stock valued at $3.0 million and 600,000 shares of Class B nonvoting common stock valued at $3.0 million. In addition, to raise equity to partially fund the merger, the Company issued 1,690,000 shares of Class A voting common stock to UIC Holdings, L.L.C. for $8.5 million and 1,690,000 shares of Class B nonvoting common stock to UIC Holdings, L.L.C. for $8.5 million.
In connection with its transaction with Bayer in June 2002, the Company issued 3,072,000 shares of Class A voting common stock valued at $15.4 million and 3,072,000 shares of Class B nonvoting common stock valued at $15.4 million and recorded $0.4 million of related issuance costs.
In connection with the Company's December 2001 transaction with Pursell, the Board of Directors adopted resolutions, which were approved by the Company's stockholders, to amend the Company's Certificate of Incorporation to:
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The Company valued the 6,300,000 warrants issued above at $1.35 per warrant using the Black-Sholes option pricing model at the date of grant. Accordingly, $8.5 million of the proceeds received from the preferred stock offering were allocated to the warrants.
In November 2000, the Board of Directors adopted resolutions, which were approved by the Company's stockholders, to amend the Company's Certificate of Incorporation to:
The Company valued the 3,200,000 warrants issued at $0.87 per warrant using the Black-Sholes option pricing model at the date of grant. Accordingly, $2.8 million of the proceeds received from the preferred stock offering were allocated to the warrants.
Note 16—Accounting for Derivative Instruments and Hedging Activities
In the normal course of business, the Company is exposed to fluctuations in interest rates and raw materials prices. The Company has established policies and procedures that govern the management of these exposures through the use of derivative hedging instruments, including swap agreements. The
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Company's objective in managing its exposure to such fluctuations is to decrease the volatility of earnings and cash flows associated with changes in interest rates and certain raw materials prices. To achieve this objective, the Company periodically enters into swap agreements with values that change in the opposite direction of anticipated cash flows. Derivative instruments related to forecasted transactions are considered to hedge future cash flows, and the effective portion of any gains or losses is included in accumulated other comprehensive income until earnings are affected by the variability of cash flows. Any remaining gain or loss is recognized currently in earnings.
During the first half of each year, the price of granular urea, a critical raw material component used in the production of fertilizer, tends to increase significantly in correlation with natural gas prices. The costs of granular urea have generally, but not always, declined during the second half of the year. As of December 31, 2002, the Company had hedged nearly 50%, and had purchase agreements to effectively fix an additional 23%, of its 2003 urea purchases. The average contract price of the Company's derivative hedging instruments as of December 31, 2002, intended to fix the price of forecasted urea prices through April 2003, was approximately $135 per ton. The average purchase price of the Company's purchase agreements as of December 31, 2002 was approximately $130 per ton. While management expects these instruments and agreements to manage the Company's exposure to such price fluctuations, no assurance can be provided that the instruments will be effective in fully mitigating exposure to these risks, nor can assurance be provided that the Company will be successful in passing pricing increases on to its customers.
The Company has formally documented, designated and assessed the effectiveness of transactions that receive hedge accounting treatment. The cash flows of the derivative instruments are expected to be highly effective in achieving offsetting cash flows attributable to fluctuations in the cash flows of the hedged risk. Changes in the fair value of agreements designated as derivative hedging instruments are reported as either an asset or liability in the accompanying consolidated balance sheets with the associated unrealized gains or losses reflected in accumulated other comprehensive income. As of December 31, 2002 and 2001, unrealized losses of less than $0.1 million and $0.5 million, respectively, related to derivative instruments designated as cash flow hedges were recorded in accumulated other comprehensive income. Such instruments at December 31, 2002 represent hedges on forecasted purchases of raw materials during the first half of 2003 and are scheduled to mature by May 2003. The amounts are subsequently reclassified into cost of goods sold in the same period in which the underlying hedged transactions affect earnings.
If it becomes probable that a forecasted transaction will no longer occur, any gains or losses in accumulated other comprehensive income will be recognized in earnings. The Company has not incurred any gains or losses for hedge ineffectiveness or due to excluding a portion of the value from measuring effectiveness. The Company does not enter into derivatives or other hedging arrangements for trading or speculative purposes.
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The following table summarizes information about the Company's derivative hedging instruments and related gains (losses) as of December 31, 2002 (amounts not in thousands):
| Number of Contracts | Maturity Date | Notional Amount in Tons | Weighted Average Contract Price | Contract Value Upon Effective Contract Date | Contract Value at December 31, 2002 | Gain (Loss) at December 31, 2002 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 3 | January 30, 2003 | 14,500 | $ | 133.00 | $ | 1,928,500 | $ | 1,916,465 | $ | (12,035 | ) | ||||||
| 3 | February 28, 2003 | 15,000 | 135.00 | 2,025,000 | 2,010,000 | (15,000 | ) | ||||||||||
| 2 | March 28, 2003 | 10,000 | 135.50 | 1,355,000 | 1,353,300 | (1,700 | ) | ||||||||||
| 1 | April 24, 2003 | 5,000 | 137.00 | 685,000 | 681,650 | (3,350 | ) | ||||||||||
| 9 | 44,500 | $ | 5,993,500 | $ | 5,961,415 | $ | (32,085 | ) | |||||||||
The following table summarizes information about the Company's purchase commitments of granular urea as of December 31, 2002 (amounts not in thousands):
| Number of Commitments | Expected Purchase Month | Commitment Amount in Tons | Weighted Average Purchase Price | Value of Purchase Commitment on Commitment Date | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 3 | January 2003 | 18,750 | $ | 126.93 | $ | 2,380,000 | ||||
| 2 | February 2003 | 18,500 | 128.20 | 2,472,550 | ||||||
| 5 | 37,250 | $ | 4,852,550 | |||||||
In April 2001, the Company entered into two interest rate swaps that fixed the interest rate as of April 30, 2001 for $75.0 million in variable rate debt under the Senior Credit Facility. The interest rate swaps settled on April 30, 2002 and a derivative hedging loss of $0.5 million was reclassified from accumulated other comprehensive income into interest expense.
Note 17—Fair Value of Financial Instruments
The Company has estimated the fair value of its financial instruments as of December 31, 2002 and 2001 using available market information or other appropriate valuation methods. Considerable judgment, however, is required in interpreting data to develop estimates of fair value. Accordingly, the estimates presented in the accompanying consolidated financial statements are not necessarily indicative of the amounts the Company would realize in a current market exchange.
The carrying amounts of cash, accounts receivable, accounts payable and other current assets and liabilities approximate fair value because of the short maturity of those instruments. The Company's Senior Credit Facility bears interest at current market rates and, thus, carrying value approximates fair value as of December 31, 2002 and 2001. The Company is exposed to interest rate volatility with respect to the variable interest rates of this instrument. The estimated fair values of the Company's Senior Subordinated Notes as of December 31, 2002 and 2001 of $151.5 million and $141.0 million, respectively, are based on quoted market prices.
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During the third quarter of 2002, the Company began reporting its operating results using three reportable segments: Lawn and Garden, Household and Contract. Segments were established primarily by product type which represents the basis upon which management, including the CEO who is the chief operating decision maker of the Company, reviews and assesses the Company's financial performance. The Lawn and Garden segment primarily consists of dry, granular slow-release lawn fertilizers, lawn fertilizer combination and lawn control products, herbicides, water-soluble and controlled-release garden and indoor plant foods, plant care products, potting soils and other growing media products and insecticide products. Products are marketed to mass merchandisers, home improvement centers, hardware chains, nurseries and garden centers. This segment includes, among others, the Company's Spectracide, Garden Safe, Schultz, Vigoro, Sta-Green, Bandini, Real-Kill, and No-Pest brands.
The Household segment represents household insecticides and insect repellents that allow consumers to achieve and maintain a pest-free household and repel insects. The Household segment includes the Company's Hot Shot, Cutter and Repel brands, as well as a number of private label and other products.
The Contract segment represents mainly non-core products, some of which are private label, and includes various compounds and chemicals such as, among others, charcoal water purification tablets, first-aid kits, barbeque sauce, fish attractant, cleaning solutions and automotive products.
The following tables present selected quarterly financial segment information in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," for the years ended December 31, 2002, 2001 and 2000. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in Note 2, as applicable. The
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segment financial information presented includes comparative periods prepared on a basis consistent with the current year presentation.
| | Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | ||||||||
| Net sales: | |||||||||||
| Lawn and Garden | $ | 352,269 | $ | 169,267 | $ | 177,981 | |||||
| Household | 108,752 | 101,186 | 82,018 | ||||||||
| Contract | 18,969 | 2,891 | 5,795 | ||||||||
| Total net sales | $ | 479,990 | $ | 273,344 | $ | 265,794 | |||||
| Operating income (loss): | |||||||||||
| Lawn and Garden | $ | 38,064 | $ | 24,637 | $ | 24,309 | |||||
| Household | 23,159 | 20,280 | 17,814 | ||||||||
| Contract | (39 | ) | (183 | ) | 343 | ||||||
| Total operating income | $ | 61,184 | $ | 44,734 | $ | 42,466 | |||||
| Operating margin: | |||||||||||
| Lawn and Garden | 10.8% | 14.6% | 13.7% | ||||||||
| Household | 21.3% | 20.0% | 21.7% | ||||||||
| Contract | -0.2% | -6.3% | 5.9% | ||||||||
| Total operating margin | 12.7% | 16.4% | 16.0% | ||||||||
Operating income represents earnings before net interest expense and income tax expense. Operating income is the measure of profitability used by management to assess the Company's financial performance. Operating margin represents operating income as a percentage of net sales.
The majority of the Company's sales are conducted with customers in the United States. The Company's international sales comprise less than 1% of total net sales. In addition, no single item comprises more than 10% of the Company's net sales. For the years ended December 31, 2002, 2001 and 2000, the Company's three largest customers were responsible for 74%, 64% and 59% of net sales, respectively. As of December 31, 2002 and 2001, these three customers were responsible for 62% and 60% of accounts receivable, respectively.
As the Company's assets support production across all segments, they are managed on an entity-wide basis at the corporate level and are not recorded or analyzed by segment. Substantially all of the Company's assets are located in the United States.
Note 19—Stock-Based Compensation
The Company grants stock options to eligible employees, officers and directors pursuant to the 2001 Stock Option Plan, which is administered by the Compensation Committee of the Company's Board of Directors. The 2001 Stock Option Plan superseded the 1999 Stock Option Plan which was terminated during 2001. Upon termination, all 3,096,000 issued and outstanding options under the 1999 Stock Option Plan were forfeited. The following table presents a summary of activity for options of the
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1999 Stock Option Plan prior to and including the forfeiture of all outstanding options (amounts not in thousands):
| | Years Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | ||||||||
| | Number of Options | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price | ||||||
| Options outstanding, beginning of year | 3,096,500 | $ | 5.00 | 2,955,000 | $ | 5.00 | ||||
| Granted | — | — | 527,500 | 5.00 | ||||||
| Exercised | — | — | — | — | ||||||
| Forfeited | (3,096,500 | ) | 5.00 | (386,000 | ) | 5.00 | ||||
| Options outstanding, end of year | — | $ | — | 3,096,500 | $ | 5.00 | ||||
The 2001 Stock Option Plan provides for an aggregate of 5,800,000 shares of the Company's common stock that may be issued in the form of Class A voting common stock, Class B nonvoting common stock or a combination thereof. The options to purchase shares of common stock vest over a period no longer than 10 years. If certain performance targets are met, the vesting period could be shortened to four years. Options are generally granted with an exercise price equal to or greater than the estimated fair value of the Company's common stock on the grant date and expire ten years thereafter. After termination of employment, unvested options are forfeited immediately, within thirty days or within one year, as provided under the 2001 Stock Option Plan.
The following table presents a summary of activity for options of the 2001 Stock Option Plan (amounts not in thousands):
| | Years Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | ||||||||||
| | Number of Options | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price | ||||||||
| Options outstanding, beginning of year | 5,036,000 | $ | 2.39 | — | $ | — | ||||||
| Granted | 939,000 | 4.56 | 5,157,000 | 2.38 | ||||||||
| Exercised | — | — | — | — | ||||||||
| Forfeited | (215,000 | ) | 2.09 | (121,000 | ) | 2.00 | ||||||
| Options outstanding, end of year | 5,760,000 | $ | 2.75 | 5,036,000 | $ | 2.39 | ||||||
| Weighted average remaining contractual life (years) | 8.35 | 9.15 | ||||||||||
| Options exercisable, end of year | 1,556,032 | $ | 2.54 | 278,710 | $ | 2.00 | ||||||
| Weighted average fair value of options granted | $ | 1.40 | $ | 0.72 | ||||||||
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The following table presents information about stock options outstanding and exercisable under the 2001 Stock Option Plan as of December 31, 2002 (amounts not in thousands):
| | Options Outstanding | Options Exercisable | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | ||||||||
| $2.00 to $3.25 | 4,657,500 | 8.20 | $ | 2.26 | 1,363,949 | 8.17 | $ | 2.21 | ||||||
| $4.00 to $5.00 | 1,102,500 | 8.99 | 4.82 | 192,083 | 9.02 | 4.83 | ||||||||
| 5,760,000 | 8.35 | 2.75 | 1,556,032 | 8.27 | 2.54 | |||||||||
As of December 31, 2002, 40,000 shares were available for future grants and 1,566,032 shares were vested and exercisable under the 2001 Stock Option Plan.
SFAS No. 123 requires pro forma disclosure of the impact on earnings as if the Company determined stock-based compensation expense using the fair value method. The fair value of options granted is estimated on the date of grant using the Black-Scholes option-pricing model and the following weighted average assumptions for the years ended December 31, 2002 and 2001: expected volatility of zero, risk-free interest rate of 4.61% and 5.35%, respectively, dividend yield of zero and an expected life of ten years. The Company's employee stock options have characteristics different than those of traded options and changes in the input assumptions can materially affect the estimate of fair value. In addition, pro forma amounts are for disclosure purposes only and may not be representative of pro forma net income in the future. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the related vesting periods.
Note 20—Employee Benefit Plans
The Company has a 401(k) savings plan for substantially all of its employees with six months or more of continuous service. The 401(k) plan allows participants to defer a portion of eligible compensation on a tax-deferred basis. Under provisions of the plan, the Company matches 50% of each employee's contributions up to 6% of gross earnings. The matching amount generally increases to 75% of such employee's contributions up to 6% of gross earnings after ten years of service. For the years ended December 31, 2002, 2001 and 2000, the matching contribution amounted to $0.7 million, $0.6 million and $0.6 million, respectively.
