As filed with the Securities and Exchange Commission on April 9, 1999.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
Under the Securities Act of 1933
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UNITED INDUSTRIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 2879 43-1025604
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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8825 Page Boulevard
St. Louis, Missouri 63114
Telephone: (314) 427-0780
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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Daniel J. Johnston
Senior Vice President
8825 Page Boulevard
St. Louis, Missouri 63114
Telephone: (314) 427-0780
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Carter W. Emerson, P.C.
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telephone: (312) 861-2000
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Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |_|
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Proposed
Maximum Proposed Maximum
Title of each Class of Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered Unit(1) Price(1) Registration Fee
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9-7/8% Series B Senior
Subordinated Notes due 2009................ $150,000,000 100% $150,000,000 $41,700
====================================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
SUBJECT TO COMPLETION, DATED APRIL 9, 1999
PRELIMINARY PROSPECTUS CONFIDENTIAL
, 1999
United Industries Corporation
Offer to Exchange All Outstanding 9-7/8% Series B
Registered Senior Subordinated Notes Due 2009
For All Outstanding
9-7/8% Series A Unregistered Senior Subordinated Notes Due 2009
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Terms of the Exchange Offer
o This exchange offer expires at 5:00 p.m., New York City time, on , 1999,
unless extended.
o All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged.
o Tenders of the outstanding notes may be withdrawn any time prior to the
expiration of the exchange offer.
o This exchange offer is subject to certain customary conditions, which we may
waive.
o We will not receive any proceeds from this exchange offer.
o The terms of the notes we will issue in this exchange offer are substantially
identical to the outstanding notes, except for certain transfer restrictions
and registration rights that apply to the outstanding notes.
o Interest on the notes accrues at the rate of 9-7/8% per annum, payable
semi-annually on each April 1 and October 1.
o There is no existing market for the notes we are offering in this exchange
offer and we do not intend to apply for their listing on any securities
exchange.
Notice to Investors--
o Before you tender your notes, you should consider carefully the "Risk
Factors" beginning on page 11 of this prospectus.
Neither the Securities and Exchange Commission (the "SEC") nor any state
securities commission has approved or disapproved of these notes or passed upon
the adequacy or accuracy of this prospectus. Any representation to the contrary
is a criminal offense.
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The date of this Prospectus is , 1999.
TABLE OF CONTENTS
Page
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Prospectus Summary ............................................................................ 1
Risk Factors .................................................................................. 11
The Transactions .............................................................................. 16
Use of Proceeds ............................................................................... 17
Capitalization ................................................................................ 18
Unaudited Pro Forma Financial Statements ...................................................... 19
Selected Historical Financial Data ............................................................ 26
Management's Discussion and Analysis of Financial Condition and Results of Operations ......... 28
Business ...................................................................................... 32
Management .................................................................................... 43
Certain Transactions .......................................................................... 47
Principal Stockholders ........................................................................ 48
Description of Capital Stock .................................................................. 49
Description of Our Senior Credit Facility ..................................................... 50
Description of the New Notes .................................................................. 52
Exchange Offer ................................................................................ 93
Certain United States Federal Income Tax Considerations ....................................... 103
Plan of Distribution .......................................................................... 108
Legal Matters ................................................................................. 108
Independent Auditors .......................................................................... 108
Available Information ......................................................................... 108
Forward-looking Statements .................................................................... 109
Index to Financial Statements ................................................................. F-1
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We are a Delaware corporation. Our principal office is located at 8825 Page
Boulevard, St. Louis, Missouri 63114. Our telephone number is (314) 427-0780.
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Spectracide(R), Spectracide Terminate(TM), Spectracide Pro(TM), Hot
Shot(R), Real-Kill(R), No-Pest(R), Rid-a-Bug(R), Bag-a-Bug(R), Shootout(R) and
Gro Best(R) are trademarks of United Industries Corporation. United Industries
Corporation has, in effect, perpetual licenses to use the Cutter(R), Peters(R)
and Peters Professional(R) trademarks. KGro(R) and KRid(R) are trademarks of
Kmart Corporation.
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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
SEC is effective. This prospectus is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including the "Risk Factors"
section and the financial statements. Unless otherwise indicated, all references
in this prospectus to "we," "us," "our" and similar terms, as well as references
to "our company" and "United," refer to United Industries Corporation.
References in this prospectus to industry data and statistics are based on
estimates compiled by or derived from Gallup Organization, Inc. and/or Kalorama
Information, LLC. Unless otherwise indicated, references in this prospectus to
our sales data were obtained from Information Resources, Inc. and Triad Systems
Corporation.
The Company
United is the leading manufacturer and marketer of value-oriented branded
products for the consumer lawn and garden pesticide and household insecticide
markets in the United States. We manufacture and market one of the broadest
lines of pesticides in the industry, including herbicides and indoor and outdoor
insecticides, as well as insect repellents and water-soluble fertilizers, under
a variety of brand names. Our "value" and "opening price point" brands generally
compete with higher priced premium brands. Our portfolio of value-oriented
brands includes the following:
o Spectracide, the leading value brand and overall fastest growing brand of
consumer lawn and garden pesticides;
o Spectracide Terminate, the first ever do-it-yourself consumer termite killing
system, launched in 1998;
o Spectracide Pro, lawn and garden and household pesticides targeted toward the
professional market, introduced in 1999;
o Hot Shot, the leading value brand and overall fastest growing brand of
consumer household insecticides;
o Cutter, the leading value brand and overall fastest growing brand of consumer
insect repellents;
o Peters, the leading value brand of consumer water-soluble fertilizers; and
o Real-Kill (Home Depot), No-Pest (Lowe's) and KRid and KGro (Kmart), the
opening price point brands of consumer lawn and garden pesticides and
household insecticides at key retailers.
We believe that our market leadership is a result of our: (a) leading
value-oriented brands, (b) strategic relationships with major national
retailers, (c) extensive distribution capabilities, (d) exclusive direct sales
force and (e) proprietary management information systems. Our portfolio of
pesticide brands holds the number one position in the home improvement center
channel and the number two position in the mass merchandiser channel. In 1998,
we generated net sales and pro forma EBITDA (as defined herein) of $282.7
million and $60.3 million, respectively.
Our management team has extensive operating, merchandising and marketing
experience with us and in the consumer products industry. This management team
has grown our business by developing new products and acquiring strategic brands
while also improving operating efficiencies. As a result, from 1994 to 1998 (pro
forma for the transactions) our:
o Net sales grew at a compound annual rate of 19.2%;
o EBITDA grew at a compound annual rate of 36.6%; and
o EBITDA margin increased from 12.4% to 21.3%.
Industry Overview
Retail sales of consumer lawn and garden pesticides and household
insecticides in the United States totaled $2.7 billion in 1998. Since 1994, the
market for these products has grown at an average annual rate of approximately
3%. We believe that the industry will continue to grow at a similar rate over
the next several years due to favorable demographic trends. Approximately 67% of
households in the United States, or 68 million households, participate in some
form of lawn and garden care activity. Moreover, consumers over the age of
forty-five represent the largest segment of lawn and garden care product users
and typically enjoy more leisure time and higher levels of discretionary income
than the general population. As the baby boom generation ages, this segment is
expected to grow at a rate more than twice that of the total population. This
demographic trend is likely to increase the number of lawn and garden care
product users.
We also believe that we will benefit from the following trends in the
industry:
Channel Consolidation. Historically, consumer lawn and garden care
products have been distributed through a variety of retail channels, including
home improvement centers, mass merchandisers, hardware stores, grocery and drug
stores, warehouse clubs and garden centers. In recent years, as home improvement
centers and mass merchandisers have added stores and expanded their lawn and
garden care departments, consumers have increasingly purchased their lawn and
garden care needs from these outlets due to their broader and deeper product
offerings, competitive prices and convenient locations and hours. In 1997,
approximately 70% of consumers purchased lawn and garden care products at home
improvement centers and mass merchandisers compared to just 57% in 1992. We
believe that these retail channels will continue to gain market share from other
channels over the next several years.
Growth in Value-Oriented Brands. Consumer lawn and garden care products
fall into one of three brand tiers: (a) premium brands, (b) value brands or (c)
opening price point brands. Historically, the market was dominated by premium
brands. Over the past several years, the market has shifted toward value and
opening price point brands. Value brands are targeted toward consumers who want
products and packaging that are comparable or superior to premium brands, but at
a lower price, while opening price point brands are designed for consumers who
want quality products and packaging, but are extremely cost conscious. Value and
opening price point brands' combined share of shelf space at our four largest
customers increased from approximately 40% to 60% between 1995 and 1998 at the
expense of premium brands. We believe that value and opening price point brands
will continue to grow because of (a) continued improving consumer perception of
the quality and performance of these brands and (b) ongoing increases in shelf
space dedicated to these brands due to the higher margins they offer to
retailers.
Professional Market Buying Patterns. Home improvement centers are
increasingly targeting the trade professionals in a variety of industries. As a
result, trade professionals are utilizing this channel with greater frequency to
take advantage of the competitive prices, convenience of locations and hours,
delivery services and availability of credit offered by such retailers. Smaller
independent pest control operators and lawn and garden care professionals, who
represent approximately 70% of the professional market, have historically
purchased their supplies from commercial distributors. While the current
selection of professional lawn and garden care products is limited at home
improvement centers, we believe that strategic initiatives underway at several
national retailers will improve the breadth of professional products offered and
drive future growth through this channel.
Competitive Strengths
Leading Value-Oriented Brands. United is the leading manufacturer and
marketer of value-oriented branded products for the consumer lawn and garden
pesticide and household insecticide markets in the United States. Our value and
opening price point brands have driven a shift in the industry by offering
innovative products comparable or superior quality to premium brands at lower
prices. As a result, our products have developed significant brand awareness and
customer loyalty. Our portfolio of pesticide brands holds the number one
position (36% share) in the home improvement center channel and the number two
position (29% share) in the mass merchandiser channel.
Strategic Partnerships With Leading Retailers. We have developed
"strategic partnerships" with a number of leading national retailers in the
fastest growing retail channels. Our four largest customers, Home Depot,
Wal*Mart,
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Lowe's and Kmart, each hold significant positions in the lawn and garden care
market and have together opened approximately 750 net new stores over the last
five years. As a result, we have been able to significantly increase our sales
as these retailers have added new stores and captured market share.
Large, Exclusive Direct Sales Force. We have the largest direct sales
force in our industry, with approximately 300 sales representatives dedicated to
merchandising our products. Each representative is responsible for approximately
30 retail outlets and typically visits each store on a weekly basis to
merchandise shelf space, collect inventory data, record orders and educate
in-store personnel about our products. This process facilitates real-time
marketing, re-ordering and pricing decisions, helping to maximize store-level
profitability. In addition, our exclusive sales force helps us to identify
emerging trends and develop products to meet consumers' needs. We believe that
our level of direct in-store sales support is unique among our competitors.
Proprietary Management Information System. Our highly advanced and
proprietary management information system provides real-time data on sales,
orders and inventories at each retail outlet, allowing targeted sales promotions
and efficient inventory management. With same-day order processing and
strategically located distribution centers throughout the United States, we are
generally able to deliver products to retailers within 72 hours of an order,
allowing retailers to maintain lower inventory levels, generate higher turns and
minimize costly returns.
Proven, Committed Senior Management Team. Our management team has
extensive operating, merchandising and marketing experience with us and in the
consumer products industry. This management team has grown our business by
developing new products and acquiring strategic brands while also improving
operating efficiencies. In connection with the recapitalization, we named
Stephen R. Brian as our President and Chief Executive Officer. Mr. Brian
complements the present management team, joining us with over 30 years of
experience in the consumer products industry. Combined, our top four senior
managers have over 80 years of experience in the consumer products industry and
19 years of experience with us. After the recapitalization, our senior
management team owns or has the right to acquire approximately 9% of our fully
diluted common stock.
Business Strategy
We plan to capitalize on our strengths and the favorable industry trends
to enhance our leadership position in value and opening price point brands by
implementing the following key elements of our business strategy:
Enhance Value Brand Position. We plan to maintain our focus on building
our leading value brands for the consumer lawn and garden pesticide and
household insecticide markets. Our strategy is to provide innovative products of
comparable or superior quality to our competitors at a lower price to appeal to
the large, growing segment of consumers that desire a better value. Over the
past five years, we have grown the sales and market shares of our core value
brands - Spectracide, Hot Shot, Cutter and Peters - through the successful
execution of this strategy.
Partner with Leading Retailers. We believe that our strong value brand
position coupled with our operational expertise allows us to partner with
leading national retailers to develop opening price point brands. We currently
manufacture and market the opening price point brands for retailers such as Home
Depot, Kmart and Lowe's. Our strategic partnerships with these retailers have
enabled us to significantly increase our portion of their category shelf space.
Specifically, our products occupy over half of the category shelf space at Home
Depot, Kmart and Lowe's, where we are "category manager" for lawn and garden
pesticides. As category manager, our representatives work together with these
national retailers to determine advantageous pricing, product mix and
merchandising plans.
Maximize Category Profitability for Retailers. We focus on maximizing
retailers' profitability in selling our products by being a low-cost provider
and leveraging our one-step distribution. We are a low-cost provider as a result
of our high level of vertical integration and our patented water-based aerosol
technology. We have a one-step distribution process through our approximately
300 person exclusive direct sales force, the largest in the industry.
Leverage Distribution Network. We continually seek to capitalize on our
strong distribution network and relationships with retailers. To that end, we
have increased our sales and improved our operating leverage by supplying
complementary product lines to retailers. We add new products either through new
product development or by
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acquiring product lines. Our new product development strategy has been to
introduce innovative products that have superior performance, easy-to-understand
packaging and value pricing. Over the past three years, we have introduced 80
new products, which represented nearly 40% of our 1998 net sales. New products
generate additional sales and generally provide higher margins to us and our
retailers. Spectracide Terminate generated net sales of $21.9 million in its
limited initial launch in 1998, demonstrating the strength of our distribution
network. Our brand acquisition strategy has been to selectively acquire product
lines that can benefit from our strong distribution network, product development
expertise and other competitive strengths. Acquired product lines such as Peters
and Cutter have experienced rapid growth upon integration into our distribution
system.
Target Professional Market. While the primary end users of our products
have historically been household consumers, we have begun to target smaller
independent pest control operators and lawn and garden care professionals
through our existing retail channels. Historically, these professionals have
purchased their pesticide and lawn and garden care products from commercial
distributors. We believe that these professionals will increasingly utilize the
home improvement center channel to take advantage of the competitive prices,
convenience of locations and hours, delivery services and availability of credit
offered. To benefit from and further drive this trend, we developed Spectracide
Pro, a group of products designed specifically for the professional market.
Launched in March 1999, this line of professional pesticides is supported by
national advertising in relevant trade magazines, in-store promotional
campaigns, an exclusive direct sales force and technical support. We believe
that we can capitalize on our strong relationships with leading national
retailers to gain a meaningful position in the professional market.
The Transactions
On January 20, 1999, pursuant to a recapitalization agreement with UIC
Holdings, L.L.C., which is owned by Thomas H. Lee Equity Fund IV, L.P., we
completed a $652.0 million recapitalization (as further described in "The
Transactions" section of this prospectus, the "Transactions").
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The Initial Offering
On March 24, 1999, we privately placed $150 million of our old 9-7/8%
Senior Subordinated Notes due 2009. We entered into a registration rights
agreement with the initial purchasers in that private offering in which we
agreed, among other things, to use our reasonable best efforts to file a
registration statement with the SEC, complete this exchange offer within 195
days after issuing the old notes and, in some circumstances, file a shelf
registration statement. We must pay liquidated damages to the holders of the old
notes if we do not meet these deadlines or if we file a shelf registration
statement and fail to keep it effective until the second anniversary of the
issue date of the notes.
The Exchange Offer
Securities Offered...................................... $150,000,000 principal amount of 9-7/8% Series B Registered Senior
Subordinated Notes due 2009.
The Exchange Offer...................................... We are offering to exchange $150,000,000 principal amount of our new
notes which have been registered under the Securities Act of 1933 for
$150,000,000 of our outstanding 9-7/8% Series A Unregistered Senior
Subordinated Notes due 2009, which were issued in March 1999.
We will accept the old notes in exchange for the new notes in order
to increase the liquidity of both series of our outstanding notes. The
new notes are substantially identical to the old notes, except that certain
transfer restrictions and registration rights relating to the old
notes do not apply to the new notes. You may tender your old notes
by following the procedures described in this prospectus under
the heading "The Exchange Offer."
Expiration Date......................................... The exchange offer will expire at 5:00 p.m., New York City time, on
, 1999, unless we extend it.
Withdrawal Rights....................................... You may withdraw your tender of your notes at any time prior to 5:00 p.m.,
New York City time, on the expiration date of the exchange offer.
Conditions to the Exchange Offer........................ The exchange offer is subject to customary conditions, which we may
waive. Please read the "The Exchange Offer--Conditions" section of this
prospectus for more information regarding conditions to the exchange offer.
Procedures for Tendering Your
Old Notes............................................... If you are a holder of old notes who wishes to accept the exchange offer,
you must either:
(a) complete, sign and date the accompanying Letter of Transmittal, or a
facsimile thereof and mail or otherwise deliver such documentation,
together with your old notes, to the exchange agent at the address set
forth under "The Exchange--Offer Exchange Agent;" or
(b) arrange for The Depository Trust Company to transmit certain
required information to the exchange agent for this exchange offer in
connection with a book-entry transfer.
By tendering your notes in this manner, you will be representing, among
other things, that:
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o the new notes you acquire pursuant to the exchange offer are
being acquired in the ordinary course of your business;
o you are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate
in the distribution of the new notes issued to you in the exchange
offer; and
o you are not an "affiliate" of our company.
Certain United States Federal Income Tax
Consequences............................................ Your exchange of old notes for new notes pursuant to the exchange offer
will not result in any gain or loss to you for federal income tax purposes.
See the "Certain United States Federal Income Tax Consequences" section
of this prospectus.
Consequences of Failure to Exchange..................... Old notes that are not tendered or that are tendered, but not accepted,
will be subject to the existing transfer restrictions on such notes after
the exchange offer. We will have no further obligation to register the
old notes. If you do not participate in the exchange offer, the liquidity
of your notes could be adversely affected.
Procedures for Beneficial Owners........................ If you are the beneficial owner of old notes registered in the name of a
broker, dealer or other nominee and you wish to tender your notes, you
should contact such person in whose name your notes are registered and
promptly instruct such person to tender on your behalf.
Guaranty Delivery Procedures............................ If you wish to tender your old notes and time will not permit your required
documents to reach the State Street Bank and Trust Company by the
expiration date, or the procedure for book-entry transfer cannot be
completed on time, or the certificate for your notes cannot be delivered on
time, you may tender your notes pursuant to the guaranteed delivery
procedures. See "The Exchange Offer--Guaranteed Delivery Procedures."
Acceptance of Old Notes;
Delivery of New Notes .................................. Subject to certain conditions, we will accept old notes which are properly
tendered in the exchange offer and not withdrawn, prior to 5:00 p.m., New
York City time, on the expiration date of the exchange offer. The new
notes will be delivered as promptly as practicable following the
expiration date.
Use of Proceeds ........................................ We will receive no proceeds from the exchange offer.
Exchange Agent.......................................... State Street Bank and Trust Company is the exchange agent for the
exchange offer.
Summary of the New Notes
Issuer.................................................. United Industries Corporation.
Securities Offered...................................... $150,000,000 principal amount of 9-7/8% Series B Senior Subordinated
Notes due 2009.
Maturity Date........................................... April 1, 2009.
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Interest Rate........................................... 9.875% per year (calculated using a 360-day year).
Interest Payment Dates.................................. Every April 1 and October 1, beginning on October 1, 1999.
Ranking................................................. The notes will not be secured by any collateral. The notes will rank below
all of our senior debt, but will rank equal to our other senior
subordinated debt. Therefore, if we default, your right to payment under
the notes will be junior to the rights of holders of our senior debt to
collect money we owe them. As of December 31, 1998, on a pro forma basis,
we had $225.0 million of senior debt outstanding (not including $110.0
million of available borrowings under our senior credit facility).
Guarantees ............................................. The notes will not be guaranteed by anyone on the issue date. We
currently have no subsidiaries, but if we create any subsidiaries in the
future, certain of these subsidiaries will be required to guarantee the
notes with unconditional guarantees that will rank below their senior
debt, but equal to their senior subordinated debt, in the right of payment.
Optional Redemption after Five Years.................... Except in connection with certain public equity offerings by our company,
we cannot choose to redeem the notes until April 1, 2004. At any time
after that date (which may be more than once), we can choose to redeem
some or all of the notes at prices listed under "Description of the
Notes--Optional Redemption."
Optional Redemption after Equity Offerings.............. At any time (which may be more than once) before the third anniversary
date of the issue date of the notes, we can choose to buy back up to 40%
of the original principal amount of the notes with money that we raise in
one or more public equity offerings of $25.0 million or more, as long as:
o we pay 109.875% of the face amount of the notes, plus interest,
o we buy the notes back within 90 days of completing the public
equity offering, and
o at least 60% of the notes originally issued remain outstanding
afterwards.
Change of Control Offer................................. If we experience a change of control, we must give holders of the notes
the opportunity to sell us their notes at 101% of their face amount, plus
accrued interest. We might not be able to pay you the required price for
notes you present to us at the time of a change of control, because:
o we might not have enough funds at that time, or
o the terms of our other debt may prevent us from paying the
required price.
Asset Sale Proceeds..................................... We may have to use the cash proceeds from assets we sell to offer
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to buy back notes at their face amount, plus accrued interest.
Certain Indenture Provisions............................ The indenture governing the notes will limit what we (and most or all of
our future subsidiaries) may do. The provisions of the indenture will
limit our ability to:
o incur more debt;
o pay dividends and make distributions;
o issue stock of subsidiaries;
o make certain investments;
o repurchase stock;
o create subsidiaries;
o create liens;
o enter into transactions with affiliates;
o enter into sale and leaseback transactions;
o merge or consolidate; and
o transfer and sell assets.
These covenants are subject to a number of important exceptions.
Transfer Restrictions................................... The new notes are new securities, and there is currently no established
market for them. We do not intend to list the new notes on any securities
exchange.
Use of Proceeds......................................... We will not receive cash proceeds from the issuance of the new notes.
See "Use of Proceeds."
For more information about the new notes, see the "Description of the Notes"
section of this prospectus.
Risk Factors
You should carefully consider the information set forth under "Risk
Factors" as well as the other information and data included in this prospectus
before tendering your old notes in exchange for new notes.
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Summary Historical and Pro Forma Financial Data
(Dollars in thousands)
In the table below, we provide you with selected historical and pro forma
financial data for United. When you read this historical and pro forma financial
data, it is important that you read along with it the financial statements and
related notes, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," all of which is included in this prospectus.
The statement of income data for the years ended December 31, 1994 and
1995, and balance sheet data as of December 31, 1994, 1995 and 1996, have been
derived from audited financial statements which do not appear in this
prospectus.
The summary pro forma statement of income and other financial data give
effect to the Transactions as if they occurred on January 1, 1998. The summary
pro forma balance sheet data give effect to the Transactions as if they occurred
on December 31, 1998. The unaudited pro forma financial data do not purport to
be indicative of our actual financial position or results of operations, nor are
they necessarily indicative of the results that we may achieve in the future.
See "Unaudited Pro Forma Financial Statements."
Year Ended December 31,
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Pro Forma
1994 1995 1996 1997 1998 1998
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Statement of Income Data:
Net sales ............................... $ 139,822 $ 159,192 $ 199,495 $ 242,601 $ 282,676 $ 282,676
Cost of goods sold ...................... 73,230 82,603 106,640 128,049 140,445 140,445
Advertising and promotion expenses ...... 15,575 17,813 22,804 25,547 31,719 31,719
Selling, general and administrative
expenses ................................ 35,032 38,629 46,276 52,092 61,066 54,076
Operating income ........................ 15,985 20,147 23,775 36,913 47,125 54,115
Interest expense ........................ 445 609 1,502 1,267 1,106 37,926
Income from continuing operations ....... 15,235 19,249 21,826 34,920 45,027 12,959
Other Financial Data:
EBITDA (1) .............................. $ 17,299 $ 22,862 $ 27,336 $ 40,510 $ 53,284 $ 60,274
Depreciation and amortization ........... 1,314 2,715 3,561 3,597 3,838 3,838
Capital expenditures (2) ................ 1,993 4,726 6,384 5,138 3,628 3,628
Gross margin ............................ 47.6% 48.1% 46.5% 47.2% 50.3% 50.3%
EBITDA margin............................ 12.4% 14.4% 13.7% 16.7% 18.8% 21.3%
Ratio of total debt to EBITDA............ 6.2x
Ratio of EBITDA to cash interest
expense(3)......................... 1.7x
As of
December 31, 1998
--------------------------
Pro
Actual Forma
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Balance Sheet Data:
Working capital (4) .............................................. $ 30,042 $ 24,242
Total assets ..................................................... 94,161 225,683
Total debt ....................................................... 4,645 375,000
Stockholders' equity (deficit) ................................... 58,257 (186,376)
(see footnotes on following page)
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(1) EBITDA represents income from continuing operations before interest expense,
income tax expense, depreciation and amortization, and $2,321 in
non-recurring litigation expenses accrued in 1998. Pro Forma 1998 EBITDA
includes certain related party transactions and the THL management fee as
discussed below. We have included information concerning EBITDA because we
believe it is used by certain investors as one measure of a company's
historical ability to fund operations and meet its financial obligations.
EBITDA is not intended to represent cash flow from operations as defined by
generally accepted accounting principles and should not be used as an
alternative to operating income or income from continuing operations as an
indicator of our operating performance or cash flow as a measure of
liquidity. In addition, our definition of EBITDA may not be comparable to
that reported by other companies. Pro Forma EBITDA is calculated as follows:
Year Ended December 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
-------------------------------------------------------------
Income from continuing operations ................................. $ 15,235 $ 19,249 $ 21,826 $ 34,920 $ 45,027
Interest expense .................................................. 445 609 1,502 1,267 1,106
Income tax expense ................................................ 305 289 447 726 992
Depreciation and amortization ..................................... 1,314 2,715 3,561 3,597 3,838
Non-recurring litigation charges (a) .............................. -- -- -- -- 2,321
-------- -------- -------- -------- --------
EBITDA............................................................. $ 17,299 $ 22,862 $ 27,336 $ 40,510 $ 53,284
Related party transactions(b)...................................... ======== ======== ======== ======== 7,740
THL management fee ................................................ (750)
--------
Pro Forma EBITDA .................................................. $ 60,274
========
- -------------------------------
(a) Reflects non-recurring costs associated with two separate lawsuits: (a)
a suit filed in 1992 by the spouse of a former employee claiming
benefits from a United-owned key man life insurance policy, which we are
appealing, and (b) certain litigation concerning the advertising of our
Spectracide Terminate product for which we have negotiated a settlement.
(b) Reflects the elimination of stockholder salaries and certain fringe
benefits that were in effect prior to the recapitalization and were
reflective of the private ownership structure that existed prior to the
recapitalization, offset by the salary and fringe benefit structure that
was implemented with the recapitalization. EBITDA for 1994, 1995, 1996
and 1997, has not been adjusted for related party transactions. The
related party transactions amounts were $3,754, $4,215, $3,847 and
$3,061 for 1994, 1995, 1996 and 1997, respectively.
(2) Capital expenditures for 1995 exclude $8,272 of expenditures related to
acquisitions.
(3) Cash interest expense represents interest expense adjusted to exclude
amortization of deferred financing costs of $2,375 related to our senior
credit facility and the notes offered hereby.
(4) Working capital is defined as current assets (excluding cash and cash
equivalents) less current liabilities (excluding short-term debt and current
portion of long-term debt).
-10-
RISK FACTORS
You should carefully consider each of the following factors and all of the
other information set forth in this prospectus before tendering your old notes
for new notes. The risks and uncertainties described below are not the only ones
facing our company. Additional risks and uncertainties not presently known to us
or that we currently believe to be immaterial may also adversely affect our
business.
If any of the following risks and uncertainties develop into actual
events, our business, financial condition or results of operations could be
materially adversely affected. In such case, we may not be able to make
principal and interest payments on the notes, and you may lose all or part of
your investment.
Holders of old notes that fail to exchange their notes may be unable to resell
their notes. We did not register the old notes under the federal or any state
securities laws, nor do we intend to following the exchange offer. As a result,
the old notes may only be transferred in limited circumstances under the
securities laws. If the holders of old notes do not exchange their notes in the
exchange offer, they lose their right to have the old notes registered under the
federal securities laws. As a result, a holder of old notes after the exchange
offer may be unable to sell its notes.
Your notes will not be accepted for exchange if you fail to follow the exchange
offer procedures. The new notes will be issued to you in exchange for your old
notes only after timely receipt by the exchange agent of:
o your old notes;
o a properly completed and executed Letter of Transmittal and all other
required documentation;
o a book-entry delivery by transmittal of an agent's message through the
Depository Trust Company.
If you want to tender your old notes in exchange for new notes, you should
allow sufficient time to ensure timely delivery.
Neither the exchange agent nor our company is under any duty to give you
notification of defects or irregularities with respect to tenders of old notes
for exchange. Old notes that are not tendered or are tendered but not accepted
will, following the exchange offer, continue to be subject to the existing
transfer restrictions on the old notes. In addition, if you tender your old
notes in the exchange offer to participate in a distribution of the new notes,
you will be required to comply with the registration and prospectus delivery
requirements of the federal securities laws in connection with any resale
transaction. For additional information, please refer to "The Exchange Offer"
and "Plan of Distribution" sections of this prospectus.
We may be unable to service our debt, including the notes, as a result of our
high level of indebtedness. We have now and, after the offering, will continue
to have a significant amount of indebtedness. The following chart is presented
assuming we had completed the Transactions as of the dates or at the beginning
of the periods specified below and applied the proceeds as intended:
Pro Forma
As of December 31, 1998
--------------------------------
(Dollars in millions)
Indebtedness senior to the notes.............................. $225.0
Total indebtedness............................................ 375.0
Pro Forma
Year Ended December 31, 1998
---------------------------------
Ratio of earnings to fixed charges............................ 1.4x
-11-
Our substantial indebtedness could have important consequences to you. For
example, it could:
o make it more difficult for us to satisfy our obligations with respect
to these notes;
o increase our vulnerability to general adverse economic and industry
conditions;
o limit our ability to fund future working capital, capital expenditures,
research and development costs and other general corporate
requirements;
o require a substantial portion of our cash flow from operations for debt
payments;
o limit our flexibility to plan for, or react to, changes in our business
and the industry in which we operate;
o place us at a competitive disadvantage compared to our competitors that
have less debt; and
o limit our ability to borrow additional funds.
Any of the above listed factors could materially adversely affect us. See
"Description of the Notes" and "Description of Our Senior Credit Facility."
We may incur more debt, which could further increase the risks described above.
We may incur substantial additional indebtedness in the future. Our senior
credit facility allows us to borrow up to an additional $110.0 million and all
of those borrowings would be senior to the notes. If new debt is added to our
current debt level, the related risks that we now face could increase. See
"Capitalization," "Selected Historical Financial Data," "Description of the
Notes" and "Description of Our Senior Credit Facility."
To service our indebtedness, we will require a significant amount of cash. Our
ability to make payments on and to refinance our indebtedness, including these
notes, and to fund planned capital expenditures will depend on our ability to
generate cash in the future. Our ability to generate cash is subject to some
factors beyond our control. 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 the next few years. We cannot assure you,
however, that our business will generate sufficient cash flow from operations,
or that future borrowings will be available to us under our senior credit
facility in a sufficient amount to enable us to pay our indebtedness, including
these notes, or to fund our other liquidity needs. We may need to refinance all
or a portion of our indebtedness on or before maturity. However, we might not be
able to refinance any of our indebtedness on commercially reasonable terms or at
all.
You may lose part of your investment because the notes are subordinated to our
senior debt. Your right to receive payments on these notes is junior to our debt
under our senior credit facility which as of December 31, 1998, on a pro forma
basis, would have been $225.0 million. In addition, these notes may rank behind
our future borrowings except any future indebtedness that expressly provides
that it ranks equal with, or subordinated in right of payment to, the notes. As
a result, upon any distribution to our creditors in a bankruptcy or similar
proceeding relating to us, the holders of our senior debt will be entitled to be
paid in full in cash before any payment may be made with respect to the notes.
In addition, all payments on the notes will be blocked in the event of a
payment default on senior debt and may be prohibited for up to 179 consecutive
days in the event of certain non-payment defaults on senior debt.
In the event of bankruptcy, liquidation or reorganization or similar
proceeding relating to us, the holders of the notes will participate with trade
creditors and all other holders of our subordinated indebtedness in the assets
remaining after we have paid all of our senior debt. Because the indenture
requires that amounts otherwise payable to holders of the notes in a bankruptcy
or similar proceeding be paid to holders of senior debt instead, holders of the
notes may receive less, ratably, than holders of trade payables. In any of these
cases, we may not have sufficient assets or funds to pay all of our creditors,
and holders of notes may receive less, ratably, than the holders of senior debt.
-12-
The terms of our indebtedness impose operational and financial restrictions on
our company. Our senior credit facility and the indenture for the notes restrict
our ability to:
o incur additional indebtedness
o pay dividends and make distributions
o issue common and preferred stock of subsidiaries
o make certain investments
o repurchase stock
o create subsidiaries
o create liens
o enter into transactions with affiliates
o enter into sale and leaseback transactions
o merge or consolidate our company
o transfer and sell assets
In addition, we must maintain minimum debt service and maximum leverage
ratios under our senior credit facility. A failure to comply with the
restrictions contained in our senior credit facility could lead to an event of
default which could result in an acceleration of indebtedness. An acceleration
would also constitute an event of default under the indenture relating to the
notes. See "Description of Our Senior Credit Facility."
We may not have the ability to raise the funds necessary to finance the change
of control offer required by the indenture. Upon the occurrence of certain kinds
of control events, we will be required to offer to repurchase all outstanding
notes. Certain events involving a change of control may result in an event of
default under our senior credit facility or other indebtedness that we may incur
in the future. However, it is possible that we will not have sufficient funds at
the time of the change of control to make the required repurchase of notes or
that restrictions in our senior credit facility will not allow such repurchases.
In addition, certain important corporate events, such as leveraged stock
purchases that would increase the level of our indebtedness, may not constitute
a change of control under the indenture. See "Description of the Notes --
Repurchase at the Option of Holders."
The holders of a majority of the notes may waive defaults under or modify the
indenture in a manner adverse to noteholders who do not approve of such actions.
Subject to certain limitations specified in the indenture, the holders of a
majority in principal amount of the new notes then outstanding will have the
right to:
o waive certain existing defaults or events of default;
o waive compliance with certain provisions of the indenture or the new
notes;
o modify or supplement the indenture; and
o direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee under the indenture.
These provisions of the indenture could allow actions affecting the new
notes to be taken without the approval of all of the holders of the new notes
and thus may have an adverse effect on the holders of new notes who do not
approve of such actions. See "Description of the Notes--Events of Default" and
"--Modification of Indenture."
We depend heavily on a few customers for the substantial majority of our sales.
Our four largest customers, Home Depot, Wal*Mart, Lowe's and Kmart, accounted
for approximately 26%, 17%, 14% and 11%, respectively, of our net sales in 1998.
We anticipate a similar or greater concentration of customers for the
foreseeable future. Our reliance on these customers may significantly influence
our negotiations with them. We do not have long-term contracts with any of our
customers, and there can be no assurance that our customers will continue to
purchase our products to the degree they have in the past or at all. The loss
of, or a significant adverse change in, our relationship with any major customer
could have a material adverse effect on us. See "Business--Customers."
-13-
Our historical seasonality could impair our ability to make interest payments on
the notes. Our products are used primarily in the spring and summer, so our
business is highly seasonal. For the past two years, approximately 75% of our
net sales have occurred in the first and second quarters. Our working capital
needs, and correspondingly our borrowings, peak near the end of our first
quarter. If cash on hand is insufficient to cover payments due on the notes and
if we are also unable to draw on our senior credit facility, this seasonality
could adversely affect our ability to make interest payments as required by the
notes.
Adverse weather conditions during our peak selling season could adversely impact
our financial results. Weather conditions in North America have a significant
impact on the timing of sales in the spring selling season and our overall
annual sales. Periods of dry, hot weather can decrease insecticide sales, while
periods of cold and wet weather can slow sales of herbicides and fertilizers. In
addition, an abnormally cold spring throughout North America could adversely
affect both fertilizer and pesticide sales and therefore our financial results.
We may be unable to compete successfully in our highly competitive industry. We
compete against a number of large national and regional brands. Our principal
national competitors include: The Scotts Company, which markets products under
the Ortho(R), Roundup(R) and Miracle- Gro(R) brand names; S.C. Johnson & Son,
Inc., which markets products under the Raid(R) and OFF!(R) brand names; and The
Clorox Company, which markets products under the Combat(R) and Black Flag(R)
brand names. Some of our competitors are larger, have longer operating
histories, greater financial resources and greater market recognition than us.
We cannot assure you that we will be able to compete successfully against our
competitors.
