10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

(Mark one)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2005
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission file number: 333-107219

United Components, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	04-3759857
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
14601 Highway 41 North Evansville, Indiana (Address of Principal Executive Offices)	47725 (Zip Code)

Registrant’s telephone number, including area code:

(812) 867-4156

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

None

      Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o          No þ

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes o          No þ

      Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes o          No þ

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer o          Accelerated Filer o          Non-accelerated Filer þ

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes o          No þ

      The Registrant had 1,000 shares outstanding of its $0.01 par value common stock as of March 27, 2006, none of which were held by non-affiliates.

Documents Incorporated by Reference: None

TABLE OF CONTENTS

		Page
Part I
Item 1.	Business	2
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	19
Item 3.	Legal Proceedings	20
Item 4.	Submission of Matters to a Vote of Security Holders	21
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6.	Selected Financial Data	22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	36
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	82
Item 9A.	Controls and Procedures	82
Item 9B.	Other Information	82
Part III
Item 10.	Directors and Executive Officers of the Registrant	82
Item 11.	Executive Compensation	84
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	87
Item 13.	Certain Relationships and Related Transactions	89
Item 14.	Principal Accountant Fees and Services	89
Part IV
Item 15.	Exhibits and Financial Statement Schedules	90
Signatures		95
EX-2.1
EX-21.1
EX-31.1
EX-31.2
EX-32.1

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PART I

ITEM 1. BUSINESS

Overview

      United Components, Inc. (“UCI”, the “Company”, or “we”) was incorporated on April 16, 2003, and on June 20, 2003, we purchased all of our operating units from UIS, Inc., and UIS Industries, Inc. (together “UIS”). For more information regarding the purchase of our operations, see “The Acquisition and Ownership” section, which immediately follows this overview.

      Prior to June 20, 2003, our operations comprised the vehicle parts businesses of UIS. Beginning with the purchase of Airtex in 1958, UIS continued acquisitions in the automotive industry over the following four decades, resulting in the acquisitions of Wells Manufacturing, Champion Laboratories, Neapco, Flexible Lamps and Pioneer. Over the years, UIS achieved growth in these businesses through increased parts offerings and domestic and international expansion.

      We are among North America’s largest and most diversified companies servicing the vehicle replacement parts market, or the aftermarket. We supply a broad range of filtration products, fuel and cooling systems, engine management components, driveline components and lighting systems to the automotive, trucking, marine, mining, construction, agricultural and industrial vehicle markets. We estimate that about 78% of our net sales in 2005 were made in the aftermarket, to a customer base that includes some of the largest and fastest growing companies servicing the aftermarket. We continue to expand our product and service offerings to meet the changing needs of our customers, and we believe that we offer one of the most comprehensive lines of products in the vehicle replacement parts market consisting of approximately 60,000 parts. We believe our breadth of product offering, in combination with our extensive manufacturing and distribution capabilities, product innovation and reputation for quality and service, are responsible for our ongoing leadership position in our market. We have established a network of manufacturing facilities, distribution centers and offices located in the United States, Europe, Mexico and China, with a global work force of approximately 6,200 employees as of December 31, 2005. In 2005, our net sales were $1,008.8 million.

      Unlike many companies that are exclusively or primarily original equipment suppliers, our sales do not necessarily correlate to annual vehicle production. Rather, we believe that the majority of our sales tend to track more closely with the overall growth of the aftermarket. We believe that the aftermarket will continue to grow as a result of increases in the median age of vehicles, total number of miles driven per year by passenger cars, number of vehicles registered in the United States, number of licensed drivers and number of light trucks and sport utility vehicles, which generally require higher priced replacement parts.

      We believe our primary product lines are well positioned in the aftermarket, as our filtration products have relatively short and predictable replacement cycles and our fuel and cooling systems and engine management systems are non-discretionary replacement items. The need for our products increases as cars reach the prime age (six years or older) for aftermarket maintenance. We believe our diversity across products and sales channels is also among the most attractive in the industry, and this diversity allows us to benefit from positive trends impacting different products and sales channels. We have also developed longstanding relationships with our customers through our breadth of product offering, emphasis on customer service, product quality and competitive pricing, as evidenced by the customer awards we have earned over the years.

      Our customer base includes leading aftermarket companies such as Advance Stores Company, Inc. (Advance Auto Parts), Valvoline Company, a division of Ashland Inc. (Valvoline), AutoZone, Inc. (AutoZone), CARQUEST Corporation (CARQUEST), MDSA, Inc. (Mighty) and National Automotive Parts Association, a wholly-owned subsidiary of Genuine Parts Company (NAPA), as well as a diverse group of original equipment manufacturers, or OEMs, such as DaimlerChrysler Corporation (DaimlerChrysler), CNH Global N.V. (Case New Holland), Ford Motor Company, Inc. (Ford), General Motors Corporation (GM), Harley-Davidson, Inc. (Harley-Davidson), Deere & Company (John Deere), Mercury Marine Division of Brunswick Corporation (Mercury Marine), Polaris Industries, Inc. (Polaris), Volkswagen of America, Inc. (Volkswagen) and Volvo Truck Corporation (Volvo).

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The Acquisition and Ownership

      On June 20, 2003, we purchased the vehicle parts businesses of UIS, consisting of all of the issued and outstanding common stock or other equity interests of Champion Laboratories, Inc., Wells Manufacturing Corporation, Neapco Inc., Pioneer, Inc., Wells Manufacturing Canada Limited, UIS Industries Ltd. (which is the owner of 100% of the capital stock of Flexible Lamps, Ltd. and was the owner of Airtex Products Ltd.), Airtex Products S.A., Airtex Products, Inc., (currently Airtex Mfg., Inc.), Talleres Mecanicos Montserrat S.A. de C.V., Brummer Seal de Mexico, S.A. de C.V., Brummer Mexicana en Puebla, S. A. de C.V., Automotive Accessory Co. Ltd and Airtex Products, LLC, predecessors to the entities that now own the assets of the Airtex business. We refer to this transaction as the “Acquisition.”

      The purchase price paid was $808 million, plus transaction fees. The Acquisition was financed through a combination of debt and $260 million in cash contributed to us as equity by our parent, UCI Acquisition Holdings, Inc. through contributions from Carlyle Partners III, L.P. and CP III Coinvestment, L.P. We are a wholly-owned subsidiary of UCI Acquisition Holdings, Inc. We and UCI Acquisition Holdings, Inc. are corporations formed at the direction of The Carlyle Group, which we refer to as Carlyle.

Pending Acquisition of ASC Industries, Inc.

      On March 9, 2006, the Company entered into a definitive agreement under which the Company will acquire all of the capital stock of ASC Industries, Inc. (“ASC”). The purchase price is approximately $155 million at closing, including the assumption of certain debt. The Company may also pay ASC stockholders an additional $4 million in purchase price following the acquisition, based upon the achievement of certain operational objectives. Completion of the transaction is subject to regulatory approval and other customary closing conditions. ASC is a manufacturer and distributor of water pumps, with 2005 revenue of $106 million.

Our Industry

      The North American vehicle parts industry contains numerous participants, few with our diverse product lines. We believe industry participants are increasingly focused on reducing the size of their supply base and, therefore, value suppliers with a diverse offering of quality products, customized service, and consistent and timely delivery of products. Our industry is also characterized by relatively high barriers to entry, which include the need for significant start-up capital expenditures, initial product depth within a product line, distribution infrastructure and long-standing customer relationships.

      The North American vehicle parts industry is comprised of two main sales channels: OEM (Original Equipment Manufacturers) and the automotive aftermarket. While product sales for use by OEMs are one-time sales events, product sales in the aftermarket are of replacement products that are repeatedly purchased. Historically, the largest portion of our net sales has been to the aftermarket portion of the vehicle parts industry. According to the 2005/2006 AAIA Aftermarket Factbook, the U.S. automotive aftermarket (excluding tires) is large and fragmented with an estimated $172 billion of aggregate retail sales in 2004. The aftermarket can be further divided into three sub-channels: Retail, Traditional, and Original Equipment Service. The Retail channel primarily serves the Do-It-Yourself (DIY) market of end-users. The DIY group represented an estimated 20% of industry-wide aftermarket sales in 2004 and consists of consumers who prefer to do various repairs on their vehicles themselves. The Traditional channel primarily serves the Do-It-For-Me (DIFM) market of end-users. The DIFM group is comprised of warehouse distributors, wholesalers, and jobber stores who supply parts to the independent professional installers, repair shops, national installer/quick lube operations, service stations, and automotive dealerships who perform the work for the consumer. In 2004, the DIFM segment represented an estimated 80% of industry-wide aftermarket sales.

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      According to data supplied by the 2005/2006 AAIA Aftermarket Factbook, the automotive aftermarket (excluding tires) had a compound annual growth rate of approximately 4.2% from 1995 through 2004. There are a number of factors that contributed to this growth of aftermarket sales, including:

      Consumers are retaining their cars longer. According to R.L. Polk and Co., the median age for passenger cars has increased 82%, from 4.9 years in 1970 to 9.0 years in 2005. Because of the significant increase in new car sales in the late 1990s, a surge of vehicles entering the prime age for aftermarket maintenance began in 2004.

      Increasing miles driven. The demand for the majority of our products is tied to the regular replacement cycle or the natural wearing cycle of a vehicle part based on actual miles driven. According to the 2005 AASA Automotive Aftermarket Status Report prepared by MEMA (Motor and Equipment Manufacturers Association), annual miles driven in the United States by all types of wheeled vehicles increased every year between 1970 and 2004 with the exception of the three years coinciding with the oil crises of 1974, 1979 and 1980. It also reports that from 1995 to 2004, the total miles driven for passenger cars and light trucks increased by 19.7%, with a compound annual growth rate of 1.8%. We believe this trend is likely to continue.

      Increasing number of registrations. According to R.L. Polk and Co., the number of registered passenger cars and light trucks, or light vehicles, has increased by 27% since 1993. The 2005 Ward’s Automotive Facts and Figures book reports that the number of licensed drivers grew by 12% from 1994 to 2003. According to the 2004/2005 AAIA Aftermarket Factbook, the U.S. light vehicle market achieved the highest total sales on record with 17.4 million cars and light trucks sold in 2000. We believe the buildup in vehicle sales volumes between 1999 and 2002 will also drive the growth in the installed base of older vehicles over the next several years.

      Shifting vehicle mix. The number of light vehicles in use has increased over the past ten years, primarily due to growing consumer interest in pickup trucks and sport utility vehicles, or SUVs. According to data reported in the 2005 Ward’s Automotive Facts and Figures book, from 1995 to 2004, the number of light trucks in use grew annually by 3.1%, compared to a 0.75% annual increase in passenger cars in use during the same period. In 2004, 58% of total light vehicles in operation were passenger cars, down from 64% in 1995. As reported in the 2005/2006 AAIA Factbook, light trucks began outselling passenger cars in 2002. In 2004, light trucks accounted for 53% of all new light vehicle sales. These trends are significant as light truck parts are generally more expensive than the parts for passenger cars.

Our Strategy

      Our strategic objective is to maximize our return on invested capital by using our strong market position, our breadth of product offering and our strong customer relationships to take advantage of the increasing demand for vehicle replacement parts.

      Focus on Operating Efficiency. We have pursued, and will continue to pursue, opportunities to optimize our resources and reduce costs. We continually evaluate our manufacturing footprint and distribution network to identify opportunities for consolidations and other operating efficiencies.

      In 2005, we completed our implementation of a two-year capital investment program at our filtration production operations, which was designed to expand capacity and reduce manufacturing costs by focusing on lean manufacturing techniques and automation. This project consolidated the operations at two facilities and added new, high-speed assembly lines for our filtration manufacturing processes. These investments added significant production capacity and have significantly reduced the labor content involved in assembly, which generated substantial cost savings.

      Another of our strategic initiatives was the consolidation of the manufacturing operations in our fuel and cooling systems business. This project, which was completed in the first half of 2005, reduced the number of manufacturing facilities in this business from five to two. This consolidation is the result of our focus on lean manufacturing techniques and creating available manufacturing space through inventory reduction.

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      In early 2005, we completed the consolidation of our distribution network from 25 facilities to 12. This consolidation simplifies our product flow from manufacture to customer and helps to reduce the amount of duplicate inventory historically stored in multiple locations.

      In the second half of 2005, we re-engineered the production planning process at a major manufacturing location and have made substantial progress doing the same at a second major manufacturing location. With these process improvements we will be able to control labor costs, achieve inventory reductions, and improve product fill rates to our customers.

      Our final strategic operating initiative is the centralization of our procurement activities. Through this initiative we have made significant progress toward using best practices throughout our purchasing process, and we will be able to leverage the buying power of the Company as a whole. We are also reducing the number of suppliers we use and have increased the percentage of our purchases from foreign sources. These changes achieved positive results in our cost of sales in 2005 and 2004. We expect to achieve additional positive results in 2006.

      Capitalize on Favorable Aftermarket Trends. Several trends are likely to affect growth and profitability positively in the aftermarket, including increases in the median age of vehicles, total annual number of light vehicle miles driven, number of vehicles registered in the United States, number of licensed drivers and number of light trucks and sport utility vehicles, which generally require higher priced replacement parts. Because of our breadth and depth of product offerings, diversity of sales channels served and leading market positions, we believe we are well positioned to benefit from this growth in the aftermarket. As such, we are focused on expanding our product lines and solidifying our position as a sole-source provider of aftermarket filtration products, pumps, engine management components and driveline components for many of our customers.

      Expand our Products and Markets Served. We have begun expansion into several fast-growing product lines that we believe offer substantial growth opportunities, such as filtration products for the heavy-duty channel and fuel pump assemblies for the aftermarket. We are also pursuing the growth of our business in the Mexican aftermarket. According to the 2005/2006 AAIA Aftermarket Factbook, Mexico has an increasingly large number of vehicles that are older on average than those in the United States, which we believe will result in an increased demand for replacement products. We currently have three manufacturing facilities in Mexico, and we intend to use the Mexican market as an entry point into Central and South America, where countries including Brazil, Chile, and Venezuela may become targets for selective expansion.

Our Products

      We have an extensive product offering made up of approximately 60,000 parts, which fall into three primary categories: filtration products (oil, air and fuel filters), fuel and cooling systems (fuel pumps, fuel pump assemblies and water pumps), and engine, driveline and lighting systems (engine management components, drive shafts and u-joints, lighting systems and specialty distribution services).

	Percent of Net Sales
Products	2005			2004			2003			Description
Filtration Products		37	%		36	%		36	%	Oil, air, fuel, hydraulic, transmission, cabin air and industrial filters
Fuel and Cooling Systems		30			33			33		Mechanical fuel pumps, electric fuel pumps, fuel pump assemblies and fuel pump strainers, water pumps, water outlets and fan clutches
Engine, Driveline and Lighting Systems		33			31			31		Engine management components, universal joints, driveshafts and components, CV joints and signal lighting equipment
		100	%		100	%		100	%

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Filtration Products

      We are a leading designer and manufacturer of a broad range of filtration products for the automotive, trucking, construction, mining, agriculture and marine industries, as well as other industrial markets. We distribute into both the original equipment manufacturer and the aftermarket channels. Our primary aftermarket competitors include Honeywell Consumer Products Group (FRAM), Bosch/ Mann+Hummel (Purolator), and The Affinia Group (Wix). Our primary heavy duty competitors include Cummins, Donaldson and Clarcor.

      We are one of the leading global manufacturers of private label filter products. Our filtration product offering consists of approximately 4,000 parts and includes oil filters, air filters, fuel filters, transmission filters, cabin air filters, PCV valves, hydraulic filters, fuel dispensing filters and fuel/water separators. Filtration products comprised approximately 37% of UCI’s net sales in 2005. The table below summarizes our filtration products.

Products	Description
Oil Filters	Designed to filter engine oil and withstand operating pressures of 40 to 60 PSI at 250° F to 300° F.
Air Filters	Designed to filter the air that enters the engine combustion chamber.
Fuel Filters	Designed to filter the fuel immediately prior to its injection into the engine.
Other Filters	Includes cabin air filters, transmission filters, hydraulic filters, PCV valves and industrial filters.

Fuel and Cooling Systems

      We design and manufacture a broad range of fuel and cooling systems. Our fuel and cooling systems are distributed to both the OEM and the aftermarket under the Airtex and Master Parts brand names and some private labels. Our primary fuel pump competitor is Federal-Mogul (Carter). Our primary water pump competitors are ASC Industries, Inc. and GMB North America, Inc. The table below summarizes our fuel and cooling system products.

Products	Description
Fuel Pumps	Serve the essential role of moving fuel from the fuel tank into the engine, with approximately 850 fuel pumps for carbureted and fuel-injected applications.
Fuel Pump Assemblies	Provide for easier, and therefore faster, installation and allow the technician to charge a similar fee for a repair that is less time-intensive than replacing an individual fuel pump. We manufacture all three types of in-tank assemblies: hangers, senders and modules with approximately 400 in-tank fuel pump assemblies.
Water Pumps	Serve the essential role of dissipating excess heat from the engine with approximately 1,300 distinct types of water pumps.
Other	Includes fuel pump strainers, fan clutches and water outlets with a selection of approximately 850 other part numbers.

Engine, Driveline and Lighting Systems

      Four of our wholly-owned subsidiaries, Wells Manufacturing, Neapco, Flexible Lamps and Pioneer, supply products that we describe as our engine, driveline and lighting systems. These businesses consist of four broad product lines, which include engine management systems, driveline products, lighting systems and specialty distribution. U.S. sales account for approximately 80% of our engine, driveline and lighting systems revenues, while international sales constitute the remaining 20%. Approximately 85% of the 2005 sales outside of the U.S. were made in Europe, while the balance of the sales were predominantly made in Canada and Mexico.

      We believe that we have one of the industry’s most comprehensive lines of highly engineered engine management system components, commercial lighting systems and driveline components for use in a broad

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range of vehicle platforms. Additionally, our engine, driveline and lighting systems offerings allow us to distribute specialty or “hard-to-find” products to the aftermarket and OEM channels. Primary competitors for engine management products include Standard Motor Products, AC Delco, Delphi, and Bosch. Primary competitors for driveline components include Federal-Mogul (Precision) and GMB. Lighting systems primary competitors are concentrated among a select number of large, multi-product automotive suppliers and several smaller manufacturers that focus primarily on lighting products. Specialty distribution primary competitors include Anchor, ATP and R&B. The following table summarizes our engine, driveline and lighting systems products.

Products	Description
Engine Management Components	Engine management components include distributor caps and rotors, ignition coils, electronic controls, sensors, emissions components, solenoids, switches, voltage regulators and wire sets. These products are primarily used to regulate the ignition, emissions and fuel management functions of the engine and determine vehicle performance. Replacement rates for these products are higher for vehicles that have reached the primary repair age range of 6 to 12 years old. Our product offering in this category consists of approximately 26,000 part numbers.
Driveline Components	These components include universal joints; automotive, agricultural and specialty drive shafts and components; heavy-duty drive shafts and components; CV joints and boot kits and small vehicle CV half shafts. These products are used in vehicles to transfer power or to propel equipment. Replacement rates for these components are more common for vehicles greater than 10 years old. Our product offering in this category consists of approximately 6,000 part numbers.
Lighting Systems	Signal lighting products are used in commercial vehicle applications such as trucks, trailers, agricultural tractors, vans, utility and off-road vehicles, construction machinery, agricultural trailers, horseboxes and buses. Our product offering in this category consists of approximately 2,000 part numbers.
Specialty Distribution	Our specialty distribution business distributes hard-to-find products in categories such as engine, power train, mounts, clutch and clutch bearings and bushings, high performance and shop supplies. Our product offering in this category consists of approximately 21,000 part numbers.

Our Sales Channels and Customers

      Our sales are diversified between the automotive aftermarket (consisting of the retail, traditional, installer, OES, and heavy-duty channels of distribution) and OEM channels, which enables us to capture demand throughout the life cycle of the vehicle. In the early part of a vehicle’s life, the OES channel services a significant percentage of aftermarket vehicle maintenance and repair volume. However, as vehicles age and their warranties expire, consumers increasingly rely on the retail or traditional channels for vehicle maintenance.

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      The following table outlines our 2005 net sales by percentage to each sales channel:

2005 Net Sales By Sales Channel

Retail	30	%
Traditional	19
Installer	8
Heavy-duty Traditional	11
OES	10
Auto OEM	6
RV OEM	3
Truck/ Trailer OEM	9
Other	4
Total net sales	100	%

The Automotive Aftermarket

      We estimate that about 78% of our net sales in 2005 were to the aftermarket, which is subdivided into five primary channels: retail, traditional, installer, heavy duty, and original equipment service.

      The retail channel represented approximately 30% of our net sales in 2005. The retail channel is our largest channel and has historically provided us with a steadily increasing revenue stream. As retailers become increasingly focused on consolidating their supplier base, we believe that our broad product offering, product quality and customer service make us increasingly valuable to these customers. One of our longest standing customers is AutoZone, which we have been supplying since the opening of their first store in 1979. We believe that we are one of the few suppliers in the industry that can provide AutoZone with the levels of quality, customer service and product breadth that AutoZone requires, which is substantiated by our receipt of multiple awards from AutoZone since 1994. Awards from other customers include Automotive Parts Associates Preferred Vendor of the Year 2003, Advance Auto Parts Vendor of the Year 2002, National Pronto Supplier of the Year 2005 & 1998, and CARQUEST Vendor of the Year 2005.

      The traditional distribution channel is composed of established warehouses and represented approximately 19% of our net sales in 2005. The traditional channel is important to us because it is the primary source of products for professional mechanics, or the DIFM market. We have many longstanding relationships with leading customers in the traditional channel, such as CARQUEST and NAPA, for whom we have manufactured products for over 20 years. We believe that our strong position in this channel allows us to capitalize on the growth of the traditional channel within the aftermarket. We believe that professional mechanics place a premium on the quality of a product, and unlike the retailer and installer channels, end users in this channel require manufacturers to provide a high level of individual customer service, including field support and product breadth and depth.

      The installer channel represented approximately 8% of our net sales in 2005 and includes quick lubes, tire dealers and full service gas stations. Almost all of our sales into this channel consist of filtration products, which are supplied to the national and regional service chains through distributors such as Valvoline and Mighty. We believe the installer channel is a growth area for our filtration products, because consumers increasingly prefer to have professionals maintain their vehicles as vehicles become increasingly complex. This channel requires just-in-time availability, ability to meet competitive price points, and product breadth and depth.

      We believe the large and highly fragmented heavy-duty channel, which accounted for approximately 11% of our net sales in 2005, provides us with one of our best opportunities for growth. We believe heavy-duty truck owners tend to be less price-sensitive and more diligent about maintenance of their vehicles than vehicle owners in other markets, as idle vehicles typically represent lost revenue potential for heavy-duty truck owners.

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As a result, we believe that heavy-duty trucks are more likely to have consistent routine maintenance performed with high quality parts. We believe we have developed a well-recognized brand presence in this channel through our Luber-finer brand of filtration products.

      The OES channel is comprised of a diverse mix of dealership service bays in the automotive, truck, motorcycle and watercraft vehicle markets, and represented approximately 10% of our net sales in 2005. In 2005 a substantial majority of our OES net sales were derived from sales of filtration products. Our position in this channel allows us to capitalize on vehicle maintenance in the early years of a vehicle’s life, when the vehicle is under warranty and the consumer typically returns to the dealer for routine maintenance. Our most significant OES channel customers include service parts operations associated with companies such as GM, Ford and DaimlerChrysler.

Original Equipment Manufacturers

      Although the OEM channel comprised less than 20% of our net sales in 2005, it is an important sales channel to us because OEM affiliations have a direct impact on our aftermarket credibility. We believe aftermarket customers show a preference for products that were utilized in original equipment. We sell products to a diverse mix of OEMs, enabling us to capitalize on a number of different opportunities and market shifts. Our OEM products are sold to end users within each of the following categories:

•  Automotive — GM, Ford, DaimlerChrysler, Volkswagen and Mazda

•  Recreational Equipment — Polaris and Onan

•  Heavy-duty Truck — Freightliner, Caterpillar and GM

•  Agriculture — John Deere and Kubota

•  Marine — OMC, Mercury Marine, and Sierra Supply

•  Lawn and Garden — Briggs and Stratton, Kohler and John Deere

•  Motorcycle — Harley-Davidson and Kawasaki

      We have earned a number of awards and certifications for customer service and product quality, including General Motors’ Supplier of the Year award in 1995 and 1996, Ford’s Preferred Quality Award from 1984 through 2003, Caterpillar’s Certified Supplier Award from 1996 to 2002 and John Deere’s Quality Certification Award from 1996 through 2003.

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Customers

      As of December 31, 2005, we distributed our products primarily in North America and Europe to approximately 9,000 customers across several sales channels, including the retail, traditional, installer, and OES aftermarket channels and OEMs of automotive, trucking, agricultural, marine, mining and construction equipment. See Note P to the financial statements included in this Form 10-K for financial information by geographic area. We have maintained longstanding relationships with our customers and have been servicing many for well over a decade. Some of our most significant customers include AutoZone, GM, CARQUEST, Ford, Valvoline and Advance Auto Parts. Sales to AutoZone were approximately 20% and 22% of our total net sales in 2005 and 2004, respectively. Over the last few years, we believe several customers transitioned to us as a result of their need for improved product quality and service. The following table provides a description of the various sales channels to which we supply our products.

Sales Channel	Description	Examples
Retail	Retail stores, including national chains, that sell replacement parts to consumers that do their own vehicle maintenance, referred to as “do-it-yourselfers” or DIY	AutoZone, Advance Auto Parts, CSK, O’Reilly Auto Parts
Traditional	Traditional distribution channel composed of established warehouses that are the primary source of products for professional mechanics, referred to as “do-it-for-me” or DIFM	CARQUEST, NAPA, Federated, Automotive Distribution Network, Aftermarket Auto Parts Alliance
Installer	Supplies the national and regional service chains through distributors, many of which sell products under their own proprietary labels	Valvoline, Mighty, Service Champ, Firestone
OES	Original equipment service market includes service bays at automotive and heavy-duty dealerships serving the aftermarket. Usually set up as a service organization under the original equipment manufacturers, for example the GM Service Parts Organization	Ford, GM
OEM	Original equipment manufacturers consist of the companies that manufacture vehicles	Ford, GM, DaimlerChrysler
Heavy Duty	Products supplied either to OEMs or in the aftermarket for use in class 6, 7 and 8 trucks and other large vehicles	Freightliner, Caterpillar

Sales and Marketing

      We market our products predominantly throughout North America and Europe. To effectively address the requirements of our customers and end users, our sales people are primarily organized by product category and secondarily by sales channel.

      We use both direct sales representatives and independent manufacturers’ representatives to market and sell our products. The number of sales personnel varies within each sales group, ranging from under 10 people in our French sales team for lighting systems to over 100 in our aftermarket sales group for fuel and cooling system products. Each sales group is uniquely qualified to sell their particular products and to focus on the requirements of their particular market. We believe that the market positions we hold with respect to certain of our products are, in part, related to the specialization of our sales groups.

Operations

      Our operational strategy is to pursue operational excellence at all of our locations. This initiative encompasses a lean enterprise strategy, the goals of which include improvement in inventory management,

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customer delivery, plant utilization and cost structure. The foundation for this is lean manufacturing, which targets the elimination of waste from every business process. This involves transforming our manufacturing processes from typical batch systems to single piece flow systems, which will enable us to better match production to customer demand.

      A growing number of our plants continue to make progress in the implementation of lean manufacturing and have received related benefits. We plan to continue to expand and accelerate the use of lean manufacturing across all of our operations. This expansion is being accomplished by applying additional resources, outside consultant support, the sharing of best practices, and the establishment of appropriate metrics and incentives.

      In addition, we will continue to examine each of our logistics and distribution systems with an objective of developing an integrated system that fully meets customer requirements, eliminates redundancies, lowers costs and minimizes inventories and cycle times.

Suppliers and Raw Materials

      We purchase various components and raw materials for use in our manufacturing processes. We also purchase finished parts for resale. In 2005, we sourced purchases from approximately 1,200 suppliers. One of our primary raw materials is steel, for which global demand has been high since early in 2004, resulting in price increases and/or surcharges. While we have been, and expect to continue to be, able to obtain sufficient quantities to satisfy our needs, we have been required to pay significantly higher prices for steel. The other primary raw materials that we use include brass, iron, rubber, resins, plastic, paper and packaging material, each of which is available in sufficient quantities from numerous sources. We have not historically experienced any shortages of these items.

      Historically, each of our product groups has had its own purchasing staff, which makes its purchasing decisions. We have formed a centralized purchasing group, which has begun to facilitate the spread of best practices and will enable us to leverage the buying power of all of UCI. That central group will continue to be supported by a smaller number of product group level purchasing personnel making many of the day-to-day purchasing decisions. We believe that centralized procurement and increased global sourcing represent attractive opportunities to lower the cost of our purchased materials.

Trademarks and Patents

      We rely on a combination of patents, trademarks, copyright and trade secret protection, employee and third-party non-disclosure agreements, license arrangements and domain name registrations to protect our intellectual property. We sell many of our products under a number of registered trademarks, which we believe are widely recognized in the sales channels we serve. No single patent, trademark or trade name is material to our business as a whole.

Employees

      As of December 31, 2005, we had approximately 6,200 employees and several different union affiliations and collective bargaining agreements across our businesses, representing approximately 21% of our workforce. Management considers our labor relations to be good and our labor rates competitive. Since 1984, we have had two minor work stoppages, one a short-term stoppage in April 1997 at one of our smaller plants, which is located in Pottstown, Pennsylvania and the other, a three-day work stoppage at a Fairfield, Illinois plant in August 2004. The 2004 work stoppage did not result in any material change in capacity or operations at the plant or the business as a whole.

Environmental and Health and Safety Matters

      We are subject to a variety of Federal, state, local and foreign environmental laws and regulations, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances or wastes and the cleanup of contaminated sites. Some of our operations require

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environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities. We are also subject to the U.S. Occupational Health and Safety Act and similar state and foreign laws. We believe that we are in substantial compliance with all applicable material laws and regulations in the United States. Historically, our costs of achieving and maintaining compliance with environmental and health and safety requirements have not been material to our operations.

      We have been identified as a potentially responsible party for contamination at two sites. One of these sites is a former facility in Edison, New Jersey, where a state agency has ordered the Company to continue with the monitoring and investigation of chlorinated solvent contamination. The Company has informed the agency that this contamination was caused by another party at a neighboring facility and has initiated a lawsuit against that party for damages and to compel it to take responsibility for any further investigation or remediation. The second site is a previously owned site in Solano County, California, where the Company, at the request of the regional water board, is investigating and analyzing the nature and extent of the contamination and is conducting some remediation. Based on currently available information, management believes that the cost of the ultimate outcome of these environmental matters will not exceed the amounts accrued at December 31, 2005 by a material amount, if at all.

ITEM 1A.      RISK FACTORS

      Prospective investors should carefully consider, among other factors, the material risks described below. Any of the following risks could materially adversely affect our business, financial condition or results of operations.

Our relationship with AutoZone creates risks associated with a concentrated net sales source.

      We generate a large percentage of our sales from our business with AutoZone, but we cannot assure you that AutoZone will continue to purchase from us. Sales to AutoZone accounted for approximately 20% and 22% of our total net sales in fiscal 2005 and 2004, respectively. Several of our competitors are likely to pursue business opportunities with this customer and threaten our current position. If we fail to maintain this relationship, our net sales will be significantly diminished. Even if we maintain our relationship, our net sales concentration as a result of this relationship increases the potential impact to our business that could result from any changes in the economic terms of this relationship. Any change in the terms of our sales to this customer could have a material impact on our financial position and results of operations. Any changes could, for example, result in an increase in the time it takes for us to record net sales and collect on receivables.

If the automotive aftermarket adopts expansive return policies or practices such as extended payment terms or pay-on-scan programs, our cash flow and results of operations could be harmed.

      We are subject to returns from customers, some of which may manage their excess inventory through returns. Arrangements with customers typically include provisions that permit them to return specified levels of their purchases. Returns have historically represented approximately 0.6% of our sales. If returns from our customers significantly increase, our profitability may be adversely affected. In addition, some customers in the automotive aftermarket are pursuing ways to shift their costs of working capital, including extending payment terms and pay-on-scan programs. Under pay-on-scan programs, we would not record a sale until our customer sells our product and our receipt of payment for such sales would typically be delayed for a specified period after the sale was made. If the pay-on-scan program or a similar program is pursued by other customers, we may be asked to participate in such programs with our customers or extend more favorable terms to them. If this were to occur, our net sales and cash flow may be adversely affected.

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Our substantial indebtedness could adversely affect our financial condition by limiting our available cash and our access to additional capital.

      We have a significant amount of indebtedness. As of December 31, 2005, our total indebtedness was $447 million, and we had $67 million unused borrowing capacities under our revolving credit facilities. Our substantial indebtedness could have important consequences for us. For example, it could:

•  increase our vulnerability to general adverse economic and industry conditions;

•  require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes;

•  limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

•  place us at a competitive disadvantage compared to our competitors with less indebtedness; and

•  limit our ability to borrow additional funds.

      In addition, the indenture governing our outstanding senior subordinated notes and our senior credit facilities contain financial and other restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default, which if not cured or waived, could result in the acceleration of all of our indebtedness.

To service our indebtedness, we require a significant amount of cash.

      Our cash interest expense for 2005 was $34.7 million. Our ability to make payments on our indebtedness depends on our ability to generate cash in the future. If we do not generate sufficient cash flow to meet our debt service and working capital requirements, we may need to seek additional financing and we may be unable to obtain financing on terms that are acceptable to us or at all. Without such financing, we could be forced to sell assets to make up for any shortfall in our payment obligations under unfavorable circumstances.

      Our senior credit facilities and our obligations under our outstanding senior subordinated notes limit our ability to sell assets and will also restrict the use of proceeds from any such sale. Furthermore, our senior credit facilities are secured by substantially all of our assets. Therefore, we may not be able to sell our assets quickly enough or for sufficient amounts to enable us to meet our debt service obligations.

Despite our indebtedness levels, we and our subsidiaries may still be able to incur substantially more indebtedness, which would exacerbate the risks associated with our substantial leverage.

      We and our subsidiaries may be able to incur substantial additional indebtedness in the future because the terms of the indenture governing our outstanding senior subordinated notes do not fully prohibit us or our subsidiaries from doing so. At December 31, 2005, there was $67 million of unused borrowing capacity under our existing senior credit facilities that is available to us for additional borrowings. If new indebtedness is added to our and our subsidiaries’ current indebtedness levels, the related risks that we and they face would be magnified. In addition, the indenture governing our outstanding senior subordinated notes does not prevent us from incurring obligations that do not constitute indebtedness.

Restrictive covenants in our senior credit facilities and the indenture governing our outstanding senior subordinated notes may restrict our ability to pursue our business strategies.

      Our senior credit facilities and the indenture governing our outstanding senior subordinated notes limit our ability, among other things, to:

•  incur additional indebtedness or contingent obligations;

•  pay dividends or make distributions to our stockholders;

•  repurchase or redeem our stock;

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•  make investments;

•  grant liens;

•  make capital expenditures;

•  enter into transactions with our parent and its affiliates;

•  sell assets; and

•  acquire the assets of, or merge or consolidate with, other companies.

      In addition, as of the end of any given quarter, our senior credit facilities require us to maintain a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio, covering the previous four quarters, through the term of the senior credit facilities. At December 31, 2005, we were required to maintain a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio of 4.90 to 1 and 2.50 to 1, respectively, for 2005. These ratio requirements change quarterly under the terms of our senior credit facilities. We believe that it is likely we will be able to maintain these required ratios for the foreseeable future. If we default under the senior credit facilities, the lenders under the senior credit facilities could require immediate repayment of the entire principal outstanding under such facilities. Such an acceleration would also trigger a default under the indenture governing our outstanding senior subordinated notes.

Our lean manufacturing and other cost saving plans may not be effective.

      Since our formation, our operations strategy has included goals such as improvement of inventory management and customer delivery, plant and distribution facility consolidation and the integration of back office functions across our businesses. While we have and will continue to implement this strategy, there can be no assurance that we will be able to do so successfully or that these and other cost saving plans will result in reducing our expenses. If we are unable to realize these anticipated cost reductions, our financial health may be adversely affected. Moreover, our continued implementation of cost saving plans and facilities integration may disrupt our operations and performance.

It may be difficult for us to recruit and retain the types of highly-skilled employees we need to remain competitive.

      Our continued success will also depend on our ability to recruit, retain and motivate highly skilled sales, marketing and engineering personnel. Competition for persons in our industry is intense and we may not be able to successfully recruit, train or retain qualified personnel. If we fail to retain and recruit the necessary personnel, our business and our ability to obtain new customers and retain existing customers, develop new products and provide acceptable levels of customer service could suffer. We have entered into employment agreements with certain of our key personnel. However, we cannot assure you that these individuals will stay with us. If any of these persons were to leave our Company, it could be difficult to replace him or her, and our business could be harmed.

We may be subject to work stoppages at our facilities, or our customers may be subjected to work stoppages, either of which could negatively impact the profitability of our business.

      As of December 31, 2005, we had approximately 6,200 employees and we were a party to several different union affiliations and collective bargaining agreements across our businesses, representing approximately 21% of our workforce. We consider our labor relations to be good and labor rates competitive. Other than a three-day work stoppage at a Fairfield, Illinois plant in August 2004 and a short-term stoppage in April 1997 at one of our smaller plants, which is located in Pottstown, Pennsylvania, we have not had a labor stoppage since 1984. Although we believe that our relations with our employees are currently good, if our unionized workers were to engage in a strike, work stoppage or other slowdown in the future, we could experience a significant disruption of our operations, which could interfere with our ability to deliver products on a timely basis and could have other negative effects, such as decreased productivity and increased labor costs. In addition, many

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of our direct and indirect customers have unionized work forces. Strikes, work stoppages or slowdowns experienced by these customers or their other suppliers could result in slowdowns or closings of assembly plants that use our products. Organizations responsible for shipping our products may also be impacted by occasional strikes. Any interruption in the delivery of our products could reduce demand for our products and could have a material adverse effect on us.

We are subject to increasing pricing pressure from import activity, particularly from China.

      Price competition from automotive aftermarket manufacturers particularly based in China and other locations with lower production costs have historically played a role and may play an increasing role in the aftermarket channels in which we compete. Pricing pressures have historically been more prevalent with respect to our filters and water pump products than our other products. While aftermarket manufacturers in these locations have historically competed primarily in markets for less technologically advanced products and manufactured a limited number of products, they are expanding their manufacturing capabilities to produce a broad range of lower cost, higher quality products and provide an expanded product offering. In the future, competitors in Asia may be able to effectively compete in our premium markets and produce a wider range of products, which may force us to move additional manufacturing capacity offshore and/or lower our prices, reducing our margins and/or decreasing our net sales.

As a supplier to the automotive industry, we face certain risks due to the nature of the automotive business.

      As a supplier of automotive products, our sales and our profitability could be negatively impacted by changes in the operations, products, business models, part-sourcing requirements, financial condition, market share or consumer financing and rebate programs of our automotive customers. In addition, demand for our automotive products is linked to consumer demand for automobiles, which may be adversely impacted by the continuing uncertain economic environment.

Increased crude oil and energy prices could reduce global demand for and use of automobiles and increase our costs, which could have an adverse effect on our profitability.

      Material increases in the price of crude oil have, historically, been a contributing factor to the periodic reduction in the global demand for and use of automobiles. A significant increase in the price of crude oil could reduce global demand for and use of automobiles and shift customer demand away from larger cars and light trucks (including SUVs), which we believe have more frequent replacement intervals for our products, which could have an adverse effect on our profitability. Further, as higher gasoline prices result in a reduction in discretionary spending for auto repair by the end users of our products, our results of operations could be impacted.

We could face considerable business and financial risk in implementing our acquisition strategy.

      In order to position ourselves to take advantage of growth opportunities, we intend to consider making strategic acquisitions that involve significant risks and uncertainties. In this regard, we have recently announced that we have entered into a definitive agreement to purchase the capital stock of water pump manufacturer ASC Industries, Inc., subject to regulatory approval and other customary closing conditions. The risks and uncertainties involved in these strategic acquisitions include: (1) the difficulty in integrating newly-acquired businesses and operations in an efficient and effective manner; (2) the challenges in achieving strategic objectives, cost savings and other benefits from acquisitions; (3) the potential loss of key employees of the acquired businesses; (4) the risk of diverting the attention of senior management from our operations; (5) risks associated with integrating financial reporting and internal control systems; (6) difficulties in expanding information technology systems and other business processes to accommodate the acquired businesses; and (7) future impairments of goodwill of an acquired business.

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Environmental regulations may impose significant environmental compliance costs and liabilities on us.

      We are subject to many environmental laws and regulations. Compliance with these laws and regulations is costly. We have incurred and expect to continue to incur significant costs to maintain or achieve compliance with applicable environmental laws and regulations. Moreover, if these environmental laws and regulations become more stringent or more stringently enforced in the future, we could incur additional costs. Our failure to comply with applicable environmental laws and regulations and permit requirements could result in civil or criminal fines, penalties or enforcement actions, third-party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup or regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, including the installation of pollution control equipment or remedial actions.

      Some environmental laws and regulations impose liability for contamination on present and former owners, operators or users of facilities and sites without regard to causation or knowledge of contamination. We have been identified as a potentially responsible party for contamination at two sites, for which management believes it has made adequate reserves. See Item 1. “Business — Environmental and Health and Safety Matters.” In addition, we occasionally evaluate various alternatives with respect to our facilities, including possible dispositions or closings. Investigations undertaken in connection with these activities may lead to discoveries of contamination that must be remediated, and closings of facilities may trigger remediation requirements that are not applicable to operating facilities. We may also face lawsuits brought by third parties that either allege property damage or personal injury as a result of, or seek reimbursement for costs associated with, such contamination.

We could face potential product liability claims relating to products we manufacture or distribute.

      We face a business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in injury or other adverse effects. We currently maintain product liability insurance coverage, but we cannot assure you that we will be able to obtain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome. An unsuccessful product liability defense could have a material adverse effect on our business, financial condition, results of operations or prospects. In addition, our business depends on the strong brand reputation we have developed. In the event that this reputation is damaged, we may face difficulty in maintaining our pricing positions with respect to some of our products, which could negatively impact our net sales and profitability.

Increases in our raw materials costs or the loss of a number of our suppliers could adversely affect our financial health.

      We generally purchase our materials on the open market. However, in certain situations we have found it advantageous to enter into contracts for certain commodities purchases. One of our primary raw materials is steel, for which global demand has been high and for which we have been required to pay significantly higher prices since early in 2004. While we currently maintain alternative sources for steel and other raw materials, our business is subject to the risk of additional price fluctuations and periodic delays in the delivery of certain raw materials, including resins and steel. We cannot assure you that we will be successful in passing on these attendant costs if these risks were to materialize. In addition, if we are unable to continue to purchase our required quantities of raw materials on commercially reasonable terms, or at all, or if we are unable to maintain or enter into purchasing contracts for commodities, our business operations could be disrupted or our profitability could be adversely impacted.

We face competition in our markets.

      We operate in some very competitive markets, and we compete against numerous different types of businesses. In the OEM sales channel, some of our competitors have achieved substantially more market penetration in many of the product lines which we offer. Although we have significant market positions in

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each of our primary lines within the aftermarket, we cannot assure you that we will be able to maintain our current market share. Competition in our business lines is based on a number of considerations, including product performance, quality of client service and support, timely delivery and price. Our customers increasingly demand a broad product range and we must continue to develop our expertise in order to manufacture and market these products successfully. To remain competitive, we will need to invest continuously in manufacturing, working capital, customer service and support, marketing and our distribution networks. We cannot assure you that we will have sufficient resources to continue to make such investments or that we will maintain our competitive position within each of the markets we serve. As a result of competition, we have experienced pricing pressure in some of our businesses. There can be no guarantee that this downward price pressure will not continue, and we may be forced to adjust the prices of some of our products to stay competitive, or not compete at all in some markets, possibly giving rise to revenue loss.

If we are unable to meet future capital requirements, our business may be adversely affected.

      We periodically make capital investments to, among other things, maintain and upgrade our facilities and enhance our production processes. As we grow our businesses, we may have to incur capital expenditures. We believe that we will be able to fund these expenditures through cash flow from operations and borrowings under our senior credit facilities. However, our senior credit facilities contain limitations that could affect our ability to fund our future capital expenditures and other capital requirements. We cannot assure you that we will have, or be able to obtain, adequate funds to make all necessary capital expenditures when required, or that the amount of future capital expenditures will not be materially in excess of our anticipated or current expenditures. If we are unable to make necessary capital expenditures, our product line may become dated, our productivity may be decreased and the quality of our products may be adversely affected, which, in turn, could reduce our net sales and profitability.

The introduction of new and improved products and services poses a potential threat to the aftermarket for automotive parts.

      Improvements in technology and product quality are extending the longevity of automotive parts and delaying aftermarket sales. In particular, in our oil filter business the introduction of oil change indicators and the use of synthetic motor oils may extend oil filter replacement cycles. The introduction of electric, fuel cell and hybrid automobiles may pose a long-term risk to our business because these vehicles are unlikely to utilize many of our primary product lines. The introduction of new and improved service initiatives by OEMs also poses a risk to our market share in the vehicle replacement parts market. In particular, we face market share risk from general automakers, which have introduced increased warranty and maintenance service initiatives, which are gaining popularity. These service initiatives have the potential to decrease the demand on aftermarket sales of our products in the traditional and retail sales channels.

We are subject to risks associated with changing manufacturing techniques, which could place us at a competitive disadvantage.

      The successful implementation of our business strategy requires us to continuously evolve our existing products and introduce new products to meet customers’ needs in the industries we serve and want to serve. Our products are characterized by stringent performance and specification requirements that mandate a high degree of manufacturing and engineering expertise. If we fail to meet these requirements, our business could be at risk. We believe that our customers rigorously evaluate their suppliers on the basis of a number of factors, including:

•  product quality;

•  technical expertise and development capability;

•  new product innovation;

•  reliability and timeliness of delivery;

•  price competitiveness;

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•  product design capability;

•  manufacturing expertise;

•  operational flexibility;

•  customer service; and

•  overall management.

      Our success will depend on our ability to continue to meet our customers’ changing specifications with respect to these criteria. We cannot assure you that we will be able to address technological advances or introduce new products that may be necessary to remain competitive within our businesses. Furthermore, we cannot assure you that we can adequately protect any of our own technological developments to produce a sustainable competitive advantage.

Our international operations are subject to uncertainties that could affect our operating results.

      Our business is subject to certain risks associated with doing business internationally. The net sales of our foreign subsidiaries represented 12% of our total net sales for 2005. In addition, we operate 9 manufacturing facilities outside of the United States. Accordingly, our future results could be harmed by a variety of factors, including:

•  fluctuations in currency exchange rates;

•  geopolitical instability;

•  exchange controls;

•  compliance with U.S. Department of Commerce export controls;

•  tariffs or other trade protection measures and import or export licensing requirements;

•  potentially negative consequences from changes in tax laws;

•  interest rates;

•  unexpected changes in regulatory requirements;

•  differing labor regulations;

•  requirements relating to withholding taxes on remittances and other payments by subsidiaries;

•  restrictions on our ability to own or operate subsidiaries, make investments or acquire new businesses in these jurisdictions;

•  restrictions on our ability to repatriate dividends from our subsidiaries; and

•  exposure to liabilities under the U.S. Foreign Corrupt Practices Act.

      As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. However, any of these factors could adversely affect our international operations and, consequently, our operating results.

Our intellectual property may be misappropriated or subject to claims of infringement.

      We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret protection, as well as licensing agreements and third-party nondisclosure and assignment agreements. We cannot assure you that any of our applications for protection of our intellectual property rights will be approved or that others will not infringe or challenge our intellectual property rights. We also may rely on unpatented proprietary technology. It is possible that our competitors will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect

18

our trade secrets and other proprietary information, we require employees, consultants and advisors to maintain the confidentiality of our trade secrets and proprietary information. We cannot assure you that these measures will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure. If we are unable to maintain the proprietary nature of our technologies, our ability to sustain margins on some or all of our products may be affected, which could reduce our sales and profitability. In addition, from time to time, we pursue and are pursued in potential litigation relating to the protection of certain intellectual property rights, including with respect to some of our more profitable products.

We are controlled by Carlyle, whose interests in our business may be different than yours.

      Carlyle Partners III, L.P. and CP III Coinvestment, L.P., both of which are affiliates of Carlyle, own 98.6% of our parent’s equity and are able to control our affairs in all cases. Our entire board has been designated by the affiliates of Carlyle and a majority of the board is associated with Carlyle. In addition, the affiliates of Carlyle control the appointment of our management, the entering into of mergers, sales of substantially all of our assets and other extraordinary transactions. The interests of Carlyle and its affiliates could conflict with yours. In addition, Carlyle or its affiliates may in the future own businesses that directly compete with ours.

ITEM 1B.      UNRESOLVED STAFF COMMENTS

      Not applicable.