The Company also sponsors two deferred compensation plans for certain members of its senior management team. The plans are administered by the Compensation Committee of the Board of Directors. The plans provide for the establishment of grantor trusts for the purpose of accumulating funds to purchase shares of the Company's common stock for the benefit of the plan participants. One plan allows participants to contribute an unlimited amount of earnings to the plan while the other provides for contributions of up to 20% of a participant's annual bonus. The Company does not provide matching contributions to these plans and has the right, under certain circumstances, to repurchase shares held in the grantor trusts. As of December 31, 2002 and 2001, the common stock held in the grantor trusts was valued at $2.7 million.
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Note 21—Income Taxes
Income tax expense consists of the following:
| | Years Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | |||||||||
| Current: | ||||||||||||
| Federal | $ | — | $ | — | $ | — | ||||||
| State and local | — | — | — | |||||||||
| Total current | — | — | — | |||||||||
| Deferred: | ||||||||||||
| Federal | 9,252 | 3,426 | 1,078 | |||||||||
| State and local | 2,321 | 390 | 293 | |||||||||
| Valuation allowance reduction | (8,135 | ) | (1,649 | ) | (1,237 | ) | ||||||
| Total deferred | 3,438 | 2,167 | 134 | |||||||||
| Total income tax expense | $ | 3,438 | $ | 2,167 | $ | 134 | ||||||
The following table presents a reconciliation of income tax expense computed using the federal statutory rate of 35% and income tax expense:
| | Years Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | |||||||||
| Computed "expected" tax expense | $ | 10,071 | $ | 3,113 | $ | 523 | ||||||
| Tax effect of: | ||||||||||||
| Nondeductible charitable contributions | 57 | — | — | |||||||||
| Nondeductible meals and entertainment expenses | 84 | 62 | 62 | |||||||||
| Valuation allowance reduction | (8,135 | ) | (1,649 | ) | (1,237 | ) | ||||||
| State and local taxes, net of federal tax benefit | 845 | 641 | 786 | |||||||||
| Other, net | 516 | — | — | |||||||||
| Total income tax expense | $ | 3,438 | $ | 2,167 | $ | 134 | ||||||
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The following table presents the components of the net deferred tax asset:
| | December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | ||||||
| Deferred tax assets: | ||||||||
| Goodwill | $ | 172,355 | $ | 188,294 | ||||
| NOL carryforward | 35,920 | 35,489 | ||||||
| Co-op advertising | 3,566 | 2,713 | ||||||
| Inventories | 1,547 | — | ||||||
| Deferred compensation | 1,026 | 1,027 | ||||||
| Facilities and organizational rationalization | 511 | 3,081 | ||||||
| Other, net | 2,675 | 799 | ||||||
| Gross deferred tax assets | 217,600 | 231,403 | ||||||
| Valuation allowance | (104,137 | ) | (112,272 | ) | ||||
| Total deferred tax assets | 113,463 | 119,131 | ||||||
| Deferred tax liabilities: | ||||||||
| Equipment and leasehold improvements | (3,013 | ) | (3,369 | ) | ||||
| Other, net | — | (1,982 | ) | |||||
| Net deferred tax asset | $ | 110,450 | $ | 113,780 | ||||
The temporary difference for goodwill represents the step-up in tax basis due to the Company's recapitalization in 1999 while maintaining historical basis for financial reporting purposes. This benefit is available to be utilized through 2014.
Based on historical levels of income and the length of time required to utilize its deferred tax assets, the Company originally established a 50% valuation allowance against the tax deductible goodwill deduction that was created in 1999 in connection with the recapitalization of the Company. While the Company experienced an increase in taxable income during 2002 for financial reporting purposes, it continued to experience losses for income tax purposes as it did not generate enough taxable income to utilize the deduction for goodwill. Therefore, despite the increase in taxable income for financial reporting purposes, sufficient evidence does not yet exist for management to conclude it more likely than not that the entire gross amount of the deferred tax assets will be realized in the foreseeable future.
The valuation allowance was $104.1 million as of December 31, 2002. For the years ended December 31, 2002, 2001 and 2000, the valuation allowance was reduced by $8.1 million, $1.6 million and $1.2 million, respectively.
In addition, as of December 31, 2002, the Company had a net operating loss carryforwards of $94.5 million. If not utilized, the net operating loss carryforwards will begin to expire in 2019.
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The following table presents the current and non-current components of the net deferred tax asset:
| | December 31, | |||||
|---|---|---|---|---|---|---|
| | 2002 | 2001 | ||||
| Current (prepaid assets and other) | $ | 5,309 | $ | 1,275 | ||
| Non-current | 105,141 | 112,505 | ||||
| $ | 110,450 | $ | 113,780 | |||
Note 22—Unaudited Quarterly Financial Information
The following table presents selected historical quarterly financial information for the Company. This information is derived from unaudited quarterly financial statements of the Company and includes, in the opinion of management, only normal and recurring adjustments that the Company considers necessary for a fair presentation of the results for such periods.
| | Year Ended December 31, 2002 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | First | Second | Third | Fourth | Total | ||||||||||
| Net sales | $ | 136,391 | $ | 195,136 | $ | 100,677 | $ | 47,786 | $ | 479,990 | |||||
| Gross profit | 49,228 | 72,825 | 35,468 | 16,825 | 174,346 | ||||||||||
| Operating income (loss) | 21,989 | 40,488 | 7,901 | (9,194 | ) | 61,184 | |||||||||
| Net income (loss) | 10,162 | 26,420 | 417 | (11,663 | ) | 25,336 | |||||||||
| | Year Ended December 31, 2001 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | First | Second | Third | Fourth | Total | ||||||||||
| Net sales | $ | 79,919 | $ | 114,647 | $ | 55,793 | $ | 22,985 | $ | 273,344 | |||||
| Gross profit | 35,960 | 53,899 | 25,689 | 9,425 | 124,973 | ||||||||||
| Operating income (loss) | 15,896 | 31,778 | 8,719 | (11,659 | ) | 44,734 | |||||||||
| Net income (loss) | 4,236 | 15,753 | 221 | (13,484 | ) | 6,726 | |||||||||
Due to the seasonal nature of the Company's business, net sales in the first and second quarters typically exceed net sales in the third and fourth quarters. In addition, during the fourth quarter of 2001, the Company recorded a $8.5 million charge as discussed in Note 10.
Note 23—Related Party Transactions
Professional Services Agreement
The Company has a professional services agreement with THL Equity Advisors IV, L.L.C. and Thomas H. Lee Capital, L.L.C., both affiliates of the Thomas H. Lee Partners, LP, which owns UIC Holdings, L.L.C., the majority owner of the Company. The professional services agreement has a term of three years, beginning January 20, 1999, and automatically extends for successive one-year periods thereafter, unless either party gives thirty days notice prior to the end of the term. Under the terms of the agreement, THL Equity Advisors IV, L.L.C. receives $62.5 thousand per month for management and other consulting services provided to the Company and reimbursement of any related out-of-pocket expenses. During each of the years ended December 31, 2002, 2001 and 2000, the Company paid $0.75 million under this agreement, which is included in selling, general and administrative expenses in the accompanying consolidated statements of operations.
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Stockholders Agreement
The Company has entered into a stockholders agreement with UIC Holdings, L.L.C. and certain other stockholders. Under the agreement, the Class A common stockholders are required to vote their shares of common stock for any sale or reorganization that has been approved by the 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 for sale to the public, subject to certain conditions and limitations. If the Company elects to register any of its securitiesregistered under the Securities Act of 1933 as amended, the stockholders are entitled to notice of such registration, subject to certain conditions and limitations. Under the stockholders agreement, the Company is responsible to pay costs of the registration effected on behalf of the stockholders, other than underwriting discounts and commissions.
Recapitalization Agreement
The recapitalization agreement with UIC Holdings, L.L.C., which the Company entered into in connection with its recapitaization in 1999, 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, these representations and warranties expired by April 15, 2000. However, representations and warranties with respect to tax matters will survive until thirty days after the expiration of the applicable statute of limitations; representations with respect to environmental matters expired December 31, 2002. Representations and warranties regarding ownership of stock do not expire. The total consideration paid to redeem common stock is subject to adjustments based on the excess taxes of previous stockholders arising from the Company's Section 338(h)(10) election under the IRS tax code.
PROSPECTUS
Pursuant to the recapitalization agreement, and in consideration of payments received thereunder, certain former executives 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 the Company is actively engaged or any line of business competitive with it anywhere in the United States and any other country in which it conducts business at the date of recapitalization closing. In addition, each of these former executives 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 the Company during the four year period.
Pursuant to the recapitalization, the Company redeemed a portion of its common stock held by certain stockholders and UIC Holdings, L.L.C. which were purchased by certain members of senior management. In the recapitalization, certain executives collectively received an aggregate of $4.0 million in cash and an additional $2.7 million with which the officers purchased common stock through grantor trusts, which is reflected as a reduction of equity in the accompanying consolidated balance sheets.
Loans to Chief Executive OfficerPART II
On September 28, 2001, the Company entered into a loan agreement with Robert L. Caulk, the President, Chief Executive Officer and Chairman of the Board of Directors of the Company, for $0.4 million which matures on September 28, 2006 (the 2001 Loan). On March 8, 2002, the Company entered into a loan agreement with Mr. Caulk for $51.7 thousand which matures on March 8, 2007 (the 2002 Loan). The purpose for both loans was to allow Mr. Caulk to purchase shares of the Company's common and preferred stock. Each loan bears interest at LIBOR on its effective date which is
F-37
subsequently adjusted on each loan's respective anniversary date. The interest rate in effect for the 2002 Loan was 1.96% as of December 31, 2002. The interest rate in effect for the 2001 Loan was 1.81% and 2.59% as of December 31, 2002 and 2001, respectively. Interest on both loans is payable annually, based on outstanding accrued amounts on December 31 of each year. Principal payments on both loans are based on 25% of the gross amount of each annual bonus awarded to Mr. Caulk and are immediately payable, except that principal payments on the 2002 Loan are immediately payable only if all amounts due under the 2001 Loan are fully paid. Any unpaid principal and interest on both loans is due upon maturity. The outstanding principal balance for the 2001 Loan was $0.35 million and $0.4 million as of December 31, 2002 and 2001, respectively. The outstanding principal balance of the 2002 Loan was $51.7 thousand as of December 31, 2002. The loans are reflected as a reduction of equity in the accompanying consolidated balance sheets.
Leases with Stockholder and Former Executive and Member of the Board of Directors
As further described in Note 13, the Company leases several of its operating facilities from Rex Realty, Inc., a company that is owned by stockholders who own, in the aggregate, approximately 5% of the Company's common stock and is operated by a former executive and past member of the Board of Directors.
Equity Transactions with UIC Holdings, L.L.C.
As further described in Note 15, during the years ended December 31, 2002, 2001 and 2000, the Company issued common and preferred stock and stock purchase warrants to UIC Holdings, L.L.C. as follows:
Note 24—Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections." SFAS No. 145 updates, clarifies and simplifies existing
F-38
accounting pronouncements. The Company is required to adopt SFAS No. 145 during the first quarter of 2003. Adoption will not have a material impact on the consolidated financial statements of the Company. However, SFAS No. 145 could affect how the Company records certain expenses after December 31, 2002.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred rather than when a company commits to such an activity and also establishes fair value as the objective for initial measurement of the liability. SFAS No. 146 will be adopted by the Company for exit or disposal activities that are initiated after December 31, 2002. Adoption will not have a material impact on the consolidated financial statements of the Company. However, SFAS No. 146 will affect how the Company recognizes exit costs after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Certain provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002 and other provisions are effective for fiscal years beginning after December 15, 2002. Unless the Company elects in the future to change from the intrinsic value method to the fair value method of accounting for stock-based employee compensation, SFAS No. 148 will not have a material impact on its consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). The disclosure requirements of FIN 45 are effective for the Company's consolidated financial statements for the year ended December 31, 2002. For applicable guarantees issued after January 1, 2003, FIN 45 requires that a guarantor recognize a liability for the fair value of obligations undertaken in issuing guarantees. See Note 13 for disclosures regarding guarantees of the Company.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which requires the consolidation of variable interest entities, as defined. FIN 46 is applicable to financial statements to be issued after 2002; however, disclosures are required currently if any variable interest entities are expected to be consolidated. The adoption of FIN 46 will not have a material effect on the Company's consolidated financial statements as the Company does not have any variable interest entities that will be consolidated as a result of FIN 46.
F-39
NOTE 25—FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
The Company's Senior Subordinated Notes are unconditionally and jointly and severally guaranteed by all of the Company's existing subsidiaries. The Company's existing subsidiaries are 100% owned by the Company. The condensed consolidating financial information below is presented as of and for the year ended December 31, 2002 and has been prepared in accordance with the requirements for presentation of such information. The Company did not have any subsidiaries as of or during the years ended December 31, 2001 or 2000. The information is presented in place of complete financial statements for each of the guarantor subsidiaries and is intended to provide sufficient detail to determine the nature of the aggregate financial position, results of operations and cash flows of the subsidiary guarantors.