The growth of our business may make it more difficult to manage. Rapid growth
may strain our ability to manage our business and will strain our operational
and financial resources and accounting controls. Our continued growth will
require an increase in personnel, particularly in our sales force. There can be
no assurance that we will be able to continue to attract, train, develop and
retain the personnel necessary to pursue our growth strategy.
We depend on our key personnel and we could be adversely affected if we lose our
key personnel. If we were to lose the services of one or more members of our
senior management or if one or more members of management were to depart and
subsequently compete with us, it could have a material adverse effect on our
business. Although we believe we could replace our key employees should the need
arise, the loss of key personnel could have a material adverse effect on us. See
"Management--Employment Agreements."
The interests of the holders of the notes may conflict with our controlling
shareholders. The THL Parties beneficially own approximately 91.9% of our issued
and outstanding common stock, and accordingly, they have the power to elect a
majority of our directors, appoint new management and approve any action
requiring the approval of the holders of our common stock, including adopting
amendments to our charter and approving mergers or sales of substantially all of
our assets. Our directors elected by the THL Parties will have the authority to
make decisions affecting our capital structure including the issuance of
additional capital stock, the implementation of stock purchase programs and the
declaration of dividends.
We may be adversely affected by environmental regulations. We are subject to
federal, state, local and foreign environmental laws and regulations governing
our manufacturing operations and the registration and sale of our pesticide
products. The risk arising from environmental regulation may increase in the
future because the EPA is currently analyzing the risk that certain pesticides
present to children. Failure to comply with the EPA requirements, the cost of
supplying data to EPA, and the results of EPA's risk analyses could adversely
our business. See "Business--Environmental Regulation."
We may be exposed to significant product liability claims. Although we have
product liability insurance coverage in the aggregate amount of $1.0 million per
occurrence, subject to a $500,000 per occurrence self-insured retention, and an
umbrella policy for occurrences exceeding $1.0 million in the amount of $10.0
million, we cannot assure you that this insurance will provide coverage for any
claim against us or will be sufficient to cover all possible liabilities.
Moreover, any adverse publicity arising from claims made against us, even if the
claims were not successful, could adversely affect the reputation and sales of
our products. See "Business--Litigation."
-14-
We may be unable to use and protect our trademarks. Our ability to successfully
compete in our markets depends, in part, on our ability to use and protect our
trademarks such as Spectracide and Hot Shot. There can be no assurance that our
trademarks will be enforceable or adequately protect us from others using
similar marks. Although we believe that our products do not violate the patents
or proprietary rights of others, it is possible that competitors or others could
claim this. If our products are found to infringe on the rights of others, we
could be required to modify our products or pay for a license for the
manufacture and sale of such products.
We may be adversely affected if our year 2000 remediation efforts are not
successful. Our failure, or the failure of our third party suppliers or
customers, to address information technology issues related to the year 2000
could adversely affect our operations. Like other business entities, we must
address the ability of our computer software applications and other business
systems to properly identify the year 2000 due to a commonly used programming
convention of using only two digits to identify a year. Unless modified or
replaced, these systems could fail or create erroneous results when referencing
the year 2000. While we believe we have assessed the relevant issues related to
the year 2000 problem, we cannot be sure that we will have adequately addressed
the issue. Moreover, we rely on third party suppliers for finished goods, raw
materials, water, other utilities, transportation and a variety of other key
services. If one or more of these suppliers fail to address the year 2000
problem adequately, these suppliers' operations could be interrupted. Our or our
customers' failure to address the year 2000 problem adequately could adversely
affect our financial results.
There is currently no public market for the notes and one may not develop. The
notes are a new issue of securities for which there is currently no trading
market. We have been informed by CIBC Oppenheimer Corp. and NationsBanc
Montgomery Securities LLC that they intend to make a market in the notes.
However, CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC may
cease their market-making at any time. In addition, the liquidity of the trading
market in the notes, and the market price quoted for the notes, may be adversely
affected by changes in the overall market for high yield securities and by
changes in our financial performance or prospects or in the prospects for
companies in our industry generally. As a result, you cannot be sure that an
active trading market will develop for the notes.
-15-
THE TRANSACTIONS
On January 20, 1999, we completed our $652.0 million recapitalization, in
which:
o Thomas H. Lee Equity Fund IV, L.P. contributed $254.7 million to UIC
Holdings, L.L.C., which purchased common stock from stockholders for
approximately $254.7 million;
o our senior managers purchased common stock from stockholders for
approximately $5.7 million;
o we borrowed $150 million under a senior subordinated facility and $225
million under a senior credit facility to redeem a portion of the
common stock held by stockholders; and
o existing stockholders retained equity having an implied fair market
value of approximately $16.6 million.
The proceeds of the offering of old notes completed on March 24, 1999 were
used to pay off the $150 million senior subordinated facility.
Following the recapitalization, UIC Holdings, L.L.C. owns approximately
91.9% of our issued and outstanding common stock, the previous stockholders
retain approximately 6.0% and our senior managers own approximately 2.1%.
We are making an election under Section 338(h)(10) of the Internal Revenue
Code of 1986, as amended. As a result, the tax basis of our assets will
increase, which should permit us to increase our tax deduction for depreciation
and amortization which should lower cash paid for taxes. This step-up in basis
will result in an anticipated cash tax benefit of approximately $15 million per
year over each of the next 15 years, if fully utilized.
The following table sets forth the sources and uses of funds in connection
with the Transactions assuming they were consummated on December 31, 1998 (in
millions):
Sources of Funds:
Senior credit facility (1).......................................... $225.0
Old notes .......................................................... 150.0
Equity contribution (2) ............................................ 277.0
--------
Total sources.................................................. $652.0
========
Uses of Funds:
Recapitalization (3)................................................ $612.4
Repayment of existing indebtedness.................................. 4.6
Estimated fees and expenses......................................... 35.0
--------
Total uses..................................................... $652.0
========
- -------------------------------
(1) Our senior credit facility consists of: (a) the $110.0 million revolving
credit facility, of which no borrowings were outstanding at the closing of
the recapitalization; (b) the $75.0 million Term Loan A; and (c) the $150.0
million Term Loan B. See "Description of Our Senior Credit Facility."
(2) The equity contribution consists of: (a) Thomas H. Lee Equity Fund IV,
L.P.'s investment of approximately $254.7 million; (b) the management
investment of approximately $5.7 million; and (c) the equity retained by
our existing stockholders having an implied fair market value of
approximately $16.6 million.
(3) The recapitalization consists of: (a) approximately $335.4 million used by
us to redeem a portion of common stock held by our existing stockholders;
(b) approximately $260.4 million (comprised of Thomas H. Lee Equity Fund
IV, L.P.'s investment and management's investment) used to purchase a
portion of common stock held by our existing stockholders; and (c)
approximately $16.6 million (comprised of the equity retained by our
existing stockholders) of implied fair market value of common stock
retained by our existing stockholders.
-16-
USE OF PROCEEDS
We will not receive cash proceeds from the issuance of the new notes. We
used the net proceeds of approximately $145.8 million from the initial offering
of the old notes plus borrowings under our senior credit facility to repay our
borrowings under our senior subordinated facility.
-17-
CAPITALIZATION
The following table sets forth our actual capitalization as of December
31, 1998, and our capitalization as of this date on a pro forma basis to give
effect to the Transactions. The information in this table should be read in
conjunction with "Unaudited Pro Forma Financial Statements," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our audited financial statements, including the related notes, which are
included in this prospectus.
As of December 31, 1998
-------------------------
Actual Pro Forma
----------- ---------
Debt:
Existing indebtedness ...................................................... $ 4,645 $ --
Revolving credit facility (1) .............................................. -- 0
Term Loan A ................................................................ -- 75,000
Term Loan B ................................................................ -- 150,000
Notes offered hereby ....................................................... -- 150,000
--------- -------
Total debt .............................................................. 4,645 375,000
--------- -------
Stockholders' equity (deficit):
Common stock ............................................................... 2 554
Additional paid-in capital ................................................. 972 104,142
Retained earnings (deficit) ................................................ 70,193 (291,072)
Treasury stock ............................................................. (12,910) 0
--------- --------
Total stockholders' equity (deficit) .................................... 58,257 (186,376)
--------- --------
Total capitalization .................................................... $62,902 $188,624
========= ========
- -------------------------------
(1) Our revolving credit facility provides for borrowings of up to $110.0
million for working capital and general corporate purposes.
-18-
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
In the table below, we provide you with unaudited pro forma financial data
for United. The unaudited pro forma data gives effect to the Transactions as if
they occurred at the beginning on December 31, 1998. The information in the
column titled "Actual" is summarized from the historical financial statements
included in this prospectus. The unaudited pro forma financial data do not
purport to be indicative of our actual financial position or results of
operations, nor are they necessarily indicative of the results that we may
achieve in the future.
When you read this pro forma financial data, it is important that you read
along with it the financial statements and related notes, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," all
of which is included in this prospectus.
-19-
UNITED INDUSTRIES CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
(Dollars in thousands)
As of December 31, 1998
Transaction
Actual Adjustments Pro Forma
-------- ----------- ---------
ASSETS
Current assets:
Accounts receivable, net................................................ $ 17,650 $ -- $ 17,650
Inventories............................................................. 41,444 41,444
Prepaid expenses........................................................ 2,172 2,172
-------- --------
Total current assets............................................... 61,266 61,266
Equipment and leasehold improvements, net..................................... 20,156 20,156
Other assets.................................................................. 6,948 14,500(1) 21,448
Investment in discontinued operations......................................... 5,791 5,791
Deferred income taxes......................................................... -- 117,022(2) 117,022
-------- -------- --------
Total assets............................................................ $ 94,161 $131,522 $225,683
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt.................................... $ 929 $ (929)(3) $ --
Accounts payable........................................................ 18,519 18,519
Accrued expenses........................................................ 12,705 5,800(4) 18,505
-------- -------- --------
Total current liabilities.......................................... 32,153 4,871 37,024
Long-term debt................................................................ 3,716 371,284(3) 375,000
Other liabilities............................................................. 35 35
-------- -------- --------
Total liabilities.................................................. 35,904 376,155 412,059
Stockholders' equity (deficit):
Common stock............................................................ 2 552(5) 554
Additional paid-in capital.............................................. 972 103,170(5) 104,142
Retained earnings (deficit)............................................. 70,193 (361,265)(5) (291,072)
Treasury stock.......................................................... (12,910) 12,910(5) 0
-------- -------- --------
Total stockholders' equity (deficit)............................... 58,257 (244,633)(5) (186,376)
-------- -------- --------
Total liabilities and stockholders' equity......................... $ 94,161 $131,522 $225,683
======== ======== ========
See the accompanying notes to unaudited pro forma balance sheet.
-20-
UNITED INDUSTRIES CORPORATION
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(Dollars in thousands)
The pro forma financial data have been derived by the application of pro
forma adjustments to our historical financial statements for the period noted.
The recapitalization has been accounted for as a leveraged recapitalization
which will have no impact on the historical basis of assets and liabilities for
financial reporting purposes.
(1) The pro forma adjustment to other assets reflects the following:
Capitalized financing costs............................................... $19,000
Write-off of unamortized financing costs on debt refinanced............... (4,500)
--------
$14,500
========
The $19,000 reflects the capitalized portion of fees and expenses paid to
effect the Transactions. Total estimated fees and expenses are $35,000,
the remaining $16,000 of which have been charged against stockholders'
equity. Such total estimated fees and expenses consist of: (a) fees and
expenses related to the Transactions, including bank commitment fees and
underwriting commissions; (b) professional, advisory and investment
banking fees and expenses; and (c) miscellaneous fees and expenses such as
printing and filing fees. The $4,500 write-off relates to unamortized
financing costs related to the portion of existing debt refinanced.
(2) The pro forma adjustment to deferred income taxes reflects the following:
(a) the establishment of a deferred tax asset resulting from the planned
Section 338(h)(10) election with respect to the recapitalization; (b) the
establishment of a 50% valuation allowance to partially reserve the
deferred tax asset arising from the Section 338(h)(10) election; and (c)
the conversion to a "C" corporation.
(3) The pro forma adjustments to long-term debt reflect the following:
Cash
inflow/
outflow
----------
Repayment of current portion of existing long-term debt outstanding....................... $ (929)
==========
Senior Credit Facility.................................................................... $ 225,000
Notes offered hereby...................................................................... 150,000
Repayment of existing long-term debt outstanding.......................................... (3,716)
----------
Pro forma adjustment to long-term debt............................................... $ 371,284
==========
(4) The pro forma adjustment to accrued expenses reflects the accrual for change
of control bonuses that were paid to management in connection with the
recapitalization, net of equity contributed by our senior managers.
-21-
UNITED INDUSTRIES CORPORATION
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET--(continued)
(Dollars in thousands)
(5) The pro forma adjustments to stockholders' equity reflect the following:
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
--------- ----------- -------- ----------- ---------
Redemption of common stock.................................... $ -- $ -- $ (335,355) $ -- $ (335,355)
Cancellation of treasury stock................................ -- -- (12,910) 12,910 0
Fees and expenses related to the transactions................. -- (16,000) -- -- (16,000)
Write-off of unamortized financing costs...................... -- -- (4,500) -- (4,500)
Equity contributed by senior managers......................... -- 2,700 -- -- 2,700
Compensation expense related to change of control bonuses..... -- -- (8,500) -- (8,500)
Deferred tax asset............................................ -- 117,022 -- -- 117,022
552 (552) -- -- 0
--------- --------- ---------- ------- ----------
Stock split................................................... $ 552 $ 103,170 $ (361,265) $12,910 $ (244,633)
========= ========= ========== ======= ==========
-22-
UNITED INDUSTRIES CORPORATION
UNAUDITED PRO FORMA STATEMENT OF INCOME
(Dollars in thousands)
Year Ended December 31, 1998
Related Party Transaction
Actual Adjustments Adjustments Pro Forma
-------- ------------- ----------- ----------
Net sales ........................................................... $282,676 $ -- $ -- $282,676
Operating costs and expenses:
Cost of goods sold ............................................ 140,455 -- -- 140,445
Advertising and promotion expenses ............................ 31,719 -- -- 31,719
Selling, general and administrative expenses .................. 61,066 (7,740)(1) 750(2) 54,076
Non-recurring litigation charges .............................. 2,321 -- -- 2,321
-------- -------- -------- ---------
Total operating costs and expenses .................................. 235,551 (7,740) 750 228,561
-------- -------- -------- ---------
Operating income .................................................... 47,125 7,740 (750) 54,115
Interest expense .................................................... 1,106 -- 36,820(3) 37,926
-------- -------- -------- ---------
Income before provision for income taxes and discontinued
operations .................................................... 46,019 7,740 (37,570) 16,189
Income tax expense .................................................. 992 -- 2,238(4) 3,230
-------- -------- -------- ---------
Income from continuing operations ................................... $ 45,027 $ 7,740 $(39,808) $ 12, 959
======== ======== ======== =========
Other Data:
EBITDA (5) .......................................................... $ 60,274
Depreciation and amortization ....................................... 3,838
See the accompanying notes to unaudited pro forma statement of income.
-23-
UNITED INDUSTRIES CORPORATION
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
(Dollars in thousands)
The unaudited pro forma statement of income excludes approximately $8,500
of non-recurring expenses related to compensation expense to be recorded for
change of control bonuses paid to management in connection with the
recapitalization and the write-off of unamortized financing costs of $4,500.
(1) The pro forma adjustment to selling, general and administrative expenses
reflects the elimination of stockholder salaries and certain fringe benefits
that were in effect prior to the recapitalization and were reflective of the
private ownership structure that existed prior to the recapitalization,
offset by the salary and fringe benefit structure that was implemented with
the recapitalization.
(2) The pro forma adjustment to selling, general and administrative expenses
reflects the annual management fee we will pay to THL.
(3) The pro forma adjustment to interest expense reflects the following:
Rate Amount
--------- ---------------
Interest expense on revolving credit facility ................................ 7.750% $ 2,000(a)
Interest expense on Term Loan A .............................................. 7.750% 5,813
Interest expense on Term Loan B .............................................. 8.250% 12,375
Interest expense on notes offered hereby ..................................... 9.875% 14,813
Amortization of capitalized financing fees ................................... 2,375(b)
Commitment fees on unused available revolving credit facility ................ 550
Interest expense on debt refinanced .......................................... (1,106)
-------
Total adjustment ............................................................. $36,820
=======
- -------------------
(a) Reflects management's estimate of the annual interest expense
associated with seasonal working capital borrowings.
(b) Reflects annual amortization expense utilizing a weighted average
maturity on all borrowings of eight years.
A 0.125% increase or decrease in the assumed interest rate on our senior
credit facility would change the pro forma interest expense by
approximately $312 for the year ended December 31, 1998.
(4) The pro forma adjustment to income taxes reflects the following: (a) the
planned Section 338(h)(10) election with respect to the recapitalization;
(b) a 50% valuation allowance to partially reserve the deferred tax asset
arising from the Section 338(h)(10) election; (c) the conversion to a "C"
corporation; and (d) the direct tax effects of the pro forma adjustments
described above at an estimated 38% effective tax rate.
-24-
UNITED INDUSTRIES CORPORATION
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME--(continued)
(Dollars in thousands)
(5) EBITDA represents income from continuing operations before interest
expense, income tax expense, depreciation and amortization, and $2,321 in
non-recurring litigation expenses accrued in 1998. Pro Forma 1998 EBITDA
includes certain related party transactions and the THL management fee
discussed below. We have included information concerning EBITDA because we
believe it is used by certain investors as one measure of a company's
historical ability to fund operations and meet its financial obligations.
EBITDA is not intended to represent cash flow from operations as defined by
generally accepted accounting principles and should not be used as an
alternative to operating income or income from continuing operations as an
indicator of our operating performance or cash flow as a measure of
liquidity. In addition, our definition of EBITDA may not be comparable to
that reported by other companies. Pro Forma 1998 EBITDA is calculated as
follows:
Year Ended
December 31,
1998
---------------
Income from continuing operations............................................... $45,027
Interest expense................................................................ 1,106
Income tax expense.............................................................. 992
Depreciation and amortization................................................... 3,838
Non-recurring litigation charges (a)............................................ 2,321
----------
EBITDA.......................................................................... 53,284
Related party transactions (b).................................................. 7,740
THL management fee.............................................................. (750)
----------
Pro Forma EBITDA................................................................ $60,274
==========
- -------------------------------
(a) Reflects non-recurring costs associated with two separate lawsuits: (a)
a suit filed in 1992 by the spouse of a former employee claiming
benefits from a United-owned key man life insurance policy, which we are
appealing, and (b) certain litigation concerning the advertising of our
Spectracide Terminate product for which we have negotiated a settlement.
(b) Reflects the elimination of stockholder salaries and certain fringe
benefits that were in effect prior to the recapitalization and were
reflective of the private ownership structure that existed prior to the
recapitalization, offset by the salary and fringe benefit structure that
was implemented with the recapitalization.
-25-
SELECTED HISTORICAL FINANCIAL DATA
(Dollars in thousands)
In the table below, we provide you with selected historical financial data
for United. When you read this selected historical financial data, it is
important that you read along with it the financial statements and related
notes, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," all of which is included in this prospectus.
Year Ended December 31,
----------------------------------------------------------------------
1994 1995 1996 1997 1998
----------------------------------------------------------------------
Statement of Income Data:
Net sales ............................................... $139,822 $159,192 $199,495 $242,601 $282,676
Operating costs and expenses:
Cost of goods sold .................................... 73,230 82,603 106,640 128,049 140,445
Advertising and promotion expenses .................... 15,575 17,813 22,804 25,547 31,719
Selling, general and administrative
expenses ..................................... 35,032 38,629 46,276 52,092 61,066
Non-recurring litigation charges ...................... -- -- -- -- 2,321
-------- -------- -------- -------- --------
Total operating costs and expenses ...................... 123,837 139,045 175,720 205,688 235,551
-------- -------- -------- -------- --------
Operating income ........................................ 15,985 20,147 23,775 36,913 47,125
Interest expense ........................................ 445 609 1,502 1,267 1,106
-------- -------- -------- -------- --------
Income before provision for income taxes and
discontinued operations ........................... 15,540 19,538 22,273 35,646 46,019
Income tax expense ...................................... 305 289 447 726 992
-------- -------- -------- -------- --------
Income from continuing operations ....................... $ 15,235 $ 19,249 $ 21,826 $ 34,920 $ 45,027
======== ======== ======== ======== ========
Other Financial Data:
EBITDA (1) .............................................. $ 17,299 $ 22,862 $ 27,336 $ 40,510 $ 53,284
Depreciation and amortization ........................... 1,314 2,715 3,561 3,597 3,838
Capital expenditures (2) ................................ 1,993 4,726 6,384 5,138 3,628
Gross margin ............................................ 47.6% 48.1% 46.5% 47.2% 50.3%
EBITDA margin ........................................... 12.4% 14.4% 13.7% 16.7% 18.8%
Ratio of earnings to fixed charges (3) .................. 11.8x 12.4x 8.3x 13.9x 17.6x
Balance Sheet Data:
Working capital (4) ..................................... $ 21,867 $ 29,565 $ 26,919 $ 32,046 $ 30,042
Total assets ............................................ 56,037 82,979 84,254 97,441 94,161
Total debt .............................................. -- 16,200 13,960 3,997 4,645
Stockholders' equity (deficit) .......................... 40,131 45,864 46,829 64,449 58,257
(see footnotes on following page)
-26-
(1) EBITDA represents income from continuing operations before interest
expense, income tax expense, depreciation and amortization, and $2,321 in
non-recurring litigation expenses accrued in 1998. Pro Forma 1998 EBITDA
includes certain related party transactions and the THL management fee as
discussed below. We have included information concerning EBITDA because we
believe it is used by certain investors as one measure of a company's
historical ability to fund operations and meet its financial obligations.
EBITDA is not intended to represent cash flow from operations as defined by
generally accepted accounting principles and should not be used as an
alternative to operating income or income from continuing operations as an
indicator of our operating performance or cash flow as a measure of
liquidity. In addition, our definition of EBITDA may not be comparable to
that reported by other companies. EBITDA is calculated as follows:
Year Ended December 31,
------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
Income from continuing operations ....................... $15,235 $19,249 $21,826 $34,920 $45,027
Interest expense ........................................ 445 609 1,502 1,267 1,106
Income tax expense ...................................... 305 289 447 726 992
Depreciation and amortization ........................... 1,314 2,715 3,561 3,597 3,838
Non-recurring litigation charges (a) .................... -- -- -- -- 2,321
------- ------- ------- ------- -------
EBITDA (b) .............................................. $17,299 $22,862 $27,336 $40,510 $53,284
======= ======= ======= ======= =======
- -------------------------------
(a) Reflects non-recurring costs associated with two separate lawsuits:
(a) a suit filed in 1992 by the spouse of a former employee claiming
benefits from a United-owned key man life insurance policy, which we
are appealing, and (b) certain litigation concerning the advertising
of our Spectracide Terminate product for which we have negotiated a
settlement.
(b) Does not reflect the elimination of stockholder salaries and certain
fringe benefits that were in effect prior to the recapitalization and
were reflective of the private ownership structure that existed prior
to the recapitalization, offset by the salary and fringe benefit
structure that was implemented with the recapitalization. EBITDA for
1994, 1995, 1996 and 1997, has not been adjusted for related party
transactions. The related party transactions amounts were $3,754,
$4,215, $3,847, $3,061 and $7,740 for 1994, 1995, 1996, 1997 and
1998, respectively.
(2) Capital expenditures for 1995 exclude $8,272 of expenditures related to
acquisitions.
(3) For purposes of this calculation, earnings are defined as income before
provision for income taxes and discontinued operations plus fixed charges.
Fixed charges include interest expense on all indebtedness (including
amortization of deferred financing costs) and the portion of operating lease
rental expense which management believes is representative of the interest
factor of rent expense (approximately one-third of rent expense).
(4) Working capital is defined as current assets (excluding cash and cash
equivalents) less current liabilities (excluding short-term debt and current
portion of long-term debt).
-27-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
United is the leading manufacturer and marketer of value-oriented branded
products for the consumer lawn and garden pesticide and household insecticide
markets in the United States. We manufacture and market one of the broadest
lines of pesticides in the industry, including herbicides and indoor and outdoor
insecticides, as well as insect repellents and water-soluble fertilizers, under
a variety of brand names. We believe that the key drivers of growth for the $2.7
billion consumer lawn and garden pesticide and household insecticide retail
markets include: (a) the aging of the United States population; (b) growth in
the home improvement center and mass merchandiser channels; and (c) shifting
consumer preferences toward value-oriented branded products. Our management team
has extensive operating, merchandising and marketing experience with us and in
the consumer products industry and has grown our business by developing new
products and acquiring strategic brands while also improving operating
efficiencies.
The following discussion of our historical results of operations and
financial condition should be read in conjunction with the audited financial
statements and the related notes which are included in this prospectus.
Results of Operations
The following table sets forth the percentage relationship of certain
items in our income statement to net sales.
Year Ended December 31,
-------------------------------------
1996 1997 1998
------ ------ ------
Net sales:
Value brands .................................................................... 83.4% 73.9% 76.6%
Opening price point brands ...................................................... 9.2 18.6 17.7
Other ........................................................................... 7.4 7.5 5.7
----- ----- -----
Total net sales ....................................................................... 100.0 100.0 100.0
Operating costs and expenses:
Cost of goods sold .............................................................. 53.5 52.8 49.7
Advertising and promotion expenses .............................................. 11.4 10.5 11.2
Selling, general and administrative expenses .................................... 23.2 21.5 21.6
Non-recurring litigation charges ................................................ 0.0 0.0 0.0
----- ----- -----
Total operating costs and expenses .................................................... 88.1 84.8 83.3
----- ----- -----
Operating income ...................................................................... 11.9 15.2 16.7
Interest expense ...................................................................... 0.8 0.5 0.4
----- ----- -----
Income before provision for income taxes and discontinued operations .................. 11.1 14.7 16.3
Income tax expense .................................................................... 0.2 0.3 0.4
----- ----- -----
Income from continuing operations ..................................................... 10.9% 14.4% 15.9%
===== ===== =====
1998 Compared to 1997
Net Sales. Net sales increased 16.5% to $282.7 million in 1998 from $242.6
million in 1997. This increase was driven by a combination of factors including:
(a) the continued shift of consumers' preferences toward value and opening price
point brands; (b) the introduction of Spectracide Terminate; and (c) expanded
distribution at home improvement centers and mass merchandisers through
increased shelf space and rapid store expansion. Net sales of our value brands
increased 20.9% to $216.6 million in 1998 from $179.2 million in 1997. This
increase was a result of continued growth of core value brands including
Spectracide, Hot Shot and Peters, and the introduction of Spectracide Terminate,
which contributed $21.9 million in net sales in 1998. Net sales of opening price
point brands increased 11.1% to $50.1 million in 1998 from $45.1 million in 1997
driven by the continued rapid pace of store openings by our top retail
customers.
-28-
Gross Profit. Gross profit increased 24.2% to $142.2 million in 1998
compared to $114.6 million in 1997. As a percentage of net sales, gross profit
increased to 50.3% in 1998 compared to 47.2% in 1997. The improvement in gross
profit as a percentage of net sales was a result of a more profitable sales mix,
mainly attributable to the introduction of Spectracide Terminate, and volume
efficiencies.
Advertising and Promotion Expenses. Advertising and promotion expenses
increased 24.2% to $31.7 million in 1998 from $25.5 million in 1997. As a
percentage of net sales, advertising and promotion expenses increased to 11.2%
in 1998 from 10.5% in 1997. The overall increase in advertising and promotion
expenses was primarily related to the launch of Spectracide Terminate.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 17.2% to $61.1 million in 1998 from $52.1
million in 1997. As a percentage of net sales, selling, general and
administrative expenses increased slightly to 21.6% in 1998 from 21.5% in 1997.
The overall increase in selling, general and administrative expenses was related
to higher selling, marketing and distribution costs to support the launch of
Spectracide Terminate and the rapid growth in sales, as well as higher related
party expenses.
Operating Income. Operating income increased 27.7% to $47.1 million in
1998 from $36.9 million in 1997. As a percentage of net sales, operating income
increased to 16.7% in 1998 from 15.2% in 1997 as a result of improved gross
margins as discussed above.
1997 Compared to 1996
Net Sales. Net sales increased 21.6% to $242.6 million in 1997 from $199.5
million in 1996. This increase was driven by a combination of factors including:
(a) the continued shift of consumers' preferences toward value and opening price
point brands; (b) new product introductions, including opening price point
brands at Home Depot and Lowe's; and (c) expanded distribution at home
improvement centers and mass merchandisers through increased shelf space and
rapid store expansion. Net sales of our value brands increased 7.8% to $179.2
million in 1997 from $166.3 million in 1996. This increase was a result of
continued growth of core value brands including Spectracide, Hot Shot and
Peters. Net sales of opening price point brands increased 146.4% to $45.1
million in 1997 from $18.3 million in 1996 driven by the introductions of
Real-Kill at Home Depot and No-Pest at Lowe's.
Gross Profit. Gross profit increased 23.4% to $114.6 million in 1997
compared to $92.9 million in 1996. As a percentage of net sales, gross profit
increased to 47.2% in 1997 compared to 46.5% in 1996. The improvement in gross
profit as a percentage of net sales was a result of a more profitable sales mix,
volume efficiencies and cost reduction efforts completed late in 1996 related to
the acquisitions made in 1995.
Advertising and Promotion Expenses. Advertising and promotion expenses
increased 12.0% to $25.5 million in 1997 from $22.8 million 1996. As a
percentage of net sales, advertising and promotion expenses declined to 10.5% in
1997 from 11.4% in 1996. The overall increase in advertising and promotion
expenses related to costs associated with the launch of opening price point
brands at Home Depot and Lowe's.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 12.6% to $52.1 million in 1997 from $46.3
million in 1996. As a percentage of net sales, selling, general and
administrative expenses decreased to 21.5% in 1997 from 23.2% in 1996. The
overall increase in selling, general and administrative expenses was related to
higher selling, marketing and distribution costs to support the rapid growth in
sales. The decline in selling, general and administrative expenses as a
percentage of net sales was a result of increased total sales and the benefits
of cost containment efforts and improved operating leverage.
Operating Income. Operating income increased 55.3% to $36.9 million in
1997 from $23.8 million in 1996. As a percentage of net sales, operating income
increased to 15.2% in 1997 from 11.9% in 1996 as a result of improved gross
margins and a decline in selling, general and administrative expenses as a
percentage of net sales as discussed above.
-29-
Income Tax Expense
The low effective tax rate for 1996, 1997 and 1998 was attributable to our
election to be taxed as an "S" corporation under the provisions of the Internal
Revenue Code and similar provisions of Missouri tax law. In conjunction with the
recapitalization, we converted to a "C" corporation and will be subject to
federal and Missouri income tax beginning in 1999.
Liquidity and Capital Resources
Historically, we have utilized internally generated funds and borrowings
under credit facilities to meet ongoing working capital and capital expenditure
requirements. As a result of the recapitalization, we have significantly
increased our cash requirements for debt service relating to the notes and our
senior credit facility. As of December 31, 1998, on a pro forma basis, we would
have had long-term debt outstanding of approximately $375.0 million and up to
$110.0 million available under our revolving credit facility. We will rely on
internally generated funds and, to the extent necessary, borrowings under our
revolving credit facility to meet our liquidity needs. See "The Transactions."
Our senior credit facility consists of: (a) the $110.0 million revolving
credit facility, under which no borrowings were outstanding at the closing of
the recapitalization; (b) the $75.0 million Term Loan A; and (c) the $150.0
million Term Loan B. Our revolving credit facility and the Term Loan A mature
six years from the closing date of our senior credit facility, and the Term Loan
B matures seven years from the closing date of our senior credit facility. Our
revolving credit facility is subject to a clean-down period during which the
aggregate amount outstanding under our revolving credit facility shall not
exceed $10.0 million for 30 consecutive days occurring during the period between
August 1 and November 30 in each calendar year.
Our principal liquidity requirements are for working capital, capital
expenditures and debt service under our senior credit facility and the notes.
Cash flow from continuing operations provided net cash of approximately $27.7
million, $35.1 million and $50.8 million in 1996, 1997 and 1998, respectively.
Cash flow from operating activities fluctuates during the year as the seasonal
nature of our sales results in a significant increase in working capital
(primarily accounts receivable and inventory) during the first half of the year,
with the second and third quarters being significant cash collection periods.
Capital expenditures are related to the maintenance of our existing
facilities and the construction of additional production and distribution
capacity. Capital expenditures for 1996, 1997 and 1998 were approximately $6.4
million, $5.1 million and $3.6 million, respectively. Capital expenditures for
1999 are expected to be less than $5.0 million.
Principal on the Term Loan A is required to be repaid quarterly in annual
amounts of $10.0 million for years one through four and $17.5 million for years
five and six after the closing of our senior credit facility. Principal on the
Term Loan B is required to be repaid quarterly in annual amounts of $1.5 million
for the first six years and $141.0 million for the seventh year after the
closing of our senior credit facility. See "Description of Our Senior Credit
Facility."
Based on our current operations, we believe that our cash flow from
operations, together with available borrowings under our revolving credit
facility, will be adequate to meet our anticipated requirements for working
capital, capital expenditures and scheduled principal and interest payments for
the next few years. However, we cannot ensure that we will generate sufficient
cash flow from operations to repay the notes and amounts outstanding under our
senior credit facility at maturity without requiring additional financing. Our
ability to meet our debt service and clean-down obligations and reduce our debt
will be dependent on our future performance, which in turn, will be subject to
general economic conditions and to financial, business and other factors,
including factors beyond our control. See "Risk Factors." Because a portion of
our debt bears interest at floating rates, our financial condition is and will
continue to be affected by changes in prevailing interest rates.
-30-
Seasonality
Our business is highly seasonal because our products are used primarily in
the spring and summer. For the past two years, approximately 75% of our net
sales have occurred in the first and second quarters. Our working capital needs,
and correspondingly our borrowings, peak near the end of our first quarter.
Year 2000 Compliance
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000.
In connection with a $2.5 million management information systems upgrade,
we have substantially completed an inventory of our computer programs and
assessed our year 2000 readiness. Our information systems and computer programs
include programs developed for our proprietary management information system.
For programs which were identified as not being year 2000 ready, we repaired or
replaced the programs and have substantially completed performing appropriate
testing for year 2000. We believe that substantially all of our information
systems should now be year 2000 compliant, but we do not expect to complete our
testing until June 1999.
Costs related to the year 2000 issue are included in the $2.5 million
management information systems upgrade. We estimate that the remaining testing,
repair and replacement necessary to complete our year 2000 compliance program
will cost less than $1.0 million. In our opinion, we do not anticipate any
additional costs relating to the year 2000 issue which would have a material
adverse effect on our financial condition or our results of operations.
While we believe all necessary work will be completed in a timely fashion,
we cannot assure you that all systems will be compliant by the year 2000, or
that the systems of other companies and government agencies on which we rely
will be compliant. We believe the most likely worst-case scenarios that we might
confront with respect to the year 2000 issues have to do with the possible
failure of third-party systems over which we have no control, including, but not
limited to, satellite, power and telephone services. However, we have developed
a contingency plan to facilitate electronic data interchange communication with
our main customers. Since June 30, 1998, we have been communicating with our
largest customers to determine their state of readiness with regard to the year
2000 issue. Based on our assessment to date, we have not received any indication
from a third party indicating that it expects to experience year 2000
non-compliance of a nature which would have a material impact on us. However,
the risk remains that our customers or other third parties may not have
accurately determined their state of readiness, in which case these parties'
lack of year 2000 compliance may have a material adverse effect on our results
of operations. We continue to monitor the year 2000 compliance of third parties
with which we do business.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" in June 1998. SFAS 133
provides standards on accounting and disclosure for derivative instruments and
requires that all derivatives be measured at fair value and reported as either
assets or liabilities on the balance sheet. We will be required to adopt this
statement no later than the beginning of fiscal year 2000. We have not completed
our analysis to determine the impact of this statement on our financial
statements.
-31-
BUSINESS
General
We are the leading manufacturer and marketer of value-oriented branded
products for the consumer lawn and garden pesticide and household insecticide
markets in the United States. We manufacture and market one of the broadest
lines of pesticides in the industry, including herbicides and indoor and outdoor
insecticides, as well as insect repellents and water-soluble fertilizers, under
a variety of brand names. Our "value" and "opening price point" brands generally
compete with higher priced premium brands. Our portfolio of value-oriented
brands includes the following:
o Spectracide, the leading value brand and overall fastest growing brand
of consumer lawn and garden pesticides;
o Spectracide Terminate, the first ever do-it-yourself consumer termite
killing system, launched in 1998;
o Spectracide Pro, lawn and garden and household pesticides targeted
toward the professional market, introduced in 1999;
o Hot Shot, the leading value brand and overall fastest growing brand of
consumer household insecticides;
o Cutter, the leading value brand and overall fastest growing brand of
consumer insect repellents;
o Peters, the leading value brand of consumer water-soluble fertilizers;
and
o Real-Kill (Home Depot), No-Pest (Lowe's) and KRid and KGro (Kmart), the
opening price point brands of consumer lawn and garden pesticides and
household insecticides at key retailers.