ITEM 2. PROPERTIES

      We currently maintain 23 manufacturing facilities, 18 of which are located in North America and five in Europe. In addition, we maintain 12 distribution and warehouse facilities. Each of the facilities listed below as “owned” and located in the United States is subject to a first priority security interest under our senior credit facilities. Listed below are the locations of our principal manufacturing facilities:

Product		Owned/	Square
Category	Location	Leased	Footage	Products Manufactured
Filtration Products	Albion, Illinois I	Owned	334,241	Spin-on Oil Filters; Heavy-duty Lube Filters; Micro Glass Elements
	Albion, Illinois II	Owned	50,879	Spin-on Oil Filters
	Albion, Illinois III	Owned	49,672	Heavy-duty Lube Units
	Albion, Illinois IV	Owned	101,788	Heavy-duty Air Filters; Radial Air Filters; Automotive Conical and Radial Air Filters; Plastisol Panel Air Filters
	Shelby Township, Michigan	Leased	31,694	Auto Fuel Filters
	West Salem, Illinois	Owned	195,793	Heavy-duty Lube Filters; Spin-on Oil Filters
	York, South Carolina	Owned	187,570	Auto Spin-on Oil Filters
	Saltillo, Mexico	Owned	205,070	Auto Spin-on Oil Filters; Panel Air Filters; Fuel Filters; Elements Lube/ Fuel; Round Air Filters
	Mansfield Park, United Kingdom	Leased	107,116	Radial Seal Air Filters; Poly Panel Air Filters; Heavy-duty Air Filters; Dust Collection Filters

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Product		Owned/	Square
Category	Location	Leased	Footage	Products Manufactured
Fuel and Cooling Systems	Fairfield, Illinois I	Owned	148,067	Plating, Heat Treat and Welding Fuel Pump Components
	Fairfield, Illinois II	Owned	418,811	Electric Fuel Pump Assemblies and Components; Mechanical Fuel Pumps and Components; Water Pump Assemblies Components
	Marked Tree, Arkansas	Owned	287,000	Water Pump Components; Electric and Mechanical Fuel Pump Components; Plastic Moldings; Water Pump Assemblies
	Zaragoza, Spain	Owned	34,408	Water Pump Components; Water Pump Assemblies
	Winnipeg, Canada	Owned	29,838	Electric and Mechanical Fuel Pumps; Electric and Mechanical Fuel Pump Assemblies
	Puebla, Mexico	Owned	118,299	Gray Iron Foundry Castings; Water Pump Seal Assemblies; Water Outlets; Water Pump Assemblies and Components
Engine, Driveline and Lighting Systems	Reynosa, Mexico	Owned	107,500	Coils; Distributor Caps and Rotors; Sensors; Solenoids; Switches and Wire Sets; Automotive Universal Joints; Fuel and Cooling Systems
	Pottstown, Pennsylvania	Owned	215,000	Automotive; Agricultural and Specialty Driveshafts; Heavy-duty Driveshafts and Components; Heavy-duty Universal Joints
	Beatrice, Nebraska	Owned	170,000	CV Joints and Boot Kits; CV Halfshafts; Automotive Universal Joints
	Fond du Lac, Wisconsin I	Owned	187,750	Distributor Caps and Rotors; Components
	Fond du Lac, Wisconsin II	Owned	36,000	Electronic Controls; Sensors; Voltage Regulators
	Essex, United Kingdom I	Owned	75,100	Rubber and Plastic Moldings; Plasma Coated Components; Finished Lamps; Reflectors
	Essex, United Kingdom II	Owned	68,000	Phasa Machinery
	Suffolk, United Kingdom	Owned	40,000	Plastic Moldings; Wiring Harness; Finished Lamps; Junction Boxes; Trailer Connections

ITEM 3. LEGAL PROCEEDINGS

      We are, from time to time, party to various routine legal proceedings arising out of our business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims and workers’ compensation claims. We cannot predict the outcome of these lawsuits, legal proceedings and claims with

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certainty. Nevertheless, we believe that the outcome of any currently existing proceedings, even if determined adversely, would not have a material adverse effect on our business, financial condition and results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted to a vote of security holders during the fourth quarter ended December 31, 2005.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Market Information

      No trading market for our common stock currently exists.

(b) Holders

      As of March 27, 2006, our parent, UCI Acquisition Holdings, Inc. was the sole holder of our common stock.

(c) Dividends

      We did not pay dividends in the period from the date of our incorporation on April 16, 2003 through December 31, 2005 on our common stock. It is our current policy to retain earnings to repay debt and finance our operations. In addition, our credit facility and indenture significantly restrict the payment of dividends on common stock.

(d) Securities Authorized for Issuance under Equity Compensation Plans

      None of our securities are offered under any compensation plans. For a description of the stock option plan granting options for the purchase of securities of our parent, see Item 11. “Executive Compensation.”

(e) Recent Sales of Unregistered Securities

      None.

(f) Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

      Not applicable.

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ITEM 6. SELECTED FINANCIAL DATA

      United Components, Inc. was formed in connection with the Acquisition. The financial statements included in this Annual Report on Form 10-K (“Form 10-K”) are the combined financial statements of the vehicle parts businesses of UIS before the Acquisition and the consolidated financial statements of United Components, Inc. after the Acquisition. The financial data presented below for periods prior to the Acquisition are referred to as “Predecessor Company Combined,” and the financial data for periods after the Acquisition are referred to as “UCI Consolidated.” The selected financial data have been derived from the Company’s financial statements. The financial data as of December 31, 2005 and 2004 and for each of the years in the three-year period ended December 31, 2005 have been derived from the audited financial statements included in this Form 10-K. We derived the balance sheet data as of December 31, 2003, 2002, and 2001 and the statement of income data for the 2002 and 2001 years from audited financial statements that are not included herein. The data for the periods from June 21, 2003 to March 31, 2004 are based on a preliminary allocation of the Acquisition purchase price. Data for periods after March 31, 2004 are based on the final allocation of the Acquisition purchase price.

			UCI Consolidated									Predecessor Company Combined
									June 21,			Jan. 1,
			Year			Year			2003			2003			Year			Year
			Ended			Endedo			through			through			Ended			Ended
			Dec. 31,			Dec. 31,			Dec. 31,			June 20,			Dec. 31,			Dec. 31,
			2005			2004			2003			2003			2002			2001
			(In millions)
Statement of Income Data:
Net sales			$	1,008.8		$	1026.7		$	506.8		$	452.5		$	923.0		$	857.2
Cost of sales				823.9			813.9			433.3			378.2			715.7			679.9
	Gross profit			184.9			212.8			73.5			74.3			207.3			177.3
Operating expenses:
	Selling and warehousing			73.0			72.8			34.2			33.6			67.9			65.4
	General and administrative			47.0			44.0			21.8			18.9			34.5			33.9
	Amortization of acquired intangible assets(1)			5.9			6.8			3.2			0.1			0.7			0.9
	Asset impairments and other costs(2)			21.5			—			—			—			—			—
		Total operating expenses		147.4			123.6			59.2			52.6			103.1			100.2
Operating income				37.5			89.2			14.3			21.7			104.2			77.1
Interest (expense) income, net				(36.5	)		(36.0	)		(26.3	)		1.4			4.3			5.3
Other (expense) income, net				(3.1	)		(1.3	)		(1.0	)		(0.4	)		(0.5	)		0.7
(Loss) income before income taxes				(2.1	)		51.9			(13.0	)		22.7			108.0			83.1
Income taxes (benefits)				2.4			21.1			(4.2	)		0.9			4.4			3.3
Net (loss) income			$	(4.5	)	$	30.8		$	(8.8	)	$	21.8		$	103.6		$	79.8
Pro forma net income, adjusted only for change in tax filing status(3)												$	14.2		$	67.7		$	50.6
Balance Sheet Data:
Cash and cash equivalents			$	26.2		$	11.3		$	46.1					$	28.4		$	19.7
Working capital				311.2			308.0			330.7						373.6			329.7
Total assets				984.8			966.9			969.9						684.5			620.7
Debt (including current maturities)				442.5			458.2			522.3						2.9			1.1
Total shareholder’s equity				280.3			287.9			254.1						568.0			521.5
Other Data:
Net cash provided by operating activities			$	62.8		$	78.4		$	113.5		$	23.9		$	93.7		$	124.7
Net cash used in investing activities				(31.8	)		(50.8	)		(837.9	)		(21.2	)		(45.1	)		(23.3	)
Net cash (used in) provided by financing activities				(15.7	)		(63.0	)		766.0			(28.1	)		(41.0	)		(91.3	)

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(1)	As of January 1, 2002, in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” we stopped amortizing goodwill. If we omitted the amortization of goodwill in 2001, net income would increase by $0.6 million.
(2)	Includes charges related to the impairment of a trademark, a software asset, property and equipment of a foreign subsidiary, and the abandonment of a foreign operation. See Note C to the financial statements included in this Form 10-K.
(3)	Prior to the Acquisition, the subsidiaries of UIS that we acquired operated as S corporations for Federal and state income tax purposes. Consequently, the historical combined financial statements do not include a provision for Federal and certain state income taxes for such periods. A provision for state income taxes has been made for those states not recognizing S corporation status. Pro forma net income has been computed as if we had been fully subject to Federal and state income taxes based on the tax laws in effect during the respective periods. See Notes B and L to the financial statements included in this Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      The following discussion of our financial condition and results of operations must be read together with the “Item 1. Business” section of this Form 10-K.

Overview

      Sales. We are among North America’s largest and most diversified companies servicing the vehicle replacement parts market, or the aftermarket. We supply a broad range of filtration products, fuel and cooling systems, engine management systems, driveline components and lighting systems to the automotive, trucking, marine, mining, construction, agricultural and industrial vehicle markets. We estimate that about 78% of our net sales in 2005 were made in the aftermarket, to a customer base that includes some of the largest and fastest growing companies servicing the aftermarket. As discussed in more detail in Item 1, the aftermarket has grown, and we believe that, while growth rates may vary, it will generally continue to grow. We believe we are well positioned to participate in that growth.

      Because most of our sales are to the aftermarket, we believe that our sales are primarily driven by the number of vehicles on the road, the average age of those vehicles, the average number of miles driven per year, the mix of light trucks to passenger cars and the relative strength of our sales channels. Historically, our sales have not been materially adversely affected by market cyclicality, as we believe that our aftermarket sales are less dependent on economic conditions than our sales to OEMs, due to the non-discretionary nature of vehicle maintenance and repair.

      We believe we have leading market positions in our primary product lines. We continue to expand our product and service offerings to meet the needs of our customers, and we believe that we offer one of the most comprehensive lines of products in the vehicle replacement parts market consisting of approximately 60,000 parts. We believe our breadth of product offering is a key competitive advantage. This product breadth, along with our extensive manufacturing and distribution capabilities, product innovation, and reputation for quality and service, makes us a leader in our markets.

      However, it is also important to note that in 2005, 20% and in 2004, 22% of our total net sales were derived from our business with AutoZone, and our failure to maintain a healthy relationship with AutoZone stores would result in a significant decrease in our net sales. Even if we maintain our relationship, this sales concentration with one customer increases the potential impact to our business that could result from any changes in the economic terms of this relationship. In the first quarter of 2005, we transitioned one product line to an AutoZone program called Pay-on-Scan. Under this program, we retain title to the product at AutoZone locations, and we record sales for the product when an AutoZone customer purchases it. As part of this transition, we bought back an immaterial amount of our products from AutoZone and will resell the product to AutoZone under the Pay-on-Scan program. We do not expect the transition to the Pay-on-Scan program for this product line to have a material impact on our financial condition or results of operations. We

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currently have no agreement to expand the Pay-on-Scan program beyond the single product line. AutoZone may in the future, however, request that we transition additional products to the Pay-on-Scan program. Any such transition or other change in the terms of sale to this customer could result in, among other things, an increase in the time it takes for us to record sales or collect on receivables, which could have a material impact on our financial condition or results of operations. AutoZone has publicly announced its intent to transition a significant percentage of its purchases from suppliers to the Pay-on-Scan program.

      Cost of Sales. Cost of sales includes all costs of manufacturing required to bring a product to a ready-for-sale condition. Such costs include direct and indirect materials (net of vendor consideration), direct and indirect labor costs (including pension, postretirement and other fringe benefits), supplies, utilities, freight, depreciation, insurance, information technology costs and other costs. Cost of sales also includes all costs to procure, package and ship products that we purchase and resell. The two largest components of our cost of sales are labor and steel. Since early in 2004, global demand for steel has been high and has resulted in supplier-imposed price increases and/or surcharges for this raw material. While we have been, and expect to continue to be, able to obtain sufficient quantities to satisfy our needs, we have been required to pay significantly higher prices for the material. The Company has implemented price increases on certain products with high steel content and is considering the implementation of additional price increases on these products. Existing price increases, as well as any future increases, have not been and may not be sufficient to offset all of the steel cost increases. The higher cost of steel, net of UCI price increases, adversely affected pretax income by approximately $3.0 million in 2004, compared to steel prices as of the end of 2003. The higher cost of steel, net of the Company’s price increases, has also resulted in approximately $4.5 million lower pretax income in 2005, compared to 2004. In 2006, the impact of steel costs, net of the Company’s price increases, is forecasted to be comparable to 2005. This forecast is based on assumptions regarding the future cost of steel and the Company’s ability to increase selling prices on products with high steel content. Actual events could vary significantly from the Company’s assumptions. Consequently, the actual effect of higher steel costs could be significantly different than the Company’s forecast.

      Results for 2005, 2004 and 2003 were materially impacted by several one-time cost adjustments. 2003 was also impacted by non-cash Acquisition-related charges. Management believes that a separate presentation of these cost adjustments is important for a balanced comparison of results among years and to understand the future earnings and cash generation potential of the Company. These cost adjustments have been specifically identified in the 2005 vs. 2004 and 2004 vs. 2003 comparisons presented later in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

      Selling and Warehousing Expenses. Selling and warehousing expenses primarily include sales and marketing, warehousing and distribution costs. Our major cost elements include salaries and wages, pension and fringe benefits, depreciation, advertising and information technology costs.

      Management intends to leverage the fixed portion of sales and warehousing as sales increase. Consequently, management thinks that selling and warehousing expense as a percentage of sales is a key measure and is working to reduce this percentage.

      General and Administrative Expenses. General and administrative expenses primarily include executive, accounting and administrative personnel salaries and fringe benefits, professional fees, pension benefits, insurance, provision for doubtful accounts, rent and information technology costs.

Critical Accounting Policies and Estimates

      The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. We evaluate our estimates and judgments on an on-going basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate, and different assumptions or estimates about the future could change our reported results.

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      We believe the following accounting policies are the most critical in that they significantly affect our financial statements, and they require our most significant estimates and complex judgments.

      Inventory. We record inventory at the lower of cost or market. Cost is principally determined using standard cost, which approximates the first-in, first-out (FIFO) method. Estimated market value is based on assumptions for future demand and related pricing. If actual market conditions are less favorable than those projected by management, reductions in the value of inventory may be required.

      Revenue recognition. We record sales when title transfers to the customer. Where we have sales rebate programs with some of our customers, we estimate amounts due under these sales rebate programs when the sales are recorded. Net sales relating to any particular shipment are based upon the amounts invoiced for the shipped goods less estimated future rebate payments. These estimates are based upon our historical experience. Revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.

      Additionally, we enter into agreements with our customers that provide for sales discounts, marketing allowances, return allowances and performance incentives. Any discount, allowance or incentive is treated as a reduction to sales, based on estimates of the criteria that give rise to the discount, allowance, or incentive, such as sales volume and marketing spending. We routinely review these criteria and our estimating process and make adjustments as facts and circumstances change. Historically, we have not found material differences between our estimates and actual results.

      Product Returns. Credits for parts returned under warranty and parts returned because of customer excess quantities are estimated and recorded at the time of the related sales. These estimates are based on historical experience, current trends and other factors. Revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Our customers have the right to, in varying degrees, to return excess quantities of product. Any significant increase in the amount of product returns above historical levels could have a material adverse effect on our financial results.

      In 2005, the Company recorded a change in its estimate of outstanding potential warranty returns. For a description of this estimate change, see Note J to the financial statements included in this Form 10-K and see the discussion of net sales in the 2005 vs. 2004 comparison presented in the Results of Operations section of this Management’s Discussion and Analysis.

      Impairment of intangible assets and tangible fixed assets. Our goodwill and other intangible assets with indefinite lives are held at historical cost. Our other intangibles with finite lives and tangible fixed assets are held at historical cost, net of amortization and depreciation. We periodically evaluate the realizability of our intangible assets. We also perform a review of these intangible assets and tangible fixed assets if an indicator of impairment, such as an operating loss or a significant adverse change in the business or market place, exists. If we determine that the historical carrying value of any of these assets has been impaired, we record the amount of the impairment as a charge against income.

      Tests for impairment involve management’s estimates of future cash flows. Such estimates require numerous assumptions including, but not limited to, assumptions regarding future economic and market conditions, competition, customer relations, pricing, raw material costs, production costs, selling, general and administrative costs, and income and other taxes. These estimates require judgment and are, by their nature, subjective.

      Retirement benefits. Pension obligations are actuarially determined and are affected by assumptions including discount rate, life expectancy, annual compensation increases and the expected rate of return on plan assets. Changes in the discount rate, and differences between actual results and assumptions, will affect the amount of pension expense we recognize in future periods.

      Postretirement health obligations are actuarially determined and are based on assumptions including discount rate, life expectancy and health care cost trends. Changes in the discount rate, and differences between actual results and assumptions, will affect the amount of expense we recognize in future periods. A

25

one percent increase or decrease in the assumed health care cost trends would have resulted in an increase of $45,000 or a decrease of $39,000, respectively, in 2005 postretirement health costs.

      Insurance Reserves. Our insurance for workers’ compensation, automobile, product and general liability include high deductibles for which the Company is responsible. Deductibles for which the Company is responsible are recorded in accrued expenses. Estimates of such losses involve substantial uncertainties including litigation trends, the severity of reported claims, and incurred but not yet reported claims. External actuaries are used to assist us in estimating these losses.

      Environmental Expenditures. Our expenditures for environmental matters fall into two categories. The first category is routine compliance with applicable laws and regulations related to the protection of the environment. The costs of such compliance are based on actual charges and do not require significant estimates.

      The second category of expenditures is for matters related to investigation and remediation of contaminated sites. The impact of this type of expenditure requires significant estimates by management. The estimated cost of the ultimate outcome of these matters is included as a liability in the Company’s December 31, 2005 balance sheet. This estimate is based on all currently available information, including input from outside legal and environmental professionals, and numerous assumptions. Management believes that the ultimate outcome of these matters will not exceed the $2.6 million accrued at December 31, 2005 by a material amount, if at all. However, because all investigation and site analysis has not yet been completed and because of the inherent uncertainty in such environmental matters, there can be no assurance that the ultimate outcome of these matters will not be significantly different than our estimates. (See Note N to the financial statements included in this Form 10-K.)

Pending Acquisition of ASC Industries, Inc.

      On March 9, 2006, the Company entered into a definitive agreement under which the Company will acquire all of the capital stock of ASC Industries, Inc. (“ASC”). The purchase price is approximately $155 million at closing, including the assumption of certain debt. The Company may also pay ASC stockholders an additional $4 million in purchase price following the acquisition, based upon the achievement of certain operational objectives. Completion of the transaction is subject to regulatory approval and other customary closing conditions.

      ASC is a manufacturer and distributor of water pumps, with 2005 revenue of $106 million.

      The Company expects to fund the acquisition with $135 million of additional borrowings. The Company intends to amend the credit agreement related to its existing senior credit facilities to replace the existing term loan with a new term loan, which will provide the additional borrowing capacity. This additional debt will have a significant impact on our interest expense and liquidity.

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Results of Operations

      The following table was derived from the Company’s consolidated and the Predecessor Company’s combined income statements for the years ended December 31, 2005, 2004 and 2003. To enable meaningful comparisons, for 2003, the consolidated results of the Company, after the June 20, 2003 Acquisition, and the combined results of the Predecessor Company, before the June 20, 2003 Acquisition, have been combined in the table below. The amounts are presented in millions of dollars.

				2005			2004			2003
Net sales				$	1,008.8		$	1,026.7		$	959.3
Cost of sales					823.9			813.9			811.6
			Gross profit		184.9			212.8			147.7
Operating expenses
	Selling and warehousing				73.0			72.8			67.8
	General and administrative				47.0			44.0			40.7
	Amortization of intangible assets				5.9			6.8			3.2
	Asset impairments and other costs				21.5			—			—
			Operating income		37.5			89.2			36.0
Other income (expense)
	Interest (expense) income, net				(36.5	)		(36.0	)		(24.9	)
	Management fee expense				(2.0	)		(2.0	)		(1.0	)
	Miscellaneous, net				(1.1	)		0.7			(0.4	)
			(Loss) income before income taxes		(2.1	)		51.9			9.7
		Income tax expense (benefit)			2.4			21.1			(3.3	)
			Net (loss) income	$	(4.5	)	$	30.8		$	13.0
Pro forma net income, adjusted only for change in tax filing status(1)										$	5.4

(1)  Prior to the Acquisition, the subsidiaries of UIS that we acquired operated as S corporations for Federal and state income tax purposes. The historical combined financial statements do not include a provision for Federal and certain state income taxes for such periods. A provision for state income taxes has been made for those states not recognizing S corporation status. Pro forma net income has been computed as if we had been fully subject to Federal and state income taxes based on the tax laws in effect during the respective periods. See Notes B and L to the financial statements included in this Form 10-K.

Year Ended December 31, 2005 Compared with Year Ended December 31, 2004

      Net sales. Net sales decreased $17.9 million, or 1.7%, from $1,026.7 million in 2004 to $1,008.8 million in 2005.

      $14.0 million of the sales reduction was attributable to a change in our estimate of outstanding potential warranty claims. Based on new information, we have revised our estimate of the average periods of time it takes for warranty claims to be received after our sale to our customer. (This time period includes the time our product is in our customer’s possession and the amount of time, after our customer sells to the ultimate consumer, that it takes for the warranty claim to be made.) We currently estimate that there is a significantly longer period of time than previously estimated between the date of sale and the date the related warranty claims are received. This significantly longer period of time translates into a significantly higher estimate of potential warranty claims outstanding. (For more information, see Note J to the financial statements included in this Form 10-K.)

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      Excluding this $14.0 million, the decrease in sales from 2004 to 2005 was $3.9 million. This decrease was volume driven with lower sales to the retail, traditional and OEM channels. Sales to the original equipment service and heavy-duty channels increased.

      Gross Profit. Gross profit, as reported, was $184.9 million for 2005 and $212.8 million for 2004. Both years include several unusual and one-time entries. The following table presents the unusual and one-time entries and a gross profit comparison, after excluding these unusual and one-time entries. The amounts are presented in millions of dollars.

		2005		2004
Gross profit, as reported		$	184.9	$	212.8
Add back one-time or unusual losses:
	Product line relocations, facilities upgrades and consolidations, and severance		2.6		1.7
	Change in estimated warranty reserves		14.0		—
	Change in estimated slow moving/obsolete inventory reserves		—		2.8
	Sale of inventory that was written up to market from historical cost per U.S. GAAP acquisition rules		—		0.5
		$	201.5	$	217.8

      The $14.0 million change in warranty reserves is discussed above. The $2.8 million increase in the reserve for slow moving inventory recorded in 2004 was the result of unsuccessful efforts to sell the slow moving inventory in the fourth quarter of 2004 and the resulting determination that the slow moving inventory was worth less than the recovery amount estimated in 2003.

      Excluding the one-time and unusual losses, gross profit declined to $201.5 million from $217.8 million in 2004, and the gross margin percentage declined to 19.7% in 2005 from 21.2% in 2004. (For purposes of calculating the 2005 gross margin percent, 2005 sales were increased by the $14.0 million change in estimated warranty reserves.)

      Lower sales volume in 2005 contributed to the gross profit decline. The remaining decline in gross profit and reduction in gross margin percentage were primarily due to the higher per-unit cost of manufacturing at lower production volumes, a shift in sales mix and an increase in steel costs, net of pass-through selling price increases. These higher costs were partially offset by lower insurance costs and manufacturing cost reductions. Savings due to improved procurement practices offset inflation-driven wage increases and higher freight, non-steel raw material, and fuel costs caused by higher oil prices and general inflation.

      Selling and warehousing expenses. Selling and warehousing expenses were $73.0 million for 2005, $0.2 million higher than 2004. The cost of the addition of strategic sales personnel and inflation-driven salary increases was offset by cost savings from warehouse consolidations. Selling and warehousing expenses were 7.2% and 7.1% of sales in 2005 and 2004, respectively.

      General and administrative expenses. General and administrative expenses were $47.0 million in 2005, $3.0 million higher than in 2004. The increase was primarily due to the Company’s continuing investment in processes and management talent necessary to drive improvements in future operations and to inflation-driven salary increases. These increases were partially offset by lower bonus expense and lower employee-related insurance. General and administrative expenses were 4.7% and 4.3% of sales in 2005 and 2004, respectively.

      Asset impairments and other costs. See Note C to the financial statements included in this Form 10-K.

      Interest (expense) income, net. Net interest expense increased $0.5 million from $36.0 million in 2004 to $36.5 million in 2005. The 2005 and 2004 amounts included $0.2 million and $1.0 million, respectively, of accelerated amortization of deferred financing costs associated with the voluntary prepayments of $15 million of debt in 2005 and $65 million of debt in 2004. The 2004 amount included $0.6 million of interest capitalization related to a large 2004 capital project. Excluding the accelerated amortization and interest

28

capitalization, there was a $0.7 million increase of interest expense, which was attributable to higher interest rates in 2005, partially offset by lower debt levels.

      Income tax expense (benefit). Because of pretax loss in 2005 versus pretax income in 2004, income tax expense is significantly lower in 2005. Despite a consolidated pretax loss, we have a 2005 tax expense. The primary reasons for this are (i) not recognizing tax benefit on foreign tax credit carryforwards, (ii) not recognizing tax benefit on foreign operating losses that resulted in tax loss carryforwards, and (iii) not recognizing tax benefit on the $2.8 million loss on abandonment and sale of Airtex UK. (See Note C to the financial statements included in this Form 10-K.) Tax benefit was not recognized on these three items because realization is not probable.

      Net (loss) income. Due to the factors described above, we reported a net loss of $4.5 million in 2005, compared to net income of $30.8 million in 2004.

Year Ended December 31, 2004 Compared with Year Ended December 31, 2003

      Net sales. Net sales increased $67.4 million, or 7.0%, from $959.3 million in 2003 to $1,026.7 million in 2004. The increase was primarily volume driven, with increases in all market channels.

      Gross Profit. Cost of sales was $813.9 million in 2004 compared to $811.6 million in 2003. The 2004 amount included costs associated with the higher 2004 sales volume. The 2004 and 2003 amounts included one-time cost adjustments of $4.5 million and $21.0 million, respectively. Also, both years were adversely affected by non-cash Acquisition-related charges, which totaled $4.9 million in 2004 and $32.0 million in 2003.

      The one-time adjustments in 2004 included a $2.8 million write-down of slow moving inventory that, based on sales efforts in the fourth quarter of 2004, was estimated to be worth less than the recovery amount estimated in 2003. The 2004 one-time adjustments also included $1.7 million of expenses related to product line relocations and facility consolidations. The $21.0 million one-time adjustments in 2003 included inventory valuation adjustments of $12.6 million; provisions for environmental issues of $4.6 million; and provisions of $3.8 million for patent disputes, product line relocations, costs relating to the upgrade of the Albion, Illinois manufacturing facility, and costs associated with the consolidation of our European filtration manufacturing operations.

      The non-cash Acquisition-related charges included costs of $0.5 million in 2004 and $27.5 million in 2003 due to the sale of inventory that was written-up above cost to market value as part of the allocation of the Acquisition purchase price; and higher depreciation expense of $4.4 million in 2004 and $4.5 million in 2003 resulting from the Acquisition-related step-up of property, plant and equipment. The higher depreciation expense will continue in the long term. All of the additional cost of selling the written-up inventory on hand at the Acquisition date was realized by the end of the first quarter of 2004.

      Excluding the one-time items and the non-recurring Acquisition-related inventory charges from both years, gross profit for 2004 would have been $217.8 million, or 21.2% of sales, and for 2003 would have been $196.3 million, or 20.5% of sales. The 2004 improvement in gross margin was attained despite the adverse effect of significantly higher steel costs. While the Company was largely successful in raising the selling prices of parts with high steel content, the net effect of increased steel costs, offset by selling price increases, adversely affected the 2004 gross margin percentage by 0.3 of a percentage point. Excluding this net adverse affect, the 2004 gross margin would have been 21.5%, which is 1.0 percentage point better that the 2003 gross margin. This improvement is due to gains in manufacturing efficiencies, increased sales volume, savings due to improved procurement of materials and reduced insurance costs.

      Selling and warehousing expenses. Selling and warehousing expenses were $72.8 million for 2004 and $67.8 million for 2003. In both years, this cost was 7.1% of sales.

      General and administrative expenses. General and administrative expenses for 2004 were $44.0 million compared to $40.7 million in 2003. The 2003 amount included $1.2 million higher bad debt expense and $1.5 million of unusual costs incurred in connection with the transition to a new, more strategically focused

29

stand-alone company after the Acquisition. Excluding these two costs from the 2003 amount, 2004 expense increased $6.0 million over the 2003 level. This increase is due to basic costs associated with being a stand-alone company, which began in 2003, and the Company’s investment in processes and management talent necessary to drive improvements in future operational efficiencies.

      Interest (expense) income, net. Net interest expense increased from $24.9 million in 2003 to $36.0 million in 2004. Both years incurred expense for the accelerated write-off of deferred financing costs due to voluntary prepayments of debt. In 2004, this cost was $1.0 million, and in 2003 it was $1.6 million. In 2003, there was a $2.6 million one-time cost of a bridge loan commitment fee incurred in connection with the Acquisition. In 2003, $0.6 million of fees were incurred in conjunction with a renegotiation of our senior credit facility. In 2003, there was $1.4 million of interest income on loans to the Predecessor Company’s previous owner, which were canceled in connection with the Acquisition. In 2004, capitalized interest of $0.6 million was $0.5 million higher than in 2003. The rest of the 2004 versus 2003 increase in net interest expense is $14.0 million of interest on Acquisition-related debt. This $14 million increase is due to the debt being outstanding for a full year in 2004 versus a partial year in 2003, partially offset by lower debt levels in 2004 due to voluntary prepayments.

      Income tax expense (benefit). The change in income tax expense is a result of changes in pre-tax income plus the effects of the Company’s transition from S corporation filing status before the Acquisition to C corporation filing status after the Acquisition.

      Net (loss) income. Due to the factors described above, net income increased $17.8 million from $13.0 million in 2003 to $30.8 million in 2004.

Liquidity and Capital Resources

      At December 31, 2005 and 2004, the Company had $26.2 million and $11.3 million of cash, respectively. Outstanding debt at December 31, 2005 and 2004, was $442.5 million and $458.2 million, respectively, as follows (in millions):

	December 31,
	2005			2004
Notes payable	$	0.3		$	0.8
Capitalized leases		—			0.3
Revolving credit facility		—			0.5
Term loan		217.0			232.0
Senior subordinated notes		230.0			230.0
Debt issuance costs		(4.8	)		(5.4	)
	$	442.5		$	458.2

      In June 2005, the Company made a voluntary prepayment of $15 million of term loan borrowings. Because of this and previous voluntary prepayments of $65 million in 2004, the Company does not have any required repayments of its senior credit facility term loans until December 2007. The $0.3 million of notes payable is routine short-term borrowings by our foreign operations. The Company’s $230 million senior

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subordinated notes are due in 2013. Below is a schedule of future debt payments as of December 31, 2005. The amounts are presented in millions of dollars.

2006	$	0.3
2007		0.6
2008		2.2
2009		107.7
2010		106.5
Thereafter		230.0
	$	447.3

      On June 16, 2005, the Company entered into an amendment to the senior credit facility which permits the Company to repurchase from time to time up to $75 million in aggregate principal amount of senior subordinated notes. As of March 27, 2006, the Company had not repurchased any of the senior subordinated notes, although it may, under appropriate market conditions, do so in the future.

      The Company’s significant debt service obligation is an important factor when assessing the Company’s liquidity and capital resources. At the December 31, 2005 debt level, annual interest expense, including amortization of deferred financing costs and debt issuance costs, is approximately $38.4 million at December 31, 2005 borrowing rates. An increase of 0.25% on our variable interest rate debt would increase the annual interest cost by $0.3 million. The Company’s significant debt service obligation could, under certain circumstances, have a material adverse effect on results of operations and cash flow.

      Our primary source of liquidity is cash flow from operations and borrowings under our $75 million revolving credit facility. Borrowings under the revolving credit facility are available to fund the Company’s working capital requirements, capital expenditures and other general corporate purposes. In 2005, capital expenditures were $32.2 million and in 2006, the Company expects capital expenditures to be between $32 million and $35 million. At December 31, 2005, $8.0 million of revolving credit borrowing capacity had been used to support outstanding letters of credit. This resulted in $67.0 million of unused borrowing capacity at December 31, 2005.

      Our ability to make scheduled payments of principal or interest on, or to refinance, our indebtedness or to fund planned capital expenditures will depend on our ability to generate cash in the future. Such cash generation is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

      Based on the current level of operations, the Company believes that cash flow from operations and available cash, together with available borrowings under its revolving credit facility, will be adequate to service debt, meet liquidity needs and fund planned capital expenditures for the next two years. For later years, the Company can give no assurance that its business will generate sufficient cash flow from operations, or that future borrowings will be available under its revolving credit facility in an amount sufficient to enable it to service its indebtedness or to fund other liquidity needs. Also, in the future, we may need to refinance all or a portion of the principal amount of the senior subordinated notes and/or senior credit facility borrowings, on or prior to maturity. If refinancing is necessary, there can be no assurance that we will be able to secure such financing on acceptable terms, or at all.

      The Company’s credit agreement for its senior credit facility permits sales of and liens on receivables, which are being sold pursuant to factoring arrangements, subject to certain limitations. We intend to factor our receivables when it is economically beneficial to do so. We have established a factoring relationship with one of our customers, which has resulted in the sales of approximately $22 million of receivables during 2005 of which $6 million would otherwise have been outstanding at December 31, 2005. As the opportunities arise, we will evaluate other factoring arrangements, which if implemented, would increase the amount of receivables sold in the future.

31

      Net cash provided by operating activities. Net cash provided by operating activities for the year ended December 31, 2005 was $62.8 million. Profits, before deducting depreciation and amortization and before deducting non-cash impairments and asset write-downs of an abandoned operation, generated $56.3 million of cash. Increased trade receivables resulted in a $23.1 million use of cash. Higher sales in the fourth quarter of 2005 compared to the fourth quarter of 2004 was the primary reason for the increase. Normal timing of collections and selective extensions of customer payment terms also contributed to the increase. At times payment terms are extended for special promotional sales and at times as part of comprehensive long-term sales agreements. The trade receivables use of cash was offset by cash generated from $4.3 million of inventory reductions and a $19.9 million increase in accounts payable. The increase in payables was due to extending payment timeframes with our suppliers, as well as the timing of disbursements. We continually work to extend vendor payment terms as a means of reducing our cash requirements for working capital. Changes in all other assets and liabilities netted to a $5.4 million positive effect on cash.

      Net cash used in investing activities. Historically, net cash used in investing activities has been for capital expenditures, offset by proceeds from the disposition of property, plant and equipment. Capital expenditures for the year ended December 31, 2005 and 2004 were $32.2 million and $44.8 million, respectively. Approximately $2.2 million and $12.5 million, respectively, of the 2005 and 2004 capital expenditures were related to the long-term capital investment plan to increase capacity and reduce cost at our filtration facilities. The 2005 and 2004 amounts also included $11.6 million and $7.6 million, respectively, for the implementation of a new, fully integrated information technology system that has been partially implemented at certain domestic operations. The new information system is designed to support financial reporting and operations.

Impact of the Acquisition and Related Financing Transactions

      The Company incurred significant indebtedness in connection with the Acquisition. Accordingly, our interest expense is higher than it was prior to the Acquisition. As a result of the Acquisition, our assets and liabilities were adjusted to their estimated fair values as of the closing of the Acquisition. The excess of the total purchase price over the value of our net assets at closing of the Acquisition was allocated to goodwill and other intangible assets. These long-lived assets are subject to annual impairment review. See Note B to the financial statements included in this Form 10-K for information regarding the allocation of the Acquisition purchase price and the impact of the Acquisition and the financing thereof.

Contractual Obligations

      The following table is a summary of contractual cash obligations (excluding interest) at December 31, 2005 (in millions):

	Payments Due by Period
	Less Than						More Than
	1 Year		1-3 Years		3-5 Years		5 Years		Total
Short-term borrowings	$	0.3	$	—	$	—	$	—	$	0.3
Long-term debt		—		2.8		214.2		230.0		447.0
Estimated pension funding(1)		12.1		28.0		24.9		—		65.0
Other postretirement benefit payments(2)		0.4		0.8		1.0		—		2.2
Operating leases		3.2		4.8		3.5		6.9		18.4
Purchase obligations(3)		79.6		0.2		—		—		79.8
Management fee(4)		2.0		4.0		4.0		—		10.0
Employment agreements		0.8		—		—		—		0.8
Total contractual cash obligations	$	98.4	$	40.6	$	247.6	$	236.9	$	623.5

32

(1)	Estimated pension funding is based on the current composition of pension plans and current actuarial assumptions. Pension funding will continue beyond year 5. Nevertheless, estimated pension funding is excluded from the table after year 5. See Note M to the financial statements included in this Form 10-K for the funding status of the Company’s pension plans at December 31, 2005.
(2)	Estimated benefit payments are based on current actuarial assumptions. Benefit payments will continue beyond year 5. Nevertheless, estimated payments are excluded from the table after year 5. See Note M to the financial statements included in this Form 10-K for the funding status of the Company’s other postretirement benefit plans at December 31, 2005.
(3)	Included in the purchase obligations is $4.1 million related to property, plant and equipment. The remainder is for materials, supplies and services routinely used in the Company’s normal operations.
(4)	The management fee is excluded from the table after year 5. The management fee is expected to continue as long as the ownership of the Company does not change.

Recent Accounting Pronouncements

      In June 2005, the FASB issued FASB Staff Position No. 143-1 (“FSP 143-1”), “Accounting for Electronic Equipment Waste Obligations.” FSP 143-1 provides direction for the application of SFAS No. 143, “Accounting for Asset Retirement Obligations,” as it relates to European Union Directive 2002/96/ EC. This European Union Directive, among other things, defines the parties who are financially responsible for the proper disposal of certain electronic and electric appliances and equipment. FSP 143-1 was effective June 2005. The implementation of FSP 143-1 did not have a material effect on the Company’s financial statements.

      In December 2004, SFAS No. 123R, “Share-Based Payment” was issued. SFAS No. 123R requires the measurement of share-based payments to employees using a fair-value-based method and the recording of such expense in the income statement. The accounting provisions of SFAS No. 123R, as related to the Company, are effective for reporting periods beginning after December 15, 2005 and are to be applied prospectively. Also, in March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin 107 (“SAB 107”). SAB 107 provides clarification on the implementation of SFAS No. 123R and the relationship of SFAS No. 123R to certain SEC rules and regulations. The pro forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition. See the “Stock Options” section of Note A to the financial statements included in this Form 10-K for the pro forma net income as if the Company had used a fair-value-based method, similar to the methods required under SFAS No. 123R, to measure compensation expense. Had SFAS No. 123R been applied in the periods disclosed, the impact would have been similar to those pro forma amounts. The future impact is dependent upon if and when additional options are granted or expire, as well as the vesting period of such options.

      In December 2004, the FASB issued SFAS No. 151, “Inventory Costs.” SFAS No. 151 primarily clarifies the accounting for inventory when there are abnormal amounts of idle facility expense, freight, handling costs and wasted materials. Under existing guidelines, items such as idle facility expense, excessive spoilage and re-handling costs may be ’so abnormal’ as to require treatment as current period charges rather than recorded adjustments to the value of inventory. SFAS No. 151 requires that abnormal levels of such items be recognized as current period charges regardless of whether they meet the ’so abnormal’ criteria. The accounting provisions of SFAS No. 151 are to be applied prospectively and are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect SFAS No. 151 to have a material effect on its financial statements.

      In December 2004, the FASB issued FASB Staff Position No. 109-1 (“FSP 109-1”), “Application of SFAS No. 109, “Accounting for Income Taxes,” to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” FSP 109-1 states that the tax deduction of qualified domestic production activities, which is provided by the American Jobs Creation Act of 2004 (the “Jobs Act”), must be treated as a special deduction as described in SFAS No. 109. The implementation of

33

FSP 109-1, which was effective January 1, 2005, resulted in a $0.1 million reduction in income tax expense for the year ended December 31, 2005.

      In December 2004, the FASB issued FASB Staff Position No. 109-2 (“FSP 109-2”), “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” FSP 109-2 provides accounting and disclosure guidance related to the Jobs Act provision for the limited-time-85%-dividends-received deduction on the repatriation of certain foreign earnings. The adoption of FSP 109-2 had no effect on the Company’s results for the year ended December 31, 2005.

      In March 2005, the FASB issued FASB Interpretation No. 47 (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations.” FIN 47 clarifies that a company must record a liability for a “conditional” asset retirement obligation if the fair value of the obligation can be reasonably estimated. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. FIN 47 did not have a material effect on the Company’s financial statements.

Forward-Looking Statements

      In this Form 10-K, we make some “forward-looking” statements. These statements are included throughout this Form 10-K and relate to, among other things, analyses and other information based on forecasts of future results and estimates of amounts not yet determinable. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “continue,” and other similar terms and phrases, including references to assumptions.

      These forward-looking statements are based on our expectations and beliefs concerning future events affecting us. They are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. They can be affected by inaccurate assumptions we make or by known or unknown risks and uncertainties. Many factors mentioned in our discussions in this Form 10-K will be important in determining future results.

      Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, we can give no assurance that we will attain these expectations or that any deviations will not be material. Except as otherwise required by the Federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Form 10-K to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Our exposure to market risk consists of foreign currency exchange rate fluctuations and changes in interest rates.

Foreign Currency Exposure

      Currency translation. As a result of international operating activities, we are exposed to risks associated with changes in foreign exchange rates, principally exchange rates between the U.S. dollar and the Mexican peso and British pound. The results of operations of our foreign subsidiaries are translated into U.S. dollars at the average exchange rates for each relevant period. This translation has no impact on our cash flow. However, as foreign exchange rates change, there are changes to the U.S. dollar equivalent of sales and expenses denominated in foreign currencies. During 2005, approximately 12% of our business was transacted in local currencies of foreign countries. While our international results of operations, as measured in U.S. dollars, are subject to foreign exchange rate fluctuations, we do not consider the related risk to be material to our financial condition or results of operations. If the exchange rate between the foreign currencies and the U.S. dollar were

34

to decrease by 10%, our net income would have been lower by $0.2 million in 2005 due to the reduction in reported results from our foreign operations.

      The balance sheets of foreign subsidiaries are translated into U.S. dollars at the closing exchange rates as of the relevant balance sheet date. Any adjustments resulting from the translation are recorded as other comprehensive income on our statement of shareholder’s equity. We manage this exposure primarily by balancing monetary assets and liabilities and maintaining cash positions only at levels necessary for operating purposes in those countries.

      Currency transactions. Currency transaction exposure arises where actual sales and purchases are made by a business or company in a currency other than its own functional currency. The majority of our businesses source raw materials and sell their products within their local markets’ currencies and, therefore, have limited transaction exposure.

      In the future, we expect to continue to monitor our transaction exposure to currency rate changes and enter into currency forward and option contracts to limit the exposure, as appropriate. Gains and losses on contracts are deferred until the transaction being hedged is finalized. As of December 31, 2005, we had no foreign currency contracts outstanding. We do not engage in any speculative activities.

Interest rate risk

      In connection with the Company’s senior credit facilities, the Company had interest rate swap agreements which expired in August 2005. These agreements effectively converted $118 million of variable rate debt to fixed rate debt for the two years ended August 2005. On August 10, 2005, the Company entered into new interest rate swap agreements. These new agreements effectively convert $80 million of variable rate debt to fixed rate debt for the two years ending August 2007, and $40 million for the 12-month period ending August 2008. The variable component of the interest rate on borrowings under the senior credit facilities is based on LIBOR. Under the swap agreements, we will pay 4.4%, and will receive the then current LIBOR on $80 million through August 2007 and $40 million for the 12-month period ending August 2008.

      We utilize, and we will continue to utilize, sensitivity analyses to assess the potential effect of our variable rate debt. If variable interest rates were to increase by 0.25% per annum, the net impact would be a decrease of approximately $0.2 million of our net income and cash flow.

Treasury Policy

      Our treasury policy seeks to ensure that adequate financial resources are available for the development of our businesses while managing our currency and interest rate risks. Our policy is to not engage in speculative transactions. Our policies with respect to the major areas of our treasury activity are set forth above.

35

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm			37
Financial Statements
	Balance Sheets		38
	Income Statements		39
	Statements of Cash Flows		40
	Statements of Changes in Shareholder’s Equity		41
	Notes to Financial Statements		42

36

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholder of

United Components, Inc. and subsidiaries:

      We have audited the accompanying consolidated balance sheets of United Components, Inc. and subsidiaries (the “Company”) (a Delaware corporation) as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholder’s equity and cash flows for each of the two years in the period ended December 31, 2005 and for the period from June 21, 2003 through December 31, 2003. We have also audited the accompanying combined statements of income, shareholder’s equity and cash flows of the vehicle parts business of UIS Industries, Inc. (the “Predecessor Company”), for the period from January 1, 2003 through June 20, 2003. These financial statements are the responsibility of the Company’s and Predecessor Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Components, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2005, for the period from June 21, 2003 through December 31, 2003 and of the combined statements of income and cash flows of the Predecessor Company for the period from January 1, 2003 through June 20, 2003 in conformity with accounting principles generally accepted in the United States of America.

/s/ GRANT THORNTON LLP

Cincinnati, Ohio

March 16, 2006

37

United Components, Inc. (“UCI”)

Balance Sheets

December 31,

			2005			2004
			(In thousands)
ASSETS
Current assets
	Cash and cash equivalents		$	26,182		$	11,291
	Accounts receivable, net			259,619			238,581
	Inventories, net			183,186			188,212
	Deferred tax assets			26,295			18,578
	Other current assets			22,123			12,188
		Total current assets		517,405			468,850
Property, plant and equipment, net				194,600			216,849
Goodwill				166,559			166,559
Other intangible assets, net				87,197			94,229
Deferred financing costs, net				6,177			7,686
Pension and other assets				12,904			12,772
		Total assets	$	984,842		$	966,945
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities
	Accounts payable		$	109,912		$	91,505
	Short-term borrowings			261			1,267
	Current maturities of long-term debt			12			228
	Accrued expenses and other current liabilities			96,064			67,808
		Total current liabilities		206,249			160,808
Long-term debt, less current maturities				442,274			456,674
Pension and other postretirement liabilities				49,623			53,141
Deferred tax liabilities				4,380			6,430
Other long-term liabilities				1,970			1,972
Contingencies — Note N				—			—
		Total liabilities		704,496			679,025
Shareholder’s equity
	Common stock			—			—
	Additional paid in capital			263,636			263,120
	Retained earnings			17,546			22,074
	Accumulated other comprehensive income (loss)			(836	)		2,726
		Total shareholder’s equity		280,346			287,920
		Total liabilities and shareholder’s equity	$	984,842		$	966,945

The accompanying notes are an integral part of these statements.

38

United Components, Inc.

Income Statements

												Predecessor
			UCI Consolidated									Combined
									June 21, 2003			Jan. 1, 2003
			Year Ended			Year Ended			through			through
			Dec. 31, 2005			Dec. 31, 2004			Dec. 31, 2003			June 20, 2003
			(In thousands)
Net sales			$	1,008,843		$	1,026,665		$	506,831		$	452,467
Cost of sales				823,914			813,864			433,345			378,211
		Gross profit		184,929			212,801			73,486			74,256
Operating expenses
	Selling and warehousing			72,967			72,725			34,178			33,585
	General and administrative			47,035			44,010			21,815			18,928
	Amortization of acquired intangible assets			5,888			6,834			3,176			60
	Asset impairments and other costs (Note C)			21,530			—			—			—
		Operating income		37,509			89,232			14,317			21,683
Other income (expense)
	Interest (expense) income, net			(36,467	)		(36,047	)		(26,348	)		1,467
	Management fee expense			(2,000	)		(2,000	)		(1,000	)		(18	)
	Miscellaneous, net			(1,114	)		723			(12	)		(408	)
(Loss) income before income taxes				(2,072	)		51,908			(13,043	)		22,724
Income tax expense (benefit)				2,456			21,079			(4,288	)		942
		Net (loss) income	$	(4,528	)	$	30,829		$	(8,755	)	$	21,782
Pro forma (unaudited), adjusted solely for change in income tax filing status — Note B:
		Historical income before income taxes										$	22,724
		Income tax expense											8,544
		Pro forma net income										$	14,180

The accompanying notes are an integral part of these statements.

39

United Components, Inc.

Statements of Cash Flows

													Predecessor
				UCI Consolidated									Combined
										June 21, 2003			Jan. 1, 2003
				Year Ended			Year Ended			through			through
				Dec. 31, 2005			Dec. 31, 2004			Dec. 31, 2003			June 20, 2003
				(In thousands)
Cash flows from operating activities:
	Net (loss) income			$	(4,528	)	$	30,829		$	(8,755	)	$	21,782
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization of other intangible assets			39,061			42,157			24,324			12,988
		Amortization of deferred financing costs and debt issuance costs			2,141			3,093			5,444			—
		Deferred income taxes			(7,193	)		2,220			(5,531	)		—
		Asset impairments and write-downs of assets of an abandoned operation			19,600			—			—			—
		Other non-cash, net			(1,677	)		1,092			(141	)		242
		Changes in operating assets and liabilities Accounts receivable			(23,082	)		(7,331	)		314			(18,146	)
			Inventories		4,274			(19,415	)		55,461			18,806
			Other current assets		(10,650	)		(1,311	)		118			(3,035	)
			Accounts payable		19,909			16,853			38,884			(9,425	)
			Accrued expenses and other current liabilities		28,539			6,774			6,202			(2,438	)
			Other assets		(55	)		(1,413	)		(2,836	)		715
			Other long-term liabilities		(3,520	)		4,817			9			2,404
			Net cash provided by operating activities		62,819			78,365			113,493			23,893
Cash flows from investing activities:
	Acquisition and related fees				—			(8,000	)		(818,162	)		—
	Capital expenditures				(32,186	)		(44,815	)		(21,998	)		(21,388	)
	Proceeds from sale of property, plant and equipment				369			2,011			2,252			215
			Net cash used in investing activities		(31,817	)		(50,804	)		(837,908	)		(21,173	)
Cash flows from financing activities:
	Issuances of debt				—			967			585,000			—
	Financing fees and debt issuance costs				—			—			(21,583	)		—
	Debt repayments				(16,254	)		(65,688	)		(58,756	)		(98	)
	Shareholder’s equity contribution				516			1,735			261,385			—
	Dividends and transfers to UIS, Inc., net				—			—			—			(28,033	)
			Net cash provided by (used in) financing activities		(15,738	)		(62,986	)		766,046			(28,131	)
Effect of exchange rate changes on cash					(373	)		586			47			1,509
Net increase (decrease) in cash and cash equivalents					14,891			(34,839	)		41,678			(23,902	)
Cash and cash equivalents at beginning of period					11,291			46,130			4,452			28,354
Cash and cash equivalents at end of period				$	26,182		$	11,291		$	46,130		$	4,452

The accompanying notes are an integral part of these statements.