BALANCE SHEET
| | Parent | Subsidiary Guarantors | Eliminations | Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||||||||
| Current assets: | |||||||||||||||
| Cash and cash equivalents | $ | 10,191 | $ | 127 | $ | — | $ | 10,318 | |||||||
| Accounts receivable, net | 18,492 | 4,829 | — | 23,321 | |||||||||||
| Inventories | 47,678 | 40,084 | — | 87,762 | |||||||||||
| Prepaid expenses and other current assets | 9,544 | 1,806 | — | 11,350 | |||||||||||
| Total current assets | 85,905 | 46,846 | — | 132,751 | |||||||||||
| Equipment and leasehold improvements, net | 26,510 | 7,708 | — | 34,218 | |||||||||||
| Investment in subsidiaries | 22,777 | — | (22,777 | ) | — | ||||||||||
| Intercompany assets | 63,643 | — | (63,643 | ) | — | ||||||||||
| Deferred tax asset | 104,357 | 784 | — | 105,141 | |||||||||||
| Goodwill and intangible assets, net | 47,678 | 53,190 | — | 100,868 | |||||||||||
| Other assets, net | 11,830 | 1,195 | — | 13,025 | |||||||||||
| Total assets | $ | 362,700 | $ | 109,723 | $ | (86,420 | ) | $ | 386,003 | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |||||||||||||||
| Current liabilities: | |||||||||||||||
| Current maturities of long-term debt and capital lease obligation | $ | 9,665 | $ | — | $ | — | $ | 9,665 | |||||||
| Accounts payable | 11,330 | 15,733 | — | 27,063 | |||||||||||
| Accrued expenses | 39,345 | 5,876 | — | 45,221 | |||||||||||
| Total current liabilities | 60,340 | 21,609 | — | 81,949 | |||||||||||
| Long-term debt, net of current maturities | 391,493 | — | — | 391,493 | |||||||||||
| Capital lease obligation, net of current maturities | 3,778 | — | — | 3,778 | |||||||||||
| Other liabilities | 3,325 | 1,694 | — | 5,019 | |||||||||||
| Intercompany liabilities | — | 63,643 | (63,643 | ) | — | ||||||||||
| Total liabilities | 458,936 | 86,946 | (63,643 | ) | 482,239 | ||||||||||
| Commitments and contingencies | |||||||||||||||
F-40
| Stockholders' equity (deficit): | |||||||||||||||
| Preferred stock | — | — | — | — | |||||||||||
| Common stock | 664 | — | — | 664 | |||||||||||
| Warrants and options | 11,745 | — | — | 11,745 | |||||||||||
| Investment from parent | — | 24,317 | (24,317 | ) | — | ||||||||||
| Additional paid-in capital | 210,480 | — | — | 210,480 | |||||||||||
| Accumulated deficit | (287,592 | ) | (1,540 | ) | 1,540 | (287,592 | ) | ||||||||
| Common stock subscription receivable | (25,761 | ) | — | — | (25,761 | ) | |||||||||
| Common stock repurchase option | (2,636 | ) | — | — | (2,636 | ) | |||||||||
| Common stock held in grantor trust | (2,700 | ) | — | — | (2,700 | ) | |||||||||
| Loans to executive officer | (404 | ) | — | — | (404 | ) | |||||||||
| Accumulated other comprehensive income | (32 | ) | — | — | (32 | ) | |||||||||
| Total stockholders' equity (deficit) | (96,236 | ) | 22,777 | (22,777 | ) | (96,236 | ) | ||||||||
| Total liabilities and stockholders' equity (deficit) | $ | 362,700 | $ | 109,723 | $ | (86,420 | ) | $ | 386,003 | ||||||
STATEMENT OF OPERATIONS
| | Parent | Subsidiary Guarantors | Eliminations | Consolidated | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales before promotion expense | $ | 476,297 | $ | 54,716 | $ | (9,727 | ) | $ | 521,286 | ||||
| Promotion expense | 41,296 | — | — | 41,296 | |||||||||
| Net sales | 435,001 | 54,716 | (9,727 | ) | 479,990 | ||||||||
| Operating costs and expenses: | |||||||||||||
| Cost of goods sold | 265,928 | 46,514 | (6,798 | ) | 305,644 | ||||||||
| Selling, general and administrative expenses | 105,964 | 10,127 | (2,929 | ) | 113,162 | ||||||||
| Equity (income) loss in subsidiaries | 1,540 | — | (1,540 | ) | — | ||||||||
| Total operating costs and expenses | 373,432 | 56,641 | (11,267 | ) | 418,806 | ||||||||
| Operating income (loss) | 61,569 | (1,925 | ) | 1,540 | 61,184 | ||||||||
| Interest expense, net | 32,403 | 7 | — | 32,410 | |||||||||
| Income (loss) before income tax expense | 29,166 | (1,932 | ) | 1,540 | 28,774 | ||||||||
| Income tax expense (benefit) | 3,830 | (392 | ) | — | 3,438 | ||||||||
| Net income (loss) | $ | 25,336 | $ | (1,540 | ) | $ | 1,540 | $ | 25,336 | ||||
F-41
| | Parent | Subsidiary Guarantors | Eliminations | Consolidated | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash flows from operating activities: | |||||||||||||||||
| Net income (loss) | $ | 25,336 | $ | (1,540 | ) | $ | 1,540 | $ | 25,336 | ||||||||
| Adjustments to reconcile net income (loss) to net cash flows from operating activities: | |||||||||||||||||
| Depreciation and amortization | 7,991 | 2,249 | — | 10,240 | |||||||||||||
| Amortization of deferred financing fees | 3,280 | — | — | 3,280 | |||||||||||||
| Deferred income tax expense | 3,438 | — | — | 3,438 | |||||||||||||
| Equity (income) loss in subsidiaries | 1,540 | — | (1,540 | ) | — | ||||||||||||
| Changes in operating assets and liabilities, net of effects from acquisitions: | |||||||||||||||||
| Accounts receivable | 12,726 | 23,580 | (9,727 | ) | 26,579 | ||||||||||||
| Inventories | (5,383 | ) | (21,309 | ) | 6,798 | (19,894 | ) | ||||||||||
| Prepaid expenses and other current assets | (3,054 | ) | (229 | ) | — | (3,283 | ) | ||||||||||
| Other assets | 5,995 | — | — | 5,995 | |||||||||||||
| Accounts payable and accrued expenses | (4,156 | ) | (2,006 | ) | — | (6,162 | ) | ||||||||||
| Facilities and organizational rationalization charge | (3,216 | ) | — | — | (3,216 | ) | |||||||||||
| Other operating activities, net | (7,384 | ) | — | 2,929 | (4,455 | ) | |||||||||||
| Net cash flows from operating activities | 37,113 | 745 | — | 37,858 | |||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Purchases of equipment and leasehold improvements | (4,965 | ) | (5,485 | ) | — | (10,450 | ) | ||||||||||
| Payments for Schultz merger, net of cash acquired | (38,300 | ) | — | — | (38,300 | ) | |||||||||||
| Payments for WPC Brands acquisition, net of cash acquired | (19,500 | ) | — | — | (19,500 | ) | |||||||||||
| Net cash flows used for investing activities | (62,765 | ) | (5,485 | ) | — | (68,250 | ) | ||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from additional debt | 90,000 | — | — | 90,000 | |||||||||||||
| Repayment of debt | (43,929 | ) | (20,661 | ) | — | (64,590 | ) | ||||||||||
| Proceeds from issuance of common stock | 17,500 | — | — | 17,500 | |||||||||||||
| Other financing and intercompany activities | (27,728 | ) | 25,528 | — | (2,200 | ) | |||||||||||
| Net cash flows from financing activities | 35,843 | 4,867 | — | 40,710 | |||||||||||||
| Net increase in cash and cash equivalents | 10,191 | 127 | — | 10,318 | |||||||||||||
| Cash and cash equivalents, beginning of year | — | — | — | — | |||||||||||||
| Cash and cash equivalents, end of year | $ | 10,191 | $ | 127 | $ | — | $ | 10,318 | |||||||||
F-42
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
Board of Directors and Stockholders ofUnited Industries Corporation and Subsidiaries:
Our audits of the consolidated financial statements referred to in our report dated February 12, 2003, except for Note 25, which is as of April 29, 2003, and listed in the index appearing on page F-1 of this prospectus also included an audit of the financial statement schedule listed in the index appearing on page F-1 of this prospectus. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
St. Louis, MissouriFebruary 12, 2003, except for Note 25,which is as of April 29, 2003
UNITED INDUSTRIES CORPORATIONSCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS(Dollars in thousands)
| Column A | Column B | Column C | Column D | Column E | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Description | Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | |||||||||
| Year ended December 31, 2002: | |||||||||||||
| Allowance for doubtful accounts | $ | 1,147 | $ | 2,055 | $ | (31 | ) | $ | 3,171 | ||||
| Allowance for obsolete and slow-moving inventory | 2,700 | 5,424 | (2,283 | ) | 5,841 | ||||||||
| Valuation allowance for deferred tax assets | 112,272 | — | (8,135 | ) | 104,137 | ||||||||
| Accrued advertising and promotion expense | 12,125 | 41,296 | (37,020 | ) | 16,401 | ||||||||
Year ended December 31, 2001: | |||||||||||||
| Allowance for doubtful accounts | $ | 777 | $ | 568 | $ | (198 | ) | $ | 1,147 | ||||
| Allowance for obsolete and slow-moving inventory | 999 | 2,700 | (999 | ) | 2,700 | ||||||||
| Valuation allowance for deferred tax assets | 113,921 | — | (1,649 | ) | 112,272 | ||||||||
| Accrued advertising and promotion expense | 5,520 | 24,432 | (17,827 | ) | 12,125 | ||||||||
Year ended December 31, 2000: | |||||||||||||
| Allowance for doubtful accounts | $ | 60 | $ | 848 | $ | (131 | ) | $ | 777 | ||||
| Allowance for obsolete and slow-moving inventory | 822 | 298 | (121 | ) | 999 | ||||||||
| Valuation allowance for deferred tax assets | 115,158 | — | (1,237 | ) | 113,921 | ||||||||
| Accrued advertising and promotion expense | 4,324 | 22,824 | (21,628 | ) | 5,520 | ||||||||
F-44
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders ofSchultz Company:
In our opinion, the accompanying consolidated balance sheet and the related statements of operations, of cash flows and of changes in stockholders' equity present fairly, in all material respects, the financial position of the Schultz Company and its subsidiary at September 30, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America, 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, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLPJune 25, 2002
F-45
| | March 31, 2002 | September 30, 2001 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| | (Unaudited) | | |||||||
| ASSETS | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 2,428 | $ | 202,073 | |||||
| Accounts receivable (less allowance for doubtful accounts of $592,630 at September 30, 2001 and $572,924 at March 31, 2002) | 23,934,220 | 6,667,321 | |||||||
| Inventories | 15,518,974 | 9,795,957 | |||||||
| Prepaid expenses | 896,198 | 664,898 | |||||||
| Deferred income tax | 294,500 | 221,700 | |||||||
| Total current assets | 40,646,320 | 17,551,949 | |||||||
Equipment and leasehold improvements | 3,493,546 | 3,461,082 | |||||||
| Deferred income tax | — | 147,600 | |||||||
| Due from related party | 346,656 | 977,480 | |||||||
| Other assets | 438,088 | 506,967 | |||||||
| Total assets | $ | 44,924,610 | $ | 22,645,078 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
| Current liabilities: | |||||||||
| Current maturities of long-term debt and capital lease obligations | $ | 297,283 | $ | 213,885 | |||||
| Accounts payable | 16,801,784 | 7,652,451 | |||||||
| Accrued expenses | 5,202,037 | 1,822,975 | |||||||
| Total current liabilities | 22,301,104 | 9,689,311 | |||||||
Long-term debt | 14,538,434 | 7,381,309 | |||||||
| Capital lease obligations | 92,241 | 23,042 | |||||||
| Deferred income tax | 85,600 | — | |||||||
| Due to related party | 428,119 | 1,018,722 | |||||||
| Total liabilities | 37,445,498 | 18,112,384 | |||||||
Stockholders' equity: | |||||||||
| Common stock, authorized 500 shares; $100 par value: issued and outstanding 40 shares | 4,000 | 4,000 | |||||||
| Additional paid-in capital | 976,855 | 976,855 | |||||||
| Retained earnings | 6,698,257 | 3,751,839 | |||||||
| Treasury stock (9.85 shares at cost) | (200,000 | ) | (200,000 | ) | |||||
| Total stockholders' equity | 7,479,112 | 4,532,694 | |||||||
| Total liabilities and stockholders' equity | $ | 44,924,610 | $ | 22,645,078 | |||||
See accompanying notes to financial statements.
F-46
SCHULTZ COMPANYSTATEMENTS OF OPERATIONS
| | For the Six Months Ended March 31, 2002 | Year Ended September 2001 | |||||
|---|---|---|---|---|---|---|---|
| | (Unaudited) | | |||||
| Net sales before promotion expense | $ | 48,684,930 | $ | 92,963,034 | |||
| Promotion expense | 759,796 | 1,767,704 | |||||
| Net sales | 47,925,134 | 91,195,330 | |||||
| Operating costs and expenses: | |||||||
| Cost of goods sold | 35,252,009 | 73,612,779 | |||||
| Selling, general and administrative expenses | 7,763,761 | 13,670,864 | |||||
| Total operating costs and expenses | 43,015,770 | 87,283,643 | |||||
| Operating income | 4,909,364 | 3,911,687 | |||||
| Interest expense | 290,065 | 817,215 | |||||
| Income before provision for income taxes | 4,619,299 | 3,094,472 | |||||
| Income tax expense | 1,672,881 | 1,294,416 | |||||
| Net income | $ | 2,946,418 | $ | 1,800,056 | |||
See accompanying notes to financial statements.
F-47
SCHULTZ COMPANYSTATEMENTS OF CASH FLOWS
| | For the Six Months Ended March 31, 2002 | Year Ended September 2001 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | (Unaudited) | | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 2,946,418 | $ | 1,800,056 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 610,368 | 1,126,344 | |||||||||
| Loss on disposal of equipment | 11 | 2,184 | |||||||||
| Amortization of deferred financing fees | 21,228 | 25,326 | |||||||||
| Deferred income tax expense (benefit) | 160,400 | (87,300 | ) | ||||||||
| Changes in assets and liabilities: | |||||||||||
| (Increase) in accounts receivable | (17,266,899 | ) | (872,006 | ) | |||||||
| (Increase) in inventories | (5,723,017 | ) | (2,062,457 | ) | |||||||
| (Increase) in prepaid expenses | (231,300 | ) | (231,760 | ) | |||||||
| (Increase) in other assets | (334,431 | ) | (106,750 | ) | |||||||
| Increase in accounts payable and accrued expenses | 10,367,357 | 880,281 | |||||||||
| Net cash provided by operating activities | (9,449,865 | ) | 473,918 | ||||||||
Investing activities: | |||||||||||
| Purchases of equipment and leasehold improvements | (609,208 | ) | (1,465,122 | ) | |||||||
| Net cash used for investing activities | (609,208 | ) | (1,465,122 | ) | |||||||
Financing activities: | |||||||||||
| Debt issuance costs | (353 | ) | (25,000 | ) | |||||||
| Borrowing on cash overdraft | 2,161,039 | — | |||||||||
| Borrowing on revolving line-of-credit | 7,405,549 | 1,722,444 | |||||||||
| Repayment of long-term debt | (93,500 | ) | (502,243 | ) | |||||||
| Repayment of capital lease obligations | (35,611 | ) | (64,202 | ) | |||||||
| Advances on note receivable | 422,304 | (5,821 | ) | ||||||||
| Net cash provided by financing activities | 9,859,428 | 1,125,178 | |||||||||
Net increase in cash and cash equivalents | (199,645 | ) | 133,974 | ||||||||
| Cash and cash equivalents—beginning of period | 202,073 | 68,099 | |||||||||
| Cash and cash equivalents—end of period | $ | 2,428 | $ | 202,073 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Interest paid | $ | 305,450 | $ | 895,000 | |||||||
| Income taxes paid | $ | — | $ | 144,000 | |||||||
| Noncash financing activity: | |||||||||||
| Execution of capital lease | $ | 33,635 | $ | 20,278 | |||||||
See accompanying notes to financial statements.
F-48
SCHULTZ COMPANYSTATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
| | Class A Voting Common Stock | | | | | | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Treasury stock | | |||||||||||||||
| | Additional Paid-in Capital | Retained Earnings | Total Stockholders' Equity | ||||||||||||||||
| | Shares | Amount | Shares | Amount | |||||||||||||||
| Balance at September 30, 2000 | 40 | $ | 4,000 | $ | 976,855 | $ | 1,951,783 | 9.85 | $ | (200,000 | ) | $ | 2,732,638 | ||||||
| Net income | 1,800,056 | 1,800,056 | |||||||||||||||||
| Balance at September 30, 2001 | 40 | 4,000 | 976,855 | 3,751,839 | 9.85 | (200,000 | ) | 4,532,694 | |||||||||||
| Net income (unaudited) | 2,946,418 | 2,946,418 | |||||||||||||||||
| Balance at March 31, 2002 (unaudited) | 40 | $ | 4,000 | $ | 976,855 | $ | 6,698,257 | 9.85 | $ | (200,000 | ) | $ | 7,479,112 | ||||||
See accompanying notes to financial statements.