We believe that our market leadership is a result of our: (a) leading
value-oriented brands, (b) strategic relationships with major national
retailers, (c) extensive distribution capabilities, (d) exclusive direct sales
force and (e) proprietary management information systems. Our portfolio of
pesticide brands holds the number one position in the home improvement center
channel and the number two position in the mass merchandiser channel. In 1998,
we generated net sales and pro forma EBITDA of $282.7 million and $60.3 million,
respectively.
Our management team has extensive operating, merchandising and marketing
experience with us and in the consumer products industry. This management team
has grown our business by developing new products and acquiring strategic brands
while also improving operating efficiencies. As a result, from 1994 to 1998 our:
o Net sales grew at a compound annual rate of 19.2%;
o EBITDA grew at a compound annual rate of 36.6%; and
o EBITDA margin increased from 12.4% to 21.3%.
Industry Overview
Retail sales of consumer lawn and garden pesticides and household
insecticides in the United States totaled $2.7 billion in 1998. Since 1994, the
market for these products has grown at an average annual rate of approximately
3%. We believe that the industry will continue to grow at a similar rate over
the next several years due to favorable demographic trends. Approximately 67% of
households in the United States, or 68 million households, participate in some
form of lawn and garden care activity. Moreover, consumers over the age of
forty-five represent the largest segment of lawn and garden care product users
and typically enjoy more leisure time and higher levels of discretionary income
than the general population. As the baby boom generation ages, this segment is
expected to grow at a rate more
-32-
than twice that of the total population. This demographic trend is likely to
increase the number of lawn and garden care product users.
We also believe that we will benefit from the following trends in the
industry:
Channel Consolidation. Historically, consumer lawn and garden care
products have been distributed through a variety of retail channels, including
home improvement centers, mass merchandisers, hardware stores, grocery and drug
stores, warehouse clubs and garden centers. In recent years, as home improvement
centers and mass merchandisers have added stores and expanded their lawn and
garden care departments, consumers have increasingly purchased their lawn and
garden care needs from these outlets due to their broader and deeper product
offerings, competitive prices and convenient locations and hours. In 1997,
approximately 70% of consumers purchased lawn and garden care products at home
improvement centers and mass merchandisers compared to just 57% in 1992. We
believe that these retail channels will continue to gain market share from other
channels over the next several years.
Growth in Value-Oriented Brands. Consumer lawn and garden care products
fall into one of three brand tiers: (a) premium brands, (b) value brands or (c)
opening price point brands. Historically, the market was dominated by premium
brands. Over the past several years, the market has shifted toward value and
opening price point brands. Value brands are targeted toward consumers who want
products and packaging that are comparable or superior to premium brands, but at
a lower price, while opening price point brands are designed for consumers who
want quality products and packaging, but are extremely cost conscious. Value and
opening price point brands' combined share of shelf space at our four largest
customers increased from approximately 40% to 60% between 1995 and 1998 at the
expense of premium brands. We believe that value and opening price point brands
will continue to grow because of (a) continued improving consumer perception of
the quality and performance of these brands and (b) ongoing increases in shelf
space dedicated to these brands due to the higher margins they offer to
retailers.
Professional Market Buying Patterns. Home improvement centers are
increasingly targeting the trade professionals in a variety of industries. As a
result, trade professionals are utilizing this channel with greater frequency to
take advantage of the competitive prices, convenience of locations and hours,
delivery services and availability of credit offered by such retailers. Smaller
independent pest control operators and lawn and garden care professionals, who
represent approximately 70% of the professional market, have historically
purchased their supplies from commercial distributors. While the current
selection of professional lawn and garden care products is limited at home
improvement centers, we believe that strategic initiatives underway at several
national retailers will improve the breadth of professional products offered and
drive future growth through this channel.
Competitive Strengths
Leading Value-Oriented Brands. United is the leading manufacturer and
marketer of value-oriented branded products for the consumer lawn and garden
pesticide and household insecticide markets in the United States. Our value and
opening price point brands have driven a shift in the industry by offering
innovative products comparable or superior quality to premium brands at lower
prices. As a result, our products have developed significant brand awareness and
customer loyalty. Our portfolio of pesticide brands holds the number one
position (36% share) in the home improvement center channel and the number two
position (29% share) in the mass merchandiser channel.
Strategic Partnerships With Leading Retailers. We have developed
"strategic partnerships" with a number of leading national retailers in the
fastest growing retail channels. Our four largest customers, Home Depot,
Wal*Mart, Lowe's and Kmart, each hold significant positions in the lawn and
garden care market and have together opened approximately 750 net new stores
over the last five years. As a result, we have been able to significantly
increase our sales as these retailers have added new stores and captured market
share.
Large, Exclusive Direct Sales Force. We have the largest direct sales
force in our industry, with approximately 300 sales representatives dedicated to
merchandising our products. Each representative is responsible for approximately
30 retail outlets and typically visits each store on a weekly basis to
merchandise shelf space, collect inventory data, record orders and educate
in-store personnel about our products. This process facilitates real time
marketing, re-ordering
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and pricing decisions, helping to maximize store-level profitability. In
addition, our exclusive sales force helps us to identify emerging trends and
develop products to meet consumers' needs. We believe that our level of direct
in-store sales support is unique among our competitors.
Proprietary Management Information System. Our highly advanced and
proprietary management information system provides real time data on sales,
orders and inventories at each retail outlet, allowing targeted sales promotions
and efficient inventory management. With same-day order processing and
strategically located distribution centers throughout the United States, we are
generally able to deliver products to retailers within 72 hours of an order,
allowing retailers to maintain lower inventory levels, generate higher turns and
minimize costly returns.
Proven, Committed Senior Management Team. Our management team has
extensive operating, merchandising and marketing experience with us and in the
consumer products industry. This management team has grown our business by
developing new products and acquiring strategic brands while also improving
operating efficiencies. In connection with the recapitalization, we named
Stephen R. Brian as our President and Chief Executive Officer. Mr. Brian
complements the present management team, joining us with over 30 years of
experience in the consumer products industry. Combined, our top four senior
managers have over 80 years of experience in the consumer products industry and
19 years of experience with us. After the recapitalization, our senior
management team owns or has the right to acquire approximately 9% of our fully
diluted common stock.
Business Strategy
We plan to capitalize on our strengths and the favorable industry trends
to enhance our leadership position in value and opening price point brands by
implementing the following key elements of our business strategy:
Enhance Value Brand Position. We plan to maintain our focus on building
our leading value brands for the consumer lawn and garden pesticide and
household insecticide markets. Our strategy is to provide innovative products of
comparable or superior quality to our competitors at a lower price to appeal to
the large, growing segment of consumers that desire a better value. Over the
past five years, we have grown the sales and market shares of our core value
brands - Spectracide, Hot Shot, Cutter and Peters - through the successful
execution of this strategy.
Partner with Leading Retailers. We believe that our strong value brand
position coupled with our operational expertise allows us to partner with
leading national retailers to develop opening price point brands. We currently
manufacture and market the opening price point brands for retailers such as Home
Depot, Kmart and Lowe's. Our strategic partnerships with these retailers have
enabled us to significantly increase our portion of their category shelf space.
Specifically, our products occupy over half of the category shelf space at Home
Depot, Kmart and Lowe's, where we are "category manager" for lawn and garden
pesticides. As category manager, our representatives work together with these
national retailers to determine advantageous pricing, product mix and
merchandising plans.
Maximize Category Profitability for Retailers. We focus on maximizing
retailers' profitability in selling our products by being a low-cost provider
and leveraging our one-step distribution. We are a low-cost provider as a result
of our high level of vertical integration and our patented water-based aerosol
technology. We have a one-step distribution process through our approximately
300 person exclusive direct sales force, the largest in the industry.
Leverage Distribution Network. We continually seek to capitalize on our
strong distribution network and relationships with retailers. To that end, we
have increased our sales and improved our operating leverage by supplying
complementary product lines to retailers. We add new products either through new
product development or by acquiring product lines. Our new product development
strategy has been to introduce innovative products that have superior
performance, easy-to-understand packaging and value pricing. Over the past three
years, we have introduced 80 new products, which represented nearly 40% of our
1998 net sales. New products generate additional sales and generally provide
higher margins to us and our retailers. Spectracide Terminate generated net
sales of $21.9 million in its limited initial launch in 1998, demonstrating the
strength of our distribution network. Our brand acquisition strategy has been to
selectively acquire product lines that can benefit from our strong distribution
network, product
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development expertise and other competitive strengths. Acquired product lines
such as Peters and Cutter have experienced rapid growth upon integration into
our distribution system.
Target Professional Market. While the primary end users of our products
have historically been household consumers, we have begun to target smaller
independent pest control operators and lawn and garden care professionals
through our existing retail channels. Historically, these professionals have
purchased their pesticide and lawn and garden care products from commercial
distributors. We believe that these professionals will increasingly utilize the
home improvement center channel to take advantage of the competitive prices,
convenience of locations and hours, delivery services and availability of credit
offered. To benefit from and further drive this trend, we developed Spectracide
Pro, a group of products designed specifically for the professional market.
Launched in March 1999, this line of professional pesticides is supported by
national advertising in relevant trade magazines, in-store promotional
campaigns, an exclusive direct sales force and technical support. We believe
that we can capitalize on our strong relationships with leading national
retailers to gain a meaningful position in the professional market.
Our History
United was founded by David C. Pratt in 1969. We initially focused on
metal works and anchor and bolt production. In 1973, we acquired Spray Chem, a
contract manufacturer of liquid and aerosol insecticides and herbicides. In
1985, we acquired Real-Kill and entered into the manufacturing and distribution
of branded products. In 1988, we formed our core businesses through the
acquisition of certain assets of various businesses of Chesebrough-Ponds, a
subsidiary of Unilever plc. The acquired brands included Spectracide, Hot Shot,
Rid-a-Bug, Bag-a-Bug and No-Pest, expanding our products to include a wide array
of value-oriented indoor and outdoor pesticides. In 1994, we acquired certain
assets relating to Cutter from Miles, Inc. In 1995, we acquired certain assets
from Alljack Company and Celex Corporation, including Peters, the manufacturing
rights of Kmart's opening price point brands, KRid and KGro, and the Shootout
and Gro Best brand names.
In addition to acquisitions, we have grown through new product
introductions. Our new product development strategy has been to identify unmet
consumer needs, exploit competitors' weaknesses and introduce innovative
products that have superior performance, easy-to-understand packaging and value
pricing. Over the past three years, we have introduced 80 new products, which
represented nearly 40% of our 1998 net sales. Examples include: (a) Spectracide
Terminate, the first ever do-it-yourself consumer termite killing system,
introduced in 1998, and (b) Spectracide Pro, a line of lawn and garden and
household pesticides targeted toward smaller independent pest control operators
and lawn and garden care professionals, introduced in March 1999.
Products
We are the leading manufacturer and marketer of value and opening price
point branded products for the consumer lawn and garden pesticide and household
insecticide markets in the United States. We manufacture and market one of the
broadest lines of pesticides in the industry, including herbicides and indoor
and outdoor insecticides, as well as insect repellents and water soluble
fertilizers, under a variety of brand names. Our products have comparable or
superior quality and performance to premium brands, but are typically priced at
a 10% to 20% discount. Our value brands are targeted toward consumers who want
products and packaging that are comparable or superior to premium brands, but at
a lower price, while our opening price point brands are designed for consumers
who want quality products and packaging, but are extremely cost conscious. Our
portfolio of value- oriented pesticide brands hold the number one position (36%
share) in the home improvement center channel and the number two position (29%
share) in the mass merchandiser channel. The following is a description of each
of our major products.
Value Brands (76% of 1998 net sales)
- ------------------------------------
We sell a broad line of value brands marketed under such names as
Spectracide, Spectracide Terminate, Spectracide Pro, Hot Shot, Cutter and
Peters. Since 1994, net sales of our value brands have grown at a compound
annual rate of 13.7% from $129.4 million to $216.6 million in 1998. Below is a
description of each of our value brands:
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Spectracide. The Spectracide product line primarily consists of outdoor
insect control products and herbicides, but also includes indoor insect control
products, specialty items such as plant disease control and rose care products,
and regional products such as fire ant killer and Bag-a-Bug Japanese beetle
traps. Since its acquisition from Unilever in 1988, Spectracide has grown faster
than any brand in the consumer lawn and garden category with net sales growing
at a compound annual rate of 14.1% since 1994. When we acquired the Spectracide
product line, it held a single digit market share in the home improvement center
and mass merchandiser channels. Today, the Spectracide brand has an average
market share in excess of 20% in both of these channels. We have grown this
brand by capitalizing on our strong distribution network, product development
expertise and other competitive strengths. The Spectracide product line consists
of 115 SKUs.
Spectracide Terminate. Introduced in 1998, Spectracide Terminate is the
first ever do-it-yourself consumer termite killing system. The product is based
on professional bait stake technology and comes in 20, 40 or 60 stake packages
to meet the needs of a wide range of property sizes. Prices per package range
from $49 to $129, which is a significant discount to professional services. The
introduction of Spectracide Terminate reflects our focus on innovative product
development. We identified a need for a do-it-yourself alternative because
approximately 98% of the revenues in the $2.0 billion termite control industry
are generated by professional termite franchises. Conceived, developed and
introduced in less than a year, Spectracide Terminate has been very successful
during its initial marketing stage, with net sales of $21.9 million in 1998. As
we continue to expand distribution and enhance marketing programs dedicated to
this product, we believe sales of the Spectracide Terminate product will
continue to grow. The Spectracide Terminate product line consists of 12 SKUs.
Spectracide Pro. The Spectracide Pro product line, which was introduced in
March 1999, targets smaller independent lawn and garden care professionals and
pest control operators. Many trade professionals are increasingly purchasing
their supplies at home improvement centers. To benefit from and drive this
trend, we developed the Spectracide Pro line, a group of products designed
specifically for the professional market. This product line will be the first to
offer both convenience and value to this market through the home improvement
center channel. Conceived, developed and introduced in less than a year, this
product line is supported by national advertising in relevant trade magazines,
an exclusive direct sales force, a technical support team and in-store
promotional campaigns. Preliminary distribution is through over 400 Home Depot
retail locations. The Spectracide Pro product line consists of 21 SKUs.
Hot Shot. The Hot Shot product line consists of household insecticides,
including items such as roach and ant killers, flying insect killers, foggers,
wasp and hornet killers, rodenticides, flea control products and, most recently,
a new line of roach and ant baits. Acquired from Unilever in 1988, Hot Shot is
the fastest growing household insecticide brand in the United States, recently
passing Black Flag(R) to become the number two brand in the home improvement
center and mass merchandiser channels. Hot Shot's market penetration has
consistently increased, growing from a market share in the low single digits in
the home improvement center and mass merchandiser channels when we acquired the
brand to over 16% today in the categories in which it competes. The Hot Shot
product line consists of 48 SKUs.
Cutter. Acquired from Miles, Inc. in 1994, Cutter's product line provides
protection for the entire family, ranging from area repellent citronella candles
to products designed especially for use on children and the outdoorsman. We have
repositioned Cutter as a value brand and increased its distribution, enabling it
to become the fastest growing brand in the insect repellent category. Today,
Cutter has the number one market position in the home improvement center and
hardware store channels. Cutter's average market share in personal repellents is
18% within the channels that it competes. The Cutter product line consists of 27
SKUs.
Peters. Peters is a water soluble fertilizer available in all purpose
formulations as well as specialty formulations for lawns, roses, tomatoes,
orchids and azaleas. We acquired Peters, our most recent brand acquisition, from
Alljack Company and Celex Corporation in 1995. Originally developed for
professional greenhouse growers, Peters is now the number two water-soluble
fertilizer in the home improvement center channel. For 1999, Peters introduced
new high-impact packaging graphics and new all-weather packaging material and
merchandising displays to improve shelf appearance and allow the products to be
displayed in the live goods departments of home improvement centers and mass
merchandisers. We believe that capital investments made in 1998 for new and
upgraded manufacturing equipment for
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Peters will streamline operations and reduce overhead, resulting in significant
improvements in manufacturing productivity. Peters will also continue to benefit
from our strong distribution network, product development expertise and other
competitive strengths. The Peters product line consists of 18 SKUs.
Other Value Brands. We also manufacture and market regional value brands
in Florida and the Caribbean. Rid-a-Bug, sold exclusively in Florida, is a
leading household pesticide product in that state. Real-Kill, marketed as a
Spanish-labeled product throughout the Caribbean, has become the leading brand
of household insecticides in Puerto Rico.
Opening Price Point Brands (18% of 1998 net sales)
- --------------------------------------------------
An important aspect of our growth over the past few years has resulted
from our introduction of opening price point brands at certain home improvement
centers and mass merchandisers. By introducing these products, we have
effectively acquired shelf space at the expense of our competitors by displacing
premium brands and lower quality regional brands. Our strategic retail partners
have also benefited from our introduction of opening price point brands through
streamlined logistics, better inventory control and higher margins. Net sales of
our opening price point brands have grown rapidly from zero in 1994 to $50.1
million in 1998. Below is a description of each of our opening price point
brands.
Real-Kill. In 1997, we repositioned Real-Kill, relaunching the brand
exclusively at Home Depot as its opening price point brand. The brand consists
of indoor and outdoor pesticides.
No-Pest. In late 1997, we introduced No-Pest exclusively at Lowe's as its
opening price point brand. The brand consists of indoor and outdoor pesticides.
KRid, KGro, Shootout and Gro Best. In late 1995, we acquired the
manufacturing operations which produce the Kmart owned opening price point
brands, KRid and KGro, and the brand names, Shootout and Gro Best. These brands
consist of indoor and outdoor pesticides.
Other (6% of 1998 net sales)
- ----------------------------
We also manufacture private label products for hardware co-operatives and
other retailers and produce under contract pesticides and other chemicals for
other companies.
Customers
We sell our products through all major retail channels, including home
improvement centers, mass merchandisers, hardware stores, grocery and drug
stores, wholesale clubs and garden centers. We manufacture and supply products
to hundreds of customers representing more than 70,000 retail stores across the
United States and in select locations in Canada, Puerto Rico and the Caribbean.
Our leadership position in the home improvement center and mass
merchandiser channels is a key element of our past and future success. Industry
wide, category sales continue to shift to the home improvement center and mass
merchandiser channels. In 1997, approximately 70% of consumers purchased lawn
and garden products through these channels compared to just 57% in 1992. Within
these channels, we focus on the fastest growing retailers and enjoy
long-standing relationships with market leaders such as Home Depot,Wal*Mart,
Lowe's, Kmart, Food Lion, Albertsons and Walgreens.
Our four largest customers, Home Depot,Wal*Mart, Lowe's and Kmart,
represented 68% of our 1998 net sales. The combination of consumer demand
shifting away from premium price brands and our control of the opening price
point brand at three of these top four customers has helped us achieve the role
of "category manager" for lawn and garden pesticides at Home Depot, Lowe's and
Kmart. As category manager, our representatives work together with these
national retailers to determine advantageous pricing, product mix and
merchandising plans. The following table sets forth our share of shelf space and
position at each of our key retailers:
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Shelf Space and Position at Four Largest Customers (1)
Home
Depot Wal*Mart Lowe's Kmart
------ -------- ------ -----
Category manager................................................. Yes No Yes Yes
Share of 1999 shelf space (2).................................... 52% 13% 53% 57%
Position based on unit sales (3)................................. #1 #2 #1 #1
- -------------------------------
(1) As to lawn and garden pesticides.
(2) Management estimate of our share of shelf space in the category based on
store shelf plans.
(3) Based on 1998 point-of-sale data from Information Resources, Inc. and
Triad Systems Corporation
Home Depot, Wal*Mart, Lowe's and Kmart have together opened approximately
750 net new stores, increasing their number of stores from 5,118 in 1994 to
5,858 in 1998. This store growth has permitted us to drive volume by stocking
new shelves rather than depending solely on acquiring existing shelf space from
competitors. We believe that new store growth will continue to drive volume in
the future, as our top customers alone expect to open approximately 400 new
stores in 1999. We expect to occupy the same amount of shelf space in new stores
as in existing stores in comparable geographic locations. The following table
sets forth the store base of each of our top four customers:
Store Growth of Four Largest Customers(1)
Home
Depot Wal*Mart Lowe's Kmart
-------- ---------- --------- ---------
1994.................................................. 340 2,132 330 2,316
1995.................................................. 423 2,234 365 2,161
1996.................................................. 512 2,304 402 2,134
1997.................................................. 624 2,362 446 2,136
1998.................................................. 761 2,467 492 2,138
- -------------------------------
(1) Represents stores at year-end.
Below is a brief description of our relationships with our four largest
customers:
Home Depot. Prior to 1997, our relationship with Home Depot included only
the distribution of our core value brands. We capitalized on a shift in consumer
preferences toward value and opening price point brands away from premium brands
by working in partnership with Home Depot to reintroduce Real-Kill exclusively
at Home Depot as its opening price point brand. Our net sales to Home Depot grew
from $9.3 million in 1994 to $73.5 million in 1998, representing a compound
annual growth rate of 67.7%. During the same period, Home Depot grew its store
base at a compound annual growth rate of 22.3%. Our share of shelf space in our
category at Home Depot is approximately 52%.
Wal*Mart. At Wal*Mart, we distribute our core value brands. Wal*Mart's
opening price point brand is currently manufactured by a third-party
manufacturer pursuant to a contract that expires in 2000. Our net sales to
Wal*Mart grew from $42.2 million in 1994 to $49.0 million in 1998, representing
a compound annual growth rate of 3.8%. During the same period, Wal*Mart grew its
store base at approximately the same rate. Our share of shelf space in our
category at Wal*Mart is approximately 13%.
Lowe's. Prior to 1997, our relationship with Lowe's included only the
distribution of our core value brands. Like our relationship with Home Depot,
our relationship was greatly enhanced with the introduction of No-Pest, which we
sell exclusively to Lowe's as its opening price point brand. Our net sales to
Lowe's grew from $11.0 million in 1994 to $40.6 million in 1998, representing a
compound annual growth rate of 38.6%. During the same period, Lowe's grew
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its store base at a compound annual growth rate of 10.5%. Our share of shelf
space in our category at Lowe's is approximately 53%.
Kmart. Prior to 1995, our relationship with Kmart included only the
distribution of our core value brands. Like our relationships with Home Depot
and Lowe's, our relationship was greatly enhanced when we began manufacturing
Kmart's opening price point brands, KRid and KGro, and acquired its other
opening price point brands, Shootout and Gro Best. Our net sales to Kmart grew
from $0.8 million in 1994 to $32.1 million in 1998, representing a compound
annual growth rate of 151.7%. During that same period, Kmart's store base was
essentially constant. Our share of space in our category at Kmart is
approximately 57%.
Sales and Marketing
We conduct our sales activities through our exclusive direct sales force,
the largest in our industry. Our sales force consists of approximately 300
territory managers and 20 area sales managers. Territory managers are typically
responsible for 30 retail accounts and visit accounts on a weekly basis to
merchandise shelves and collect inventory data. Our proprietary management
information system allows this information to be linked from territory managers'
laptop computers to our main database. Territory managers' store visits generate
close to 1,000 store reports a day. The data collected and analyzed includes
valuable real-time information on SKUs, inventory levels and sales, information
that is used by territory managers and our customers to develop promotional
campaigns and merchandising plans that maximize store level sales and
profitability. This process facilitates real-time marketing, re-ordering and
pricing decisions, helping to maximize store level profitability. Orders can be
placed directly to our distribution facilities during a store visit, generally
allowing for delivery of orders within 72 hours of a visit. Our rapid delivery
allows customers to maximize inventory turns and minimize costly returns. In
addition, our sales force is better able to help us identify emerging trends and
develop products to meet consumers' needs. Moreover, our one-step distribution
system allows us to minimize our distribution costs relative to our competitors'
smaller sales forces and use of third-party distributors. Customers benefit as
we can offer our products at a lower price. We believe that our level of direct
in-store sales support is unique among our competitors. In the retail grocery
and drug channel, we use a network of independent brokers to ensure execution of
our sales programs.
Our marketing department leads our new product development process as well
as develops all consumer support plans to help drive sales through our strong
distribution network. To promote our products to consumers, we advertise on
national and local television, radio and print media; develop consumer
promotions; and engage in market research efforts. We promote the quality and
efficacy of our value brands, while emphasizing their lower cost relative to
premium brands.
Research and Development
Our research and development department has developed over 80 new products
since 1996 which represented nearly 40% of our 1998 net sales, evidence of our
focus on innovation and the speed of our development cycle. As a result, our
active ingredient chemical vendors often approach us first with new active
ingredients, allowing us to rapidly develop and introduce new products. Our
research and development staff has extensive experience across all of our
product segments. Although our expertise is in applied formulation, items like
our patented water-based aerosol technology, our exclusive formulation of diquat
fusilade and our dual insect and disease control formulations were developed
internally.
Raw Materials and Suppliers
The key elements of our products are various commodity and specialty
chemicals including diazinon, Dursban(R) and sulfluramid, as well as packaging
materials. We obtain raw materials from various sources, which we currently
consider to be adequate. No one source is considered to be essential to our
operations, and we have never experienced a significant interruption of supply.
Our top suppliers for 1998 included Novartis Crop Protection, Inc., AgrEvo
Environmental Health and Dow Agro Sciences for active ingredients and United
States Can Co. and C. L. Smith for components. In addition, The Andersons
performs toll processing of granular insecticides for us. Several of our
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agreements with suppliers provide for price adjustments under certain
circumstances. In addition, some of our agreements with suppliers provide for
exclusivity rights, subject to minimum purchase requirements.
Competition
We operate in a highly competitive market and compete against a number of
large national and regional brands. Our principal national competitors include:
The Scotts Company, which markets products under the Ortho(R), Roundup(R) and
Miracle-Gro(R) brand names; S.C. Johnson & Son, Inc., which markets products
under the Raid(R) and OFF!(R) brand names; and The Clorox Company, which markets
products under the Combat(R) and Black Flag(R) brand names. Some of our
competitors are larger, have longer operating histories, greater financial
resources and greater market recognition than us. See "Risk
Factors--Competition."
Intellectual Property
We operate and own a substantial number of trademarks and tradenames
including the following: Spectracide, Spectracide Terminate, Spectracide Pro,
Hot Shot, Rid-a-Bug, Bag-a-Bug, Real-Kill, No-Pest, Shootout and Gro Best. We
license the Cutter trademark and other members of the Cutter family of
trademarks from Bayer Corporation and the Peters and Peters Professional
trademarks from The Scotts Company. These licenses are, in effect, perpetual and
exclusive. We also own a number of United States and foreign patents and have a
number of patent applications pending.
Manufacturing and Distribution
We have four manufacturing facilities located throughout Missouri and
Michigan. Our facilities manufacture primarily three types of product
categories: (a) aerosols, (b) liquids and (c) water-soluble fertilizers. Our
products are formulated using active ingredients manufactured by major chemical
companies. The chemical composition of our products is based on internally
developed, proprietary formulas. The typical manufacturing process consists of
four stages: (a) batch, (b) fill, (c) label and (d) pack. We currently produce
over 400 SKUs through our four aerosol production lines, three liquid production
lines and two water-soluble fertilizer production lines. Our production lines
are flexible and can operate at a variety of filling speeds and produce multiple
shipping configurations. We use outside manufacturers for the production of our
granular insecticides, baits and candles.
Our three aerosol production lines have an annual capacity of 100 million
cans, and production on these lines is approximately 60 million cans. Our three
liquid production lines have annual capacity of approximately 80 million bottles
and are producing approximately 40 million bottles. Our two water-soluble
production lines have an annual capacity of close to 40 million pounds, and
current output is approximately 17 million pounds. We believe our capacity is
sufficient to meet our seasonal inventory needs. On average, the cost of adding
a new aerosol production line is approximately $3.0 million, a new liquid
production line is approximately $2.0 million and a new water- soluble
production line is approximately $1.0 million.
We have four distribution centers, located in Vinita Park, Missouri;
Allentown, Pennsylvania; Gainesville, Georgia; and City of Industry, California.
The strategic location of these centers, combined with the real-time order
information provided by our proprietary management information system, allows
same day shipment from one of these locations directly to our retail customers.
All of our facilities are leased under leases expiring on December 31,
1999 or December 31, 2000, but may be renewed at our option for one-year periods
until 2010 in the case of leases initially expiring in December 31, 1999, and
for three additional five-year periods, in the case of a lease expiring on
December 31, 2000. Our leases, like substantially all of our other properties,
are pledged to secure our senior credit facility. See "Certain Transactions."
The table below provides information regarding the location, the use and
the approximate square footage of our facilities:
-40-
Approximate
Location Facility Description Square Footage
- -------------------- ------------------------------------------- --------------
Overland, MO Office space and finished goods warehousing 182,200
Vinita Park, MO Office space and distribution center 159,550
Bentonville, AR Office space 3,125
Troy, MI Office space 918
Gainesville, GA Distribution center 79,000
Allentown, PA Distribution center 40,000
City of Industry, CA Distribution center 38,000
Vinita Park, MO Manufacturing plant and warehousing 318,500
Plymouth, MI Manufacturing plant 50,000
Earth City, MO Finished goods warehousing 125,000
Employees
As of December 31, 1998, we had approximately 1,000 full-time employees.
Approximately 240 of our employees at our Vinita Park and Overland, Missouri
locations are covered by collective bargaining agreements, which expire in
September, 1999, with Finishers, Maintenance Painters, Industrial and Allied
Workers Local Union 980, ALL-CIO. We have not experienced any significant work
stoppage in recent years, and we believe our labor relations are satisfactory.
Legal Proceedings
In October 1998, the FTC and several state attorneys general filed a suit
against us seeking to enjoin our advertising of Spectracide Terminate as a
"termite home defense system." The suit alleges that we have made deceptive and
unsubstantiated claims regarding Spectracide Terminate; we have denied these
allegations. We have negotiated and received a signed settlement agreement
regarding our advertising claims with the FTC and the state attorneys general
involved in the litigation. As part of the settlement, we agreed that we would
not, without competent and reliable scientific evidence, represent to consumers
that: (a) use of Spectracide Terminate alone is effective in preventing termite
infestations or eliminating active termite infestations; (b) Spectracide
Terminate provides "protection for your home against subterranean termites"; and
(c) Spectracide Terminate is a "termite home defense system" or make any
representations comparing the performance of Spectracide Terminate to other
termite control methods. We further agreed to apply to the federal EPA to rename
our product as "Spectracide Terminate" (without reference to "termite home
defense system"). The agreement provides that we may describe the product as a
"do-it-yourself termite killing system for subterranean termites." Finally, in
virtually any advertisement that indicates, either expressly or implicitly, that
Spectracide Terminate kills termites or prevents termite damage or infestation,
we agreed that we would make the following disclosure: "Not recommended as sole
protection against termites, and for active infestations, get a professional
inspection."
We are also involved in other lawsuits and claims which arise in the
ordinary course of business. Our management does not believe that these claims,
or the claims described above, individually or in the aggregate, will have a
material adverse effect on our financial position or operations. See "Risk
Factors--Product Liability."
Environmental Matters
We are subject to federal, state, local and foreign laws and regulations
governing environmental matters. Our manufacturing operations are subject to
requirements regulating air emissions, wastewater discharge, waste management,
and the cleanup of contamination. Based on assessments conducted by an
independent environmental consultant in connection with the Transactions, we
believe that we are in material compliance with these requirements and have no
material environmental liabilities. Nonetheless, like all companies, we may be
subject to potentially significant fines or penalties if we fail to comply with
these requirements, and we could be subject to potentially significant cleanup
liabilities if contamination is discovered at properties currently or formerly
owned or operated by
-41-
us or at a facility to which we sent wastes. We are in the process of
eliminating process wastewater discharges from our manufacturing operations, and
expect to reach "zero discharge" by late 1999. The completion of this project
will involve capital expenditures of approximately $200,000. We do not
anticipate any material capital expenditures for environmental controls in 2000
or 2001.
Our pesticide products must be reviewed and registered by EPA and similar
state agencies or, in foreign jurisdictions, foreign agencies, before they can
be marketed. We devote substantial resources to maintaining compliance with
these registration requirements. If we fail to comply, however, the affected
pesticide could be suspended or canceled, and we could be subject to fines or
penalties. Depending upon the pesticide involved, the severity of the sanction,
and the availability of a substitute product, failure to comply with the EPA
requirements could have a material adverse effect on us. Additionally, EPA is in
the process of re-registering all pesticides and is requiring manufacturers to
supply EPA with additional data regarding their pesticides. Where possible, we
are working with trade associations to reduce our cost of developing this data.
We expect that EPA will continue to request additional pesticide data over the
next five to ten years. Because we do not yet know the extent of the data EPA
will require, it is impossible for us to predict the cost impact it will have on
us. It is also possible that the data we submit could show a risk that EPA deems
unacceptable, which could result in cancellation of the pesticide registration.
While we cannot assure you, we do not expect the impact to have a material
adverse effect on us. EPA also intends to analyze the risk that certain
pesticides present to children, as required by the Food Quality Protection Act.
Depending upon the outcome of its risk analyses, EPA could limit the use of some
of our products, which could adversely affect our business. The severity of the
effect would depend on which products were involved, whether another product or
ingredient could be substituted, and whether our competitors are similarly
affected.
Our fertilizer products must be reviewed and registered by each state
prior to sale. The states typically check the weight of the product and the
accuracy of the analysis statement on the packaging. Other consumer products we
market are subject to the safety requirements of the Consumer Product Safety
Commission. If we fail to comply with any of these requirements, we could be
suspended or prohibited from marketing the affected product, which could
adversely affect our business.
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MANAGEMENT
Directors and Executive Officers
Set forth below is the name, age and position of each of our executive
officers and directors. Our board of directors presently consists of seven
directors who are elected annually. Executive officers serve at the discretion
of the board of directors and, in the case of Messrs. Brian, Bender, Johnson and
Johnston, pursuant to employment agreements.
Name Age Position
- --------------------------- ------ -------------------------------------------------------------------
Stephen R. Brian 50 President and Chief Executive Officer; Director
Richard A. Bender 49 Senior Vice President, Distribution, Human Resources and MIS
William P. Johnson 43 Senior Vice President, Sales and Marketing
Daniel J. Johnston 41 Senior Vice President, Finance and Manufacturing; Director
David C. Pratt 54 Chairman of the Board; Director
David A. Jones 51 Director
C. Hunter Boll 43 Director
Scott A. Schoen 40 Director
Charles A. Brizius 30 Director
Stephen R. Brian has served as our President and Chief Executive Officer
since the recapitalization. Mr. Brian was formerly the President of Home
Products International from January 1998 to January 1999 and President and Chief
Executive Officer of Seymour Housewares from January 1996 to January 1998, each
a designer, manufacturer and marketer of houseware and home improvement
products. Mr. Brian has also held senior management positions at General
Electric Company, Electrolux AB and Hamilton Beach/Proctor Silex, Inc.
Richard A. Bender has served as our Senior Vice President, Distribution,
Human Resources and MIS since 1996. Mr. Bender joined us in 1988 as Vice
President of Human Resources. He has held various positions during his tenure
with us, including responsibilities in our former metals group division,
administration, management information systems, product supply and distribution.
Prior to joining us, Mr. Bender was a general manager in an automotive related
private business and spent 13 years in various roles including sales, plant
operations and human resources at Colgate-Palmolive Co.
William P. Johnson has served as our Senior Vice President, Sales and
Marketing since 1998. From 1996 to 1998, Mr. Johnson served as Senior Vice
President, Sales, and from 1993 to 1996, as Vice President of Sales in Non-Food
National Accounts. Prior to joining us, Mr. Johnson was a national accounts
manager for Rubbermaid, Inc. from 1989 to 1993. Prior to joining Rubbermaid,
Inc., Mr. Johnson held the position of Vice President of Sales & Marketing for
Dorcy International from 1979 to 1989.
Daniel J. Johnston has served as our Senior Vice President, Finance and
Manufacturing since 1997. Mr. Johnston joined us in 1994 as Controller and then
worked as Assistant to the Chairman. Prior to joining us, he spent five years
from 1990 to 1994 at Cooper Industries, Inc. in various financial functions at
its corporate office and Bussmann Division. Prior to joining Cooper Industries,
Inc., he was employed by Price Waterhouse, LLP from 1982 to 1990, finishing as
an audit manager.
David C. Pratt was our President and Chief Executive Officer from our
inception until the recapitalization. Mr. Pratt has continued as our Chairman of
the Board and a director.
David A. Jones became a director of our company in January 1999 in
connection with the recapitalization. Mr. Jones has been the President and Chief
Executive Officer of Rayovac Corporation since March 1996. Between February 1995
and March 1996, Mr. Jones was Chief Operating Officer, Chief Executive Officer
and Chairman of the Board of Directors of Thermoscan, Inc. From 1989 to 1994, he
served as President and Chief Executive Officer of The Regina Company, a
manufacturer of vacuum cleaners and other floor care equipment.
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C. Hunter Boll became a director of our company in January 1999 in
connection with the recapitalization. Mr. Boll is a managing director of THL
where he has been employed since 1986. Mr. Boll is also a Managing Director and
Member of THL Equity Advisors IV, LLC, the general partner of Thomas H. Lee
Equity Fund IV, L.P. and Vice President of Thomas H. Lee Advisors I and T. H.