40

United Components, Inc.

Statements of Changes in Shareholder’s Equity

																Accumulated
																Other
								Additional								Comprehensive			Total			Comprehensive
				Preferred		Common		Paid In		Retained			Division			Income			Shareholder’s			Income
				Stock		Stock		Capital		Earnings			Equity			(Loss)			Equity			(Loss)
				(In thousands)
Predecessor combined balance at January 1, 2003				$	13	$	4,289	$	44,940	$	467,376		$	67,929		$	(16,512	)	$	568,035
Dividends paid											(17,913	)								(17,913	)
Liability to UIS contributed to capital									20,271											20,271
Transfers with UIS, net											(56,630	)		(10,120	)					(66,750	)
Comprehensive income
	Net income										6,650			15,132						21,782		$	21,782
	Other comprehensive income
			Foreign currency adjustment														4,125			4,125			4,125
		Total comprehensive income																				$	25,907
Predecessor Combined balance at June 20, 2003				$	13	$	4,289	$	65,211	$	399,483		$	72,941		$	(12,387	)	$	529,550
UCI consolidated balance at June 20, 2003				$	—	$	—	$	260,000	$	—		$	—		$	—		$	260,000
Additions to paid in capital									1,385											1,385
Comprehensive income (loss)
	Net income (loss)										(8,755	)								(8,755	)	$	(8,755	)
	Other comprehensive income (loss)
			Interest rate swaps														(114	)		(114	)		(114	)
			Foreign currency adjustment														1,574			1,574			1,574
		Total comprehensive income (loss)																				$	(7,295	)
UCI consolidated balance at December 31, 2003				$	—	$	—	$	261,385	$	(8,755	)	$	—		$	1,460		$	254,090
UCI consolidated balance at January 1, 2004				$	—	$	—	$	261,385	$	(8,755	)	$	—		$	1,460		$	254,090
Additions to paid in capital									1,735											1,735
Comprehensive income
	Net income										30,829									30,829		$	30,829
	Other comprehensive income (loss)
			Interest rate swaps														504			504			504
			Foreign currency adjustment														1,308			1,308			1,308
			Minimum pension liability adjustment														(546	)		(546	)		(546	)
		Total comprehensive income																				$	32,095
UCI consolidated balance at December 31, 2004				$	—	$	—	$	263,120	$	22,074		$	—		$	2,726		$	287,920
UCI consolidated balance at January 1, 2005				$	—	$	—	$	263,120	$	22,074		$	—		$	2,726		$	287,920
Additions to paid in capital									516											516
Comprehensive income (loss)
	Net (loss) income										(4,528	)								(4,528	)	$	(4,528	)
	Other comprehensive income (loss)
			Interest rate swaps														(64	)		(64	)		(64	)
			Foreign currency adjustment														(2,544	)		(2,544	)		(2,544	)
			Minimum pension liability adjustment														(954	)		(954	)		(954	)
		Total comprehensive income (loss)																				$	(8,090	)
UCI consolidated balance at December 31, 2005				$	—	$	—	$	263,636	$	17,546		$	—		$	(836	)	$	280,346

The accompanying notes are an integral part of these statements.

41

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS

NOTE A — GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

      United Components, Inc. (“UCI”) is a wholly-owned subsidiary of UCI Acquisition Holdings, Inc. UCI Acquisition Holdings, Inc. and UCI are corporations formed at the direction of The Carlyle Group (“Carlyle”). At December 31, 2005, affiliates of Carlyle owned 98.6% of UCI Acquisition Holdings, Inc.’s common stock, and the remainder is owned by certain members of senior management and UCI’s Board of Directors.

      On June 20, 2003, UCI purchased from UIS, Inc. and UIS Industries, Inc. (together “UIS”), the vehicle parts businesses of UIS, consisting of all of the issued and outstanding common stock or other equity interests in Champion Laboratories, Inc., Wells Manufacturing Corporation, Neapco Inc., Pioneer, Inc., Wells Manufacturing Canada Limited, UIS Industries Ltd. (which is the owner of 100% of the capital stock of Flexible Lamps, Ltd. and was the owner of Airtex Products Ltd.), Mid-South Mfg., Inc., Airtex Products S.A., Airtex Products, Inc. (currently Airtex Mfg., Inc.), Talleres Mecanicos Montserrat S.A. de C.V., Brummer Seal de Mexico, S.A. de C.V., Brummer Mexicana en Puebla, S.A. de C.V., Automotive Accessory Co. Ltd. and Airtex Products, LLC, a limited liability company that owns the assets of the Airtex Products business of UIS, Inc. (see Note B).

      The vehicle parts businesses of UIS, consisting of the aforementioned entities, are collectively referred to in these financial statements as the “Predecessor Company” or “Predecessor.” In these notes to the financial statements, the term the “Company” refers to either or both UCI (and its subsidiaries) and the Predecessor Company. The aforementioned June 20, 2003 acquisition is referred to in these notes to the financial statements as the “Acquisition.”

      On March 9, 2006, the Company entered into a definitive agreement under which the Company will acquire all of the capital stock of ASC Industries, Inc. (“ASC”). The purchase price is approximately $155 million at closing, including the assumption of certain debt. The Company may also pay ASC stockholders an additional $4 million in purchase price following the acquisition, based upon the achievement of certain operational objectives. Completion of the transaction is subject to regulatory approval and other customary closing conditions. ASC is a manufacturer and distributor of water pumps, with 2005 revenue of $106 million (see Note Y).

      The Company operates in one business segment through its subsidiaries. The Company manufactures and distributes vehicle parts, primarily servicing the vehicle replacement parts market in North America and Europe.

      A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows:

Principles of Consolidation and Combination

      The UCI consolidated financial statements include the accounts of UCI and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.

      The Predecessor combined financial statements include the accounts of the Predecessor Company. Intercompany account balances and transactions have been eliminated among the group of companies that comprise the Predecessor Company. No activity has been eliminated with UIS or UIS’s other subsidiaries.

Allocation of the Acquisition Purchase Price

      The consolidated income statement for the period June 21, 2003 through December 31, 2003, and the quarterly data for the first quarter of 2004 reflect the preliminary allocation of the Acquisition purchase price

42

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(see Note B). For all periods subsequent to March 31, 2004, the financial information presented in these financial statements and related notes reflect the final allocation of the Acquisition purchase price. This final allocation had no impact on previously reported results of operations.

Revenue Recognition

      The Company records sales when title has transferred to the customer, the sales price is fixed and determinable, and the collection of the related accounts receivable is reasonably assured. In the case of sales to the aftermarket, the Company recognizes revenue when the above conditions are met for its direct customers, which are the aftermarket distributors. Provisions for estimated sales returns, allowances and warranty costs are recorded when the sales are recorded. Sales returns, allowances and warranty costs are estimated based upon historical experience, current trends, and the Company’s expectations regarding future experience. Adjustments to such returns, allowances, and warranty costs are made as new information becomes available.

Cash Equivalents

      Certificates of deposit, commercial paper, and other highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.

Allowance for Doubtful Accounts

      The Company generally does not require collateral for its trade accounts receivable. Accounts receivable have been reduced by an allowance for amounts that may become uncollectible in the future. These allowances are established based on a combination of write-off history, aging analysis, and specific account evaluations. When a receivable balance is known to be uncollectible, it is written off against the allowance for doubtful accounts.

Inventories

      Inventories are stated at the lower of cost or market. Cost is principally determined using standard cost, which approximates the first-in, first-out method. Inventories are reduced by an allowance for excess and obsolete inventories, based on the Company’s review of on-hand inventories. The expense of inventory write-downs is included in cost of sales.

Depreciation and Amortization

      Depreciation of property, plant and equipment is provided on a straight-line basis, over the estimated service lives of the assets. Leasehold improvements are amortized over the shorter of their service life or the remaining term of the lease.

      Major renewals and improvements of property, plant and equipment are capitalized, and repairs and maintenance costs are expensed as incurred. Repairs and maintenance expenses for the years ended December 31, 2005, 2004 and 2003 were $7.4 million, $8.1 million, and $8.9 million, respectively. Repairs and maintenance expenses for the period January 1, 2003 to June 20, 2003 were $5.0 million.

      Trademarks have indefinite lives and are not amortized; instead they are subject to impairment evaluations. Other intangibles are amortized over their useful lives on an accelerated or straight-line basis commensurate with the expected benefits received from such intangible assets.

Goodwill and Trademarks with Indefinite Lives

      Goodwill and trademarks with indefinite lives are tested for impairment on an annual basis in the fourth quarter, unless conditions arise that would require a more frequent evaluation. In assessing their recoverability,

43

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

projections regarding estimated discounted future cash flows and other factors are made to determine if an impairment has occurred. If the Company concludes that there has been an impairment, the Company will write down the carrying value of the asset to its fair value. In 2005, the Company recorded an $8.1 million trademark impairment loss (see Note H).

      The Company evaluates trademarks with indefinite lives annually to determine whether events and circumstances continue to support the indefinite useful lives. Other than the trademark that was written down for the aforementioned $8.1 million impairment loss, no trademarks were determined to have finite useful lives in any of the periods presented.

Impairment of Long-Lived Assets other than Goodwill and Trademarks with Indefinite Lives and Long-Lived Assets to be Disposed of

      The Company evaluates all of its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of such long-lived assets is measured by a comparison of the carrying amount of the asset to the future undiscounted net cash flows that are expected to be generated by the asset. If the carrying amount exceeds the expected undiscounted future cash flows, the asset is considered to be impaired. If an asset is considered to be impaired, it is written down to fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. In 2005, the company recorded a $5.5 million impairment loss on certain property and equipment and a $3.8 million impairment loss on a software asset (see Note C).

Income Taxes

      Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets are also recognized for operating losses and tax credit carryforwards. The Company establishes valuation allowances against operating losses and tax credit carryforwards when the ability to fully utilize these benefits is determined to be uncertain. Deferred tax assets and liabilities are measured using enacted tax rates applicable in the years in which they are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in income in the period that includes the enactment date.

Foreign Currency Translation and Transactions

      Income statements of foreign subsidiaries are translated into U.S. dollars using the average exchange rates during the applicable period.

      Assets and liabilities of foreign subsidiaries are translated into U.S. dollars using the exchange rates in effect at the applicable balance sheet date. Resulting cumulative translation adjustments are recorded as a component of shareholder’s equity in accumulated other comprehensive income (loss).

      Transaction foreign exchange gains and losses are included in the income statement and are not material.

Reporting of Comprehensive Income (Loss)

      Comprehensive income (loss) includes (i) net income (loss), (ii) the cumulative effect of translating balance sheets of foreign subsidiaries to U.S. dollars, (iii) the effect of adjusting interest rate swaps to market, and (iv) the recognition of minimum pension liabilities. The last three are not included in the income statement and are reflected as adjustments to shareholder’s equity.

44

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Financial Statement Presentation

      The following provides a description of certain items that appear in the income statement:

      Net sales includes gross sales less deductions for incentive rebate programs, sales returns, allowances and discounts. Shipping and handling fees that are billed to customers are classified as revenues.

      Cost of sales includes all costs required to bring a product to a ready-for-sale condition. Such costs include direct and indirect materials (net of vendor consideration), direct and indirect labor costs (including pension, postretirement and other fringe benefits), supplies, utilities, depreciation, insurance, information technology costs, shipping and other costs. Cost of sales also includes the procurement, packaging, and shipping of products purchased for resale.

      Selling and warehousing expenses includes costs of selling and marketing, warehousing, technical services and distribution. The major cost elements for this line item include salaries and wages (including pension, postretirement and other fringe benefits), freight, depreciation, advertising and information technology costs.

      Advertising is expensed as incurred and for the years ended December 31, 2005, 2004 and 2003 was $5.0 million, $6.4 million, and $4.6 million, respectively. Advertising expense for the period January 1, 2003 to June 20, 2003 was $3.0 million.

      General and administrative expenses includes the costs of executive, accounting and administrative personnel (including pension, postretirement and other fringe benefits), professional fees, insurance, provisions for doubtful accounts, rent and information technology costs.

Stock Options

      UCI’s parent, UCI Acquisition Holdings, Inc., adopted a stock option plan in 2003 (the “Plan”). The Plan permits the granting of options to purchase shares of common stock of UCI Acquisitions Holdings, Inc. UCI’s employees, directors, and consultants are eligible to receive stock option grants.

      The Company has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” which permits the Company to account for stock option grants in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees.”

      Under APB Opinion No. 25, the intrinsic-value-based method of accounting for stock option plans is used. Under this method, compensation cost is the excess, if any, of the market price at the grant date over the amount an employee must pay to acquire the stock. UCI grants stock options with an exercise price of not less than the market value of the common stock on the date of the grant; therefore, no compensation expense has been recorded in any period presented in connection with the stock options.

      The Black-Scholes option pricing model was used to estimate fair values as of the date of the grants using the following assumptions:

	Year Ended December 31,
	2005			2004			2003
Dividend yield		0.00	%		0.00	%		0.00	%
Risk-free interest rate		4.34	%		3.99	%		3.73	%
Volatility		41.00	%		43.00	%		41.00	%
Expected option term in years		8			8			8

      The per share weighted average fair value of options granted was $53.51, $54.30 and $52.17 in 2005, 2004 and 2003, respectively.

45

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      Had the compensation cost of the stock option plan been applied using the fair-value-based method at the grant date, rather than the intrinsic-value-method of accounting, the pro forma amounts would be as follows (in millions):

	Year Ended December 31,
	2005			2004		2003
Net (loss) income as reported	$	(4.5	)	$	30.8	$	13.0
Pro forma stock-based compensation expense, net of tax		1.7			2.0		1.1
Pro forma net (loss) income	$	(6.2	)	$	28.8	$	11.9

      Pro forma disclosures for stock option accounting may not be representative of the effects on reported net income in future years.

Environmental Liabilities

      The Company accrues for environmental investigation, remediation and penalty costs when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The liability is determined on an undiscounted cash flow basis and is not reduced for potential claims for recovery. Claims for recovery are recognized as agreements are reached with third parties. Environmental expenditures are capitalized if they mitigate or prevent future contamination or if they improve the environmental safety or efficiency of the existing assets. All other environmental costs are expensed as incurred. Environmental cost estimates may include expenses for remediation of identified sites, long term monitoring, payments for claims, administrative expenses, and expenses for ongoing evaluations and litigation. The liability is adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available.

Insurance Reserves

      The Company’s insurance for workers’ compensation, automobile, product and general liability includes high deductibles for which the Company is responsible. Deductibles, for which the Company is responsible, are estimated and recorded as expenses in the period incurred.

Use of Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. The estimates and assumptions include estimates of collectibility of accounts receivable and the realizability of inventory, goodwill and other intangible assets. They also include estimates of cost accruals, environmental liabilities, warranty and product returns, insurance reserves, income taxes, pensions and other postretirement benefits and other factors. Management has exercised reasonableness in deriving these estimates; however, actual results could differ from these estimates.

      In the fourth quarter of 2005, the Company recorded a change in its estimate of outstanding potential warranty returns (see Note J).

New Accounting Pronouncements

      In June 2005, the FASB issued FASB Staff Position No. 143-1 (“FSP 143-1”), “Accounting for Electronic Equipment Waste Obligations.” FSP 143-1 provides direction for the application of SFAS No. 143, “Accounting for Asset Retirement Obligations,” as it relates to European Union Directive 2002/96/ EC. This European Union Directive, among other things, defines the parties who are financially

46

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

responsible for the proper disposal of certain electronic and electric appliances and equipment. FSP 143-1 was effective June 2005. The implementation of FSP 143-1 did not have a material effect on the Company’s financial statements.

      In December 2004, SFAS No. 123R, “Share-Based Payment” was issued. SFAS No. 123R requires the measurement of share-based payments to employees using a fair-value-based method and the recording of such expense in the income statement. The accounting provisions of SFAS No. 123R, as related to the Company, are effective for reporting periods beginning after December 15, 2005 and are to be applied prospectively. Also, in March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin 107 (“SAB 107”). SAB 107 provides clarification on the implementation of SFAS No. 123R and the relationship of SFAS No. 123R to certain SEC rules and regulations. The pro forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition. See the “Stock Options” section of this Note A for the pro forma net income as if the Company had used a fair-value-based method, similar to the methods required under SFAS No. 123R, to measure compensation expense. Had SFAS No. 123R been applied in the periods disclosed, the impact would have been similar to those pro forma amounts. The future impact is dependent upon if and when additional options are granted or expire, as well as the vesting period of such options.

      In December 2004, the FASB issued SFAS No. 151, “Inventory Costs.” SFAS No. 151 primarily clarifies the accounting for inventory when there are abnormal amounts of idle facility expense, freight, handling costs and wasted materials. Under existing guidelines, items such as idle facility expense, excessive spoilage and re-handling costs may be ’so abnormal’ as to require treatment as current period charges rather than recorded adjustments to the value of inventory. SFAS No. 151 requires that abnormal levels of such items be recognized as current period charges regardless of whether they meet the ’so abnormal’ criteria. The accounting provisions of SFAS No. 151 are to be applied prospectively and are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect SFAS No. 151 to have a material effect on its financial statements.

      In December 2004, the FASB issued FASB Staff Position No. 109-1 (“FSP 109-1”), “Application of SFAS No. 109, “Accounting for Income Taxes,” to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” FSP 109-1 states that the tax deduction of qualified domestic production activities, which is provided by the American Jobs Creation Act of 2004 (the “Jobs Act”), must be treated as a special deduction as described in SFAS No. 109. The implementation of FSP 109-1, which was effective January 1, 2005, resulted in a $0.1 million reduction in income tax expense for the year ended December 31, 2005.

      In December 2004, the FASB issued FASB Staff Position No. 109-2 (“FSP 109-2”), “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” FSP 109-2 provides accounting and disclosure guidance related to the Jobs Act provision for the limited-time-85%-dividends-received deduction on the repatriation of certain foreign earnings. The adoption of FSP 109-2 had no effect on the Company’s results for the year ended December 31, 2005.

      In March 2005, the FASB issued FASB Interpretation No. 47 (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations.” FIN 47 clarifies that a company must record a liability for a “conditional” asset retirement obligation if the fair value of the obligation can be reasonably estimated. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. FIN 47 did not have a material effect on the Company’s financial statements.

Segment Reporting

      In accordance with the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the Company reports as one segment. The Company is in one business, which is the

47

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

manufacturing and distribution of vehicle parts. The products and services, customer base, distribution channel, manufacturing process, procurement, and economic characteristic are similar throughout all of the Company’s operations.

Derivative Financial Instruments

      The Company recognizes derivatives as either assets or liabilities in the balance sheet and measures those instruments at fair value. Changes in the fair value of those instruments will be reported in income or other comprehensive income (loss) depending on the use of the derivative and whether it qualifies for hedge accounting. The accounting for gains and losses associated with changes in the fair value of the derivative, and the effect on the financial statements, will depend on its hedge designation and whether the hedge is highly effective in offsetting changes in the fair value of cash flows of the asset or liability hedged.

NOTE B — ACQUISITION

Overview

      On June 20, 2003, UCI purchased from UIS the vehicle parts businesses of UIS, consisting of all of the issued and outstanding common stock or other equity interests of the Predecessor Company.

      The Acquisition purchase price was $808 million. In addition, the Company assumed $2 million of debt and capital lease obligations. Fees and expenses associated with the Acquisition (excluding financing fees) were $18 million and are accounted for as additional purchase price. Financing for the Acquisition was comprised of a $260 million equity contribution by Carlyle, proceeds from $585 million of debt, and an $8 million accrued liability, which was paid in January 2004. In addition to funding the purchase price, proceeds from the borrowings provided $5 million of operating cash and were also used to pay for the aforementioned $18 million of Acquisition-related fees and expenses and $22 million of financing fees.

Change in Income Tax Filing Status

      As discussed in Note L, the Predecessor Company had elected for certain of its subsidiaries to be taxed as S corporations pursuant to the Internal Revenue Code. In connection with the Acquisition, the Company terminated its S corporation elections and became a C corporation and, consequently, became subject to Federal and additional state and local income taxes. As part of the allocation of the Acquisition purchase price, net deferred tax assets have been calculated based on UCI’s higher effective tax rate. The pro forma information presented below includes adjustments for, among other things, the change in the Company’s income tax filing status. The pro forma income tax expense amount includes income taxes as if the Company had been filing as a C corporation for the entire period.

     Allocation of the Acquisition Purchase Price and Pro Forma Information

      The Acquisition was accounted for under the purchase method of accounting, and accordingly, the results of operations of the acquired companies have been included in the results of UCI beginning on the June 20, 2003 Acquisition date.

48

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in millions).

Current assets		$	474
Property, plant and equipment			214
Goodwill			167
Acquired intangible assets			97
Deferred tax assets			7
Other long-term assets			3
	Total assets acquired		962
Current liabilities			93
Long-term debt, excluding borrowings to fund the Acquisition purchase price and related transaction fees			2
Pension and other postretirement liabilities			37
Other long-term liabilities			4
	Total liabilities assumed		136
Net assets acquired		$	826

      Of the $97 million of acquired intangible assets, approximately $40 million was assigned to trademarks that are not subject to amortization, $50 million was assigned to customer relationships and $7 million was assigned to technologies.

      Below is unaudited pro forma data for the year ended December 31, 2003, after giving effect to the Acquisition as if it had occurred on January 1, 2003. The pro forma adjustments give effect to (i) the allocation of the Acquisition purchase price, (ii) the Company’s capital structure immediately after the Acquisition, (iii) the Carlyle management fee (see Note O), and (iv) income tax expense based on a C corporation filing status. The pro forma data does not purport to represent what the results of operations would have been if the Acquisition had occurred as of the date indicated above, or what the results will be in future periods (in thousands).

	Pro Forma Data
	(Unaudited)
	Year Ended
	December 31, 2003
Net sales	$	959,298
Operating income		3,643
Net loss		(30,044	)

49

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE C — ASSET IMPAIRMENTS AND OTHER COSTS

      The following table summarizes the Company’s asset impairments and other costs (in millions):

	Asset Write-
	Downs		Other		Total
Impairment of trademark	$	8.1	$	—	$	8.1
Impairment of software asset		3.8		—		3.8
Loss on contractual commitment		—		1.3		1.3
Impairment of property and equipment		5.5		—		5.5
Abandonment of an operation		2.2		0.6		2.8
	$	19.6	$	1.9	$	21.5

Impairment of trademark and software asset

      See Note H for a description.

Loss on contractual commitment

      In connection with the installation of a new integrated software system (see Note H), the Company entered into an agreement to outsource certain computer processing functions. The agreement expires in June 2007. As explained in Note H, the Company decided not to install the new software system at as many operating locations as initially planned. As a result, the Company will not use all of the outsourced computer processing capacity for which it is obligated to pay. In the fourth quarter of 2005, the Company recorded a $1.3 million loss for that portion of this contractual commitment that will not be used and, therefore, will not provide future economic benefit. This $1.3 million will be paid in 2006 and 2007, or upon settlement.

Impairment of property and equipment

      The Company has concluded that the estimated future cash flows of its air filter operations in the United Kingdom do not support the carrying value of that operation’s property and equipment. Consequently, the Company has recorded a $5.5 million impairment loss to write down those assets to their fair value. Fair value was estimated based on valuations from an independent appraiser.

Abandonment of an operation

      Airtex Products Ltd. (“Airtex UK”) was an indirect wholly-owned subsidiary of the Company with operations in the United Kingdom. During 2005, the largest customer of Airtex UK became insolvent and ceased operations, resulting in the loss of more than 50% of the revenue of Airtex UK. As a result of this situation, the Company decided to cease additional funding of the operations of Airtex UK, and subsequently sold Airtex UK to a newly incorporated English company owned by the local management of Airtex UK. The selling price was £1.

      In 2005, the Company recorded a pre-tax non-cash charge of $2.2 million for the impairment of certain assets of Airtex UK and an additional pre-tax charge of $0.6 million for losses incurred as a result of the abandonment and sale of Airtex UK.

      Sales of Airtex UK included in the Company’s consolidated results for the years ended December 31, 2005, 2004 and 2003, were $3.7 million, $7.5 million, and $8.4 million, respectively. Pre-tax income (losses) of Airtex UK included in the Company’s consolidated results for the same three years were $(0.9) million, $(0.2) million, and $1.0 million, respectively.

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United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE D — ALLOWANCE FOR DOUBTFUL ACCOUNTS

      Changes in the Company’s allowance for doubtful accounts are as follows (in thousands):

	December 31,
	2005			2004			2003
Beginning of year	$	3,204		$	4,335		$	4,138
Provision for doubtful accounts		316			184			1,377
Accounts written off		(272	)		(1,573	)		(1,268	)
Recoveries		18			258			88
	$	3,266		$	3,204		$	4,335

NOTE E — SALES OF RECEIVABLES

      UCI enters into agreements to sell undivided interests in certain of its receivables to a factoring company, which in turn has the right to sell an undivided interest to a financial institution or other third party. UCI enters these agreements at its discretion when it determines that the cost of factoring is less than the cost of servicing its receivables with existing debt. Pursuant to these agreements, UCI sold $22 million and $19 million of receivables during 2005 and 2004, respectively, of which $6 million and $8 million, respectively, would otherwise have been outstanding at December 31, 2005 and 2004. UCI retained no rights or interest, and has no obligations, with respect to the sold receivables. UCI does not service the receivables after the sales.

      The sales of receivables were accounted for as a sale in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” The sold receivables were removed from the balance sheet at the time of sales. The costs of the sales were a 0.25% agent’s fee and a discount deducted by the factoring company, which is calculated based on LIBOR plus 1.5%. These costs were $282,000 and $121,000 in 2005 and 2004, respectively, and are recorded in miscellaneous, net.

NOTE F — INVENTORIES

      The components of inventories are as follows (in thousands):

	December 31,
	2005			2004
Raw materials	$	46,185		$	51,753
Work in process		28,231			31,672
Finished products		130,747			126,032
Valuation reserves		(21,977	)		(21,245	)
	$	183,186		$	188,212

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United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE G — PROPERTY, PLANT AND EQUIPMENT

      Property, plant and equipment consists of the following (in thousands):

		December 31,
	Depreciable Life	2005			2004
Land and improvements	5-10 years	$	18,326		$	19,130
	(for improvements)
Buildings and improvements	5-40 years		64,464			65,997
Equipment	3-15 years		184,442			186,860
			267,232			271,987
Less accumulated depreciation			(72,632	)		(55,138	)
		$	194,600		$	216,849

      Included in equipment shown above are purchases totaling approximately $0.4 million and $0.9 million at December 31, 2005 and 2004, respectively, under capital lease obligations. Accumulated amortization was approximately $0.1 million and $0.4 million at December 31, 2005 and 2004, respectively.

      Depreciation expense for the years ended December 31, 2005, 2004 and 2003 was $32.3 million, $35.3 million and $34.1 million, respectively. Depreciation expense for the period January 1, 2003 to June 20, 2003 was $12.9 million.

NOTE H — OTHER INTANGIBLE ASSETS

      The components of other intangible assets are as follows (in thousands):

				December 31, 2005							December 31, 2004
		Amortizable				Accumulated							Accumulated
		Life		Gross		Amortization			Net		Gross		Amortization			Net
Acquired intangible assets
	Customer relationships		15 years	$	49,400	$	(12,519	)	$	36,881	$	49,400	$	(7,774	)	$	41,626
	Technologies		10 years		7,100		(3,379	)		3,721		7,100		(2,236	)		4,864
	Trademarks		Indefinite		32,000		—			32,000		40,100		—			40,100
Integrated software system			7 years		15,421		(826	)		14,595		7,639		—			7,639
				$	103,921	$	(16,724	)	$	87,197	$	104,239	$	(10,010	)	$	94,229

      In 2005, as a result of its annual fourth quarter evaluation of trademarks with indefinite lives, the Company identified and recorded an $8.1 million impairment loss on one of its trademarks. This loss was due to a customer’s decision to market a significant portion of the Company-supplied products under its own private label brand, instead of the Company’s brand. The impairment loss is also due to lower than expected sales on the products that are still marketed under the Company’s brand.

      In the third quarter of 2005, the Company installed a new integrated software system at three of its North American operating facilities. The implementation process began in the second quarter of 2004. The Company’s intent was to install the new system at all of its other North American facilities, after the first three were operating efficiently. As a result, incremental costs were incurred to enable the software to accommodate the needs of the other facilities. These incremental costs were recorded as part of the integrated software system asset. Because of cost /benefit and cash flow considerations, in December 2005 the Company has decided to abandon its plans to install this system at the remaining North American operations.

52

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Consequently, in the fourth quarter of 2005, an impairment loss of $3.8 million was recorded to write-off the costs incurred to accommodate the needs of the other facilities.

      The estimated amortization expense related to acquired intangible assets and the integrated software system for each of the succeeding five years is (in thousands):

	Acquired		Integrated
	Intangible		Software
	Assets		System
2006	$	5,318	$	2,203
2007		4,814		2,203
2008		4,366		2,203
2009		3,968		2,203
2010		3,619		2,203

NOTE I — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

      Accrued expenses and other current liabilities consists of the following (in thousands):

	December 31,
	2005		2004
Salaries and wages	$	3,185	$	2,756
Bonuses		3,919		4,245
Vacation pay		5,563		5,721
Pension and other postretirement liabilities		8,705		4,039
Product returns		26,744		15,291
Rebates, credits and discounts due customers		11,447		7,777
Insurance		9,693		9,337
Taxes payable		7,604		4,081
Other		19,204		14,561
	$	96,064	$	67,808

NOTE J — PRODUCT RETURNS LIABILITY

      The liability for product returns is included in accrued expenses and other current liabilities. This liability includes accruals for parts returned under warranty and for parts returned because of customer excess quantities. The Company provides warranties for its products’ performance. Warranty periods vary by part, but generally are either one year or indefinite. In addition to returns under warranty, the Company allows its customers to return quantities of parts that the customer determines to be in excess of its current needs. Customer rights to return excess quantities vary by customer and by product category. Generally, they are contractually limited to 3% to 5% of the customer’s purchases in the preceding year. In some cases, the Company does not have a contractual obligation to accept excess quantities. However, common practice for the Company and the industry is to accept periodic returns of excess quantities from on-going customers. If a customer elects to cease purchasing from the Company and change to another vendor, it is industry practice for the new vendor, and not the Company, to accept any inventory returns resulting from the vendor change.

      The changes in the Company’s product returns are listed in the table below. The 2005 reductions to sales include $14.0 million resulting from a change in estimate with respect to warranty returns. Based on new information, the Company has increased its estimate of the average periods of time from (a) the date that certain products are sold to (b) the various dates when warranty claims on those products are received. In

53

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

prior periods, the Company assumed that most warranty claims surfaced soon after the ultimate consumer purchased and installed the product. Based on unexpectedly high loss experience in the fourth quarter of 2005 and research conducted in 2005, the Company now estimates that, in many cases, warranty claims surface over a much longer period of time. Because warranty claims on certain products may be received for a longer period of time than previously estimated, the Company has increased the estimate of potential claims outstanding.

      The 2005 changes listed below also include a $2.2 million reduction in product returns liabilities. This favorable effect is the result of the Company reducing the warranty period for one of it product lines. The warranty period was reduced from indefinite to one year after it is purchased by the ultimate consumer.

      The 2004 reductions to sales amount includes $2.1 million for a single, unusually large quality matter. There were no similar issues in 2005 or 2003.

      The $9.6 million addition in 2003 was made as part of the allocation of the Acquisition purchase price to establish the June 20, 2003 opening balance sheet and was not recorded in the 2003 income statement, because the 2003 income statement included an appropriate full year expense without this adjustment.

      Amounts in the following table are in thousands of dollars.

	Year Ended December 31,
	2005			2004			2003
Beginning of year	$	15,291		$	13,999		$	4,252
Cost of unsalvageable returned parts		(41,500	)		(39,510	)		(35,158	)
Additional reductions to sales		52,953			40,802			35,305
Allocation of Acquisition purchase price adjustments		—			—			9,600
End of year	$	26,744		$	15,291		$	13,999

NOTE K — DEBT

      Debt is summarized as follows (in thousands):

		December 31,
		2005			2004
Short-term borrowings		$	261		$	1,267
Capitalized leases			12			261
Term loan			217,000			232,000
Senior subordinated notes			230,000			230,000
Debt issuance costs			(4,726	)		(5,359	)
			442,547			458,169
Less:
	Short-term borrowings		261			1,267
	Current maturities		12			228
Long-term debt		$	442,274		$	456,674

      Senior credit facilities — The senior credit facilities are comprised of a revolving credit facility and a term loan.

      The $75 million revolving credit facility is available until 2010. The interest rates per annum applicable to the revolving credit facility, as well as the term loans, are, at the Company’s option, the Base Rate or

54

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Eurodollar Rate plus, in each case, an applicable margin. The applicable margin is subject to adjustment based on a consolidated leverage ratio, as defined. The Base Rate is a fluctuating interest rate equal to the higher of (a) the prime lending rate as set forth on the British Banking Association Telerate page 5 or another comparable page, and (b) the Federal funds effective rate plus 0.50%. In addition to interest on outstanding borrowings, the Company is required to pay a commitment fee on any unused revolving credit facility commitments at a per annum rate of 0.50%, subject to adjustment based on a consolidated leverage ratio, as defined. At December 31, 2005 and 2004, the interest rate was 6.81% and 4.78%, respectively. At December 31, 2005, there were no borrowings outstanding under the revolving credit facility. At December 31, 2004, there were $0.5 million of borrowings outstanding under the revolving credit facility. This amount is included in short-term borrowings. Also, at December 31, 2005, $8.0 million of the borrowing capacity had been used to support outstanding letters of credit. Accordingly, at December 31, 2005, $67.0 million was available for borrowing under the revolving credit facility.

      The $217 million term loan facility is due in 2010. Interest is payable quarterly or more frequently depending on the Eurodollar interest periods elected under the facility. The interest rate is variable and is determined as described above. At December 31, 2005 and 2004, the interest rate was 6.81% and 4.78%, respectively. The loan is secured by all tangible and intangible assets of the Company. The Tranche C term loan amortizes in scheduled quarterly payments of $0.6 million per quarter, beginning December 31, 2007 through June 30, 2009, and $53.3 million per quarter from September 30, 2009 through June 30, 2010.

      In 2005 and 2004, the Company voluntarily prepaid $15 million and $65 million, respectively, of the senior credit facility term loan. Also in 2004, as a result of achieving certain financial thresholds, the Company reduced the borrowing rate of its senior credit facility term loan by 0.50%.

      In 2005, the Company entered into an amendment to the senior credit facility which permits the Company to repurchase from time to time up to $75 million in aggregate principal amount of senior subordinated notes. As of March 27, 2006, the Company had not repurchased any of the senior subordinated notes, although it may, under appropriate market conditions, do so in the future.

      The senior credit facilities require the Company to maintain certain financial covenants and require mandatory prepayments under certain events as defined in the agreement. Also, the facilities include certain negative covenants restricting or limiting the Company’s ability to, among other things: declare dividends or redeem stock; prepay certain debt; make loans or investments; guarantee or incur additional debt; make capital expenditures; engage in acquisitions or other business combinations; sell assets, and alter the Company’s business. The Company is in compliance with all of these covenants.

      Senior subordinated notes — The Senior Subordinated Notes (the “Notes”) bear interest at 9³/8 %. Interest is payable semi-annually, in arrears on June 15 and December 15 of each year, beginning December 15, 2003. The Notes are unsecured and rank equally in right of payment with any of the Company’s future senior subordinated indebtedness. They are subordinated to indebtedness and other liabilities of the Company’s subsidiaries that are not guarantors of the Notes. They are guaranteed on a full and unconditional and joint and several basis by the Company’s domestic subsidiaries. The Notes mature on June 15, 2013.

      The Notes indenture contains covenants that limit the Company’s ability to: incur or guarantee additional debt, pay dividends or redeem stock, make certain investments, and sell assets. The Company is in compliance with all of these covenants.

      Short-term borrowings — Short-term borrowings include $0.0 million and $0.5 million of borrowing under the revolving credit facility and notes payable of a foreign subsidiary to foreign credit institutions at December 31, 2005 and 2004, respectively. The foreign notes bear interest at EURIBOR, plus 0.50%, which totaled 3.34% and 2.86% at December 31, 2005 and 2004, respectively. The notes payable are collateralized by certain accounts receivable related to the amounts financed.

55

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      Future Payments — The following is a schedule of future payments of debt at December 31, 2005 (in thousands):

2006	$	273
2007		566
2008		2,260
2009		107,652
2010		106,522
Thereafter		230,000
	$	447,273

      Interest Expense — Interest expense in 2005 was $37.4 million, including $0.2 million of accelerated write-off of deferred financing costs due to the voluntary prepayment of $15 million of the senior credit facility and $0.3 million of fees incurred in connection with the amendment to the senior credit facility. Interest expense in 2004 was $36.3 million, including $1.0 million of accelerated write-off of deferred financing costs due to the voluntary prepayment of $65 million of the senior credit facility term loan. Interest expense in 2003 was $26.6 million, including (i) a $2.6 million cost of a bridge loan incurred in connection with the Acquisition, (ii) $1.6 million of accelerated write-off of deferred financing costs due to the voluntary prepayment of a portion of the senior credit facility term loan, and (iii) $0.6 million of fees incurred in connection with the renegotiation of the senior credit facility. In 2004 and 2003, capitalized interest was $0.6 million and $0.1 million, respectively.

NOTE L — INCOME TAXES

      Prior to June 21, 2003, the subsidiaries comprising the Predecessor Company were treated as disregarded entities for U.S. tax purposes (Qualified Subchapter S subsidiaries, or “Q subs”). As Q subs of UIS, the subsidiaries were included in the U.S. Federal and certain state S corporation income tax returns of UIS. As such, the income taxes on the earnings of the Predecessor Company were paid by the sole shareholder of UIS pursuant to an election for Federal income tax purposes not to be taxed as a corporation. No tax sharing arrangement existed for the subsidiaries comprising the Predecessor Company. Accordingly, no provision has been made in the financial statements for Federal income taxes on the net earnings of these companies for the periods prior to June 21, 2003. A provision for certain state franchise and income taxes has been made.

      The Q sub status and the S corporation status terminated effective with the Acquisition (see Note B). On the Acquisition date, the Company became a C corporation and became subject to both Federal and state income taxes. UCI’s effective tax rate has increased accordingly. As part of the allocation of the Acquisition purchase price, net deferred tax assets were established and calculated based on UCI’s higher effective tax rate.

      The Acquisition (see Note B) was accounted for as an asset purchase for U.S. tax purposes.

      The components of (loss) income before income taxes are as follows (in thousands):

		Year			Year		June 21			Jan. 1
		Ended			Ended		through			through
		Dec. 31, 2005			Dec. 31, 2004		Dec. 31, 2003			June 20, 2003
(Loss) income before income taxes
	United States	$	4,137		$	49,519	$	(14,593	)	$	20,846
	Non-United States		(6,209	)		2,389		1,550			1,878
		$	(2,072	)	$	51,908	$	(13,043	)	$	22,724

56

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      Components of income tax expense (benefit) are as follows (in thousands):

		Year			Year			June 21			Jan. 1
		Ended			Ended			through			through
		Dec. 31, 2005			Dec. 31, 2004			Dec. 31, 2003			June 20, 2003
Current
	Federal	$	7,588		$	14,587		$	—		$	—
	State		1,281			2,125			577			563
	Foreign		780			2,147			666			561
			9,649			18,859			1,243			1,124
Deferred
	Federal		(5,117	)		3,175			(5,135	)		—
	State		(248	)		96			(492	)		(268	)
	Foreign		(1,828	)		(1,051	)		96			86
			(7,193	)		2,220			(5,531	)		(182	)
		$	2,456		$	21,079		$	(4,288	)	$	942

      A reconciliation of income taxes computed at the United States Federal statutory tax rate to income tax expense (benefit) follows (in thousands):

	Year			Year		June 21			Jan. 1
	Ended			Ended		through			through
	Dec. 31, 2005			Dec. 31, 2004		Dec. 31, 2003			June 20, 2003
Income tax expense (benefit) at U.S. Federal statutory income tax rate	$	(725	)	$	18,168	$	(4,565	)	$	7,953
Federal benefit from S Corp.		—			—		—			(7,296	)
R&D tax credit		(1,040	)		—		—			—
Foreign income taxed both locally and in the U.S. and foreign tax credits not benefitted		1,017			913		—			—
Foreign income tax losses not benefited and rate differential		1,102			260		220			(10	)
State income taxes, net of Federal income tax benefit		671			1,444		56			294
Abandonment of an operation		950			—		—			—
Other, net		481			294		1			1
Income tax expense (benefit)	$	2,456		$	21,079	$	(4,288	)	$	942

57

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      Deferred taxes are attributable to the following (in thousands):

			December 31,
			2005			2004
Deferred tax assets
	Pension and postretirement benefits		$	12,214		$	13,050
	Product returns and warranty accruals			10,654			5,810
	Inventory valuation			10,722			8,134
	Acquired intangible asset impairment			2,827			—
	Foreign net operating loss carryforwards			1,363			809
	Vacation accrual			2,136			2,174
	Insurance accruals			1,993			1,569
	Allowance for doubtful accounts			1,254			857
	Foreign tax credit carryforwards			932			501
	Minimum pension liability adjustment included in other comprehensive income (loss)			935			349
	Contractual commitment accrual			510			—
	Environmental accruals			230			228
	Other			912			1,607
				46,682			35,088
	Less: valuation allowance for foreign tax credit carryforwards and foreign net operating loss carryforwards			(2,295	)		(1,310	)
		Total deferred tax assets		44,387			33,778
Deferred tax liabilities
	Depreciation and amortization			(14,352	)		(12,436	)
	Goodwill amortization for tax, but not book			(6,483	)		(5,743	)
	Cumulative foreign exchange adjustment included in other comprehensive income (loss)			(142	)		(2,081	)
	Prepaid expenses			(1,292	)		(1,048	)
	Other			(203	)		(322	)
		Total deferred tax liabilities		(22,472	)		(21,630	)
		Net deferred tax assets	$	21,915		$	12,148

      The net deferred tax assets are included in the balance sheet as follows (in thousands):

		December 31,
		2005			2004
Deferred tax assets		$	26,295		$	18,578
Deferred tax liabilities			(4,380	)		(6,430	)
	Net deferred tax assets	$	21,915		$	12,148

      At December 31, 2005, the Company had $4,544 of foreign net operating loss carryforwards with no expiration date and $932 of foreign tax credit carryforwards of which $431 and $501 expire in 2015 and 2014, respectively. In assessing the realization of the deferred tax assets related to these carryforwards, the Company

58

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

has determined that it is more likely than not that the deferred tax assets will not be realized. Therefore, a valuation allowance has been recorded for these carryforwards.

      Realization of the remaining net deferred tax assets is dependent on the Company generating sufficient taxable income in future years to utilize the benefits of the reversals of temporary differences. The Company has performed an assessment regarding the realization of the remaining net deferred tax assets, which includes projecting future taxable income, and has determined it is more likely than not that the remaining net deferred tax assets will be realized.

      The Company’s tax returns are subject to examinations by taxing authorities. The Company believes its tax returns, as filed, are in accordance with applicable tax statutes. Because of the judgmental nature of certain tax positions, the Company’s tax provisions take into consideration possible differences between the taxing authority determinations and the “as filed” positions of the Company.

      The Company does not provide for U.S. income taxes on undistributed earnings of its foreign subsidiaries that are intended to be permanently reinvested. At December 31, 2005, these earnings amounted to approximately $3 million. Determination of the net amount of unrecognized U.S. income taxes with respect to these earnings is not practicable.

NOTE M — EMPLOYEE BENEFIT PLANS

Pension Plans

      The Company maintains defined benefit retirement plans covering certain U.S. and non-U.S. employees. The defined benefit retirement plans are generally based on years of service and employee compensation.

59

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      The measurement date used to determine pension obligations is December 31, 2005. The following table sets forth the plans’ status (in thousands):

			December 31,
			2005						2004
			U.S.			Foreign			U.S.			Foreign
Change in benefit obligations
	Benefit obligations at beginning of year		$	184,474		$	53,002		$	155,857		$	44,898
	Service cost			6,844			2,028			5,820			2,272
	Interest cost			10,488			2,713			9,499			2,455
	Actuarial loss			11,771			4,086			17,721			2,371
	Foreign currency change			—			(5,873	)		—			1,261
	Plan amendments			—			—			1,554			—
	Plan curtailments			—			28			—			113
	Plan settlements			—			—			—			(212	)
	Participant contributions			—			945			—			1,006
	Benefits paid			(6,577	)		(4,279	)		(5,977	)		(1,162	)
		Benefit obligations at end of year	$	207,000		$	52,650		$	184,474		$	53,002
Change in plan assets
	Fair value of plan assets at beginning of year		$	152,885		$	36,282		$	146,958		$	29,980
	Actual return on plan assets			8,975			6,223			9,152			2,140
	Employer contributions			5,115			2,490			2,752			2,278
	Foreign currency change			—			(4,105	)		—			2,252
	Special termination benefits			—			—			—			(212	)
	Participant contributions			—			945			—			1,006
	Benefits paid			(6,577	)		(4,279	)		(5,977	)		(1,162	)
		Plan assets at end of year	$	160,398		$	37,556		$	152,885		$	36,282
Funded status			$	(46,602	)	$	(15,094	)	$	(31,589	)	$	(16,720	)
	Unrecognized net actuarial loss			24,004			480			9,428			562
	Unrecognized prior service cost			1,393			—			1,524			—
		Net liability on balance sheet	$	(21,205	)	$	(14,614	)	$	(20,637	)	$	(16,158	)

60

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      The net liability is classified in the balance sheet as follows (in thousands):

	December 31,
	2005						2004
	U.S.			Foreign			U.S.			Foreign
Plans in net asset position included in pension and other assets	$	10,778		$	—		$	10,347		$	—
Intangible pension assets included in pension and other assets		1,393			—			1,524			—
Amounts included in accumulated other comprehensive income (pre-tax amount)		2,435			—			895			—
Accrued pension cost included in accrued expenses and other current liabilities		(8,303	)		—			(3,400	)		(237	)
Accrued pension cost included in pension and other postretirement liabilities		(27,508	)		(14,614	)		(30,003	)		(15,921	)
	$	(21,205	)	$	(14,614	)	$	(20,637	)	$	(16,158	)

      The components of net periodic pension expense are as follows (in thousands):

																			Jan. 1
	Year Ended						Year Ended						June 21 through						through
	Dec. 31, 2005						Dec. 31, 2004						Dec. 31, 2003						June 20,
																			2003
	U.S.			Foreign			U.S.			Foreign			U.S.			Foreign			U.S.
Service cost	$	6,844		$	2,028		$	5,820		$	2,272		$	3,189		$	1,090		$	3,296
Interest cost		10,488			2,713			9,498			2,455			4,995			963			5,071
Expected return on plan assets		(11,834	)		(2,393	)		(11,254	)		(2,179	)		(5,785	)		(816	)		(6,684	)
Amortization of transition asset		—			—			—			—			—			—			(88	)
Amortization of prior service cost		131			—			30			—			—			—			270
Amortization of unrecognized (gain) loss		54			(2	)		(18	)		—			—			—			(93	)
Curtailment loss recognized		—			28			—			70			—			—			—
	$	5,683		$	2,374		$	4,076		$	2,618		$	2,399		$	1,237		$	1,772

      The Company determines its actuarial assumptions on an annual basis. In determining the present values of the Company’s benefit obligations and net periodic pension expense for all plans as of and for the years ended December 31, 2005 and 2004, the Company used the following assumptions:

	2005		2004
Weighted average discount rate to determine benefit obligations		5.4%		5.7%
Weighted average discount rate to determine net cost		5.7%		6.1%
Rate of future compensation increases		3.9% - 5.0%		4.0% - 5.0%
Rate of return on plan assets		7.1% - 8.0%		7.1% - 8.0%

      The assumed rate of return on plan assets was determined based on expected asset allocation and long-term returns for each category of investment.

61

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      The weighted-average pension plan asset allocations for all plans are as follows:

		December 31,
		2005			2004
Equity securities			59	%		59	%
Debt securities			41	%		41	%
	Total		100	%		100	%

      The Company’s investment strategy is to maintain the mix of equity and debt securities in the approximate percentages shown above.

      During 2006, the Company expects to contribute approximately $12.1 million to its plans. Pension benefit payments expected to be paid are as follows: 2006, $8.2 million; 2007, $8.6 million; 2008, $9.2 million; 2009, $10.0 million; 2010, $10.7 million, and 2011 through 2015, $65.6 million. Expected benefit payments are based on the same assumptions used to measure the Company’s benefit obligations at December 31, 2005 and include estimated future employee service.

Profit Sharing and Defined Contribution Pension Plans

      Certain subsidiaries of the Company sponsor defined contribution plans under section 401(k) of the Internal Revenue Code. Eligible participants may elect to defer from 5% to 50% of eligible compensation. Such subsidiaries are required to match employees’ contributions based on formulas, which vary by plan. The Company had expenses for profit sharing and defined contribution pension plans of approximately $2.7 million, $2.8 million, and $2.7 million for the years ended December 31, 2005, 2004 and 2003, respectively.

Other Postretirement Benefits

      Certain subsidiaries of the Company provide health care and life insurance benefits to eligible retired employees. The plans are partially funded by participant contributions and contain cost-sharing features such as deductibles and coinsurance.