F-49
SCHULTZ COMPANYNOTES TO FINANCIAL STATEMENTS
Note—Summary of Significant Accounting Policies
Nature of Business
Schultz company & subsidiary (the "Company") manufactures horticultural products and specialty items, particularly for the indoor houseplant care segment of the market. The Company also distributes charcoal, potting soil and soil conditioners. The Company distributes its products mainly to retail outlets and nurseries throughout the United States and Canada.
Basis of Presentation of Interim Period Financial Statements
The accompanying unaudited interim financial statements have been prepared in accordance with Article 10 of Regulation S-X and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended March 31, 2002 are not necessarily indicative of the results for any other period or for the full year. These statements should be read in conjunction with the financial statements and notes thereto for Schultz Company for the year ended September 30, 2001.
Estimates and Assumptions
The preparation of financial statements in conformity with U.S. 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.
Consolidation Policy
The consolidated financial statements of the Company include its wholly-owned subsidiary, Ground Zero, Inc. d/b/a American Charcoal, Inc. All material intercompany transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investment instruments purchased with an original 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. Provision for potentially obsolete or slow-moving finished goods and raw materials are made based on management's analysis of inventory levels and future sales forecasts.
Equipment and Leasehold Improvements
Expenditures for equipment and leasehold improvements and those that 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
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earnings. Depreciation is computed 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 fifteen years. Property under capital lease is amortized over the term of the lease.
Impairment of Long-Lived Assets
The Company continually evaluates whether events and circumstances have occurred that indicate the remaining useful lives 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 the equipment and leasehold improvements from expected future operating cash flows. In the opinion of management, no such impairment existed as of September 30, 2001.
Intangibles
Intangibles are included in other assets and represent the cost of intangible assets acquired and are amortized over a period up to 5 years. 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. In the opinion of management, no such impairment existed as of September 30, 2001.
Promotion Expense
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 as incurred and records promotion costs as a reduction to its net sales before promotion costs, as incurred.
Revenue Recognition
The Company recognizes revenue in accordance with the shipping terms applicable to each sale. 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. The Company has no other items that affect comprehensive income other than net income.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are recovered or settled.
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Earnings Per Share
In accordance with generally accepted accounting principles, earnings per share information is not presented since the Company does not have publicly traded common stock.
Reclassifications
The Company has reclassified its borrowings on cash overdrafts to financing activities from operating activities.
Recently Issued Accounting Pronouncements
The Emerging Issues Task Force (EITF) issued EITF 00-25. This issue addresses when consideration from a vendor to a retailer (a) in connection with the retailer's purchase of the vendor's products or (b) to promote sales of the vendor's products by the retailer should be classified in the vendor's income statement as a reduction of revenue. The Company has adopted EITF 00-25 for the year ended September 30, 2001. The Company has reclassified all trade and co-op promotional expense in the Statements of Operations to net sales.
In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets". SFAS 142 eliminates the amortization of goodwill and instead requires goodwill to be tested for impairment annually. Also, intangible assets are required to be amortized over their useful lives and reviewed for impairment in accordance with SFAS 144, as discussed in the following paragraph. Under SFAS 142, if the intangible asset has an indefinite useful life, it is not amortized until its life is determined to be finite. The Company is required to adopt SFAS 142 no later than fiscal year 2003. The Company does not believe that SFAS 142 will have a material impact on the financial statements.
In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 144 (SFAS 144), "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined in that Opinion). This Statement also amends ARB No. 51, Consolidated Financial Statements, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The Company does not believe that SFAS 144 will have a material impact on the financial statements. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001 or fiscal year 2003 for the Company.
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Note 2—Inventories
Inventories are as follows:
| | Unaudited March 31, 2002 | September 30, 2001 | |||||
|---|---|---|---|---|---|---|---|
| Raw materials | $ | 8,142,236 | $ | 6,627,145 | |||
| Finished goods | 7,990,880 | 3,526,372 | |||||
| Allowance for obsolete and slow-moving inventory | (614,142 | ) | (357,560 | ) | |||
| Total inventories | $ | 15,518,974 | $ | 9,795,957 | |||
Note 3—Equipment and Leasehold Improvements
Equipment and leasehold improvements are as follows:
| | Unaudited March 31, 2002 | September 30, 2001 | |||||
|---|---|---|---|---|---|---|---|
| Machinery and equipment | $ | 5,182,955 | $ | 4,664,541 | |||
| Office furniture and equipment | 2,659,570 | 2,746,781 | |||||
| Automobiles and trucks | 127,991 | 57,991 | |||||
| Leasehold improvements | 99,029 | 95,347 | |||||
| 8,069,545 | 7,564,660 | ||||||
Accumulated depreciation | (4,575,999 | ) | (4,103,578 | ) | |||
| $ | 3,493,546 | $ | 3,461,082 | ||||
Depreciation expense was $1,116,607 in 2001 and $610,366 for the unaudited six month period ending March 31, 2002. Included in machinery and equipment is equipment under capital lease obligations with a cost of $314,430 and accumulated depreciation of $143,073 at September 30, 2001. See note 11 for a summary of capital lease obligations. The net book value of assets under capital lease obligations is $193,895 at March 31, 2002.
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Note 4—Other Assets
Other assets are as follows:
| | Unaudited March 31, 2002 | September 30, 2001 | |||||
|---|---|---|---|---|---|---|---|
| Intangibles | $ | 207,375 | $ | 190,156 | |||
| Accumulated amortization | (149,080 | ) | (140,603 | ) | |||
| 58,295 | 49,553 | ||||||
Deferred financing fees | 192,000 | 192,000 | |||||
| Accumulated amortization | (147,425 | ) | (134,674 | ) | |||
| 44,575 | 57,326 | ||||||
Cash surrender value of life insurance, net of loans of $18,600 | 284,218 | 284,217 | |||||
| Investment securities held to maturity | 51,000 | 51,000 | |||||
| Other assets | — | 64,871 | |||||
| Total other assets | $ | 438,088 | $ | 506,967 | |||
See note 9 for a discussion of transactions with related parties.
Note 5—Accrued Expenses
Accrued expenses are as follows:
| | Unaudited March 31, 2002 | September 30, 2001 | ||||
|---|---|---|---|---|---|---|
| Advertising and promotional | $ | 777,764 | $ | 262,054 | ||
| Accrued income taxes | 1,065,353 | 533,104 | ||||
| Cash Overdraft | 2,161,039 | 0 | ||||
| Other | 613,326 | 472,424 | ||||
| Compensation Related Accruals | 584,555 | 555,393 | ||||
| Total accrued expenses | $ | 5,202,037 | $ | 1,822,975 | ||
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Note 6—Long-Term Debt and Credit Facilities
Long-term debt is comprised of the following:
| | Unaudited March 31, 2002 | 2001 | |||||
|---|---|---|---|---|---|---|---|
| Long-term Debt: | |||||||
| Term loan A | $ | 388,058 | $ | 165,750 | |||
| Term loan B | 328,125 | 371,875 | |||||
| Term loan C | 11,295 | 13,372 | |||||
| Revolving credit facility | 14,108,239 | 6,973,023 | |||||
| 14,835,717 | 7,524,020 | ||||||
| Less portion due within one year | (297,283 | ) | (142,711 | ) | |||
| Total long-term debt net of current portion | $ | 14,538,434 | $ | 7,381,309 | |||
The Long-term debt provided by LaSalle Bank, consists of a $25,000,000 revolving credit facility (the "revolving credit facility"), a $255,000 term loan facility ("Term Loan A"); and a $525,000 term loan facility ("Term Loan B"). The revolving credit facility matures in December 2003, Term Loan A matures in December 2002, and Term Loan B matures in December 2004. 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 $17,250,000 for the months of July through January in each calendar year.
The principal amount of Term Loan A is to be repaid in twenty-two consecutive monthly installments commencing January 22, 2000 with a final payment due December 10, 2002. The principal amount of Term Loan B is to be repaid in sixty consecutive monthly installments commencing January 22, 1999 with a final installment due December 22, 2004.
The LaSalle long-term debt and revolving credit agreement contains restrictive affirmative, negative and financial covenants. Affirmative and negative covenants put restrictions on levels of investments, indebtedness, insurance and capital expenditures. Financial covenants require the maintenance of certain financial ratios at defined levels. The revolving line-of-credit is subject to a borrowing calculation based upon eligible accounts receivable and inventory, with a cap of $4,000,000 on inventory. The agreement also places a cap on fixed asset additions and a restriction on the payment of dividends. Availability on the revolving line-of-credit at September 30, 2001, was $888,224.
Effective September 30, 2001, a waiver was obtained for non-compliance with certain financial covenants. The Company is in compliance with all financial covenants at March 31, 2002
Substantially all of the properties and assets of the Company secure the obligations under the long-term debt agreements.
There were no compensating balance requirements for the $25,000,000 Revolving Credit Facility at September 30, 2001.
The carrying amount of the Company's obligations under long-term debt approximates fair value because the interest rates are based on floating interest rates identified by reference to market rates. Actual interest rates at September 30, 2001, were 7.25% on Term Loans A and B, and 6.75% on the revolving credit facility.
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Aggregate maturities under the long-term debt are as follows:
| | September 30, 2001 | ||
|---|---|---|---|
| 2002 | $ | 142,711 | |
| 2003 | 339,935 | ||
| 2004 | 7,028,624 | ||
| 2005 | 12,750 | ||
| 2006 | — | ||
| Thereafter | — | ||
| $ | 7,524,020 | ||
Note 7—Income Taxes
Income tax expense is as follows for the year ended:
| | 2001 | |||||
|---|---|---|---|---|---|---|
| Current: | ||||||
| Federal | $ | 1,293,073 | ||||
| State and local | 88,643 | |||||
| Total current | 1,381,716 | |||||
Deferred: | ||||||
| Federal | (76,400 | ) | ||||
| State and local | (10,900 | ) | ||||
| Total deferred | (87,300 | ) | ||||
| Total income tax expense | $ | 1,294,416 | ||||
Income tax expense attributable to the income before the provision for income taxes differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to the income before the provision for income taxes by the following amounts:
| | 2001 | ||||
|---|---|---|---|---|---|
| Computed "expected" tax expense (benefit) | $ | 1,083,065 | |||
| Tax effect of: | |||||
| Non-deductible meals & entertainment expenses | 17,099 | ||||
| Other non-deductible accruals | 116,509 | ||||
| State and local taxes | 77,743 | ||||
| Total income tax expense | $ | 1,294,416 | |||
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Deferred income taxes are as follows for the year ended:
| | 2001 | ||||
|---|---|---|---|---|---|
| Deferred tax assets: | |||||
| Inventories | $ | 32,400 | |||
| Deferred compensation | 69,300 | ||||
| Other accruals, net | 527,500 | ||||
| Gross deferred tax assets | 629,200 | ||||
| Valuation allowance | — | ||||
| Total deferred tax assets | 629,200 | ||||
| Deferred tax liabilities: | |||||
| Equipment and leasehold improvements | (259,900 | ) | |||
| Net deferred tax assets | $ | 369,300 | |||
Deferred income tax assets and liabilities are reflected in the balance sheet are as follows:
| | 2001 | ||
|---|---|---|---|
| Deferred income tax, current | $ | 221,700 | |
| Deferred income tax, non current | 147,600 | ||
| $ | 369,300 | ||
Note 8—Deferred Compensation Plans
The Company has a 401(k) savings plan, which covers substantially all of its employees with six months or more of continuous service. The 401(k) Plan allows participants to defer a portion of eligible compensation on a tax-deferred basis. The plan provides for the Company to match 50% of each employee's voluntary contribution up to 10% of gross earnings. The Company's matching contribution amounted to $121,492 for 2001 and $54,848 for the unaudited six months ended March 31, 2002.
Note 9—Transactions With Related Parties
Other liabilities represent accrued royalty fees due to the current Chairman Emeritus of the Company, the owner of the formula's and processes utilized in the production of the Company's products. The royalty agreement established an annual royalty fee of two percent of gross sales in each year gross sales exceed $1,000,000. The term of the agreement includes the lifetime of the Chairman Emeritus and continues for ten years after his death. Payment of the royalty fees is subordinate to the long-term debt and revolving credit agreement. The Chairman Emeritus waived his right to the royalty fees and related interest for the year ended September 30, 2001. This amount was settled in fiscal year 2002.
Included in other assets are notes and interest receivable from the majority stockholders' of the Company. The notes are due on demand and accrue interest at five percent. The notes and interest receivable have been classified as long-term as the Company does not intend to request payment during 2002. The receivable from related party was $977,480 and $346,656 at September 2001 and March 31, 2002 (unaudited), respectively.
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Note 10—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 three customers for a substantial majority of its sales. These three customers accounted for approximately 63% of net sales for 2001. At September 30, 2001, accounts receivable from these three customers were 60% of total accounts receivable.
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.
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.
Note 11—Commitments
The Company is obligated under various operating leases for its operating facility, use of warehouse and office space, autos, and equipment. The leases expire at various dates through January 31, 2015. Aggregate rent expense amounted to $1,060,703 for 2001 and $756,501 for the unaudited six month period ended March 31, 2002.
The following is a summary of future minimum payments under the operating and capital leases described above that have initial or remaining noncancelable lease terms in excess of one year at September 30, 2001.
| | Operating Leases | Capital Leases | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Year Ended September 30, | |||||||||
| 2002 | $ | 1,046,656 | $ | 79,061 | $ | 1,125,717 | |||
| 2003 | 982,618 | 20,564 | 1,003,182 | ||||||
| 2004 | 918,341 | 4,182 | 922,523 | ||||||
| 2005 | 915,382 | — | 915,382 | ||||||
| 2006 | 935,000 | — | 935,000 | ||||||
| Thereafter | 8,181,250 | — | 8,181,250 | ||||||
| Total minimum lease payments | $ | 12,979,247 | 103,807 | $ | 13,083,054 | ||||
| Less amount representing interest | (9,591 | ) | |||||||
| Present value of net minimum lease payments | $ | 94,216 | |||||||
Note 12—Contingencies
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
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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.
Note 13—Shipping and Handling Cost
Shipping and handling costs are included in the selling, general and administrative expense line item on the Company's Statement of Operations. The amount included is $1,159,827 for 2001 and $479,914 for unaudited six month period ended March 31, 2002 and represents internal freight and distribution cost. The remaining shipping and handling cost, which includes out-bound freight and product cost are included in the cost of goods sold.