Lee Mezzanine II, affiliates of ML-Lee Acquisition Fund, L.P., ML-Lee
Acquisition Fund II, L.P. and ML-Lee Acquisition Fund II (Retirement Accounts),
L.P., respectively. Mr. Boll also serves as a director of Stanley Furniture
Company, Inc., New York Restaurant Group, Inc., Freedom Securities Corporation,
Big V Supermarkets, Inc., TransWestern Communications Company, Inc. and several
private corporations.
Scott A. Schoen became a director of our company in January 1999 in
connection with the recapitalization. He is a Managing Director of THL, which he
joined in 1986. In addition, Mr. Schoen is a Managing Director and Member of THL
Equity Advisors IV, LLC, the general partner of Thomas H. Lee Equity Fund IV, LP
and Vice President of Thomas H. Lee Advisors I and T. H. Lee Mezzanine II,
affiliates of ML-Lee Acquisition Fund, L.P., ML-Lee Acquisition Fund II, L.P.
and ML-Lee Acquisition Fund II (Retirement Accounts), L.P., respectively. He is
also a director of Rayovac Corporation, Syratech Corporation, TransWestern
Communications Company, Inc. and several private corporations.
Charles A. Brizius became a director of our company in January 1999 in
connection with the recapitalization. Mr. Brizius worked at THL from 1993 to
1995, rejoined in 1997 and currently serves as an Associate. Mr. Brizius is a
Member of THL Equity Advisors IV, LLC, the general partner of Thomas H. Lee
Equity Fund IV, L.P. From 1991 to 1993, Mr. Brizius worked at Morgan Stanley &
Co. Incorporated in the Corporate Finance Department. He is also a director of
Eye Care Centers of America, Inc.
Compensation of Directors
Other than Mr. Jones and Mr. Pratt, who receive compensation in connection
with consulting agreements, we do not compensate our directors.
In connection with the recapitalization, we entered into several
agreements with David A. Jones. These agreements provide that Mr. Jones (a)
serve on our board of directors for three years from the closing of the
recapitalization (unless removed earlier by the other directors), (b) receive a
consulting payment of $75,000 per year, (c) receive a directorship fee of
$25,000 per year, (d) receive a signing bonus, (e) purchase $1.0 million of
common stock and (f) receive options pursuant to the 1999 Stock Option Plan to
purchase 300,000 shares of common stock.
Also in connection with the recapitalization, we entered into a consulting
agreement with David C. Pratt. This consulting agreement provides that Mr. Pratt
(a) receive a consulting payment of $15,000 per month for four months from the
closing of the recapitalization or until a mutually agreed upon later date, (b)
act as Chairman of our board of directors for four months from the closing of
the recapitalization - which term can continue for up to an additional five
months at the discretion of the other directors, (c) remain a member of our
board of directors after his term as Chairman has ended until the earlier of
nine months after the closing of the recapitalization and the end of the
consulting term, (d) receive a directorship fee of $25,000 per year and (e)
receive United-paid health and welfare benefits for four months from the closing
of the recapitalization.
Compensation of Executive Officers
The following table sets forth the compensation of our former Chief
Executive Officer and the other executive officers (collectively, the "Named
Executive Officers") for the year ended December 31, 1998.
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Summary Compensation Table
Annual Compensation
---------------------------- All Other
Name and Principal Position Salary Bonus Compensation
- --------------------------------------------------------------------------- ---------- ---------- -------------
David C. Pratt ........................................................... $ 250,000 $2,771,061 $ 42,740(2)
President and Chief Executive Officer(1)
Richard A. Bender ........................................................ 100,000 260,143 24,018(3)
Senior Vice President, Distribution, Human Resources and
MIS
William P. Johnson ....................................................... 100,000 251,809 25,364(3)
Senior Vice President, Sales and Marketing
Daniel J. Johnston ....................................................... 100,000 251,809 4,716(3)
Senior Vice President, Finance and Manufacturing
- -------------------------------
(1) Mr. Pratt resigned as our President and Chief Executive Officer on January
20, 1999 in connection with the recapitalization.
(2) Includes auto allowance and country club dues.
(3) Includes deferred compensation under The Long-Term Incentive Compensation
Plan, which was terminated in the first quarter of 1998.
Employment Agreements
Messrs. Brian, Bender, Johnson and Johnston have each entered into an
employment agreement with us. The agreements provide for employment until
January 31, 2002 for Mr. Brian and December 31, 2001 for Messrs. Bender, Johnson
and Johnston, unless terminated earlier as provided in their respective
employment agreements. The employment agreements provide for annual base
salaries as follows: Mr. Brian--$437,000; Mr. Bender--$300,000; Mr.
Johnson--$300,000; and Mr. Johnston--$300,000. In addition, each employment
agreement provides for annual incentive compensation to be determined in
accordance with our attainment of certain target EBITDA and customary benefits.
Each employment agreement may be terminated by us at any time with or
without cause. If the employment agreement is terminated by us for cause or by
the executive without good reason, the terminated executive will be entitled to
any unpaid base salary through the date of termination plus any unpaid incentive
compensation. If we terminate the employment agreement without cause or if the
executive terminates the employment agreement for good reason or the executive
dies or becomes disabled, he will be entitled to any unpaid base salary through
the date of termination, any unpaid incentive compensation and, under certain
conditions, his base salary through the later of January 2002 and the first
anniversary of his termination. Each employment agreement provides for
non-compete, nonsolicitation and confidentiality provisions through the later of
one year after the executive's date of termination or the last date severance
payments are owed to the executive.
In connection with entering his employment agreement, Messrs. Brian,
Johnson and Johnston each purchased $1.0 million of common stock, and Mr. Bender
purchased $700,000 of common stock. Messrs. Johnson, Johnston and Bender
purchased their common stock out of the proceeds of a bonus paid at the closing
of the recapitalization. Mr. Brian paid for a portion of his shares by
delivering promissory notes with original principal amounts of $250,000
(maturing in June 1999) and $500,000 (maturing in January 2004), which accrue
interest at a rate equal to our borrowing rate. The repayment of these notes is
secured by Mr. Brian's shares of common stock. Under certain circumstances, we
have the right to repurchase the shares owned by each executive.
1999 Stock Option Plan
In connection with the recapitalization, we instituted the 1999 Stock
Option Plan (the "Plan"), which is administered by a committee of our board of
directors. The Plan was designed as an incentive to selected employees, our
consultants and directors to acquire proprietary interest in us, to continue to
perform services for us, to increase their efforts on our behalf and to promote
the success of our business. The options are not designed to be incentive stock
options within
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the meaning of Section 422 of the U.S. Internal Revenue Code of 1986, as
amended. The option pool under the Plan consists of an aggregate of 4,000,000
shares of our common stock that may consist of shares of our Class A Voting
Common Stock, our Class B Non-Voting Common Stock or some combination of Class A
Voting Common Stock and Class B Non-Voting Common Stock.
We granted to Mr. Brian 600,000 shares of Class A Voting Common Stock and
600,000 shares of Class B NonVoting Common Stock, and granted 300,000 shares of
Class A Voting Common Stock and 300,000 shares of Class B Non-Voting Common
Stock to Messrs. Bender, Johnson and Johnston. The remaining options will be
granted to selected employees as determined by our board of directors from time
to time. The options to purchase shares of common stock are subject to vesting
schedules, which are both time and performance based.
Deferred Compensation and 401(k) Plans
In connection with the recapitalization, we established a deferred
compensation plan. Messrs. Bender, Johnson and Johnston are eligible to
participate in the plan. The plan provides for the establishment of a grantor
trust for the purpose of accumulating the assets contributed pursuant to the
plan. The grantor trust used the funds contributed to it to purchase (a) 70,000
shares of our Class A Voting Common Stock and 70,000 shares of our Class B
Non-Voting Common Stock for the benefit of Mr. Bender, (b) 100,000 shares of our
Class A Voting Common Stock and 100,000 shares of our Class B Non-Voting Common
Stock for the benefit of Mr. Johnson and (c) 100,000 shares of our Class A
Voting Common Stock and 100,000 shares of our Class B Non-Voting Common Stock
for the benefit of Mr. Johnston. The plan is administered by a committee of our
board of directors.
We also maintain a 401(k) defined contribution plan. The plan allows for
discretionary participant elective contributions. We are required to match 50%
of each participant's contributions up to 6% of the employee's salary for those
employees having less than 10 years of service and 75% of each participant's
contributions up to 6% of the employee's salary for those employees having 10 or
more years of service. In 1998, our contributions on behalf of the Named
Executive Officers totalled $7,200 for Mr. Pratt and $4,800 for each of the
others.
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CERTAIN TRANSACTIONS
Professional Services Agreement
In connection with the recapitalization, we entered into a professional
services agreement with THL. The agreement has a term of three years and
automatically extends for successive one year periods thereafter, unless the
parties give 30 days' notice prior to the end of the term. The agreement
provides for a financial advisory fee of $12.0 million in connection with
structuring, negotiating and arranging the recapitalization and structuring,
negotiating and arranging the debt financing, which was paid at the closing of
the recapitalization. In addition, THL will initially receive $62,500 per month
for management and other consulting services provided to us. The agreement also
provides that we will reimburse reasonable out-of-pocket expenses incurred in
connection with management advisory services. We believe that the terms of the
professional services agreement are comparable to those that would have been
obtained by unaffiliated sources.
Stockholders Agreement
In connection with the recapitalization, we entered into a stockholders
agreement with certain of our stockholders. The agreement provides for certain
restrictions on transfer of shares of capital stock, registration rights and
drag-along rights.
Recapitalization Agreement
Our recapitalization agreement with UIC Holdings, L.L.C., which is owned
by Thomas H. Lee Equity Fund IV, L.P., contains customary provisions, including
representations and warranties with respect to the condition and operations of
the business, covenants with respect to the conduct of the business prior to the
recapitalization closing date and various closing conditions, including the
continued accuracy of the representations and warranties. In general, the
representations and warranties made by the sellers in the recapitalization
agreement survive until the earlier of 10 days following the delivery of our
December 31, 1999, audited financial statements or April 15, 2000.
Representations and warranties with respect to tax matters survive until 30 days
after the expiration of the applicable statute of limitations; representations
with respect to environmental matters survive until December 31, 2002. Certain
other representations and warranties do not expire.
Pursuant to the recapitalization agreement, David C. Pratt and Mark R.
Gale, our former general counsel, agreed that for a period ending on the fourth
anniversary of the recapitalization closing date not to own, control,
participate or engage in any line of business in which we are actively engaged
or any line of business competitive with us anywhere in the United States and
any other country in which we were doing business at the closing of the
recapitalization.
In addition, each Seller has agreed that for a period ending on the fourth
anniversary of the recapitalization closing date not to contact, approach or
solicit for the purpose of offering employment to or hiring any person employed
by us during the four year period.
Pursuant to the recapitalization, we redeemed a portion of our common
stock held by our stockholders, and UIC Holdings, L.L.C. and certain members of
our senior management purchased a portion of our common stock from our
stockholders. In the recapitalization, Messrs. Bender, Johnson and Johnston
collectively received an aggregate of approximately $5.8 million in cash and an
additional $2.7 million with which the officers purchased our common stock
through grantor trusts.
Lease Agreements
We lease six of our facilities in St. Louis from an affiliate of David C.
Pratt. Five of the leases expire on December 31, 1999, but are renewable for
one-year periods until 2010 and one lease expires on December 31, 2000, but may
be extended for three additional five-year periods. We believe that the terms of
these leases are similar to those negotiated by unrelated parties at arms
length.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of our Class A Voting Common Stock by each of our directors
and our Named Executive Officers, by all of our directors and executive officers
as a group, and by each owner of more than 5% of the outstanding shares of our
Class A Voting Common Stock. Each of our directors and Named Executive Officers
owns an equal number of our Class B Non-Voting Common Stock.
Name of Beneficial Owner (1) Number of Shares Percent of Class
- ---------------------------- ---------------- ------------------
UIC Holdings, L.L.C............................................................. 25,468,000 91.9%
c/o Thomas H. Lee Company
75 State Street
Boston, Massachusetts 02109
Stephen R. Brian (2)........................................................... 370,000 1.3%
David C. Pratt (3)............................................................. 1,325,108 4.8%
Richard A. Bender (2).......................................................... -- *
Williams P. Johnson (2)........................................................ -- *
Daniel J. Johnston (2)......................................................... -- *
David A. Jones................................................................. 100,000 *
C. Hunter Boll (4)............................................................. 25,468,000 91.9%
Scott A. Schoen (4)............................................................ 25,468,000 91.9%
Charles A. Brizius (4)......................................................... 25,468,000 91.9%
All Directors and Executive Officers as a Group (9 persons) (4)................. 26,971,135 97.4%
- -------------------------------
* Denotes less than one percent.
(1) Beneficial owner generally means any person who, directly or indirectly,
has or shares voting power or investment power with respect to a security.
All of the parties listed above are party to a stockholders agreement,
pursuant to which they have agreed to vote their shares in the election of
directors in accordance with the terms of the stockholders agreement. The
number of shares indicated in this table does not include the shares of
Class A Voting Common Stock that are held by other stockholders subject to
the stockholders agreement. Unless otherwise indicated, we believe that
each person has sole voting and investment power with regard to their
shares listed as beneficially owned. The calculation of beneficial
ownership is based on 27,700,000 shares outstanding and includes all
options exercisable within 60 days of January 20, 1999.
(2) Mr. Brian's ownership includes shares held by him as trustee under the
grantor trust under the deferred compensation plan for the benefit of
Messrs. Bender, (70,000 shares of each of our Class A Voting Common Stock
and Class B Non-Voting Common Stock), Johnson (100,000 shares of each
class) and Johnston (100,000 shares of each class) because Mr. Brian has
the sole right to direct the voting and disposition of these shares.
(3) Includes 134,756 shares of our Class A Voting Common Stock held by the
David C. Pratt Grantor Retained Interest Trust and 157,216 shares of our
Class A Voting Common Stock held by the 1994 Ryder Pratt Grantor Retained
Annuity Trust.
(4) All of the equity interests in UIC Holdings, L.L.C. are controlled by the
THL Parties, which may therefore be deemed the beneficial owner of the
shares held by UIC Holdings, L.L.C. All of the shares beneficially owned
by the THL Parties may be deemed to be beneficially owned by THL Equity
Advisors IV, L.L.C. ("Advisors"), the general partner of THL Fund IV, by
THL Equity Trust IV, the general partner of Advisors, by THL and by
Messrs. Boll, Schoen and Brizius and the other officers of THL. Each of
these persons disclaims beneficial ownership of such shares.
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DESCRIPTION OF CAPITAL STOCK
We are a Delaware corporation. Our authorized capital stock consists of 65
million shares, of which 32,500,000 have been designated as Class A Voting
Common Stock, par value $.01 per share, and 32,500,000 have been designated as
Class B Non-Voting Common Stock, par value $.01 per share. As of January 20,
1999, there were 27,700,000 shares of Class A Voting Common Stock outstanding
and 27,700,000 shares of Class B NonVoting Common Stock outstanding. Set forth
below is a summary of the material terms of our capital stock.
Distributions. The Class A Voting Common Stock and the Class B Non-Voting
Common Stock share ratably in any distribution by us to the holders of our
capital stock or with respect to our liquidation, dissolution or winding up.
Voting Rights. The holders of Class B Non-Voting Common Stock have no
right to vote on matters submitted to a vote of our stockholders, except as
otherwise required by law. The holders of Class A Voting Common Stock are
entitled to one vote per share on all matters to be voted upon by our
stockholders.
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DESCRIPTION OF OUR SENIOR CREDIT FACILITY
In connection with the recapitalization, we entered into our senior credit
facility by and among our company, a syndicate of lenders, NationsBanc
Montgomery Securities LLC and Morgan Stanley Senior Funding, Inc., as co-
arrangers and NationsBank N.A., Morgan Stanley Senior Funding, Inc. and Canadian
Imperial Bank of Commerce as agents to such lenders. Pursuant to our senior
credit facility, the lenders are lending up to $335.0 million, consisting of our
$110.0 million revolving credit facility, the $75.0 million Term Loan A and the
$150.0 million Term Loan B.
Repayment. Outstanding commitments under our revolving credit facility,
our swing line facility and our letter of credit facility terminate and all
amounts outstanding thereunder are to repaid in full on January 20, 2005. The
principal amount of the Term Loan A is to be repaid in twenty-four consecutive
quarterly installments commencing June 30, 1999 and a final installment due
January 20, 2005, with $10 million to be payable in each of the first four years
and $17.5 million to be repaid in each of the last two years. The principal
amount of the Term Loan B is to be repaid in twenty-eight consecutive quarterly
installments commencing June 30, 1999 and a final installment due January 20,
2006, with $1.5 million to be payable in each of the first six years and $141
million to be payable in year seven.
Security; Guaranty. Our obligations under our senior credit facility are
secured by a first priority lien on substantially all of our properties and
assets as well as the properties and assets of our future domestic subsidiaries.
Future domestic subsidiaries will be required to guarantee our obligations under
our senior credit facility, and the stock of future domestic subsidiaries (or a
percentage thereof, in the case of foreign subsidiaries) will also be pledged to
the lenders as security.
Interest. The interest rate per annum applicable to advances under our
senior credit facility will be a fluctuating rate of interest measured, at our
option, by reference to (i) the Eurodollar Rate (as defined in our senior credit
facility) plus the applicable borrowing margin, or (ii) a rate per annum equal
to the higher of the published prime rate of NationsBank or the Federal Funds
Rate (as defined in our senior credit facility) plus 1/4 of 1% (the Base Rate)
plus the applicable borrowing margin. The applicable borrowing margin for the
Term Loan B is 2.25% for the Base Rate advances and 3.25% for Eurodollar
advances. The applicable borrowing margin for our revolving credit facility and
the Term Loan A is between 1.00% and 1.75% for the Base Rate advances and
between 2.00% and 2.75% for the Eurodollar advances, in each case based on our
consolidated leverage ratio.
Prepayments; Reductions of Commitments. Subject to certain exceptions set
forth in our senior credit facility, the Term Loan A and the Term Loan B are
required to be prepaid and commitments under our revolving credit facility are
required to be permanently reduced with: (i) 50% of the net cash proceeds of any
issuance of capital stock; (ii) 100% of the net cash proceeds of any new
indebtedness; (iii) 50% of the excess cash flow; (iv) 100% of the net cash
proceeds of (a) any asset sale (subject to limited exceptions) or (b) proceeds
from any insurance claim relating to one of our assets, unless the proceeds are
applied to replace or repair the lost or damaged assets; and (v) 100% of the net
cash proceeds of certain other extraordinary receipts. These mandatory
prepayments and reductions will generally first be applied ratably to the
prepayment of the Term Loan A and the Term Loan B and second to the permanent
reduction of our revolving credit facility. Our revolving credit facility is
subject to a clean- down period during which the aggregate amount outstanding
under our revolving credit facility shall not exceed $10.0 million for 30
consecutive days occurring during the period between August 1 and November 30 in
each calendar year.
Covenants. Our senior credit facility contains covenants restricting our
ability and that of our subsidiaries to, among others (i) incur or suffer to
exist indebtedness or liens, (ii) merge, consolidate or liquidate, (iii) sell
assets or stock, (iv) pay dividends or repurchase stock, (v) make capital
expenditures, (vi) prepay or amend debt and other material agreements and (vii)
transact with affiliates.
Events of Default. Events of default under our senior credit facility
include (i) our failure to pay principal or interest when due, (ii) material
breach by us of any representation or warranty contained in any loan document,
(iii) material breach by us of any covenant contained in any loan documents,
(iv) customary cross-default provisions, (v) events of bankruptcy, insolvency or
dissolution by us or any of our subsidiaries, (vi) the levy of certain judgments
against us or
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any of our subsidiaries, (vii) the actual or asserted invalidity of security
documents or guarantees, (viii) certain adverse events under ERISA plans, and
(ix) a change of control of our company.
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DESCRIPTION OF THE NEW NOTES
The Company will issue the Notes under an Indenture, dated as of March 24,
1999 (the "Indenture"), between the Company and State Street Bank and Trust
Company, as trustee (the "Trustee"). The following is a summary of the material
terms and provisions of the Notes. It does not include all of the provisions of
the Indenture. We urge you to read the Indenture because it defines your rights.
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), as in effect on the date of the Indenture. A copy
of the Indenture may be obtained from the Company by any holder or prospective
investor upon request. You can find definitions of certain capitalized terms
used in the following summary under "-- Certain Definitions" and throughout this
description. Capitalized terms that are used but not otherwise defined herein
have the meanings assigned to them in the Indenture and such definitions are
incorporated herein by reference. For purposes of this "Description of the
Notes," the term "Company" means United Industries Corporation.
General
The Notes will be general unsecured obligations of the Company, ranking
subordinate in right of payment to all Senior Indebtedness of the Company and
senior in right of payment to all current and future subordinated indebtedness
of the Company.
The Notes will be unconditionally guaranteed, on a senior subordinated
basis, as to payment of principal, premium, if any, and interest, jointly and
severally, by each Restricted Subsidiary which guarantees payment of the Notes
pursuant to the covenant described under "Limitation on Creation of
Subsidiaries" (the "Guarantors").
Maturity, Interest and Principal
The Notes will be limited in aggregate principal amount to $150.0 million.
The Notes will mature on April 1, 2009. The Notes will bear interest at a rate
of 9.875% per annum, which will be payable semiannually in arrears on each April
1 and October 1, commencing October 1, 1999, to holders of record of the Notes
at the close of business on the immediately preceding March 15 and September 15,
respectively. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from March 24,
1999. The interest rate on the Notes is subject to increase, and such Additional
Interest will be payable on the payment dates set forth above, in certain
circumstances, if the Notes (or other securities substantially similar to the
Notes) are not registered with the SEC within the prescribed time periods. See
"Exchange Offer; Registration Rights."
Optional Redemption
Except as described below, the Notes are not redeemable before April 1,
2004. On one or more occasions thereafter, the Company may redeem the Notes, in
whole or in part, at the following redemption prices (expressed as a percentage
of principal amount), if redeemed during the twelve-month period beginning on
April 1 of each year listed below:
Year Percentage
- ---- ----------
2004 ....................... 104.938%
2005 ....................... 103.292%
2006 ....................... 101.646%
2007 and thereafter ........ 100.000%
In addition, the Company must pay all accrued and unpaid interest on the
Notes redeemed.
On one or more occasions prior to April 1, 2002, the Company may use the
Net Proceeds of one or more Qualified Public Offerings to redeem up to 40% of
the original principal amount of the Notes at a redemption price of 109.875% of
the principal amount thereof plus accrued and unpaid interest thereon; provided
that:
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(1) at least 60% of the original principal amount of the Notes remains
outstanding immediately after the occurrence of any such redemption;
and
(2) the Company makes such redemption not more than 90 days following the
closing of any such Qualified Public Offering.
In the event that the Company chooses to redeem less than all of the
Notes, selection of the Notes for redemption will be made by the Trustee either:
(1) in compliance with the requirements of the principal national
securities exchange, if any, on which such Notes are listed; or
(2) on a pro rata basis or by lot or by such method as the Trustee shall
deem fair and appropriate.
If a partial redemption is made with the proceeds of a Qualified Public
Offering, the Trustee will select the Notes or portion thereof only on a pro
rata basis or on as nearly a pro rata basis as practicable, unless such method
is prohibited. Notice of redemption will be mailed by first-class mail at least
30 but not more than 60 days before the redemption date to each holder at its
registered address. On and after any redemption date, interest will cease to
accrue on the Notes or portions thereof called for redemption unless the Company
fails to redeem any such Note.
Asset Drop-Down
The Equity Investor, in its sole discretion, may cause the Company 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
the Company (including the Notes) (collectively, the "Asset Drop-Down"). As a
result of the Asset Drop-Down, the Company 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 the Company and for purposes of this "Description of Notes" and the
indenture, the New Operating Company would be the "Company." The Asset Drop-Down
will be carried out, if at all, in compliance with the "Merger, Consolidation or
Sale of Assets" provisions described below, and the Notes will continue to be
guaranteed by Restricted Subsidiaries of the New Operating Company as described
below under "Guarantees."
Subordination
The indebtedness represented by the Notes will be subordinate in right of
payment to the prior payment in full in cash of all existing and future Senior
Indebtedness of the Company. As of December 31, 1998, on a pro forma basis after
giving effect to Recapitalization, the Offering and the use of proceeds
described in this Offering Memorandum, the principal amount of outstanding
Senior Indebtedness of the Company, on a consolidated basis, would have been
$225.0 million. In addition, the Company would have had $110.0 million of
undrawn commitments available under the Senior Credit Facility.
The holders of Senior Indebtedness of the Company will be entitled to
receive payment in full in cash of all amounts due on or in respect of all
Senior Indebtedness of the Company (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 the Company:
(1) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or to its creditors, as such, or to
its assets;
(2) in a liquidation or dissolution or other winding-up of the Company;
(3) in an assignment for the benefit of creditors; or
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(4) in any marshalling of assets or liabilities of the Company (all of the
foregoing referred to herein individually as a "Bankruptcy Proceeding"
and collectively as "Bankruptcy Proceedings").
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 the
Company 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 (1) more than 179 days
have elapsed since the Trustee received the notice, (2) the NonPayment Event of
Default has been cured or waived in writing or ceased to exist or such
Designated Senior Indebtedness has been paid in full or (3) the Payment Blockage
Period has been terminated by written notice to the Company or the Trustee from
the Representative. No Payment Blockage Period can extend beyond 179 days from
the date the Trustee receives the notice (the "Initial Blockage Period"). Any
number of additional Payment Blockage Periods may be commenced during the
Initial Blockage Period; provided, that no additional Payment Blockage Period
can extend beyond the Initial Blockage Period. After the Initial Blockage
Period, no Payment Blockage Period may be commenced until at least 180 days
after the Initial Blockage Period. 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 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 the Company.
If the Company 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 the Company 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.
Certain Covenants
The Indenture will contain, among others, the following covenants:
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Limitation on Additional Indebtedness
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness and including Disqualified Capital Stock); provided that the
Company or any of the Guarantors may incur Indebtedness (including Acquired
Indebtedness or Disqualified Capital Stock) if (1) after giving effect to the
incurrence of such Indebtedness and the receipt and application of the proceeds
thereof, the Company's Consolidated Fixed Charge Coverage Ratio is at least 2.0
to 1 and (2) no Default or Event of Default shall have occurred and be
continuing at the time or as a consequence of the incurrence of such
Indebtedness.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may incur Permitted Indebtedness; provided that the Company will not incur any
Permitted Indebtedness that ranks junior in right of payment to the Notes that
has a maturity or mandatory sinking fund payment prior to the maturity of the
Notes.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness or is entitled to be incurred pursuant to
the first paragraph of this covenant, the Company 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
The Company 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:
(1) subordinate in right of payment to any Senior Indebtedness of the
Company or its Restricted Subsidiaries, as the case may be, and
(2) senior in right of payment to the Notes and the Guarantees, as the
case may be.
For purposes of this covenant, Indebtedness is deemed to be senior in
right of payment to the Notes and the Guarantees, as the case may be, if it is
not explicitly subordinate in right of payment to Senior Indebtedness at least
to the same extent as the Notes and the Guarantees, as the case may be, are
subordinate to Senior Indebtedness.
Limitation on Restricted Payments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment, unless:
(1) no Default or Event of Default shall have occurred and be continuing
at the time of or immediately after giving effect to such Restricted
Payment;
(2) immediately after giving pro forma effect to such Restricted Payment,
the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the "Limitation on Additional
Indebtedness" covenant; and
(3) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue
Date does not exceed the sum of:
(a) 50% of the cumulative Consolidated Net Income of the Company
subsequent to the Issue Date (or minus 100% of any cumulative
deficit in Consolidated Net Income during such period) plus
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(b) 100% of the aggregate Net Proceeds and the fair market value of
securities or other property received by the Company from the
issue or sale, after the Issue Date, of Capital Stock (other than
Disqualified Capital Stock or Capital Stock of the Company issued
to any Subsidiary of the Company) of the Company or any
Indebtedness or other securities of the Company convertible into
or exercisable or exchangeable for Capital Stock (other than
Disqualified Capital Stock) of the Company which have been so
converted or exercised or exchanged, as the case may be, net of
any amounts thereof previously relied upon or to be relied upon to
make any Permitted Investments pursuant to clause (15) of the
definition thereof, plus
(c) without duplication of any amounts included in clauses (a) and (b)
above, 100% of the aggregate net proceeds of any equity
contribution received by the Company (other than in return for
Disqualified Capital Stock) from a holder of the Company's Capital
Stock, net of any amounts thereof previously relied upon or to be
relied upon to make any Permitted Investments pursuant to clause
(15) of the definition thereof, plus
(d) $7,500,000.
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 the Company.
The provisions of this covenant will not prohibit:
(i) the payment of any distribution within 60 days after the date
of declaration thereof, if at such date of declaration such
payment would comply with the provisions of the Indenture;
(ii) the repurchase, redemption or other acquisition or retirement
of any shares of Capital Stock of the Company or Indebtedness
subordinated to the Notes by conversion into, or by or in
exchange for, shares of Capital Stock (other than Disqualified
Capital Stock), or out of the Net Proceeds of the
substantially concurrent sale (other than to a Subsidiary of
the Company) of other shares of Capital Stock of the Company
(other than Disqualified Capital Stock);
(iii) the redemption or retirement of Indebtedness of the Company
subordinated to the Notes in exchange for, by conversion into,
or out of the Net Proceeds of, a substantially concurrent sale
or incurrence of Indebtedness (other than any Indebtedness
owed to a Subsidiary) of the Company that is Refinancing
Indebtedness;
(iv) the retirement of any shares of Disqualified Capital Stock by
conversion into, or by exchange for, shares of Disqualified
Capital Stock, or out of the Net Proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of
other shares of Disqualified Capital Stock;
(v) so long as no Default or Event of Default shall have occurred
and be continuing at the time of or immediately after giving
effect to such payment, the purchase, redemption or other
acquisition for value of shares of Capital Stock of the
Company or, in the event of the Asset Drop-Down, the Holding
Company (other than Disqualified Capital Stock) or options on
such shares held by the Company's or its Subsidiaries' (or, in
the event of the Asset Drop-Down, the Holding Company's)
officers, employees or directors or former officers, employees
or directors (or their estates or beneficiaries under their
estates) upon the death,
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disability, retirement or termination of employment of such
current or former officers or employees pursuant to the terms
of an employee benefit plan or any other agreement pursuant to
which such shares of Capital Stock or options were issued or
pursuant to a severance, buy-sale or right of first refusal
agreement with such current or former officer or employee;
provided that the aggregate cash consideration paid, or
distributions or payments made, pursuant to this clause shall
not exceed $3,000,000 in any fiscal year (provided, that the
Company may carry over and make in a subsequent fiscal year,
in addition to the amounts permitted for such fiscal year, the
amount of such distributions permitted to have been made, but
not made, in any preceding fiscal year) or $15,000,000 in the
aggregate from and after the Issue Date, provided that the
foregoing amounts shall be increased by (a) the amount of any
payments by officers, employees or directors of the Holding
Company, the Company or a Subsidiary thereof for the purchase
of Capital Stock of the Company (other than in connection with
the Recapitalization) or, in the event of the Asset Drop-
Down, the Holding Company except to the extent such payments
consist of proceeds from loans by the Company or a Subsidiary
thereof and (b) the amount of any cash capital contributions
to the Company by THL or any Affiliate thereof used by the
Company to purchase, redeem or otherwise acquire for value
shares of such capital stock;
(vi) the payment of THL Fees;
(vii) so long as no Default or Event of Default shall have occurred
and be continuing, payments not to exceed $100,000 in the
aggregate to enable the Company to make payments to holders of
its Capital Stock in lieu of issuance of fractional shares of
its Capital Stock;
(viii) Restricted Payments made pursuant to the Recapitalization
Agreement;
(ix) the Company or any Restricted Subsidiary from purchasing all
(but not less than all), excluding directors' qualifying
shares, of the Capital Stock or other ownership interests in a
Subsidiary of the Company which Capital Stock or other
ownership interests were not theretofore owned by the Company
or a Subsidiary of the Company, such that after giving effect
to such purchase such Subsidiary becomes a Restricted
Subsidiary of the Company;
(x) the payment of distributions (A) to the Equity Investor solely
for the purpose of enabling the Equity Investor to pay its
reasonable, ordinary course operating and administrative
expenses and taxes in any fiscal year will not exceed
$250,000, and (B) in the event of the Asset Drop-Down, to the
Holding Company for the purpose of enabling the Holding
Company to pay its reasonable, ordinary course operating and
administrative expenses, the amount of which distributions
pursuant to subclauses (A) and (B) of this clause (x) in any
fiscal year will not exceed $500,000; and
(xi) in the event of the Asset Drop-Down, the payment of
distributions to the Holding Company solely for the purpose of
enabling the Holding Company to pay taxes attributable to the
operations of the New Operating Company and its Subsidiaries
to the extent such taxes are actually owed and the Holding
Company is permitted or required to make such payments.
Notwithstanding the foregoing, (a) the amount of any payments made in
reliance on clause (i) and clause (v) above shall reduce the amount otherwise
available for Restricted Payments pursuant to subparagraphs (1)-(3) above and
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(b) in the event of the Asset Drop-Down, the amount of any payments that could
otherwise have been made in reliance on clauses (v), (vi), (vii), and (x)(A) may
be paid for the respective purposes set forth therein by the New Operating
Company as dividends or distributions to the Holding Company.
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 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 the Company'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
The Company 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
The Company 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 the Company 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 Indebtedness pari passu with or subordinated
to the Notes unless:
(1) if such Lien secures Indebtedness which is pari passu with the Notes,
then the Notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligation is no longer
secured by a Lien or
(2) if such Lien secures Indebtedness which is subordinated to the Notes,
any such Lien shall be subordinated to the Lien granted to the Holders
of the Notes in the same collateral as that securing such Lien to the
same extent as such subordinated Indebtedness is subordinated to the
Notes.
Limitation on Transactions with Affiliates
The Company 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 the Company 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 date hereof
unless
(1) such Affiliate Transaction is between or among the Company and/or its
Restricted Subsidiaries; or
(2) the terms of such Affiliate Transaction are fair and reasonable to the
Company or such Restricted Subsidiary, as the case may be, and the
terms of such Affiliate Transaction are at least as favorable as the
terms which could be obtained by the Company or such Restricted
Subsidiary, as the case may be, in a comparable transaction made on an
arm's-length basis between unaffiliated parties.
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, the Company
must obtain a resolution of the Board of Directors certifying that such
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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 the Company of its Capital Stock that
is not Disqualified Capital Stock), the Company must obtain a written opinion as
to the fairness of such a transaction from an independent investment banking
firm. The limitations set forth in this and the preceding paragraph will not
apply to:
(1) any Restricted Payment that is not prohibited by the "Limitation on
Restricted Payments" covenant or Permitted Investment permitted by the
"Limitation on Investments" covenant,
(2) any transaction pursuant to an agreement, arrangement or understanding
existing on the Issue Date,
(3) any transaction, compensation or agreement, approved by the Board of
Directors of the Company, with an officer or director of, or
consultant to, the Company or of any Subsidiary in his or her capacity
as officer or director entered into in the ordinary course of
business,
(4) any transaction permitted by the provisions described under "Merger,
Consolidation or Sale of Assets,"
(5) any transaction (a) between the Company and any THL Group Member
solely in its capacity as a holder or buyer of the Company's Capital
Stock or (b) in the event of the Asset Drop-Down, between the New
Operating Company and the Holding Company solely in its capacity as a
holder or buyer of the New Operating Company's Capital Stock, provided
that any such transaction described in this clause (5) is not
otherwise prohibited by the indenture, or
(6) in the event of the Asset Drop-Down, any commercially reasonable
transaction between the New Operating Company and the Holding Company
solely in its capacity as a holder or buyer of the New Operating
Company's Indebtedness, provided that any such transaction is not
otherwise prohibited by the indenture.
Limitation on Creation of Subsidiaries
The Company will not create or acquire, and will not permit any of its
Restricted Subsidiaries to create or acquire, any Subsidiary other than:
(1) a Restricted Subsidiary that is acquired or created in connection with
an acquisition by the Company or
(2) an Unrestricted Subsidiary;
provided, however, that each Restricted Subsidiary acquired or created pursuant
to clause (1) will at the time it has either assets or stockholder's equity in
excess of $200,000 execute a guarantee in the form attached to the Indenture,
pursuant to which such Restricted Subsidiary will become a Guarantor, which
Guarantee shall be subordinated to such Restricted Subsidiary's guarantee of or
pledge to secure any other Indebtedness that constitutes Senior Indebtedness to
the same extent as the Senior Subordinated Notes are subordinated to Senior
Indebtedness. Notwithstanding the foregoing, any such Senior Subordinated
Guarantee shall provide by its terms that it 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
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
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(1) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such sale or other disposition
at least equal to the fair market value of the equity interests,
property or assets constituting such Asset Sale (as determined in good
faith by the Board of Directors of the Company, and evidenced by a
board resolution);
(2) not less than 75% of the consideration received by the Company or its
Subsidiaries, as the case may be, is in the form of cash or Temporary
Cash Investments; and
(3) the Asset Sale Proceeds received by the Company or such Restricted
Subsidiary are applied:
(a) first, to the extent the Company elects, or is required, to
prepay, repay or purchase debt or to reduce an unused commitment
to lend under any then existing Senior Indebtedness of the Company
or any Restricted Subsidiary within 365 days following the receipt
of the Asset Sale Proceeds from any Asset Sale, but only to the
extent that any such repayment shall result in a permanent
reduction of the commitments thereunder in an amount equal to the
principal amount so repaid or be applied to secure Letter of
Credit Obligations; and
(b) second, to the extent of the balance of Asset Sale Proceeds after
application as described above, to the extent the Company elects,
to an investment in assets (including Capital Stock or other
securities purchased in connection with the acquisition of Capital
Stock or property of another Person) used or useful in businesses
similar or ancillary to the business of the Company or such
Restricted Subsidiary as conducted at the time of such Asset Sale,
provided that such investment occurs or the Company or a
Restricted Subsidiary enters into contractual commitments to make
such investment, subject only to customary conditions (other than
the obtaining of financing), on or prior to the 365th day
following receipt of such Asset Sale Proceeds (the "Reinvestment
Date") and Asset Sale Proceeds contractually committed are so
applied within 365 days following the receipt of such Asset Sale
Proceeds.