      The measurement date used to determine postretirement obligations is December 31, 2005. The following table presents information for the postretirement plans (in thousands):

			December 31,
			2005			2004
Change in benefit obligations
	Benefit obligations at beginning of year		$	7,838		$	7,124
	Service cost			283			263
	Interest cost			410			432
	Actuarial (gain) loss			(273	)		420
	Benefits paid			(403	)		(401	)
		Benefit obligations at end of year		7,855			7,838
Unrecognized net actuarial (gain) loss				(48	)		219
Accrued obligations			$	7,903		$	7,619

62

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      The accrued obligation is included in the balance sheet as follows (in thousands):

	December 31,
	2005			2004
Accrued obligation included in accrued expenses and other current liabilities	$	(402	)	$	(402	)
Accrued obligation included in pension and other postretirement liabilities		(7,501	)		(7,217	)
	$	(7,903	)	$	(7,619	)

      The following are the components of net periodic postretirement benefit cost (in thousands):

	Year Ended December 31,
	2005			2004		2003
Service cost	$	283		$	263	$	264
Interest cost		410			433		415
Amortization of net actuarial gain		(6	)		—		(147	)
Amortization of prior service cost		—			—		(26	)
	$	687		$	696	$	506

      The Company determines its actuarial assumptions on an annual basis. In determining the present values of the Company’s benefit obligations and net periodic benefit cost, the Company used a discount rate of 5.50% and 5.75% for the years ended December 31, 2005 and 2004, respectively. The annual health care cost trend rate is assumed to trend downward from 9% in 2005 to 5% in 2009. Increasing the assumed healthcare cost trend rates by one percentage point would result in additional annual costs of approximately $45,000. Decreasing the assumed health care cost trend rates by one percentage point would result in a decrease of approximately $39,000 in annual costs. The effect on postretirement benefit obligations at December 31, 2005 of a one-percentage point increase is $0.3 million. The effect of a one-percentage point decrease is $0.3 million.

      The Company continues to fund medical and life insurance benefit costs principally on a pay-as-you-go basis. The pay-as-you-go expenditures for postretirement benefits have not been material. During 2006, the Company expects to contribute approximately $0.4 million to its postretirement benefit plans. The benefits expected to be paid in each year from 2007 through 2010 are $0.4 million, $0.4 million, $0.5 million, and $0.5 million, respectively. The aggregate benefits expected to be paid in the five years 2011 through 2015 are $2.8 million.

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United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE N — COMMITMENTS AND CONTINGENCIES

Leases

      The following is a schedule of the future minimum payments and sublease rentals under operating leases that have non-cancelable lease terms (in thousands):

	Minimum		Sublease
	Payments		Rentals
2006	$	3,187	$	(599	)
2007		2,571		(599	)
2008		2,195		(599	)
2009		2,002		(599	)
2010		1,549		(599	)
2011 and thereafter		6,928		(2,397	)
	$	18,432	$	(5,392	)

      These leases also provide for payment of taxes and other expenses. Rent expense was $5.0 million, $4.9 million and $4.7 million for the years ended December 31, 2005, 2004 and 2003, respectively.

Insurance Reserves

      Prior to the Acquisition, the Predecessor Company had insurance under UIS’s master policies for group, workers’ compensation, automobile, product and general liability. These policies were subject to retrospective rating adjustments, for which the Predecessor Company was responsible. These adjustments were predicated upon paid losses, reserves and expenses. The projections involved in determining the adjustments and the original estimate loss provision were subject to substantial uncertainty because of several difficult to predict factors, including actual claims experience, regulatory changes, litigation trends and changes in inflation.

      As of the Acquisition Date, the Company was no longer covered by the UIS master insurance policies. As of that date, the Company purchased insurance, which did not include retrospective rating adjustments but did include high deductibles for which the Company is responsible. Consequently, the Company has been subject to the same substantial uncertainty as those described in the preceding paragraph. Estimated losses for which the Company is responsible are included in accrued expenses and other current liabilities in the balance sheets.

Environmental

      The Company is subject to a variety of Federal, state, local and foreign environmental laws and regulations, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances or wastes and the cleanup of contaminated sites. The Company has been identified as a potentially responsible party for contamination at two sites. One of these sites is a former facility in Edison, New Jersey, where a state agency has ordered the Company to continue with the monitoring and investigation of chlorinated solvent contamination. The Company has informed the agency that this contamination was caused by another party at a neighboring facility and has initiated a lawsuit against that party for damages and to compel it to take responsibility for any further investigation or remediation. The second site is a previously owned site in Solano County, California, where the Company, at the request of the regional water board, is investigating and analyzing the nature and extent of the contamination and is conducting some remediation. Based on currently available information, management believes that the cost of the ultimate outcome of these environmental matters will not exceed the $2.6 million accrued at December 31, 2005 by a material amount, if at all. However, because all investigation and analysis has not yet been

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United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

completed and because of the inherent uncertainty in such environmental matters, it is reasonably possible that the ultimate outcome of these matters could have a material adverse effect on results for a single quarter. Expenditures for these environmental matters total $0.7 million, $0.7 million and $0.2 million in 2005, 2004 and 2003, respectively.

Litigation

      The Company is subject to various other contingencies, including routine legal proceedings and claims arising out of the normal course of business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims and workers’ compensation claims. The outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty. Nevertheless, the Company believes that the outcome of any currently existing proceedings, even if determined adversely, would not have a material adverse effect on financial condition or results of operations.

Product Recall

      The Company is in the early stages of recalling one of the products it distributes. The estimated cost of this recall ranges from $1 million to $2 million. Because the Company is in the early stages of resolving this matter, the estimates are subject to change, which could be significant.

      The product being recalled was purchased as a completed product from a third-party manufacturer. The Company believes that this third-party manufacturer is contractually responsible for all costs associated with the recall. The third-party manufacturer has informally accepted responsibility.

      The Company has recorded a $1.0 million accrued liability for this matter and has recorded a corresponding $1.0 million receivable, which is included in other current assets.

International Asset Transfers

      The Company is evaluating the adequacy of its documentation of certain international asset transfers. It is uncertain if such documentation will be deemed complete. Therefore, the Company could be subject to fines estimated to range from $250,000 and $1 million. The Company has recorded a $250,000 accrued liability for these fines.

NOTE O — RELATED PARTY TRANSACTIONS

      The Company has employment agreements with certain of its executive officers providing for annual compensation amounting to approximately $0.8 million per annum plus bonuses (as defined in the agreements) and severance pay under certain circumstances (as defined in the agreements).

      In connection with the Acquisition, the Company entered into a management agreement with TC Group, L.L.C., an affiliate of Carlyle, for management and financial advisory services and oversight to be provided to the Company and its subsidiaries. Pursuant to this agreement, the Company pays an annual management fee of $2.0 million and out-of-pocket expenses, and the Company may pay Carlyle additional fees associated with financial advisory and other future transactions. Carlyle also received a one-time transaction fee of $10.0 million upon consummation of the Acquisition. The management agreement provides for indemnification of Carlyle against liabilities and expenses arising out of Carlyle’s performance of services under the agreement. The agreement terminates either when Carlyle or its affiliates own less than 10% of the Company’s equity interest or when the Company and Carlyle mutually agree to terminate the agreement.

      UIS maintained workers’ compensation, general liability, product liability and comprehensive automobile insurance for all of its subsidiaries, including the Predecessor Company. UIS allocated premium expense to each subsidiary based on rates charged by the insurance carrier and predicated and adjusted on estimated

65

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

losses. UIS is liable for the settlement of all claims on these policies. As of the Acquisition date, the Company is no longer covered by UIS insurance.

      Occasionally, UIS extended financing to the Predecessor Company. Interest charges to the Predecessor Company on debt to UIS were $180,000 for the period January 1, 2003 to June 20, 2003. In addition, subsidiaries extended financing to UIS. Interest charges to UIS were $1.4 million for the period January 1, 2003 to June 20, 2003. Both are recorded in interest expense, net.

NOTE P — GEOGRAPHIC INFORMATION

      The Company had the following net sales by country (in thousands):

					June 21		Jan. 1
	Year Ended		Year Ended		through		through
	Dec. 31, 2005		Dec. 31, 2004		Dec. 31, 2003		June 20, 2003
United States	$	823,800	$	847,679	$	418,609	$	378,045
Canada		34,547		32,952		16,062		14,228
United Kingdom		37,148		38,594		21,114		17,410
Mexico		30,992		26,148		12,663		11,085
Germany		13,327		13,227		5,486		5,662
France		10,225		8,231		2,472		3,822
Belgium		6,938		6,927		3,578		2,989
Sweden		5,744		6,086		2,212		1,975
Spain		4,106		3,765		1,739		1,498
Other		42,016		43,056		22,896		15,753
	$	1,008,843	$	1,026,665	$	506,831	$	452,467

      Net long-lived assets by country are as follows (in thousands):

	December 31,
	2005		2004
United States	$	253,349	$	271,958
United Kingdom		30,263		40,921
Mexico		13,129		13,708
Spain		3,269		4,366
Canada		868		583
Goodwill		166,559		166,559
	$	467,437	$	498,095

NOTE Q — STOCK OPTIONS

      UCI’s parent, UCI Acquisition Holdings, Inc., adopted a stock option plan in 2003 (the “Plan”). The Plan permits the granting of options to purchase shares of common stock of UCI Acquisition Holdings, Inc. UCI’s employees, directors, and consultants are eligible to receive a stock option grant. Options granted pursuant to the Plan must be authorized by the Compensation Committee of the Board of Directors of UCI’s parent (the “Compensation Committee”). The aggregate number of shares which may be issued under the Plan shall not exceed 338,778 shares of common stock. The terms of the options may vary with each grant and are determined by the Compensation Committee within the guidelines of the Plan. No option life can be greater than ten years. The exercise price of the options cannot be less than 100% of fair market value of the

66

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

related shares at the date of grant. Options currently outstanding vest over an 8 year period, and vesting of a portion of the options could accelerate if UCI achieves certain financial targets, or in the event of certain changes in ownership. In 2005, 2004 and 2003, the exercise price of all options granted was at the estimated $100 market value of UCI’s parent’s common stock on the date of the grant. The average remaining life of options outstanding at December 31, 2005 is 8 years.

      Information related to the number of shares under options follows:

		December 31,
		2005			2004			2003
Number of shares under option:
	Outstanding, beginning of year		304,578			278,678			—
	Granted		39,500			73,900			287,684
	Exercised		—			—			—
	Canceled		(40,038	)		(48,000	)		(9,006	)
	Outstanding, end of year		304,040			304,578			278,678
	Exercisable, end of year		92,657			74,381			34,318

NOTE R — FAIR VALUE OF FINANCIAL INSTRUMENTS

      Cash and cash equivalents — The carrying amount of cash equivalents approximates fair value because the original maturity is less than 90 days.

      Trade accounts receivable — The carrying amount of trade receivables approximates fair value because of their short outstanding terms.

      Trade accounts payable — The carrying amount of trade payables approximates fair value because of their short outstanding terms.

      Short-term borrowings — The carrying value of these borrowings equals fair market value because their interest rates reflect current market rates.

      Long-term debt — The fair market value of the $230 million senior subordinated notes, at December 31, 2005, is $228.0 million. The carrying value of borrowings under the senior credit facility equals fair market value because their variable interest rates reflect market rates.

      Interest rate swaps — Interest rate swaps are marked to market at the end of each reporting period.

NOTE S — INTEREST RATE SWAPS

      In connection with the Company’s senior credit facilities, the Company had interest rate swap agreements which expired in August 2005. These agreements effectively converted $118 million of variable rate debt to fixed rate debt for the two years ended August 2005. On August 10, 2005, the Company entered into new interest rate swap agreements. These agreements effectively convert $80 million of variable rate debt to fixed rate debt for the two years ending August 2007, and $40 million for the 12-month period ending August 2008. The variable component of the interest rate on borrowings under the senior credit facilities is based on LIBOR. Under the swap agreements, the Company will pay 4.4%, and will receive the then current LIBOR, on $80 million through August 2007 and $40 million for the 12-month period ending August 2008.

      The Company does not use derivatives for trading or speculative purposes nor is it a party to leveraged derivatives. Further, the Company has a policy of only entering into contracts with carefully selected major financial institutions based upon their credit ratings and other factors.

      The Company recorded an asset of $529,000 and $640,000 at December 31, 2005 and 2004, respectively, to recognize the fair value of interest derivatives. The Company has also recorded a tax liability of $203,000

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United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

and $250,000 at December 31, 2005 and 2004, respectively, associated therewith. The net offset is recorded in accumulated other comprehensive income (loss).

NOTE T — OTHER COMPREHENSIVE INCOME (LOSS)

      The components of other comprehensive income (loss) for the year ended December 31, 2005 are as follows (in thousands):

	Before					Net of
	Tax			Tax		Tax
	Amount			Benefit		Amount
Interest rate swaps	$	(112	)	$	48	$	(64	)
Foreign currency adjustment		(4,485	)		1,941		(2,544	)
Minimum pension liability adjustment		(1,540	)		586		(954	)
	$	(6,137	)	$	2,575	$	(3,562	)

      Accumulated other comprehensive income (loss) is as follows (in thousands):

										Accumulated
							Minimum			Other
				Foreign			Pension			Comprehensive
	Interest Rate			Currency			Liability			Income
	Swaps			Adjustment			Adjustment			(Loss)
Balance at January 1, 2005	$	390		$	2,882		$	(546	)	$	2,726
2005 change		(64	)		(2,544	)		(954	)		(3,562	)
Balance at December 31, 2005	$	326		$	338		$	(1,500	)	$	(836	)

NOTE U — OTHER INFORMATION

      Cash payments for interest and income taxes (net of refunds) and non-cash transactions follow (in thousands):

						June 21		Jan. 1
		Year Ended		Year Ended		through		through
		Dec. 31, 2005		Dec. 31, 2004		Dec. 31, 2003		June 20, 2003
Cash flow information:
	Interest	$	35,278	$	32,908	$	19,637	$	—
	Income taxes (net of refunds)		12,783		17,397		1,973		2,241
Common stock non-cash transactions:
	Transfers and dividends recorded as a reduction to the receivable from UIS		—		—		—		56,630
	Additions to capital stock of subsidiaries through capitalization of amounts due to UIS		—		—		—		20,271

      In 2004, the Company recorded $874,000 pre-tax expense for losses associated with the closure of certain distribution facilities in the third and fourth quarters. The pre-tax expense includes $57,000 of employee severance costs and $817,000 for lease commitments, net of estimated sublease income. Such lease commitments are for distribution facilities that will not be used by the Company for the remaining term.

      At December 31, 2005, 1,000 shares of voting common stock were authorized, issued and outstanding. The par value of each share of common stock is $0.01 per share.

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United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE V — CONCENTRATION OF RISK

      The Company places its cash investments with a relatively small number of high quality financial institutions. Substantially all of the cash and cash equivalents, including foreign cash balances at December 31, 2005 and 2004, were uninsured. Foreign cash balances at December 31, 2005 and 2004 were $4.8 million and $5.2 million, respectively.

      The Company sells vehicle parts to a wide base of customers for use by original equipment manufacturers and aftermarket consumers. The Company has outstanding receivables owed by these customers and to date has experienced no significant collection problems. Sales to a single customer, AutoZone, approximated 20%, 22% and 23% of total net sales for the years ended December 31, 2005, 2004 and 2003, respectively. No other customer accounted for more than 10% of total net sales for the years ended December 31, 2005, 2004 and 2003. Although the Company is directly affected by developments in the vehicle parts industry, management does not believe significant credit risk exists.

NOTE W — QUARTERLY FINANCIAL INFORMATION (unaudited)

      The following is a summary of the unaudited quarterly results of operations. The Company believes that all adjustments considered necessary for a fair presentation in accordance with generally accepted accounting principles have been included (in thousands).

	Three Months Ended
	March 31		June 30		September 30		December 31
2005
Net sales	$	245,506	$	269,285	$	257,397	$	236,655
Gross margin		46,086		53,292		51,517		34,034
Net (loss) income		2,729		4,374		5,996		(17,627	)
2004
Net sales	$	256,811	$	273,952	$	257,566	$	238,336
Gross margin		55,547		59,796		54,732		42,726
Net income		7,535		10,217		10,280		2,797

NOTE X — GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS

      The senior credit facilities are secured by substantially all the assets of the Company. The senior subordinated notes (the “Notes”) are unsecured and rank equally in right of payment with any of the Company’s future senior subordinated indebtedness. The Notes are subordinated to indebtedness and other liabilities of UCI’s subsidiaries that are not guarantors of the Notes. The Notes and borrowings under the senior credit facilities are guaranteed on a full and unconditional and joint and several basis by UCI’s domestic subsidiaries.

      The condensed financial information, which follows, includes the consolidated results of UCI subsequent to the June 20, 2003 Acquisition date and the combined results of the Predecessor Company prior to the Acquisition. This information includes condensed financial statements for (a) UCI, which is the issuer of the Notes and borrower under the senior credit facilities, (b) the domestic subsidiaries, which guarantee the Notes and borrowings under the senior credit facilities (the “Guarantors”), (c) the foreign subsidiaries (the “Non-Guarantors”), and (d) consolidated UCI or combined Predecessor Company, as applicable. Also included are consolidating entries, which principally consist of eliminations of investments in consolidated subsidiaries and intercompany balances and transactions. All goodwill is included in UCI’s balance sheet.

69

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      The December 31, 2005 and 2004 UCI Consolidated, UCI, Guarantor and Non-Guarantor condensed balance sheets that follow in this Note X include the final allocation of the Acquisition purchase price. The UCI Consolidated, UCI, Guarantor and Non-Guarantor condensed income statements for 2005 and 2004 include the effects of the allocation of the Acquisition purchase price. For the June 21, 2003 to December 31, 2003 condensed income statement that follows in this Note X, step-up amounts resulting from the preliminary allocation of the Acquisition purchase price are included with UCI and were not allocated to its subsidiaries. Consequently, the 2003 Guarantor and Non-Guarantor financial statements are reported on the Predecessor’s historical basis. Preliminary purchase price allocations were based on preliminary estimates of the fair value of assets acquired and liabilities assumed.

      Separate financial statements of the Guarantor subsidiaries are not presented because their guarantees are full and unconditional and joint and several, and the Company believes separate financial statements and other disclosures regarding the Guarantor subsidiaries are not material to investors.

70

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Balance Sheet

December 31, 2005

			UCI										Non-
			Consolidated		Eliminations			UCI		Guarantor			Guarantor
			(In thousands)
Assets
Current assets
	Cash and cash equivalents		$	26,182	$			$	20,029	$	1,307		$	4,846
	Accounts receivable, net			259,619					—		235,595			24,024
	Inventories, net			183,186					—		167,807			15,379
	Deferred tax assets			26,295					103		25,633			559
	Other current assets			22,123					7,232		8,826			6,065
		Total current assets		517,405					27,364		439,168			50,873
Property, plant and equipment, net				194,600					302		151,615			42,683
Intercompany receivables						(85,721	)		—		84,029			1,692
Intercompany notes receivable						(467,000	)		467,000		—			—
Investment in subsidiaries						(141,742	)		141,126		616			—
Goodwill				166,559					166,559		—			—
Other intangible assets, net				87,197					14,643		70,154			2,400
Deferred financing costs, net				6,177					6,177		—			—
Pension and other assets				12,904					305		12,454			145
		Total assets	$	984,842	$	(694,463	)	$	823,476	$	758,036		$	97,793
Liabilities and shareholder’s equity
Current liabilities
	Accounts payable		$	109,912	$			$	4,647	$	90,698		$	14,567
	Short-term borrowings			261										261
	Current maturities of long-term debt			12										12
	Accrued expenses and other current liabilities			96,064					11,097		77,635			7,332
		Total current liabilities		206,249					15,744		168,333			22,172
Long-term debt, less current maturities				442,274					442,274
Pension and other postretirement liabilities				49,623							34,406			15,217
Deferred tax liabilities				4,380					13,377		(3,941	)		(5,056	)
Other long-term liabilities				1,970					816		1,970			(816	)
Intercompany payables						(85,721	)		70,919		1,532			13,270
Intercompany notes payable						(467,000	)		—		447,000			20,000
Total shareholder’s equity				280,346		(141,742	)		280,346		108,736			33,006
		Total liabilities and shareholder’s equity	$	984,842	$	(694,463	)	$	823,476	$	758,036		$	97,793

71

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Balance Sheet

December 31, 2004

			UCI											Non-
			Consolidated		Eliminations			UCI			Guarantor			Guarantor
			(In thousands)
Assets
Current assets
	Cash and cash equivalents		$	11,291	$			$	3,916		$	2,114		$	5,261
	Accounts receivable, net			238,581					—			215,425			23,156
	Inventories, net			188,212					—			169,664			18,548
	Deferred tax assets			18,578					(250	)		17,825			1,003
	Other current assets			12,188					2,123			3,670			6,395
		Total current assets		468,850					5,789			408,698			54,363
Property, plant and equipment, net				216,849					604			160,907			55,338
Intercompany receivables						(58,212	)		—			58,212			—
Intercompany notes receivable						(482,000	)		482,000			—			—
Investment in subsidiaries						(146,288	)		135,414			10,874			—
Goodwill				166,559					166,559			—			—
Other intangible assets, net				94,229					7,738			84,068			2,423
Deferred financing costs, net				7,686					7,686			—			—
Pension and other assets				12,772					272			12,325			175
		Total assets	$	966,945	$	(686,500	)	$	806,062		$	735,084		$	112,299
Liabilities and shareholder’s equity
Current liabilities
	Accounts payable		$	91,505	$			$	4,020		$	72,678		$	14,807
	Short-term borrowings			1,267					500			—			767
	Current maturities of long-term debt			228					—			—			228
	Accrued expenses and other current liabilities			67,808					3,811			56,423			7,574
		Total current liabilities		160,808					8,331			129,101			23,376
Long-term debt, less current maturities				456,674					456,641			—			33
Pension and other postretirement liabilities				53,141					—			35,911			17,230
Deferred tax liabilities				6,430					6,824			(40	)		(354	)
Other long-term liabilities				1,972					—			1,972			—
Intercompany payables						(58,212	)		46,346			—			11,866
Intercompany notes payable						(482,000	)		—			462,000			20,000
Total shareholder’s equity				287,920		(146,288	)		287,920			106,140			40,148
		Total liabilities and shareholder’s equity	$	966,945	$	(686,500	)	$	806,062		$	735,084		$	112,299

72

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Income Statement

Year ended December 31, 2005

			UCI												Non-
			Consolidated			Eliminations			UCI			Guarantor			Guarantor
			(In thousands)
Net sales			$	1,008,843		$	(13,561	)	$	—		$	896,022		$	126,382
Cost of sales				823,914			(13,561	)		—			731,373			106,102
		Gross profit		184,929						—			164,649			20,280
Operating expenses
	Selling and warehousing			72,967						—			65,351			7,616
	General and administrative			47,035						13,392			21,762			11,881
	Amortization of intangible assets			5,888						—			5,888			—
	Asset impairments and other costs			21,530						7,396			8,634			5,500
		Operating income (loss)		37,509						(20,788	)		63,014			(4,717	)
Other income (expense)
	Interest (expense) income, net			(36,467	)					(36,548	)		11			70
	Intercompany interest									38,434			(36,268	)		(2,166	)
	Management fee expense			(2,000	)					(2,000	)		—			—
	Miscellaneous, net			(1,114	)					(19	)		(276	)		(819	)
(Loss) income before income taxes				(2,072	)					(20,921	)		26,481			(7,632	)
Income tax expense (benefit)				2,456						(4,625	)		8,570			(1,489	)
Increase (decrease) before equity in earnings of subsidiaries				(4,528	)					(16,296	)		17,911			(6,143	)
Equity in earnings of subsidiaries							(2,371	)		11,768			(9,397	)		—
		Net (loss) income	$	(4,528	)	$	(2,371	)	$	(4,528	)	$	8,514		$	(6,143	)

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United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Income Statement

Year ended December 31, 2004

			UCI												Non-
			Consolidated			Eliminations			UCI			Guarantor			Guarantor
			(In thousands)
Net sales			$	1,026,665		$	(14,677	)	$	—		$	916,620		$	124,722
Cost of sales				813,864			(14,677	)		—			724,549			103,992
		Gross profit		212,801						—			192,071			20,730
Operating expenses
	Selling and warehousing			72,725						—			65,455			7,270
	General and administrative			44,010						9,758			23,432			10,820
	Amortization of intangible assets			6,834						—			6,834			—
		Operating income (loss)		89,232						(9,758	)		96,350			2,640
Other income (expense)
	Interest (expense) income, net			(36,047	)					(36,190	)		36			107
	Intercompany interest			—						38,301			(35,754	)		(2,547	)
	Management fee expense			(2,000	)					(2,000	)		—			—
	Miscellaneous, net			723						(120	)		276			567
(Loss) income before income taxes				51,908						(9,767	)		60,908			767
Income tax expense (benefit)				21,079						(3,972	)		24,771			280
Increase (decrease) before equity in earnings of subsidiaries				30,829						(5,795	)		36,137			487
Equity in earnings of subsidiaries							(34,172	)		36,624			(2,452	)		—
		Net (loss) income	$	30,829		$	(34,172	)	$	30,829		$	33,685		$	487

74

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Income Statement

June 21, 2003 to December 31, 2003

			UCI												Non-
			Consolidated			Eliminations			UCI			Guarantor			Guarantor
			(In thousands)
Net sales			$	506,831		$	(6,267	)	$	—		$	454,416		$	58,682
Cost of sales				433,345			(6,267	)		33,888			359,150			46,574
		Gross profit (loss)		73,486						(33,888	)		95,266			12,108
Operating expenses
	Selling and warehousing			34,178						—			30,772			3,406
	General and administrative			21,815						5,399			10,424			5,992
	Amortization of intangible assets			3,176						3,236			(60	)		—
		Operating income (loss)		14,317						(42,523	)		54,130			2,710
Other income (expense)
	Interest (expense) income, net			(26,348	)					(26,467	)		247			(128	)
	Management fee expense			(1,000	)					(1,000	)		3			(3	)
	Miscellaneous, net			(12	)					(362	)		549			(199	)
(Loss) income before income taxes				(13,043	)					(70,352	)		54,929			2,380
Income tax expense (benefit)				(4,288	)					(26,670	)		21,422			960
Increase (decrease) before equity in earnings of subsidiaries				(8,755	)					(43,682	)		33,507			1,420
Equity in earnings of subsidiaries							(34,927	)		34,927			—			—
		Net (loss) income	$	(8,755	)	$	(34,927	)	$	(8,755	)	$	33,507		$	1,420

75

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Combining Condensed Income Statement

January 1, 2003 to June 20, 2003

			Predecessor										Non-
			Combined			Eliminations			UCI	Guarantor			Guarantor
			(In thousands)
Net sales			$	452,467		$	(6,912	)	$	$	405,003		$	54,376
Cost of sales				378,211			(6,912	)			341,116			44,007
		Gross profit		74,256							63,887			10,369
Operating expenses
	Selling and warehousing			33,585							30,316			3,269
	General and administrative			18,928							13,528			5,400
	Amortization of intangible assets			60							60			—
		Operating income		21,683							19,983			1,700
Other income (expense)
	Interest (expense) income, net			1,467							1,522			(55	)
	Management fee expense			(18	)						9			(27	)
	Miscellaneous, net			(408	)						(7	)		(401	)
Income before income taxes				22,724							21,507			1,217
Income tax expense				942							493			449
		Net income	$	21,782		$			$	$	21,014		$	768

76

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Statement of Cash Flows

Year Ended December 31, 2005

												Non-
		UCI Consolidated			Eliminations	UCI			Guarantor			Guarantor
		(In thousands)
Net cash provided by operating activities		$	62,819		$	$	42,735		$	14,429		$	5,655
Cash flows from investing activities:
	Capital expenditures		(32,186	)			(11,638	)		(15,322	)		(5,226	)
	Proceeds from sale of property, plant and equipment		369				—			86			283
Net cash used in investing activities			(31,817	)			(11,638	)		(15,236	)		(4,943	)
Cash flows from financing activities:
	Debt repayments		(16,254	)			(15,500	)		—			(754	)
	Shareholder’s equity contribution		516				516			—			—
Net cash used in financing activities			(15,738	)			(14,984	)		—			(754	)
Effect of exchange rate changes on cash			(373	)			—			—			(373	)
Net increase (decrease) in cash and cash equivalents			14,891				16,113			(807	)		(415	)
Cash and cash equivalents at beginning of year			11,291				3,916			2,114			5,261
Cash and cash equivalents at end of year		$	26,182		$	$	20,029		$	1,307		$	4,846

77

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Statement of Cash Flows

Year Ended December 31, 2004

												Non-
		UCI Consolidated			Eliminations	UCI			Guarantor			Guarantor
		(In thousands)
Net cash provided by operating activities		$	78,365		$	$	44,103		$	25,453		$	8,809
Cash flows from investing activities:
	Acquisition and related fees		(8,000	)			(8,000	)		—			—
	Capital expenditures		(44,815	)			(9,381	)		(29,430	)		(6,004	)
	Proceeds from sale of property, plant and equipment		2,011				—			1,643			368
Net cash used in investing activities			(50,804	)			(17,381	)		(27,787	)		(5,636	)
Cash flows from financing activities:
	Issuances of debt		967				500			—			467
	Debt repayments		(65,688	)			(65,000	)		—			(688	)
	Shareholder’s equity contribution		1,735				1,735			—			—
	Dividends		—				6,795			—			(6,795	)
Net cash used in financing activities			(62,986	)			(55,970	)		—			(7,016	)
Effect of exchange rate changes on cash			586				—			—			586
Net decrease in cash and cash equivalents			(34,839	)			(29,248	)		(2,334	)		(3,257	)
Cash and cash equivalents at beginning of year			46,130				33,164			4,448			8,518
Cash and cash equivalents at end of year		$	11,291		$	$	3,916		$	2,114		$	5,261

78

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Statement of Cash Flows

June 21, 2003 to December 31, 2003

												Non-
		UCI Consolidated			Eliminations	UCI			Guarantor			Guarantor
		(In thousands)
Net cash provided by operating activities		$	113,493		$	$	84,550		$	21,134		$	7,809
Cash flows from investing activities:
	Acquisition and related fees		(818,162	)			(818,162	)		—			—
	Capital expenditures		(21,998	)			(26	)		(19,054	)		(2,918	)
	Proceeds from sale of property, plant and equipment		2,252				—			—			2,252
Net cash used in investing activities			(837,908	)			(818,188	)		(19,054	)		(666	)
Cash flows from financing activities:
	Issuances of debt		585,000				585,000			—			—
	Financing fees and debt issuance costs		(21,583	)			(21,583	)		—			—
	Debt repayments		(58,756	)			(58,000	)		—			(756	)
	Shareholder’s equity contribution		261,385				261,385			—			—
Net cash provided by (used in) financing activities			766,046				766,802			—			(756	)
Effect of exchange rate changes on cash			47				—			—			47
Net increase in cash and cash equivalents			41,678				33,164			2,080			6,434
Cash and cash equivalents at beginning of period			4,452				—			2,368			2,084
Cash and cash equivalents at end of period		$	46,130		$	$	33,164		$	4,448		$	8,518

79

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

Combining Condensed Statement of Cash Flows

January 1, 2003 to June 20, 2003

		Predecessor								Non-
		Combined			Eliminations	UCI	Guarantor			Guarantor
		(In thousands)
Net cash provided by operating activities		$	23,893		$	$	$	21,650		$	2,243
Cash flows from investing activities:
	Capital expenditures		(21,388	)				(16,026	)		(5,362	)
	Proceeds from sale of property, plant and equipment		215					34			181
Net cash used in investing activities			(21,173	)				(15,992	)		(5,181	)
Cash flows from financing activities:
	Debt repayments		(98	)				—			(98	)
	Dividends and transfers to UIS, Inc., net		(28,033	)				(10,527	)		(17,506	)
Net cash used in financing activities			(28,131	)				(10,527	)		(17,604	)
Effect of exchange rate changes on cash			1,509					—			1,509
Net decrease in cash and cash equivalents			(23,902	)				(4,869	)		(19,033	)
Cash and cash equivalents at beginning of period			28,354					7,237			21,117
Cash and cash equivalents at end of period		$	4,452		$	$	$	2,368		$	2,084

80

United Components, Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

NOTE Y — SUBSEQUENT EVENTS (unaudited)

Pending Acquisition of ASC Industries, Inc.

      On March 9, 2006, the Company entered into a definitive agreement under which the Company will acquire all of the capital stock of ASC Industries, Inc. (“ASC”). The purchase price is approximately $155 million at closing, including the assumption of certain debt. The Company may also pay ASC stockholders an additional $4 million in purchase price following the acquisition, based upon the achievement of certain operational objectives. Completion of the transaction is subject to regulatory approval and other customary closing conditions.

      ASC is a manufacturer and distributor of water pumps, with 2005 revenue of $106 million.

      The Company expects to fund the acquisition with $135 million of additional borrowings. The Company intends to amend the credit agreement relating to its existing senior credit to replace the existing term loan with a new term loan, which will provide the additional borrowing capacity.

Closure of Canadian Facility

      In March 2006, the Company decided to close a Canadian facility, which manufactures and distributes mechanical fuel pumps. Production and distribution will be transferred to the Company’s fuel pump operations in Illinois. This Canadian facility had sales of $6.2 million and $8.2 million in 2005 and 2004, respectively.

      In the first quarter of 2006, the Company will record a loss of approximately $1.0 million related to this closing. This loss includes approximately $0.4 million of severance payments, $0.5 million of equipment write-offs, and $0.1 million of other related costs.

81

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

      None.

ITEM 9A. CONTROLS AND PROCEDURES

      The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

      As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Form 10-K. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Form 10-K at the reasonable assurance level.

      There has been no change in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

      None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The following table sets forth information concerning our executive officers and directors as of the date of this report.

Name	Age		Position
David L. Squier		60	Chairman of the Board
Bruce M. Zorich		52	Chief Executive Officer, Director
Charles T. Dickson		51	Chief Financial Officer, Executive Vice President, Director
Daniel F. Akerson		57	Director
Daniel A. Bellissimo		32	Director
Ian I. Fujiyama		33	Director
Paul R. Lederer		66	Director
Raymond A. Ranelli		58	Director
John C. Ritter		58	Director

      David L. Squier is the Chairman of our Board of Directors and has been a member of the Board since 2003. Mr. Squier retired from Howmet Corporation in October 2000, where he served as the President and Chief Executive Officer for over eight years. Prior to his tenure as CEO, Mr. Squier served in a number of

82

senior management assignments at Howmet, including Executive Vice President and Chief Operating Officer. Mr. Squier was also a member of the Board of Directors of Howmet from 1987 until his retirement. Mr. Squier currently serves as an adviser to Carlyle. Mr. Squier currently serves on the Boards of Directors of Vought Aircraft Industries, Firth Rixon Limited and Avio SpA.

      Bruce M. Zorich is our Chief Executive Officer and has been a member of the Board since 2003. From January 2002 through May 2003, Mr. Zorich was President and CEO of Magnatrax Corporation. From 1996 to 2001, Mr. Zorich was President of Huck International. In May of 2003, Magnatrax Corporation filed a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code.

      Charles T. Dickson is our Chief Financial Officer, Executive Vice President and has been a member of the Board since 2003. From November 1999 to October 2001, Mr. Dickson was CFO of AGENCY.COM. From December 1997 to October 1999, Mr. Dickson was CFO of Winstar Communications. Mr. Dickson was CFO of General Instrument Corporation from January 1994 to November 1997. In April of 2001, Winstar Communications filed a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code.

      Daniel F. Akerson has been a member of the Board since 2003. Mr. Akerson joined Carlyle in 2003 as a Managing Director. Prior to joining Carlyle, Mr. Akerson was Chairman and Chief Executive Officer of XO Communications, Inc. from 1999 to January 2003. Before that, Mr. Akerson served as CEO from 1996 to 1999, and Chairman, from 1996 to 2000, of Nextel Communications, Inc. From 1993 to 1996 he was General Partner at Forstmann Little & Co., during which time he also served as Chairman and CEO of General Instrument Company. Prior to his tenure at Forstmann Little & Co., Mr. Akerson served in several senior positions at MCI Communications including Executive Vice President and Chief Financial Officer from 1987 to 1990 and President and Chief Operating Officer from 1992 to 1993. In June of 2002, XO Communications, Inc. filed a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code. Mr. Akerson currently serves on the Board of Directors of American Express Company.

      Daniel A. Bellissimo has been a member of the Board since 2003. Mr. Bellissimo is a Vice President with Carlyle, which he joined in 1999. During his tenure at Carlyle, he served as an Associate from 1999 to 2001 and a Senior Associate from 2001 to 2003. Prior to joining Carlyle, Mr. Bellissimo worked in the Investment Banking Division of Morgan Stanley & Co.

      Ian I. Fujiyama has been a member of the Board since 2003. Mr. Fujiyama is a Managing Director with Carlyle which he joined in 1997. During his tenure at Carlyle, Mr. Fujiyama spent two years in Hong Kong and Seoul working for Carlyle’s Asia buyout fund, Carlyle Asia Partners. Prior to joining Carlyle, Mr. Fujiyama was an Associate at Donaldson Lufkin and Jenrette Securities Corp. from 1994 to 1997.

      Paul R. Lederer has been a member of the Board since 2003. Mr. Lederer has been formally retired the past five years with the exception of serving on the Boards of Directors of several public companies, acting as a consultant to Carlyle and serving on the Advisory Boards of TurtleWax, Inc., Richco, Inc. and Icarz, Inc. Mr. Lederer currently sits on the Board of Directors of O’Reilly Automotive, Inc., R&B Inc., Proliance International and MAXIMUS, Inc.

      Raymond A. Ranelli has been a member of the Board since 2004. Mr. Ranelli was formerly the Senior Client Services Partner of PricewaterhouseCoopers for the tri-state area of Virginia, the District of Columbia and Maryland until his retirement in 2003. Prior to being appointed Senior Client Services Partner, Mr. Ranelli served as Global Leader of Financing Advisory Services of PricewaterhouseCoopers and he became a member of the Global Leadership Team. In 1994, he was named Vice Chairman of FAS operations for PricewaterhouseCoopers in the United States. Mr. Ranelli is also a director of Ameripath Inc. and Centennial Communications Corp.

      John C. Ritter has been a member of the Board since 2003. Mr. Ritter is President and a Director of Raser Technologies, Inc. From April 2003 to September 2003, Mr. Ritter was our Chief Financial Officer. From July 2000 to December 2002, Mr. Ritter held the position of Senior Vice President and CFO of Alcoa Industrial Components. Mr. Ritter held the position of Senior Vice President and CFO for Howmet Corporation from 1996 through 2000. Prior to his employment at Howmet, Mr. Ritter served as Vice President, Finance and Contracts, of AlliedSignal Government Electronics from 1994 to 1996, and as Vice

83

President, Finance and Administration of Norden Systems, a subsidiary of United Technologies Corporation, from 1991 to 1994. Mr. Ritter currently serves on the Board of Directors of Raser Technologies, Inc.

Board Committees

      Our Board directs the management of our business and affairs as provided by Delaware law and conducts its business through meetings of the Board of Directors and three standing committees: the Audit Committee, Executive Committee and Investment Committee. The Audit Committee consists of Messrs. Ranelli (chair), Ritter, Akerson and Fujiyama. The Board has determined that Messrs. Ranelli, Akerson and Ritter are the Audit Committee financial experts and that Mr. Ranelli is independent but Messrs. Akerson and Ritter are not independent for purposes of the Audit Committee. The Executive Committee consists of Messrs. Squier, Zorich and Fujiyama. The Investment Committee consists of Messrs. Dickson and Akerson. In addition, from time to time, other committees may be established under the direction of the Board when necessary to address specific issues.

Code of Ethics

      The Company has adopted a code of ethics that applies to its executive officers. A copy of the code of ethics will be provided to any person without charge. Request should be made in writing to Rebecca Phipps at United Components, Inc., 14601 Highway 41 North, Evansville, Indiana 47725.

ITEM 11. EXECUTIVE COMPENSATION

      The following table sets forth the cash and non-cash compensation paid or incurred on our behalf to our Chief Executive Officer and Chief Financial Officer for the fiscal years ended December 31, 2005, 2004 and 2003.

SUMMARY COMPENSATION TABLE

				Annual Compensation
Name and Principal Position		Year		Salary(1)		Bonus
Bruce M. Zorich			2005	$	404,833	$	156,000
	President and Chief Executive Officer		2004		378,416		100,000
			2003		239,224		141,635
Charles T. Dickson			2005		352,889		114,000
	Chief Financial Officer and Executive		2004		301,500		70,000
	Vice President		2003		99,846		49,423

(1)  Amounts shown are not necessarily indicative of salaries to be paid on a going-forward basis. Total includes matching funds for 401(k) plan. For a more comprehensive discussion of the named executive officers’ salaries, see “Executive Compensation — Employment Agreements.”

Director Compensation

      On December 15, 2005, the Board of Directors adopted a resolution granting compensation of $60,000 per year to David Squier, our Chairman of the Board of Directors, $55,000 per year to Raymond Ranelli, the Chairman of our Audit Committee, and $45,000 per year to the other directors not employed by Carlyle or the Company, John Ritter and Paul Lederer. Each of Messrs. Squier, Ranelli, Ritter and Lederer will also be granted, each year he continues in service as a director, an option to purchase 500 shares of the common stock of our parent, to become exercisable 20% per year over five years. In addition, the Board approved a one-time payment of $15,000 to Mr. Lederer in recognition of his significant contributions on special assignments for the Company during 2005. Directors that are employed either by us or Carlyle are not separately compensated for their service as directors.

84

Pension Plan

      Our named executive officers are eligible to participate in the Champion Laboratories Inc. Pension Plan offered by us as described below. The following table shows the estimated annual pension benefit under the Champion Laboratories Inc. Pension Plan for the specified compensation and years of service.

	Years of Service
Remuneration	5		10		15		20		25		30
$125,000		9,375		18,750		28,125		37,500		46,875		56,250
$150,000		11,250		22,500		33,750		45,000		56,250		67,500
$175,000		13,125		26,250		39,375		52,500		65,625		78,750
$200,000 and over		15,000		30,000		45,000		60,000		75,000		90,000

      Annual retirement benefits accrue at a rate of 1.5% of the first $200,000 of gross wages for each year of service up to 30 years of service. Benefits are payable as a life annuity for the participant. If elected, joint & survivor and 10 year guaranteed options are available at reduced benefit levels. The full retirement benefit is payable to participants who retire on or after the social security retirement age, and a reduced early retirement benefit is available to participants who retire on or after age 55. No offsets are made for the value of any social security benefits earned.

      As of December 31, 2005, Bruce M. Zorich and Charles T. Dickson had earned three years and two years, respectively, of credited service under the Champion Laboratories Inc. Pension Plan.

Stock Option Plan

      The Amended and Restated Stock Option Plan of UCI Acquisition Holdings, Inc. was adopted and approved in connection with the Acquisition and was amended and restated on November 21, 2003. The plan permits the grant of non-qualified stock options and incentive stock options to purchase shares of common stock of our parent, UCI Acquisition Holdings, Inc. The compensation committee appointed by our parent’s board of directors shall administer the stock option plan and has discretion to establish the specific terms and conditions for each option granted. All options must be evidenced by a written stock option agreement. Our employees, consultants and directors are eligible to receive a grant of options under the stock option plan.

      Our parent’s board of directors granted to Mr. Zorich a non-qualified stock option to purchase 57,778 of the shares of common stock of our parent. The per share exercise price of such option is $100. Our parent’s board of directors granted to Mr. Dickson a non-qualified stock option to purchase 42,000 shares of common stock of our parent. The per share exercise price of such option is $100.

      Both options will generally become vested and exercisable as follows:

•  Approximately 25% of the shares subject to the option are time-vesting which will become vested on or prior to the fifth anniversary of the grant date.

•  Approximately 25% of the shares subject to the option are performance-vesting which will become vested on or prior to the day immediately preceding the eighth anniversary of the date of grant, provided the option holder remains continuously employed by us. However, all or a portion of such performance-vesting option may become vested and exercisable over a five-year period following December 31, 2003 if certain performance targets relating to earnings and cash-flow are met.

•  50% of the shares subject to the option are performance-vesting which may become vested and exercisable over a five-year period following December 31, 2003 only if certain performance targets relating to earnings and cash-flow are met and provided that the option holder remains continuously employed by us.

      A portion of the option may accelerate upon the occurrence of certain stated change of control events.

85

      Shares of common stock purchased or acquired under the Stock Option Plan of UCI Acquisition Holdings Inc. will be subject to restrictions on transfer, repurchase rights, and other limitations as set forth in a related stockholders agreement.

Performance-Based Bonus Plan

      We established a performance-based bonus plan effective January 1, 2004, which is administered by the compensation committee of our parent’s board of directors. The bonus plan provides our management with an incentive to achieve key business objectives. The plan allows our key officers to achieve performance-based compensation in addition to their annual base salary. Each participating officer is eligible to receive a performance bonus for each bonus period based on a stated percentage of the officer’s base salary if certain financial targets are achieved. Solely at our discretion, additional performance-based compensation may be paid to our executives.

Employment Agreements

      Each of Messrs. Zorich and Dickson have entered into an employment agreement with us. The following table sets forth the stated annual base salary, which may be increased by our Board of Directors, for certain of the named executive officers:

Name	Title	Base Salary
Bruce M. Zorich	President and Chief Executive Officer, Director	$	420,000
Charles T. Dickson	Chief Financial Officer, Executive Vice President, Director	$	367,500

Bruce M. Zorich

      Mr. Zorich’s agreement has a three-year term and will be extended automatically for successive one-year periods thereafter unless either party delivers notice within specified notice periods. Under the terms of the agreement, Mr. Zorich is entitled to a base salary of $420,000 and is eligible to receive an annual bonus under the terms of our annual performance-based bonus plan, pursuant to which the bonus will be tied to EBITDA, with a target bonus level of 70% of base salary and a maximum bonus of 150% of base salary. Mr. Zorich is also entitled to participate in the Stock Option Plan of UCI Acquisition Holdings, Inc. and has been granted options to purchase 57,778 shares of common stock of UCI Acquisition Holdings, Inc. pursuant to the terms of the Stock Option Plan of UCI Acquisition Holdings, Inc. and Mr. Zorich’s Stock Option Agreement. The option’s exercise price is $100 per share. Mr. Zorich is entitled to participate in our employee benefit plans, programs and arrangements currently in effect and will be entitled to reimbursement for certain relocation expenses if we require him to relocate his place of residence outside of the metropolitan Atlanta area at any time during his employment with us.

      Mr. Zorich’s employment agreement provides that upon termination of his employment he will be entitled to receive the sum of his unpaid annual base salary through the date of termination, any unpaid expenses, any unpaid accrued vacation pay, and any amount arising from his participation in, or benefits under, any of our employee benefits plans, programs or arrangements. Upon termination of Mr. Zorich’s employment either by us without cause or by Mr. Zorich for good reason, he is entitled to an amount equal to his stated annual base salary for the longer of the remainder of the term of employment or 12 months, a lump sum payment of the pro rata portion of his target level bonus and, during the severance period, continued coverage under all of our group health benefit plans in which the executive and any of the executive’s dependents were entitled to participate immediately prior to termination. The agreement also provides that upon termination of Mr. Zorich’s employment due to his death or disability, he or his estate shall be entitled to six months of his annual base salary and the pro rata portion of his annual bonus, to be determined in good faith by the compensation committee of our parent.

86

      Mr. Zorich is prohibited from competing with us during the term of his employment and for one year following the termination of his employment or the expiration of his term of employment, whichever is longer. Mr. Zorich’s employment agreement also places restrictions on the dissemination by Mr. Zorich of proprietary information and establishes our exclusive property right in intellectual property directly related to our Company which is discovered, invented or originated by Mr. Zorich during his term of employment.

Charles T. Dickson

      Mr. Dickson’s employment agreement, effective as of September 2, 2003, has a three-year term and will be extended automatically for successive one-year periods thereafter unless either party delivers notice within specified notice periods. Under the terms of the agreement, Mr. Dickson is entitled to an annual base salary of $367,500 and is eligible to receive an annual bonus under the terms of our annual performance-based bonus plan, pursuant to which the bonus will be tied to EBITDA, with a target bonus level of $150,000 and a maximum bonus of $450,000. Mr. Dickson is also entitled to participate in the Stock Option Plan of UCI Acquisition Holdings, Inc. and has been granted an option to purchase 42,000 shares of the common stock of UCI Acquisition Holdings, Inc. pursuant to the terms of the Stock Option Plan of UCI Acquisition Holdings, Inc. and Mr. Dickson’s Stock Option Agreement. The option’s exercise price is $100 per share. Mr. Dickson is entitled to participate in our employee benefit plans, programs and arrangements currently in effect.

      Mr. Dickson’s employment agreement provides that upon termination of his employment he will be entitled to receive the sum of his unpaid annual base salary through the date of termination, any unpaid expenses, any unpaid accrued vacation pay, and any amount arising from his participation in, or benefits under, any of our employee benefits plans, programs or arrangements. Upon termination of Mr. Dickson’s employment either by us without cause or by Mr. Dickson for good reason, he is entitled to an amount equal to his stated annual base salary for 12 months, a lump sum payment of the pro rata portion of his target level bonus and, during the severance period, continued coverage under all of our group health benefit plans in which the executive and any of the executive’s dependents were entitled to participate immediately prior to termination. The agreement also provides that upon termination of Mr. Dickson’s employment due to his death or disability, he or his estate shall be entitled to six months of his annual base salary and the pro rata portion of his annual bonus, to be determined in good faith by the compensation committee of our parent.

      Mr. Dickson is prohibited from competing with us during the term of his employment and for one year following the termination of his employment for cause or without good reason. Mr. Dickson’s employment agreement also places restrictions on the dissemination by Mr. Dickson of proprietary information and establishes our exclusive property right in intellectual property directly related to our Company which is discovered, invested or originated by Mr. Dickson during his term of employment.