Note 14—Subsequent Event
On May 9, 2002 the Company merged with United Industries Corporation, a leading manufacturer and marketer of value-oriented products for the consumer lawn and garden care and insect control markets in the United States.
The purchase price of the merger was approximately $47,000,000. As a part of the merger, United Industries Corporation paid off the Company's $20,565,791 credit facility with LaSalle Bank.
United Industries Corporation
operating as
Offer to Exchange
97/8% Series D Senior Subordinated Notes due 2009For All Outstanding97/8% Series B Senior Subordinated Notes due 2009and97/8% Series C Senior Subordinated Notes due 2009
PROSPECTUS , 2003
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
| Item 20. | Indemnification of Directors and Officers |
The following summarizessummaries are qualified in their entirety by reference to the indemnification provisions for each registrant under applicable state lawcomplete text of the statutes and each registrant's charterorganizational documents referred to below.
Spectrum Brands, Inc. and bylaws. The registrants also maintain liability insurance forWPC Brands, Inc.
Pursuant to the benefit of theirWisconsin Business Corporation Law (“WBCL”), Spectrum Brands, Inc.’s and WPC Brands, Inc.’s directors and officers are entitled to mandatory indemnification from the companies against certain of their officers.
Registrants Incorporated Under Delaware Law
United Industries Corporationliabilities and Sylorr Plant Corp.expenses (i) to the extent the directors or officers are incorporated under the laws of the State of Delaware. Section 145 of the General Corporation Law of the State of Delaware, inter alia 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 orsuccessful in the rightdefense of such corporation), by reason ofa proceeding and (ii) in proceedings in which the factdirector or officer is not successful in the defense thereof, unless (in the latter case only) it is determined that such person isthe director or was an officer director, employeebreached or agent of such corporation,failed to perform his duties to the company and the breach or isfailure constituted (a) a willful failure to deal fairly with the company 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 personits shareholders in connection with such action, suita matter in which the director or proceeding, provided such person acted in good faith and inofficer had a manner hematerial conflict of interest; (b) a violation of the criminal law, unless the director or she reasonably believedofficer had reasonable cause to bebelieve that his or not opposed to the corporation's best interests and, with respect to any criminal actionher conduct was lawful or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporationunlawful; (c) a transaction from which the director or officer derived an improper personal profit; or (d) willful misconduct. The WBCL also provides that, subject to certain limitations, the mandatory indemnification provisions do not preclude any additional right to indemnification or allowance of expenses that a director or officer may indemnify any persons who are, werehave under a company’s articles of incorporation, by-laws, a written agreement or are threatened to be made, party to any threatened, pending or completed action or suit by or in the righta resolution of the corporation by reasonscompany’s board of directors or shareholders. Further, the factWBCL specifically states that such person was a director, officer, employeeit is the public policy of Wisconsin to require 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 personpermit indemnification 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 opposedproceeding involving securities regulation, as described therein, to the corporation's best interests, provided that no indemnification isextent required or permitted without judicial approval ifas described above. Additionally, under the officer, director, employeeWBCL, directors are not subject to personal liability to a company, its shareholders or agent is adjudgedany person asserting rights on behalf thereof for certain breaches of or failures to be liable to the corporation. Where an officer, director, employee or agent is successful on the merits or otherwiseperform any duty resulting solely from their status as directors, except in circumstances paralleling those in subparagraphs (a) through (d) outlined above. Expenses for the defense of any action referredfor which indemnification may be available may be advanced by the companies under certain circumstances.
Spectrum Brands, Inc.’s amended and restated articles of incorporation contain no indemnification provisions.
Spectrum Brands, Inc.’s amended and restated bylaws provide that, to above, the corporation mustfullest extent permitted or required by the WBCL, the company shall indemnify hima director or herofficer against the expenses which such officerall liabilities incurred by or director has actually and reasonably incurred.
Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person whosuch director or officer in connection with a proceeding in which the director or officer is a party because he or she is a director or officer. The company shall indemnify a director or officer of an affiliate (who is not otherwise serving as a director or officer) against all liabilities, and shall advance the reasonable expenses, incurred by such director or officer in a proceeding to the same extent hereunder as if such director or officer incurred such liabilities because he or she was a director or officer, if such director or officer is a party thereto because he or she is or was a director or officer of the affiliate. The company’s board may, in its sole and absolute discretion as it deems appropriate, pursuant to a majority vote thereof, indemnify against liabilities incurred by, and/or provide for the allowance of reasonable expenses of, an employee or authorized agent of the corporation, or is or was serving atcompany acting within 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 outscope of his or her statusduties as such whetherand who is not otherwise a director or not the corporationofficer.
Spectrum Brands, Inc. has purchased directors’ and officers’ liability insurance which would otherwise have the power to indemnify himtheir directors and officers against damages arising out of certain kinds of claims which might be made against them based on their negligent acts or her under Section 145.omissions while acting in their capacity as such.
Article V
WPC Brands, Inc.’s third amended and restated articles of the By-laws of United provides, among other things,incorporation provide that anyeach person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal,
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administrative or investigative by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer, of the corporationcompany or is or was serving at the request of the corporationcompany as a director, officer, employee, fiduciary, or agent of another corporationcompany or of a partnership, joint venture, trust or other enterprise, willshall be indemnified and held harmless by the corporationcompany to the fullest extent which it is empowered to do so unless prohibited from doing so by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment)WBCL against all expense, liability and loss (including attorney'sattorneys’ fees actually and reasonably incurred by such person in connection with such proceeding)
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and such indemnification will inure to the benefit of his heirs, executors and administrators; provided, however, that, except in certain circumstances, the corporation will indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the board of directors of the corporation.. The right to indemnification is a contract right and, subject to certain exceptions, includes the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition. The corporation may, by action of its board of directors, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers. In addition, Article V provides that expenses incurred by any person in defending a proceeding will be paid by the corporation in advance of such proceeding's final disposition unless otherwise determined by the board of directors in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately by determined that he or she is not entitled to be indemnified by the corporation. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate.
Article V of the By-Laws of Sylorr Plant Corp. provides that each person who is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he, or a person of whom he is the legal representative, is or was a director of officer, of the corporation or is or was serving at the request of the corporation as a director, officer, employee, fiduciary, or agent of another corporation or of a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the corporation to the fullest extent to which it is empowered to do so unless prohibited from doing so by Delaware law against all expense, liability and loss (including attorney's fess actually and reasonably incurred by such person in connection with such proceeding) and such indemnification shall inure to the benefit of his heirs, executors and administrators. Except in certain circumstances, the corporationcompany shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the company’s board of directors. The right to indemnification includes having the expenses incurred in defending any such proceeding paid by the corporation in advance of its final disposition. The corporationcompany may, by action of its board of directors, provide indemnification to employees and agents of the corporationcompany with the same scope and effect as the foregoing indemnification of directors and officers.
WPC Brands, Inc.’s bylaws do not contain any provisions relating to indemnification.
Registrants Incorporated Under Missouri LawAquaria, Inc., Pets ‘N People, Inc., Rovcal, Inc. and Southern California Foam, Inc.
Ground Zero
Aquaria, Inc., Pets ‘N People, Inc., Rovcal, Inc. and Schultz CompanySouthern California Foam, Inc. are incorporated under the lawsempowered by Section 317 of the State of Missouri. Section 351.355California General Corporation Law (“CGCL”) to indemnify any person who was or is a director, officer, employee or other agent of the Generalcompanies, or who is or was serving at the request of the companies as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or who was a director, officer, employee or agent of a foreign or domestic corporation that was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor corporation, (other than an action by or in right of the corporation), against expenses (including attorneys’ fees), judgments, fines, settlements and Business Corporation Lawother amounts actually and reasonably incurred by such person in connection with any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative. To be indemnified, such person must have acted (i) in good faith and (ii) in a manner that he or she reasonably believed to be in the best interests of Missouri, referredthe corporation; and, in the case of a criminal proceeding, such person must have acted without reasonable cause to herein as the "Missouri Statute", providesbelieve that his or her conduct was unlawful. In respect of any action by or in right of a Missouri corporationcompany, a company may indemnify any person who was or is an agent of the company against expenses actually and reasonably incurred by such person in connection with the defense or settlement of the action if he or she acted (i) in good faith and (ii) in a partymanner he or she believed to be in the best interests of the corporation and its shareholders.
Aquaria, Inc.’s second amended and restated articles of incorporation provide that the company is authorized to provide indemnification of agents for breach of duty to the company and its shareholders through bylaw provision or through agreements with the agents, or both, in excess of the indemnification otherwise permitted by the California Corporations Code, subject to the limits on such excess indemnification set forth in such code.
Aquaria, Inc.’s amended and restated bylaws provide that each of the company’s directors and officers shall be indemnified and held harmless by the company to the fullest extent authorized by the CGCL against any and all expenses, judgments, penalties, fines and amounts reasonably paid in settlement that are incurred by such director or officer or on such director’s or officer’s behalf in connection with any threatened, pending or completed proceeding or any claim, issue or matter therein, which such director or officer is, or is threatened to be made, a party to any proceeding, other than an action by or participant in the right of the corporation, by reason of the fact that he issuch director’s or was serving in an indemnified capacity against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection withofficer’s corporate status, if such proceeding if hedirector or officer acted in good faith and in a manner hesuch director or officer reasonably believed to be in or not opposed to the best interests of the corporation,company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. SimilarThe company shall indemnify any director or officer seeking indemnification in connection with a proceeding initiated by such director or officer only if such proceeding was authorized by the company’s board of directors, unless such proceeding was brought to enforce an officer or director’s rights to indemnification under the company’s bylaws. Additionally, the company may indemnify non-officer employees. Unless ordered by a court or required by Section 145(c) of the DGCL, no indemnification shall be provided to a director, to an officer or to a non-officer employee unless a determination shall have been
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made that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the company and, with respect to any criminal proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. The company must advance all expenses incurred by or on behalf of any director, and may advance expenses incurred by an officer or non-officer employee, in connection with any proceeding in which such person is involved.
Pets ‘N People, Inc.’s amended articles of incorporation and amended bylaws provide that the company is authorized to provide indemnification of agents for breach of duty to the company and its shareholders through bylaw provision or through agreements with the agents, or both, in excess of the indemnification otherwise permitted by the California Corporations Code, subject to the limits on such excess indemnification set forth in such code.
Neither Rovcal, Inc.’s articles of incorporation nor its by-laws contain any provisions applyrelating to indemnification.
Southern California Foam, Inc.’s articles of incorporation do not contain any provisions relating to indemnification.
Southern California Foam, Inc.’s amended bylaws provide that the company may indemnify and director, officer, agent or other employee as to those liabilities and on those terms and conditions as are specified in Section 317 of the CGCL.
Ground Zero, Inc. and Schultz Company
Ground Zero, Inc. and Schultz Company are empowered by Section 355 of the General and Business Corporation Law of Missouri (“GBCLM”) to indemnify any person who is party to any action by reason of the fact that such person is or was a director, officer, employee or agent of the companies or who was, at the request of the companies, serving as a director, officer, employee or agent of another company, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action if such person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the companies and, with respect to criminal actions, broughthad no reasonable cause to believe that his or her conduct was unlawful. Such indemnification is permitted in relation to actions by or in the right of the corporation,companies, except that no indemnification shall be made inis permitted with respect of any claim, issue or matterto actions as to which suchthe person has been foundwas adjudged to be liable for negligence or misconduct in the performance of his duty to the corporationor her duties unless and only to the extenta court determines that, the court in which the action or suit was brought determines upon application that, despite the finding of liability and in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Where an officer or director is successful on the merits or otherwise in defense of any proceeding referred to above, the corporation must indemnify him against the expenses which he has actually and reasonably incurred.indemnity.
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The Missouri Statute further provides that its provisions concerning indemnification are not exclusive of any other rights to which a person seeking indemnification may be entitled under a corporation'sGround Zero, Inc.’s articles of incorporation or bylaws ordo not contain any agreement, vote of shareholders or disinterested directors or otherwise. In addition, the Missouri Statute authorizes a corporationprovisions relating to purchase and maintain insurance on behalf of any person who is or was serving in an indemnified capacity against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, regardless of whether the corporation would otherwise have the power to indemnify him under the Missouri Statute.indemnification.
Article VI of the By-Laws of
Ground Zero, providesInc.’s bylaws provide that the corporation (1) shallcompany must indemnify, to the fullest extent permitted by Missouri law, any person who was or is a party (other than a party plaintiff suing on his or her own behalf or in the right of the corporation)company) or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the corporation)company), by reason of the fact that such person is or was or has agreed to become a director or officer of the corporation,company, or is or was serving or has agreed to serve at the request of the corporation,company as a director or officer of another company, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, in the manner set forth by Missouri lawthe GBCLM, against expenses, including attorneys’ fees, judgments, fines, and (2)amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit, or proceeding. In addition, the company may indemnify to the fullest extent permitted by law, any person who was or is a party (other than a party plaintiff suing on his or her own behalf or in the right of the corporation)company) or is threatened to be made a party to such action, suit or proceeding by reason of the fact that such person is or was or has agreed to become an employee or agent of the corporation,company, or is or was serving or has agreed to serve at the request of the corporation
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company as an employee or agent of another corporation,company, partnership, joint venture, trust or other enterprise, upon a determination of the company’s board of directors of the corporation that such person should be indemnified, against expenses, including attorney's fees, judgments, fines, and amounts paid in settlement actually and reasonable incurred by him or her in connection with such action, suit or proceeding. Any and all indemnification provided by the corporation shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefitindemnified.
Schultz Company’s amended articles of the heirs, executors, and administrators of such a person. In addition, such By-Lawsincorporation provide that expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation 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 shall ultimately be determined that he or she is lawfully entitled to be indemnified by the corporation.
Article X of the Amended Articles of Incorporation of Schultz Company provides, among other things, that anyeach person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer, of the corporationcompany or is or was serving at the request of the corporationcompany as a director, officer, employee, fiduciary, or agent of another corporation or of a partnership, joint venture, trust or other enterprise, willshall be indemnified and held harmless by the corporationcompany to the fullest extent which it is empowered to do so unless prohibited from doing so by the Missouri Statute, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment)GBCLM against all expense, liability and loss (including attorneys'attorneys’ fees actually and reasonably incurred by such person in connection with such proceeding) and such indemnification will inure to the benefit of his heirs, executors and administrators; provided, however, that, except in certain circumstances, the corporation will. The company shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the board of directors of the corporation.company. The company may provide indemnification to employees and agents of the company with the same scope and effect as the foregoing indemnification of directors and officers.
Schultz Company’s amended bylaws do not contain any provisions relating to indemnification.
DB Online, LLC
Pursuant to Section 403 of the Hawaii Uniform Limited Liability Company Act, DB Online, LLC must reimburse its members or managers for payments made and must indemnify them for liabilities incurred by them in the ordinary course of business of the company or for the preservation of the company’s business or property.