Pending the final application of any such available Asset Sale Proceeds,
the Company 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, the Company shall apply an amount equal
to such Available Asset Sale Proceeds to an offer to repurchase the Notes, at a
purchase price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase (an "Excess
Proceeds Offer"). If the Company is required to make an Excess Proceeds Offer,
the Company will mail, within 30 days following the Reinvestment Date, a notice
to the holders of the Notes stating, among other things:
(1) that such holders have the right to require the Company to apply the
Available Asset Sale Proceeds to repurchase such Notes at a purchase
price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase;
(2) the purchase date (the "Purchase Date"), which shall be no earlier
than 30 days and no later than 60 days from the date such notice is
mailed;
(3) the instructions, determined by the Company, that each holder must
follow in order to have such Notes repurchased; and
(4) the calculations used in determining the amount of Available Asset
Sale Proceeds to be applied to the repurchase of such Notes.
The Excess Proceeds Offer shall remain open for a period of 20 Business
Days following its commencement.
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The Company will publicly announce the results of the Excess Proceeds
Offer on the Purchase Date by sending a press release to the Dow Jones News
Service or similar business news service in the United States. If an Excess
Proceeds Offer is not fully subscribed, the Company may retain that portion of
the Available Asset Sale Proceeds not required to repurchase Notes and use such
portion for general corporate purposes, and such retained portion shall not be
considered in the calculation of "Available Asset Sale Proceeds" with respect to
any subsequent offer to purchase Notes.
Limitation on Preferred Stock of Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary to issue any
Preferred Stock (except Preferred Stock to the Company or a Restricted
Subsidiary) or permit any Person (other than the Company or a Restricted
Subsidiary) to hold any such Preferred Stock unless the Company or such
Restricted Subsidiary would be entitled to incur or assume Indebtedness under
the "Limitation on Additional Indebtedness" covenant in an aggregate principal
amount equal to the aggregate liquidation value of the Preferred Stock to be
issued.
Limitation on Capital Stock of Subsidiaries
The Company will not:
(1) sell, pledge, hypothecate or otherwise convey or dispose of any
Capital Stock of a Subsidiary (other than Liens under the Senior
Credit Facility or under the terms of any Designated Senior
Indebtedness and Liens not prohibited by the "Limitations on Liens"
covenant) other than to the Company or another Restricted Subsidiary
or
(2) permit any of its Subsidiaries to issue any Capital Stock (other than
director's qualifying shares) other than (a) to the Company or a
Wholly-Owned Subsidiary of the Company or (b) to any other shareholder
of such Subsidiary (including to another Subsidiary) in an amount not
to exceed such shareholders' proportionate share of any dividend,
distribution or other issuance to all shareholders.
The foregoing restrictions will not apply to an Asset Sale made in
compliance with the "Limitation on Certain Asset Sales" covenant or the issuance
of Preferred Stock in compliance with the "Limitation on Preferred Stock of
Restricted Subsidiaries" covenant.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to:
(1) (a) pay dividends or make any other distributions to the Company or
any Restricted Subsidiary of the Company (i) on its Capital Stock
or (ii) with respect to any other interest or participation in,
or measured by, its profits or
(b) repay any Indebtedness or any other obligation owed to the Company
or any Restricted Subsidiary of the Company,
(2) make loans or advances or capital contributions 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, except for such encumbrances or restrictions
existing under or by reason of
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(a) encumbrances or restrictions existing on the date hereof to the
extent and in the manner such encumbrances and restrictions are in
effect on the date hereof or no more restrictive in any material
respect (including without limitation pursuant to the Senior
Credit Facility),
(b) the Indenture, the Notes and the Guarantees,
(c) applicable law,
(d) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or
assets of the Person (including any Subsidiary of the Person), so
acquired,
(e) any agreement or instrument governing Indebtedness (whether or not
outstanding) of Foreign Subsidiaries,
(f) customary non-assignment provisions in leases, licenses or other
agreements entered in the ordinary course of business and
consistent with past practices,
(g) Refinancing Indebtedness; provided that such payment restrictions
are no more restrictive in any material respect than those
contained in the agreements governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded,
(h) customary restrictions in security agreements or mortgages or
other similar agreements securing Indebtedness of the Company or a
Restricted Subsidiary to the extent such restrictions restrict the
transfer of the property subject to such security agreements and
mortgages or
(i) customary restrictions with respect to a Restricted Subsidiary of
the Company pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary.
Limitation on Sale and Lease-Back Transactions
The Company shall not, and shall not permit any Restricted Subsidiary to,
enter into any Sale and Lease- Back Transaction unless:
(1) the consideration received in such Sale and Lease-Back Transaction is
at least equal to the fair market value of the property sold, as
determined, in good faith, by the Board of Directors of the Company,
and
(2) the Company or such Restricted Subsidiary, as the case may be, could
incur the Attributable Indebtedness in respect of such Sale and
Lease-Back Transaction in compliance with the "Limitation on
Additional Indebtedness" covenant.
Payments for Consent
Neither the Company 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.
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Change of Control Offer
In the event of a Change of Control, the Company will be obligated to make
an offer to purchase (the "Change of Control Offer") the outstanding Notes at a
purchase price equal to 101% of the principal amount thereof together with any
accrued and unpaid interest thereon to the Change of Control Payment Date (as
hereinafter defined) (such applicable purchase price being hereinafter referred
to as the "Change of Control Purchase Price") in accordance with the procedures
set forth in this covenant.
Within 30 days following the first date on which the Company has knowledge
of any Change of Control, the Company will send by first-class mail, postage
prepaid, to the Trustee and to each holder of the Notes, at the address
appearing in the register maintained by the registrar of the Notes, a notice
stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment, and
otherwise subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 Business Days from the date
such notice is mailed (the "Change of Control Payment Date");
(3) that any Note not tendered will remain outstanding and continue to
accrue interest;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender
the Notes, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the
Change of Control Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and
a statement that such holder is withdrawing his election to have such
Notes purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered, provided that each Note purchased and each
such new Note issued shall be in an original principal amount in
denominations of $1,000 and integral multiples thereof; and
(8) any other procedures that a holder must follow to accept a Change of
Control Offer or effect withdrawal of such acceptance.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment Notes or portions thereof tendered pursuant to the
Change of Control Offer;
(2) deposit at the paying office established by the Company money
sufficient to pay the purchase price of all Notes or portions thereof
so tendered; and
(3) deliver or cause to be delivered to the Trustee Notes so accepted
together with an Officers' Certificate stating the Notes or portions
thereof tendered to the Company.
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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 time
of the occurrence of a Change of Control, prior to the mailing of the notice to
holders described above, but in any event within 30 days following the first
date on which the Company has knowledge of any Change of Control, the Company
covenants to:
(1) repay in full all obligations under or in respect of the Senior Credit
Facility or offer to repay in full all obligations under or in respect
of the Senior Credit Facility and repay the obligations under or in
respect of the senior credit facility of each lender who has accepted
such offer; or
(2) obtain the requisite consent under the senior credit facility to
permit the repurchase of the Notes as described above.
The Company will be deemed to have knowledge of all filings with the SEC.
The Company must first comply with the covenant described in the preceding
sentence before it shall be required to purchase Notes in the event of a Change
of Control; provided that the Company's failure to comply with the covenant
described in the preceding sentence constitutes 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 the Company to purchase the Notes unless the
Company is able at the time to refinance all of the obligations under or in
respect of the senior credit facility or obtain requisite consents under the
senior credit facility. Failure by the Company to make a Change of Control Offer
when required by the Indenture constitutes a default under the Indenture and, if
not cured within 60 days after notice, constitutes an Event of Default.
The Indenture will require that:
(1) if the Company or any Subsidiary thereof has issued any outstanding
(a) Indebtedness that is subordinate in right of payment to the Notes;
or (b) Preferred Stock, and the Company or such Subsidiary is required
to make a change of control offer or to make a distribution with
respect to such subordinated Indebtedness or Preferred Stock in the
event of a change of control, the Company shall not consummate any
such offer or distribution with respect to such subordinated
Indebtedness or Preferred Stock until such time as the Company shall
have paid the Change of Control Purchase Price in full to the holders
of Notes that have accepted the Company's Change of Control Offer and
shall otherwise have consummated the Change of Control Offer made to
holders of the Notes and
(2) the Company will not issue Indebtedness that is subordinate in right
of payment to the Notes or Preferred Stock with change of control
provisions requiring the payment of such Indebtedness or Preferred
Stock prior to the payment of the Notes in the event of a Change in
Control under the Indenture.
In the event that a Change of Control occurs and the holders of Notes
exercise their right to require the Company to purchase Notes, if such purchase
constitutes a "tender offer" for purposes of Rule l4e-1 under the Exchange Act
at that time, the Company will comply with the requirements of Rule 14e-1 as
then in effect with respect to such repurchase.
Merger, Consolidation or Sale of Assets
The Company will not, nor will it permit any Guarantor to, consolidate
with, merge with or into, or transfer all or substantially all of its assets (as
an entirety or substantially as an entirety in one transaction or a series of
related transactions) to, any Person unless (in the case of the Company or any
Guarantor):
(1) the Company or such Guarantor, as the case may be, shall be the
continuing Person, or the Person (if other than the Company or such
Guarantor) formed by such consolidation or into which the Company or
such Guarantor, as the case may be, is merged or to which the
properties and assets of the Company or such Guarantor, as the case
may be, are transferred shall be a corporation, a limited
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liability company or a limited partnership organized and existing
under the laws of the United States or any State thereof or the
District of Columbia and shall expressly assume in writing all of the
obligations of the Company or such Guarantor, as the case may be,
under the Notes and the Indenture or Guarantee, as applicable, and the
obligations under the Indenture shall remain in full force and effect;
provided that at any time the Company or its successor is a limited
partnership or limited liability company there shall be a co-issuer of
the Notes that is a corporation;
(2) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and
(3) unless the merger or consolidation is with, or the transfer of all or
substantially all its assets is to, a Wholly-Owned Subsidiary,
immediately after giving effect to such transaction on a pro forma
basis the Company or such Person could incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant
to the "Limitation on Additional Indebtedness" covenant.
Nothing in this "Merger, Consolidation or Sale of Assets" provision will
prohibit the consolidation, merger or transfer of all or substantially all the
assets of any Guarantor that is otherwise permitted by and conducted in
accordance with the other applicable provisions of the Indenture. In connection
with any consolidation, merger or transfer of assets contemplated by this
provision, the Company will deliver, or cause to be delivered, to the Holders,
in form and substance reasonably satisfactory to the Trustee, an Officers'
Certificate and an opinion of counsel, each stating that such consolidation,
merger or transfer and the supplemental Indenture 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
The Notes will be unconditionally guaranteed on an unsecured senior
subordinated basis by the Guarantors. All payments pursuant to the Guarantees by
the Guarantors will be unconditionally subordinate in right of payment to the
prior indefeasible payment and satisfaction in full in cash of all Senior
Indebtedness of the Guarantor, to the same extent and in the same manner that
all payments pursuant to the Notes are subordinate in right of payment to the
prior payment in full of all Senior Indebtedness of the Company.
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 all or substantially all of its assets are sold or at least 80% of
its Capital Stock is sold, in each case in a transaction in compliance with the
covenant described under "Limitation on Certain Asset Sales," provided that in
the event of a sale of less than all of the Capital Stock of a Guarantor, such
release shall not be effective unless and until such Guarantor is similarly
released from its guarantee under the senior credit facility or the Guarantor
merges with or into or consolidates with, or transfers all or substantially all
of its assets to, the Company or another Guarantor in a transaction in
compliance with "Merger, Consolidation or Sale of Assets," and 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.
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Events of Default
The following events will be defined in the Indenture as "Events of
Default":
(1) default in payment of any principal of, or premium, if any, on the
Notes whether at maturity, upon acceleration or redemption or
otherwise (whether or not such payment is prohibited by the
subordination provisions of the Indenture);
(2) default for 30 days (whether or not such payment is prohibited by the
subordination provisions of the Indenture) in payment of any interest
on the Notes;
(3) default by the Company or any Guarantor in the observance or
performance of any other covenant in the Notes or the Indenture for 60
days after written notice from the Trustee or the holders of not less
than 25% in aggregate principal amount of the Notes then outstanding
(except in the case of the consummation of a transaction governed by
the "Merger, Consolidation or Sale of Assets" provision in violation
of the terms thereof, which will constitute an Event of Default with
such notice requirement but without such passage of time requirement);
(4) default in the payment at final maturity of principal in an aggregate
amount of $10.0 million or more with respect to any Indebtedness of
the Company or any Restricted Subsidiary thereof, or the acceleration
of any such Indebtedness aggregating $10.0 million or more which
default shall not be cured, waived or postponed pursuant to an
agreement with the holders of such Indebtedness within 60 days after
written notice as provided in the Indenture, or such acceleration
shall not be rescinded or annulled within 20 days after written notice
as provided in the Indenture;
(5) any final judgment or judgments which can no longer be appealed or
stayed for the payment of money in excess of $10.0 million (net of
amounts covered by insurance for which coverage is not being
challenged or denied) is rendered against the Company or any
Restricted Subsidiary thereof, and shall not be discharged, paid or
otherwise satisfied for any period of 60 consecutive days during which
a stay of enforcement shall not be in effect;
(6) certain events involving bankruptcy, insolvency or reorganization of
the Company or any Restricted Subsidiary thereof; and
(7) any of the Guarantees ceases to be in full force and effect or any of
the Guarantees is declared to be null and void and unenforceable or
any of the Guarantees is found to be invalid or any of the Guarantors
denies in writing its liability under its Guarantee (other than by
reason of release of a Guarantor in accordance with the terms of the
Indenture).
The Indenture will provide that the Trustee may withhold notice to the
holders of the Notes of any default (except in payment of principal or premium,
if any, or interest on the Notes) if the Trustee considers it to be in the best
interest of the holders of the Notes to do so.
The Indenture will provide that if an Event of Default (other than an
Event of Default resulting from certain events of bankruptcy, insolvency or
reorganization of the Company) shall have occurred and be continuing, then the
Trustee by notice to the Company or the holders of not less than 25% in
aggregate principal amount of the Notes then outstanding by written notice to
the Company and the Trustee may declare to be immediately due and payable the
entire principal amount of all the Notes then outstanding plus accrued but
unpaid interest to the date of acceleration and
(1) such amounts shall become immediately due and payable or
(2) if there are any amounts outstanding under or in respect of the senior
credit facility or any commitments remain in effect under the senior
credit facility, such amounts shall become due and
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payable upon the first to occur of an acceleration of amounts
outstanding under or in respect of the senior credit facility or five
Business Days after receipt by the Company and the Representative of
notice of the acceleration of the Notes;
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 the Company
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 the Company may elect either
(1) to defease and be discharged from any and all obligations with respect
to the Notes (except for the obligations to register the transfer or
exchange of such Notes, to replace temporary or mutilated, destroyed,
lost or stolen Notes, to maintain an office or agency in respect of
the Notes and to hold monies for payment in trust) ("defeasance"); or
(2) to be released from their obligations with respect to the Notes under
certain covenants contained in the Indenture and described above under
"Certain Covenants" ("covenant defeasance") upon the deposit with the
Trustee (or other qualifying trustee), in trust for such purpose of
money and/or U.S. Government Obligations (as defined in the Indenture)
which through the payment of principal and interest in accordance with
their terms will provide money, in an amount sufficient to pay the
principal of, premium, if any, and interest on the Notes, on the
scheduled due dates therefor or on a selected date of redemption in
accordance with the terms of the Indenture. Such a trust may only be
established if, among other things, the Company has delivered to the
Trustee an opinion of counsel:
(a) to the effect that neither the trust nor the Trustee will be
required to register as an investment company under the Investment
Company Act of 1940, as amended, and
(b) describing either a private ruling concerning the Notes or a
published ruling of the Internal Revenue Service, to the effect
that holders of the Notes or persons in their positions will not
recognize income, gain or loss for federal income tax purposes as
a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount and
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in the same manner and at the same times, as would have been the
case if such deposit, defeasance and discharge had not occurred.
Modification of Indenture
From time to time, the Company, 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 the Company, 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,
(1) reduce the amount of Notes whose holders must consent to an amendment,
supplement, or waiver to the Indenture or the Notes;
(2) reduce the rate of or change the time for payment of interest on any
Note;
(3) reduce the principal of or premium on or change the stated maturity of
any Note;
(4) waive a default in the payment of the principal of, interest on, or
redemption payment with respect to any Note;
(5) make any Note payable in money other than that stated in the Note or
change the place of payment from New York, New York;
(6) make any change in provisions of the Indenture protecting the right of
each holder of Notes to receive payment of principal of and interest
on such Note on or after the due date thereof or to bring suit to
enforce such payment, or permitting holders of a majority in principal
amount of Notes to waive Defaults or Events of Default;
(7) amend, change or modify in any material respect the obligation of the
Company to make and consummate a Change of Control Offer in the event
of a Change of Control or make and consummate an Excess Proceeds Offer
with respect to any Asset Sale that has been consummated or modify any
of the provisions or definitions with respect thereto;
(8) affect the ranking of the Notes or the Guarantees in a manner adverse
to the holders;
(9) change any provision of the Indenture relating to the redemption of
Notes;
(10) release any Guarantor from any of its obligations under its Guarantee
or the Indenture otherwise than in accordance with the terms of the
Indenture.
Reports to Holders
So long as the Company 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 the Company 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
The Company will deliver to the Trustee on or before 100 days after the
end of the Company's fiscal year and on or before 55 days after the end of each
of the first, second and third fiscal quarters in each year an Officers'
Certificate stating whether or not the signers know of any Default or Event of
Default that has occurred. If they do, the certificate will describe the Default
or Event of Default and its status.
The Trustee
The Trustee under the Indenture will be the Registrar and Paying Agent
with regard to the Notes. The Indenture will provide that, except during the
continuance of an Event of Default, the Trustee will perform only 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.
Transfer and Exchange
Holders of the Notes may transfer or exchange the Notes in accordance with
the Indenture. The Registrar under the Indenture may require a holder, among
other things, to furnish appropriate endorsements and transfer documents, and to
pay any taxes and fees required by law or permitted by the Indenture. The
Registrar is not required to transfer or exchange any Note selected for
redemption. Also, the Registrar is not required to transfer or exchange any Note
for a period of 15 days before selection of the Notes to be redeemed.
The Notes will be issued in a transaction exempt from registration under
the Securities Act and will be subject to the restrictions on transfer described
in "Notice to Investors."
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
(1) the fair value of the property of such Guarantor exceeds the total
amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent
liabilities), but excluding liabilities under the Guarantee, of such
Guarantor at such date and
(2) the present fair salable value of the assets of such Guarantor at such
date exceeds the amount that will be required to pay the probable
liability of such Guarantor on its debts (after giving effect to all
other
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fixed and contingent liabilities and after giving effect to any
collection from 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
(1) an Investment by the Company or any Restricted Subsidiary in any other
Person pursuant to which such Person shall become a Restricted
Subsidiary or shall be merged with or into the Company or any
Restricted Subsidiary or
(2) the acquisition by the Company or any Restricted Subsidiary of the
assets of any Person (other than a Restricted Subsidiary) which
constitute all or substantially all of the assets of such Person or
comprise any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course
of business.
"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 the Company or any of its
Restricted Subsidiaries, in any single transaction or series of related
transactions having a fair market value in excess of $1,500,000 of
(1) any Capital Stock of or other equity interest in any Restricted
Subsidiary of the Company or
(2) any other property or assets of the Company or of any Restricted
Subsidiary thereof; provided that Asset Sales shall not include:
(a) sales, leases, conveyances, transfers or other dispositions to the
Company or to a Restricted Subsidiary or to any other Person if
after giving effect to such sale, lease, conveyance, transfer or
other disposition such other Person becomes a Restricted
Subsidiary;
(b) the contribution of any assets to a joint venture, partnership or
other Person (which may be a Subsidiary) to the extent such
contribution constitutes a Permitted Investment (other than by
operation of clause (4) of the definition thereof);
(c) the sale, transfer or other disposition of all or substantially
all of the assets of the Company or any Guarantor as permitted
under the "Merger, Consolidation or Sale of Assets" provision;
(d) the sale or discount, in each case without recourse, of accounts
receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof;
(e) the factoring of accounts receivable arising in the ordinary
course of business pursuant to arrangements customary in the
industry;
(f) the licensing of intellectual property;
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(g) disposals or replacements of obsolete equipment in the ordinary
course of business;
(h) leases or subleases to third persons not interfering in any
material respect with the business of the Company or any of its
Restricted Subsidiaries;
(i) a disposition of Temporary Cash Investments or goods held for sale
in the ordinary course of business consistent with past practices
of the Company;
(j) a disposition that constitutes a Change of Control; and
(k) any foreclosures on assets.
"Asset Sale Proceeds" means, with respect to any Asset Sale,
(1) cash received by the Company or any Restricted Subsidiary from such
Asset Sale (including cash received as consideration for the
assumption of liabilities incurred in connection with or in
anticipation of such Asset Sale), after
(a) provision for all income or other taxes measured by or resulting
from such Asset Sale,
(b) payment of all brokerage commissions, underwriting and other fees
(including legal and accounting fees) and expenses (including
relocation expenses) related to such Asset Sale,
(c) any consideration for an Asset Sale (which would otherwise
constitute Asset Sale Proceeds) that is required to be held in
escrow pending determination of whether a purchase price
adjustment will be made, but amounts under this clause (c) will
become Asset Sale Proceeds at such time and to the extent such
amounts are released to the Company or a Restricted Subsidiary,
(d) repayment of Indebtedness that either (i) is secured by a Lien on
the property or assets sold or (ii) is required to be repaid in
connection with such Asset Sale (in order to obtain a consent
required in connection therewith),
(e) provision for minority interest holders in any Restricted
Subsidiary as a result of such Asset Sale and
(f) deduction of appropriate amounts to be provided by the Company or
a Restricted Subsidiary as a reserve, in accordance with GAAP,
against any liabilities associated with the assets sold or
disposed of in such Asset Sale and retained by the Company or a
Restricted Subsidiary after such Asset Sale, including, without
limitation, severance, healthcare, pension and other
post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations
associated with the assets sold or disposed of in such Asset Sale,
and
(2) promissory notes and other non-cash consideration received by the
Company or any Restricted Subsidiary from such Asset Sale or other
disposition upon the liquidation or conversion of such notes or
non-cash consideration into cash.
"Attributable Indebtedness" in respect of a Sale and Lease-Back
Transaction means, as at the time of determination, the greater of:
(1) the fair value of the property subject to such arrangement (as
determined by the Board of Directors) and
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(2) the present value of the total obligations (discounted at the rate
borne by the Notes, compounded annually) of the lessee for rental
payments during the remaining term of the lease included in such Sale
and Lease-Back Transaction (including any period for which such lease
has been extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from 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."
"Board of Directors" means
(1) in the case of a Person that is a corporation, the board of directors
of such Person or any committee authorized to act therefor,
(2) in the case of a Person that is a limited partnership, the board of
directors of its corporate general partner or any committee authorized
to act therefor (or, if the general partner is itself a limited
partnership, the board of directors of such general partner's
corporate general partner or any committee authorized to act
therefor), and
(3) in the case of any other Person, the board of directors, management
committee or similar governing body or any authorized committee
thereof responsible for the management of the business and affairs of
such Person.
"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 any time after the Issue Date, the
occurrence of one or more of the following events:
(1) any Person (including a Person's Affiliates and associates), other
than a Permitted Holder, becomes the beneficial owner (as defined
under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of 50% or more of the total voting power of the
Common Stock of the Company,
(2) there shall be consummated any consolidation or merger of the Company
in which the Company is not the continuing or surviving corporation or
pursuant to which the Common Stock of the Company would be converted
into cash, securities or other property, other than a merger or
consolidation of the Company in which the holders of the Common Stock
of the Company outstanding immediately prior to the consolidation or
merger hold, directly or indirectly, at least a majority of the Common
Stock of the surviving corporation immediately after such
consolidation or merger, or
(3) during any period of two consecutive years commencing after the Issue
Date, individuals who at the beginning of such period constituted the
Board of Directors of Company (together with any new
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directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company has been
approved by a majority of the directors then still in office who
either were directors at the beginning of such period or whose
election or recommendation for election was previously so approved)
cease to constitute a majority of the Board of Directors of the
Company.
"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" of any Person means all Capital Stock of such Person that
is generally entitled to:
(1) vote in the election of directors of such Person or
(2) if such Person is not a corporation, vote or otherwise participate in
the selection of the governing body, partners, managers or others that
will control the management and policies of such Person.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of EBITDA of such Person during the four full fiscal quarters
(the "Four Quarter Period") ending on or prior to the date of the transaction
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (the "Transaction Date") for which financial statements are available to
Consolidated Fixed Charges of such Person for 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:
(1) the incurrence or repayment of any Indebtedness of such Person or any
of its Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of
the proceeds thereof), other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital
purposes pursuant to revolving credit facilities, occurring during the
Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if
such incurrence or repayment, as the case may be (and the application
of the proceeds thereof), occurred on the first day of the Four
Quarter Period;
(2) any Asset Sales or Asset Acquisitions (including, without limitation,
any Asset Acquisition giving rise to the need to make such calculation
as a result of such Person or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result
of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including any EBITDA
(provided that such EBITDA shall be included only to the extent
includible pursuant to the definition of "Consolidated Net Income")
attributable to the assets which are the subject of the Asset
Acquisition during the Four Quarter Period) occurring during the Four
Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such
Asset Sale or Asset Acquisition (including the incurrence, assumption
or liability for any such Acquired Indebtedness) occurred on the first
day of the Four Quarter Period;
(3) with respect to any such Four Quarter Period commencing prior to the
recapitalization, the recapitalization, which shall be deemed to have
taken place on the first day of such Four Quarter Period; and
(4) any asset sales or asset acquisitions (including any EBITDA
attributable to the assets which are the subject of the asset
acquisition or asset sale during the Four Quarter Period (provided
that such EBITDA shall be included only to the extent includible
pursuant to the definition of "Consolidated Net Income")) that have
been made by any Person that has become a Restricted Subsidiary of the
Company or has been merged with or into the Company or any Restricted
Subsidiary of the Company during the Four Quarter Period or at any
time subsequent to the last day of the Four Quarter Period
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and on or prior to the Transaction Date that would have constituted
Asset Sales or Asset Acquisitions had such transactions occurred when
such Person was a Restricted Subsidiary of the Company or subsequent
to such Person's merger into the Company, as if such asset sale or
asset acquisition (including the incurrence, assumption or liability
for any Indebtedness or Acquired Indebtedness in connection therewith)
occurred on the first day of the Four Quarter Period. If such Person
or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as
if such Person or any Restricted Subsidiary of such Person had
directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio,"
(1) interest on outstanding Indebtedness determined on a fluctuating basis
as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the
Transaction Date; and
(2) notwithstanding clause (1) above, interest on Indebtedness determined
on a fluctuating basis, to the extent such interest is covered by one
or more Interest Rate Agreements, shall be deemed to accrue at the
rate per annum resulting after giving effect to the operation of such
agreements.
"Consolidated Fixed Charges" means, with respect to any Person, for any
period, the sum of:
(1) Consolidated Interest Expense (excluding amortization or write-off of
debt issuance costs relating to the recapitalization and the financing
therefor 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.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for 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 the Company's
debt securities simultaneously with the issuance thereof) or premium, if any,
and all other non-cash interest expense (other than interest amortized to cost
of sales)) plus, without duplication, all net capitalized interest for 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 the Company), less the amortization of deferred financing costs.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided, however, that:
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(1) the Net Income of any
(a) Person (the "other Person") in which the Person in question or any
of its Restricted Subsidiaries has less than a 100% interest
(which interest does not cause the net income of such other Person
to be consolidated into the net income of the Person in question
in accordance with GAAP) and
(b) Unrestricted Subsidiary shall be included only to the extent of
the amount of dividends or distributions paid to the Person in
question or the Restricted Subsidiary,
(2) the Net Income of any Restricted Subsidiary of the Person in question
that is subject to any restriction or limitation on the payment of
dividends or the making of other distributions (other than pursuant to
the Notes or as permitted under "Certain Covenants--Limitation on
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries") shall be excluded to the extent of such restriction or
limitation,
(3) (a) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of 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,
(4) extraordinary, unusual and non-recurring gains and losses (including
any related tax effects on such Person) shall be excluded,
(5) income or loss attributable to discontinued operations (including
without limitation operations disposed of during such period whether
or not such operations were classified as discontinued) shall be
excluded,
(6) to the extent not otherwise excluded in accordance with GAAP, the Net
Income of any Restricted Subsidiary in an amount that corresponds to
the percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period, directly or
indirectly, by such Person shall be excluded,
(7) dividends, distributions and any other payments constituting return of
capital from Investments shall in any event be excluded to the extent
used to increase the amount available for Investment under clause (15)
of the definition of "Permitted Investments" in accordance with the
terms thereof,
(8) non-cash compensation charges, including any arising from existing
stock options resulting from any merger or recapitalization
transaction, shall be excluded, and
(9) without duplication, any charges related to the recapitalization shall
be excluded.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement, which may include the use
of derivatives, designed to protect against fluctuations in currency values.
"Default" means any condition or event that is, or with the passing of
time or giving of any notice expressly required under the Indenture (or both)
would be, an Event of Default.
"Designated Senior Indebtedness," as to the Company or any Guarantor, as
the case may be, means
(1) so long as Indebtedness under or in respect of the senior credit
facility is outstanding or has commitments for the extension of
credit, such Senior Indebtedness and
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(2) any other Senior Indebtedness
(a) which at the time of determination exceeds $25,000,000 in
aggregate principal amount (or accreted value in the case of
Indebtedness issued at a discount) outstanding or available under
a committed facility,
(b) which is specifically designated in the instrument evidencing such
Senior Indebtedness as "Designated Senior Indebtedness" by such
Person, and
(c) as to which the Trustee has been given written notice of such
designation and, so long as there is a Representative with respect
to the senior credit facility, such Representative shall have
concurred in such designation.
"Disqualified Capital Stock" means any Capital Stock of the Company or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event,
(1) matures on or prior to the maturity date of the Notes, for cash or
securities constituting Indebtedness; or
(2) is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, on or prior to the maturity date of the Notes, for cash or
securities constituting Indebtedness; or
(3) is redeemable at the option of the holder thereof, in whole or in
part, on or prior to the maturity date of the Notes, for cash or
securities constituting Indebtedness;
provided that Capital Stock of the Company that is held by a current or former
employee of the Company subject to a put option and/or a call option with the
Company triggered by the termination of such employee's employment with the
Company and/or the Company's performance shall not be deemed to be Disqualified
Capital Stock solely by virtue of such call option and/or put option. Without
limitation of the foregoing, Disqualified Capital Stock will be deemed to
include (a) any Preferred Stock of a Restricted Subsidiary of the Company and
(b) any Preferred Stock of the Company, with respect to either of which, under
the terms of such Preferred Stock, by agreement or otherwise, the Company 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 the Company or any Restricted Subsidiary that is issued with the benefit of
provisions requiring (i) a change of control offer or asset sale proceeds offer
to be made for such Capital Stock in the event of a change of control of or
asset sale by the Company or such Restricted Subsidiary, which provisions have
substantially the same effect as the provisions of the Indenture described under
"Change of Control" or "Limitation on Certain Asset Sales," as the case 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
(1) the sum of
(a) Consolidated Net Income for such period, plus
(b) the provision for taxes for such period based on income or profits
to the extent such income or profits were included in computing
Consolidated Net Income and any provision for taxes utilized in
computing net loss under clause (a) hereof, plus
(c) Consolidated Interest Expense for such period (but only including
Redeemable Dividends in the calculation of such Consolidated
Interest Expense to the extent that such Redeemable Dividends have
not been excluded in the calculation of Consolidated Net Income),
plus
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(d) depreciation for such period on a consolidated basis, plus
(e) amortization of intangibles for such period on a consolidated
basis, plus
(f) any other non-cash items (excluding any such non-cash item to the
extent that it represents an accrual of or a reserve for a cash
expense in any period subsequent to the period for which EBITDA is
being calculated) reducing or not included in the definition of
Consolidated Net Income for such period, plus
(g) without duplication, all cash and non-cash expenses and
restructuring charges arising in connection with the
recapitalization, minus
(2) all non-cash items increasing Consolidated Net Income for such period,
all for such Person and its Subsidiaries determined in accordance with
GAAP,
except that with respect to the Company each of the foregoing items shall be
determined on a consolidated basis with respect to the Company 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
(1) to the extent cash income has been received by such Person with
respect to such Investment, or
(2) if the cash income derived from such Investment is attributable to
Temporary Cash Investments.
"Equity Investor" means UIC Holdings, L.L.C., a Delaware limited liability
company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"fair market value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction.
"Foreign Subsidiary" means a Restricted Subsidiary of the Company
(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.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in 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 the Company with
respect to the Notes by each Guarantor, if any, pursuant to the terms of the
Indenture.
"Guarantor" means each Restricted Subsidiary of the Company that hereafter
becomes a Guarantor pursuant to the Indenture, and "Guarantors" means such
entities, collectively.
"Guarantor Representative" means
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(1) 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
(2) thereafter the agent, indenture trustee, other trustee or other
representative for any Guarantor Senior Indebtedness.
"Guarantor Senior Indebtedness" means the principal of and premium, if
any, and interest (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,
(1) any Guarantor's direct incurrence of any Indebtedness or its guarantee
of all Indebtedness of the Company or any of its Subsidiaries, in each
case, under the senior credit facility,
(2) all obligations of such Guarantor with respect to any Interest Rate
Agreement,
(3) all obligations of such Guarantor to reimburse any bank or other
person in respect of amounts paid under letters of credit, acceptances
or other similar instruments,
(4) all other Indebtedness of such Guarantor which does not expressly
provide that it is to rank pari passu with or subordinate to the
Guarantees and
(5) all deferrals, renewals, extensions, refinancings, replacements and
refundings in whole or in part of, and amendments, modifications,
restatements and supplements to, any of the Indebtedness described
above.
Notwithstanding anything to the contrary in the foregoing, Guarantor Senior
Indebtedness will not include
(1) Indebtedness of such Guarantor to any of its Subsidiaries (except to
the extent such Indebtedness is pledged as security under the senior
credit facility),
(2) Indebtedness represented by the Guarantees,
(3) any Indebtedness which by the express terms of the agreement or
instrument creating, evidencing or governing the same is junior or
subordinate in right of payment to any other item of Indebtedness of
the Company (although this clause (3) shall not apply to the
subordination of liens or security interests covering property or
assets securing Guarantor Senior Indebtedness),
(4) any trade payable arising from the purchase of goods or materials or
for services obtained in the ordinary course of business or
(5) liability for federal, state, local or other taxes owed or owing by
the Company.
"Holding Company" means the parent company of the New Operating Company
following the Asset Drop- Down.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation 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," "incurable" and "incurring" 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 deemed an incurrence of such Indebtedness.
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"Indebtedness" means (without duplication), with respect to any Person,
any indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person 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 the Company in the ordinary
course of business, and other accrued liabilities and expenses arising in the
ordinary course of business) if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, and shall also include, to the extent not
otherwise included:
(1) any Capitalized Lease Obligations,
(2) obligations secured by a Lien to which the property or assets owned or
held by such Person is subject, whether or not the obligation or
obligations secured thereby shall have been assumed (provided,
however, that if such obligation or obligations shall not have been
assumed, the amount of such Indebtedness shall be deemed to be the
lesser of the principal amount of the obligation or the fair market
value of the pledged property or assets),
(3) guarantees of items of other Persons which would be included within
this definition for such other Persons (whether or not such items
would appear upon the balance sheet of the guarantor),
(4) all obligations for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction (provided
that in the case of any such letters of credit, the items for which
such letters of credit provide credit support are those of other
Persons which would be included within this definition for such other
Persons),
(5) Disqualified Capital Stock of such Person or any Restricted Subsidiary
thereof, and
(6) obligations of any such Person under any Interest Rate Agreement
applicable to any of the foregoing (if and to the extent such Interest
Rate Agreement obligations would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP).
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, provided:
(1) that the amount outstanding at any time of any Indebtedness issued
with original issue discount is the principal amount of such
Indebtedness less the remaining unamortized portion of the original
issue discount of such Indebtedness at such time as determined in
conformity with GAAP and
(2) that Indebtedness shall not include any liability for federal, state,
local or other taxes.