Additional Information with Respect to Compensation Committee Interlocks and Insider Participation in Compensation Decisions/ Board Compensation Committee Report on Executive Compensation

      We do not currently have a Compensation Committee. Compensation policies with respect to our executive officers are set by the Compensation Committee of the Board of Directors of our parent, UCI Acquisition Holdings, Inc. We have been informed by our parent’s Compensation Committee and Board that they consider a number of factors in setting compensation for our executive officers, and that such factors are reflected in the employment agreements for Messrs. Zorich and Dickson described above. These factors include, among other things, the officer’s scope of responsibility, prior experience and past accomplishments. The Board and Compensation Committee also compare base salaries and salary ranges of similar positions in other companies in relevant markets defined by company size, industry and location. None of our executive officers served as a member of the board of directors or compensation committee of any other entity.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

      United Components, Inc. has 1,000 shares of common stock outstanding, all of which is owned by our parent UCI Acquisition Holdings, Inc. Certain affiliates of Carlyle own approximately 98.6% of our parent’s

87

common stock while the remainder is owned by members of our Board of Directors, Bruce M. Zorich, our President and Chief Executive Officer, Charles T. Dickson, our Chief Financial Officer, and other employees of the Company. Our parent has 2,639,720 shares of common stock outstanding.

      The following table sets forth information with respect to the beneficial ownership of the capital stock of UCI Acquisition Holdings, Inc. as of the date of this Form 10-K by:

•  each person known to own beneficially more than 5% of the capital stock;

•  each of our directors;

•  each of the executive officers named in the summary compensation table; and

•  all of our directors and executive officers as a group.

      The amounts and percentages of shares beneficially owned are reported on the basis of SEC regulations governing the determination of beneficial ownership of securities. Under SEC rules, a person is deemed to be a “beneficial” owner of a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Securities that can be so acquired are deemed to be outstanding for purposes of computing any other person’s percentage. Under these rules, more than one person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.

      Except as otherwise indicated in these footnotes, each of the beneficial owners listed has, to our knowledge, sole voting and investment power with respect to the shares of capital stock.

	Beneficial Ownership of
	UCI Acquisition
	Holdings, Inc.
			Percentage of
	Number of		Outstanding
Name of Beneficial Owner	Shares		Capital Stock
TCG Holdings, L.L.C.(1)		2,600,500		98.6	%
Bruce M. Zorich(2)		16,000		*
Charles T. Dickson(3)		11,950		*
David L. Squier(4)		1,900		*
Daniel F. Akerson		3,005		*
Daniel A. Bellissimo		316		*
Ian I. Fujiyama		1,500		*
Paul R. Lederer(5)		900		*
Raymond A. Ranelli(6)		1,500		*
John C. Ritter(7)		3,600		*
All executive officers and directors as a group (9 persons)		40,671		1.5	%

* Denotes less than 1.0% of beneficial ownership.

(1)

Carlyle Partners III, L.P., a Delaware limited partnership, and CP III Coinvestment, L.P., a Delaware limited partnership (the “Investment Partnerships”), both of which are affiliates of Carlyle, own approximately 98.6% of the outstanding common stock of UCI Acquisition Holdings, Inc. TC Group, L.L.C. exercises investment discretion and control over the shares held by the Investment Partnerships indirectly through its subsidiary TC Group III, L.P., which is the sole general partner of the Investment Partnerships. TCG Holdings, L.L.C. a Delaware limited liability company, is the sole managing member of TC Group, L.L.C., and its address is c/o The Carlyle Group, 1001 Pennsylvania Ave. N.W., Suite 220S, Washington, D.C. 20004.

(2)

Includes 3,000 shares in UCI Acquisition Holdings, Inc. beneficially owned by Mr. Zorich and the right to acquire up to 13,000 additional shares.

88

(3)	Includes 2,500 shares in UCI Acquisition Holdings, Inc. beneficially owned by Mr. Dickson and the right to acquire up to 9,450 additional shares.
(4)	Includes 1,000 shares in UCI Acquisition Holdings, Inc. beneficially owned by Mr. Squier and the right to acquire up to 900 additional shares.
(5)	Includes 400 shares in UCI Acquisition Holdings, Inc. beneficially owned by Mr. Lederer and the right to acquire up to 500 additional shares.
(6)	Includes 1,000 shares in UCI Acquisition Holdings, Inc. beneficially owned by Mr. Ranelli and the right to acquire up to 500 additional shares.
(7)	Includes 3,000 shares in UCI Acquisition Holdings, Inc. beneficially owned by Mr. Ritter and the right to acquire up to 600 additional shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Carlyle Management Agreement

      In connection with the Acquisition, we entered into a management agreement with TC Group, L.L.C., an affiliate of Carlyle, for management and financial advisory services and oversight to be provided to us and our subsidiaries. Pursuant to this agreement, we will pay an annual management fee to Carlyle of $2.0 million and annual out-of-pocket expenses, and we may pay Carlyle additional fees associated with financial advisory and other future transactions. Carlyle also received a one-time transaction fee of $10.0 million upon consummation of the Acquisition. The agreement also provides for indemnification of Carlyle against liabilities and expenses arising out of Carlyle’s performance of services under the agreement. The agreement terminates either when Carlyle or its affiliates own less than ten percent of our equity interests, or when we and Carlyle mutually agree to terminate the agreement.

Employment Agreements

      In connection with the Acquisition, we entered into employment agreements with certain of our named executive officers as described in “Executive Compensation — Employment Agreements.”

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      Fees billed by Grant Thornton LLP in 2005 and 2004 were:

      Audit Fees — Audit fees billed in 2005 and 2004, were $1,386,379 and $1,638,247, respectively.

      Audit-Related Fees — In 2005 and 2004, the Company had audit-related fees of $219,750 and $151,667, respectively. These fees were for audits of Company-sponsored pension plans.

      Tax Fees — Billings for tax services were $13,497 and $109,591 in 2005 and 2004, respectively. The services were primarily for the preparation of a foreign subsidiary tax return in 2005 and a Mexican transfer pricing study, tax research for our Mexican subsidiary, and assistance in applying for Illinois and Indiana business incentive programs in 2004.

      All Other Fees — There were no other fees billed in 2005. In 2004, the Company had other fees of $41,738. These fees were for detailed audits of selected shipments and evaluation of order accumulation and shipping procedures.

      Our policy is to require our Audit Committee to pre-approve audit services. In March 2004, the Company established a policy that also requires Audit Committee pre-approval for all audit-related, tax, and other services. Previously, senior management was authorized to approve such services provided that the services were brought to the attention of the Audit Committee and were approved by the Audit Committee prior to the completion of the audit. Management monitors all services provided by our principal accountants and reports periodically to our Audit Committee on these matters.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

      (a)(1) Financial Statements.

      The Company’s consolidated financial statements included in Item 8 hereof are for the year ended December 31, 2005 and 2004, and for the period after the June 20, 2003 Acquisition through December 31, 2003. The Predecessor’s combined financial statements are for the period from January 1, 2003 through June 20, 2003. Such financial statements consist of the following:

           Balance Sheets

           Income Statements

           Statements of Cash Flows

           Statements of Changes in Shareholder’s Equity

           Notes to Financial Statements

      (a)(2) Financial Statement Schedules.

           Schedule II — Valuation and Qualifying Accounts

Certain information required in Schedule II, Valuation and Qualifying Accounts, has been omitted because equivalent information has been included in the financial statements included in this Form 10-K.

Other financial statement schedules have been omitted because they either are not required, are immaterial or are not applicable.

90

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholder of

United Components, Inc. and subsidiaries:

      We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements of United Components, Inc. and subsidiaries referred to in our report dated March 16, 2006, which is included in Part II on Form 10-K. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedule II of United Components, Inc. and subsidiaries for the years ended December 31, 2005 and 2004 and for the period June 21, 2003 through December 31, 2003 and of the vehicle parts businesses of UIS Industries, Inc. (the “Predecessor Company”) for the period from January 1, 2003 through June 20, 2003 is presented for purposes of additional analysis and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/s/ GRANT THORNTON LLP

Cincinnati, Ohio

March 16, 2006

91

Schedule II — Valuation and Qualifying Accounts

		Balance at		Charged to					Balance at
Description		Beginning of Year		Income		Deductions			End of Year
		(In thousands)
Year ended December 31, 2005
	Allowance for excess and obsolete inventory	$	21,245	$	3,410	$	(2,678	)	$	21,977
	Valuation allowance for deferred tax assets		1,310		985		—			2,295
Year ended December 31, 2004
	Allowance for excess and obsolete inventory		23,740		3,456		(5,951	)		21,245
	Valuation allowance for deferred tax assets		—		1,310		—			1,310
Year ended December 31, 2003
	Allowance for excess and obsolete inventory		14,429		13,174		(3,863	)		23,740
	Valuation allowance for deferred tax assets		—		—		—			—

92

      (a)(3) Exhibits

EXHIBIT INDEX

Exhibit
No.			Description of Exhibit
	*2	.1	Stock Purchase Agreement by and among United Components, Inc., ACAS Acquisitions (ASC), Inc. and the Sellers named herein, dated as of March 8, 2006.
	3	.1	Amended and Restated Certificate of Incorporation of United Components, Inc., filed April 29, 2003 (incorporated by reference to Exhibit 3.1 to United Components’ Registration Statement on Form S-4 (No. 333-107219) filed July 21, 2003).
	3	.2	Bylaws of United Components, Inc. (incorporated by reference to Exhibit 3.14 to United Components’ Registration Statement on Form S-4 (No. 333-107219) filed July 21, 2003).
	4	.1	Senior Subordinated Note Indenture with respect to the 93/8 % Senior Subordinated Notes due 2013, between United Components, Inc., Wells Fargo Bank Minnesota, National Association, as trustee, and the Guarantors listed on the signature pages thereto, dated as of June 20, 2003. (incorporated by reference to Exhibit 4.1 to United Components’ Registration Statement on Form S-4 (No. 333-107219) filed July 21, 2003).
	4	.2	Form of 93/8 % Senior Subordinated Notes due 2013 (included in Exhibit 4.1).
	4	.3	Registration Rights Agreement among United Components, Inc., each of the Subsidiary Guarantors listed on Schedule A thereto, Lehman Brothers Inc., J.P. Morgan Securities Inc., ABN AMRO Incorporated and Credit Lyonnais Securities (USA) Inc. dated as of June 20, 2003 (incorporated by reference to Exhibit 4.3 to United Components’ Registration Statement on Form S-4 (No. 333-107219) filed July 21, 2003).
	4	.4	Purchase Agreement between United Components, Inc. and the initial purchasers named in Schedule I thereto, dated June 6, 2003 (incorporated by reference to Exhibit 4.4 to United Components’ Registration Statement on Form S-4 (No. 333-107219) filed July 21, 2003).
	10	.1	Credit Agreement, dated as of June 20, 2003, by and among United Components, Inc., the lenders party thereto, Lehman Brothers Inc. and J.P. Morgan Securities Inc. as joint lead arrangers, J.P. Morgan Chase Bank as syndication agent, ABN AMRO Bank N.V., Credit Lyonnais, New York Branch, Fleet National Bank and General Electric Capital Corporation as co-documentation agents and Lehman Commercial Paper Inc. as administrative agent (incorporated by reference to Exhibit 10.1 to United Components’ Registration Statement on Form S-4 (No. 333-107219) filed July 21, 2003).
	10	.2	Guarantee and Collateral Agreement, dated as of June 20, 2003, among UCI Acquisition Holdings, Inc., United Components, Inc. and certain subsidiaries of United Components, Inc., for the benefit of Lehman Commercial Paper, Inc., as administrative agent (incorporated by reference to Exhibit 10.2 to United Components’ Registration Statement on Form S-4 (No. 333-107219) filed July 21, 2003).
	10	.3	Management Agreement among United Components, Inc. and TC Group, L.L.C. dated June 20, 2003 (incorporated by reference to Exhibit 10.3 to United Components’ Registration Statement on Form S-4 (No. 333-107219) filed July 21, 2003).
	**10	.4	Employment Agreement Term Sheet between United Components, Inc. and John Ritter effective as of April 25, 2003, as amended (incorporated by reference to Exhibit 10.4 to United Components’ Registration Statement on Form S-4 (No. 333-107219) filed July 21, 2003).
	**10	.5	Employment Agreement between United Aftermarket, Inc. and Bruce Zorich dated as of April 18, 2003, as amended (incorporated by reference to Exhibit 10.5 to United Components’ Registration Statement on Form S-4 (No. 333-107219) filed July 21, 2003).
	**10	.6	Stock Option Plan of UCI Acquisition Holdings, Inc. (incorporated by reference to Exhibit 10.6 to United Components’ Registration Statement on Form S-4 (No. 333-107219) filed July 21, 2003).
	**10	.7	Fourth Amended and Restated Champion Laboratories Pension Plan, effective as of January 1, 1997 (incorporated by reference to Exhibit 10.7 to United Components’ Registration Statement on Form S-4 (No. 333-107219) filed July 21, 2003).

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Exhibit
No.			Description of Exhibit
	**10	.8	Employment Agreement among United Components, Inc., Champion Laboratories, Inc. and Charlie Dickson, effective as of September 2, 2003 (incorporated by reference to Exhibit 10.8 to United Components’ Amendment No. 1 to Registration Statement on Form S-4/ A (No. 333-107219) filed October 7, 2003).
	10	.9	First Amendment to Credit Agreement dated as of December 22, 2003, by and among United Components, Inc., the lenders party thereto, Lehman Brothers Inc. and J.P. Morgan Securities Inc. as joint lead arrangers, J.P. Morgan Chase Bank as syndication agent, ABN AMRO Bank N.V., Credit Lyonnais, New York Branch, Fleet National Bank and General Electric Capital Corporation as co-documentation agents and Lehman Commercial Paper Inc. as administrative agent (incorporated by reference to Exhibit 10.9 to United Components’ Report on Form 10-K filed March 30, 2004).
	**10	.10	Amended and Restated Stock Option Plan of UCI Acquisition Holdings, Inc., effective as of November 21, 2003 (incorporated by reference to Exhibit 10.10 to United Components’ Report on Form 10-K filed March 30, 2004).
	**10	.11	UCI Annual Incentive Compensation Plan (incorporated by reference to Exhibit 10.11 to United Components’ Report on Form 10-K filed March 30, 2004).
	*21	.1	List of Subsidiaries.

*  Filed herewith.

**  Management contract or compensatory plan or arrangement.

      (c) Exhibits

Exhibit 2.1	Stock Purchase Agreement by and among United Components, Inc., ACAS Acquisitions (ASC), Inc. and the Sellers named herein, dated as of March 8, 2006.
Exhibit 21.1	List of Subsidiaries.
Exhibit 31.1.	Certification of Periodic Report by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Exhibit 31.2	Certification of Periodic Report by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Exhibit 32.1*	Certification of Periodic Report by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.

*  This certificate is being furnished solely to accompany the report pursuant to 18 U.S.C 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

UNITED COMPONENTS, INC.

By:  /s/ Charles T. Dickson

Name: Charles T. Dickson

Title: Chief Financial Officer

Date: March 31, 2006

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ Bruce M. Zorich Bruce M. Zorich	President and Chief Executive Officer (Principal Executive Officer)	March 31, 2006
/s/ Charles T. Dickson Charles T. Dickson	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	March 31, 2006
/s/ David L. Squier David L. Squier	Chairman	March 31, 2006
/s/ Daniel F. Akerson Daniel F. Akerson	Director	March 31, 2006
/s/ Daniel A. Bellissimo Daniel A. Bellissimo	Director	March 31, 2006
/s/ Ian I. Fujiyama Ian I. Fujiyama	Director	March 31, 2006
/s/ Paul R. Lederer Paul R. Lederer	Director	March 31, 2006
/s/ Raymond A. Ranelli Raymond A. Ranelli	Director	March 31, 2006
/s/ John C. Ritter John C. Ritter	Director	March 31, 2006

95 EX-2.1 2 w18990exv2w1.htm EX-2.1

Exhibit 2.1

EXECUTION VERSION

STOCK PURCHASE AGREEMENT

BY AND AMONG

UNITED COMPONENTS, INC.,

ACAS ACQUISITIONS (ASC), INC.

AND

THE SELLERS
NAMED HEREIN

Dated as of March 8, 2006

TABLE OF CONTENTS

			Page
ARTICLE I DEFINITIONS				2
	1.1	Certain Definitions		2
	1.2	Terms Defined Elsewhere in this Agreement		13
	1.3	Other Definitional and Interpretive Matters		16
ARTICLE II SALE AND PURCHASE OF SECURITIES				18
	2.1	Purchase and Sale of Shares		18
	2.2	Exchange of Rollover Shares for Parent Common Stock		18
	2.3	Cancellation of Options		18
	2.4	Cancellation of Warrants		19
	2.5	Redemption of the Preferred Stock		19
	2.6	Earn-Out Agreement		19
ARTICLE III PURCHASE PRICE				20
	3.1	Payment of Initial Cash Purchase Price and Other Amounts		20
	3.2	Purchase Price Adjustment		21
ARTICLE IV CLOSING AND TERMINATION				24
	4.1	Closing Date		24
	4.2	Termination of Agreement		25
	4.3	Procedure Upon Termination		26
	4.4	Effect of Termination		26
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY				26
	5.1	Organization and Good Standing		26
	5.2	Authorization of Agreement		26
	5.3	Conflicts; Consents of Third Parties		27
	5.4	Capitalization		27
	5.5	Subsidiaries		28
	5.6	Financial Statements		29
	5.7	No Undisclosed Liabilities		29
	5.8	Absence of Certain Developments		30
	5.9	Taxes		32

i

TABLE OF CONTENTS
(continued)

			Page
	5.10	Real Property		35
	5.11	Tangible Personal Property		36
	5.12	Intellectual Property		37
	5.13	Material Contracts		38
	5.14	Employee Benefits Plans		40
	5.15	Labor		42
	5.16	Litigation		43
	5.17	Compliance with Laws; Permits		43
	5.18	Environmental Matters		44
	5.19	Product Liability, Warranty and Product Recalls		45
	5.20	Insurance		45
	5.21	Customers and Suppliers		46
	5.22	Affiliate Transactions		46
	5.23	Financial Advisors		47
	5.24	No Other Representations or Warranties; Schedules		47
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE SELLERS				47
	6.1	Organization and Good Standing		47
	6.2	Authorization of Agreement		47
	6.3	Conflicts; Consents of Third Parties		48
	6.4	Ownership and Transfer of Securities		48
	6.5	Litigation		48
	6.6	Financial Advisors		49
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF PURCHASER				49
	7.1	Organization and Good Standing		49
	7.2	Authorization of Agreement		49
	7.3	Conflicts; Consents of Third Parties		49
	7.4	Litigation		50
	7.5	Investment Intention		50
	7.6	Financial Advisors		50

ii

TABLE OF CONTENTS
(continued)

			Page
	7.7	Financing		50
	7.8	Condition of the Business		50
ARTICLE VIII COVENANTS				51
	8.1	Access to Information		51
	8.2	Conduct of the Business Pending the Closing		51
	8.3	Consents		54
	8.4	Regulatory Approvals		54
	8.5	Further Assurances		55
	8.6	Confidentiality		56
	8.7	Indemnification, Exculpation and Insurance		57
	8.8	Preservation of Records		59
	8.9	Publicity		59
	8.10	Financing		60
	8.11	Update of Schedules		60
	8.12	Exclusivity		62
	8.13	Affiliate Transactions		62
	8.14	Joint Venture Supply Agreement		62
	8.15	Amendment to Company’s Certificate of Incorporation		62
	8.16	[Intentionally Omitted]		62
	8.17	Termination of Tax Sharing Agreements		62
	8.18	Section 280G		63
	8.19	Environmental Matters		63
ARTICLE IX CONDITIONS TO CLOSING				64
	9.1	Conditions Precedent to Obligations of Purchaser		64
	9.2	Conditions Precedent to Obligations of the Sellers		66
ARTICLE X INDEMNIFICATION				68
	10.1	Survival of Representations and Warranties		68
	10.2	Indemnification by Primary Indemnitors		69
	10.3	Indemnification by Purchaser		70

iii

TABLE OF CONTENTS
(continued)

			Page
	10.4	Indemnification Procedures		70
	10.5	Certain Limitations on Indemnification		72
	10.6	Indemnity Escrow		73
	10.7	Calculation of Losses		74
	10.8	Tax Treatment of Indemnity Payments		75
	10.9	Exclusive Remedy		75
ARTICLE XI TAX MATTERS				76
	11.1	Indemnification for Tax Obligations		76
	11.2	Allocation of Taxes		77
	11.3	Indemnity Payments		77
	11.4	Tax Benefits		77
	11.5	Tax Contests		79
	11.6	Preparation of Tax Returns		79
	11.7	Cooperation		81
	11.8	Conflict		81
	11.9	Survival		81
	11.10	Successors		81
ARTICLE XII MISCELLANEOUS				81
	12.1	Payment of Sales, Use or Similar Taxes		81
	12.2	Expenses		81
	12.3	Seller Representative and Equity Sellers Representative		82
	12.4	Submission to Jurisdiction; Consent to Service of Process		84
	12.5	Entire Agreement; Amendments and Waivers		84
	12.6	Governing Law		85
	12.7	Notices		85
	12.8	Severability		86
	12.9	No Conflict		86
	12.10	Binding Effect; Assignment		87
	12.11	Counterparts		87

iv

TABLE OF CONTENTS
(continued)

		Page
12.12	Termination of Agreements		87
12.13	Specific Performance		88

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Schedules

Schedule 1.1(a)	CapEx Budget
Schedule 3.2	Agreed Principles
Schedule 5.3(a)	No Conflicts
Schedule 5.3(b)	Consents
Schedule 5.4(a)	Reservation of Equity Securities
Schedule 5.4(b)	Capitalization
Schedule 5.5	Subsidiaries
Section 5.7	Liabilities
Schedule 5.8	Absence of Certain Developments
Schedule 5.9	Taxes
Schedule 5.10(a)	Real Property
Schedule 5.11(a)	Tangible Personal Property
Schedule 5.11(b)	Exceptions to Title of Machinery and Equipment
Schedule 5.12(a)	Intellectual Property
Schedule 5.12(b)	Licenses
Schedule 5.12(c)	Protection of Proprietary Rights
Schedule 5.13(d)	Intellectual Property Infringement
Schedule 5.13(a)	Material Contracts
Schedule 5.13(b)	Breaches of Material Contracts
Schedule 5.14(a)	Employee Benefit Plans
Schedule 5.14(b)	Post-Termination Benefits
Schedule 5.14(e)	Foreign Benefits Plans
Schedule 5.15(a)	Severance Arrangements
Schedule 5.15(c)	Compliance with Employment Laws
Schedule 5.16	Litigation
Schedule 5.17	Compliance with Laws
Schedule 5.18	Environmental Matters
Schedule 5.19	Product Liability, Warranty and Product Recalls
Schedule 5.20	Insurance
Schedule 5.21(a)	Customers
Schedule 5.21(b)	Suppliers
Schedule 5.22	Affiliate Transactions
Schedule 5.23	Financial Advisors (Company)
Schedule 6.6	Financial Advisors (Sellers)
Schedule 8.13	Affiliate Transactions

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Exhibits

Exhibit A – Seller Information and Indemnification Percentage
Exhibit B – Form of Legal Opinion
Exhibit C – Debt Commitment Letter
Exhibit D – Form of Contribution and Subscription Agreement
Exhibit E – Form of Letter Agreement regarding North Canton, OH Facility Sublease
Exhibit F – Form of Swaldo Employment Agreement
Exhibit G – Form of Blackerby Employment Agreement
Exhibit H – Form of Parent Stockholders Agreement
Exhibit I – Form of Investor Rights Agreement
Exhibit J — Form of Option Cancellation Agreement
Exhibit K – Form of Earn-Out Agreement
Exhibit L – Form of Pledge Agreement

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STOCK PURCHASE AGREEMENT

          This STOCK PURCHASE AGREEMENT, (the “Agreement”), dated as of March 8, 2006, by and among UNITED COMPONENTS, INC., a Delaware corporation (“Purchaser”), ACAS ACQUISITIONS (ASC), INC., a Delaware corporation (the “Company”), and the securityholders of the Company listed on the signature pages hereof (collectively, the “Sellers”).

W I T N E S S E T H:

          WHEREAS, certain of the Sellers are the record and beneficial owners of an aggregate of 150,000 shares (the “Shares”) of the Company’s common stock, $0.001 par value per share (“Common Stock”), which constitute all of the issued and outstanding shares of Common Stock of the Company;

          WHEREAS, certain of the Sellers are the record and beneficial owners of warrants (“Warrants”) to purchase an aggregate of 74,888 shares of Common Stock, which constitute all of the issued and outstanding Warrants of the Company;

          WHEREAS, certain of the Sellers are the record and beneficial owners of options (“Options,” together with the Shares and the Warrants, referred to collectively as the “Securities”) to purchase an aggregate of 11,267 shares of Common Stock, which constitute all of the issued and outstanding Options of the Company;

          WHEREAS, the Securities and the Preferred Stock (as defined below) represent one hundred percent (100%) of the issued and outstanding Equity Securities of the Company;

          WHEREAS, Purchaser desires to purchase all of the Common Stock other than the Rollover Shares (as defined below) from the Sellers and the Sellers desire to sell all of such Common Stock to Purchaser;

          WHEREAS, concurrently with the execution and delivery of this Agreement and as a condition to the willingness of Purchaser to enter into this Agreement, certain of the Sellers are entering into an agreement (the “Contribution and Subscription Agreement”) with UCI Acquisition Holdings, Inc., a Delaware corporation and the record owner of 100% of the issued and outstanding Equity Securities of Purchaser (“UCI”), Carlyle Partners III, L.P., a Delaware limited partnership (“CPIII”) and UCI Holdco, Inc., a Delaware corporation (“Parent”) pursuant to which, among other things, such Sellers will contribute their Rollover Shares to Parent and CPIII will contribute to Parent 100% of the shares of UCI held by it and will cause each other shareholder of UCI to contribute to Parent 100% of the shares of UCI held by such other shareholder, in each case concurrently with the Closing in exchange for shares of Parent Common Stock (as defined below);

          WHEREAS, Purchaser and each Option Holder desires that such Option Holders receive payment from the Company for their Options in consideration of their cancellation; and

          WHEREAS, Purchaser and each holder of Warrants desires that such holders of Warrants receive payment from the Company for their Warrants in consideration of their cancellation.

          NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter contained, the parties hereby agree as follows:

ARTICLE I

DEFINITIONS

     1.1 Certain Definitions.

          (a) For purposes of this Agreement, the following terms shall have the meanings specified in this Section 1.1:

          “ACAS” means American Capital Strategies, Ltd., a Delaware corporation.

          “ACAS Contribution Agreement” means the Contribution Agreement, dated the date hereof, among ACAS, Theodore V. Swaldo and William T. Blackerby, Jr.

          “ACAS Management Agreement” means that certain Investment Banking Services Agreement, dated as of October 29, 2002, between the Company and American Capital Financial Services, Inc.

          “ACAS Warrant Amount” means $26,000,000.

          “Advance Auto Factored Receivables” means the aggregate invoiced amount of all accounts receivable due from Advance Stores Company Incorporated to the Company or its Subsidiaries that have been purchased by SunTrust, for which the Company has received cash as of the Closing, and for which the “Due Date,” as set forth on the SunTrust Draft (as defined in the SunTrust (Advance Auto) Factoring Agreement) received from SunTrust in accordance with the SunTrust (Advance Auto) Factoring Agreement, has not occurred as of the Closing Date.

          “Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, and the term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.

          “Aggregate Equity Value” means an amount equal to (i) the Enterprise Value, minus (ii) the Closing Date Indebtedness Amount, minus (iii) Transaction Expenses, minus (iv) the Preferred Stock Redemption Amount, minus (v) Factored Receivables, minus (vi) POS Payables, minus (vii) the ACAS Warrant Amount plus (viii) the aggregate amount of the exercise price for all issued and outstanding Options

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immediately prior to Closing, plus (ix) Cash, plus or minus (as the case may be) (x) the CapEx Adjustment Amount, plus or minus (as the case may be) (xi) the Estimated Working Capital Adjustment in accordance with Section 3.2(a).

          “Agreed Principles” means the accounting principles set forth on Schedule 3.2 or, to the extent not included thereon, the accounting principles, practices and procedures used by the Company in the preparation of the Unaudited Financial Statements.

          “Assets” means all properties, assets and rights of any kind, whether tangible or intangible, real or personal, owned, leased or licensed by the Company or any of its Subsidiaries.

          “Autozone Factored Receivables” means the aggregate invoiced amount of all accounts receivable due from Autozone, Inc. to the Company or its Subsidiaries that have been purchased by SunTrust, for which the Company has received cash as of the Closing, and for which the “Maturity Date,” as set forth on the Confirmation (as defined in the SunTrust (Autozone) Factoring Agreement) received from SunTrust in accordance with the SunTrust (Autozone) Factoring Agreement, has not occurred as of the Closing Date.

          “BB&T Factoring Agreement” means that certain Supplier Agreement BB&T Factors Draft Program, effective November 1, 2004, by and between ASC Industries, Inc. and BB&T Factors Corporation.

          “Books and Records” means all books of account, ledgers, general, financial, legal, regulatory, Tax, accounting, personnel and employment records, files, customers’ and suppliers’ lists, sales and promotional literature, correspondence, manuals, data, papers and other information, whether in hard copy or computer or other format, pertaining to the Company and its Subsidiaries.

          “Business Day” means any day of the year on which national banking institutions in New York are open to the public for conducting business and are not required or authorized to close.

          “CapEx Budget” means the Company’s monthly capital expenditures budget for 2006 attached as Schedule 1.1(a) hereto.

          “CapEx Adjustment Amount” means (x) the lesser of (i) $965,000 and (ii) one-half of the amount by which the aggregate amount of capital expenditures related to future sales by the Company and its Subsidiaries to NAPA Autoparts that are included in the CapEx Budget under the row labeled “NAPA Project Total” that are made by the Company or its Subsidiaries prior to the Closing exceeds $2,450,000, minus (y) the amount by which the aggregate amount budgeted for capital expenditures by the Company and its Subsidiaries as set forth on the CapEx Budget (including, for the avoidance of doubt amounts described in clause (x)) for the period from and after March 1, 2006 to the Closing exceeds the actual amount of capital expenditures by the Company and its Subsidiaries for such period (provided, however for the purposes of calculating

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the CapEx Adjustment Amount, in no event shall clause (y) be less than zero). In calculating the CapEx Adjustment Amount, in the event that the Closing occurs on a date that is prior to the last Business Day of any calendar month, the budgeted capital expenditures for such month shall be pro rated based on the total number of Business Days in such month that have elapsed.

          “CarQuest/GPI Factored Receivables” means the aggregate invoiced amount of all accounts receivable due from General Parts, Inc. to the Company or its Subsidiaries that have been purchased by BB&T Factors Corporation, for which the Company has received cash as of the Closing, and for which the “Due Date,” as set forth on the BBTF Draft (as defined in the BB&T Factoring Agreement) received from BB&T Factors Corporation in accordance with the BB&T Factoring Agreement, has not occurred as of the Closing Date.

          “Cash” means consolidated cash and cash equivalents (other than cash that is posted as a security deposits or cash collateral securing Indebtedness or other obligations of the Company or its Subsidiaries) of the Company and its consolidated Subsidiaries immediately prior to the Closing as determined in accordance with GAAP as consistently applied using the principles, practices and procedures used by the Company and its Subsidiaries in the preparation of the Balance Sheet (to the extent consistent with GAAP) and the Agreed Principles.

          “Closing Date Indebtedness Amount” means the sum (without duplication) of: (i) the aggregate amount of consolidated Indebtedness of the Company and its consolidated Subsidiaries immediately prior to the Closing as determined in accordance with GAAP as consistently applied using the principles, practices and procedures used by the Company and its Subsidiaries in the preparation of the Balance Sheet (to the extent consistent with GAAP) and the Agreed Principles plus (ii)(A) all “breakage costs” or other similar expenses in connection with the termination of any interest rate swap of other hedging arrangement on the Closing Date, (B) all other fees, expenses or other amounts payable to the lenders of any Indebtedness in accordance with the terms thereof, and (C) all amounts owed to ACAS or its Affiliates pursuant to the ACAS Management Agreement in connection with any unpaid management fees or otherwise (which, for purposes of clarification, shall not include any amounts paid to ACAS hereunder in respect of the Preferred Stock and Warrants), in each case to the extent not included in the amount in clause (i) above and whether or not all or any portion of such amount would be included on a balance sheet prepared in accordance with GAAP or the Agreed Principles.

          “Code” means the Internal Revenue Code of 1986, as amended.

          “Common Stock Sellers” means the “Common Stock Sellers” listed on Exhibit A.

          “Contract” means any written contract, agreement, indenture, note, bond, mortgage, loan, instrument, lease, or license.

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          “Current Assets” means an amount equal to the consolidated current assets of the Company and its consolidated Subsidiaries immediately prior to the Closing including trade accounts receivable, non-trade accounts receivable, VAT receivable inventory (including POS Inventory), prepaid expenses, other current assets of the Company and its consolidated Subsidiaries (but excluding Cash, all tax assets, including any refundable income taxes, the tax-effected amount of the Closing Deductions and any deferred tax assets), in each case as determined in accordance with GAAP as consistently applied using the principles, practices and procedures used by the Company and its Subsidiaries in the preparation of the Balance Sheet (to the extent consistent with GAAP) and the Agreed Principles.

          “Current Liabilities” means the consolidated current liabilities of the Company and its consolidated Subsidiaries immediately prior to the Closing including accounts payable (excluding POS Payables) and other current liabilities of the Company and its consolidated Subsidiaries (excluding POS Payables, deferred tax liabilities and any amounts included within Closing Date Indebtedness) and without reduction for the tax-effected amount of the Closing Deductions, in each case as determined in accordance with GAAP as consistently applied using the principles, practices and procedures used by the Company and its Subsidiaries in the preparation of the Balance Sheet (to the extent consistent with GAAP) and the Agreed Principles.

          “Enterprise Value” means $154,700,000.

          “Environment” means any surface water, groundwater, land surface, subsurface strata, river sediment, plant or animal life, natural resources, air (including indoor air and ambient air) and soil.

          “Environmental Claim” shall mean any claim, action, cause of action, investigation, demand, order, directive or written notice by, or on behalf of, any Governmental Body or Person alleging potential liability (including potential liability for investigatory costs, cleanup costs, personal injuries, or penalties) arising out of, based on or resulting from: (i) the Handling of Substances as of or prior to the Closing Date; (ii) the presence, Release or threatened Release of any Substance at a Company Property as of or prior to the Closing Date; (iii) exposure to any Substance as of or prior to the Closing Date; or (iii) requirements or violation of any Environmental Law or Permit as of or prior to the Closing Date.

          “Environmental Condition” shall mean any Environmental Claim and Existing Contamination.

          “Environmental Law” means any Law in effect as of the Closing Date concerning: (a) the Environment, including related to pollution, contamination, cleanup, preservation, protection, and reclamation of the Environment; (b) health or safety, including occupational safety and the exposure of employees and other persons to any Substances; (c) any Release or threatened Release of any Substance, including investigation, monitoring, clean up, removal, treatment, or any other action to address such Release or threatened Release; and (d) the Handling of Substances.

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          “Environmental Response Action” shall mean any action of any kind to address, correct or respond to any Environmental Condition, or to comply with Environmental Laws with respect to matters first arising as of or prior to the Closing Date, including the following activities: (i) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work; (ii) responding to any notice, claim, cause of action, order, action, or investigation by any Person alleging potential liability for property damage (including claims for interference with use and diminution in value) or death or injury to Persons; (iii) negotiation with or obtaining any permits, consents, approvals or authorizations from any Governmental Body necessary to address, correct or respond to an Environmental Condition or to comply with Environmental Laws; (iv) preparing and implementing any plans or studies for any such activity; (v) actions necessary to obtain a written notice from a Governmental Body with jurisdiction over any Company Property that no material additional work is required by such Governmental Body; (vi) the use, implementation, application, installation, operation or maintenance on any Company Property of remedial technologies applied to the surface or subsurface soils, excavation and treatment or disposal of soils at such Company Property, systems for long-term treatment or surface water or groundwater, engineering controls or institutional controls; (vii) the design, acquisition and installation of pollution control equipment required under Environmental Laws; and (viii) any other activities reasonably determined to be necessary or required under Environmental Laws to address or respond to an Environmental Condition.

          “Equity Securities” of any Person means (i) shares of capital stock, limited liability company interests, partnership interests or other equity securities of such Person, including, with respect to the Company, the Company Common Stock, (ii) subscriptions, calls, warrants, options or commitments of any kind or character relating to, or entitling any Person to purchase or otherwise acquire, any capital stock, limited liability company interests, partnership interests or other equity securities of such Person, (iii) securities convertible into or exercisable or exchangeable for shares of capital stock, limited liability company interests, partnership interests or other equity securities of such Person, and (iv) share of registered capital, equity equivalents, interests in the ownership or earnings of, or equity appreciation, phantom stock or other similar rights of, or with respect to, such Person.

          “Equity Sellers” means the Common Stock Sellers and the Option Holders.

          “ERISA Affiliate” means any Person that is (or at any relevant time was) a member of a “controlled group of corporations” with, under “common control” with, or a member of an “affiliated service group” with, or otherwise required to be aggregated with, the Company or any of its Subsidiaries as set forth in Section 414(b), (c), (m) or (o) of the Code.

          “Existing Contamination” shall mean (i) any Release of a Substance or (ii) any soil or groundwater contamination by Substances, in each case, present as of the Closing Date, on or from any of the Company Property.

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          “Factored Receivables” means an amount equal to the sum of: Autozone Factored Receivables plus Advance Auto Factored Receivables plus CarQuest/GPI Factored Receivables plus the aggregate invoiced amount of all other accounts receivable due to the Company or its Subsidiaries that have been purchased for cash as part of a similar factoring arrangement and that were invoiced by the Company or its Subsidiaries and purchased by the bank or other Person providing such financing prior to the Closing Date, for which the Company has received cash as of the Closing, and for which the bank has not received cash from the applicable third party in accordance with the terms of the applicable factoring arrangement as of the Closing Date.

          “GAAP” means generally accepted accounting principles in the United States as of the date hereof.

          “Governmental Body” means any government or governmental or regulatory body thereof, or political subdivision thereof, whether federal, state, local, foreign or multinational, or any agency, instrumentality or authority thereof, or any court or arbitrator (public or private).

          “Handling of Substances” means the production, use, generation, Release, storage, treatment, formulation, processing, labeling, distribution, introduction into commerce, registration, transportation, reclamation, recycling or other handling or disposition of Substances.

          “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and the rules and regulations promulgated thereunder.

          “Improvements” means any buildings, facilities, other structures and improvements, building systems and fixtures located on or under any Company Properties.

          “Indebtedness” of the Company means, without duplication, (i) the principal of and, accreted value and/or accrued and unpaid interest in respect of (A) indebtedness of the Company and its consolidated Subsidiaries for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds, letters of credit or other similar instruments for the payment of which any of them is responsible or liable; (ii) all obligations of the Company and its consolidated Subsidiaries issued or assumed as the deferred purchase price of property, all conditional sale obligations of any of them and all obligations of any of them under any title retention agreement (but excluding trade accounts payable and other current liabilities to the extent included in the calculation of Closing Working Capital); (iii) all obligations of the Company and its consolidated Subsidiaries in respect of leases required to be capitalized in accordance with GAAP; (iv) all obligations of the Company and its consolidated Subsidiaries in respect of interest rate and currency obligation swaps, hedges or similar arrangements (other than interest rate caps, the cost of which have been paid in full prior to the date hereof); (v) all obligations of the type referred to in clauses (i) through (iv) of any Persons the payment of which the Company or any of its consolidated Subsidiaries is responsible or liable, directly or indirectly, as obligor, guarantor, surety or otherwise; and (vi) all obligations of the type

7

referred to in clauses (i) through (v) of the Company and its consolidated Subsidiaries secured by any Lien on any of their Assets (whether or not such obligation is assumed by any of them).

          “Indemnification Percentage” means with respect to Linda Swaldo and William T. Blackerby, Jr. collectively, 66.70% and, with respect to ACAS 33.30%.

          “Initial Cash Purchase Price” means an amount in cash equal to the Aggregate Equity Value minus $8,300,000 (which represents the sum of all Rollover Sellers’ Rollover Amounts).

          “Intellectual Property” means all intellectual property rights used by the Company and the Subsidiaries arising from or in respect of the following: (i) all patents, utility models and other rights in and to inventions and industrial designs and applications therefor, including continuations, divisionals, continuations-in-part, or reissues of patent applications and patents issuing thereon (collectively, “Patents”), (ii) all trademarks, service marks, trade names, service names, brand names, trade dress rights, logos, Internet domain names and corporate names, together with the goodwill associated with any of the foregoing, and all applications, registrations and renewals thereof, (collectively, “Marks”), (iii) copyrights and registrations, works of authorship and mask work rights, and all applications, registrations and renewals thereof, (collectively, “Copyrights”), (iv) all Software and Technology of the Company and the Subsidiaries, (v) trade secrets and other confidential and proprietary business information, including but not limited to all designs, plans, drawings, flow charts, state diagrams, specifications, technology, know-how, methods, designs, concepts and other proprietary rights, whether or not registered, and (vi) rights under any licenses to use any of the intellectual property described in clauses (i) to (v) above.

          “IRS” means the United States Internal Revenue Service and, to the extent relevant, the United States Department of Treasury.

          “Joint Venture” means Shandong Yanzhou ASC Liancheng Industries Co., Ltd. a company established in accordance with the laws of the PRC.

          “Knowledge” or “Known” means (i) with respect to the Sellers or the Company, those facts or circumstances actually known by any of Theodore V. Swaldo, William T. Blackerby, Jr., Lloyd Shi, Tao Qin or Geoff Doke, or any facts which would be known by a reasonable prudent Person holding a comparable office or job or with comparable experience or responsibilities, and (ii) with respect to the Purchaser, those facts or circumstances actually known by any of the directors, officers and management-level employees of the Purchaser, or any facts or circumstances which would be known after due inquiry by a person holding a comparable office or job or with comparable experience or responsibilities.

          “Law” means any law (including common law), statute, code, ordinance, rule, regulation or other similar pronouncement binding on the Company or any of its

8

Subsidiaries in each case, issued by any Governmental Body (including the PRC) and in effect on the date hereof or the Closing Date.

          “Legal Proceeding” means any judicial, administrative or arbitral actions, suits or proceedings (public or private) by or before a Governmental Body.

          “Letter Agreement” means that certain letter agreement between the Company and ACAS dated October 29, 2002 with respect to corporate opportunities.

          “Liability” means any debt, liability or obligation (whether direct or indirect, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, known or unknown, or due or to become due) and including all costs and expenses relating thereto.

          “Lien” means any lien, encumbrance, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option, right of first refusal, easement, servitude or transfer restriction.

          “Material Adverse Effect” means a material adverse change in or effect on (i) the business, Assets, results of operations or financial condition of the Company and the Subsidiaries (taken as a whole) or (ii) the ability of the Company to consummate the transactions contemplated by this Agreement, other than, when the term “Material Adverse Effect” is used in Section 5.8 as it relates to the condition in Section 9.1(a) and in Section 9.1(f), an event, occurrence or change resulting from an Excluded Matter. “Excluded Matter” means any one or more of the following: (i) the effect of any change in the United States or foreign economies or securities or financial markets in general (but solely to the extent that any such change does not have a disproportionate effect on the Company or its Subsidiaries); (ii) the effect of any change that generally affects any industry in which the Company or any of the Subsidiaries operates (but solely to the extent that any such change does not have a disproportionate effect on the Company or its Subsidiaries); (iii) the effect of any action taken by Purchaser or its Affiliates with respect to the transactions contemplated hereby; (iv) the effect of any changes in applicable Laws or accounting rules (but solely to the extent that any such change does not have a disproportionate effect on the Company or its Subsidiaries) or (v) any effect resulting from the public announcement of this Agreement, compliance with terms of this Agreement or the consummation of the transactions contemplated by this Agreement.

          “Net Working Capital” means an amount equal to (i) Current Assets minus (ii) Current Liabilities plus (iii) the aggregate amount of Factored Receivables.

          “Option Cancellation Agreements” means the agreement between the Company and each Option Holder in the form attached as Exhibit J hereto, whereby such Option Holder agrees to cancellation of his Options in consideration of receipt of payment pursuant to Section 2.3, as adjusted pursuant to Section 3.2.

          “Option Cancellation Amount” means the aggregate amount payable in respect of Options pursuant to Section 2.3, as adjusted pursuant to Section 3.2 and the Option Cancellation Agreements.

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          “Option Holders” means each of Ying Hua Li, Tao Qin, Jeff Sandt, Scott Swaldo, Geoff Doke, Dave Tate, Chris Johnson, Song De Shi, William Thomas and Al Barry.

          “Order” means any order, injunction, judgment, decree, ruling, writ, assessment or arbitration award of a Governmental Body.

          “Ordinary Course of Business” means the ordinary and usual course of normal day-to-day operations of the Company and the Subsidiaries as conducted during the twelve (12) months prior to the date hereof.

          “Parent Common Stock” means the common stock, par value $0.01 per share, of Parent.

          “Per Share Equity Value” means an amount equal to the quotient of (a) the Aggregate Equity Value, divided by (b) the sum of (i) the aggregate number of shares of Common Stock issued and outstanding immediately prior to the Closing plus (ii) the aggregate number of shares of Common Stock issuable upon exercise of all Options issued and outstanding immediately prior to the Closing (and for the avoidance of doubt excluding any shares of Common Stock issuable upon exercise of Warrants issued and outstanding immediately prior to the Closing).

          “Permits” means all of the approvals, authorizations, consents, licenses, permits or certificates required by a Governmental Body for the ownership, leasing or operation of the Assets or business of the Company or any of its Subsidiaries as conducted as of the date of this Agreement or as of the Closing Date.

          “Permitted Exceptions” means (i) all defects, exceptions, restrictions, easements, rights of way and encumbrances disclosed in policies of title insurance ,made available to Purchaser prior to the date hereof; (ii) liens for Taxes, assessments or other governmental charges or claims that are not yet due and payable or being contested in good faith by appropriate proceedings, if a reserve or other appropriate provision, if any as required by GAAP shall have been made therefor; (iii) mechanics’, carriers’, workers’, repairers’ and other Liens imposed by law incurred in the Ordinary Course of Business for sums that are not yet due and payable or being contested in good faith, if a reserve or other appropriate provision, if any, as required by GAAP shall have been made therefor; (iv) zoning, entitlement and other land use and environmental regulations by any Governmental Body; (v) title of a lessor under a capital or operating lease; (vi) Liens securing Indebtedness of the Company and (vii) such other imperfections in title, charges, easements, restrictions and encumbrances which do not materially impair the use or any material Asset of the Company or its Subsidiaries in the Ordinary Course of Business or are not otherwise material to the business of the Company and its Subsidiaries (taken as a whole).

          “Person” means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Body or other entity.

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          “Personnel” means all employees, officers, directors and independent contractors of, employed by or contracting with the Company or any of its Subsidiaries.

          “POS Inventory” means (i) all inventory sold by the Company or its Subsidiaries to Autozone Parts, Inc. and repurchased by POS Sales Corp. No. 7, Inc. in August 2004, April 2005, and August 2005, minus (ii) all inventory of the Company or any of its Subsidiaries subsequently resold to Autozone Parts, Inc. plus (iii) all inventory purchased by POS Sales Corp. No. 7, Inc.

          “POS Payables” means all accounts payable by the Company or any of its Subsidiaries (including POS Sales Corp. #7, Inc.) related to any repurchases by the Company or its Subsidiaries of products previously sold to any of their respective customers prior to the Closing (including, but not limited to, the three purchases from Autozone Parts, Inc. in August 2004, April 2005, and August 2005 of POS Inventory).

          “PRC” means the People’s Republic of China.

          “Pre-Closing Tax Period” means the taxable periods ending on or before the Closing Date.

          “Preferred Stock” means the Series A PIK Redeemable Preferred Stock of the Company, par value $.001 per share.

          “Preferred Stock Redemption Amount” means the amount necessary to fully repay the liquidation value and all accrued dividends on the Preferred Stock. Not more than three (3) Business Days prior to the Closing, the Company shall deliver to Purchaser a letter confirmed in writing by ACAS setting forth such amount and per diem interest on such amount.

          “Primary Indemnitors” means Linda Swaldo, William T. Blackerby, Jr. and ACAS.

          “Pro Rata Share” means the percentage of each Seller under the heading “Pro Rata Share” on Exhibit A.

          “Purchase Price” means the Initial Cash Purchase Price, as adjusted pursuant to Section 3.2(f).

          “Release” means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching, or migration at, into or onto the Environment, including movement or migration through or in the Environment, whether sudden or non-sudden and whether accidental or non-accidental, or any release, emission or discharge as those terms are defined in any applicable Environmental Law.

          “Rollover Amount” means, with respect to any Rollover Seller, the amount set forth in the column headed “Rollover Amount” next to such Rollover Seller’s name on Exhibit A hereto.

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          “Rollover Sellers” shall mean each of Linda Swaldo and William T. Blackerby, Jr.

          “Seller Stockholders Agreement” means that certain Stockholders Agreement dated as of October 29, 2002, by and among the Company, ACAS, Theodore V. Swaldo, Linda Swaldo, William T. Blackerby, Jr., Christina Blackerby and each other person who executed such agreement as a stockholder in the Company.

          “Software” means any and all (i) computer programs, applications and other computer software, including, with respect to each, any and all processes, scripts and routines used to process data, software implementations of algorithms, models and methodologies, whether in source code or object code and documentation for any of the foregoing, and (ii) databases, compilations and web sites, including any and all data and collections of data, whether machine readable or otherwise.

          “Straddle Period” means any taxable period that begins before and ends after the Closing Date.

          “Subsidiary” means any Person of which a majority of the outstanding share capital, voting securities or other Equity Securities are owned, directly or indirectly, by the Company and/or one or more other Subsidiaries of the Company.

          “Substances” means any wastes, substances, products, pollutants or materials, whether solid, liquid or gaseous, that (i) is or contains asbestos, polychlorinated biphenyls, radioactive materials, oil, petroleum or any fraction thereof, (ii) requires removal, remediation or reporting under any Environmental Law, or is defined, listed or identified as a “contaminant”, “pollutant”, “toxic substance”, “toxic material”, “hazardous waste” or “hazardous substance” or words of similar meaning and regulatory effect thereunder, or (iii) is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is regulated as such by any Governmental Authority under any Environmental Law.