DB Online, LLC’s articles of organization do not contain any provisions relating to indemnification.
DB Online, LLC’s operating agreement provides that to the fullest extent permitted by law, the company shall indemnify the member and the officers, directors and shareholders of the member, against any and all liability incurred and/or for any act performed by them in good faith and/or for any act in good faith omitted to be performed by them in good faith (including, without limitation, reasonable legal and other professional fees and expenses as the same are incurred) as or on behalf of a member (or affiliate thereof) of the company.
United Industries Corporation, AQ Holdings, Inc., Aquarium Systems, Inc., IB Nitrogen, Inc., JungleTalk International, Inc., Nu-Gro US Holdco Corporation, Nu-Gro America Corp., Nu-Gro Technologies, Inc., Perfecto Holding Corp., Perfecto Manufacturing, Inc., ROV Holding, Inc., Sylorr Plant Corp., Tetra Holding (US), Inc., Willinger Bros., Inc. and United Pet Group, Inc.
United Industries Corporation, AQ Holdings, Inc., Aquarium Systems, Inc., IB Nitrogen, Inc., JungleTalk International, Inc., Nu-Gro US Holdco Corporation, Nu-Gro America Corp., Nu-Gro Technologies, Inc., Perfecto Holding Corp., Perfecto Manufacturing, Inc., ROV Holding, Inc., Sylorr Plant Corp. and United Pet Group, Inc. are empowered by Section 145 of the Delaware General Corporation Law (“DGCL”), subject to the procedures and limitations therein, to indemnify any person who was or is 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 (other than an action by or in the right of the corporation) by reasons of the fact that he or she is or was a director, officer, employee or agent of the companies or is or was serving at the request of the companies as a director, officer, employee or agent of another corporation or other enterprise against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interest of the companies and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. In the case of an action brought by or in the right of the companies, the companies may indemnify a director, officer, employee or agent of the companies (or other entity if such person is serving in such capacity at the companies’ request) against expenses (including attorneys’ fees) actually and
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reasonably incurred by him or her if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the companies, except that 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 to the companies unless a court determines that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expense as the court shall deem proper. In addition, unless limited by its articles of incorporation, a company shall indemnify a present or former director or officer of the company who was successful, on the merits or otherwise, in the defense of any proceeding to which the person was a party because the person is or was a contract rightdirector, officer, employee or agent against expenses actually and subjectreasonably incurred by him or her in connection with the proceeding. A company has the power to certain exceptions, includespurchase and maintain insurance on behalf of any of the rightpersons described above against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the company would have the power to beindemnify such person against such liability under the DGCL.
United Industries Corporation’s amended and restated certificate of incorporation does not contain any provisions relating to indemnification.
United Industries Corporation’s bylaws provide that company shall indemnify each person who is or was a director, officer or employee of the company (including the heirs, executors, administrators or estate of such person) or is or was serving at the request of the company as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise to the full extent permitted under Sections 145(a), (b) and (c) of the DGCL or any other provisions of the laws of the State of Delaware. Indemnification is not permitted for any breach of the director’s duty of loyalty to the company or its stockholders, for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, under DGCL Section 174, or for any transaction from which the director derived an improper personal benefit.
AQ Holdings, Inc.’s amended and restated certificate of incorporation provides that if a director or officer of the company is made a party to any civil or criminal action or proceeding in any matter arising from the performance by such director or officer or his or her duties for or on behalf of the company, then, to the full extent permitted by law, the company shall, advance to such director, or upon approval of the board of directors to any officer, all sums necessary and appropriate to enable the director or officer to conduct his or her defense or appeal, in the action or proceeding, and indemnify such director or officer for all sums paid by him or her in the way of judgments, fines, amounts paid in settlement, and reasonable expenses, including attorney’s fees actually and necessarily incurred in connection with the action or proceeding. No indemnification may be made to or on behalf of any director or officer if a judgment or other final adjudication adverse to the director or officer establishes that his or her acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that he or she personally gained in fact a financial profit or other advantage to which he or she was not legally entitled. Additionally, no director shall be personally liable to the company or its stockholders for monetary damages for breach of his or her fiduciary duty as a director of the corporation, except for liability for any breach of the director’s duty of loyalty to the company or its stockholders, for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, under Section 174 of the DGCL, or for any transaction from which the director derived an improper personal benefit.
AQ Holdings, Inc.’s bylaws provide that, in addition to the indemnification required under the DGCL, the company shall grant such indemnification to each of its directors and officers with respect to any matter in a proceeding as to which his liability is limited pursuant to the company’s certificate of incorporation. However, such indemnification shall exclude indemnification with respect to any improper personal benefit which a director or officer is determined to have received and the expenses of defending against an improper personal benefit claim unless the director or officer is successful on the merits in said defense, and indemnification of present or former officers, directors, employees or agents of a constituent corporation absorbed in a merger or consolidation transaction with AQ Holdings, Inc. with respect to their activities prior to said transaction, unless
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specifically authorized by AQ Holdings, Inc.’s board of directors or stockholders. Such indemnification shall include prompt payment of expenses incurred by a director or officer in defending any sucha proceeding in advance of the final disposition of such proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay such amounts if it shall ultimately be determined that he is not entitled to be indemnified by the corporation, which undertaking shall be an unsecured general obligation of the director or officer and may be accepted without regard to his ability to make repayment. Additionally, the company may grant rights to indemnification and to an advancement of expenses to any person who was or is a party or is threatened to be made a party to or is otherwise involved in any proceeding by reason of the fact that he is or was an employee or agent of the company or is or was serving at the request of the company, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.
Aquarium Systems, Inc.’s certificate of incorporation does not contain any provisions relating to indemnification.
Aquarium Systems, Inc.’s bylaws provide that each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed proceeding by reason of the fact that he or she is or was a director, officer or employee of the company or is or was serving at the request of the company as a director, officer or employee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan shall be indemnified and held harmless by the company to the fullest extent authorized by the DGCL against all expense, liability and loss (including attorneys’ fees, judgments, fines, excise taxes or amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith. Such indemnification is only required if such person acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the company, and with respect to a criminal action or proceeding, if such person had no reasonable cause to believe his conduct was unlawful. For proceedings by or in the right of the company, no indemnification shall be made in relation to matters as to which it shall be adjudged in such proceeding that such director, officer, employee or agent is liable to the company, unless a court shall determine that, despite such adjudication, such person is fairly and reasonably entitled to indemnification.
IB Nitrogen, Inc.’s certificate of incorporation does not contain any provisions relating to indemnification.
IB Nitrogen, Inc.’s bylaws provide that the company shall indemnify any director, officer, or employee, or former director, officer, or employee of the company, or any person who may have served at its request as a director, officer, or employee of another company in which it owns stock, or of which it is a creditor, against expenses actually and necessarily incurred by him and any amount paid in satisfaction of judgments in connection with any action, suit or proceeding whether civil or criminal in nature, in which he is made a party by reason of being or having been such a director, officer or employee (whether or not a director, officer, or employee at the time such costs or expenses are incurred by or imposed upon him) except in relation to the matters as to which he shall be adjudged in such action, suit, or proceeding to be liable for gross negligence or willful misconduct in the performance of duty. The company may also reimburse to any director, officer, or employee the reasonable costs of settlement of any action, suit or proceeding, if it shall be found by a majority of the board of the directors not involved in the matter in controversy, whether or not a quorum, that it was to the interest of the company that such settlement be made and that such director, officer or employee was not guilty of gross negligence or willful misconduct.
JungleTalk International, Inc.’s certificate of incorporation does not contain any provisions relating to indemnification.
JungleTalk International, Inc.’s bylaws provide that the company shall indemnify each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed proceeding, by reason of the fact that he or she is or was a director, officer or employee of the company or is or was serving at the request of the company as a director, officer or employee of another
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corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity while serving as a director, officer or employee or in any other capacity while serving as a director, officer or employee, against all expense, liability and loss (including attorneys’ fees, judgments, fines, excise taxes or amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith. Such indemnification is required only if such person acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the company, and with respect to a criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. No indemnification shall be made in the case of an action, suit or proceeding by or in the right of the company in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such director, officer, employee or agent is liable to the company, unless a court shall determine that, despite such adjudication, such person is fairly and reasonably entitled to indemnification.
Nu-Gro US Holdco Corporation’s certificate of incorporation provides that the company shall have the power to indemnify any person who was or is a party or is threatened to be made a party to, or testifies in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative in nature, by reason of the fact that such person is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee or agent of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the full extent permitted by law, and the company may adopt bylaws or enter into agreements with any such person for the purpose of providing for such indemnification.
Nu-Gro US Holdco Corporation’s bylaws do not contain any provisions relating to indemnification.
Nu-Gro America Corp.’s certificate of incorporation does not contain any provisions relating to indemnification.
Nu-Gro America Corp.’s bylaws provide that the company shall indemnify any director, officer, or employee, or former director, officer, or employee of the company, or any person who may have served at its request as a director, officer, or employee of another company in which it owns stock, or of which it is a creditor, against expenses actually and necessarily incurred by him and any amount paid in satisfaction of judgments in connection with any action, suit or proceeding whether civil or criminal in nature, in which he is made a party by reason of being or having been such a director, officer or employee (whether or not a director, officer, or employee at the time such costs or expenses are incurred by or imposed upon him) except in relation to the matters as to which he shall be adjudged in such action, suit, or proceeding to be liable for gross negligence or willful misconduct in the performance of duty. The company may also reimburse to any director, officer, or employee the reasonable costs of settlement of any action, suit or proceeding, if it shall be found by a majority of the board of the directors not involved in the matter in controversy, whether or not a quorum, that it was to the interest of the company that such settlement be made and that such director, officer or employee was not guilty of gross negligence or willful misconduct.
Nu-Gro Technologies, Inc.’s certificate of incorporation does not contain any provisions relating to indemnification.
Nu-Gro Technologies, Inc.’s bylaws provide that the company shall indemnify any director, officer, or employee, or former director, officer, or employee of the company, or any person who may have served at its request as a director, officer, or employee of another company in which it owns stock, or of which it is a creditor, against expenses actually and necessarily incurred by him and any amount paid in satisfaction of judgments in connection with any action, suit or proceeding whether civil or criminal in nature, in which he is made a party by reason of being or having been such a director, officer or employee (whether or not a director, officer, or
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employee at the time such costs or expenses are incurred by or imposed upon him) except in relation to the matters as to which he shall be adjudged in such action, suit, or proceeding to be liable for gross negligence or willful misconduct in the performance of duty. The company may also reimburse to any director, officer, or employee the reasonable costs of settlement of any action, suit or proceeding, if it shall be found by a majority of the board of the directors not involved in the matter in controversy, whether or not a quorum, that it was to the interest of the company that such settlement be made and that such director, officer or employee was not guilty of gross negligence or willful misconduct.
Perfecto Holding Corp.’s fourth amended and restated certificate of incorporation provides that if a director or officer of the company is made a party to any civil or criminal action or proceeding in any matter arising from the performance by such director or officer or his or her duties for or on behalf of the company, then, to the full extent permitted by law, the company shall advance to such director, or upon approval of the board of directors to any officer, all sums necessary and appropriate to enable the director or officer to conduct his or her defense or appeal, in the action or proceeding, and indemnify such director or officer for all sums paid by him or her in the way of judgments, fines, amounts paid in settlement, and reasonable expenses, including attorney’s fees actually and necessarily incurred, in connection with the action or proceeding, or appeal therein, subject to the proper application of credit for any sums advanced to the director or officer. No indemnification may be made to or on behalf of any director or officer if a judgment or other final disposition.adjudication adverse to the director or officer establishes that his or her acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that he or she personally gained in fact a financial profit or other advantage to which he or she was not legally entitled.
Perfecto Holding Corp.’s amended and restated bylaws provide that the company shall indemnify any person who was or is a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed proceeding, whether civil, criminal, administrative, investigative or otherwise, and whether by or in the right of the corporation, its stockholders, a third party or otherwise, by reason of the fact that he is or was a director or officer of the company, or is or was a director or officer of the corporation serving at its request as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, against all expense (including, but not limited to, attorneys’ fees), liability, loss, judgments, fines, excise taxes, penalties and amounts paid in settlement actually and reasonably incurred by him in connection with such proceeding, including expenses incurred in seeking such indemnification. In addition, the company shall grant such indemnification to each of its directors and officers with respect to any matter in a proceeding relating to breach of fiduciary duty. However, such indemnification shall exclude indemnification with respect to any improper personal benefit which a director or officer is determined to have received and the expenses of defending against an improper personal benefit claim unless the director or officer is successful on the merits in said defense, and indemnification of present or former officers, directors, employees or agents of a constituent corporation absorbed in a merger or consolidation transaction with this corporation with respect to their activities prior to said transaction, unless specifically authorized by the board of directors or stockholders of this corporation. Such indemnification shall include prompt payment of expenses incurred. In addition, the company may grant rights to indemnification and to an advancement of expenses to any person who was or is a party or is threatened to be made a party to or is otherwise involved in any proceeding by reason of the fact that he is or was an 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, partnership, joint venture, trust or other enterprise.
Perfecto Manufacturing, Inc.’s certificate of incorporation does not contain any provisions relating to indemnification.
Perfecto Manufacturing, Inc.’s bylaws provide that each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed proceeding by reason of the fact that he or she is or was a director, officer or employee of the company or is or was serving at the request of the company as a director, officer or employee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, whether the basis of such proceeding
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is alleged action in an official capacity while serving as a director, officer or employee or in any other capacity while serving as a director, officer or employee, shall be indemnified and held harmless by the company against all expense, liability and loss (including attorneys’ fees, judgments, fines, excise taxes or amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith. Such indemnification is required only if such person acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the company, and with respect to a criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. No indemnification shall be made in the case of an action, suit or proceeding by or in the right of the company in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such director, officer, employee or agent is liable to the company, unless a court shall determine that, despite such adjudication, such person is fairly and reasonably entitled to indemnification. The company shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) initiated by such indemnitee was authorized by the company’s board of directors.
ROV Holding, Inc.’s certificate of incorporation does not contain any provisions relating to indemnification.
ROV Holding, Inc.’s bylaws provide that any person threatened to be or made party to any threatened, pending or completed action, suit or proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the company or was serving at the request of the company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall be indemnified in the manner and to the full extent permitted by law. Where required by law, such indemnification shall be made only as authorized in the specific case upon a determination that indemnification is proper in the circumstances. To the extent permitted by law, such indemnification shall include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement and, in the manner provided by law, any such expenses may be paid in advance of the final disposition of such action, suit or proceeding.
Sylorr Plant Corp.’s certificate of incorporation does not contain any provisions relating to indemnification.