Notwithstanding any other provision of the foregoing definition, any trade
payable arising from the purchase of goods or materials or for services obtained
in the ordinary course of business shall not be deemed to be "Indebtedness" of
the Company or any Restricted Subsidiary for purposes of this definition.
Furthermore, guarantees of (or obligations with respect to letters of credit
supporting) Indebtedness otherwise included in the determination of 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 the Issue Date.
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"Interest Rate Agreement" shall mean any interest 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 receivable arising in the ordinary course of
business or acquired as part of the assets acquired by the Company in connection
with an acquisition of assets which is otherwise permitted by the terms of the
Indenture), loan or capital contribution to (by means of transfers of property
to others, payments for property or services for the account or use of others or
otherwise), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person or the making of any
investment in any Person. Investments shall exclude extensions of trade credit
on commercially reasonable terms in accordance with normal trade practices. For
the purposes of the "Limitation on Restricted Payments" covenant, "Investment"
shall include and be valued at the fair market value of the net assets of any
Restricted Subsidiary at the time that 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 the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Common
Stock of any direct or indirect Restricted Subsidiary of the Company such that,
after giving effect to any such sale or disposition, the Company no longer owns,
directly or indirectly, greater than 50% of the outstanding Common Stock of such
Restricted Subsidiary, 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 of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.
"Letter of Credit Obligations" means all Obligations in respect of
Indebtedness of the Company or any of its Restricted Subsidiaries with respect
to letters of credit issued pursuant to the Senior Indebtedness which
Indebtedness shall be deemed to consist of (a) the aggregate maximum amount then
available to be drawn under all such letters of credit (the determination of
such maximum amount to assume compliance with all conditions for drawing) and
(b) the aggregate amount that has then been paid by, and not reimbursed to, the
issuers under such letters of credit.
"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement (other than advance payments or customer deposits for goods and
services sold by the Company in the ordinary course of business), security
interest, lien, charge, easement or encumbrance of any kind or nature whatsoever
on or with respect to such property or assets (including, without limitation,
any Capitalized Lease Obligation, conditional sales, or other title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means:
(1) in the case of any sale of Capital Stock by any Person, the aggregate
net proceeds received by such Person, after payment of expenses,
commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the fair market
value thereof, as determined in good faith by the Board of Directors
of such Person, at the time of receipt) and
(2) in the case of any exchange, exercise, conversion or surrender of
outstanding securities of any kind for or into shares of Capital Stock
of such Person which is not Disqualified Capital Stock, the net book
value of such outstanding securities on the date of such exchange,
exercise, conversion or
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surrender (plus any additional amount required to be paid by the
holder to such Person upon such exchange, exercise, conversion or
surrender, less any and all payments made to the holders, e.g., on
account of fractional shares and less all expenses incurred by the
Company in connection therewith).
"New Operating Company" means the newly-formed Wholly-Owned Subsidiary of
the Company participating in the Asset Drop-Down.
"Non-Payment Event of Default" 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 such Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture and delivered to the Trustee.
"Payment Default" means any default, whether or not any requirement for
the giving of notice, the lapse of time or both, or any other condition to 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,
(1) the Company and, in the event of the Asset Drop-Down, the Holding
Company,
(2) any THL Group Member,
(3) the Individual Investors, each of the spouses, children (adoptive or
biological) or other lineal descendants of the Individual Investors,
the probate estate of any such individual and any trust, so long as
one or more of the foregoing individuals retains substantially all of
the controlling or beneficial interest thereunder, and
(4) any underwriter during the course of an underwritten public offering
until completion of the initial distribution thereof.
"Permitted Indebtedness" means:
(1) Indebtedness of the Company or any Restricted Subsidiary arising under
or in connection with the senior credit facility in an amount not to
exceed the sum of (a) $225,000,000 plus (b) the greater of (i)
$110,000,000 or (ii) the aggregate of 80% of the accounts receivable
and 50% of the inventory of the Company and its consolidated
Restricted Subsidiaries, which sum shall be reduced by any mandatory
prepayments actually made thereunder required as a result of any Asset
Sale or similar sale of assets (to the extent, in the case of payments
of revolving credit indebtedness, that the corresponding commitments
have been permanently reduced) and any scheduled payments actually
made thereunder;
(2) Indebtedness under the Notes and the Guarantees;
(3) Indebtedness of Foreign Subsidiaries not to exceed $5,000,000 in the
aggregate at any one time outstanding;
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(4) Indebtedness not covered by any other clause of this definition which
is outstanding on the Issue Date (including, for purposes of this
clause (4), Capitalized Lease Obligations in an amount not to exceed
$10,000,000 incurred in the leasing of an aircraft for use by the
Company, which lease is entered into on or before September 30, 1999);
(5) Indebtedness of the Company to any Restricted Subsidiary of the
Company and Indebtedness of any Restricted Subsidiary of the Company
to the Company or another Restricted Subsidiary of the Company;
provided that (a) if the Company or any Guarantor is the obligor on
such Indebtedness, such Indebtedness is unsecured and expressly
subordinated to the payment in full to all obligations in respect of
the Notes and the Guarantee of such Guarantor on terms substantially
in the form provided in the Indenture and (b)(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 of the Company, and (ii) any sale or transfer of
any such Indebtedness to a Person other than the Company or a
Restricted Subsidiary of the Company, shall be deemed to constitute an
incurrence of Indebtedness by the Company or such Restricted
Subsidiary not permitted by this clause (5);
(6) Interest Rate Agreements;
(7) Refinancing Indebtedness;
(8) Indebtedness under Commodity Hedge Agreements and Currency Agreements
entered into in the ordinary course of business consistent with
reasonable business requirements and not for speculation;
(9) Indebtedness consisting of guarantees made in the ordinary course of
business by the Company or its Restricted Subsidiaries of obligations
of the Company or any of its Restricted Subsidiaries, which
obligations are not otherwise prohibited under the Indenture;
(10) Contingent obligations of the Company or its Subsidiaries in respect
of customary indemnification and purchase price adjustment obligations
incurred in connection with an Asset Sale; provided that the maximum
assumable liability in respect of all such obligations shall at no
time exceed the gross proceeds actually received by the Company and
its Subsidiaries in connection with such Asset Sale;
(11) Indebtedness incurred in respect of performance, surety and other
similar bonds and completion guarantees provided by the Company and
the Restricted Subsidiaries in the ordinary course of business, and
extensions, refinancings and replacements thereof;
(12) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business,
including, without limitation, letters of credit in respect of
workers' compensation claims or self-insurance, or other Indebtedness
with respect to reimbursement type obligations regarding workers'
compensation or other similar claims;
(13) Purchase Money Indebtedness and Capitalized Lease Obligations of the
Company and its Subsidiaries incurred to acquire, construct or improve
property and assets in the ordinary course of business and any
refinancings, renewals or replacements of any such Purchase Money
Indebtedness or Capitalized Lease Obligation (subject to the
limitations on the principal amount thereof set forth in this clause
(13)), the principal amount of which Purchase Money Indebtedness and
Capitalized Lease Obligations shall not in the aggregate at any one
time outstanding exceed $15,000,000; and
(14) Additional Indebtedness of the Company or any of its Restricted
Subsidiaries (other than Indebtedness specified in clauses (1) through
(13) above) not to exceed $25,000,000 in the aggregate at any one time
outstanding.
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"Permitted Investments" means, for any Person, Investments made on or
after the Issue Date consisting of:
(1) Investments by the Company, or by a Restricted Subsidiary thereof, in
the Company or a Restricted Subsidiary;
(2) Temporary Cash Investments;
(3) Investments by the Company, or by a Restricted Subsidiary thereof, in
a Person, if as a result of such Investment (a) such Person becomes a
Restricted Subsidiary of the Company, (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 thereof or (c) such business or assets are
owned by the Company or a Restricted Subsidiary;
(4) an Investment that is made by the Company or a Restricted Subsidiary
thereof in the form of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are
issued by a third party to the Company or a Restricted Subsidiary
solely as partial consideration for the consummation of an Asset Sale
that is otherwise permitted under the covenant described under
"Limitation on Certain Asset Sales";
(5) Investments consisting of (a) purchases and acquisitions of inventory,
supplies, materials and equipment, or (b) licenses or leases of
intellectual property and other assets in each case in the ordinary
course of business;
(6) Investments consisting of (a) loans and advances to employees for
reasonable travel, relocation and business expenses in the ordinary
course of business not to exceed $2,000,000 in the aggregate at any
one time outstanding, (b) loans to employees of the Company or its
Subsidiaries for the sole purpose of purchasing equity of the Company,
(c) extensions of trade credit in the ordinary course of business, and
(d) prepaid expenses incurred in the ordinary course of business;
(7) without duplication, Investments consisting of Indebtedness permitted
pursuant to clause (5) of the definition of "Permitted Indebtedness";
(8) Investments existing on the Issue Date;
(9) Investments of the Company under Interest Rate Agreements;
(10) Investments under Commodity Hedge Agreements and Currency Agreements
entered into in the ordinary course of business consistent with
reasonable business requirements and not for speculation;
(11) Investments consisting of endorsements for collection or deposit in
the ordinary course of business;
(12) Investments in suppliers or customers that are in bankruptcy,
receivership or similar proceedings or as a result of foreclosure on a
secured Investment in a third party received in exchange for or
cancellation of an existing obligation of such supplier or customer to
the Company or a Restricted Subsidiary;
(13) Investments paid for solely with Capital Stock (other than
Disqualified Capital Stock) of the Company;
(14) Investments in joint venture arrangements (which may be structured as
corporations, partnerships, trusts, limited liability companies or
other Persons), or in a Person which as a result of such Investment
becomes a joint venture arrangement, in an aggregate amount, as valued
at the time each
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such Investment is made, not exceeding $10,000,000 for all such
Investments from and after the date hereof; and
(15) Investments (other than Investments specified in clauses (1) through
(14) above) 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 the Issue Date; provided that the amount available for
Investments to be made pursuant to this clause (15) shall be increased
from time to time (a) to the extent any return of capital is received
by the Company or a Restricted Subsidiary on an Investment previously
made in reliance on this clause (15), in each case, up to, but not
exceeding, the amount of the original Investment but only to the
extent such return of capital is excluded from Consolidated Net Income
and (b) by 100% of the aggregate net proceeds from the issue or sale
of the Company's Capital Stock or of any equity contribution received
by the Company (other than in return for Disqualified Capital Stock)
from a holder of the Company's Capital Stock, net of any amounts
thereof used to calculate amounts available for Restricted Payments
pursuant to clause (3) under "Limitation on Restricted Payments" or
previously relied upon to make any Permitted Investments pursuant to
this clause (15).
Not later than the date of making of any Permitted Investment made in
reliance on clause (15) above that includes proceeds described in clause (b)
thereof, the Company 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.
"Permitted Liens" means
(1) Liens on property or assets of, or any shares of stock of or secured
debt of, any corporation existing at the time such corporation becomes
a Restricted Subsidiary of the Company or at the time such corporation
is merged into the Company or any of its Restricted Subsidiaries;
provided that such Liens are not incurred in connection with, or in
contemplation of, such corporation becoming a Restricted Subsidiary of
the Company or merging into the Company or any of its Restricted
Subsidiaries,
(2) Liens securing Refinancing Indebtedness; provided that any such Lien
does not extend to or cover any Property, shares or debt other than
the Property, shares or debt securing the Indebtedness so refunded,
refinanced or extended,
(3) Liens in favor of the Company or any of its Restricted Subsidiaries,
and
(4) Liens existing on the Issue Date.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government (including any agency or political subdivision
thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Purchase Money Indebtedness" means any Indebtedness incurred by a Person
to finance (within 90 days from incurrence) the cost (including the cost of
construction or improvement) of an item of Property acquired in the ordinary
course of business, the principal amount of which Indebtedness does not exceed
the sum of
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(1) 100% of such cost and
(2) reasonable fees and expenses of such Person incurred in connection
therewith.
"Qualified Public Offering" means a public offering and sale by the
Company (or, in the event of the Asset Drop-Down, the New Operating Company or
the Holding Company) of shares of its common stock (however designated and
whether voting or non-voting) and any and all rights, warrants or options to
acquire such common stock pursuant to a registration statement registered
pursuant to the Securities Act; provided that the aggregate Net Proceeds to the
issuer from such offering and sale is at least $25,000,000 and, provided,
further that, in the event of the Asset Drop-Down and a subsequent Qualified
Public Offering by the Holding Company, the Holding Company will contribute to
the capital of the New Operating Company that portion of the Net Proceeds
thereof necessary to pay the aggregate redemption price (including accrued
interest) of the Notes to be redeemed.
"Recapitalization" means the transactions described in the
Recapitalization Agreement.
"Recapitalization Agreement" means the Agreement and Plan of
Recapitalization, Purchase and Redemption dated as of December 24, 1998 (as
amended by Amendment No. 1 dated January 20, 1999 and Amendment No. 2 dated
January 25, 1999) by and among the Sellers named therein, the Company and the
Equity Investor.
"Redeemable Dividend" means, for any dividend or distribution with regard
to Disqualified Capital Stock, the quotient of the dividend or distribution
divided by the difference between one and the maximum statutory federal income
tax rate (expressed as a decimal number between 1 and 0) then applicable to the
issuer of 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 the Company outstanding on the Issue Date or other
Indebtedness permitted to be incurred by the Company or its Restricted
Subsidiaries pursuant to the terms of the Indenture, but only to the extent
that:
(1) the Refinancing Indebtedness is subordinated to the Notes to at least
the same extent as the Indebtedness being exchanged for, refunded,
refinanced, renewed, replaced, defeased or extended, if at all,
(2) the Refinancing Indebtedness is scheduled to mature either (a) no
earlier than the Indebtedness being refunded, refinanced or extended,
or (b) after the maturity date of the Notes,
(3) the portion, if any, of the Refinancing Indebtedness that is scheduled
to mature on or prior to the maturity date of the Notes has a weighted
average life to maturity at the time such Refinancing Indebtedness is
incurred that is equal to or greater than the weighted average life to
maturity of the portion of the Indebtedness being refunded, refinanced
or extended that is scheduled to mature on or prior to the maturity
date of the Notes,
(4) such Refinancing Indebtedness is in an aggregate principal amount that
is equal to or less than the sum of (a) the aggregate principal amount
then outstanding under the Indebtedness being refunded, refinanced or
extended, (b) the amount of accrued and unpaid interest, if any, and
premiums owed, if any, not in excess of preexisting prepayment
provisions on 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
(5) such Refinancing Indebtedness is incurred by the same Person that
initially incurred the Indebtedness being refunded, refinanced or
extended, except that the Company or a Wholly- Owned Subsidiary
thereof may incur Refinancing Indebtedness to refund, refinance or
extend Indebtedness of the Company or any other Wholly-Owned
Subsidiary of the Company.
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"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:
(1) the declaration or payment of any dividend or any other distribution
or payment on Capital Stock of the Company or any Restricted
Subsidiary of the Company or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the
Company or any Restricted Subsidiary of the Company (other than (a)
dividends or distributions payable solely in Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to
purchase Capital Stock (other than Disqualified Capital Stock) and (b)
in the case of Restricted Subsidiaries of the Company, dividends or
distributions payable to the Company or to a Wholly-Owned Subsidiary
of the Company),
(2) the purchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company or any of its Restricted
Subsidiaries (other than Capital Stock owned by the Company or a
Wholly-Owned Subsidiary of the Company, excluding Disqualified Capital
Stock),
(3) the making of any principal payment on, or the purchase, defeasance,
repurchase, redemption or other acquisition or retirement for value,
prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment, of any Indebtedness which is subordinated in
right of payment to the Notes other than subordinated Indebtedness
acquired in anticipation of satisfying a scheduled sinking fund
obligation, principal installment or final maturity (in each case due
within one year of the date of acquisition),
(4) the making of any Investment or guarantee of any Investment in any
Person other than a Permitted Investment,
(5) any designation of a Restricted Subsidiary as an Unrestricted
Subsidiary on the basis of the Investment by the Company therein and
(6) forgiveness of any Indebtedness of an Affiliate of the Company (other
than a Restricted Subsidiary) to the Company or a Restricted
Subsidiary.
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
the Company's Board of Directors.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary. The Board of Directors of the Company may designate any
Unrestricted Subsidiary or any Person that is to become a Subsidiary as a
Restricted Subsidiary if:
(1) immediately after giving effect to such action (and treating any
Acquired Indebtedness as having been incurred at the time of such
action), the Company could have incurred at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Additional Indebtedness" covenant and
(2) no Default or Event of Default shall have occurred and be continuing.
The Company shall deliver an Officers' Certificate to the Holders upon
designating any Unrestricted Subsidiary as a Restricted Subsidiary.
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"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal Property, which Property has been or is
to be sold or transferred by the Company 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 the Company, the banks, financial institutions and other
institutional lenders from time to time party thereto, NationsBank, N.A., as the
Swing Line Bank and the Initial Issuing Bank thereunder, 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 the Company 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
(1) all Indebtedness of the Company under the senior credit facility,
(2) all obligations of the Company with respect to any Interest Rate
Agreement,
(3) all obligations of the Company to reimburse any bank or other Person
in respect of amounts paid under letters of credit, acceptances or
other similar instruments,
(4) all other Indebtedness of the Company which does not expressly provide
that it is to rank pari passu with or subordinate to the Notes and
(5) all deferrals, renewals, extensions, refinancings, replacements and
refundings in whole or in part of, and amendments, modifications,
restatements and supplements to, any of the Indebtedness described
above.
Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include
(1) Indebtedness of the Company to any of its Subsidiaries, except to the
extent such Indebtedness is pledged as security under the senior
credit facility,
(2) Indebtedness represented by the Notes,
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(3) any Indebtedness which by the express terms of the agreement or
instrument creating, evidencing or governing the same is junior or
subordinate in right of payment to any other item of Indebtedness of
the Company (although this clause (3) shall not apply to the
subordination of liens or security interests covering property or
assets securing Senior Indebtedness),
(4) any trade payable arising from the purchase of goods or materials or
for services obtained in the ordinary course of business or
(5) liability for federal, state, local or other taxes owed or owing by
the Company.
"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,
(1) in the case of a corporation, of which more than 50% of the total
voting power of the Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any
of its Subsidiaries; or
(2) in the case of a partnership, limited liability company, joint
venture, association or other business entity, with respect to which
such first-named Person or any of its Subsidiaries has the power to
direct or cause the direction of the management and policies of such
entity by contract or otherwise or if in accordance with GAAP such
entity is consolidated with the first-named Person for financial
statement purposes.
"Temporary Cash Investments" means
(1) Investments in marketable direct obligations issued or guaranteed by
the United States of America, or of any governmental agency or
political subdivision thereof, maturing within 365 days of the date of
purchase;
(2) Investments in certificates of deposit and time deposits issued by a
lender under the senior credit facility or by a bank (or subsidiary of
a bank holding company) organized under the laws of the United States
of America or any state thereof or the District of Columbia, in each
case having capital, surplus and undivided profits at the time of
investment totaling more than $500,000,000 and rated at the time of
investment at least A by S&P and A-2 by Moody's maturing within 365
days of purchase;
(3) commercial paper issued by any Person organized under the laws of any
state of the United States of America and rated at least "Prime-1" (or
the then equivalent grade) by Moody's or at least "A- 1" (or the then
equivalent grade) by S&P, in each case with a maturity of not more
than 180 days from the date of acquisition thereof; or
(4) Investments not exceeding 365 days in duration in money market funds
that invest substantially all of such funds' assets in the Investments
described in the preceding clauses (1), (2) and (3).
"THL" means Thomas H. Lee Equity Fund IV, L.P.
"THL Fees" means
(1) management fees under the management agreement between the Company and
THL and its Affiliates and successors and assigns that do not exceed
$750,000 per year and the reimbursement of expenses pursuant thereto,
provided that the amount of such management fees paid per year shall
increase to $1,500,000 if at the time of such payment the Company
could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "Limitation on Additional
Indebtedness" covenant and
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(2) one time fees to THL in connection with each acquisition of a company
or a line of business by the Company or its Subsidiaries, such fees to
be payable at the time of each such acquisition and not to exceed 1%
of the aggregate consideration paid by the Company and its
Subsidiaries for any such acquisition.
"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
(1) any Subsidiary of such Person that at the time of determination shall
be or continue to be designated an Unrestricted Subsidiary by the
Board of Directors of such Person in the manner provided below and
(2) any Subsidiary of an Unrestricted Subsidiary.
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, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided that
(1) such designation complies with the "Limitation on Restricted Payments"
covenant and
(2) each Subsidiary to be so designated and each of its Subsidiaries has
not at the time of designation, and does not thereafter, create,
incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which
the lender has recourse to any of the assets of the Company or any of
its Restricted Subsidiaries.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if
(1) immediately after giving effect to such designation and treating all
Indebtedness of such Unrestricted Subsidiary as being incurred on such
date, the Company is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with
the "Limitation on Additional Indebtedness" covenant and
(2) immediately before and immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing.
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 the Company of each board resolution of
the Company 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 the Company, 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 notes were offered and sold to QIBs (as defined) in reliance on Rule
144A under the Securities Act ("Rule 144A Notes"). Notes also were offered and
sold in reliance on Regulation S ("Regulation S Notes"). In addition, notes may
have been subsequently transferred to institutional accredited investors within
the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
Securities Act of Institutional Accredited Investors in transactions exempt from
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registration under the Securities Act not made in reliance on Rule 144A or
Regulation S under the Securities Act ("Other Notes").
Rule 144A Notes initially were represented by one or more notes in
registered, global form without interest coupons (collectively, the "Rule 144A
Global Note"). The Rule 144A Global Notes were deposited upon issuance with the
Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New
York, and registered in the name of DTC or its nominee, in each case for credit
to an account of a direct or indirect participant as described below. Other
Notes held by Institutional Accredited Investors were represented by one or more
certificated notes bearing the restrictive legend described under Notice to
Investors ("Accredited Investor Certificated Notes"). Regulation S Notes
initially were represented by one or more notes in registered, global form
without interest coupons (collectively, the "Regulation S Global Note," and,
together with the Rule 144A Global Note, the "Global Notes"). The Regulation S
Global Notes were deposited upon issuance with the Trustee as custodian for DTC,
and registered in the name of a nominee of DTC, in each case for credit to the
accounts of Euroclear System ("Euroclear") and Cedel Bank, S.A. ("CEDEL"). On or
prior to the 40th day after the later of the commencement of the offering and
the Issue Date (such period through and including such 40th day, the "Restricted
Period"), beneficial interests in the Regulation S Note may be held only through
Euroclear or CEDEL, as indirect participants in DTC, unless transferred to a
person that takes delivery in the form of an interest in the corresponding Rule
144A Global Note in accordance with the certification requirements described
below. Beneficial interests in the Rule 144A Global Note may not be exchanged
for beneficial interests in the Regulation S Global Note at any time except in
the limited circumstances described below. See "-- Exchanges between Regulation
S Notes and Rule 144A Notes and Other Notes."
Except as set forth below, the Global Notes may be transferred, in whole
but not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for notes
in certificated form except in the limited circumstances described below. See
"-- Exchange of Book-Entry Notes for Certificated Notes."
Rule 144A Notes (including beneficial interests in the Rule 144A Global
Note) and Other Notes are subject to certain restrictions on transfer and bear a
restrictive legend as described under Notice to Investors. In addition, transfer
of beneficial interests in the Global Notes are subject to the applicable rules
and procedures of DTC and its direct or indirect participants (including, if
applicable, those of Euroclear and CEDEL), which may change from time to time.
The notes may be presented for registration of transfer and exchange at
the offices of the Registrar.
Depository Procedures
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between the Participants through electronic book-entry
changes in accounts of the Participants. The Participants include securities
brokers and dealers (including the Initial Purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's system is
also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the Participants and the Indirect Participants.
DTC has also advised us that pursuant to procedures established by it, (i)
upon deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the Initial Purchasers with portions of the principal amount of
the Global Notes and (ii) ownership of such interests in the Global Notes will
be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Notes).
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Investors in the Rule 144A Global Note may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations (including Euroclear and CEDEL) which are Participants in
such system. Investors in the Regulation S Global Note must initially hold their
interests therein through Euroclear or CEDEL, if they are accountholders in such
systems, or indirectly through organizations which are accountholders in such
systems. After the expiration of the Restricted Period (but not earlier),
investors may also hold interests in the Regulation S Global Note through
organizations other than Euroclear and CEDEL that are Participants in the DTC
system. Euroclear and CEDEL will hold interests in the Regulation S Global Note
on behalf of their participants through their respective depositories, which in
turn will hold such interests in the Regulation S Global Note customers'
securities accounts in their respective names on the books of DTC. The Chase
Manhattan Bank, Brussels office, will initially act as depository for Euroclear,
and Citibank, N.A., will initially act as depository for CEDEL. All interests in
a Global Note, including those held through Euroclear or CEDEL, may be subject
to the procedures and requirements of DTC. Those interests held through
Euroclear or CEDEL may also be subject to the procedures and requirements of
such system.
The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Note to such persons may be
limited to that extent. Because DTC can act only on behalf of the Participants,
which in turn act on behalf of the Indirect Participants and certain banks, the
ability of a person having beneficial interests in a Global Note to pledge such
interests to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interests, may be affected by the lack
of a physical certificate evidencing such interests. For certain other
restrictions on the transferability of the notes, see "-- Exchange of Book-Entry
Notes for Certificated Notes" and "-- Exchanges between Regulation S Notes and
Rule 144A Notes and Other Notes."
Except as described below, owners of interests in the Global Notes will
not have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders thereof under the indenture for any purpose.
Payments in respect of the principal of (and premium, if any) and interest
on a Global Note registered in the name of DTC or its nominee will be payable to
DTC or its nominee in its capacity as the registered holder under the indenture.
Under the terms of the indenture, we and the Trustee will treat the persons in
whose names the notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, none of our company, the Initial Purchasers,
the Trustee or any of our agents or agents of the Initial Purchasers or the
Trustee has or will have any responsibility or liability for (i) any aspect or
accuracy of DTC's records or any Participant's or Indirect Participant's records
relating to the beneficial ownership or (ii) any other matter relating to the
actions and practices of DTC or any of the Participants or the Indirect
Participants.
DTC has advised us that our current practice, upon receipt of any payment
in respect of securities such as the notes (including principal and interest),
is to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the records
of DTC. Payments by the Participants and the Indirect Participants to the
beneficial owners of notes will be governed by standing instructions and
customary practices and will not be the responsibility of DTC, the Trustee or
our company. Neither our company nor the Trustee will be liable for any delay by
DTC or any of the Participants in identifying the beneficial owners of the
notes, and our company and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee as the registered
owner of the Global Notes for all purposes.
Except for trades involving only Euroclear and CEDEL participants,
interests in the Global Notes will trade in DTC's Same-Day Funds Settlement
System and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and the Participants. Transfers between Participants in DTC
will be effected in accordance with DTC's procedures and will be settled in
same-day funds. Transfers between accountholders in Euroclear and CEDEL will be
effected in the ordinary way in accordance with their respective rules and
operating procedures.
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Subject to compliance with the transfer restrictions applicable to the
notes described herein, cross-market transfers between the accountholders in
DTC, on the one hand, and directly or indirectly through Euroclear or CEDEL
accountholders, on the other hand, will be effected through DTC in accordance
with DTC's rules on behalf of Euroclear or CEDEL, as the case may be, by its
respective depository; however, such cross-market transactions will require
delivery of instructions to Euroclear or CEDEL, as the case may be, by the
counterparty in such system in accordance with the rules and procedures and
within the established deadlines (Brussels time) of such system. Euroclear or
CEDEL, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depository to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant Global Note in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC.
Euroclear and CEDEL accountholders may not deliver instructions directly to the
depositories for Euroclear or CEDEL.
Because of time zone differences, the securities account of a Euroclear or
CEDEL accountholder purchasing an interest in a Global Note from an
accountholder in DTC will be credited, and any such crediting will be reported
to the relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear or CEDEL) immediately
following the settlement date of DTC. Cash received in Euroclear or CEDEL as a
result of sales of interests in a Global Note by or through a Euroclear or CEDEL
accountholder to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or CEDEL
cash account only as of the business day for Euroclear or CEDEL following DTC's
settlement date.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more Participants to whose
account with DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of the notes as to which such
Participant or Participants has or have given such direction. However, if any of
the events described under -- Exchange of Book Entry Notes for Certificated
Notes occurs, DTC reserves the right to exchange the Global Notes for (in the
case of the Rule 144A Global Note) legended notes in certificated form and to
distribute such notes to its Participants.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that we believe to be
reliable, but we take no responsibility for the accuracy thereof.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the Regulation S Global Note and in the
Rule 144A Global Note among accountholders in DTC and accountholders of
Euroclear and CEDEL, they are under no obligation to perform or to continue to
perform such procedures, and such procedures may be discontinued at any time.
None of our company, the Initial Purchasers or the Trustee or any agent of our
company, the Initial Purchasers or the Trustee will have any responsibility for
the performance by DTC, Euroclear or CEDEL or their respective participants,
indirect participants or accountholders of their respective obligations under
the rules and procedures governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
Notes transferred to Institutional Accredited Investors who are not QIBs
will be issued in registered certificated form. In addition, a Global Note is
exchangeable for definitive notes in registered certificated form if (i) DTC (x)
notifies us that it is unwilling or unable to continue as depository for the
Global Note and we thereupon fail to appoint a successor depository or (y) has
ceased to be a clearing agency registered under the Exchange Act, (ii) we, at
our option, notify the Trustee in writing that they elect to cause the issuance
of the notes in certificated form or (iii) there shall have occurred and be
continuing a Default or an Event of Default with respect to the notes. In all
cases, certificated notes delivered in exchange for any Global Note or
beneficial interests therein will be registered in the names, and issued in any
approved denominations, requested by or on behalf of DTC (in accordance with its
customary procedures) and will bear, in the case of the Restricted Global Note,
the restrictive legend described in Notice to Investors and, in the case of the
Regulation S Global Note, a legend substantially in the form of the first
sentence of the legend in bold type on the cover of this Offering Memorandum, in
each case, unless we determine otherwise in compliance with applicable law.
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EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
We originally sold our old notes on March 19, 1999 to CIBC Oppenheimer and
NationsBanc Montgomery Securities LLC (the "Initial Purchasers") pursuant to a
Securities Purchase Agreement dated March 19, 1999. The Initial Purchasers
subsequently resold the notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act. As a condition of the purchase agreement, we
entered into an Exchange Offer Registration Rights Agreement (the "Exchange
Offer Registration Rights Agreement") with the Initial Purchasers pursuant to
which we agreed, for the benefit of the holders of the old notes, at our cost,
to:
o use our reasonable best efforts to file an exchange offer registration
statement (the "Exchange Offer Registration Statement") within 45 days
after the date of the original issuance of the old notes with the SEC
with respect to the exchange offer for the new notes; and
o use our reasonable best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities
Act within 165 days after the date of the original issuance of the old
notes.
Upon the Exchange Offer Registration Statement being declared effective,
we will offer the new notes in exchange for surrender of the old notes. We will
keep the exchange offer open for not less than 30 days, or longer if required by
applicable law, after the date on which notice of the exchange offer is mailed
to the holders of the old notes. For each old note surrendered to us pursuant to
the exchange offer, the holder of such old note will receive a new note having a
principal amount equal to that of the surrendered old note.
Under existing interpretations of the staff of the SEC contained in
several no-action letters to third parties, we believe that the new notes will
in general be freely tradeable after the exchange offer without further
registration under the Securities Act. However, any purchaser of old notes who
is an "affiliate" of the Issuers or who intends to participate in the exchange
offer for the purpose of distributing the new notes:
o will not be able to rely on the interpretation of the staff of the
SEC;
o will not be able to tender its old notes in the exchange offer; and
o must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the
old notes, unless such sale or transfer is made pursuant to an
exemption from such requirements.
As contemplated by these no-action letters and the Exchange Offer
Registration Rights Agreement, each holder accepting the exchange offer is
required to represent to us in the Letter of Transmittal that:
o the new notes are to be acquired by the holder or the person receiving
such new notes, whether or not such person is the holder, in the
ordinary course of business;
o the holder or any such other person, other than a broker-dealer
referred to in the next sentence, is not engaging and does not intend
to engage, in distribution of the new notes;
o the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of
the new notes;
o neither the holder nor any such other person is an "affiliate" of ours
within the meaning of Rule 405 under the Securities Act; and
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o the holder or any such other person acknowledges that if such holder
or any other person participates in the exchange offer for the purpose
of distributing the new notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection
with any resale of the new notes and cannot rely on those no-action
letters.
As indicated above, each broker-dealer (a "Participating Broker-Dealer") that
receives new notes for its own account in exchange for old notes must
acknowledge that it:
o acquired the new notes for its own account as a result of
market-making activities or other trading activities;
o has not entered into any arrangement or understanding with us or any
"affiliate" (within the meaning of Rule 405 under the Securities Act)
to distribute the new notes to be received in the exchange offer; and
o will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such new notes.
For a description of the procedures for resales by Participating Broker-Dealers,
see "Plan of Distribution."
In the event that changes in the law or the applicable interpretations of
the staff of the SEC do not permit us to effect such an exchange offer, or if
for any other reason the exchange offer is not consummated within 195 days of
the date of the original issuance of the old notes, we will:
o file a shelf registration statement covering the resale of the old
notes;
o use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act; and
o use our reasonable best efforts to keep effective the shelf
registration statement for two years after its effective date.
We will, in the event of the filing of the shelf registration statement, provide
to each applicable holder of the old notes copies of the prospectus, which is a
part of the shelf registration statement, notify each such holder when the shelf
registration statement has become effective, and take certain other actions as
are required to permit unrestricted resale of the old notes. A holder of the old
notes that sells such old notes pursuant to the shelf registration statement
generally will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales, and will be bound by the provisions of the Exchange Offer
Registration Rights Agreement which are applicable to such a holder, including
certain indemnification obligations. In addition, each holder of the old notes
will be required to deliver information to be used in connection with the shelf
registration statement and to provide comments on the shelf registration
statement within the time periods set forth in the Exchange Offer Registration
Rights Agreement in order to have their old notes included in the shelf
registration statement and to benefit from the provisions set forth in the
following paragraph.
The Exchange Offer Registration Rights Agreement provides that:
o we will use our reasonable best efforts to file an Exchange Offer
Registration Statement with the SEC on or prior to 45 days after the
date of the original issue of the old notes;
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o we will use our reasonable best efforts to have the Exchange Offer
Registration Statement declared effective by the SEC on or prior to
165 days after the date of the original issue of the old notes;
o unless the exchange offer would not be permitted by applicable law or
SEC policy, we will commence the exchange offer and use our reasonable
best efforts to issue on or prior to 45 days after the exchange offer
effectiveness date, new notes in exchange for all old notes tendered
prior thereto in the exchange offer; and
o if obligated to file the shelf registration statement, we will use our
reasonable best efforts to file the shelf registration statement with
the SEC in a timely fashion.
If:
(a) we fail to file any of the registration statements required by the
Exchange Offer Registration Rights Agreement on or before the date
specified for such filing;
(b) any of such registration statements is not declared effective by
the SEC on or prior to the date specified for such effectiveness;
(c) we fail to consummate the exchange offer within 165 days of the
date of the original issuance of the old notes; or
(d) the shelf registration statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases
to be effective or usable in connection with resales of Transfer
Restricted Securities (as such term is defined in the Exchange
Offer Registration Rights Agreement) during the period specified
in the Exchange Offer Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "registration
default"),
the sole remedy available to holders of the old notes will be the immediate
assessment of additional interest as follows: the per annum interest rate on the
old notes will increase by .25% for each 90-day period during which the
registration default continues, up to a maximum additional interest rate of 2%
per annum in excess of 9-7/8% per annum.
All additional interest will be payable to holders of the old notes in
cash on each April 1 and October 1, commencing with the first such date
occurring after any such additional interest commences to accrue, until such
registration default is cured. After the date on which such registration default
is cured, the interest rate on the old notes will revert to 9-7/8% per annum.
Holders of old notes have no right to receive such additional interest, if any.
Holders of old notes will be required to make certain representations to
us in order to participate in the exchange offer and holders of old notes will
be required to deliver information to be used in connection with the shelf
registration statement and to provide comments on the shelf registration
statement within the time periods set forth in the Exchange Offer Registration
Rights Agreement in order to have their old notes included in the shelf
registration statement and benefit from the provisions regarding additional
interest set forth above. Such required representations and information is
described in the Exchange Offer Registration Rights Agreement.
The summary herein of certain provisions of the Exchange Offer
Registration Rights Agreement is subject to, and is qualified in its entirety
by, all the provisions of the Exchange Offer Registration Rights Agreement, a
copy of which is filed as an exhibit to the Exchange Offer Registration
Statement of which this prospectus is a part.
Following the consummation of the exchange offer, holders of the old notes
who were eligible to participate in the exchange offer but who did not tender
their old notes will not have any further registration rights and such old
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notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such old notes could be adversely
affected.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the Letter of Transmittal, we will accept any and all old notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on ,
1999. We will issue $1,000 principal amount of new notes in exchange for each
$1,000 principal amount of outstanding old notes accepted in the exchange offer.