          “SunTrust” means SunTrust Bank, a Georgia banking corporation.

          “SunTrust (Advance Auto) Factoring Agreement” means that certain Letter of Understanding and Agreement, dated February 9, 2004, by and between ASC Industries, Inc. and SunTrust.

          “SunTrust (Autozone) Factoring Agreement” means that certain Supplier Agreement, dated as of November 30, 2004, by and between ASC Industries, Inc. and SunTrust.

          “Swaldo and Blackerby” means each of Linda Swaldo and William T. Blackerby, Jr.

          “Target Net Working Capital” means an amount equal to $52,640,000.

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          “Tax” or “Taxes” means (i) any and all federal, state, local or foreign taxes, charges, fees, imposts, levies or other assessments, including all net income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, and (ii) all interest, penalties, fines, additions to tax or additional amounts imposed by any Taxing Authority.

          “Tax Return” means any return, report or statement required to be filed to a Taxing Authority with respect to any Tax (including any schedule or attachments thereto, and any amendment thereof), including any election, disclosure, information return, claim for refund, amended return or declaration of estimated Tax, and including, where permitted or required, combined, consolidated or unitary returns for any group of entities that includes Seller, any of the Subsidiaries, or any of their Affiliates.

          “Taxing Authority” means the IRS and any other Governmental Body responsible for the administration of any Tax.

          “Technology” means, collectively, all designs, formulae, algorithms, procedures, methods, techniques, ideas, know-how, research and development, technical data, programs, subroutines, tools, materials, specifications, processes, inventions (whether patentable or unpatentable and whether or not reduced to practice), apparatus, creations, improvements, works of authorship and other similar materials, and all recordings, graphs, drawings, reports, analyses, and other writings, and other tangible embodiments of the foregoing, in any form whether or not specifically listed herein, and all related technology, that are used in, incorporated in, embodied in, displayed by or relate to, or are used by the Company or any Subsidiary.

          “Transaction Expenses” means obligations of the Company, the Subsidiaries and the Sellers for all legal and other expenses incurred in connection with the transactions contemplated herein (including any fees and expenses of (i) Weil, Gotshal & Manges LLP, (ii) Calfee, Halter & Griswold LLP, (iii) Arnold & Porter LLP and (iv) any other advisers to ACAS or the Company including Edgeview Partners); provided that Purchaser shall pay for all filing fees payable to any Governmental Body in connection with the filing of notification under the HSR Act.

          “WARN” means the Worker Adjustment and Retraining Notification Act of 1988, as amended, and the rules and regulations promulgated thereunder.

     1.2 Terms Defined Elsewhere in this Agreement. For purposes of this Agreement, the following terms have meanings set forth in the sections indicated:

Term	Section
280G Approval	8.18
ACAS Cap	10.5(c)
ACAS Cap Exceptions	10.5(c)

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Term	Section
Adjusted Tax Reserve	11.1
Adjustment Escrow Account	3.1(a)(ii)
Adjustment Escrow Agreement	3.1(a)(ii)
Agreement	Recitals
Antitrust Laws	8.4(a)
Audited Financial Statements	5.6(a)
Balance Sheet	5.6(a)
Balance Sheet Date	5.6(a)
Basket	10.5(a)
Buying Group	11.4(b)(iii)
Cancelled Options	2.3
Cap	10.5(a)
Cap Exceptions	10.5(a)
Carlyle	8.9(c)
CERCLA	5.18(c)
CHG	12.9
Claim	8.7(c)
Closing	4.1
Closing Date	4.1
Closing Deduction Refund or Credit	11.4(b)(i)
Closing Deductions	11.4(a)
Closing Statement	3.2(b)
Closing Working Capital	3.2(b)
Collateral Source	10.7(a)
Common Stock	Recitals
Company	Recitals
Company Benefit Plan	5.14(a)
Company Confidentiality Agreement	8.6(a)
Company Documents	5.2
Company Pension Plan	5.14(c)
Company Property	5.10(a)
Company Properties	5.10(a)
Contribution and Subscription Agreement	Recitals
Copyrights	1.1 (in Intellectual Property definition)
CPIII	Recitals
Debt Commitment Letter	7.7
Employee	5.14(a)
Employment Laws	5.15(c)
Environmental Permits	5.18(a)
Equity Sellers Representative	12.3(b)
ERISA	5.14(a)
Estimated CapEx Adjustment Amount	3.2(a)

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Term	Section
Estimated Cash	3.2(a)
Estimated Closing Statement	3.2(a)
Estimated Debt Amount	3.2(a)
Estimated Net Working Capital	3.2(a)
Estimated Working Capital Adjustment	3.2(a)
Excluded Matter	1.1 (in definition of Material Adverse Effect)
Facility Sublease Amendment	8.13
Final CapEx Adjustment Amount	3.2(f)(v)
Final Cash	3.2(f)(v)
Final Closing Date Indebtedness Amount	3.2(f)(v)
Final Working Capital	3.2(f)(v)
Financial Statements	5.6(a)
Financing Fees Deduction	11.4(a)
Foreign Benefit Plan	5.14(e)
Group	5.9(n)
Indemnification Claim	10.4(b)
Indemnitees	8.7(a)
Indemnity Escrow Account	10.6(a)
Indemnity Escrow Agreement	3.1(a)(i)
Indemnity Escrow Amount	10.6(a)
Independent Accountant	3.2(d)
Loss	10.2(a)
Losses	10.2(a)
Machinery and Equipment	5.11(b)
Marks	1.1 (in Intellectual Property definition)
Material Contracts	5.13(a)
Maximum Amount	8.7(f)
Net Debt Adjustment Amount	3.2(f)(iv)
Options	Recitals
Option Deduction	11.4(a)
Ordering Rule	11.4(b)(iii)
Owned Property	5.10(a)
Owned Properties	5.10(a)
Parent	Recitals
Patents	1.1 (in Intellectual Property definition)
Personal Property Leases	5.11(a)
Post-Closing Tax Period	5.9(p)
Pre-Closing Tax Returns	11.6(b)
Prior Return(s)	11.4(b)(i)
Purchaser	Recitals
Purchaser Confidentiality Agreement	8.6(b)

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Term	Section
Purchaser Documents	7.2
Purchaser Indemnified Parties	10.2(a)
Real Property Lease	5.10(a)
Real Property Leases	5.10(a)
Related Party Transaction	5.22
Related Persons	10.9
Releasee/Releasees	10.9
Rollover Shares	2.2
Securities	Recitals
Securities Act	7.5
Sellers	Recitals
Seller Documents	6.2
Seller Indemnified Parties	10.3(a)
Seller Representative	12.3(a)
Sellers’ Tax Contest Claim	11.5
Shares	Recitals
Short Period	11.6(a)
Step-Down Date	10.6(b)(i)
Straddle Period Return(s)	11.6(c)
Stub Period Return(s)	11.6(b)
Sub-Basket	10.5(a)
Subsidiary Equity Securities	5.5(a)
Survival Period	10.1
Taxpayer	5.9(a)
Tax Benefit Amount	11.1(b)
Tax Claim Notice	11.5
Tax Contest Claim	11.5
Termination Date	4.2
Transaction Fees Deduction	11.4(a)
UCI	Recitals
Unaudited Financial Statements	5.6(a)
Unresolved Claims	10.6(b)(i)
Updated Schedules	8.11(a)
Utilized Tax Attributes	11.4(b)(iii)
Warrants	Recitals
WGM	12.9

     1.3 Other Definitional and Interpretive Matters.

          (a) Unless otherwise expressly provided, for purposes of this Agreement, the following rules of interpretation shall apply:

          Calculation of Time Period. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to

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this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day.

          Dollars. Any reference in this Agreement to $ shall mean U.S. dollars.

          Exhibits/Schedules. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any matter or item disclosed on one Schedule shall be deemed to have been disclosed on each other Schedule to the extent the applicability of such disclosure to the matters required to be disclosed on such other Schedule are reasonably apparent based solely upon the face of such disclosure. Disclosure of any item on any Schedule shall not constitute an admission or indication that such item or matter is material or would have a Material Adverse Effect. No disclosure on a Schedule relating to a possible breach or violation of any Contract, Law or Order shall be construed as an admission or indication that breach or violation exists or has actually occurred. Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein shall be defined as set forth in this Agreement.

          Gender and Number. Any reference in this Agreement to gender shall include all genders, and words imparting the singular number only shall include the plural and vice versa.

          Headings. The provision of a Table of Contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in construing or interpreting this Agreement. All references in this Agreement to any “Section” are to the corresponding Section of this Agreement unless otherwise specified.

          Herein. The words such as “herein,” “hereinafter,” “hereof,” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires.

          Including. The word “including” or any variation thereof means (unless the context of its usage otherwise requires) “including, without limitation” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it.

          (b) The parties hereto have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.

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ARTICLE II

SALE AND PURCHASE OF SECURITIES

     2.1 Purchase and Sale of Shares. At the Closing, each Common Stock Seller shall sell to Purchaser, and Purchaser shall purchase from each such Common Stock Seller, that number of Shares set forth opposite each Common Stock Seller’s name under the heading “Total Shares” on Exhibit A attached hereto, less the aggregate number of Rollover Shares transferred to Parent by such Common Stock Seller as provided in Section 2.2, free and clear of all Liens. In consideration of the sale of such Shares, at the Closing and upon delivery of one or more certificates representing such Shares together with stock powers with respect to such Shares duly endorsed in blank, Purchaser agrees to pay to each such Common Stock Seller an aggregate amount of cash (subject to adjustment in accordance with Section 3.2(f)) equal to (x) the number of Shares of Common Stock sold by such Common Stock Seller as determined in accordance with the preceding sentence multiplied by (y) the Per Share Equity Value. Notwithstanding the foregoing, (1) a portion of the consideration otherwise payable pursuant to the preceding sentence (i) to Linda Swaldo equal to $6,650,000 and (ii) to William T. Blackerby, Jr. equal to $350,000, shall be deposited with the Escrow Agent as the Indemnity Escrow Amount in accordance with Section 3.1(a)(i) and (2) a portion of the consideration otherwise payable pursuant to the preceding sentence to the Equity Sellers equal to $2,000,000 (pro rata in accordance with the amount of such consideration otherwise payable to each of them) shall be deposited with the Escrow Agent as the Adjustment Escrow Amount in accordance with Section 3.1(a)(ii).

     2.2 Exchange of Rollover Shares for Parent Common Stock. At the Closing, the Rollover Sellers shall contribute, convey, grant, transfer and deliver to Parent free and clear of all Liens, and Parent shall accept and take delivery from each Rollover Seller, a number of shares of Common Stock (the “Rollover Shares”) equal to such Rollover Seller’s Rollover Amount divided by the Per Share Equity Value (prior to adjustment pursuant to Section 3.2(f)) pursuant to a Contribution and Subscription Agreement in the form attached hereto as Exhibit D. In consideration of (x) the transfer by Linda Swaldo to Parent of such number of Rollover Shares as is required to be contributed by her pursuant to this Section 2.2 and upon delivery of an executed Contribution and Subscription Agreement and one or more certificates representing such Rollover Shares together with stock powers with respect to such Rollover Shares duly endorsed in blank, Parent agrees to issue to Linda Swaldo 80,000 shares of Parent Common Stock and (y) the transfer by William T. Blackerby, Jr. to Parent of such number of Rollover Shares as is required to be contributed by him pursuant to this Section 2.2 and upon delivery of an executed Contribution and Subscription Agreement and one or more certificates representing such Rollover Shares together with stock powers with respect to such Rollover Shares duly endorsed in blank, Parent agrees to issue to William T. Blackerby, Jr. 3,000 shares of Parent Common Stock. Parent and the Rollover Sellers hereby acknowledge and agree that the conveyance of the Rollover Shares for Parent Common Stock, by reason of being part of an overall integrated transaction, is intended to qualify as an exchange under Section 351 of the Code, and the parties hereto shall file all Tax Returns or other reports, as required, consistent with such position, and shall take no contrary position, unless required to do so by applicable Law.

     2.3 Cancellation of Options. Prior to the Closing, the Company shall take all actions to provide for the cancellation, effective at the Closing, subject to the payment as

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provided for herein, of all Options set forth under the heading “Cancelled Options” opposite each Option Holder’s name on Exhibit A attached hereto (the “Cancelled Options”). Immediately prior to the Closing, each Cancelled Option (as set forth on Exhibit A), shall no longer be exercisable for the purchase of shares of Common Stock but shall entitle each holder thereof, in cancellation and settlement therefor, to a payment by the Company in cash, at the Closing, equal to (i) the product of (x) the total number of shares of Common Stock that would have otherwise been issuable upon the exercise of such Cancelled Option, and (y) the Per Share Equity Value, minus (ii) the aggregate exercise price payable upon exercise in full of such Cancelled Option. It shall be a condition precedent to the right of any Cancelled Option Holder to receive the consideration contemplated by the preceding sentence in respect of such Cancelled Option Holder’s Cancelled Options, that such Cancelled Option Holder execute an Option Cancellation Agreement with respect thereto, and the Company shall take all actions reasonably requested by Purchaser to provide for the execution of all Option Cancellation Agreements prior to Closing. Any payments made to the Option Holders under this Agreement, the Earn-Out Agreement and the Option Cancellation Agreements (including any amounts to be distributed from the Adjustment Escrow Account to such Option Holders) shall be subject to reduction as required by applicable federal and state withholding Laws, and all such withheld amounts shall be paid to the Company and thereafter remitted by the Company to the applicable Taxing Authorities promptly following the date of payment. The vesting schedule of all Cancelled Options shall be accelerated so that 100% of the Cancelled Options shall be vested on the Closing Date.

     2.4 Cancellation of Warrants. Prior to the Closing, the Company and ACAS shall take all actions reasonably requested by Purchaser to cancel, effective at the Closing and subject to the payment of the ACAS Warrant Amount, all Warrants.

     2.5 Redemption of the Preferred Stock. Prior to the Closing, the Company and ACAS shall take all actions reasonably requested by Purchaser to cause the Company to redeem, effective at the Closing and subject to the payment of the Preferred Stock Redemption Amount, all shares of Preferred Stock outstanding as of the Closing. In consideration therefor, at the Closing, Purchaser shall cause the Company to pay to ACAS the Preferred Stock Redemption Amount against delivery of the certificates representing the shares of Preferred Stock being redeemed together with stock powers with respect to such Shares duly endorsed in blank.

     2.6 Earn-Out Agreement. At the Closing, Purchaser and Sellers shall execute and deliver to each other an Earn-Out Agreement, substantially in the form of Exhibit K hereof (the “Earn-Out Agreement”) pursuant to which each of the Equity Sellers each of the Equity Sellers shall receive up to an amount equal to $4,000,000 to the extent the conditions for payment thereof in the Earn-Out Agreement have been satisfied multiplied by such Equity Seller’s Pro Rata Share as additional consideration for the sale of Shares and/or cancellation of Options held by them prior to the Closing. Such additional payment, if any, shall be treated as additional purchase price payable to such Equity Sellers for all purposes hereunder.

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ARTICLE III

PURCHASE PRICE

     3.1 Payment of Initial Cash Purchase Price and Other Amounts.

          (a) At the Closing, Purchaser shall pay the Initial Cash Purchase Price, which shall be paid by wire transfer of immediately available funds as follows:

     (i) $7,000,000 shall be paid to the Escrow Agent to be deposited in the Indemnity Escrow Account and held and disbursed in accordance with a joint instruction escrow agreement, the form of which shall mutually acceptable to Purchaser, the Equity Sellers Representative and the Escrow Agent (the “Indemnity Escrow Agreement”) and this Agreement;

     (ii) $2,000,000 shall be paid to the Escrow Agent to be deposited in an account (the “Adjustment Escrow Account”) and held and disbursed in accordance with the a joint instruction escrow agreement, the form of which shall be mutually acceptable to Purchaser, Theodore W. Swaldo (on behalf of Linda Swaldo) and the Escrow Agent (the “Adjustment Escrow Agreement”) and this Agreement;

     (iii) to each Common Stock Seller, an amount equal to the amount specified in Section 2.1 (less, with respect to payments made to Linda Swaldo and William T. Blackerby, Jr., the Indemnity Escrow Amount and their Pro Rata Share of the Adjustment Escrow Amount); and

     (iv) to the Company on behalf of and for payment to the Option Holders, the Option Cancellation Amount (less the Option Holder’s Pro Rata Share of the Adjusted Escrow Amount).

          (b) At the Closing, Purchaser shall or shall provide the Company with sufficient funds and cause the Company to, by wire transfer of immediately available funds, pay the Closing Date Indebtedness to the lenders of the Company and the Subsidiaries (other than any Indebtedness of the Company pursuant to capital leases to which the Company or its Subsidiaries is a Party) to such account or accounts as such lenders shall direct in their respective debt payoff letters.

          (c) At the Closing, Purchaser shall or shall provide the Company with sufficient funds and cause the Company to, by wire transfer of immediately available funds, pay the Transaction Expenses due at Closing, as the Seller Representative shall direct.

          (d) At the Closing, Purchaser shall or shall provide the Company with sufficient funds and cause the Company to, by wire transfer of immediately available funds, pay the Preferred Stock Redemption Amount to ACAS in redemption of the Preferred Stock.

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          (e) At the Closing, Purchaser shall or shall provide the Company with sufficient funds and cause the Company to, by wire transfer of immediately available funds, pay the ACAS Warrant Amount to ACAS as consideration for the cancellation of the Warrants.

     3.2 Purchase Price Adjustment.

          (a) Not less than three (3) Business Days prior to the Closing Date, the Equity Sellers Representative shall cause the Company to deliver to Purchaser a statement (the “Estimated Closing Statement”) certified by the Company’s chief financial officer setting forth in reasonable detail (i) the Company’s estimated Net Working Capital as of the time of the Closing (“Estimated Net Working Capital”) and the calculation thereof, (ii) the Company’s estimated Cash as of the Closing (“Estimated Cash”) and the calculation thereof, (iii) the Company’s estimated Closing Date Indebtedness Amount (“Estimated Debt Amount”) and the calculation thereof and (iv) the Company’s estimate of the CapEx Adjustment Amount (the “Estimated CapEx Adjustment Amount”) and a reasonably detailed calculation thereof. If Target Net Working Capital exceeds Estimated Net Working Capital by more than $1,500,000, then the amount of such excess above $1,500,000 shall be deducted from clause (a) in the definition of “Aggregate Equity Value” as provided therein. If Estimated Net Working Capital exceeds Target Net Working Capital by more than $1,500,000, then the amount of such excess above $1,500,000 shall be added to clause (a) in the definition of “Aggregate Equity Value” as provided therein. Such deduction or addition is sometimes referred to herein as the “Estimated Working Capital Adjustment.” The Estimated Cash, Estimated Debt Amount and Estimated CapEx Adjustment Amount will be used for the purposes of calculating the “Aggregate Equity Value” at Closing and in the event that actual Cash, Closing Date Indebtedness Amount or actual CapEx Adjustment Amount is greater than or less than the Estimated Cash, the Estimated Debt Amount, or the Estimated CapEx Amount respectively, the Aggregate Equity Value will be subject to adjustment in accordance with Section 3.2(f) below.

          (b) As promptly as practicable, but no later than ninety (90) days after the Closing Date, Purchaser shall cause to be prepared and delivered to the Equity Sellers Representative a closing statement (the “Closing Statement”) and a certificate based on such Closing Statement setting forth in reasonable detail the Purchaser’s calculation of (i) Net Working Capital (“Closing Working Capital”), (ii) Cash, (iii) Closing Date Indebtedness Amount and (iv) the CapEx Adjustment Amount, in each case, as of immediately prior to the time of the Closing. The preparation of the Closing Statement shall be for the sole purpose of determining differences in Closing Working Capital from Estimated Net Working Capital, and for determining Cash, Closing Date Indebtedness Amount and the CapEx Adjustment Amount as of the Closing.

          (c) If the Equity Sellers Representative disagrees with Purchaser’s calculation of Closing Working Capital, Cash, Closing Date Indebtedness Amount and/or CapEx Adjustment Amount delivered pursuant to Section 3.2(b), the Equity Sellers Representative may, within fifteen (15) days after delivery of the Closing Statement, deliver a notice to Purchaser stating that the Equity Sellers Representative disagrees with

21

such calculation and specifying in reasonable detail those items or amounts as to which the Equity Sellers Representative disagrees and the basis therefor.

          (d) If a notice of disagreement shall be duly delivered pursuant to Section 3.2(c), the Equity Sellers Representative and Purchaser shall, during the fifteen (15) days following such delivery, use their commercially reasonable efforts to reach agreement on the disputed items or amounts in order to determine, as may be required, the amount of Closing Working Capital, Cash, Closing Date Indebtedness Amount and CapEx Adjustment Amount. If during such period, the Equity Sellers Representative and Purchaser are unable to reach such agreement, they shall promptly thereafter cause Deloitte & Touche LLP or such other mutually agreeable independent accounting firm, as the case may be (the “Independent Accountant”), to review this Agreement and the disputed items or amounts for the purpose of calculating Closing Working Capital, Cash, Closing Date Indebtedness Amount and CapEx Adjustment Amount (it being understood that in making such calculation, the Independent Accountant shall be functioning as an expert and not as an arbitrator). Purchaser and the Equity Sellers Representative shall cooperate with the Independent Accountant and promptly provide all documents and information requested by the Independent Accountant. In making such calculation, the Independent Accountant shall consider only those items or amounts in the Closing Statement and Purchaser’s calculation of Closing Working Capital, Cash, Closing Date Indebtedness Amount and CapEx Adjustment Amount as to which the Equity Sellers Representative has disagreed in its notice of disagreement duly delivered pursuant to Section 3.2(c) and may not assign a value greater then the greatest positive or negative adjustment requested by a party and in no event shall Final Working Capital be less than the Purchaser’s calculation of Closing Working Capital delivered pursuant to Section 3.2(b) or more than Equity Sellers Representative’s calculation of Closing Working Capital delivered pursuant to Section 3.2(c). The Independent Accountant shall deliver to the Equity Sellers Representative and Purchaser, as promptly as practicable (but in any case no later than thirty (30) days from the date of engagement of the Independent Accountant), a report setting forth such calculation. Such report shall be final and binding upon the Equity Sellers and Purchaser, shall be deemed a final arbitration award that is binding on Purchaser and the Equity Sellers, and neither Purchaser nor the Equity Sellers shall seek further recourse to courts or other tribunals, other than to enforce such report. Judgment may be entered to enforce such report in any court of competent jurisdiction. The Independent Accountant will determine the allocation of the cost of its review and report based on the inverse of the percentage its determination (before such allocation) bears to the total amount of the total items in dispute as originally submitted to the Independent Accountant. For example, should the items in dispute total in amount to $1,000 and the Independent Accountant awards $600 in favor of the Equity Sellers’ position, 60% of the costs of its review would be borne by Purchaser and 40% of the costs would be borne by the Equity Sellers.

          (e) The Equity Sellers, Purchaser and the Company shall, and shall cause their respective representatives to, cooperate and assist in the preparation of the Closing Statement and the calculation of Closing Working Capital, Cash, Closing Date Indebtedness Amount and CapEx Adjustment Amount and in the conduct of the review

22

referred to in this Section 3.2, including the making available to the extent necessary of books, records, work papers and personnel.

          (f) Payments of Adjustment Amounts.

     (i) If Final Working Capital exceeds the Target Net Working Capital by more than $1,500,000, Purchaser shall pay to the Equity Sellers, in the manner and with interest as provided in Section 3.2(g), the amount of such excess above $1,500,000, net of the Estimated Working Capital Adjustment, if any, added to or subtracted from Aggregate Equity Value (with an additive Estimated Working Capital Adjustment to be subtracted from the amount payable by Purchaser hereunder and a subtracting Estimated Working Capital Adjustment to be added to the amount payable by Purchaser hereunder). If, upon netting such excess against the Estimated Working Capital Adjustment, the result is a negative number, the absolute value of the amount thereof shall be paid by the Equity Sellers to the Purchaser.

     (ii) If the Target Net Working Capital exceeds Final Working Capital by more than $1,500,000, the Equity Sellers shall pay to Purchaser, in the manner and with interest as provided in Section 3.2(g), the amount of such excess above $1,500,000, net of the Estimated Working Capital Adjustment, if any, added to or subtracted from Aggregate Equity Value (with a subtracting Estimated Working Capital Adjustment to be subtracted from the amount payable by Equity Sellers hereunder and an additive Estimated Working Capital Adjustment to be added to the amount payable by Equity Sellers). If, upon netting such excess against the Estimated Working Capital Adjustment, the result is a negative number, the absolute value of the amount thereof shall be paid by the Purchaser to the Equity Sellers.

     (iii) In the event that the difference between Final Working Capital and Target Working Capital is less than $1,500,000, the amount of Estimated Working Capital Adjustment, if any, shall be paid by Equity Sellers to Purchaser (if the Estimated Working Capital Adjustment was added to Aggregate Equity Value paid on the Closing Date) or by Purchaser to Equity Sellers (if the Estimated Working Capital Adjustment was subtracted from Aggregate Equity Value paid on the Closing Date).

     (iv) In the event that the Net Debt Adjustment Amount is greater than zero the Equity Sellers shall pay to the Purchaser such amount, in the manner and with interest as provided in Section 3.2(g). In the event that the Net Debt Adjustment Amount is less than zero, the Purchaser shall pay to the Equity Sellers the absolute value of such amount, in the manner and with interest as provided in Section 3.2(g). As used herein the “Net Debt Adjustment Amount” shall mean an amount equal to (u) the Final CapEx Adjustment Amount minus (v) the Estimated CapEx Adjustment Amount plus (w) the Final Closing Date Indebtedness Amount minus (x) the Estimated Closing Date Indebtedness Amount minus (y) the Estimated Cash plus (z) Final Cash.

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     (v) “Final Working Capital,” “Final Cash,” “Final Closing Date Indebtedness Amount” and “Final CapEx Adjustment Amount” mean respectively, Closing Working Capital, Cash, Closing Date Indebtedness Amount and CapEx Adjustment Amount (i) as shown in Purchaser’s calculation delivered pursuant to Section 3.2(b) if no notice of disagreement with respect thereto is duly delivered pursuant to Section 3.2(c); or (ii) if such a notice of disagreement is delivered, (A) as agreed by the Equity Sellers Representative and Purchaser pursuant to Section 3.2(d) or (B) in the absence of such agreement, as shown in the Independent Accountant’s calculation delivered pursuant to Section 3.2(d).

          (g) Any payment pursuant to Section 3.2(f) shall be made within five (5) Business Days after all of Final Working Capital, Final Cash, Final Closing Date Indebtedness Amount and Final CapEx Adjustment Amount have been determined by wire transfer of immediately available funds. Any payment by Purchaser to the Equity Sellers shall be made to the Equity Sellers Representative, on behalf of the Equity Sellers, and shall thereafter be distributed by the Equity Sellers Representative to the Equity Sellers in accordance with their respective Pro Rata Shares. Any payment required to be made by the Equity Sellers to Purchaser pursuant to Section 3.2(f) shall be funded first from the Adjustment Escrow Amount. In the event that the amount of such payment exceeds the Adjustment Escrow Amount plus any interest earned thereon, the Equity Sellers Representative shall pay such excess amount to Purchaser on behalf of the Equity Sellers. Each Equity Seller shall be obligated to reimburse the Equity Sellers Representative for its Pro Rata Share of such payment. The amount of any payment to be made pursuant to Section 3.2(f) shall bear interest from and including the date due pursuant to this Section 3.2(g) to, but excluding, the date of payment at a rate per annum equal to eight percent (8%). Such interest shall be payable at the same time as the payment to which it relates and shall be calculated daily on the basis of a year of three hundred sixty five (365) days and the actual number of days elapsed. Upon final determination of the Final Working Capital, Final Cash, Final Closing Date Indebtedness Amount and Final CapEx Adjustment Amount, any cash remaining in the Adjustment Escrow Account following any disbursement required to be made to Purchaser shall be paid to the Equity Sellers Representative for distribution to the Equity Sellers pro rata in accordance with their respective Pro Rata Shares. The Equity Sellers Representative and Purchaser shall each execute joint instructions to the Escrow Agent to disburse the Adjustment Escrow Amount in accordance with this Section 3.2.

ARTICLE IV

CLOSING AND TERMINATION

     4.1 Closing Date. The closing of the sale and purchase of the Shares provided for in Article II hereof (the “Closing”) shall take place at the offices of Weil, Gotshal & Manges LLP located at 767 Fifth Avenue, New York, New York 10153 at 10:00 a.m. (New York City time) on a date to be specified by the parties (the “Closing Date”), which date shall be no later than the third Business Day after the satisfaction or waiver of the conditions set forth in Article IX (other than conditions that by their nature are to be

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satisfied at the Closing, but subject to the satisfaction or waiver of those conditions at such time), unless another time, date or place is agreed to in writing by the parties hereto.

     4.2 Termination of Agreement. This Agreement may be terminated on any date (the “Termination Date”) prior to the Closing as follows:

          (a) by Seller Representative and the Equity Sellers Representative, acting together, or by Purchaser on or after October 31, 2006, if the Closing shall not have occurred by the close of business on such date, provided that the terminating party is not in breach in any material respect of any of its obligations hereunder;

          (b) by mutual written consent of the Seller Representative, Equity Sellers Representative and Purchaser;

          (c) by the Seller Representative and the Equity Sellers Representative, acting together or Purchaser if there shall be in effect a final nonappealable Order of a Governmental Body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; it being agreed that, subject to the last sentence of Section 8.4(b) hereof, the parties hereto shall promptly appeal any adverse determination which is not nonappealable (and pursue such appeal with reasonable diligence); provided, however, that the right to terminate this Agreement under this Section 4.2(c) shall not be available to a party if such Order was primarily due to the failure of such party to perform any of its obligations under this Agreement;

          (d) at any time before the Closing, by notice given by Seller Representative and the Equity Sellers Representative, acting together, to Purchaser (i) in the event of a material breach of this Agreement by Purchaser if Purchaser fails to cure such breach within thirty (30) days following notification thereof by the Seller Representative and the Equity Sellers Representative or (ii) upon the satisfaction of any condition to the Sellers’ obligations under this Agreement becoming impossible or impracticable with the use of commercially reasonable efforts, if the failure of such condition to be satisfied is not caused by a breach of this Agreement by any Seller or the Company;

          (e) at any time before the Closing, by notice given by Purchaser to Seller Representative and Equity Sellers Representative (i) in the event of a material breach of this Agreement by any Seller or the Company if such breaching party fails to cure such breach within thirty (30) days following notification thereof by Purchaser or (ii) upon the satisfaction of any condition to the Purchaser’s obligations under this Agreement becoming impossible or impracticable with the use of commercially reasonable efforts, if the failure of such condition to be satisfied is not caused by a breach of this Agreement by Purchaser; or

          (f) after delivery by the Company (if it so elects) of the Updated Schedules, by notice given by Purchaser to the Seller Representative in accordance with and subject to, Section 8.11(a) hereof.

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     4.3 Procedure Upon Termination. In the event of termination and abandonment by Purchaser or Seller Representative and the Equity Sellers Representative (Seller Representative and Equity Sellers Representative being considered one party), pursuant to Section 4.2 hereof, written notice thereof shall forthwith be given to the other party or parties, and this Agreement shall terminate, and the purchase of the Shares hereunder shall be abandoned, without further action by Purchaser or the Sellers.

     4.4 Effect of Termination. In the event that this Agreement is validly terminated in accordance with Section 4.2 and 4.3, then each of the parties shall be relieved of their duties and obligations arising under this Agreement after the date of such termination and such termination shall be without liability to Purchaser, the Company or any Seller other than liability for any willful breach of this Agreement prior to the date of termination and, provided, that the obligations of the parties set forth in the Confidentiality Agreement and Article XII hereof shall survive any such termination and shall be enforceable thereunder and hereunder.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

          The Company hereby represents and warrants to Purchaser that:

     5.1 Organization and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now conducted. The Company is duly qualified or authorized to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which it owns or leases real property and each other jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification or authorization, except where the failure to be so qualified, authorized or in good standing, individually and in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect.

     5.2 Authorization of Agreement. The Company has all requisite corporate power and authority to execute and deliver this Agreement and each other agreement, document, or instrument or certificate contemplated by this Agreement or to be executed by the Company in connection with the consummation of the transactions contemplated by this Agreement (the “Company Documents”), and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Company Documents and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of the Company. This Agreement has been, and each of the Company Documents will be at or prior to the Closing, duly and validly executed and delivered by the Company and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each of the Company Documents will, when so executed and delivered, constitute, the legal, valid and binding obligations of the Company, enforceable against it in accordance with its terms, subject to applicable

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bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

     5.3 Conflicts; Consents of Third Parties.

          (a) Except as set forth on Schedule 5.3(a), none of the execution and delivery by the Company of this Agreement or any of the Company Documents, the consummation of the transactions contemplated hereby or thereby, or compliance by the Company with any of the provisions hereof or thereof will conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination or cancellation under, any provision of, or result in the creation of any Encumbrance on any of the Assets of the Company or its Subsidiaries pursuant to (i) the certificate of incorporation and by-laws or comparable organizational documents of the Company or any Subsidiary; (ii) any Contract or Permit to which the Company or any Subsidiary is a party or by which any of the Assets of the Company or any Subsidiary are bound; (iii) any Order of any Governmental Body applicable to the Company or any Subsidiary or by which any of the Assets of the Company or any Subsidiary are bound; or (iv) any applicable Law, other than, in the case of clauses (ii), (iii) and (iv), such conflicts, violations, defaults, terminations or cancellations that would not, individually or in the aggregate, result in or reasonably be expected to result in a Material Adverse Effect.

          (b) Except as set forth on Schedule 5.3(b), no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, novation by, or notification to, any Person or Governmental Body is required on the part of the Company or any Subsidiary in connection with the execution and delivery of this Agreement or the Company Documents or the compliance by the Company with any of the provisions hereof or thereof, or the consummation of the transactions contemplated hereby or thereby, except for (i) compliance with the applicable requirements of the HSR Act and (ii) such other consents, waivers, approvals, Orders, Permits or authorizations the failure of which to obtain would not, individually or in the aggregate, result in or reasonably be expected to result in a Material Adverse Effect.

     5.4 Capitalization.

          (a) The authorized capital stock of the Company consists solely of (i) 300,000 shares of Common Stock, of which 150,000 shares are issued and outstanding and (ii) 200,000 shares of Preferred Stock, of which 72,000 shares are issued and outstanding. All of the issued and outstanding shares of Common Stock and Preferred Stock were duly authorized for issuance and are validly issued, fully paid and non-assessable, are not subject to any preemptive rights and were not issued in violation of the Securities Act or any other applicable Laws (including state “Blue Sky” laws). Except as set forth on Schedule 5.4(a), no shares of Common Stock, Preferred Stock or any other class of Equity Securities are reserved for issuance.

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          (b) Except as set forth on Schedule 5.4(b), (i) there is no existing option, warrant, call, right, or Contract of any character to which the Company is a party requiring, and there are no securities of the Company outstanding that are convertible into or exchangeable or exercisable for shares of Common Stock, Preferred Stock or any other Equity Securities of the Company, (ii) there are no commitments or obligations of any kind or character providing for the issuance of additional shares of Common Stock, Preferred Stock or any other Equity Securities of the Company, the sale of treasury shares, or the repurchase, redemption or other acquisition of shares of Common Stock, Preferred Stock or any other Equity Securities of the Company, or any obligations arising from canceled stock, (iii) there are no agreements or circumstances of any kind which may obligate the Company to issue, purchase, register for sale, redeem or otherwise acquire any of its Common Stock, Preferred Stock or any other Equity Securities of the Company and (iv) there are no voting trusts, shareholder agreements, proxies or other agreements in effect to which the Company is a party or by which it may be bound with respect to the voting or transfer of the shares of Common Stock or Preferred Stock.

     5.5 Subsidiaries.

          (a) Schedule 5.5 sets forth the name of each Subsidiary, and, with respect to each Subsidiary, the jurisdiction in which it is incorporated or organized, the jurisdictions, if any, in which it is qualified to do business, the number and type of its authorized Equity Securities, the number of each class of Equity Securities duly issued and outstanding or the registered capital of such Subsidiary (collectively, the “Subsidiary Equity Securities”), the current record and beneficial ownership or the amount of the registered capital contributed by the Company and its Subsidiaries of such Subsidiary Equity Securities and the identity of any other record and, to the Knowledge of the Company, beneficial holder or contributor of registered capital of Subsidiary Equity Securities. The Subsidiary Equity Securities described in Schedule 5.5 constitute all the issued and outstanding Equity Securities of the respective Subsidiaries. Each Subsidiary is a duly organized and validly existing corporation or other entity in good standing under the laws of the jurisdiction of its incorporation or organization and is duly qualified or authorized to do business as a foreign corporation or entity and is in good standing under the laws of each jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification or authorization, except where the failure to be so qualified, authorized or in good standing, individually and in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect. Each Subsidiary has all requisite corporate or entity power and authority to own, lease and operate its properties and carry on its business as now conducted.

          (b) The Subsidiary Equity Securities are duly authorized and validly issued, fully paid and non-assessable, are not subject to any pre-emptive rights and were not issued in violation of the Securities Act or any other applicable Laws (including state “Blue Sky” laws), and all such shares or other equity interests represented as being owned by Company or a Subsidiary are owned by it free and clear of any and all Liens except as set forth on Schedule 5.5. There is no existing option, warrant, call, right or Contract to which the Company or any Subsidiary is a party requiring, and there are no convertible securities of any Subsidiary outstanding which upon conversion would

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require, the issuance of any shares of Subsidiary Equity Securities, the sale of treasury shares, or the repurchase, redemption or other acquisition of any Subsidiary Equity Securities, or any obligations arising from cancelled stock. Except as set forth in Schedule 5.5, there are no voting trusts, shareholder agreements, proxies or other agreements in effect with respect to the voting or transfer of the Subsidiary Equity Securities held by the Company or any of its Subsidiaries or to the Knowledge of the Company, the Subsidiary Equity Securities held by any other Person. Except for the Subsidiary Equity Securities described in Schedule 5.5, neither the Company nor any of its Subsidiaries owns of record or beneficially any Equity Securities of any Person or any right (contingent or otherwise) to acquire the same.

     5.6 Financial Statements.

          (a) The Company has made available to Purchaser true, correct and complete copies of (i) the audited consolidated balance sheets of the Company and the Subsidiaries as at December 31, 2002, 2003 and 2004 and the related audited consolidated statements of income and of cash flows of the Company and the Subsidiaries for the years then ended (the “Audited Financial Statements”) and (ii) the unaudited consolidated balance sheet of the Company and the Subsidiaries as at September 30, 2005 and the related consolidated statements of income and cash flows of the Company and the Subsidiaries for the nine-month period then ended (the “Unaudited Financial Statements” and together with the Audited Financial Statements, including the related notes and schedules thereto, the “Financial Statements”). Except as set forth in the notes thereto, each of the Financial Statements has been prepared in accordance with GAAP consistently applied using the Agreed Principles (other than (i) the absence of footnotes and other presentation items in the case of the Unaudited Financial Statements and (ii) normal year-end adjustments none of which are material individually or in the aggregate) and presents fairly in all material respects the consolidated financial position, results of operations and cash flows of the Company and the Subsidiaries as at the dates and for the periods indicated therein.

     For the purposes hereof, the unaudited consolidated balance sheet of the Company and the Subsidiaries as at September 30, 2005 is referred to as the “Balance Sheet” and September 30, 2005 is referred to as the “Balance Sheet Date.”

     5.7 No Undisclosed Liabilities. Neither the Company nor any Subsidiary has any Liabilities of any kind that would have been required to be accrued, reflected in, reserved against or otherwise described on a balance sheet or in the notes thereto prepared in accordance with GAAP applied on a basis consistent with the Balance Sheet and were not so accrued, reflected, reserved against or described, other than (a) Liabilities incurred in the Ordinary Course of Business after the Balance Sheet Date, (b) Liabilities incurred in connection with the transactions contemplated hereby, (c) Liabilities reflected and reserved against on the Balance Sheet or disclosed on Schedule 5.7 and (d) Liabilities that individually or in the aggregate have not had, or would not reasonably be expected to have, a Material Adverse Effect.

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     5.8 Absence of Certain Developments. Except as expressly contemplated by this Agreement or set forth on Schedule 5.8, since the Balance Sheet Date (a) the Company and the Subsidiaries have conducted their respective businesses only in the Ordinary Course of Business and have used their respective commercially reasonable efforts to preserve the business intact and (b) there has not been any event, change, occurrence or circumstance that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect. Without limiting the generality of the foregoing, since the Balance Sheet Date:

     (i) there has not been any damage, destruction or loss, whether or not covered by insurance, with respect to the Assets of the Company or any Subsidiary having a replacement cost of more than $50,000 for any single loss or $250,000 for all such losses;

     (ii) except in the Ordinary Course of Business pursuant to the terms of existing Company Benefit Plans described on Schedule 5.14(a) or as required by Law, neither the Company nor any Subsidiary has (1) awarded, paid, made, accrued, contingently or otherwise, or granted, any bonus, incentive compensation, service award or other similar benefit to Personnel, (2) entered into any employment, deferred compensation, severance or similar agreement or agreed to increase the compensation payable or to become payable by it to any of the Company’s or any Subsidiary’s current or former directors, officers or employees, or (3) agreed to increase the coverage or benefits available under any severance pay, termination pay, vacation pay, salary continuation for disability, sick leave, deferred compensation, bonus or other incentive compensation, insurance, pension or other employee benefit plan made to, for or with such directors, officers or employees;

     (iii) except in the ordinary course of business, neither the Company nor any Subsidiary has made or rescinded any election relating to Taxes, or settled or compromised any claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes, or except as required by applicable law, made any change to any of its methods of accounting or methods of reporting income or deductions for Tax or accounting practice or policy, or filed any amended Tax Returns or consented to any extension or waiver of the limitation period applicable to any claim or assessment relating to Taxes;

     (iv) neither the Company nor any Subsidiary has acquired any Assets or sold, assigned, transferred, conveyed, leased or otherwise disposed of any Assets of the Company or any Subsidiary, except, for Assets acquired, sold, assigned, transferred, conveyed, leased or otherwise disposed of in the Ordinary Course of Business;

     (v) neither the Company nor any Subsidiary has discharged or satisfied any Lien, or paid any Liability, except in the Ordinary Course of Business;

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     (vi) neither the Company nor any Subsidiary has canceled or compromised any debt or claim or amended, canceled, terminated, relinquished, waived or released any Contract or right except in the Ordinary Course of Business and which, in the aggregate, would not be material to the Company and the Subsidiaries taken as a whole;

     (vii) neither the Company nor any Subsidiary has made or committed to make any capital expenditures or capital additions or betterments in excess of $100,000 individually or $250,000 in the aggregate;

     (viii) neither Company nor any Subsidiary has issued, created, incurred, assumed, guaranteed, endorsed or otherwise become liable or responsible with respect to (whether directly, contingently, or otherwise) any Indebtedness (other than the advancement of expenses to Personnel of the Company or any of its Subsidiaries in the Ordinary Course of Business);

     (ix) the Company has not granted any license or sublicense of any rights under or with respect to any Intellectual Property except in the Ordinary Course of Business;

     (x) neither the Company nor any Subsidiary has amended or modified the Company Benefit Plans, other than (i) amendments or modifications to such plans made in the Ordinary Course of Business pursuant to the terms of such plans or as required by Law or (ii) the extension of coverage to Personnel of the Company or any of its Subsidiaries who became eligible after the Balance Sheet Date;

     (xi) neither the Company nor any Subsidiary has revalued any of their respective Assets, including writing off notes or accounts receivable or revaluing inventory;

     (xii) neither the Company nor any Subsidiary has declared, set aside for payment or paid any dividends or distributions (other than cash) in respect of any Equity Securities of the Company or any of its Subsidiaries, or redeemed, purchased or otherwise acquired any of the Company’s or any of the Subsidiary Equity Securities;

     (xiii) neither the Company nor any Subsidiary has issued or reserved for issuance, or committed (including any stock option or other stock incentive award) to issue or reserve for issuance, any Equity Securities of the Company or any of its Subsidiaries;

     (xiv) neither the Company nor any Subsidiary has materially and adversely modified or terminated any material policy of insurance, any Material Contract or any Contract that would be a Material Contract if in existence on the date hereof;

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     (xv) neither the Company nor any Subsidiary has created, incurred or otherwise suffered any Lien on any Asset of the Company or any of its Subsidiaries, other than Permitted Exceptions;

     (xvi) neither the Company nor any Subsidiary has instituted or settled any Legal Proceeding involving a claim or claims in excess of $50,000 in the aggregate; and

     (xvii) none of the Sellers or the Company has agreed, committed, arranged or entered into any understanding to do anything set forth in this Section 5.8.

     5.9 Taxes. Except as set forth on Schedule 5.9:

          (a) Each of the Company and the Subsidiaries (each a “Taxpayer,” together the “Taxpayers”) has timely filed with the appropriate Taxing Authority (or there has been filed on its behalf) all income, franchise and other material federal, state and foreign Tax Returns and reports required to be filed by it with the appropriate Taxing Authority and all such Tax Returns are true, correct and complete in all material respects.

          (b) The unpaid Taxes of the Taxpayers attributable to the Pre-Closing Tax Period will not, as of the Closing Date, exceed the reserve for Tax liability (other than a reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Closing Statement and taken into account in determining Closing Working Capital.

          (c) Each Taxpayer has in all material respects (i) withheld from any employee, customer, independent contractor, creditor, shareholder and any other applicable payee the required amounts for all taxable periods in compliance with all Tax withholding provisions of applicable federal, state, local, or foreign laws; (ii) has remitted or will remit on a timely basis, such amounts to the appropriate Taxing Authority; and (iii) has furnished properly completed sales and use tax exemption certificates for all exempt transactions.

          (d) None of the Taxpayers has waived any statute of limitations for the assessment of any Tax or agreed to a Tax assessment or deficiency for any taxable period that (after giving effect to such extension or waiver) has not expired, nor is any request to so waive or extend outstanding.

          (e) None of the Taxpayers is a party to any Tax sharing, Tax indemnity or Tax allocation agreement or other similar arrangement pursuant to which it will have any obligation to make payments after the Closing Date.

          (f) No federal, state, local or foreign audits or other administrative or judicial Tax proceedings by the IRS or by any state or foreign Taxing Authority are pending with respect to Taxes or Tax Returns of any of the Taxpayers and, to the knowledge of the Taxpayers, no such audits are threatened. There are no matters under discussion with any Taxing Authority or any matters known to the Taxpayers with

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respect to Taxes that would reasonably be expected to result in any additional liability with respect to any Taxpayer.

          (g) There are no Liens for Taxes upon any property or Assets of any of the Taxpayers, except for Liens for Taxes in the definition of Permitted Exceptions.

          (h) None of the Taxpayers has constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (A) in the two years prior to the date of this Agreement or (B) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the transactions contemplated by this Agreement.

          (i) No power of attorney has been granted that is currently in force by or with respect to any Taxpayer with respect to any matter relating to Taxes.

          (j) No claim has been made in the last 5 years by any Taxing authority in a jurisdiction where any of the Taxpayers do not file Tax Returns that any Taxpayer is subject to taxation in that jurisdiction.

          (k) No Taxpayer (i) has consented at any time under former Section 341(f)(1) of the Code to have the provisions of former Section 341(f)(2) of the Code apply to any disposition of any assets; (ii) made an election, or is required to treat any asset as owned by another person pursuant to the provisions of former Section 168(f) of the Code or as a tax-exempt bond financed property or tax-exempt use property within the meaning of Section 168 of the Code; and (iii) has acquired or owns any assets that directly or indirectly secure any debt the interest of which is tax exempt under Section 103(a) of the Code.

          (l) None of the Taxpayers has participated in or cooperated with an international boycott.

          (m) No payment or other benefit that has been or may be made to any current or former employee or independent contractor of any Taxpayer under any Company Benefit Plan may be characterized as an “excess parachute payment” or, individually or collectively, would give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G of the Code. No Company Benefit Plan provides to any “service provider” (within the meaning of Section 409A of the Code) any compensation or benefits which could subject such service provider to gross income inclusion or tax pursuant to Section 409A(a)(1) of the Code.

          (n) None of the Taxpayers has been a member of any “affiliated group” of corporations within the meaning of Section 1504 of the Code or any group that has filed a combined, consolidated or unitary state or local return (other than as a member of an affiliate group of which the parent is the Company (such affiliated group, the “Group”)). None of the Taxpayers has any liability for the Taxes of any other person under Treasury Regulations Section 1.1502-6 or Section 1.1502-78 (or any similar

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provision of state, local, or foreign law), as a transferee or successor, by contract or otherwise (other than for Taxes of other members of the Group).

          (o) None of the Taxpayer is or has been a “United States real property holding corporation” within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

          (p) None of the Taxpayers, or any other member of any tax reporting group of which any Taxpayer is a member shall be required to include in a taxable period beginning after the Closing Date (a “Post-Closing Tax Period”) taxable income attributable to income of any Taxpayer that accrued in a Pre-Closing Tax Period but was not recognized in any Pre-Closing Tax Period including without limitation, by reason of (i) the installment method of accounting, (ii) the long-term contract method of accounting, (iii) a “closing agreement” described in Section 7121 of the Code (or any provision of any foreign, state or local Tax law having similar effect), or (iv) Section 481 of the Code (or any provision of any foreign, state or local Tax law having similar effect), or (v) earnings and profits of any Taxpayer being recharacterized as “Subpart F income” (as defined under the provisions of Section 952 of the Code) under the provisions of Section 952(c)(2) of the Code. The Company will not be required to include in taxable income under Section 951 of the Code for any taxable period (or portion thereof) ending after the Closing Date any amount of income arising from transactions or events occurring in a taxable period (or portion thereof) ending on or prior to the Closing Date.

          (q) None of the Taxpayers that are organized under the laws of any country other than the United States (i) has an investment in US property within the meaning of Section 956 of the Code; (ii) is engaged in a US trade or business for US federal income Tax purposes or (iii) is a passive foreign investment company within the meaning of the Code.