Sylorr Plant Corp.’s bylaws provide that each person who was or is made a party or is threatened to be made a party to or is involved in any proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer, of the company or is or was serving at the request of the company as a director, officer, employee, fiduciary, or agent of another company or of a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the company to the fullest extent which it is empowered to do so unless prohibited from doing so by the DGCL against all expense, liability and loss (including attorneys’ fees actually and reasonably incurred by such person in connection with such proceeding). The company shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the board of directors of the company. The company may, by action of its board of directors, provide indemnification to employees and agents of the corporation
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with the same scope and effect as the foregoing indemnification of directors and officers. In addition, Article X provides
Tetra Holding (US), Inc.’s bylaws provide that expenses incurred by any person in defending a proceeding will be paid by the corporation in advance of such proceeding's final disposition unless otherwise determined by the board of directors in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if itcompany shall ultimately be determined that he or she is not entitled to be indemnified by the corporation. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate.
Registrants Incorporated Under Wisconsin Law
WPC Brands, Inc. is incorporated under the laws of the State of Wisconsin. Sections 180.0850 through 180.0859 of the Wisconsin Business Corporation Law, referred to herein as the "Wisconsin Statute", require a corporation to indemnify any director or officerperson who is a party to any threatened, pending or completed proceeding toby reason of the extent thefact that such person was a director or officer has been successful on the merits or otherwise in the defense of the company, and may indemnify any such person who was subject to such proceeding for all reasonable expenses incurred inby reason of the proceeding iffact that such person was an employee or agent of the directorcompany, or officer was a party because he or she isserving at the request of the company as a director, officer, employee or agent of the corporation. If the director or officer is not successful in defense of the proceeding, a corporation must indemnify the director or officer unless the liability wasanother company, against expenses (including attorneys’ fees) judgments, fines and amounts actually and reasonably incurred as a result of the breach or failure to perform a duty which the director or officer owes to the corporation and the breach or failure to perform constitutes: (1) a willful failure to deal fairly with the corporation or its shareholders in connection with such proceeding if such person acted in a mattermanner reasonably believed to be in whichor not opposed to the director or officer had a material conflict of interest; (2) a violationbest interests of the company and, with respect to criminal law, unless the person had reasonable cause to believe his or her conduct was lawful orproceedings, had no reasonable cause to believe that his or her conduct was unlawful; (3)unlawful. Such indemnification is also required with respect to suits brought in the right of the company, provided that no indemnification shall be made with respect to proceedings as to which such person shall have been adjudged to be liable for negligence or misconduct unless a transaction from whichcourt shall determine that, despite the director or officer derived an improper personal profit; or (4) willful misconduct. A corporation's articlesadjudication of liability but in view of all circumstances, such person is fairly and reasonably entitled to indemnity.
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Tetra Holding (US), Inc.’s certificate of incorporation may limit its obligation to indemnify under these provisions. The Wisconsin Statute also provides that a corporation may purchasethe company shall indemnify each director and maintain insurance for officers and directors against liabilities incurred while acting in such capacities whether or not the corporation would be empowered to indemnify such persons under the Wisconsin Statute. Expenses for the defense of any action for which indemnification may be available may be advanced by the corporation under certain circumstances. The indemnification provided by the Wisconsin Statute is not exclusive of any other rights of indemnification to which a director or officer of the corporationcompany to the fullest extent permitted by applicable law, except as may be entitled.
Item 21. Exhibits and Financial Statement Schedules.otherwise provided in the company’s bylaws.
(a) Exhibits.
ReferenceWillinger Bros., Inc.’s bylaws do not contain any provisions relating to indemnification.
Willinger Bros., Inc.’s certificate of incorporation provides that the company shall have the power to indemnify any person who is madea party to a proceeding, other than a proceeding by or in the right of the company, by reason of the fact that he or she is or was an officer, director, employee or agent of the company, or is or was serving at the request of the company as an officer, director, employee or agent of another company, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred, if such person acted in good faith and in a manner reasonably believed to be in, or not opposed to, the attached Exhibit Index.
(b) Financial Statement Schedules.best interests of the company and, with respect to criminal proceedings, had no reasonable cause to believe that his or her conduct was unlawful. The company may also indemnify any such persons against proceedings by or in right of the company, provided that no indemnification is permitted with respect to proceedings under which such person shall have been adjudged to be liable for negligence or misconduct, unless a court shall determine that, despite the adjudication of liability, such person is fairly and reasonably entitled to indemnity.
The following financial statement schedules are included
United Pet Group, Inc.’s amended and restated certificate of incorporation provides that the company shall indemnify any person who was or is a party or is threatened to be made a party to, or testifies in, this Registration Statement:
The financial statement schedule filedany threatened, pending or completed proceeding, whether civil, criminal, administrative or investigative in nature, by reason of the fact that such person is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company as parta director, officer, employee or agent of this Registration Statement is listedanother company, partnership, joint venture, employee benefit plan, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suite or proceeding to the full extent permitted by law, and the company may adopt bylaws or enter into agreements with any such person for the purpose of providing for such indemnification.
United Pet Group, Inc.’s amended and restated bylaws do not contain any provisions relating to indemnification.
| Item 21. | Exhibits and Financial Statement Schedules |
(a) Exhibits.
See Index to Financial Statements on page F-1. Schedules other than the one listed on such index are omitted since they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto.of Exhibits (page E-1).
| Item 22. | Undertakings |
(a) The undersigned registrant hereby undertakes:
(1)
(i)
II-4
(ii)
II-10
(iii)
(2)
(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 exchange offer.
(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement 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 initialbona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing 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 it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(c)
(d) The undersigned registrantsregistrant hereby undertakeundertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of the 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.
(d)
(e) 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
II-11
Pursuant to the requirements of the Securities Act, of 1933, United Industries Corporationthe registrant has duly caused this Registration Statement on Form S-4registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouricities and states indicated below on April 30, 2003.June 3, 2005.
Signed in the city of Atlanta, state of Georgia: | SPECTRUM BRANDS, INC. | |||||||
| By: | /s/ JAMES T. LUCKE | |||||||
Name: | James T. Lucke | |||||||
Title: | Senior Vice President– General Counsel and Secretary | |||||||
| ROV HOLDING, INC. | ||||||||
| By: | /s/ JAMES T. LUCKE | |||||||
Name: | James T. Lucke | |||||||
Title: | Secretary | |||||||
| ROVCAL, INC. | ||||||||
| By: | /s/ JAMES T. LUCKE | |||||||
Name: | James T. Lucke | |||||||
Title: | Secretary | |||||||
Signed in the city of St. Louis, state of Missouri: | UNITED INDUSTRIES CORPORATION | |||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President, Secretary and General Counsel | |||||||
| SCHULTZ COMPANY | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | ||||||||
Title: | ||||||||
| WPC BRANDS, INC. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
| SYLORR PLANT CORP. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
| GROUND ZERO, INC. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
| NU-GRO US HOLDCO CORPORATION. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Secretary | |||||||
NU-GRO AMERICA CORP. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
IB NITROGEN INC. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
| NU-GRO TECHNOLOGIES, INC. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
| UNITED PET GROUP, INC. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
DB ONLINE, LLC | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
| SOUTHERN CALIFORNIA FOAM, INC. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
AQ HOLDINGS, INC. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
AQUARIA, INC. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
PERFECTO HOLDING CORP. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
AQUARIUM SYSTEMS, INC. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
PERFECTO MANUFACTURING, INC. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
| JUNGLETALK INTERNATIONAL, INC. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
PETS ‘N PEOPLE, INC. | ||||||||
| By: | /s/ LOUIS N. LADERMAN | |||||||
Name: | Louis N. Laderman | |||||||
Title: | Vice President and Secretary | |||||||
Signed in the city of Blacksburg, state of Virginia: | TETRA HOLDING (US), INC. | |||||||
| By: | /s/ KEVIN BRENNER | |||||||
Name: | Kevin Brenner | |||||||
Title: | President and CEO | |||||||
WILLINGER BROS., INC. | ||||||||
| By: | /s/ KEVIN BRENNER | |||||||
Name: | Kevin Brenner | |||||||
Title: | President and CEO | |||||||
POWER OF ATTORNEY
KNOW ALL MENPERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert L. Caulk, Daniel J. Johnston and Louis N. Laderman,James T. Lucke and each of them his, her or its true and lawful attorneys-in-factattorney-in-fact and agents,agent with full power of substitution and resubstitution, for him, her or it and in his, her or its name, place and stead, in any and all capacities, to sign any orand all amendments (including post-effective amendments) to this registration statement, (and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, for the offering which this Registration Statement relates), 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-factattorney-in-fact and agents, and each of them,agent full power and authority to do and perform each and every act and thing requisite andor necessary to be done in and about the premises, as fully to all intents and purposes as he, she or it might or could do in person, hereby ratifying and confirming all that said attorneys-in-factattorney-in-fact and agents or any of them, or theiragent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 and Power of Attorney haveregistration statement has been signed by the following persons in the capacities and on the dates indicated:indicated.
ROV HOLDING, INC. | |||||||
| By: | /s/ | ||||||
Name: | |||||||
Title: | |||||||
Date: June 3, 2005 | |||||||
II-6
ROVCAL, INC.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Ground Zero Inc. has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri on April 30, 2003.
Name: | James T. Lucke | |
Title: | Secretary | |
Date: June 3, 2005 | ||
UNITED INDUSTRIES CORPORATION | ||
| By: | ||
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert L. Caulk, Daniel J. Johnston and Louis N. Laderman, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement (and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, for the offering which this Registration Statement relates), 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 might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 and Power of Attorney have been signed by the following persons in the capacities and on the dates indicated:
| /s/ | ||||
Name: | ||||
Title: | ||||
Date: June 3, 2005 | ||||
SCHULTZ COMPANY | ||||
| By: | /s/ | |||
Name: | Louis N. Laderman | |||
Title: | Vice President and | |||
Date: June 3, 2005 | ||||
WPC BRANDS, INC. | ||||
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Schultz Company has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri on April 30, 2003.
| By: | |||
POWER OF ATTORNEY
Name:
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert L. Caulk, Daniel J. Johnston and Louis N. Laderman, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement (and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, for the offering which this Registration Statement relates), 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 might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 and Power of Attorney have been signed by the following persons in the capacities and on the dates indicated:
Title: | ||||
Vice President and | ||||
Date: June 3, 2005 | ||||
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Sylorr Plant Corp. has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri on April 30, 2003.
SYLORR PLANT CORP. | |||
| By: | |||
POWER OF ATTORNEY
Name:
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert L. Caulk, Daniel J. Johnston and Louis N. Laderman, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement (and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, for the offering which this Registration Statement relates), 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 might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 and Power of Attorney have been signed by the following persons in the capacities and on the dates indicated:
Title: | ||||
Vice President and | ||||
Date: June 3, 2005 | ||||
GROUND ZERO, INC. | ||||
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, WPC Brands, Inc. has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri on April 30, 2003.