Holders may tender some or all of their old notes pursuant to the exchange
offer. However, old notes may be tendered only in integral multiples of $1,000.
The form and terms of the new notes are substantially the same as the form
and terms of the old notes except that:
o the new notes bear a new designation and a different CUSIP number
from the old notes;
o the new notes have been registered under the federal securities
laws and hence will not bear legends restricting the transfer
thereof as the old notes do; and
o the holders of the new notes will generally not be entitled to
certain rights under the Exchange Offer Registration Rights
Agreement, which rights generally will be satisfied when the
exchange offer is consummated. The new notes will evidence the
same debt as the tendered old notes and will be entitled to the
benefits of the indenture under which the old notes were issued.
As of the date of this prospectus, $150,000,000 aggregate
principal amount of old notes were outstanding.
Holders of old notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware, the Delaware Limited Liability Company
Act or the indentures relating to such notes in connection with the exchange
offer. We intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the SEC thereunder.
We shall be deemed to have accepted validly tendered old notes when, as
and if we have given oral or written notice thereof, such notice if given
orally, to be confirmed in writing, to the exchange agent. The exchange agent
will act as agent for the tendering holders for the purpose of receiving the new
notes from our company.
If any tendered old notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted old notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the expiration date.
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of old notes
pursuant to the exchange offer. We will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the exchange offer.
See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The expiration date is 5:00 p.m., New York City time, on ,
1999, unless we extend the exchange offer, in which case the expiration date
will be the latest date and time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent
of any extension by oral or written notice, such notice if given orally, to be
confirmed in writing, and will issue a press release or other public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
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We reserve the right:
o to delay accepting any old notes, to extend the exchange offer or
to terminate the exchange offer if any of the conditions set forth
below under "conditions" shall not have been satisfied, by giving
oral or written notice, such notice if given orally, to be
confirmed in writing, of such delay, extension or termination to
the exchange agent, or
o to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders.
Interest on the New Notes
The new notes will bear interest from their date of issuance. Holders of
old notes that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the new notes. Such
interest will be paid with the first interest payment on the new notes on
October 1, 1999 to persons who are registered holders of the new notes on
September 1, 1999. Interest on the old notes accepted for exchange will cease to
accrue upon issuance of the new notes.
Interest on the new notes is payable semi-annually on each April 1 and
October 1, commencing on October 1, 1999.
Procedures for Tendering
Only a registered holder of old notes may tender such notes in the
exchange offer. To tender in the exchange offer, a holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the old notes and any other required documents, or cause The Depository Trust
Company to transmit an agent's message in connection with a book-entry transfer,
to the exchange agent prior to 5:00 p.m., New York City time, on the expiration
date. To be tendered effectively, the old notes, the Letter of Transmittal or
agent's message and other required documents must be completed and received by
the exchange agent at the address set forth below under "--Exchange Agent" prior
to 5:00 p.m., New York City time, on the expiration date. Delivery of the old
notes may be made by book entry transfer in accordance with the procedures
described below. Confirmation of such book-entry transfer must be received by
the exchange agent prior to the expiration date.
The term "agent's message" means a message, transmitted by a book-entry
transfer facility to, and received by, the exchange agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the old notes that such participant has
received and agrees:
o to participate in the Automated Tender Option Program ("ATOP");
o to be bound by the terms of the Letter of Transmittal; and
o that we may enforce such agreement against such participant.
By executing the Letter of Transmittal or agent's message, each holder
will make to us the representations set forth above in the fourth paragraph
under the heading "--Purpose and Effect of the Exchange Offer."
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The tender by a holder and the acceptance thereof by us will constitute
agreement between such holder and the company in accordance with the terms and
subject to the conditions set forth herein and in the Letter of Transmittal or
agent's message.
The method of delivery of old notes and the Letter of Transmittal or
agent's message and all other required documents to the exchange agent is at the
election and sole risk of the holder. As an alternative to delivery by mail,
holders may wish to consider overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure delivery to the exchange agent
before the expiration date. No Letter of Transmittal or old notes should be sent
to the company. Holders may request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the above transactions
for such holders.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an eligible institution (as defined below)
unless the notes tendered pursuant thereto are tendered by a registered holder
who has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal, or for the account
of an eligible institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of the Medallion System (an
"eligible institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any old notes listed therein, such notes must be endorsed
or accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such notes with the signature
thereon guaranteed by an eligible institution.
If the Letter of Transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence to our satisfaction of
their authority to so act must be submitted with the Letter of Transmittal.
We understand that the exchange agent will make a request promptly after
the date of this prospectus to establish accounts with respect to the old notes
at the book-entry transfer facility, The Depository Trust Company (the
"book-entry transfer facility"), for the purpose of facilitating the exchange
offer, and subject to the establishment thereof, any financial institution that
is a participant in the book-entry transfer facility's system may make
book-entry delivery of old notes by causing such book-entry transfer facility to
transfer such old notes into the exchange agent's account with respect to the
old notes in accordance with the book-entry transfer facility's procedures for
such transfer. Although delivery of the old notes may be effected through
book-entry transfer into the exchange agent's account at the book-entry transfer
facility, unless an agent's message is transmitted to and received by the
exchange agent in compliance with ATOP on or prior to the expiration date, or,
if the guaranteed delivery procedures described below are complied with, within
the time period provided under such procedures, the tender of such notes will
not be valid. Delivery of documents to the book-entry transfer facility does not
constitute delivery to the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered old notes and withdrawal of tendered old notes
will be determined by us, in our sole discretion, which determination will be
final and binding. We reserve the absolute right to reject any and all old notes
not properly tendered or any old notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the right to waive any
defects, irregularities or conditions of tender as to particular old notes. We
may not waive any condition to the exchange offer unless such condition is
legally waiveable. In the event such a waiver by us gives rise to the legal
requirement to do so, we will hold the exchange offer open for at least five
business days thereafter. Our interpretation of the terms and conditions of the
exchange offer, including the instructions in the Letter of Transmittal, will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of old notes must be cured within such
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time as the we shall determine. Although we intend to notify holders of defects
or irregularities with respect to tenders of old notes, neither the issuers, the
exchange agent nor any other person shall incur any liability for failure to
give such notification. Tender of old notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any old notes
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the exchange agent to the tendering holders, unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the expiration date.
Guaranteed Delivery Procedures
Holders who wish to tender their old notes and whose old notes are not
immediately available, who cannot deliver their old notes, the Letter of
Transmittal or any other required documents to the exchange agent, or who cannot
complete the procedures for book-entry transfer, prior to the expiration date,
may effect a tender if:
(a) the tender is made through an eligible institution;
(b) prior to the expiration date, the exchange agent receives by
facsimile transmission, mail or hand delivery from such eligible
institution a properly completed and duly executed Notice of
Guaranteed Delivery, setting forth the name and address of the
holder, the certificate number(s) of such old notes and the
principal amount of old notes tendered, stating that the tender is
being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the expiration date, the Letter
of Transmittal, or facsimile thereof, or, in the case of a
book-entry transfer, an agent's message, together with the
certificate(s) representing the old notes, or a confirmation of
book-entry transfer of such notes into the exchange agent's
account at the Book- Entry Transfer Facility, and any other
documents required by the Letter of Transmittal will be deposited
by the eligible institution with the exchange agent; and
(c) the certificate(s) representing all tendered old notes in proper
form for transfer, or a confirmation of a book-entry transfer of
such old notes into the exchange agent's account at the book entry
transfer facility, together with a Letter of Transmittal, of
facsimile thereof, properly completed and duly executed, with any
required signature guarantees, or, in the case of a book-entry
transfer, an agent's message, are received by the exchange agent
within three New York Stock Exchange trading days after the
expiration date of the exchange offer.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the expiration date of
the exchange offer.
To withdraw a tender of old notes in the exchange offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received by
the exchange agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the expiration date of the exchange offer. Any such notice of
withdrawal must:
o specify the name of the person having deposited notes to be
withdrawn (the "Depositor");
o identify the notes to be withdrawn, including the certificate
number(s) and principal amount of such notes, or, in the case of
old notes transferred by book-entry transfer, the name and number
of the account at the book entry transfer facility to be credited;
o be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such notes were
tendered, including any required signature guarantees, or be
accompanied by documents of transfer sufficient to have the
trustee with respect to the old notes register the transfer of
such notes into the name of the person withdrawing the tender; and
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o specify the name in which any such old notes are to be registered,
if different from that of the Depositor.
All questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by us and shall be final and binding
on all parties. Any old notes so withdrawn will be deemed not to have been
validly tendered for purposes of the exchange offer and no new notes will be
issued with respect thereto unless the old notes so withdrawn are validly
retendered. Any old notes which have been tendered but which are not accepted
for exchange will be returned to the holder thereof without cost to such holder
as soon as practicable after withdrawal, rejection of tender or termination of
the exchange offer. Properly withdrawn old notes may be retendered by following
one of the procedures described above under "--Procedures for Tendering" at any
time prior to the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, we shall not be
required to accept for exchange, or new notes for, any old notes, and may
terminate or amend the exchange offer as provided herein before the acceptance
of such old notes, if:
o any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the
exchange offer which, in our sole judgment, might materially
impair our ability to proceed with the exchange offer, or any
material adverse development has occurred in any existing action
or proceeding with respect to our company or any of our
subsidiaries; or
o any law, statute, rule, regulation or interpretation by the staff
of the SEC is proposed, adopted or enacted, which, in our sole
judgment, might materially impair our ability to proceed with the
exchange offer or materially impair the contemplated benefits of
the exchange offer; or
o any governmental approval has not been obtained, which approval we
shall, in our sole discretion, deem necessary for the consummation
of the exchange offer as contemplated hereby.
If we determine, in our sole discretion, that any of the conditions are
not satisfied, we may:
o refuse to accept any old notes and return all tendered old notes
to the tendering holders;
o extend the exchange offer and retain all old notes tendered prior
to the expiration of the exchange offer, subject, however, to the
rights of holders to withdraw such old notes as described in
"--Withdrawal of Tenders" above;
o waive such unsatisfied conditions with respect to the exchange
offer and accept all properly tendered old notes which have not
been withdrawn.
Exchange Agent
State Street Bank and Trust Company has been appointed as exchange agent
for the exchange offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the exchange
agent addressed as follows:
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By Mail: Overnight Courier:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
P.O. Box 778 Two International Place
Boston, Massachusetts 02110 Boston, Massachusetts 02110
Attention: Kellie Mullen Attention: Kellie Mullen
By Hand in New York (as Drop Agent): By Hand in Boston:
State Street Bank and Trust Company, N.A. State Street Bank and Trust Company
61 Broadway Two International Place
Concourse Level, Corporate Trust Window Fourth Floor, Corporate Trust Department
New York, New York 10006 Boston, Massachusetts 02110
Attention: Kellie Mullen
Facsimile Transmission: Confirm by Telephone:
(For Eligible Institutions Only) (617) 664-5587
(617) 664-5314
Delivery to an address other than set forth above will not constitute a
valid delivery.
Fees and Expenses
The expenses of soliciting tenders will be borne by us. The principal
solicitation is being made by mail however, additional solicitation may be made
by telegraph, telecopy, telephone or in person by officers and regular employees
of our company and our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers, or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
We will pay the cash expenses to be incurred in connection with the
exchange offer. Such expenses include fees and expenses of the exchange agent
and trustee, accounting and legal fees and printing costs, among others.
Accounting Treatment
The new notes will be recorded at the same carrying value as the old
notes, which is face value, as reflected in our company's accounting records on
the date of exchange. Accordingly, we will recognize no gain or loss for
accounting purposes. The expenses of the exchange offer will be expensed over
the term of the new notes.
Consequences of Failure to Exchange
The old notes that are not exchanged for new notes pursuant to the
exchange offer will remain restricted securities. Accordingly, such old notes
may be resold only:
o to our company, upon redemption thereof or otherwise;
o so long as the old notes are eligible for resale pursuant to Rule
144A under the Securities Act, to a person inside the United
States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A in a
transaction meeting the requirements of Rule 144A, in accordance
with Rule 144 under the Securities Act, or pursuant to another
exemption from
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the registration requirements of the Securities Act, and based
upon an opinion of counsel reasonably acceptable to our company;
o outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act; or
o pursuant to an effective registration statement under the
Securities Act, in each case in accordance with any applicable
securities laws of any state of the United States.
Resale of the New Notes
With respect to resales of new notes, based on interpretations by the
staff of the SEC set forth in no-action letters issued to third parties, we
believe that a holder or other person who receives new notes, whether or not
such person is the holder, other than a person that is an "affiliate" of our
company within the meaning of Rule 405 under the Securities Act, in exchange for
old notes in the ordinary course of business and who is not participating, does
not intend
to participate, and has no arrangement or understanding with any person to
participate, in the distribution of the new notes, will be allowed to resell the
new notes to the public without further registration under the Securities Act
and without delivering to the purchasers of the new notes a prospectus that
satisfies the requirements of Section 10 of the Securities Act. However, if any
holder acquires new notes in the exchange offer for the purpose of distributing
or participating in a distribution of the new notes, such holder cannot rely on
the position of the staff of the SEC enunciated in such no-action letters or any
similar interpretive letters, and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, unless an exemption from registration is otherwise
available. Further, each Participating Broker-Dealer that receives new notes for
its own account in exchange for old notes, where such old notes were acquired by
such Participating Broker-Dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes.
As contemplated by these no-action letters and the Exchange Offer
Registration Rights Agreement, each holder accepting the exchange offer is
required to represent to our company in the Letter of Transmittal that:
o the new notes are to be acquired by the holder or the person
receiving such new notes, whether or not such person is the
holder, in the ordinary course of business;
o the holder or any such other person, other than a broker-dealer
referred to in the next sentence, is not engaging and does not
intend to engage, in the distribution of the new notes;
o the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution
of the new notes;
o neither the holder nor any such other person is an "affiliate" of
our company within the meaning of Rule 405 under the Securities
Act; and
o the holder or any such other person acknowledges that if such
holder or other person participates in the exchange offer for the
purpose of distributing the new notes it must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the new notes and
cannot rely on those no-action letters.
As indicated above, each Participating Broker-Dealer that receives new notes for
its own account in exchange for old notes must acknowledge that it will deliver
a prospectus in connection with any resale of such new notes. For a description
of the procedures for such resales by Participating Broker-Dealers, see "Plan of
Distribution."
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material U.S. federal income tax
aspects of the exchange of old notes for new notes pursuant to the exchange
offer and the ownership and disposition of the new notes. This discussion is for
general information and does not consider all aspects of U.S. federal income
taxation that may be relevant to the purchase, ownership and disposition of the
notes by a prospective investor in light of your personal circumstances. This
discussion also does not address the U.S. federal income tax consequences of
ownership of notes not held as capital assets within the meaning of Section 1221
of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), or the U.S.
federal income tax consequences to investors subject to special treatment under
the U.S. federal income tax laws, such as dealers in securities or foreign
currency, tax-exempt entities, financial institutions, insurance companies,
persons that hold the notes as part of a "straddle," a "hedge" or a "conversion
transaction," persons that have a "functional currency" other than the U.S.
dollar, and investors in pass-through entities. In addition, this discussion
does not describe any tax consequences arising under U.S. federal gift and
estate taxes or out of the tax laws of any state, local or foreign jurisdiction.
This discussion is based upon the Code, existing, temporary and proposed
Treasury regulations issued by the Internal Revenue Service (the "IRS"), and
current administrative rulings and court decisions as of the date of this
Registration Statement. All of the foregoing is subject to change, possibly on a
retroactive basis, and any such change could affect the continuing validity of
this discussion.
Persons considering investing in the notes should consult their own tax
advisors concerning the application of federal income tax laws, as well as the
laws of any state, local or foreign taxing jurisdiction, to their particular
situations.
U.S. Holders
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a new note that is:
o a citizen or resident (as defined in Section 7701(b)(1) of the
Code) of the United States;
o a corporation organized under the laws of the United States or any
U.S. political subdivision (or one treated as a citizen or
resident under the Code);
o an estate, the income of which is subject to U.S. federal income
tax regardless of the source; or
o a trust with respect to which a court within the United States is
able to exercise primary supervision over its administration and
one or more United States persons have the authority to control
all of its substantial decisions (a "U.S. Holder").
Certain U.S. federal income tax consequences relevant to a holder other
than a U.S. Holder are discussed separately below.
New Notes
The exchange of old notes for new notes pursuant to the exchange offer
will not be treated as an "exchange" for federal income tax purposes because the
new notes will not be considered to differ materially in kind or extent from the
old notes. Rather, the new notes received by a Holder will be treated as a
continuation of the old notes in the hands of such Holder. As a result, there
will be no federal income tax consequences to Holders exchanging old notes for
new notes pursuant to the exchange offer.
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Stated Interest
Stated interest on a new note should be taxable to a U.S. Holder as
ordinary interest income at the time it accrues or is received in accordance
with such U.S. Holder's method of accounting for U.S. federal income tax
purposes.
Market Discount
If a new note is acquired at a "market discount," some or all of any gain
realized upon a sale or other disposition or payment at maturity or some or all
of a partial principal payment of such new note may be treated as ordinary
income, as described below. For this purpose, "market discount" is the excess,
if any, of the stated redemption price at maturity of a new note over its
purchase price, subject to a statutory de minimis exception. Unless a U.S.
Holder has elected to include market discount in income as it accrues, any gain
realized on a subsequent disposition of a new note, other than in connection
with certain nonrecognition transactions, or payment at maturity, or some or all
of any partial principal payment with respect to the new note, will be treated
as ordinary income to the extent of the market discount that is treated as
having accrued during the period such U.S. Holder held the new note.
The amount of market discount treated as having accrued will be determined
either:
o on a straight-line basis by multiplying the market discount times
a fraction, the numerator of which is the number of days the new
note was held by the U.S. Holder and the denominator of which is
the total number of days after the date such U.S. Holder acquired
the new note up to and including the date of its maturity; or
o if the U.S. Holder so elects, on a constant interest rate method.
A U.S. Holder may make that election with respect to any new note but,
once made, such election is irrevocable.
In lieu of recharacterizing gain upon disposition as ordinary income to
the extent of accrued market discount at the time of disposition, a U.S. Holder
of a new note acquired at a market discount may elect to include market discount
in income currently, through the use of either the straight-line inclusion
method or the elective constant interest method. Once made, the election to
include market discount in income currently applies to all new notes and other
obligations held by the U.S. Holder that are purchased at a market discount
during the taxable year for which the election is made, and all subsequent
taxable years of the U.S. Holder, unless the Internal Revenue Service (the
"IRS") consents to a revocation of the election. If an election is made to
include market discount in income currently, the basis of the new note in the
hands of the U.S. Holder will be increased by the market discount thereon as it
is included in income. In addition, the U.S. Holder may be required to defer,
until the maturity of the old note or its earlier disposition in a taxable
transaction, the deduction of all or a portion of the interest expense on any
indebtedness incurred (or continued) in order to purchase or carry such old
note.
Unless a U.S. Holder who acquires a new note at a market discount elects
to include market discount in income currently, such U.S. Holder may be required
to defer deductions for any interest paid on indebtedness allocable to such new
notes in an amount not exceeding the deferred income until such income is
realized.
In addition, in President Clinton's Fiscal Year 2000 Budget which was
submitted to Congress on February 1, 1999, a proposal was submitted which would
require holders that use an accrual method of accounting to include market
discount in income (as ordinary interest income) as it accrues. Under this
proposal, the holder's yield for purposes of determining and accruing market
discount would be limited to the greater of (1) the original yield-to-maturity
of the debt instrument plus 5 percentage points, or (2) the applicable federal
rate at the time the holder acquired the debt instrument plus 5 percentage
points. As currently proposed, this proposal would be effective for debt
instruments acquired on or after the date of enactment. As of the date of this
Registration Statement, whether this proposal will be enacted is uncertain.
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Bond Premium
If a U.S. Holder purchases a note and immediately after the purchase the
adjusted basis of the note exceeds the sum of all amounts payable on the
instrument after the purchase date, other than qualified stated interest, the
note has "bond premium." The old notes were issued for an amount in excess of
their principal amount, and thus have "bond premium." A U.S. Holder may elect to
amortize such bond premium over the remaining term of such note or if it results
in a smaller amount of amortizable bond premium, until an earlier call date.
If bond premium is amortized, the amount of interest that must be included
in the U.S. Holder's income for each period ending on an interest payment date
or at the stated maturity, as the case may be, will be reduced by the portion of
premium allocable to such period based on the note's yield to maturity. If such
an election to amortize bond premium is not made, a U.S. Holder must include the
full amount of each interest payment in income in accordance with its regular
method of accounting and will receive a tax benefit from the premium only in
computing such U.S. Holder's gain or loss upon the sale or other disposition or
payment of the principal amount of the new note.
An election to amortize premium will apply to amortizable bond premium on
all notes and other bonds, the interest on which is includible in the U.S.
Holder's gross income, held at the beginning of the U.S. Holder's first taxable
year to which the election applies or that are thereafter acquired and may be
revoked only with the consent of the IRS.
Sale, Exchange or Redemption of the new notes
Upon the disposition of a new note by sale, exchange or redemption, a U.S.
Holder will generally recognize gain or loss equal to the difference between the
amount realized on the disposition, other than amounts attributable to accrued
interest not yet taken into income which will be taxed as ordinary income, and
the U.S. Holder's tax basis in the new note. A U.S. Holder's tax basis in a new
note generally will equal the cost of the new note to the U.S. Holder increased
by amounts includible in income as market discount, if the U.S. Holder elects to
include market discount on a current basis, and reduced by any bond premium
amortized by any U.S. Holder.
Assuming the new note is held as a capital asset, such gain or loss,
except to the extent that the market discount rules otherwise provide, will
generally constitute capital gain or loss and will be long-term capital gain,
which is taxed, in the case of non-corporate taxpayers, at a maximum rate of
20%, or loss if the U.S. Holder has held such new note for longer than 12
months.
Backup Withholding and Information Reporting
Under the Code, a U.S. Holder of a new note may be subject, under certain
circumstances, to information reporting and/or backup withholding at a 31% rate
with respect to cash payments in respect of interest on, or the gross proceeds
from disposition of, a new note. This withholding applies only if a U.S. Holder:
o fails to furnish its social security or other taxpayer
identification number ("TIN") within a reasonable time after a
request therefor;
o furnishes an incorrect TIN;
o fails to report interest or dividends properly; or
o fails, under certain circumstances, to provide a certified
statement, signed under penalty of perjury, that the TIN provided
is its correct number and that it is not subject to backup
withholding.
Any amount withheld from a payment to a U.S. Holder under the backup
withholding rules is allowable as a credit, and may entitle such holder to a
refund, against such Holder's U.S. federal income tax liability, provided that
the required information is furnished to the IRS. Certain persons are exempt
from backup withholding, including
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corporations and financial institutions. Holders of new notes should consult
their tax advisors as to their qualification for exemption from withholding and
the procedure for obtaining such exemption.
Non-U.S. Holders
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a new note that is not a U.S. Holder (a
"Non-U.S. Holder").
This discussion does not address all aspects of U.S. federal income
taxation that may be relevant to the purchase, ownership or disposition of the
new notes by any particular Non-U.S. Holder in light of such Holder's personal
circumstances, including holding the new notes through a partnership. For
example, persons who are partners in foreign partnerships or beneficiaries of
foreign trusts or estates and who are subject to U.S. federal income tax because
of their own status, such as U.S. residence or foreign persons engaged in a
trade or business in the United States, may be subject to U.S. federal income
tax even though the entity is not subject to income tax on disposition of its
new note.
For purposes of the following discussion, interest and gain on the sale,
exchange or other disposition of the new note will be considered "U.S. trade or
business income" if such income or gain is effectively connected with the
conduct of a U.S. trade or business, or in the case of an applicable income tax
treaty between the United States and the country of which the Holder is a
qualified resident, attributable to a U.S. permanent establishment (or to a
fixed base) in the United States.
Stated Interest
Generally, any interest paid to a Non-U.S. Holder of a new note that is
not U.S. trade or business income will not be subject to U.S. federal income tax
if the interest qualifies as "portfolio interest." Interest on the new notes
will qualify as portfolio interest if:
o the Non-U.S. Holder does not actually or constructively own 10% or
more of the total voting power of United Industries corporation,
and is not a "controlled foreign corporation" with respect to
which either of the issuers is a "related person" within the
meaning of Section 881(c)(3)(C) of the Code; and
o the beneficial owner, under penalties of perjury, certifies that
the beneficial owner is not a U.S. person and such certificate
provides the beneficial owner's name and address and such
beneficial owner files the requisite withholding form.
The gross amount of payments to a Non-U.S. Holder of interest that do not
qualify for the portfolio interest exception and that are not U.S. trade or
business income will be subject to U.S. withholding tax at the rate of 30%,
unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S.
trade or business income will be taxed at regular U.S. federal income tax rates
rather than the 30% gross rate. To claim the benefit of a tax treaty or to claim
exemption from withholding because the income is U.S. trade or business income,
the Non-U.S. Holder must provide a properly executed Form 1001 or 4224, or such
successor forms as the IRS designates, as applicable, prior to payment of
interest. These forms must be periodically updated. Under regulations effective
beginning after December 31, 1999, the Forms 1001 and 4224 will be replaced by
Form W-8, and a Non-U.S. Holder who is claiming the benefits of a tax treaty may
be required to obtain a U.S. TIN and to provide certain documentary evidence
issued by foreign governmental authorities to prove residence in the foreign
country.
Sale, Exchange or Redemption of Notes
Subject to the discussion concerning backup withholding, any gain realized
by a Non-U.S. Holder on the sale, exchange or redemption of a new note generally
will not be subject to U.S. federal income tax unless such gain is U.S. trade or
business income, or, subject to certain exceptions, the Non-U.S. Holder is an
individual who holds the new note as a capital asset and is present in the
United States for 183 days or more in the taxable year of the disposition.
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Information Reporting and Backup Withholding
The issuers must report annually to the IRS and to each Non-U.S. Holder
any interest that is subject to U.S. withholding tax or that is exempt from
withholding pursuant to a tax treaty or the portfolio interest exception. Copies
of these information returns may also be made available under the provisions of
a specific treaty or agreement to the tax authorities of the country in which
the Non-U.S. Holder resides.
Backup withholding and information reporting will not apply to payments of
principal on the new notes by the issuers to a Non-U.S. Holder, if the Holder
certifies as to its non-U.S. status under penalties of perjury or otherwise
establishes an exemption, provided that neither the issuers nor their paying
agent has actual knowledge that the Holder is a U.S. Holder or that the
conditions of any other exemption are not, in fact, satisfied.
The payment of the proceeds from the disposition of notes to or through
the U.S. office of any broker, U.S. or foreign, will be subject to information
reporting and possible backup withholding unless the owner certifies as to its
non-U.S. status under penalties of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. Holder or that the conditions of any other exemption are not,
in fact, satisfied. The payment of the proceeds from the disposition of a new
note to or through a non-U.S. office of a U.S. broker that is not a "U.S.
related person" will not be subject to information reporting or backup
withholding. For this purpose, a "U.S. related person" is a "controlled foreign
corporation" for U.S. federal income tax purposes or a foreign person 50% or
more of whose gross income from all sources for the three-year period ending
with the close of its taxable year preceding the payment, or for such part of
the period that the broker has been in existence, is derived from activities
that are effectively connected with the conduct of a U.S. trade or business.
In the case of the payment of proceeds from the disposition of new notes
to or through a non-U.S. office of a broker that is either a U.S. person or a
U.S. related person, the regulations require information reporting on the
payment unless the broker has documentary evidence in its files that the owner
is a Non-U.S. Holder and the broker has no knowledge to the contrary. Backup
withholding will not apply to payments made through foreign offices of a broker
that is a U.S. person or a U.S. related person, absent actual knowledge that the
payee is a U.S. Holder.
Any amounts withheld under the backup withholding rules from a payment to
a Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
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PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives new notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such new notes. This prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with the resale of new notes received
in exchange for new notes where such new notes were acquired as a result of
market-making activities or other trading activities. We have agreed that for a
period of 180 days after the expiration date, we will make this prospectus, as
amended or supplemented, available to any Participating Broker-Dealer for use in
connection with any such resale.
We will not receive any proceeds from any sales of the new notes by
Participating Broker Dealers. new notes received by Participating Broker-Dealers
for their own account pursuant to the exchange offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the new notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such Participating Broker-Dealer and/or the purchasers of any such new notes.
Any Participating Broker-Dealer that resells the new notes that were received by
it for its own account pursuant to the exchange offer and any broker or dealer
that participates in a distribution of such new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of new notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any Participating Broker-Dealer that requests such documents in
the Letter of Transmittal.
LEGAL MATTERS
Certain legal matters in connection with the offering and the sale of the
notes will be passed upon for us by Kirkland & Ellis, Chicago, Illinois.
INDEPENDENT AUDITORS
Our financial statements as of December 31, 1998, and for the year ended
December 31, 1998, included in this prospectus have been audited by
PricewaterhouseCoopers LLP, independent public accountants, as stated in their
report appearing herein. Our financial statements as of December 31, 1996 and
1997, and for each of the years ended December 31, 1996 and 1997, included in
this prospectus have been audited by Rubin, Brown, Gornstein & Co., LLP,
independent public accountants, as stated in their report appearing herein.
AVAILABLE INFORMATION
We are not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934. We have
agreed that, whether or not we are required to do so by the rules and
regulations of the Securities Exchange Commission, for so long as any of the
notes remain outstanding, we will furnish to the holders of the notes and file
with the Securities Exchange Commission, unless the Securities Exchange
Commission will not accept such a filing: (a) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if we were required to file such forms,
including a Management's Discussion and Analysis of Financial Condition and
Results of Operations and, with respect to the annual information only, a report
thereon by our certified independent accountants and (b) all reports that would
be required to be filed with the Commission on Form 8-K if we were required to
file such reports.
-108-
FORWARD-LOOKING STATEMENTS
We make forward-looking statements throughout this prospectus.
Whenever you read a statement that is not simply a statement of historical fact,
such as when we describe what we believe, expect or anticipate will occur, and
other similar statements, you must remember that our expectations may not be
correct, even though we believe they are reasonable. We do not guarantee that
the transactions and events described in this prospectus will happen as
described, or that they will happen at all. You should read this prospectus
completely and with the understanding that actual future results may be
materially different from what we expect. We will not update these forward-
looking statements, even though our situation will change in the future.
-109-
[THIS PAGE INTENTIONALLY LEFT BLANK]
-110-
UNITED INDUSTRIES CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants--PricewaterhouseCoopers LLP...................... F-2
Report of Independent Auditors--Rubin, Brown, Gornstein & Co. LLP.................. F-3
Balance Sheets..................................................................... F-4
Statements of Income............................................................... F-5
Statements of Stockholders' Equity................................................. F-6
Statements of Cash Flows........................................................... F-7
Notes to Financial Statements...................................................... F-8
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
United Industries Corporation
St. Louis, Missouri
In our opinion, the accompanying balance sheet of United Industries
Corporation and the related statements of income, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of United
Industries Corporation at December 31, 1998, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
United's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. The financial statements of
United Industries Corporation for the year ended December 31, 1997 and December
31, 1996 were audited by other independent accountants whose report dated
February 25, 1998 expressed an unqualified opinion on those statements.
/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
February 24, 1999
F-2
REPORT OF INDEPENDENT AUDITORS
Board of Directors
United Industries Corporation
St. Louis, Missouri
We have audited the accompanying balance sheet of United Industries
Corporation, an S Corporation, as of December 31, 1997 and 1996 and the related
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of United's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of United Industries
Corporation as of December 31, 1997 and 1996, and the results of its operations
and cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Rubin, Brown, Gornstein & Co. LLP
February 25, 1998
F-3
UNITED INDUSTRIES CORPORATION
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(Dollars in thousands)
December 31,
---------------------
1997 1998
------- -------
ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 316 $ --
Accounts receivable (less allowance for doubtful accounts of $60 at
December 31, 1997 and 1998) ......................................... 17,526 17,650
Inventories ................................................................... 41,637 41,444
Prepaid expenses............................................................... 1,696 2,172
------- -------
Total current assets ................................................ 61,175 61,266
Equipment and leasehold improvements, net ................................................ 20,022 20,156
Amounts due from affiliated company ...................................................... 3,428 --
Other assets ............................................................................. 7,018 6,948
Investment in discontinued operations..................................................... 5,798 5,791
------- -------
Total assets......................................................... $97,441 $94,161
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt .......................................... $ 1,050 $ 929
Accounts payable .............................................................. 22,090 18,519
Accrued expenses .............................................................. 6,723 12,705
------- -------
Total current liabilities ........................................... 29,863 32,153
Long-term debt ........................................................................... 2,947 3,716
Other liabilities ........................................................................ 182 35
------- -------
Total liabilities ................................................... 32,992 35,904
Stockholders' equity:
Common stock .................................................................. 2 2
Additional paid-in capital .................................................... 972 972
Retained earnings ............................................................. 70,798 70,193
Treasury stock ................................................................ (7,323) (12,910)
------- -------
Total stockholders' equity .......................................... 64,449 58,257
------- -------
Total liabilities and stockholders' equity .......................... $97,441 $94,161
======= =======
The accompanying notes are an integral part of these financial statements.
F-4
UNITED INDUSTRIES CORPORATION
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(Dollars in thousands)
For the years ended December 31,
-----------------------------------------
1996 1997 1998
---------- ---------- ----------
Net sales....................................................................... $ 199,495 $ 242,601 $ 282,676
Operating costs and expenses:
Cost of goods sold................................................... 106,640 128,049 140,445
Advertising and promotion expenses................................... 22,804 25,547 31,719
Selling, general and administrative expenses......................... 46,276 52,092 61,066
Non-recurring litigation charges..................................... -- -- 2,321
---------- ---------- ----------
Total operating costs and expenses......................... 175,720 205,688 235,551
---------- ---------- ----------
Operating income................................................................ 23,775 36,913 47,125
Interest expense................................................................ 1,502 1,267 1,106
---------- ---------- ----------
Income before provision for income taxes and discontinued
operations........................................................... 22,273 35,646 46,019
Income tax expense.............................................................. 447 726 992
---------- ---------- ----------
Income from continuing operations............................................... 21,826 34,920 45,027
Income from discontinued operations, net of tax................................. 2,325 1,923 1,714
---------- ---------- ----------
Net income...................................................................... $ 24,151 $ 36,843 $ 46,741
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-5
UNITED INDUSTRIES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(Dollars in thousands)
Accumulated Class B Non-Voting
Other Common Stock Common Stock
Comprehen- ------------------- ----------------- Additional
sive Paid-In Retained
Income Shares Amount Shares Amount Capital Earnings
----------- -------- -------- -------- ------- ---------- ---------
Balance-January 1, 1996 ...... $-- 1,000 $1 1,000 $1 $913 $45,817
Net income ................... 24,151
Other comprehensive income ...
Distributors paid ............ (17,005)
Treasury stock reissued ...... 59
Treasury stock purchased .....
--------- ------- ----- ------ ----- -------- --------
Balance-December 31, 1996 .... -- 1,000 1 1,000 1 972 52,963
--------- ------- ----- ------ ----- -------- --------
Balance-January 1, 1997 ...... -- 1,000 1 1,000 1 972 52,963
Net income ................... 36,843
Other comprehensive income ...
Distributions paid ........... (19,008)
Treasury stock cost adjustment
--------- ------- ----- ------ ----- -------- --------
Balance-December 31, 1997 .... -- 1,000 1 1,000 1 972 70,798
--------- ------- ----- ------ ----- -------- --------
Balance-January 1, 1998 ...... -- 1,000 1 1,000 1 972 70,798
Net income ................... 46,741
Other comprehensive income ...
Distributions paid ........... (47,346)
Treasury stock purchased .....
Treasury stock cost adjustment
--------- ------- ----- ------ ----- -------- --------
Balance-December 31, 1998 .... $-- 1,000 $1 1,000 $1 $972 $70,193
========= ======= ===== ====== ===== ======== ========
Notes
Treasury Stock Receivable- Total
------------------- Treasury Stock-
Stock holders'
Shares Amount Reissued Equity
-------- -------- ----------- ----------
Balance-January 1, 1996 ...... (135) (169) (699) 45,864
Net income ................... 24,151
Other comprehensive income ...
Distributors paid ............ (17,005)
Treasury stock reissued ...... 43 53 (112)
Treasury stock purchased ..... (308) (6,993) 811 (6,182)
------ ------ ------- --------
Balance-December 31, 1996 .... (400) (7,109) -- 46,828
------ ------ ------- --------
Balance-January 1, 1997 ...... (400) (7,109) -- 46,828
Net income ................... 36,843
Other comprehensive income ...
Distributions paid ........... (19,008)
Treasury stock cost adjustment (214) (214)
------ -------- ------- --------
Balance-December 31, 1997 .... (400) (7,323) -- 64,449
------ -------- ------- --------
Balance-January 1, 1998 ...... (400) (7,323) -- 64,449
Net income ................... 46,741
Other comprehensive income ...