          (r) None of the Taxpayers has had a permanent establishment in any country other than in its country of incorporation as defined in any applicable tax treaty or convention between the country of incorporation and such foreign country.

          (s) There are no Advance Pricing Agreements between any of the Taxpayers and the Internal Revenue Service or any other Taxing Authority in effect at the Closing Date.

          (t) None of the Taxpayers is required to make any disclosure to the IRS with respect to (i) a “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4(b) or (ii) any “confidential corporate tax shelter” within the meaning of Section 6111 of the Code and the Treasury Regulations promulgated thereunder. Each Taxpayer has disclosed on their US federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of US federal income Tax within the meaning of Section 6662 of the Code.

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     5.10 Real Property.

          (a) Schedule 5.10(a) sets forth a complete list of (i) all real property and interests in real property, including improvements thereon and easements appurtenant thereto owned in fee by the Company and the Subsidiaries (individually, an “Owned Property” and collectively, the “Owned Properties”), (ii) all real property and interests in real property leased by the Company or the Subsidiaries (individually, a “Real Property Lease” and collectively, the “Real Property Leases” and, together with the Owned Properties, being referred to herein individually as a “Company Property” and collectively as the “Company Properties”) as lessee or lessor, including a description of each such Real Property Lease (including the name of the third party lessor or lessee and the date of the lease or sublease and all amendments thereto). The Company and the Subsidiaries have (i) good fee title to all Owned Property and (ii) a valid leasehold interest in, and enjoys peaceful and undisturbed possession (consistent with historical use and pursuant to the terms of the applicable lease) of, all Company Properties subject to Real Property Leases, in each case free and clear of all Liens of any nature whatsoever, except (A) those Liens set forth on Schedule 5.10(a) and (B) Permitted Exceptions. The Company Properties constitute all interests in real property currently used, occupied or currently held for use in connection with the business of the Company and the Subsidiaries and which are necessary for the continued operation of the business of the Company and the Subsidiaries as the business is currently conducted. All of the Company Properties and buildings, fixtures and Improvements thereon are, to the Knowledge of the Company, (i) in good operating condition, (ii) are free from material structural defects, and (iii) are suitable, sufficient and appropriate in all respects for their current and contemplated uses. The Company has delivered to Purchaser true, correct and complete copies of (i) all deeds, title reports and surveys for the Owned Properties and (ii) the Real Property Leases, together with all amendments, modifications or supplements, if any, thereto. The Company Properties are not subject to any leases, rights, options, subleases, licenses, occupancy agreements, concessions or other agreements or arrangements, written or oral, granting to any Person the right to purchase, or the right to use or occupy any such Company Property, except the Real Property Leases.

          (b) Each of the Real Property Leases is in full force and effect. Neither the Company nor any Subsidiary is (and, to the Knowledge of the Company, no other Person is) in default under any Real Property Lease, and no breach by the Company (or, to the Knowledge of the Company, any other Person) has occurred under any Real Property Lease which, if not remedied, would (whether with or without notice or the passage of time or both) result in such a default.

          (c) The Company and the Subsidiaries have all certificates of occupancy and material Permits of any Governmental Body necessary or useful for the current use and operation of each Company Property, and any agreement, easement or other right from any other Person, necessary to permit the lawful use and operation of the Improvements and the Company Property or any driveways, roads and other means of egress and ingress to and from any Company Property and each such Permit, agreement, easement or other right is in full force and effect, and there is no pending or, to the

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Knowledge of the Company, threatened proceeding which could result in the material and adverse modification or cancellation thereof. No default or violation, or event that with the lapse of time or giving of notice or both would become a default or violation, has occurred in the due observance of any Permit. No Improvement, or the operation or maintenance thereof, violates any restrictive covenant, or encroaches on any property owned or leased by any other Person, which has had or would reasonably be expected to have a Material Adverse Effect.

          (d) Neither the Company nor any Subsidiary owns, holds, is obligated under or is a party to, any option, right of first refusal or other contractual right to purchase, acquire, sell, assign or dispose of any real estate or any portion thereof or interest therein.

          (e) Subject to market limitations and the other events affecting the geographical area in which any Company Property is located, the Company Property and the Improvements are sufficiently supplied in all material respects with utilities and other services as reasonably necessary for the operation of such Company Property and Improvements as currently operated including adequate water, storm and sanitary sewer, gas, electric, cable and telephone facilities.

          (f) Neither the Company nor any of its Subsidiaries has received written notice of any material special assessment relating to any Company Property or any portion thereof, and no such special assessment is pending or, to the Knowledge of the Company, threatened. There are no pending or, to the Knowledge of the Company, threatened condemnation or eminent domain proceedings with respect to any material portion of any Company Property.

     5.11 Tangible Personal Property.

          (a) Schedule 5.11(a) sets forth all leases of personal property by the Company or a Subsidiary (“Personal Property Leases”) involving annual payments in excess of $50,000. Neither the Company nor any Subsidiary has received any written notice of, nor does the Company have any Knowledge of, any default or any event that with notice or lapse of time, or both, would constitute a default, by the Company or any Subsidiary under any of the Personal Property Leases. Each of the Personal Property Leases is in full force and effect and enforceable in accordance with its terms.

          (b) Except as set forth in Schedule 5.11(b), the Company or its Subsidiaries own and have good title to all items of machinery, equipment, tools, spare parts, furniture, automobiles and other fixed Assets reflected as owned by the Company or any of its Subsidiaries on the Balance Sheet, in each case free and clear of any Encumbrances other than Permitted Encumbrances (the “Machinery and Equipment”). The Machinery and Equipment, taken as a whole, are in good operating condition and repair in all material respects (subject to normal wear and tear) and are suitable in all material respects for the purposes for which they are currently used or have been used in the Ordinary Course of Business. Except as otherwise contemplated by this Agreement, the Company or its Subsidiaries own, or, in the case of leases and licenses, have valid,

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enforceable and subsisting leasehold interests or licenses in, all of the material Assets used in their business, in each case free and clear of any Liens other than Permitted Exceptions.

     5.12 Intellectual Property.

          (a) List of Intellectual Property. Schedule 5.12(a) contains a complete and accurate list of all material Patents, Marks and Copyrights held or used by the Company and the Subsidiaries, including for each item listed, as applicable, the record owner, the jurisdiction in which the item is issued or registered or in which any application for issuance or registration has been filed, the application and/or registration/issuance number, the filing date, and the issuance or registration date and together with all amendments, continuations, continuations-in-part, reissuances and other material filings. All registration, renewal and maintenance fees and taxes due and payable in respect of each of the applications and registrations listed on Schedule 5.12(a) have been paid in full.

          (b) Licenses. Schedule 5.12(b) sets forth a complete and accurate list of all agreements (other than agreements with respect to “off-the-shelf” Software) between the Company or any of its Subsidiaries, on the one hand, and any other Person, on the other hand, (i) granting any other Person the right to use or practice any rights under any of the Intellectual Property owned either by the Company or any of its Subsidiaries or (ii) granting the Company or a Subsidiary the right to use or practice any rights under any Intellectual Property owned by another Person.

          (c) Protection of Proprietary Rights. The Company and the Subsidiaries own or have valid enforceable royalty-free licenses to use all material Intellectual Property used by them, free and clear of all Liens (except for Permitted Exceptions). Except as set forth on Schedule 5.12(c), (i) the material Intellectual Property used by the Company and the Subsidiaries are not the subject of any pending or, to the Knowledge of the Company, threatened Legal Proceeding challenging the validity, enforceability, registration, use or ownership by the Company or its Subsidiaries of such Intellectual Property, (ii) neither the Company nor any Subsidiary has received any written notice of any default or any event that with notice or lapse of time, or both, would constitute a default under any material Intellectual Property license to which the Company or any Subsidiary is a party or by which it is bound, (iii) to the Knowledge of the Company, no other Person has the right to use any such Intellectual Property Rights, except pursuant to a Contract.

          (d) Intellectual Property Infringement. Except as set forth on Schedule 5.12(d), to the Knowledge of the Company, no other Person is infringing upon, misappropriating or otherwise violating any Intellectual Property of the Company or any of its Subsidiaries. The conduct of the Company’s or any of its Subsidiaries’ business as currently conducted (including the use, distribution, marketing, sale, licensing of product and services by the Company or any of its Subsidiaries) does not infringe upon, misappropriate or otherwise violate the Intellectual Property of any other Person except as, individually or in the aggregate, has not had or would not reasonably be expected to

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have a Material Adverse Effect. No proceedings are pending or written notices have been received by the Company or any of its Subsidiaries during the past three (3) years alleging that the Company or any of its Subsidiaries has engaged in any activity or conduct that materially infringes upon, misappropriates or otherwise violates any Intellectual Property of another Person.

     5.13 Material Contracts.

          (a) Schedule 5.13(a) sets forth all of the following Contracts to which the Company or any of the Subsidiaries is a party or by which any of them is bound as of the date of this Agreement (collectively and together with any Contracts entered into prior to the Closing in accordance with Section 8.2(b)(xiv) hereof, the “Material Contracts”):

     (i) Contracts with any Seller or any current officer, director or other Affiliate of any Seller, the Company or any of the Subsidiaries or any family member of any such Person;

     (ii) Contracts with any labor union or association representing any employee of the Company or any of the Subsidiaries and any written employment or severance agreement;

     (iii) Contracts for the sale of any material Assets of the Company or any of the Subsidiaries (other than the sale of finished goods inventory in the Ordinary Course of Business);

     (iv) Contracts relating to any acquisition to be made by the Company or any of the Subsidiaries of any operating business or the capital stock of any other Person (or all or any material portion of the Assets of any business, business unit, facility or Person);

     (v) Contracts relating to the incurrence of Indebtedness or the making of any loans to any other Person by the Company or any of its Subsidiaries;

     (vi) Contracts which the Company reasonably anticipates will involve the expenditure by or to the Company or its Subsidiaries of more than $250,000 in the aggregate or require performance by any party more than one year from the date hereof;

     (vii) any sale and leaseback agreement covering a material Asset or any Contract governing any business arrangement of this nature involving a material Asset;

     (viii) any Contract containing covenants limiting the freedom of the Company or any of its Subsidiaries to engage in any line of business or compete with any Person;

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     (ix) any material distribution, franchise, license, sales, commission, consulting agency or advertising Contract which (A) involves annual payments, in excess of $50,000 or (B) is not cancelable on thirty (30) calendar days’ notice without payment or penalty;

     (x) any licensing agreement or other Contract relating to Intellectual Property Rights that is material to the operation of the business of the Company or any of its Subsidiaries as conducted as of the date of this Agreement;

     (xi) any joint venture Contract, partnership agreement, limited liability company agreement or other Contract (however named) involving a sharing of profits, losses, costs, or liabilities by the Company or any of its Subsidiaries with any other Person;

     (xii) any Contract providing for capital expenditures after the date hereof in an amount in excess of $100,000 individually or in the aggregate;

     (xiii) any material written warranty, guaranty or other similar undertaking with respect to contractual performance extended by the Company or any of its Subsidiaries other than in the Ordinary Course of Business;

     (xiv) any Contract with “take or pay” provisions, or “requirements” provisions committing a Person to provide the quantity of goods or services required by another Person which the Company reasonably anticipates will involve aggregate payments by or to the Company or any of its Subsidiaries of more than $500,000;

     (xv) any Contract with any foreign sales agents;

     (xvi) any Contract with a customer of the Company or any of its Subsidiaries that provides for pay-on-scan payment terms; and

     (xvii) any material agency agreement including without limitation material export agency agreements.

In addition to the Contracts described in clauses (i) – (xvii) above, the defined term “Material Contract” shall also include all unfulfilled purchase orders (or any series of related purchase orders) involving the purchase or sale of products or services by the Company having an aggregate value equal to or greater than $500,000, which purchase orders shall not be required to be described or listed in Schedule 5.13(a).

          (b) Except as set forth on Schedule 5.13(b), neither the Company nor any Subsidiary is in material breach or violation of, or default under, any Material Contract, nor has the Company or any Subsidiary received any written notice of, nor does the Company have any Knowledge of, any default or event that with notice or lapse of time, or both, would constitute a default by the Company and the Subsidiaries under any Material Contract, nor, to the Knowledge of the Company or the Sellers, is any other party to any Material Contract in breach of or default thereunder (other than in the case of

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purchase orders issued to the Company for the failure by any third party to pay any amount due and owing thereunder). No party to any of the Material Contracts has exercised any termination rights with respect thereto, and no party has given written notice of any material dispute with respect to any Material Contract. The Company has made available to Purchaser true, correct and complete copies of all of the Material Contracts, together with all amendments, modifications or supplements thereto. Except as set forth in Schedule 5.13(b), each Material Contract is in full force and effect (and will remain in full force and effect upon consummation of the transactions contemplated by this Agreement) and (i) is a valid agreement of the Company or Subsidiary which is a party thereto, enforceable against such Company or Subsidiary in accordance with its terms and (ii) to the Knowledge of the Company, is a valid agreement of each other party thereto, enforceable against such party in accordance with its terms, except in each case where enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights generally and except where enforceability is subject to the application of equitable principles or remedies. Except as specifically noted in Schedule 5.13(b), no consent of any party to any Material Contract is required in connection with the execution, delivery and performance of this Agreement by the Company and the Sellers or the consummation of the transactions contemplated by this Agreement.

     5.14 Employee Benefits Plans.

          (a) Schedule 5.14(a) lists, by country, each “employee benefit plan” (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), each bonus, stock option, stock purchase, incentive, deferred compensation, retirement, severance and other employee benefit plans, programs and arrangements, and each employment and compensation agreement (other than employment agreements that do not provide for severance, change in control or similar payments), which is maintained, contributed to, or required to be contributed to by the Company, any of its Subsidiaries or any ERISA Affiliates for the benefit of any current or former employee, director or consultant of the Company or any of its Subsidiaries (each an “Employee”), and with respect to which the Company or any of its Subsidiaries has or may have any liability or obligation (each, a “Company Benefit Plan”). The Company has made available to Purchaser correct and complete copies of (i) each Company Benefit Plan (or, in the case of any such Company Benefit Plan that is unwritten, descriptions thereof), and all material amendments thereto; (ii) each material consulting, relocation or repatriation agreement between the Company or any of its Subsidiaries and any Employee; (iii) the two most recent Form 5500 or similar tax returns (if any) for each Company Benefit Plan, if any; (iv) the most recent summary plan description for each Company Benefit Plan for which such summary plan description is required; (iv) each trust agreement and insurance or group annuity contract, if any, relating to any Company Benefit Plan; (v) the most recent IRS determination or similar letter, if any, from any Governmental Body relating to favorable tax treatment with respect to each Company Benefit Plan; (vi) all material correspondence to or from any governmental agency pertaining to a Company Benefit Plan, which was sent or received in the last two years; (vii) all discrimination tests, if any, for each Company Benefit Plan for the most recent two plan years and (viii) the last two annual actuarial valuations, if any, prepared for each Company Benefit Plan. Each Company Benefit Plan has been

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administered in all material respects in accordance with its terms. The Company and the Subsidiaries, with respect to the Company Benefit Plans, are in compliance in all material respects with the applicable provisions of ERISA, the Code and all other applicable Laws. Neither the Company nor, to the Knowledge of the Company, any fiduciary of any Company Benefit Plan has any material liability with respect to any transaction in violation of Sections 404 or 406 of ERISA or any “prohibited transaction,” as defined in Section 4975(c)(1) of the Code, for which no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or (d) of the Code. The Company has not knowingly participated in a violation of Part 4 of Title I, Subtitle B of ERISA by any plan fiduciary of any Plan and does not have any unpaid civil penalty under Section 502(l) of ERISA which would result in a material liability.

          (b) Neither the Company nor any ERISA Affiliate sponsors, maintains or contributes to or, within the past six (6) years, has sponsored, maintained or contributed to (i) any plan subject to Title IV of ERISA or Section 412 of the Code, (ii) any “multiemployer plan,” as defined in Section 3(37) of ERISA, or (iii) any plan described in Section 413 of the Code. All liabilities with respect to Company Benefit Plans that provide health benefits that are not fully insured through an insurance contract are accrued in compliance with GAAP and all such Company Benefit Plans are covered by stop-loss insurance policies that have been previously provided or made available to Purchaser. Except as set forth in Schedule 5.14(b), no Company Benefit Plan provides post-termination or retiree welfare benefits, and neither the Company nor any of its Subsidiaries has any obligation to provide any post-termination or retiree welfare benefits other than health care continuation as required by Section 4980B of the Code.

          (c) To the Knowledge of the Company, (i) each of the Company Benefit Plans that is an “employee pension plan” (as defined in Section 3(2) of ERISA) that is intended to be tax qualified under Section 401(a) of the Code (each, a “Company Pension Plan”) and that is maintained, contributed to or sponsored by the Company or any of the Subsidiaries is so qualified and (ii) no event has occurred since the date of the most recent determination letter or application therefor relating to any such Company Pension Plan that would adversely affect the qualification of such Company Pension Plan. Each Company Benefit Plan required to be registered or approved by a Governmental Body has been registered with, or approved by, and has been maintained, in all material respects, in good standing with the applicable Governmental Body and nothing has occurred with respect to the operation of such Company Benefit Plans which is reasonably likely to cause the loss of such good standing or the imposition of any material liabilities, penalty or tax under applicable Law.

          (d) All contributions, premiums and benefit payments under or in connection with the Company Benefit Plans that are required to have been made as of the date hereof in accordance with the terms of the Company Benefit Plans have been timely made or have been reflected on the most recent Balance Sheet. There are no pending actions, claims or lawsuits that have been asserted or instituted against the Company Benefit Plans, the assets of any of the trusts under the Company Benefit Plans or the sponsor or administrator of any of the Company Benefit Plans, or against any fiduciary of

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the Company Benefit Plans with respect to the operation of any of the Company Benefit Plans (other than routine benefit claims).

          (e) With respect to each Company Benefit Plan that is not subject to United States Law (a “Foreign Benefit Plan”), except as set forth in Schedule 5.14(e) or as would not have or be reasonably expected to have a Material Adverse Effect: (i) all employer and employee contributions to each Foreign Benefit Plan required by Law or by the terms of such Foreign Benefit Plan have been made or, if applicable, accrued in accordance with normal accounting practices; (ii) the fair market value of the assets of each funded Foreign Benefit Plan, the liability of each insurer for any Foreign Benefit Plan funded through insurance or the book reserve established for any Foreign Benefit Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations with respect to all current and former participants in such plan, according to the actuarial assumptions and valuations most recently used and consistent with applicable Law and normal accounting practices to determine employer contributions to such Foreign Benefit Plan, and no transaction contemplated by this Agreement shall cause such assets, reserve or insurance obligations to be less than such benefit obligations; and (iii) each Foreign Benefit Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities.

          (f) Except as contemplated by this Agreement, the execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not (whether alone or upon the occurrence of any additional or subsequent events) constitute an event under any Company Benefit Plan, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits. No Company Benefit Plan provides for severance or change of control benefits or a notice period upon termination of employment of more than three (3) months.

     5.15 Labor.

          (a) None of the Employees is represented in his or her capacity as an employee of the Company or any of its Subsidiaries by any labor organization. Neither the Company nor any of its Subsidiaries has recognized any labor organization, or has any labor organization been elected as the collective bargaining agent of any Employees. Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement. Except as set forth in Schedule 5.15(a), neither the Company nor any of its Subsidiaries has entered into any severance or similar arrangement in respect of any current or former employee of the Company or any of its Subsidiaries that will result in any obligation (absolute or contingent) of Purchaser, the Company or any of its Subsidiaries to make any payment to any current or former employee of the Company or any of its Subsidiaries following termination of employment or upon a change of control of the Company. There are no complaints, charges or claims against the Company or any of its Subsidiaries pending or, to Knowledge of the Company, threatened, to be brought, by or filed with any Governmental Body based on, arising out of, in connection with or

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otherwise relating to the employment or termination of employment or failure to employ by the Company or any of its Subsidiaries, of any individual.

          (b) (i) There are no strikes, work stoppages, work slowdowns or lockouts pending or, to the Knowledge of the Company, threatened with respect to the employees of the Company or any of its Subsidiaries; and during the past three (3) years, neither the Company or any of its Subsidiaries has experienced any strike, work stoppage, lock-up, slow-down or other material labor dispute or any attempt by organized labor to cause the Company or any of its Subsidiaries to comply with or conform to demands of organized labor relating to its employees or recognize any union or collective bargaining units, or (ii) neither the Company nor any of its Subsidiaries has engaged in any unfair labor practice and there are no grievances or complaints pending or, to the Knowledge of the Company, threatened by or on behalf of any employee or group of employees of the Company or any of the Subsidiaries.

          (c) Except as disclosed in Schedule 5.15(c), the Company and its Subsidiaries have complied in all material respects with all Laws relating to employment, equal employment opportunity, nondiscrimination, employment and reemployment rights of members of the uniformed services, immigration, wages, hours, benefits, (including without limitation medical insurance, unemployment insurance, pension and housing fund for employees of any Subsidiaries incorporated in the PRC), collective bargaining, the payment of social security and similar taxes, occupational safety and health and plant closings (hereinafter collectively referred to as the “Employment Laws”). Neither the Company nor any of its Subsidiaries has any outstanding liability for the payment of material taxes, fines, penalties or other amounts, however designated, for failure to comply with any of the foregoing Employment Laws. There has been no “mass layoff” or “plant closing” (as defined in WARN) with respect to the Company or any of its Subsidiaries within the past six (6) months.

     5.16 Litigation. Except as set forth on Schedule 5.16, (a) there are no, and during the three (3) years prior to the execution of this Agreement, there have been no Legal Proceedings pending and, to the Knowledge of the Company, there are no Legal Proceedings threatened against the Company or any of the Subsidiaries or any of the material Assets of the Company and its Subsidiaries taken as a whole before any Governmental Body and (b) to the Knowledge of the Company, neither the Company nor any of its Subsidiaries is, or during the three (3) years prior to the execution of this Agreement has been, the subject of any pending investigation by any Governmental Authority nor has any such investigation been threatened in writing. Neither the Company nor any Subsidiary nor any of their Assets is subject to any Order of any Governmental Body that is material to the Company and its Subsidiaries taken as a whole.

     5.17 Compliance with Laws; Permits.

          (a) Except as set forth in Schedule 5.17, the Company and the Subsidiaries are, and at all times during the past three (3) years have been, in compliance in all material respects with all Laws of any Governmental Body applicable to their

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businesses. Neither the Company nor any Subsidiary has in the past three (3) years received any written notice of or been charged with the material violation of any Laws. Neither the Company nor any of its Subsidiaries has, during the past three (3) years, conducted any internal investigation in connection with which the Company or its Subsidiaries retained outside legal counsel for the purpose of conducting or assisting with such investigation with respect to any actual, potential or alleged material violation of any Law by the Company, any of its Subsidiaries or any of their employees.

          (b) The Company and the Subsidiaries currently have all material Permits which are required for the operation of their respective businesses as presently conducted. Neither the Company nor any of the Subsidiaries is in default or violation (and no event has occurred which, with notice or the lapse of time or both, would constitute a default or violation) of any term, condition or provision of any material Permit to which it is a party.

          (c) Notwithstanding the foregoing, no representation or warranty is made under this Section 5.17 in respect of any matter relating to (i) Taxes that are addressed in Section 5.9 (as to which no representation or warranty is made except as set forth in Section 5.9) and (ii) environmental matters that are addressed in Section 5.18 (as to which no representation or warranty is made except as set forth in Section 5.18).

     5.18 Environmental Matters.

          (a) Except as disclosed in Schedule 5.18 hereto, (i) the Company and each of its Subsidiaries are and at all times during the past three (3) years have been in material compliance with, and have no liability under, any and all applicable Environmental Laws, and (ii) the Company and its Subsidiaries are in material compliance with all of their Permits issued under Environmental Laws (“Environmental Permits”), and (iii) all instances of past noncompliance have been cured, settled, and resolved in all material respects.

          (b) Except as disclosed in Schedule 5.18 hereto, all material Environmental Permits required for the lawful ownership and operation of each Company Property have been obtained as of the date hereof by or on behalf of the Company or any Subsidiaries, and remain in full force and effect, and there are no pending Legal Proceedings by any Governmental Body that would reasonably be expected to result in the termination, revocation, or adverse modification of any such Environmental Permit.

          (c) Except as disclosed in Schedule 5.18 hereto, neither the Company nor any of its Subsidiaries, with respect to any Company Property, has (i) received any written request for information, or been notified in writing that it is a potentially responsible party, under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), or any similar Environmental Law (whether in the United States, China, or elsewhere), or (ii) been notified in writing that any such Company Property has been or is proposed for listing on any list of sites requiring investigation or cleanup.

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          (d) Except as disclosed in Schedule 5.18 hereto, neither the Company nor any of its Subsidiaries has received any written notice of any violation or alleged violation of any Environmental Law.

          (e) Except as disclosed in Schedule 5.18 hereto, there are no outstanding Orders to which the Company or its Subsidiaries are a party, and there are no Legal Proceedings or, to the Knowledge of the Company, investigations to which the Company or its Subsidiaries are a party that are pending or threatened, relating to the compliance of the Company with, or the liability of the Company under, any Environmental Laws.

          (f) Except as disclosed in Schedule 5.18 hereto, (i) there is no Substance that poses or would reasonably be expected to pose a material risk to the Environment on, at or under any Company Property or any real property formerly owned, leased or operated by the Company or any of its Subsidiaries, and (ii) there has heretofore been no Release of any such Substance on, at or under any Company Property, in either case in an amount and of a nature which would reasonably be expected to result in material liability to the Company or any of its Subsidiaries.

          (g) Neither the Company nor any Subsidiaries is party to any Contract pursuant to which it is obligated to indemnify any other person with respect to, or be responsible for any liability pursuant to or violation of, Environmental Law.

          (h) The Company and the Sellers have provided Purchaser with true and correct copies of all environmental assessment reports (such as Phase I or Phase II reports) and any other environmental studies in the possession of the Company, its Subsidiaries or any Seller relating to any Company Property or any Handling of Substances.

     5.19 Product Liability, Warranty and Product Recalls. Except as set forth in Schedule 5.19 or as would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect, to the Knowledge of the Company, neither the Company nor any of its Subsidiaries has committed any act or omission which could reasonably be expected to result in, or has any Knowledge of any facts or circumstances which could reasonably be expected to give rise to (i) any product liability not covered by insurance (other than deductibles or self-retention amounts under such insurance policies), (ii) any obligation to recall any products produced by the Company or any of its Subsidiaries, or (iii) any costs to cure any breach of warranty or failure to meet or exceed product specifications in excess of the reserve established therefor on the Balance Sheet.

     5.20 Insurance.

          (a) Schedule 5.20 contains an accurate and complete description of all policies of property, fire and casualty, product liability, workers’ compensation, and other forms of insurance held by or for the benefit of the Company or any of its Subsidiaries (including any occurrence-based policy that covers any insurable loss that occurred any

45

time after January 1, 2002). True, correct and complete copies of such insurance policies have been made available to Purchaser.

          (b) All policies listed in Schedule 5.20 (i) are valid, outstanding, and enforceable policies, (ii) provide adequate insurance coverage for the material Assets and the operations of the business of the Company and its Subsidiaries for all material risks normally insured against by a Person or entity carrying on the same business as the Company and (iii) will not terminate or lapse by reason of the transactions contemplated by this Agreement. All premiums due with respect to such policies have been timely paid.

          (c) Neither the Company nor any of its Subsidiaries has received (i) any notice of cancellation of any policy listed in Schedule 5.20 or refusal of coverage thereunder, (ii) any notice that any issuer of such policy has filed for protection under applicable bankruptcy laws or is otherwise in the process of liquidating or has been liquidated, or (iii) any other notice that such policies are no longer in full force or effect in any material respect or that the issuer of any such policy is no longer willing or able to perform its obligations thereunder.

     5.21 Customers and Suppliers.

          (a) Schedule 5.21(a) sets forth the top 10 customer relationships of the Company (based on aggregate total sales in U.S. dollars by the Company and its Subsidiaries for the fiscal year ended December 31, 2005). Except as disclosed in Schedule 5.21(a), neither the Company nor any of its Subsidiaries has received any written or oral notice that any such customer has ceased, or will cease, to use its products, equipment, goods or services, or has substantially reduced, or will substantially reduce, the use of such products, equipment, goods or services at any time, or has requested or required, or will request or require, in a material and adverse manner, any change in pricing or payment terms.

          (b) Schedule 5.21(b) sets forth the top 10 supplier relationships of the Company (based on aggregate total purchases in U.S. dollars by the Company and its Subsidiaries for the fiscal year ended December 31, 2005). Except as disclosed in Schedule 5.21(b), neither the Company nor any of its Subsidiaries has received any written or oral notice that any such supplier will not sell raw materials, supplies, merchandise and other goods to such Company or such Subsidiary at any time after the Closing Date on terms and conditions substantially similar to those currently in effect, subject only to general and customary price increases.

     5.22 Affiliate Transactions. Except as set forth in Schedule 5.22, no officer, shareholder or Affiliate of the Company or any of its Subsidiaries or any individual related by blood, marriage or adoption to any such Person or in which any such Person owns a greater than 10% beneficial interest, is, or in the past three (3) years has been, a party to any Contract, commitment or transaction with the Company or any of its Subsidiaries or has a material interest in any Assets used by the Company or any of its Subsidiaries or has a material interest in any material property used or held for use by the

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Company or any of its Subsidiaries (any such Contract, commitment, transaction or interest, a “Related Party Transaction”). Neither the Company nor any of its Subsidiaries has guaranteed or assumed any obligations of their respective officers, shareholders or Affiliates (other than the Company and its Subsidiaries) or any of their family members.

     5.23 Financial Advisors. Except as set forth on Schedule 5.23, no Person has acted, directly or indirectly, as a broker, finder or financial advisor for the Sellers or the Company in connection with the transactions contemplated by this Agreement and no such Person is entitled to any fee or commission or like payment from Purchaser in respect thereof.

     5.24 No Other Representations or Warranties; Schedules. Except for the representations and warranties contained in this Article V (as modified by the Schedules hereto), neither the Company nor any other Person makes any other express or implied representation or warranty with respect the Company, the Subsidiaries or the transactions contemplated by this Agreement, and the Company disclaims any other representations or warranties (and all liability and responsibility with respect thereto), whether made by the Company, the Sellers or any of their respective Affiliates, officers, directors, employees, agents or representatives, regardless of the form in which it was made or communicated. Without limiting the generality of the foregoing, it is understood that any information, projection, or advice that may have been or may be provided to Purchaser by any director, officer, employee, agent, consultant, or representative of the Company or the Sellers or any of their respective Affiliates as part of any management presentation or otherwise are not and will not be deemed to be representations or warranties of the Company, except as may be expressly set forth in this Agreement.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF THE SELLERS

     Each Seller hereby represents, severally and not jointly, to Purchaser that:

     6.1 Organization and Good Standing. Such Seller is either (a) a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business or (b) an individual.

     6.2 Authorization of Agreement. Such Seller has all requisite corporate or individual power, authority and legal capacity to execute and deliver this Agreement and each other agreement, document, or instrument or certificate contemplated by this Agreement or to be executed by such Seller in connection with the consummation of the transactions contemplated by this Agreement (together with this Agreement, the “Seller Documents”), and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and each of the Seller Documents and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all required corporate or individual action on the part of such Seller. This Agreement has been, and each of the Seller Documents will be at or prior to the Closing,

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duly and validly executed and delivered by such Seller, and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each Seller Document, when so executed and delivered will constitute, the legal, valid and binding obligation of such Seller, enforceable against such Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

     6.3 Conflicts; Consents of Third Parties.

          (a) Other than as provided in the Seller Stockholders Agreement, none of the execution and delivery by such Seller of this Agreement or any of the Seller Documents, the consummation of the transactions contemplated hereby or thereby, or compliance by such Seller with any of the provisions hereof or thereof will conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination or cancellation under, any provision of (i) the certificate of incorporation and by-laws (or other organizational and governing documents) of such Seller; (ii) any Contract or Permit to which such Seller is a party or by which any of the Assets of such Seller are bound; (iii) any Order of any Governmental Body applicable to such Seller or by which any of the Assets of such Seller are bound; or (iv) any applicable Law.

          (b) Other than as provided in the Seller Stockholders Agreement, no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, novation by, or notification to, any Person or Governmental Body is required on the part of such Seller in connection with the execution and delivery of this Agreement or the Seller Documents, or the compliance by such Seller with any of the provisions hereof or thereof, the consummation of the transactions contemplated hereby or thereby, except for (A) compliance with the applicable requirements of the HSR Act, and (B) for such other consents, waivers, approvals, Orders, permits or authorizations the failure of which to obtain would not prevent such Seller from consummating the transactions contemplated hereby or under any of the Seller Documents.

     6.4 Ownership and Transfer of Securities. Such Seller is the record and beneficial owner of the Securities indicated as being owned by such Seller on Exhibit A, free and clear of any and all Liens. Other than as provided in the Seller Stockholders Agreement, such Seller has the corporate or individual power and authority to sell, transfer, assign and deliver the Securities as provided in this Agreement, and such delivery will convey to Purchaser good and marketable title to such Securities, free and clear of any and all Liens.

     6.5 Litigation. There are no Legal Proceedings pending or, to the knowledge of such Seller, threatened that are reasonably likely to prohibit or restrain the ability of such Seller to enter into this Agreement or consummate the transactions contemplated hereby.

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     6.6 Financial Advisors. Except as set forth on Schedule 6.6, no Person has acted, directly or indirectly, as a broker, finder or financial advisor for such Seller in connection with the transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment in respect thereof.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES OF PURCHASER

          Purchaser hereby represents and warrants to the Sellers that:

     7.1 Organization and Good Standing. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate properties and carry on its business.

     7.2 Authorization of Agreement. Purchaser has full corporate power and authority to execute and deliver this Agreement and each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by Purchaser in connection with the consummation of the transactions contemplated hereby and thereby (the “Purchaser Documents”), and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by Purchaser of this Agreement and each Purchaser Document have been duly authorized by all necessary corporate action on behalf of Purchaser. This Agreement has been, and each Purchaser Document will be at or prior to the Closing, duly executed and delivered by Purchaser and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each Purchaser Document when so executed and delivered will constitute, the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

     7.3 Conflicts; Consents of Third Parties.

          (a) None of the execution and delivery by Purchaser of this Agreement or any of the Purchaser Documents, the consummation of the transactions contemplated hereby or thereby, or the compliance by Purchaser with any of the provisions hereof or thereof will conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination or cancellation under, any provision of (i) the certificate of incorporation and by-laws of Purchaser (or other organizational or governing documents); (ii) any Contract or Permit to which Purchaser is a party or by which Purchaser or its properties or Assets are bound; (iii) any Order of any Governmental Body applicable to Purchaser or by which any of the properties or Assets of Purchaser are bound; or (iv) any applicable Law.

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          (b) No consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of Purchaser in connection with the execution and delivery of this Agreement or the Purchaser Documents, the compliance by Purchaser with any of the provisions hereof or thereof, the consummation of the transactions contemplated hereby or thereby or the taking by Purchaser of any other action contemplated hereby, except for (A) compliance with the applicable requirements of the HSR Act, and (B) for such other consents, waives, approvals, Orders, permits or authorizations the failure of which to obtain would not adversely affect Purchaser’s ability to consummate the transactions contemplated hereby or under any of the Purchaser Documents.

     7.4 Litigation. There are no Legal Proceedings pending or, to the knowledge of Purchaser, threatened that are reasonably likely to prohibit or restrain the ability of Purchaser to enter into this Agreement or consummate the transactions contemplated hereby.

     7.5 Investment Intention. Purchaser is acquiring the Shares for its own account, for investment purposes only and not with a view to the distribution (as such term is used in Section 2(11) of the Securities Act of 1933, as amended (the “Securities Act”) thereof. Purchaser understands that the Shares have not been registered under the Securities Act and cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available.

     7.6 Financial Advisors. No Person has acted, directly or indirectly, as a broker, finder or financial advisor for Purchaser in connection with the transactions contemplated by this Agreement and no Person (other than TC Group, L.L.C. and its Affiliates) is entitled to any fee or commission or like payment in respect thereof.

     7.7 Financing. True, complete and correct copies of the debt commitment letter, dated as of March 8, 2006, from Lehman Commercial Paper Inc., Lehman Brothers Inc., JPMorgan Chase Bank, N.A. and J.P. Morgan Securities Inc. (the “Debt Commitment Letter”) is attached hereto as Exhibit C. Assuming consummation of the financing contemplated by the Debt Commitment Letter, Purchaser will have sufficient funds at the Closing to pay the Purchase Price. The fee letter referenced in the Debt Commitment Letter does not contain any condition precedent to, or any limitation on the amount of funds available at the time of, the initial borrowing under the financing contemplated by the Debt Commitment Letter, other than those conditions precedent or limitations contained in the Debt Commitment Letter.

     7.8 Condition of the Business. Notwithstanding anything contained in this Agreement to the contrary, Purchaser represents, acknowledges and agrees that neither the Company nor any Seller is making, and Purchaser is not relying on, any representations or warranties whatsoever, express or implied, beyond those expressly given by the Company and the Sellers, as the case may be, in Article V and Article VI, respectively (as modified by the Schedules hereto), and Purchaser acknowledges and agrees that, except for the representations and warranties contained herein, the Assets and the business of the Company and the Subsidiaries are being transferred on a “where is”

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and, as to condition, “as is” basis. Any claims Purchaser may have for breach of representation or warranty shall be based solely on the representations and warranties of the Company or the Sellers set forth in Article V or Article VI, respectively (as modified by the Schedules hereto).

ARTICLE VIII

COVENANTS

     8.1 Access to Information. From the date hereof to the Closing, Purchaser shall be entitled, through its officers, employees and representatives (including its legal advisors and accountants), to make such investigation of the properties, businesses and operations of the Company and the Subsidiaries and such examination of the books and records of the Company and the Subsidiaries as it reasonably requests and to make extracts and copies of such books and records. Any such investigation and examination shall be conducted during regular business hours upon reasonable advance notice and under reasonable circumstances and shall be subject to restrictions under applicable Law. The Company shall cause the officers, employees, consultants, agents, accountants, attorneys and other representatives of the Company and the Subsidiaries to cooperate with Purchaser and Purchaser’s representatives in connection with such investigation and examination, and Purchaser and its representatives shall cooperate with the Company and its representatives and shall use their reasonable efforts to minimize any disruption to the business. Notwithstanding anything herein to the contrary, no such investigation or examination shall be permitted to the extent that it would require the Company or any of the Subsidiaries to disclose information subject to attorney-client privilege or conflict with any confidentiality obligations to which the Company or any of the Subsidiaries is bound (it being understood and agreed that the Company will use commercially reasonable efforts to obtain a waiver of such confidentiality obligations). Notwithstanding anything to the contrary contained herein, prior to the Closing, Purchaser shall not contact any suppliers to, or customers of, the Company other than in the ordinary course of its business (which shall on no event include any discussion of the transactions contemplated hereby without the participation of the Company, other than in accordance with the agreed upon communications plan between Purchaser and the Company).

     8.2 Conduct of the Business Pending the Closing.

          (a) Prior to the Closing, except (I) as required by applicable Law, (II) as otherwise contemplated by this Agreement or (III) with the prior written consent of Purchaser (which consent shall not be unreasonably withheld, delayed or conditioned, unless the action to be taken by the Company would be reasonably expected to have a Material Adverse Effect), the Company shall, and shall cause the Subsidiaries to:

     (i) conduct the respective businesses of the Company and the Subsidiaries only in the Ordinary Course of Business;

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     (ii) use its commercially reasonable efforts to (A) preserve the present business operations, organization and goodwill of the Company and the Subsidiaries, and (B) preserve the present relationships with customers and suppliers of the Company and the Subsidiaries; and

     (iii) willfully do any other act which, or fail to take any reasonable action which failure, would cause any representation or warranty of the Company or any Seller in this Agreement (without giving effect to any materiality limitations set forth therein) to become untrue in any material respect.

          (b) Without limiting Section 8.2(a) above, except (I) as required by applicable Law, (II) as otherwise contemplated by this Agreement or (III) with the prior written consent of Purchaser, prior to the Closing, the Company shall not, and shall not permit the Subsidiaries to:

     (i) declare, set aside, make or pay any dividend or other distribution in respect of the capital stock of the Company or repurchase, redeem or otherwise acquire any outstanding shares of the capital stock or other Equity Securities of, or other ownership interests in, the Company or any of the Subsidiaries;

     (ii) transfer, issue, sell or dispose of any shares of capital stock or other Equity Securities of the Company or any of the Subsidiaries or grant options, warrants, calls or other rights to purchase or otherwise acquire shares of the capital stock or other Equity Securities of the Company or any of the Subsidiaries;

     (iii) effect any recapitalization, reclassification or like change in the capitalization of the Company or any of the Subsidiaries;

     (iv) except as provided in Section 8.15, amend the certificate of incorporation or by-laws or comparable organizational documents of the Company or any of the Subsidiaries;

     (v) (A) increase the annual level of compensation of any director or executive officer of the Company or any of the Subsidiaries, (B) other than in the Ordinary Course of Business, materially increase the annual level of compensation of any Employee who is not a director or executive officer, (C) grant any unusual or extraordinary bonus, benefit or other direct or indirect compensation to any Employee, (D) materially increase the coverage or benefits available under any (or create any new) Company Benefit Plan or (E) enter into any employment, deferred compensation, severance, consulting, non-competition or similar agreement (or amend any such agreement) to which the Company or any of the Subsidiaries is a party or involving a director or executive officer of the Company or any of the Subsidiaries, except, in each case, as required by applicable Law from time to time in effect or by the terms of any Company Benefit Plans;

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     (vi) subject to any Lien, any of the Assets of the Company or any of the Subsidiaries, except for Permitted Exceptions;

     (vii) sell, assign, license, transfer, convey, lease or otherwise dispose of any of the material properties or Assets of the Company and the Subsidiaries (except for sales of inventory in the Ordinary Course of Business);

     (viii) other than in the Ordinary Course of Business, cancel or compromise any material debt or claim or waive or release any material right of the Company or any of the Subsidiaries;

     (ix) enter into any commitment for capital expenditures of the Company and the Subsidiaries in excess of $100,000 for any individual commitment and $250,000 for all commitments in the aggregate other than (a) such commitments for capital expenditures that are fully paid prior to Closing or (b) such commitments in respect of capital expenditures included in the CapEx Budget;

     (x) enter into, modify or terminate any labor or collective bargaining agreement of the Company or any of the Subsidiaries;

     (xi) permit the Company or any of the Subsidiaries to acquire by merger or consolidation with, or merge or consolidate with, or purchase all or substantially all of the Assets of, or otherwise acquire any material Assets or business of, any Person, business, business unit, division or facility;

     (xii) change any of the Company’s or any of its Subsidiaries’ accounting methods, principles or practices unless required by GAAP;

     (xiii) revalue any of the Assets, including writing off receivables or reserves, other than in the Ordinary Course of Business;

     (xiv) enter into, extend, materially and adversely modify, or terminate any Material Contract, other than customer or supplier contracts in the Ordinary Course of Business;

     (xv) (A) sell, assign, transfer, convey, lease, mortgage, pledge or otherwise dispose of or encumber any material Assets or any interests therein other than to secure Indebtedness, except for sales of finished goods inventory or obsolete Assets in the ordinary course of business consistent with past practice or (B) sell, assign or transfer any Assets to any of the Sellers or their Affiliates;

     (xvi) fail to expend funds for capital expenditures or commitments in accordance with the CapEx Budget;

     (xvii) make any material loans or advances to any Person, or, except for expenses incurred in the Ordinary Course of Business, to any employee of the Company or any of its Subsidiaries;

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     (xviii) collect accounts receivable and pay accounts payable other than in the Ordinary Course of Business;

     (xix) fail to maintain the material Assets of the Company and each of its Subsidiaries in substantially their current state of repair, excepting normal wear and tear;

     (xx) amend any Tax Return, make or rescind any material election relating to Taxes, settle or compromise any claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes, make any material change to any of its methods of accounting or methods of reporting income or deductions for Tax or accounting practice or policy from those employed in the preparation of its most recent Tax Return or consent to any extension or waiver of the limitation period applicable to any claim or assessment relating to Taxes; or

     (xxi) agree to do anything prohibited by this Section 8.2.

     8.3 Consents. Purchaser and the Company shall use (and the Company shall cause the Subsidiaries to use) their commercially reasonable efforts, and the Sellers shall cooperate with Purchaser, the Company and the Subsidiaries, to obtain at the earliest practicable date all consents and approvals required to consummate the transactions contemplated by this Agreement, including, without limitation, the consents and approvals referred to in Sections 5.3(b), 6.3(b) and 7.3(b) hereof, if any; provided, however, that, except for the filing fees in connection with filings contemplated in Section 8.4 hereof, no party shall be obligated to pay any consideration to any third party from whom consent or approval is requested.

     8.4 Regulatory Approvals.

          (a) Each of Purchaser, the Company and the Sellers (if necessary) shall (i) make or cause to be made all filings required of each of them or any of their respective Subsidiaries or Affiliates under the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any other United States federal or state or foreign statues, rules, regulations, orders, decrees, administrative or judicial doctrines or other laws that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization, restraint of trade, or the creation or enhancement of dominance (collectively, the “Antitrust Laws”) with respect to the transactions contemplated hereby as promptly as practicable and, in any event, within six (6) Business Days after the date of this Agreement in the case of all filings required under the HSR Act and within one (1) week in the case of all other filings required by other Antitrust Laws, (ii) comply at the earliest practicable date with any request under the HSR Act or other Antitrust Laws for additional information, documents, or other materials received by each of them or any of their respective subsidiaries or Affiliates from any other Governmental Body in respect of such filings or such transactions and (iii) cooperate with each other in connection with any such filing (including, to the extent permitted by applicable Law, providing copies of additions,

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deletions or changes suggested in connection therewith) and in connection with resolving any investigation or other inquiry of any Governmental Body under any Antitrust Laws with respect to any such filing or any such transaction. Each such party shall use commercially reasonable efforts to furnish to each other all information required for any application or other filing to be made pursuant to any applicable Law in connection with the transactions contemplated by this Agreement. Each such party shall promptly inform the other parties hereto of any oral communication with, and provide copies of written communications with, any Governmental Body regarding any such filings or any such transaction. No party hereto shall independently participate in any formal meeting with any Governmental Body in respect of any such filings, investigation, or other inquiry without giving the other parties hereto prior notice of the meeting and, to the extent permitted by such Governmental Body, the opportunity to attend and/or participate. Subject to applicable Law, the parties hereto will consult and cooperate with one another in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party hereto relating to proceedings under the HSR Act or other Antitrust Laws.

          (b) Each of Purchaser and the Company shall use commercially reasonable efforts to take such action as may be required to cause the expiration of the notice of periods under the HSR Act or other Antitrust Laws with respect to such transactions as promptly as possible after the execution of this Agreement. Each of Purchaser and the Company shall use commercially reasonable efforts to resolve such objections, if any, as may be asserted by any Governmental Body with respect to the transactions contemplated by this Agreement under the HSR Act, or other Antitrust Laws. In connection therewith, if any Legal Proceeding is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement as in violation of any Antitrust Law, each of Purchaser and the Company shall cooperate and use commercially reasonable efforts to contest and resist any such Legal Proceeding, and to have vacated, lifted, reversed, or overturned any decree, judgment, injunction or other order whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents, or restricts consummation of the transactions contemplated by this Agreement, including by pursuing all available avenues of administrative and judicial appeal, unless by mutual agreement, Purchaser and the Company decide that litigation is not in their respective best interests. Notwithstanding anything to the contrary in this Agreement, neither Purchaser nor any of its Affiliates (which for purposes of this sentence shall include the Company) shall be required, in connection with the matters covered by this Section 8.4, (i) to hold separate (including by trust or otherwise) or divest any of their respective businesses, product lines or Assets, or (ii) to agree to any limitation on the operation or conduct of their or the Company’s or any of the Subsidiaries’ respective businesses.

     8.5 Further Assurances. Subject to, and not in limitation of, Section 8.4, each of Purchaser and the Company shall use (and the Company shall cause each of the Subsidiaries to use) its commercially reasonable efforts to (i) take all actions necessary or appropriate to consummate the transactions contemplated by this Agreement and (ii) cause the fulfillment at the earliest practicable date of all of the conditions to the other party’s obligations to consummate the transactions contemplated by this Agreement.

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Subject to the terms and conditions herein provided, each of the parties hereto covenants and agrees to use commercially reasonable efforts to deliver or cause to be delivered such documents and other papers and to take or cause to be taken such further actions as may be necessary, proper or advisable under this Agreement or otherwise to consummate and make effective the actions contemplated hereby. Without limiting the foregoing, after the Closing Date, (i) to the extent any of the Books and Records, or other Assets, are in the possession, custody or control of one or more of the Sellers, the Sellers shall promptly deliver or cause to be delivered to the Company all such Books and Records and other Assets and (ii) each Seller shall promptly deliver to the Company any mail (physical, electronic or otherwise), facsimile or other correspondence or communication received by such Seller to the extent related to the Assets, the Company or any of its Subsidiaries (and not received by such Seller in its capacity as a shareholder, optionholder, warrantholder or lender), including any such correspondence or communication from any customer, supplier or Governmental Body.

     8.6 Confidentiality.

          (a) Purchaser acknowledges that the information provided to it in connection with this Agreement and the transactions contemplated hereby is subject to the terms of the confidentiality agreement between Purchaser and the Company dated December 9, 2005, amended on February 1, 2006 (the “Company Confidentiality Agreement”), the terms of which are incorporated herein by reference. Effective upon, and only upon, the Closing Date, the Company Confidentiality Agreement shall terminate.

          (b) The Company acknowledges that the information provided to it in connection with this Agreement and the transactions contemplated hereby is subject to the terms of the confidentiality agreement between the Company and Purchaser dated December 14, 2005, as amended (the “Purchaser Confidentiality Agreement”), the terms of which are incorporated herein by reference. The terms of the Purchaser Confidentiality Agreement shall continue in full force and effect in accordance with its terms, regardless of when, or whether, the Closing occurs.