| By: | |||
POWER OF ATTORNEY
Name:
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert L. Caulk, Daniel J. Johnston and Louis N. Laderman, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement (and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, for the offering which this Registration Statement relates), 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 might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 and Power of Attorney have been signed by the following persons in the capacities and on the dates indicated:
Title: | ||||
Vice President and | ||||
Date: June 3, 2005 | ||||
NU-GRO US HOLDCO CORPORATION | ||||
| By: | /s/ LOUIS N. LADERMAN | |||
Name: | Louis N. Laderman | |||
Title: | Secretary | |||
Date: June 3, 2005 | ||||
NU-GRO AMERICA CORP. | ||||
| By: | /s/ LOUIS N. LADERMAN | |||
Name: | Louis N. Laderman | |||
Title: | Vice President and | |||
Date: June 3, 2005 | ||||
IB NITROGEN INC. | ||||
| By: | /s/ LOUIS N. LADERMAN | |||
Name: | Louis N. Laderman | |||
Title: | Vice President and Secretary | |||
Date: June 3, 2005 | ||||
NU-GRO TECHNOLOGIES, INC. | ||||
| By: | /s/ LOUIS N. LADERMAN | |||
Name: | Louis N. Laderman | |||
Title: | Vice President and Secretary | |||
Date: June 3, 2005 | ||||
UNITED PET GROUP, INC. | ||||
| By: | /s/ LOUIS N. LADERMAN | |||
Name: | Louis N. Laderman | |||
Title: | Vice President and Secretary | |||
Date: June 3, 2005 | ||||
II-11
DB ONLINE, LLC | ||
| By: | /s/ LOUIS N. LADERMAN | |
Name: | Louis N. Laderman | |
Title: | Vice President and Secretary | |
Date: June 3, 2005 | ||
SOUTHERN CALIFORNIA FOAM, INC. | ||
| By: | /s/ LOUIS N. LADERMAN | |
Name: | Louis N. Laderman | |
Title: | Vice President and Secretary | |
Date: June 3, 2005 | ||
AQ HOLDINGS, INC. | ||
| By: | /s/ LOUIS N. LADERMAN | |
Name: | Louis N. Laderman | |
Title: | Vice President and Secretary | |
Date: June 3, 2005 | ||
AQUARIA, INC. | ||
| By: | /s/ LOUIS N. LADERMAN | |
Name: | Louis N. Laderman | |
Title: | Vice President and Secretary | |
Date: June 3, 2005 | ||
PERFECTO HOLDING CORP. | ||
| By: | /s/ LOUIS N. LADERMAN | |
Name: | Louis N. Laderman | |
Title: | Vice President and Secretary | |
Date: June 3, 2005 | ||
AQUARIUM SYSTEMS, INC. | ||
| By: | /s/ LOUIS N. LADERMAN | |
Name: | Louis N. Laderman | |
Title: | Vice President and Secretary | |
Date: June 3, 2005 | ||
PERFECTO MANUFACTURING, INC. | ||
| By: | /s/ LOUIS N. LADERMAN | |
Name: | Louis N. Laderman | |
Title: | Vice President and Secretary | |
Date: June 3, 2005 | ||
JUNGLETALK INTERNATIONAL, INC. | ||
| By: | /s/ LOUIS N. LADERMAN | |
Name: | Louis N. Laderman | |
Title: | Vice President and Secretary | |
Date: June 3, 2005 | ||
PETS ‘N PEOPLE, INC. | ||
| By: | /s/ LOUIS N. LADERMAN | |
Name: | Louis N. Laderman | |
Title: | Vice President and Secretary | |
Date: June 3, 2005 | ||
TETRA HOLDING (US), INC. | ||
| By: | /s/ KEVIN BRENNER | |
Name: | Kevin Brenner | |
Title: | President and CEO | |
Date: June 3, 2005 | ||
WILLINGER BROS., INC. | ||
| By: | /s/ KEVIN BRENNER | |
Name: | Kevin Brenner | |
Title: | President and CEO | |
Date: June 3, 2005 | ||
| Exhibit 1.1 | Purchase Agreement, dated January 21, 2005, by and among Rayovac Corporation, ROV Holding, Inc., Rovcal, Inc., Banc of America Securities LLC, Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and ABN AMRO (filed by incorporation by reference to Exhibit 1.1 to the Current Report on Form 8-K filed with the SEC on January 24, 2005). | ||
| Exhibit 2.1 | Agreement and Plan of Merger, dated January 3, 2005, by and among Rayovac Corporation, Lindbergh Corporation and United Industries Corporation (filed by incorporation by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on January 4, 2005). | ||
| Exhibit 3.1 | |||
| Amended and Restated | |||
| Exhibit 3.3* | AQ Holdings, Inc. Amended and Restated Certificate of Incorporation. | ||
| Exhibit 3.4* | AQ Holdings, Inc. By-Laws. | ||
| Exhibit 3.5* | Aquaria, Inc. Second Amended and Restated Articles of Incorporation. | ||
| Exhibit 3.6* | Aquaria, Inc. Amended and Restated By-Laws. | ||
| Exhibit 3.7* | Aquarium Systems, Inc. Certificate of Incorporation. | ||
| Exhibit 3.8* | Aquarium Systems, Inc. By-Laws. | ||
| Exhibit 3.9* | DB Online, LLC Articles of Organization. | ||
| Exhibit 3.10* | DB Online, LLC Operating Agreement. | ||
| Exhibit 3.11* | Ground Zero Inc. Articles of Incorporation. | ||
| Exhibit 3.12* | Ground Zero Inc. By-Laws. | ||
| Exhibit 3.13* | IB Nitrogen Inc. Certificate of Incorporation. | ||
| Exhibit 3.14* | IB Nitrogen Inc. By-Laws. | ||
| Exhibit 3.15* | JungleTalk International, Inc. Certificate of Incorporation. | ||
| Exhibit 3.16* | JungleTalk International, Inc. By-Laws. | ||
| Exhibit 3.17* | Nu-Gro America Corp. Certificate of Incorporation. | ||
| Exhibit 3.18* | Nu-Gro America Corp. By-Laws. | ||
| Exhibit 3.19* | Nu-Gro Technologies, Inc. Certificate of Incorporation. | ||
| Exhibit 3.20* | Nu-Gro Technologies, Inc. By-Laws. | ||
| Exhibit 3.21* | Nu-Gro US Holdco Corporation Certificate of Incorporation. | ||
| Exhibit 3.22* | Nu-Gro US Holdco Corporation By-Laws. | ||
| Exhibit 3.23* | Perfecto Holding Corp. Fourth Amended and Restated Certificate of Incorporation. | ||
| Exhibit 3.24* | Perfecto Holding Corp. Amended and Restated By-Laws. | ||
| Exhibit 3.25* | Perfecto Manufacturing, Inc. Certificate of Incorporation. | |
| Exhibit 3.26* | Perfecto Manufacturing, Inc. By-Laws. | |
| Exhibit 3.27* | Pets ‘N People, Inc. Articles of Incorporation. | |
| Exhibit 3.28* | Pets ‘N People, Inc. By-Laws. | |
| Exhibit 3.29 | ROV Holding, Inc. Certificate of Incorporation (filed by incorporation by reference to Exhibit 3.3 to the Registration Statement on Form S-4 filed with the SEC on November 6, 2003). | |
| Exhibit 3.30 | ROV Holding, Inc. By-Laws (filed by incorporation by reference to Exhibit 3.4 to the Registration Statement on Form S-4 filed with the SEC on November 6, 2003). | |
| Exhibit 3.31 | Rovcal, Inc. Articles of Incorporation (filed by incorporation by reference to Exhibit 3.5 to the Registration Statement on Form S-4 filed with the SEC on November 6, 2003). | |
| Exhibit 3.32 | Rovcal, Inc. By-Laws (filed by incorporation by reference to Exhibit 3.6 to the Registration Statement on Form S-4 filed with the SEC on November 6, 2003). | |
| Exhibit 3.33* | Schultz Company Amended Articles of Incorporation. | |
| Exhibit 3.34* | Schultz Company By-Laws. | |
| Exhibit 3.35* | Southern California Foam, Inc. Articles of Incorporation. | |
| Exhibit 3.36* | Southern California Foam, Inc. By-Laws. | |
| Exhibit 3.37* | Sylorr Plant Corp. Certificate of Incorporation. | |
| Exhibit 3.38* | Sylorr Plant Corp. By-Laws. | |
| Exhibit 3.39* | Tetra Holding (US), Inc. Certificate of Incorporation. | |
| Exhibit 3.40* | Tetra Holding (US), Inc. By-Laws | |
| Exhibit 3.41* | United Industries Corporation Amended and Restated Certificate of Incorporation. | |
| Exhibit 3.42* | United Industries Corporation By-Laws. | |
| Exhibit 3.43* | United Pet Group, Inc. Amended and Restated Certificate of Incorporation. | |
| Exhibit 3.44* | United Pet Group, Inc. Amended and Restated By-Laws. | |
| Exhibit 3.45* | Willinger Bros., Inc. Certificate of Incorporation. | |
| Exhibit 3.46* | Willinger Bros., Inc. By-Laws. | |
| Exhibit 3.47* | WPC Brands, Inc. | |
| Exhibit 3.48* | WPC Brands, Inc. By-Laws. | |
| Exhibit 4.1 | ||
| Indenture dated as of | ||
| Exhibit 4.2 | Supplemental Indenture dated as of May 3, 2005 to the Indenture dated as of February 7, 2005 by and among Spectrum Brands, Inc., the Guarantors (as defined in the Indenture), certain of Spectrum Brands, Inc.’s domestic subsidiaries and U.S. Bank National Association (filed by incorporation by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the SEC on May 5, 2005). | |
| Exhibit 4.3 | Indenture, dated September 30, 2003, by and among Rayovac Corporation, ROV Holding, Inc., Rovcal, Inc., Vestar Shaver Corp., Vestar Razor Corp., Remington Products Company, L.L.C., Remington Capital Corporation, Remington Rand Corporation, Remington Corporation, L.L.C. and U.S. Bank National Association (filed by incorporation by reference to the Current Report on Form 8-K filed with the SEC on October 15, 2003). | ||
| Exhibit 4.4 | Supplemental Indenture, dated October 24, 2003, by and among Rayovac Corporation, ROV Holding, Inc., Rovcal, Inc., Remington Products Company, L.L.C. and U.S. Bank National Association (filed by incorporation by reference to the Registration Statement on Form S-4 filed with the SEC on November 6, 2003). | ||
| Exhibit 4.5 | Third Supplemental Indenture dated as of February 7, 2005 to the Indenture dated as of September 30, 2003 by and among Rayovac Corporation, certain of Rayovac Corporation’s domestic subsidiaries and U.S. Bank National Association (filed by incorporation by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the SEC on February 11, 2005). | ||
| Exhibit 4.6 | Fourth Supplemental Indenture dated as of May 3, 2005 to the Indenture dated as of September 20, 2003 by and among Spectrum Brands, Inc., the Guarantors (as defined in the Indenture), certain of Spectrum Brands, Inc.’s domestic subsidiaries and U.S. Bank National Association (filed by incorporation by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on May 5, 2005). | ||
| Exhibit 4.7 | Registration Rights Agreement dated as of | ||
| Exhibit 4.8 | |||
| Opinion of | |||
| Exhibit 5.2* | Opinion of James T. Lucke, Senior Vice President, Secretary and General Counsel of Spectrum Brands, Inc. | ||
| Exhibit 5.3* | Opinion of Thompson Coburn LLP. | ||
| Exhibit 5.4* | Opinion of | ||
| Exhibit 5.5* | Opinion of Cades Schutte LLP. | ||
| Exhibit 10.1 | |||
| Amended and Restated Employment Agreement, dated as of | |||
| Exhibit 10.3 | |||
| Exhibit 10.4 | |||
| Exhibit 10.5 | Separation Agreement and Release between the Company and Lester Lee dated as of | |
| Exhibit 10.6 | Building Lease between Rayovac Corporation and SPG Partners dated May 14, 1985, as amended June 24, 1986, and June 10, 1987 (filed by incorporation by reference to the Registration Statement on form S-1 filed with the SEC on December 13, 1996). | |
| Exhibit 10.7 | Amendment, dated December 31, 1998, between Rayovac Corporation and SPG Partners, to the Building Lease, between Rayovac Corporation and SPG Partners, dated May 14, 1985 (filed by incorporation by reference to Exhibit 10.12 to the Quarterly Report on Form 10-Q for the quarterly period ended January 3, 1999, filed with the SEC on February 17, 1999). | |
| Exhibit 10.8 | Real Property Leasing Agreement, dated December 21, 2000, by and between VARTA Gerätebatterie GmbH, as Tenant, and ROSATA Grudstücks-Vermietungsgesellschaft mbH and Co. object Dischingin KG, as Landlord, as amended (filed by incorporation by reference to Exhibit 10.15 to the Quarterly Report on Form 10-Q for the quarterly period ended December 29, 2002, filed with the SEC on February 12, 2003). | |
| Exhibit 10.9 | Addendum No. 2 to Real Property Leasing Agreement, dated December 21, 2000, by and between VARTA Gerätebatterie GmbH, as Tenant, and ROSATA Grudstücks-Vermietungsgesellschaft mbH and Co. object Dischingin KG, as Landlord, as amended (filed by incorporation by reference to Exhibit 10.16 to the Registration Statement on Form S-4 filed with the SEC on November 6, 2003). | |
| Exhibit 10.10 | Fourth Amended and Restated Credit Agreement, dated February 7, 2005 between Rayovac Corporation, the Subsidiary Borrowers named therein, Bank of America, N.A., Citicorp North America, Inc., Merrill Lynch Capital Corporation, the other lenders party thereto, Banc of America Securities LLC, Citigroup Global Markets Inc., and Merrill Lynch, Pierce, Fenner & Smith (filed by incorporation by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on February 11, 2005). | |
| Exhibit 10.11 | Amendment No.1 dated as of April 29, 2005 to the Fourth Amended and Restated Credit Agreement dated as of | |
| Exhibit 10.12 | Security Agreement, dated February 7, 2005, between the Grantors referred to therein and Bank Of America, N.A. (filed by incorporation by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on February 11, 2005). | |
| Exhibit 10.13 | ROV Guarantee, dated as of | |
| Exhibit 10.14 | ||
| Exhibit 10.15 | UK Guarantee dated as of February 7, 2005 from the UK Guarantors named therein and | |
| Exhibit 10.16 | Registration Rights Agreement, dated February 7, 2005, by and among Rayovac Corporation and those Persons listed on Schedule 1 attached thereto, who were, immediately prior to the Effective Time, stockholders of United Industries Corporation (filed by incorporation by reference to Exhibit 10.6 to the Current Report on Form 8-K filed with the SEC on February 11, 2005). | |
| Exhibit 10.17 | Standstill Agreement by and between Rayovac Corporation, Thomas H. Lee Equity Fund IV, L.P., THL Equity Advisors IV, LLC, Thomas H. Lee Partners, L.P., and Thomas H. Lee Advisors, L.L.C. (filed by incorporation by reference to Exhibit 10.7 to the Current Report on Form 8-K filed with the SEC on February 11, 2005). | |
| Exhibit 10.18 | Joint Venture Agreement, dated July 28, 2002, by and among Rayovac Corporation, VARTA AG and ROV German Limited GmbH, as amended (filed by incorporation by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on October 16, 2002). | |
| Exhibit 10.19 | Technical Collaboration, Sale and Supply Agreement, dated as of March | |
| Exhibit 10.20 | Lease by and between Rex Realty Co., Lessor, and United Industries Corporation, Lessee, effective December 1, 1995 (filed by incorporation by reference to Exhibit 10.16 to the Form S-4 of United Industries Corporation (SEC file # 333-76055) filed with SEC on April 9, 1999). | |
| Exhibit 10.21 | Lease and Agreement between LGH Investment, L.L.C., as Landlord, and Chemical Dynamics, Inc. d/b/a Schultz Company, as Tenant, dated January 18, 2000 (filed by incorporation by reference to Exhibit 10.21 to the Quarterly Report on Form 10-Q for the quarterly period ended April 3, 2005 filed with the SEC on May 13, 2005). | |
| Exhibit 10.22 | Lease Agreement between Pursell Holdings, LLC, as Lessor, and Sylorr Plant Corp., as Lessee, dated October 3, 2002 (filed by incorporation by reference to Exhibit 10.22 to the Quarterly Report on Form 10-Q for the quarterly period ended April 3, 2005 filed with the SEC on May 13, 2005). | |
| Exhibit 10.23 | Trademark License and Manufacturing and Supply Agreement by and between United Industries Corporation and Home Depot U.S.A., Inc. effective as of January 1, 2004 (filed by incorporation by reference to Exhibit 10.50 to the Quarterly Report on Form 10-Q of United Industries Corporation (SEC file # 333-76055) for the quarterly period ended March 31, 2004, filed with the SEC on May 14, 2004). | |
| Exhibit 10.24 | ||
| Exhibit 10.25 | ||
| Exhibit 10.26 | ||
| Exhibit 10.27 | ||
| Exhibit 10.28 | |||
| Exhibit 10.29 | |||
| Exhibit 10.30 | |||
| Exhibit 10.31 | Amendment No. | ||
| Exhibit 10.32 | Rayovac Corporation Deferred Compensation Plan, as amended (filed by incorporation by reference to Exhibit 10.22 to the Quarterly Report on Form 10-Q for the quarterly period ended December 29, 2002, filed with the SEC on February 12, 2003). | ||
| Exhibit 10.33 | Amendment No. | ||
| Exhibit 12.1* | |||
| Exhibit 21.1* | |||
| Exhibit 23.1* | |||
| Consent of PricewaterhouseCoopers | ||
| Exhibit 23.3* | Consent of PricewaterhouseCoopers | |
| Exhibit 23.4* | Consent of | |
| Exhibit 23.5* | Consent of Ernst & | |
| Exhibit 23.6* | Consent of KPMG LLP (relating to Tetra Holding (US), Inc. and subsidiary). | |
| Exhibit 23.7* | Consent of Skadden, Arps, Slate, Meagher and Flom LLP (included in Exhibit 5.1) | |
| Exhibit 23.8* | Consent of James T. Lucke, Esq. (included in Exhibit 5.2). | |
| Exhibit 23.9* | Consent of Thompson Coburn LLP | |
| Exhibit 23.10* | ||
| Exhibit 23.11* | Consent of Cades Schutte (included in Exhibit 5.5). | |
| Exhibit 24.1* | Power of Attorney | |
| Exhibit 25.1* | Form T-1 Statement of Eligibility under the Trust Indenture Act of | |
| Exhibit 99.1* | Form of | |
| Exhibit 99.2* | Form of | |
| Exhibit 99.3* | Form of | |
| Exhibit 99.4* | Form of | |
| * | Filed herewith |
E-6