Distributions paid ........... (47,346)
Treasury stock purchased ..... (120) (5,818) (5,818)
Treasury stock cost adjustment 231 231
------ -------- ------- --------
Balance-December 31, 1998 .... $(520) $(12,910) $-- $58,257
====== ======== ======= ========
F-6
UNITED INDUSTRIES CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(Dollars in thousands)
For the years ended
December 31,
--------------------------------
1996 1997 1998
------- ------- -------
Cash flows from operating activities:
Net income................................................................................. $24,151 $36,843 $46,741
Adjustments to reconcile net income to net cash provided by operating
activities:
Income from discontinued operations....................................................... (2,325) (1,923) (1,714)
Depreciation and amortization............................................................. 3,561 3,597 3,838
Loss on sale or disposal of equipment..................................................... 1,411 97 31
Changes in assets and liabilities:
(Increase) in accounts receivable....................................................... (2,560) (5,410) (124)
Decrease (increase) in inventories...................................................... 2,121 (6,608) 193
Decrease (increase) in prepaid expenses................................................. 352 92 (476)
Increase in accounts payable and accrued expenses....................................... 967 8,565 2,411
Other, net............................................................................... 63 (117) (137)
------- ------- -------
Cash flow from continuing operations........................................................ 27,741 35,136 50,763
Cash flow from discontinued operations...................................................... 3,155 1,896 1,858
------- ------- -------
Net cash provided by operating activities............................................. 30,896 37,032 52,621
Cash flows from investing activities:
Payments for acquisition of equipment and leasehold improvements, net..................... (6,384) (5,138) (3,628)
------- ------- -------
Cash used by investing activities--continuing operations..................................... (6,384) (5,138) (3,628)
Cash used by investing activities--discontinued operations................................... (279) (422) (221)
------- ------- -------
Net cash used in investing activities................................................. (6,663) (5,560) (3,849)
Cash flows from financing activities:
Decrease in line of credit, net........................................................... (2,050) (9,250) --
Payments on long-term debt................................................................ (4,900) (927) (3,997)
Purchase of treasury stock................................................................ (1,437) -- (1,173)
Net advances from (to) affiliated company................................................. 1,747 (3,144) 3,428
Distributions paid........................................................................ (17,005) (19,008) (47,346)
------- ------- -------
Net cash used in financing activities................................................. (23,645) (32,329) (49,088)
Net increase (decrease) in cash and cash equivalents........................................ 588 (857) (316)
Cash and cash equivalents--beginning of year................................................ 585 1,173 316
------- ------- -------
Cash and cash equivalents--end of year....................................................... $ 1,173 $ 316 $ --
======= ======= =======
Supplemental disclosure of cash flow information:
Interest paid............................................................................. $ 1,401 $ 1,308 $ 1,584
Income taxes paid......................................................................... $ 465 $ 612 $ 567
Noncash financing activity:
Treasury stock purchased for stockholder notes........................................... $ 4,745 $ -- $ 4,645
Revaluation of treasury stock............................................................ $ -- $ 214 $ (231)
Forgiveness of shareholder note.......................................................... $ 811 $ -- $ --
The accompanying notes are an integral part of these financial statements.
F-7
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
1. Summary of significant accounting policies
Estimates and assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Cash and cash equivalents
United considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, with cost being
determined using the first-in, first-out method. Cost includes raw materials,
direct labor and overhead.
Equipment and leasehold improvements
Expenditures for equipment and leasehold improvements and those which
substantially increase the useful lives of equipment are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. When equipment
is retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts and gains or losses on the
dispositions are reflected in earnings. Depreciation is provided on the
straight-line basis by charges to costs or expenses at rates based on the
estimated useful lives of the assets. Machinery and equipment are depreciated
over periods ranging from three to twelve years. Office furniture and equipment
are depreciated over periods ranging from five to ten years. Automobiles and
trucks are depreciated over periods ranging from three to seven years. Leasehold
improvements are amortized over periods ranging from five to thirty-nine years.
Subsequent to acquisition, United continually evaluates whether later events and
circumstances have occurred that indicate the remaining useful life of equipment
and leasehold improvements may warrant revision or that the remaining balance of
equipment and leasehold improvements may not be recoverable. The measurement of
possible impairment is based on the ability to recover the balance of equipment
and leasehold improvements from expected future operating cash flows on an
undiscounted basis. In the opinion of management, no such impairment existed as
of December 31, 1997 and 1998.
Goodwill
Goodwill is included in other assets and represents the excess of cost
over the net tangible assets of acquired businesses. Goodwill is amortized over
40 years. Subsequent to acquisition, United continually evaluates whether later
events and circumstances have occurred that indicate the remaining useful life
of an intangible asset may warrant revision or that the remaining balance of an
intangible asset may not be recoverable. The measurement of possible impairment
is based on the ability to recover the balance of intangible assets from
expected future operating cash flows on an undiscounted basis. In the opinion of
management, no such impairment existed as of December 31, 1997 and 1998.
F-8
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
Advertising and promotion expenses
The Company advertises and promotes its products through national and
regional media. Products are also advertised and promoted through cooperative
programs with retailers. The Company expenses advertising and promotion costs as
incurred, although costs incurred during interim periods are generally expensed
ratably in relation to revenues.
Research and development
Research and development costs are expensed as incurred and approximated
$427, $592 and $776 for 1996, 1997 and 1998, respectively.
Revenue recognition
The Company recognizes revenue upon shipment of its products. Sales are
net of discounts and allowances.
Comprehensive income
Comprehensive income is defined as the total of net income and all other
non-owner changes in equity (see the accompanying statements of stockholders'
equity). The Company has no other items that affect comprehensive income other
than net income.
Earnings per share
In accordance with generally accepted accounting principles, earnings per
share information is not presented since the Company does not have publicly held
common stock.
Segment information
In 1998, United adopted Statement of Financial Accounting Standards (FAS)
131, Disclosure about Segments of an Enterprise and Related Information. FAS 131
supersedes FAS 14, Financial Reporting for Segments of a Business Enterprise,
replacing the "industry segment" approach with the "management" approach. The
management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as the
source of United's reportable segments. FAS 131 also requires disclosures about
products and services, geographic areas and major customers. The adoption of FAS
131 did not affect results of operations or financial position but did affect
the disclosure of segment information (see Note 17--Segment information).
2. Subsequent event--Recapitalization of United
On January 20, 1999, pursuant to a recapitalization agreement with UIC
Holdings, L.L.C., which is owned by Thomas H. Lee Equity Fund IV, L.P. ("THL
Fund IV" and, together with its affiliates, the "THL Parties"), the Company was
recapitalized in a transaction in which: (a) UIC Holdings, L.L.C. purchased
common stock from the Company's stockholders for approximately $254.7 million;
(b) the Company's senior managers purchased common stock from the Company's
existing stockholders for approximately $5.7 million; and (c) the Company used
the net proceeds of a senior subordinated facility (the "senior subordinated
facility") and borrowings under a senior credit facility (the "senior credit
facility") to redeem a portion of the common stock held by the Company's
existing stockholders. Following the recapitalization, UIC Holdings, L.L.C. owns
approximately 91.9% of the Company's issued and
F-9
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
outstanding common stock, the existing stockholders retain approximately 6.0%
and the Company's senior managers own approximately 2.1%. The total transaction
value of the recapitalization was approximately $652.0 million, including
related fees and expenses, and the implied total equity value following the
recapitalization was approximately $277.0 million. The total consideration paid
to redeem the Company's common stock is subject to both upward and downward
adjustments based on the Company's working capital on the date of the
recapitalization.
The recapitalization was funded by: (a) $225.0 million of borrowings under
a senior credit facility; (b) $150.0 million of borrowings under a senior
subordinated facility; (c) the approximate $254.7 million equity investment by
the THL Parties through UIC Holdings, L.L.C.; (d) the approximate $5.7 million
equity investment by the Company's senior management team; and (e) equity
retained by the Company's existing stockholders having an implied fair market
value of approximately $16.6 million.
The recapitalization will be accounted for as a leveraged recapitalization
which will have no impact on United's historical basis of assets and liabilities
for financial reporting purposes. The effects of the recapitalization have not
been included in these financial statements.
3. Discontinued operations
In connection with the recapitalization of United as described in Note 2
above, United formed a wholly-owned subsidiary DW Wej-it, Inc., a Delaware
corporation ("DW"). All of United's assets and liabilities related to United's
business of manufacturing and marketing construction anchoring fasteners and
providing contract manufacturing services in metals fabrication (which is
collectively referred to as the "Metals Business") were contributed to DW.
Effective January 1, 1999, United distributed all of the shares of capital stock
of DW owned by United to its shareholders.
The Metals Business is accounted for as a discontinued operation in the
accompanying financial statements. The Investment in discontinued operations at
December 31, 1998 and 1997 is primarily comprised of cash, accounts receivable,
inventory, fixed assets, accounts payable and accrued expenses. Operating
results for the Metals Business have been included in the Statements of Income
for 1996, 1997 and 1998.
Results for discontinued operations are as follows:
For the years ended December 31,
-------------------------------------------
1996 1997 1998
--------- --------- --------
Net sales $ 18,242 $ 18,757 $ 18,038
Income before income taxes 2,373 1,963 1,751
Income tax expense 48 40 37
Income from discontinued operations 2,325 1,923 1,714
4. Common stock and stock split
The Company's articles of incorporation previously authorized 20,000
shares of $1.00 par value Class A Voting shares and 20,000 shares of $1.00 par
value Class B Non-Voting shares. At December 31, 1998, 740 Class A Voting shares
and 740 Class B Non-Voting shares were outstanding. At December 31, 1996 and
1997, 800 Class A Voting shares and 800 Class B Non-Voting shares were
outstanding.
F-10
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
On January 20, 1999, United's Board of Directors declared a 83,378.37838
to 1 stock split and increased United's authorized capital to 65 million shares,
of which 32.5 million have been designated as Class A Voting Common Stock and
32.5 million have been designated as Class B Non-Voting Common Stock. As of
January 20, 1999, there were 27.7 million shares of Class A Voting Common Stock
outstanding and 27.7 million shares of Class B Non-Voting Common Stock
outstanding. In conjunction with the stock split, United's board of directors
reduced the par value of both the Class A Voting shares and Class B Non-Voting
shares to $0.01 per share. The effects of the stock split and changes to the
authorized capital of United have not been reflected in the accompanying
financial statements.
5. Inventories
Inventories at December 31, are as follows:
1997 1998
-------- --------
Raw materials............................................... $ 8,253 $ 7,748
Finished good............................................... 33,384 33,696
-------- --------
$ 41,637 $ 41,444
======== ========
6. Equipment and leasehold improvements
Equipment and leasehold improvements at December 31, are as follows:
Machinery and equipment...................................... $ 27,379 $ 30,243
Office furniture and equipment............................... 3,065 3,316
Automobiles and trucks....................................... 322 322
Leasehold improvements....................................... 6,401 6,793
-------- --------
37,167 40,674
Less: Accumulated depreciation and amortization............. 17,145 20,518
-------- --------
$ 20,022 $ 20,156
======== ========
Depreciation charged against income approximated to $3,324, $3,377 and
$3,624 in 1996, 1997 and 1998, respectively.
F-11
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
7. Other assets
Other assets at December 31, are as follows:
1997 1998
------- -------
Goodwill.......................................... $ 7,988 $ 7,988
Accumulated amortization.......................... (1,530) (1,744)
------- -------
6,458 6,244
Other............................................. 560 704
------- -------
$ 7,018 $ 6,948
======= =======
Amortization charged against income for goodwill approximated $237, $220
and $214 in 1996, 1997 and 1998, respectively.
8. Accrued expenses
Accrued expenses at December 31 are as follows:
1997 1998
------- ---------
Cash overdraft $ -- $ 3,148
Litigation accrual -- 2,321
Other 6,723 7,236
------- --------
$ 6,723 $ 12,705
======= ========
9. Long-term debt and credit facilities
Long-term debt at December 31, consists of:
1997 1998
-------- ---------
Former stockholder, unsecured, payable in annual principal installments of $982 plus interest
at the six-month U.S. Treasury Bill rate in effect on the first day of each annual
period......................................................................................... $ 3,997 $ --
Former stockholders, unsecured, payable in annual principal installments of $929 plus
interest at the six-month U.S. Treasury Bill rate in effect on the first day of each
annual period.................................................................................. -- 4,645
Less: current maturities............................................................................ (1,050) (929)
-------- --------
$ 2,947 $ 3,716
======== ========
The long-term debt outstanding at December 31, 1998 was repaid in
conjunction with the recapitalization on January 20, 1999. The fair value of
long-term debt approximates its carrying value.
Prior to the recapitalization, United had available an unsecured seasonal
working capital line of credit with a bank. The agreement provided United with a
maximum $80,000 line of credit. Interest on outstanding borrowings were payable
monthly at a rate not to exceed the bank's LIBOR rate plus 0.75% or the bank's
prime rate less 1.75%. No
F-12
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
borrowings were outstanding at December 31, 1998. This agreement was canceled in
conjunction with the recapitalization.
In conjunction with the recapitalization on January 20, 1999 as discussed
in Note 2, United borrowed $225,000 under the senior credit facility and
$150,000 under the senior subordinated facility.
The senior credit facility was provided by NationsBank, N.A., Morgan
Stanley Senior Funding, Inc. and CIBC Inc. and consists of (a) a $110,000
revolving credit facility (the "revolving credit facility"), under which no
borrowings were outstanding at the closing of the recapitalization; (b) a
$75,000 term loan facility ("Term Loan A"); and (c) a $150,000 term loan
facility ("Term Loan B"). The revolving credit facility and the Term Loan A
mature six years from the closing date of the senior credit facility, and the
Term Loan B matures seven years from the closing date of the senior credit
facility. The revolving credit facility is subject to a clean-down period during
which the aggregate amount outstanding under the revolving credit facility shall
not exceed $10.0 million for 30 consecutive days occurring during the period
between August 1 and November 30 in each calendar year.
The principal amount of the Term Loan A is to be repaid in twenty-three
consecutive quarterly installments commencing June 30, 1999 and a final
installment due January 20, 2005, with $10,000 to be payable in each of the
first four years and $17,500 to be repaid in each of the last two years. The
principal amount of the Term Loan B is to be repaid in twenty-seven consecutive
quarterly installments commencing June 30, 1999 and a final installment due
January 20, 2006, with $1,500 to be payable in each of the first six years and
$141,000 to be payable in year seven.
Interest on the revolving credit facility, Term Loan A and Term Loan B
ranges from 200 to 325 basis points above LIBOR depending on certain financial
ratios. Unused commitments under the revolving credit facility are subject to a
50 basis point annual commitment fee.
Obligations under the senior credit facility are secured by substantially
all of the properties and assets of United and substantially all of the
properties and assets of United's future domestic subsidiaries.
The senior subordinated facility was provided by CIBC Oppenheimer Corp.
and NationsBanc Montgomery Securities LLC. The notes mature in 2009 and bear
interest at 10.5% per annum, which is payable semi-annually in arrears on July
15 and January 15, commencing in 1999. The interest rate on the notes is subject
to increase under certain circumstances.
Aggregate maturities under the senior credit facility (excluding the
revolving credit facility) and the senior subordinated facility are as follows:
1999............................................................. $ 8,625
2000............................................................. 11,500
2001............................................................. 11,500
2002............................................................. 11,500
2003............................................................. 17,125
Thereafter....................................................... 314,750
----------
$ 375,000
==========
F-13
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
10. Treasury stock reissued/purchased
On January 1, 1996, United reissued 42.56 shares of treasury stock in
exchange for a note for $112 from a stockholder. The note bore interest at
8.17%, payable in January of each year. The difference between the reissue price
and the cost of the treasury stock was credited to additional paid-in capital.
On August 15, 1996, United purchased all the outstanding shares covered by
the note discussed above and by previous transactions and related notes. As part
of this treasury stock purchase, the outstanding notes, along with accrued
interest, were credited against the purchase price of the stock.
During 1997, the cost of the treasury stock purchased in 1996 was
revalued, resulting in an increase of $214 in treasury stock and long-term debt.
On January 30, 1998, United purchased 120 shares, which represented all of
the outstanding common stock of three stockholders for cash of $1,173 and
shareholder notes totaling $4,645. In 1998, the treasury stock was revalued,
resulting in a decrease of $231 in treasury stock.
11. Income taxes
The Company had elected "S" corporation status under provisions of the
Internal Revenue Code, and similar provisions of Missouri tax law. As such,
United was not liable for federal or Missouri state income taxes, but rather the
stockholders include their distributive share of the taxable income of United on
their respective income tax returns. The Company was under a contractual
obligation to its stockholders to distribute a percentage of net income equal to
110% of the highest personal income tax rates to provide the stockholders with
funds to make their personal quarterly estimated income tax payments.
The provision for income taxes consists of certain state income taxes
computed at statutory rates in effect.
In conjunction with the recapitalization, United converted to a "C"
corporation and will be subject to federal income tax beginning in 1999.
12. Deferred compensation plans
The Company has a 401(k) savings plan which covers substantially all of
its employees with six months or more continuous service. The 401(k) feature
allows participants to defer a portion of eligible compensation on a
tax-deferred basis. The plan provides for United to match 50% of the voluntary
contribution up to 6% of gross earnings. The matching amount increases to 75%
after ten years of service. The matching contribution amounted to $352, $347 and
$239 for 1996, 1997 and 1998, respectively.
13. Transactions with related parties
The Company occasionally advanced funds or received funds from a company
with common ownership to United. The advances are unsecured and bear interest at
United's borrowing rate. The amounts due from the affiliated company bore
interest at 10.5% per year and were repaid in 1998.
Effective January 1, 1996, United entered into a services agreement with
an affiliated company to provide executive, administrative, acquisition,
bookkeeping, clerical and other services. The fees for these services are to be
F-14
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
determined by mutual agreement within 120 days of year end for the prior year.
The services agreement will remain in place until terminated by either party.
Fees charged under this service agreement were $768, $0 and $0 for 1996, 1997
and 1998, respectively. This agreement was canceled in connection with the
recapitalization.
The Company has guaranteed the debt of an affiliated company. The
guaranteed debt amounted to approximately $5,528 and $4,833 at December 31, 1997
and 1998, respectively. The guarantee of this debt was terminated in connection
with the recapitalization.
See Note 15--Commitments--for a discussion of lease arrangements with a
related party.
14. Concentration of credit risks, exposures and financial instruments
Financial instruments which potentially subject United to concentration of
credit risk consist principally of trade accounts receivable. The Company is
heavily dependent on four customers for a substantial majority of its sales.
These four customers accounted for approximately 64% and 68% of net sales for
1997 and 1998, respectively. At December 31, 1997 and 1998, accounts receivable
from these four customers were 56% and 51%, respectively, of total accounts
receivable. (See Note 17--Segment information for sales to United's four largest
customers.)
The Company performs ongoing credit evaluations of its customers'
financial conditions and generally does not require collateral from its
customers. The Company maintains allowances for potential credit losses, and
such losses have generally been within management's expectations.
Through December 31, 1998, United did not have any significant amounts of
debt outstanding that was sensitive to changes in interest rates. The Company
does not use any derivative financial instruments to hedge its exposure to
interest rate changes. The Company does utilize various commodity and specialty
chemicals in its production process. The Company does not use derivative
commodity instruments to hedge its exposures to changes in commodity prices.
The carrying value of cash and short-term financial instruments
approximates fair value due to the short maturity of those instruments.
15. Commitments
The Company rents one of its facilities from an affiliated company under
an operating lease expiring December 31, 2000 with minimum annual rentals of
$138. The Company has three options to renew the lease for additional five-year
periods. Rent expense amounted to $138 in 1996, 1997 and 1998.
The Company leases the majority of its operating facilities from an
affiliated company under various operating leases expiring December 31, 1999 at
minimum annual rentals of approximately $2,637. The leases also provide that on
an annual basis the monthly rent is adjusted by one-half of the annual change in
the Consumer Price Index percentage. The Company has options to renew the leases
on a year-to-year basis for an additional ten years, beginning January 1, 2000.
The Company also leased an aircraft from this company for $96 per month through
December 1998.
The Company leases a portion of its operating facilities from the same
company under a sublease agreement expiring on December 31, 2005 with minimum
annual rentals ranging from $140 to $368. The Company has two, five-year options
to renew the lease, beginning January 1, 2006. Total rent expense to this
affiliated company amounted to $3,202, $3,528 and $3,575 for 1996, 1997 and
1998, respectively.
F-15
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
The Company is also obligated under other operating leases for use of
warehouse space. The leases expire at various dates through January 31, 2001.
Three of the leases provide as many as three five-year options to renew. Total
rent expense under these lease agreements amounted to $1,233, $654 and $654 for
1996, 1997 and 1998, respectively.
Management believes that the terms and expenses associated with the
related party leases described above are similar to those negotiated by
unrelated parties at arm's length.
The future minimum rental commitments, required under noncancellable
operating leases, are as follows:
Amount
--------------------------------
Year Affiliate Other Total
- ------ --------- ------ --------
1999......................................... $ 2,514 $ 472 $ 2,986
2000......................................... 506 180 686
2001......................................... 416 -- 416
2002......................................... 416 -- 416
2003......................................... 416 -- 416
Thereafter................................... 832 -- 832
-------- ------ --------
$ 5,100 $ 652 $ 5,752
======== ====== ========
16. Contingencies
In March 1998, a judgement was entered against United for a lawsuit filed
in 1992 by the spouse of a former employee claiming benefits from a
Company-owned key man life insurance policy. The Company is currently appealing
this judgment.
In October 1998, the FTC and several state attorneys general filed a suit
against United seeking to enjoin its advertising of Spectracide Terminate as "a
home defense system." The FTC and attorneys general alleged that United had made
deceptive and unsubstantiated claims regarding this product. In February 1999,
the Company negotiated a settlement agreement with the FTC which is currently
being circulated among the parties to the case for signatures, in which United
agrees to modify its advertising and to reimburse the other parties for certain
costs incurred.
Costs related to the two cases described above have been reflected as
non-recurring litigation charges in 1998.
The Company is involved in litigation and arbitration proceedings in the
normal course of business that assert product liability and other claims. The
Company is contesting all such claims. When it appears probable in management's
judgment that United will incur monetary damages or other costs in connection
with such claims and proceedings, and such costs can be reasonably estimated,
appropriate liabilities are recorded in the financial statements and charges are
made against earnings.
Management believes the possibility of a material adverse effect on
United's consolidated financial position, results of operations and cash flows
from the claims and proceedings described above is remote.
F-16
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
17. Segment information
The Company operates in one segment consisting of the manufacturing,
marketing and distribution of lawn and garden care and insect control products
to retail channels principally in the United States. (See Note 3--Discontinued
operations--for a discussion of the spin-off of the Metals Business.) The
Company's product lines include herbicides, household insecticides, insect
repellents and water-soluble fertilizers under a variety of brand names. The
product lines are as follows:
Value brands
o Spectracide--consumer lawn and garden pesticides;
o Hot Shot--household insecticides;
o Cutter--consumer insect repellents; and
o Peters--consumer water-soluble fertilizers.
Opening price point brands
o Real-Kill--opening price point brand at Home Depot;
o No-Pest--opening price point brand at Lowe's; and
o KRid and KGro--exclusive opening price point brand at Kmart.
The Company sells and distributes both its value and opening price point
brands to its four largest customers. Net sales to United's four largest
customers were as follows:
For the years ended
December 31,
----------------------
1997 1998
---------- ---------
Customer A.................................................. 19% 26%
Customer B.................................................. 18% 17%
Customer C.................................................. 10% 14%
Customer D.................................................. 17% 11%
No other customers represented more than 10% of 1997 or 1998 net sales.
F-17
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
18. Unaudited quarterly financial information
Year Ended December 31, 1998
-------------------------------------------------------------------
First Second Third Fourth Total
---------- ----------- ----------- ----------- -----------
Net sales................................................... $ 82,295 $ 126,938 $ 47,952 $ 25,491 $ 282,676
Operating income............................................ 15,525 29,864 4,268 (2,532) 47,125
Income from continuing operations........................... 14,999 28,448 4,273 (2,693) 45,027
Income from discontinued operations, net of tax............. 420 534 424 336 1,714
Net income.................................................. 15,419 28,982 4,697 (2,357) 46,741
Year Ended December 31, 1997
-------------------------------------------------------------------
First Second Third Fourth Total
---------- ----------- ----------- ----------- -----------
Net sales................................................... $ 83,133 $ 100,483 $ 40,187 $ 18,798 $ 242,601
Operating income............................................ 15,968 23,607 2,476 (5,138) 36,913
Income from continuing operations........................... 15,274 22,507 2,168 (5,029) 34,920
Income from discontinued operations, net of tax............. 534 577 436 376 1,923
Net income.................................................. 15,808 23,084 2,604 (4,653) 36,843
F-18
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F-19
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F-20
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F-21
==========================================================================
We have not authorized any dealer, salesperson or other person to give any
information or represent anything to you other than the information contained in
this prospectus. You must not rely on unauthorized information or
representations.
This prospectus does not offer to sell or ask for offers to buy any of the
securities in any jurisdiction where it is unlawful, where the person making the
offer is not qualified to do so, or to any person who can not legally be offered
the securities. The information in this prospectus is current only as of the
date on its cover, and may change after that date. For any time after the cover
date of this prospectus, we do not represent that our affairs are the same as
described or that the information in this prospectus is correct -- nor do we
imply those things by delivering this prospectus or selling securities to you.
-------------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary............................................ 1
Risk Factors................................................. 11
The Transactions............................................. 16
Use of Proceeds.............................................. 17
Capitalization............................................... 18
Unaudited Pro Forma Financial Statements..................... 19
Selected Historical Financial Data........................... 26
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 28
Business..................................................... 32
Management................................................... 43
Certain Transactions......................................... 47
Principal Stockholders....................................... 48
Description of Capital Stock................................. 49
Description of Our Senior Credit Facility.................... 50
Description of the New Notes................................. 52
Exchange Offer............................................... 93
Certain United States Federal Income Tax
Considerations......................................... 102
Plan of Distribution......................................... 108
Legal Matters................................................ 108
Independent Auditors......................................... 108
Available Information........................................ 108
Forward-looking Statements................................... 109
Index to Financial Statements................................ F-1
================================================================================
$150,000,000
United Industries Corporation
[picture]
Offer to Exchange their 9-7/8% Series B
Registered Senior Subordinated Notes
due 2009 for any and all of their
outstanding 9-7/8% Series A Unregistered
Senior Subordinated Notes due 2009
-----------------------
Prospectus
-----------------------
, 1999
================================================================================
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
United is incorporated under the laws of the State of Delaware. Section 145
of the General Corporation Law of the State of Delaware, inter alia ("Section
145") provides that a Delaware corporation may indemnify any persons who were,
are or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses, such as attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he or she reasonably believed to be
or not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his or
her conduct was illegal. A Delaware corporation may indemnify any persons who
are, were or are threatened to be made, party to any threatened, pending or
completed action or suit by or in the right of the corporation by reasons of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses, including attorneys' fees, actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer, director, employee or agent is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him or her against the expenses which such officer or
director has actually and reasonably incurred.
Article V of the By-laws of United ("Article V") provides, among other
things, that any person who, by reason of the fact he is a director or officer
of United, or is or was serving at the request of the United as a director,
officer of United, or is or was serving at the request of United as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, is or was a party, or is threatened to be made a
party, to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, or investigative, shall be indemnified
by United, provided he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of United, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. Such indemnification shall be provided against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in that with respect to an
action or suit by or in the right of United, such indemnification shall be only
against expenses, including attorneys' fees, and in such cases no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to United, unless, and only to the
extent that, the court in which the action or suit was brought determines, upon
application, that despite the adjudication of liability and in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court shall deem proper. To the extent that a
director, officer, employee or agent of United has been successful on the merits
or otherwise in defense of any such action, suit, or proceeding or in defense of
any claim, issue or mater therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the action, suit or proceeding. Any other indemnification hereunder, unless
ordered by a court, is made by United only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth within Article V of United's bylaws. The determination is
made by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the action, suit, or proceeding, or if such a
quorum is not obtainable, or, even if obtainable, if a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or by
the shareholders. The termination of any action, suit, or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, does not, of itself, create a presumption
that the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of United, or, with
respect to any criminal action or proceeding, that he had reasonable cause to
believe that his conduct was unlawful.
Article V further provides that expenses, including attorneys' fees,
incurred in defending a civil or criminal action, suit or proceeding may be paid
by United in advance of the final disposition of the action, suit, or proceeding
as authorized by the Board of Directors in the specific case, upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount unless it ultimately determines that he is entitled to be
indemnified by United as authorized by Article V of United's bylaws.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him or her in any
such capacity, arising out of his or her status as such, whether or not the
corporation would otherwise have the power to indemnify him or her under Section
145.
Article V further provides that United may purchase and maintain insurance
on its behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary or agent of United or is or was serving at the request of
United as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his status as such, whether or not United would have the power to
indemnify such person against such liability under Article V.
Item 21. Exhibits and Financial Statement Schedules.
3.1 Amended and Restated Certificate of Incorporation of the Company,
dated January 13, 1999.
3.2 Certificate of Amendment of the Company, dated January 20, 1999.
3.3 By-laws of the Company.
4.1 Securities Purchase Agreement, dated as of March 19, 1999, among
the Company, CIBC Oppenheimer Corp. and NationsBanc Montgomery
Securities LLC.
4.2 Indenture, dated as of March 24, 1999, between the Company and State
Street Bank and Trust Company as Trustee with respect to the 9-7/8%
Senior Subordinated Notes due 2009 (including the form of 9-7/8%
Senior Subordinated Notes).
4.3 Registration Rights Amendment, dated as of March 24, 1999, among
the Company, CIBC Oppenheimer Corp. and NationsBanc Montgomery
Securities LLC.
5.1 Opinion of Kirkland & Ellis.*
10.1 United Industries Corporation Deferred Compensation Plan.
10.2 Management Agreement, dated as of January 20, 1999, between
the Company and Stephen R. Brian.+
10.3 Management Agreement, dated as of January 20, 1999, between
the Company and Richard A. Bender.+
10.4 Management Agreement, dated as of January 20, 1999, between the
Company and William P. Johnson.+
10.5 Management Agreement, dated as of January 20, 1999, between the
Company and Daniel J. Johnston.+
10.6 Consulting Agreement, dated as of January 20, 1999, between the
Company and David A. Jones.
10.7 United Industries Corporation 1999 Stock Option Plan.
10.8 Stock Option Agreement, dated as of January 20, 1999, between
the Company and Stephen R. Brian.+
10.9 Stock Option Agreement, dated as of January 20, 1999, between the
Company and Richard A. Bender.+
10.10 Stock Option Agreement, dated as of January 20, 1999, between the
Company and William P. Johnson.+
10.11 Stock Option Agreement, dated as of January 20, 1999, between the
Company and Daniel J. Johnston.+
10.12 Stock Option Agreement, dated as of January 20, 1999, between the
Company and David A. Jones.+
10.13 Stockholders Agreement, dated as of January 20, 1999, among the
Company and the Stockholders (as defined therein).+
10.14 Professional Services Agreement, dated as of January 20, 1999,
between THL Equity Advisors IV, L.L.C., Thomas H. Lee Capital,
L.L.C. and the Company.
10.15 Amended and Restated Credit Agreement dated as of March 24, 1999
among the Company, NationsBanc Montgomery Securities LLC, Morgan
Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce,
NationsBank, N.A., the Initial Lenders (as defined therein), the
Swing Line Bank (as defined therein) and the Initial Issuing Bank
(as defined therein).+
10.16 Lease, dated as of December 1, 1995, between Rex Realty Co. and
the Company.+
10.17 Lease, dated as of November 27, 1989, between Rex Realty Co. and
the Company.+
10.18 Agreement and Plan of Reorganization, Purchase and Redemption,
dated as of December 24, 1998, among the Company, the sellers
named therein and UIC Holdings, L.L.C. (the "Recapitalization
Agreement").*
10.19 Amendment No. 1 to the Recapitalization Agreement, dated as of
January 20, 1999.*
10.20 Amendment No. 2 to the Recapitalization Agreement, dated as of
January 25, 1999.*
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Rubin, Brown, Gornstein & Co., LLP.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).*
24.1 Powers of Attorney (included in Part II of the Registration
Statement).*
25.1 Statement of Eligibility of Trustee on Form T-1.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Letter of Notice of Guaranteed Delivery.*
99.3 Form of Tender Instructions.*
- ---------------------
* To be filed by amendment.
+ The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by the
Commission.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore has been omitted.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(c) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuers undertake that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(5) The registrant undertakes that every prospectus (a) that is filed
pursuant to paragraph (1) immediately preceding, or (b) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 20 or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(6) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(7) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(8) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first Class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(9) The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
United Industries Corporation has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in City of
San Diego, State of California, on the 7th day of April, 1999.
UNITED INDUSTRIES CORPORATION
By: /s/ STEPHEN R. BRIAN
--------------------------------------------
Name: Stephen R. Brian
Title: President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stephen R. Brian and Daniel J. Johnston
and each of them, his or her true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their, his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on the 7th day of April, 1999.
Signature Capacity
--------- --------
/s/ STEPHEN R. BRIAN President, Chief Executive Officer and Director of
- -------------------------------------------------------- United (Principal Executive Officer)
Stephen R. Brian
/s/ DANIEL J. JOHNSTON Senior Vice President, Financing and Manufacturing
- -------------------------------------------------------- and Director of United
Daniel J. Johnston
/s/ DAVID A. JONES Director of United
- --------------------------------------------------------
David A. Jones
/s/ C. HUNTER BOLL
- -------------------------------------------------------- Director of United
C. Hunter Boll
/s/ SCOTT A. SCHOEN
- -------------------------------------------------------- Director of United
Scott A. Schoen
/s/ CHARLES A. BRIZIUS
- -------------------------------------------------------- Director of United
Charles A. Brizius
- -------------------------------------------------------- Director of United
David C. Pratt
EXHIBIT INDEX
-------------
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ----------- -----
3.1 Amended and Restated Certificate of Incorporation of the
Company, dated January 13, 1999.
3.2 Certificate of Amendment of the Company, dated
January 20, 1999.
3.3 By-laws of the Company.
4.1 Securities Purchase Agreement, dated as of March 19, 1999,
among the Company, CIBC Oppenheimer Corp. and
NationsBanc Montgomery Securities LLC.
4.2 Indenture, dated as of March 24, 1999, between the Company and
State Street Bank and Trust Company as Trustee with respect to
the 9-7/8% Senior Subordinated Notes due 2009 (including the
form of 9-7/8% Senior Subordinated Notes).
4.3 Registration Rights Agreement, dated as of March 24, 1999,
among the Company, CIBC Oppenheimer Corp. and
NationsBanc Montgomery Securities LLC.*
5.1 Opinion of Kirkland & Ellis.*
10.1 United Industries Corporation Deferred Compensation Plan.
10.2 Management Agreement, dated as of January 20, 1999, between
the Company and Stephen R. Brian.+
10.3 Management Agreement, dated as of January 20, 1999, between
the Company and Richard A. Bender.+
10.4 Management Agreement, dated as of January 20, 1999, between
the Company and William P. Johnson.+
10.5 Management Agreement, dated as of January 20, 1999, between
the Company and Daniel J. Johnston.+
10.6 Consulting Agreement, dated as of January 20, 1999, between
the Company and David A. Jones.
10.7 United Industries Corporation 1999 Stock Option Plan.
10.8 Stock Option Agreement, dated as of January 20, 1999, between
the Company and Stephen R. Brian.+
10.9 Stock Option Agreement, dated as of January 20, 1999, between
the Company and Richard A. Bender.+
10.10 Stock Option Agreement, dated as of January 20, 1999, between
the Company and William P. Johnson.+
10.11 Stock Option Agreement, dated as of January 20, 1999, between
the Company and Daniel J. Johnston.+*
10.12 Stock Option Agreement, dated as of January 20, 1999, between
the Company and David A. Jones.+
10.13 Stockholders Agreement, dated as of January 20, 1999, among
the Company and the Stockholders (as defined therein). +
10.14 Professional Services Agreement, dated as of January 20, 1999,
between THL Equity Advisors IV, L.L.C., Thomas H. Lee Capital,
L.L.C. and the Company.
10.15 Amended and Restated Credit Agreement dated as of March 24,
1999 among the Company, NationsBanc Montgomery Securities LLC,
Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of
Commerce, NationsBank, N.A.., the Initial Lenders (as defined
therein), the Swing Line Bank (as defined therein) and the
Initial Issuing Bank (as defined therein).+
10.16 Lease, dated as of December 1, 1995, between Rex Realty Co.
and the Company.+
10.17 Lease, dated as of November 27, 1989, between Rex Realty Co.
and the Company.+
10.18 Agreement and Plan of Reorganization, Purchase and Redemption,
dated as of December 24, 1998, among the Company, the sellers
named therein and UIC Holdings, L.L.C. (the "Recapitalization
Agreement").*
10.19 Amendment No. 1 to the Recapitalization Agreement, dated as of
January 20, 1999.*
10.20 Amendment No. 2 to the Recapitalization Agreement, dated as of
January 25, 1999.*
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Rubin, Brown, Gornstein & Co., LLP.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).*
24.1 Powers of Attorney (included in Part II of the Registration
Statement).*
25.1 Statement of Eligibility of Trustee on Form T-1.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Letter of Notice of Guaranteed Delivery.*
99.3 Form of Tender Instructions.*
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* To be filed by amendment.
+ The Company agrees to furnish supplementally to the Commission a copy
of any omitted schedule or exhibit to such agreement upon request by
the Commission.