          (c) For a period from the date of this Agreement to the date that is five (5) years after the Closing Date, each of the Sellers shall treat all data and information relating to the Company and its Subsidiaries and all data and information relating to the business, customers, financial statements, conditions or operations of the Company and its Subsidiaries, as confidential, preserve the confidentiality thereof, not duplicate or use or disclose to any Person such information and cause his or her employees, Affiliates and representatives who have had access to such information to keep confidential and not to use any such information (i) unless such information is now or is hereafter disclosed, through no act or omission of any Seller or their Affiliates, employees or representatives, in a manner making it available to the general public, or (ii) unless such information is required by Law or legal process to be disclosed, (iii) to the extent necessary to be disclosed in connection with resolution of any dispute with respect to this Agreement or (iv) unless such Seller is an employee of Purchaser or its Affiliates and such information

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is used in connection with Purchaser’s ongoing business. The Purchaser shall be entitled to injunctive relief to enforce this Section 8.6(c) in accordance with Section 12.13 hereof.

     8.7 Indemnification, Exculpation and Insurance.

          (a) From and after the Closing Date, Purchaser shall cause the Company and its Subsidiaries to continue to indemnify, defend and hold harmless, to the fullest extent permitted under applicable Law, the individuals who on or prior to the Closing Date were directors, officers or employees of the Company or any of the Subsidiaries (collectively, the “Indemnitees”) with respect to all acts or omissions by them in their capacities as such or taken at the request of the Company or any of the Subsidiaries at any time prior to the Closing Date to the fullest extent that the Company or its Subsidiaries, as the case may be, would have been permitted under applicable Law. Purchaser agrees that all rights of the Indemnitees to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Closing Date as provided in the respective certificate of incorporation or by-laws or comparable organizational documents of the Company or any of the Subsidiaries as now in effect shall survive the Closing Date and shall continue in full force and effect in accordance with their terms. Such rights as they relate to any period prior to Closing shall not be amended, or otherwise modified in any manner that would adversely affect the rights of the Indemnitees, unless such modification is required by Law. In addition, Purchaser shall pay any expenses of any Indemnitee under this Section 8.7, as incurred to the fullest extent permitted under applicable Law, provided that the person to whom expenses are advanced provides an undertaking to repay such advances (i) to the extent required by applicable Law or (ii) if it is ultimately determined that such person is not entitled to indemnification.

          (b) Purchaser, from and after the Closing Date, shall cause (i) the certificate of incorporation and by-laws of Purchaser to contain provisions no less favorable to the Indemnitees with respect to limitation of certain liabilities of directors, officers, employees and agents and indemnification than are set forth as of the date of this Agreement in the certificate of incorporation and by-laws of the Company and (ii) the certificate of incorporation and by-laws or comparable organizational documents of each subsidiary of Purchaser to contain the current provisions regarding indemnification of directors, officers, employees and agents which provisions in each case shall not be amended, repealed or otherwise modified in a manner that would adversely affect the rights thereunder of the Indemnitees.

          (c) Each Indemnitee shall have the right (but not the obligation) to control the defense of, including the investigation of, any litigation, claim or proceeding (each, a “Claim”) relating to any acts or omissions covered under this Section 8.7 with counsel selected by the Indemnitee; provided, however, that (i) Purchaser shall be permitted to participate in the defense of such Claim at its own expense and (ii) Purchaser shall not be liable for any settlement effected without its written consent, which consent shall not be unreasonably withheld or delayed.

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          (d) In the event any Claim is asserted or made, any determination required to be made with respect to whether an Indemnitee’s conduct complies with the standards set forth under applicable Law, the applicable organizational documents of the Company or any of the Subsidiaries or any indemnification agreements or arrangements of the Company or any of the Subsidiaries, as the case may be, shall be made by independent legal counsel mutually selected by such Indemnitee and the Purchaser.

          (e) Each of Purchaser and the Indemnitee shall cooperate, and cause their respective Affiliates to cooperate, in the defense of any Claim and shall provide access to properties and individuals as reasonably requested and furnish or cause to be furnished records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, as may be reasonably requested in connection therewith.

          (f) For the six-year period commencing immediately after the Closing Date, Purchaser shall maintain in effect directors’ and officers’ liability insurance covering acts or omissions occurring prior to the Closing Date with respect to those persons who are currently covered by the Company’s and the Subsidiaries’ directors’ and officers’ liability insurance policies (true, correct and complete copies of which have been heretofore made available to the Purchaser) on terms with respect to such coverage and amount no less favorable to the Company’s and the Subsidiaries’ directors and officers currently covered by such insurance than those of such policy in effect on the date hereof; provided, that in no event shall Purchaser be required to expend an amount per year equal to one hundred fifty percent (150%) of the current annual premiums paid by the Company and its Subsidiaries in the aggregate for such insurance coverage (the “Maximum Amount”) to maintain or procure such insurance coverage as required hereunder. In the event that the annual premiums required to procure or maintain such insurance coverage would exceed the Maximum Amount, Purchaser shall procure and maintain for such six-year period as much coverage as reasonably practicable for the Maximum Amount or provide Sellers the option of paying the difference.

          (g) The provisions of this Section 8.7: (i) are intended to be for the benefit of, and shall be enforceable by, each Indemnitee, his or her heirs and his or her representatives; and (ii) are in addition to, and not in substitution for, any other rights to indemnification or contribution that any such person may have by Contract or otherwise.

          (h) In the event that Purchaser or any of its successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger; or (ii) transfers or conveys all or substantially all of its properties and Assets to any person, then, and in each such case, proper provision shall be made so that the successors and assigns of Purchaser shall assume all of the obligations thereof set forth in this Section 8.7.

          (i) The obligations of Purchaser under this Section 8.7 shall not be terminated or modified in such a manner as to adversely affect any Indemnitee to whom this Section 8.7 applies without the written consent of the affected Indemnitee (it being

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expressly agreed that the Indemnitees to whom this Section 8.7 applies shall be third party beneficiaries of this Section 8.7).

     8.8 Preservation of Records. The Sellers and Purchaser agree that each of them shall preserve and keep the records held by them or their Affiliates relating to the respective businesses of the Company and the Subsidiaries for a period of seven years from the Closing Date and shall make such records and personnel available to the other as may be reasonably required by such party in connection with, among other things, any insurance claims by, Legal Proceedings or tax audits against or governmental investigations of the Sellers or Purchaser or any of their Affiliates or in order to enable the Sellers or Purchaser to comply with their respective obligations under this Agreement and each other agreement, document or instrument contemplated hereby or thereby. In the event the Sellers or Purchaser wish to destroy such records, such party shall first give 90 days prior written notice to the other and such other party shall have the right at its option and expense, upon prior written notice given to such party within that 90 day period, to take possession of the records within 180 days after the date of such notice.

     8.9 Publicity.

          (a) Other than in accordance with the communication plan agreed to between the Company and Purchaser prior to the date hereof, none of the Sellers, the Company or Purchaser shall issue any press release or public announcement or communication of any nature concerning this Agreement or the transactions contemplated hereby without obtaining the prior written approval of the other parties hereto, which approval will not be unreasonably withheld or delayed, unless, in the judgment of the Sellers, the Company or Purchaser, as applicable, disclosure is otherwise required by applicable Law or by the applicable rules of any securities exchange on which the Sellers, the Company or Purchaser lists securities, provided that, to the extent required by applicable Law, the party intending to make such release shall use its commercially reasonable efforts consistent with such applicable Law to consult with the other parties with respect to the timing and content thereof.

          (b) Each of Purchaser, the Company and the Sellers agree that the terms of this Agreement shall not be disclosed or otherwise made available to the public and that copies of this Agreement shall not be publicly filed or otherwise made available to the public, except where such disclosure, availability or filing is required by applicable Law and only to the extent required by such Law or by the applicable rules of any securities exchange on which the Sellers, the Company or Purchaser lists securities. In the event that such disclosure, availability or filing is required by applicable Law, each of Purchaser, the Company and the Sellers agree to use its commercially reasonable efforts to obtain “confidential treatment” of this Agreement with the U.S. Securities and Exchange Commission (or the equivalent treatment by any other Governmental Body) and to redact such terms of this Agreement as the other parties shall request.

          (c) Notwithstanding the foregoing, each of ACAS and The Carlyle Group (“Carlyle”) may disclose the transactions contemplated hereby in a manner consistent with its respective past disclosure practices of transactions substantially in the

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form provided to Carlyle (in the case of disclosure by ACAS) or ACAS (in the case of disclosure by Carlyle) prior to the date hereof.

     8.10 Financing.

          (a) In order to assist Purchaser with obtaining the debt financing contemplated by the Debt Commitment Letter, the Company shall provide such assistance and cooperation as Purchaser and its Affiliates may reasonably request, including (i) assisting in the preparation of any prospectus, offering memorandum or similar document or marketing material, and cooperating with lenders, (ii) making senior management of the Company and its Subsidiaries reasonably available for customary road show or syndication presentations, lender or proposed financing source meetings and ratings agencies presentations, (iii) cooperating with prospective lenders and their respective advisors in performing their due diligence, (iv) entering into customary agreements with lenders and their respective advisors, and (v) helping procure other definitive financing documents or other reasonably requested certificates or documents, including pledge and security documents, comfort letters, customary certificates (including a certificate of the chief financial officer of the Company with respect to solvency matters), legal opinions and real estate title documentation (provided that such cooperation shall not require any material expenditure by the Company or the Sellers).

          (b) Purchaser shall execute and deliver to the requisite parties under the Debt Commitment Letter, simultaneously with the execution and delivery of the Debt Commitment Letter, the fee letter as contemplated by the Debt Commitment Letter. In addition, Purchaser shall not, and shall cause its Affiliates not to, agree to any condition precedent to, or any limitation on the amount of funds available at the time of, the initial borrowing under the financing contemplated by the Debt Commitment Letter or the replacement financing contemplated under this Section 8.10, not already contained in the Debt Commitment Letter which would reasonably be expected to delay or prevent the Closing. Purchaser shall use commercially reasonable efforts to enter into definitive financing agreements on or before the Closing Date on the terms and conditions set forth in the Debt Commitment Letter or such other terms as are acceptable to Purchaser including (i) complying with the terms and conditions of the fee letter referenced therein, (ii) to the extent required by the Agent under the Debt Commitment Letter, preparing with the assistance of the Company and the Company’s management and accounting advisors, the necessary prospectus, offering memorandum or similar document or marketing material and negotiating definitive loan documentation, (iii) to the extent required by the Agent under the Debt Commitment Letter, commencing and conducting, with the assistance of the Company and the Company’s management, the road show and syndication activities concerning the placement and syndication of the senior secured credit facility contemplated by the Debt Commitment Letter, and (iv) accepting any changes in the terms of the proposed financing contemplated in the “market flex.”

     8.11 Update of Schedules.

          (a) Not less than ten (10) Business Days prior to the proposed Closing Date, the Company may elect to amend or supplement the disclosure schedules to this

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Agreement with respect to any events, facts or circumstances first arising or occurring after the date hereof by delivery of such amended or supplemental disclosure schedules to the Company (the “Updated Schedules”) all of which Updated Schedules shall be delivered on a single occasion. In the event that the Company delivers the Updated Schedules to Purchaser, and the aggregate amount of Losses reasonably expected by Purchaser to be incurred by the Purchaser Indemnified Parties based upon or resulting from the matters set forth in the Updated Schedules exceeds $500,000, then Purchaser shall have the option, in its sole and absolute discretion, to terminate this Agreement by delivery of written notice to the Seller Representative within seven (7) Business Days of its receipt of the Updated Schedules. If Purchaser timely delivers such a written notice of termination, the Seller Representative shall have the option to either (i) cause the Company to cure all such breach(es) disclosed on the Updated Schedules within thirty (30) days from delivery of such notice (during which thirty (30) day period, Purchaser shall not be required to consummate nor shall it be permitted to terminate the transactions contemplated by this Agreement and after which this Agreement shall terminate unless such breach(es) have been cured in all material respects), or (ii) in the event that the aggregate amount of Losses reasonably expected to be incurred by the Purchaser Indemnified Parties based upon or resulting from the matters set forth in the Updated Schedules is less than $3,000,000, to elect in writing (in a form reasonably satisfactory to Purchaser) to indemnify and hold harmless the Purchaser Indemnified Parties from and against all Losses (in excess of the Basket) based upon or resulting from the matters set forth in the Updated Schedules. If Purchaser does not timely deliver such termination notice to the Seller Representative, or if such termination notice is timely delivered and the Primary Indemnitors deliver the written agreement described in the previous sentence, then Purchaser shall be deemed to have consented to the Updated Schedules and from and after the Closing, the Updated Schedules shall have the effect of amending and supplementing, as applicable, the disclosure schedules as if such amendment or supplement were set forth on the disclosure schedules delivered on the date of this Agreement solely for purposes of determining whether the applicable representation or warranty was breached as of the Closing Date. To the extent any event, fact or circumstance is disclosed on the Updated Schedules the Purchaser Indemnified Parties shall have no right to indemnification with respect to Losses relating to such event, fact or circumstance based upon or resulting from the failure of any representation or warranty to be true and correct on the Closing Date (after taking into account the Updated Schedules), as if made on such date (unless the Primary Indemnitors agree to indemnify the Purchaser Indemnified Parties for such Losses in accordance with this Section 8.11(a)); provided, however, that to the extent all such Losses based upon or resulting from the failure of any representation or warranty to be true and correct on the Closing Date (without regard to any limitation therein with respect to materiality, Material Adverse Effect or other similar qualification) with respect to any such event, fact or circumstance, exceed the Sub-Basket, then the full amount of such Losses (without regard to the Sub-Basket) shall be assessed against, and correspondingly reduce, the Basket (but not the Cap) such that if such Losses (after taking into account the Sub-Basket) exceed $500,000, then the Basket shall be reduced to zero.

          (b) The Company shall provide the Purchaser with (i) an unaudited consolidated balance sheet and the related statements of income and cash flow for each

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month from the date hereof through the Closing Date within twenty (20) calendar days after the end of each such month and (ii) reasonably requested information with respect to aggregate shipments and orders for each month from the date hereof through the Closing Date within seven (7) calendar days after the end of each such month.

     8.12 Exclusivity. From the date hereof through the Closing Date, neither the Sellers nor the Company shall, nor shall any of them knowingly permit its respective Affiliates, officers, directors, employees, representatives and agents to, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to, any Person or group of Persons (other than the Purchaser or any of its Affiliates) in furtherance of any merger, sale of Assets, sale of shares of capital stock or similar transactions involving the Company or any of its Subsidiaries or a substantial portion of the Assets. The Sellers and the Company shall immediately notify the Purchaser (orally and in writing) if any discussions or negotiations are sought to be initiated, any inquiry or proposal is made, any information is requested with respect to the Contemplated Transactions or any offer is made with respect to the Company or any of its Subsidiaries, the Common Stock, Preferred Stock or any of the material Assets.

     8.13 Affiliate Transactions. The Sellers and the Company shall cause (i) all accounts, whether payables or receivables, between the Company and its Subsidiaries, on the one hand, and any Seller or any of its Affiliates, on the other hand, to be repaid or otherwise satisfied in full at or prior to the Closing, except as set forth in Schedule 8.13, (ii) except as set forth in Schedule 8.13, all other Related Party Transactions to be terminated with no further liability or other force or effect after the Closing, except with respect to any breach by any Seller or its Affiliate and (iii) the North Canton, OH facility sublease to be amended in substantially the form attached as Exhibit E (the “Facility Sublease Amendment”).

     8.14 Joint Venture Supply Agreement. At or prior to Closing, the Company shall, and shall cause the Joint Venture to execute and deliver a Supply Agreement, the form of which shall be reasonably acceptable to Purchaser (the “Joint Venture Supply Agreement”).

     8.15 Amendment to Company’s Certificate of Incorporation. At or prior to Closing, the Company shall amend its certificate of incorporation such that its name shall not include “ACAS”, “American Capital Strategies, Ltd.” or any similar or equivalent term that reflects the ownership of the Company prior to the Closing.

     8.16 [Intentionally Omitted]

     8.17 Termination of Tax Sharing Agreements. The Company shall terminate or cause to be terminated prior to Closing any Tax sharing or Tax allocation agreements among any of the Company and its Subsidiaries, and after the Closing Date, none of the Company or any of its Subsidiaries shall be bound thereby or have any liability thereunder.

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     8.18 Section 280G. Prior to the Closing Date, the Company shall submit to its stockholders for approval (in a manner satisfactory to Purchaser) by such number of stockholders as is required by the terms of Section 280G(b)(5)(B) of the Code, any payments and/or benefits that may separate or in the aggregate constitute “parachute payments” (within the meaning of Section 280G of the Code and the regulations promulgated thereunder), such that such payments and benefits shall not be deemed “parachute payments” under Section 280G of the Code, and prior to the Closing Date the Company shall deliver to Purchaser evidence satisfactory to Purchaser that (i) a stockholder vote was held in conformity with Section 280G of the Code and the regulations promulgated thereunder and the requisite stockholder approval was obtained with respect to any payments and/or benefits that were subject to the stockholder vote (the “280G Approval”) or (ii) that the 280G Approval was not obtained and as a consequence, that such “parachute payments” shall not be made or provided, pursuant tot eh waivers of those payments and/or benefits which were executed by the affected individuals prior to the date the payments and/or benefits were submitted to the stockholders for approval.

     8.19 Environmental Matters.

          (a) Phase II Testing. The Company acknowledges and agrees that an environmental consulting firm to be jointly selected by the Company and Purchaser (it being understood and agreed by Purchaser that such environmental consulting firm shall not be ERM) shall conduct Phase II subsurface soil and groundwater testing at the Xinyi, China site, the cost of which shall be borne by the Purchaser. Any such work shall be conducted during regular business hours upon reasonable notice and shall not unreasonably interfere with the routine operations at such facility. Purchaser agrees to promptly share the results of all testing, monitoring or other similar investigative work performed by such consulting firm with the Company.

          (b) Environmental Response Actions. In the event that Purchaser reasonably determines, based upon the Phase II testing described in Section 8.19(a) above, that the Existing Contamination (if any) at the Xinyi, China site poses a substantial risk to human health or the Environment, then the Company shall undertake, or shall cause its Subsidiaries to undertake, any Environmental Response Actions that are reasonably requested by Purchaser and are necessary, in the reasonable opinion of the consulting firm retained to perform the Phase II testing, to mitigate such substantial risk to human health or the Environment. Notwithstanding any other provision contained herein, following the Closing, ACAS, severally in accordance with its Indemnification Percentage, and Swaldo and Blackerby, on a joint and several basis with respect to the balance, shall indemnify Purchaser for one-half of the costs of any such Environmental Response Actions; provided that (i) the full amount of any such costs incurred by Purchaser or the Company that are not indemnified by ACAS, Swaldo or Blackerby shall be assessed against, and correspondingly reduce, the Basket (but not the Cap) such that if the amount of such costs exceed $500,000, then the Basket shall be reduced to zero and (ii) the full amount of any such costs paid by ACAS, Swaldo or Blackerby shall be assessed against, and correspondingly reduce, the Cap.

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ARTICLE IX

CONDITIONS TO CLOSING

     9.1 Conditions Precedent to Obligations of Purchaser. The obligation of Purchaser to consummate the transactions contemplated by this Agreement is subject to the fulfillment, on or prior to the Closing Date, of each of the following conditions (any or all of which may be waived by Purchaser in whole or in part to the extent permitted by applicable Law):

          (a) the representations and warranties of the Company set forth in this Agreement qualified as to materiality shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects, at and as of the Closing Date as though made on the Closing Date, except to the extent such representations and warranties relate to an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date), and Purchaser shall have received a certificate signed by an authorized officer of the Company, dated the Closing Date, to the foregoing effect;

          (b) the representations and warranties of the Common Stock Sellers and ACAS set forth in this Agreement qualified as to materiality shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects, at and as of the Closing Date as though made on the Closing Date, except to the extent such representations and warranties relate to an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date), and Purchaser shall have received a certificate signed by each of the Common Stock Sellers and an authorized officer of ACAS, dated the Closing Date, to the foregoing effect, in each case solely as to its own representations and warranties hereunder;

          (c) the Company and the Sellers shall have performed and complied in all material respects with all obligations and agreements required by this Agreement to be performed or complied with by them on or prior to the Closing Date, and Purchaser shall have received a certificate signed by an authorized officer of the Company, dated the Closing Date, to the foregoing effect;

          (d) there shall not be in effect any Order by a Governmental Body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby;

          (e) the waiting period applicable to the transactions contemplated by this Agreement under the HSR Act shall have expired or early termination shall have been granted;

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          (f) there shall not have been any event since the date of this Agreement that has had or would be reasonably expected to have a Material Adverse Effect;

          (g) each of Theodore V. Swaldo (“Swaldo”) and William T. Blackerby, Jr. (“Blackerby”) shall have executed and delivered to Purchaser an employment agreement substantially in form and substance as set forth on Exhibit F in the case of Swaldo (the “Swaldo Employment Agreement”) and Exhibit G in the case of Blackerby (the “Blackerby Employment Agreement”),

          (h) Each of Linda Swaldo and Blackerby shall have executed and delivered to Parent the Parent Stockholders Agreement substantially in the form set forth on Exhibit H and the Investor Rights Agreement substantially in the form set forth on Exhibit I

          (i) Each of the Equity Sellers shall have executed and delivered to Purchaser the Earn-Out Agreement substantially in the form set forth on Exhibit K;

          (j) Purchaser shall have received the funds contemplated by the Debt Commitment Letter on the terms set forth in the Debt Commitment Letter;

          (k) the Escrow Agent, Linda Swaldo and William T. Blackerby, Jr. shall have executed and delivered to Purchaser the Indemnity Escrow Agreement and the Adjustment Escrow Agreement;

          (l) except as otherwise agreed in writing by Purchaser prior to the Closing, each member of the board of directors of the Company and each of its Subsidiaries shall have resigned as elected or appointed directors of the Company and each of its Subsidiaries, as applicable, effective as of the Closing;

          (m) the Company shall have executed and delivered (and shall have caused the Joint Venture to execute and deliver) to Purchaser the Joint Venture Supply Agreement;

          (n) the Company shall have delivered to Purchaser a fully executed Facility Sublease Amendment;

          (o) each of Linda Swaldo and William T. Blackerby, Jr. shall have executed and delivered to Purchaser the Pledge Agreement, the form of which is set forth on Exhibit L;

          (p) with respect to any payments and/or benefits that may constitute “parachute payments” under Section 280G of the Code, the Company’s stockholders shall have (i) approved, pursuant to the method provided for in the regulations promulgated under Section 280G of the Code, any such “parachute payments” or (ii) shall have voted upon and disapproved such parachute payments, and, as a consequence, such “parachute payments” shall not be paid or provided for in any manner and Purchaser shall not have any liabilities with respect to such “parachute payments”;

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          (q) the Sellers shall have delivered, or caused to be delivered, and the Purchaser shall have received:

     (i) stock certificates representing all of the Shares and all of the Preferred Stock, in each case duly endorsed in blank or accompanied by stock transfer powers;

     (ii) an Option Cancellation Agreement executed by each Option Holder, the form of which is set forth on Exhibit J;

     (iii) certificates of good standing of the Company and its Subsidiaries dated as close as practicable (but in no event more than ten (10) days) prior to the Closing;

     (iv) a certificate of the secretary or other officer of the Company certifying: (A) the true and correct charter documents of the Company and each Subsidiary, as of the Closing; (B) the true and correct bylaws of the Company and each Subsidiary, as of the Closing; (C) the names and true signatures of the officers or other authorized persons of the Company authorized to sign this Agreement and the other documents to be delivered by the Company hereunder; and (D) copies of the resolutions duly adopted by the Company, authorizing the execution, delivery and performance by the Company of this Agreement and each of the other agreements, instruments and documents contemplated hereby; and

     (v) the certificates described in Section 9.1(a) and 9.1(b);

     (vi) the legal opinion of Calfee, Halter & Griswold LLP substantially in the form of Exhibit B hereto, on behalf of the Company;

     (vii) an executed affidavit, dated not more than thirty (30) days prior to the Closing Date, in accordance with Code Section 1445(b)(2) and Treasury Regulation Section 1.1145-2(b), which statement certifies that such Seller is not a foreign person and sets forth the Seller’s name, taxpayer identification number and address;

     (viii) such other documents relating to the transactions contemplated by this Agreement as the Purchaser may reasonably request; and

          (r) the Sellers shall have delivered, or caused to be delivered, to the Company, the instruments representing the Warrants and Options being cancelled hereunder.

     9.2 Conditions Precedent to Obligations of the Sellers. The obligations of the Sellers to consummate the transactions contemplated by this Agreement are subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions (any or all of which may be waived by the Seller Representative in whole or in part to the extent permitted by applicable Law):

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          (a) the representations and warranties of Purchaser set forth in this Agreement qualified as to materiality shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects, at and as of the Closing Date as though made on the Closing Date, except to the extent such representations and warranties relate to an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date), and the Sellers shall have received a certificate signed by an authorized officer of Purchaser, dated the Closing Date, to the foregoing effect;

          (b) Purchaser shall have performed and complied in all material respects with all obligations and agreements required by this Agreement to be performed or complied with by Purchaser on or prior to the Closing Date, and the Sellers shall have received a certificate signed by an authorized officer of Purchaser, dated the Closing Date, to the foregoing effect;

          (c) there shall not be in effect any Order by a Governmental Body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby;

          (d) the waiting period applicable to the transactions contemplated by this Agreement under the HSR Act;

          (e) Purchaser shall have executed and delivered (i) to Swaldo the Swaldo Employment Agreement, (ii) to Blackerby the Blackerby Employment Agreement and (iii) to the Equity Sellers, the Earn-Out Agreement;

          (f) Parent shall have executed and delivered to Linda Swaldo and Blackerby the Parent Stockholders Agreement and the Investor Rights Agreement;

          (g) there shall not have occurred any event, development or circumstance since the date of the Agreement that has caused a material adverse change in the business, assets, property or financial condition of Purchaser and its Subsidiaries, taken as a whole; provided, that the following shall be disregarded for purposes of this Section 9.2(g): (i) the effect of any change in the United States or foreign economies or securities or financial markets in general (but solely to the extent that any such change does not have a disproportionate effect on Purchaser or its Subsidiaries); (ii) the effect of any change that generally affects any industry in which Purchaser or any of the Subsidiaries operates (but solely to the extent that any such change does not have a disproportionate effect on Purchaser or its Subsidiaries); (iii) the effect of any action taken by the Company, any Seller or any of their respective Affiliates with respect to the transactions contemplated hereby; (iv) the effect of any changes in applicable Laws or accounting rules (but solely to the extent that any such change does not have a disproportionate effect on Purchaser or its Subsidiaries) or (v) any effect resulting from the public announcement of this Agreement, compliance with terms of this Agreement or the consummation of the transactions contemplated by this Agreement; and

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          (h) Purchaser shall have delivered, or caused to be delivered, to the Sellers:

     (i) a certificate of good standing of the Purchaser dated as close as practicable (but in no event more not more than ten (10) days) prior to the Closing;

     (ii) a certificate of the secretary or other officer of the Purchaser certifying: (A) the true and correct charter documents of the Purchaser, as of the Closing; (B) the true and correct bylaws of the Purchaser, as of the Closing; (C) the names and true signatures of the officers or other authorized persons of the Purchaser authorized to sign this Agreement and the other documents to be delivered by the Purchaser hereunder; and (D) copies of the resolutions duly adopted by the Purchaser, authorizing the execution, delivery and performance by the Purchaser of this Agreement and each of the other agreements, instruments and documents contemplated hereby;

     (iii) the certificates described in Section 9.2(a) and 9.2(b); and

     (iv) such other documents relating to the transactions contemplated by this Agreement as the Seller or the Seller Representative may reasonably request.

ARTICLE X

INDEMNIFICATION

     10.1 Survival of Representations and Warranties. Subject to the limitations and other provisions herein, (i) the representations and warranties of the parties contained in this Agreement shall survive the Closing and shall remain in full force and effect for a period of eighteen (18) months following the Closing Date; provided, however, that the representations and warranties (a) of each Seller set forth in Sections 6.1 (Organization), 6.2 (Authorization), 6.4 (Ownership), and 6.6 (Financial Advisors) shall survive the Closing indefinitely, (b) of the Company set forth (i) in Sections 5.1 (Organization), 5.2 (Authorization), 5.4 (Capitalization), 5.5 (Subsidiaries) and 5.23 (Financial Advisors) shall survive the Closing indefinitely, (ii) 5.9 (Taxes) shall survive the Closing for a period of ninety (90) days following the expiration of the applicable statutes of limitation and (iii) 5.18 (Environmental Matters) shall survive the Closing for a period of five years following the Closing Date, and (c) of Purchaser set forth in Sections 7.1 (Organization), 7.2 (Authorization), 7.6 (Financial Advisors) and 7.8 (Conditions of the Business) shall survive the Closing indefinitely (in each case, the “Survival Period”); provided, however, that any obligations under Sections 10.2(a) and 10.3(a) shall not terminate with respect to any Losses as to which the Person to be indemnified shall have given notice (stating in reasonable detail the basis of the claim for indemnification and an estimate of the amount of Losses related thereto, if determinable) to the indemnifying party in accordance with Section 10.4 before the expiration of the applicable Survival Period, and (ii) the covenants and agreements of the parties hereto shall survive the Closing for a period of eighteen (18) months following the Closing Date (unless this Agreement expressly

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provides that such covenant or agreement shall survive for a longer period in which event it shall survive for such longer period).

     10.2 Indemnification by Primary Indemnitors.

          (a) Subject to Sections 10.5 and 10.6 hereof, and except for claims arising out of or in connection with the matters covered by the indemnification for tax obligations in Section 11.1, which shall be governed by such Section (but which shall remain subject to Section 10.5), from and after the Closing, the Primary Indemnitors hereby agree, on behalf of the Sellers, to the extent provided herein, to indemnify and hold Purchaser, the Company and its Subsidiaries and their respective directors, officers, employees, Affiliates, stockholders, agents, attorneys, representatives, successors and permitted assigns (collectively, the “Purchaser Indemnified Parties”) harmless from and against any and all losses, liabilities, claims, demands, judgments, damages, fines, suits, actions, costs and expenses (including the costs of reasonable investigation, remediation and accountants’ and attorneys’ fees) (individually, a “Loss” and, collectively, “Losses”) as follows:

     (i) ACAS hereby agrees to indemnify and hold harmless the Purchaser Indemnified Parties from and against Losses, based upon or resulting from the failure of any of the representations or warranties made by ACAS in Article VI to be true and correct on the date hereof and on the Closing Date, as if made on such date, and, Swaldo and Blackerby, on a joint and several basis, hereby agree to indemnify and hold harmless the Purchaser Indemnified Parties from and against all Losses based upon or resulting from the failure of any of the representations or warranties made by any Seller other than ACAS in Article VI to be true and correct on the date hereof and on the Closing Date, as if made on such date, in each case without any regard to any limitation therein with respect to materiality, Material Adverse Effect or other similar qualification;

     (ii) ACAS severally in accordance with its Indemnification Percentage, and Swaldo and Blackerby, on a joint and several basis with respect to the balance, agree to indemnify and hold harmless the Purchaser Indemnified Parties from and against Losses based upon the failure of any of the representations and warranties of the Company in Article V of this Agreement to be true and correct in all respects at and as of the date hereof and at and as of the Closing Date, as if made on such date, in each case without any regard to any limitation therein with respect to materiality, Material Adverse Effect or other similar qualification;

     (iii) ACAS hereby agrees to indemnify and hold harmless the Purchaser Indemnified Parties from and against all Losses based upon or resulting from the breach of any covenant or agreement of ACAS contained in this Agreement, and Swaldo and Blackerby, on a joint and several basis, hereby agree to indemnify and hold harmless the Purchaser Indemnified Parties from and against all Losses based upon or resulting from the breach of any covenant or agreement by any Seller other than ACAS contained in this Agreement; and

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     (iv) Swaldo and Blackerby, on a joint and several basis, agree to indemnify and hold harmless the Purchaser Indemnified Parties from and against all Losses based upon or resulting from the breach of any covenant or agreement of the Company contained in this Agreement.

     10.3 Indemnification by Purchaser.

          (a) Subject to Section 10.5 and 10.6 hereof, Purchaser hereby agrees to indemnify and hold the Sellers and their respective directors, officers, employees, Affiliates, stockholders, agents, attorneys, representatives, successors and permitted assigns (collectively, the “Seller Indemnified Parties”) harmless from and against, and pay to the applicable Seller Indemnified Parties the amount of, any and all Losses:

     (i) based upon or resulting from the failure of any of the representations or warranties made by Purchaser in this Agreement to be true and correct in all respects at the date hereof and as of the Closing Date; and

     (ii) based upon or resulting from the breach of any covenant or agreement on the part of Purchaser under this Agreement.

     10.4 Indemnification Procedures.

          (a) A claim for indemnification for any matter not involving a third-party claim may be asserted by notice to the party from whom indemnification is sought prior to expiration of the applicable Survival Period.

          (b) In the event that any Legal Proceedings shall be instituted, or any claim shall be asserted, by any third party in respect of which payment may be sought under Section 10.2 or 10.3 hereof (regardless of the limitations set forth in Section 10.5) (an “Indemnification Claim”), the indemnified party shall promptly cause written notice of the assertion of any Indemnification Claim of which it has knowledge which is covered by this indemnity to be forwarded to (i) the Seller Representative, in the case of indemnification pursuant to Section 10.2 and (ii) Purchaser, in the case of indemnification pursuant to Section 10.3(a) (the recipient of such notice referred to below as the “indemnifying party” it being understood and agreed that the Seller Representative shall represent all Sellers in the event of any breach of the representations, warranties or covenants of the Company hereunder and shall be entitled to bind all such Sellers in connection therewith (subject to the limitations contained herein)). The failure of the indemnified party to give reasonably prompt notice of any Indemnification Claim shall not release, waive or otherwise affect the indemnifying party’s obligations with respect thereto except to the extent that the indemnifying party is prejudiced as a result of such failure. If the indemnifying party acknowledges in writing its obligation to indemnify the indemnified party with respect to any such Legal Proceedings that give rise to an Indemnification Claim, a indemnifying party shall have the right, at its sole option and expense, to be represented by counsel of its choice in connection with such Legal Proceedings, which must be reasonably satisfactory to the indemnified party, and to defend against, negotiate, settle or otherwise deal with such Indemnification Claim which

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relates to any Losses indemnified against by it hereunder but any reasonable documented out of pockets costs of any such undertaking (including the costs of a single counsel for all indemnifying parties) shall reduce the Cap applicable to such parties. If the indemnifying party elects to defend against, negotiate, settle or otherwise deal with any Indemnification Claim which relates to any Losses indemnified against by it hereunder, it shall within 10 days after receipt of an Indemnification Claim (or sooner, if the nature of the Indemnification Claim so requires) notify the indemnified party of its intent to do so. If the indemnifying party fails to assume the defense of such Indemnification Claim within such 10-day period, the indemnified party may defend against, negotiate, settle or otherwise deal with such Indemnification Claim. If the indemnifying party elects to assume the defense of any Indemnification Claim, the indemnified party may participate, at his or its own expense, in the investigation and defense of such Indemnification Claim; provided, however, that such indemnified party shall be entitled to participate in any such defense with separate counsel in each jurisdiction at the expense of the indemnifying party (which expenses, fees and costs shall be paid at least quarterly) if, (i) so requested by the indemnifying party to participate or (ii) (A) in the reasonable opinion of counsel to the indemnified party, a conflict or potential conflict exists between the indemnified party and the indemnifying party that would make such separate representation advisable or (B) the claim seeks nonmonetary relief which, if granted, could materially and adversely affect the indemnified party or its Affiliates (in which case, notwithstanding anything to the contrary in this Agreement, the indemnifying party shall not have the right to control the defense or investigation of such Legal Proceeding). In no event shall the indemnifying party be required to pay for more than one set of counsel (plus any appropriate local counsel) for all indemnified parties in connection with any Indemnification Claim. The parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such Indemnification Claim. Notwithstanding anything in this Section 10.4 to the contrary, neither the indemnifying party nor the indemnified party shall, without the written consent of the other party, settle or compromise any Indemnification Claim or permit a default or consent to entry of any judgment unless the claimant and such party provide to such other party an unqualified release from all liability in respect of the Indemnification Claim. Notwithstanding the foregoing, if a settlement offer solely for money damages is made by the applicable third party claimant, and the indemnifying party notifies the indemnified party in writing of the indemnifying party’s willingness to accept the settlement offer and, subject to the applicable limitations of Sections 10.5 and 10.6, pay the amount called for by such offer, and the indemnified party declines to accept such offer, the indemnified party may continue to contest such Indemnification Claim, free of any participation by the indemnifying party, and the amount of any ultimate liability with respect to such Indemnification Claim that the indemnifying party has an obligation to pay hereunder shall be limited to the lesser of (A) the amount of the settlement offer that the indemnified party declined to accept plus the Losses of the indemnified party relating to such Indemnification Claim through the date of its rejection of the settlement offer or (B) the aggregate Losses of the indemnified party with respect to such Indemnification Claim.

          (c) After any final decision, judgment or award shall have been rendered by a Governmental Body of competent jurisdiction and the expiration of the

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time in which to appeal therefrom, or a settlement shall have been consummated, or the indemnified party and the indemnifying party shall have arrived at a mutually binding agreement with respect to an Indemnification Claim hereunder, the indemnified party shall forward to the indemnifying party notice of any sums due and owing by the indemnifying party pursuant to this Agreement with respect to such matter.

     10.5 Certain Limitations on Indemnification.

          (a) Notwithstanding the provisions of Articles X and XI and except as otherwise provided herein, (i) neither the Primary Indemnitors nor Purchaser shall have any indemnification obligations for Losses under Section 10.2(a)(i) or (ii), Section 10.3(a)(i) or Article XI, (1) for any individual item, or group of related items which shall include claims by unrelated parties arising out of the same or substantially similar factual allegations (e.g., class action claims) to the extent all Losses with respect to such item or series of related items are less than $50,000 (the “Sub-Basket”) and (2) in respect of each item or series of related items for which all Losses are equal to or greater than the Sub-Basket, unless the aggregate amount of all such Losses exceeds $500,000 (the “Basket”), and then only to the extent of such excess, and (ii) in no event shall the aggregate amounts to be paid by the Primary Indemnitors under this Article X, Section 8.19(b) and Article XI exceed $20,000,000 (the “Cap”); provided, however, that (x) none of the foregoing limitations shall apply to any Losses arising out of, resulting from or related to any breach, inaccuracy or failure to be true of any representation or warranty set forth in Sections 5.1 (Organization), 5.2 (Authorization), 5.4 (Capitalization), 5.5 (Subsidiaries), 6.1 (Organization), 6.2 (Authorization), 6.4 (Ownership), 7.1 (Organization) and 7.2 (Authorization) (the “Cap Exceptions”) and (y) any Losses for which tax indemnification is provided in Article XI shall not be subject to the Sub-Basket.

          (b) Notwithstanding anything herein to the contrary, except as provided in the last sentence of Section 10.5(c), (i) the aggregate amount for which any Primary Indemnitor shall be liable hereunder shall be (x) such Primary Indemnitor’s Indemnification Percentage multiplied by (y) an amount equal to the sum of the Aggregate Equity Value plus the ACAS Warrant Amount; and (ii) the aggregate amount for which any Primary Indemnitor shall be liable with respect to Losses suffered by Purchaser Indemnified Parties pursuant to Section 10.2(a)(i) or (ii) for any breaches or inaccuracies of any representations and warranties in Article V or Article VI (other than representations and warranties included in the definition of Cap Exceptions), Section 8.19(b) or Article XI shall in no event exceed (x) such Primary Indemnitor’s Indemnification Percentage multiplied by (y) the Cap Amount. For the avoidance of doubt, amounts which count toward the limit set forth in clause (ii) above count against the limit in clause (i), but not vice versa.

          (c) Notwithstanding anything else herein to the contrary, ACAS shall not be liable for any amount with respect to Losses incurred by Purchaser Indemnified Parties pursuant to Section 10.2(a)(i) (other than Sections 6.1 (Organization), 6.2 (Authorization) and 6.3 (Ownership and Transfer of Securities) (each, the “ACAS Cap Exceptions”)), Section 10.2(a)(ii), or Section 8.19(b) in excess of $2,000,000, less amounts paid by ACAS under the ACAS Contribution Agreement (the “ACAS Cap”). In

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the event Purchaser Indemnified Parties have Losses pursuant to Section 10.2(a)(i) (other than with respect to the ACAS Cap Exceptions) or Section 10.2(a)(ii) in excess of the ACAS Cap, the remaining Primary Indemnitors shall be jointly and severally liable for the full amount ACAS’s Indemnification Percentage of such Losses in excess of the ACAS Cap in accordance with the remaining limitations of this Section 10.5.

          (d) No Purchaser Indemnified Party shall make any claim for indemnification under this Article X in respect of any matter to the extent that is taken into account in the calculation of any adjustment to the Purchase Price pursuant to Section 3.2.

          (e) Except as provided in Section 8.19, the Purchaser Indemnified Parties shall not be entitled to indemnification with respect to a breach of the representations and warranties in Section 5.18 to the extent resulting from any investigation of environmental conditions at any Company Property conducted by, or at the direction of, Purchaser other than (i) any such investigation required under applicable Law (including any Law requiring that such testing be completed in connection with any construction, material maintenance activity, expansion or closure of all or any part of any Facility), (ii) any such investigation required by any Governmental Body, (iii) any such investigation in response to any Environmental Claim to the extent reasonably related thereto, (iv) any air or wastewater testing required by Environmental Law in connection with any maintenance or modification of all or any part of any Facility (including any testing required to obtain any Environmental Permit that may be required in connection therewith) or (v) any Phase I assessment or other similar noninvasive environmental audit conducted in preparation for or in connection with any M&A or financing transaction, or securities offering involving Purchaser, the Company or their Affiliates; provided, however, that with respect to this clause (v), the Primary Indemnitors shall have no liability or obligation to the Purchaser Indemnified Parties under this Agreement with respect to any Phase II or other invasive testing (including the results thereof) undertaken by the Purchaser Indemnified Parties as a result of such non-invasive Phase I assessment or other similar noninvasive environmental audit.

     10.6 Indemnity Escrow.

          (a) Establishment of Indemnity Escrow Account; Payments. On the Closing Date, Purchaser shall, on behalf of Swaldo and Blackerby, pay to La Salle Bank, as escrow agent to Purchaser and Swaldo and Blackerby (the “Escrow Agent”), in immediately available funds, to a separate escrow account (the “Indemnity Escrow Account”) established by the Indemnity Escrow Agent, an amount equal to $7,000,000 (the “Indemnity Escrow Amount”), in accordance with the terms of this Agreement and the Indemnity Escrow Agreement. Any payment the Primary Indemnitors (other than any payments required to be made by ACAS pursuant to Section 10.2(a)(i) or (iii)) are obligated to make to any Purchaser Indemnified Parties pursuant to this Article X, Article XI or Section 8.19(b) (and notwithstanding the fact that such liability is several as among ACAS and Swaldo and Blackerby) shall be paid first, to the extent there are sufficient funds in the Indemnity Escrow Account, by release of funds to the Purchaser Indemnified Parties from the Indemnity Escrow Account by the issuance of joint written instructions

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by the Seller Representative and Purchaser to the Escrow Agent within five (5) Business Days after the date notice of any sums due and owing is given to Theodore V. Swaldo (with a copy to the Seller Representative and the Escrow Agent pursuant to the Escrow Agreement) by the applicable Purchaser Indemnified Party and shall accordingly reduce the Indemnity Escrow Amount and, second, to the extent the Indemnity Escrow Amount is insufficient to pay any remaining sums due, then the Primary Indemnitors shall be required to pay their Indemnification Percentage of all of such additional sums due and owing to the Purchaser Indemnified Parties by wire transfer of immediately available funds within five (5) Business Days after the date of such notice (subject to the limitations in Section 10.5).

          (b) Release of Indemnity Escrow.

     (i) On the date (the “Step-Down Date”) that is eighteen (18) months following the Closing Date, the Escrow Agent shall release to Swaldo and Blackerby (pro rata in accordance with the amounts contributed to the Indemnification Escrow Account), the portion of the Indemnification Escrow Amount in excess of an amount equal to the sum of (A) $3,500,000 plus (B) an amount equal to the aggregate of all claims for indemnification of the Purchaser Indemnified Parties under this Article X asserted but not yet resolved (“Unresolved Claims”) prior to the Step-Down Date. The Indemnity Escrow Amount in excess of $3,500,000 that was retained for Unresolved Claims shall be released by the Escrow Agent (to the extent not utilized to pay Purchaser for any such claims resolved in favor of Purchaser) as soon as reasonably practicable upon their resolution in accordance with this Article X and the terms of the Escrow Agreement.

     (ii) On the date that is three (3) years after the Closing Date, the Escrow Agent shall release to Swaldo and Blackerby (pro rata in accordance with the amounts contributed to the Indemnification Escrow Account), all or any remaining portion of the Indemnification Escrow Amount less an amount equal to the aggregate of all Unresolved Claims on such date. Thereafter, as soon as reasonably practicable after the resolution of any such Claims, in the event and to the extent that the remaining portion of the Indemnification Escrow Amount exceeds the aggregate amount of all Unresolved Claims, the Escrow Agent shall release to Swaldo and Blackerby (pro rata in accordance with the amounts contributed to the Indemnification Escrow Account), any such excess amount.

     (iii) The Seller Representative and the Purchaser shall promptly deliver joint written instructions to the Escrow Agent required pursuant to the terms of the Escrow Agreement in order to make the distributions required by this Section 10.6(b).

     10.7 Calculation of Losses.

          (a) The amount of any Losses for which indemnification is provided under this Article X shall be net of any (i) Tax benefits actually realized by way of a

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current reduced cash outlay for Taxes by the indemnified party, and amounts actually recovered by the indemnified party under insurance policies or otherwise with respect to such Losses (net of any Tax or expenses incurred in connection with such recovery), (ii) amounts recovered by the indemnified party pursuant to any indemnification by or indemnification or other agreement with any third party, (iii) any insurance proceeds or other cash receipts or sources of reimbursement received as a direct offset against such Loss (net of any costs incurred to recover such amounts) (each source named in clauses (ii) and (iii) a “Collateral Source”). The indemnifying party may require an indemnified party to assign the rights to seek recovery from a Collateral Source; provided that the indemnifying party will then be responsible for pursuing such recovery at its own expense. Purchaser shall use its commercially reasonable efforts to recover under insurance policies for any Losses prior to seeking indemnification under this Agreement. For purposes of determining when the indemnified party has realized a Tax benefit under this Section, if the indemnified party or any consolidated group of which it is a member for Tax purposes has other items of deduction, loss or credit for any taxable period ending no later than the last day of the taxable year in which the indemnity payment is made, the items of Tax benefit arising out of the Losses for which indemnity is sought shall be deemed used first prior to use of any such other items. The party seeking indemnification under this Article X shall use commercially reasonable efforts to seek recovery from Collateral Sources. The parties acknowledge and agree that no right of subrogation shall accrue or inure to the benefit of any Collateral Source hereunder.

          (b) Notwithstanding anything to the contrary elsewhere in this Agreement, no party shall in any event be liable to any other Person for any consequential, special or punitive damages or any Losses based upon any multiple of lost earnings or other similar methodology used to value the Company or the Securities based on the financial performance or results of operations of the Company or its Subsidiaries, except, in each case, to the extent that any third party asserts a claim against the Company or any of its Subsidiaries for any such damages that is indemnifiable hereunder.

     10.8 Tax Treatment of Indemnity Payments. The Sellers and Purchaser agree to treat any indemnity payment made pursuant to this Article X as an adjustment to the Purchase Price for federal, state, local and foreign income tax purposes.

     10.9 Exclusive Remedy. From and after the Closing, except (i) in the event of fraud (in which case the parties shall be entitled to exercise all of their rights, and seek all damages available to them, under law or equity), (ii) as provided in Section 8.19 (Environmental Matters); Article XI (Tax Matters) and Section 12.3 (Seller Representative and Equity Sellers Representative), and (iii) for specific performance of obligations to be performed at and after the Closing, the sole and exclusive remedy of the parties hereto for breach of this Agreement shall be indemnification in accordance with this Article X. In furtherance of the foregoing, effective as of the Closing, each Seller, on behalf of itself and each of its past, present and future Affiliates, beneficiaries and assigns (“Related Persons”), hereby releases and forever discharges the Company and each of its past, present and future Affiliates, Subsidiaries, shareholders, members, successors and assigns, and their respective officers, directors and employees (each individually, a “Releasee” and collectively, “Releasees”), from any and all claims, demands,

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proceedings, causes of action (including rights of contribution, if any, court orders, obligations, contracts, agreements (express or implied), debts and liabilities under or relating to the Company Common Stock, the Company Preferred Stock, the Warrants, the Company, its Subsidiaries or their respective predecessors in interest, including any liability or obligation arising under or pursuant to any shareholder agreement, employment agreement or other compensation arrangement (other than agreements and arrangements entered into between the Company and a Seller on or after the Closing Date, accrued and unpaid compensation to the extent included on the Closing Balance Sheet, or any claim for indemnification pursuant to the Company’s or its Subsidiaries certificate of incorporation or other charter document to the extent not arising as a result of any claim by Purchaser against such Releasee or its Related Persons hereunder) in each case, whether known or unknown, suspected or unsuspected, both at law and in equity, which such Seller or any of its Related Persons now has, has ever had or hereafter has against the respective Releasees.

ARTICLE XI

TAX MATTERS

     11.1 Indemnification for Tax Obligations. From and after the Closing Date, the Primary Indemnitors shall jointly and severally defend, indemnify and hold harmless the Purchaser Indemnified Parties from and against all Losses arising out of or in connection with: (i) any Taxes payable by any of the Taxpayers with respect to any Pre-Closing Tax Period or for the Straddle Period, to the extent allocable or attributable (as provided in Section 11.2) to the portion of such period beginning before and ending on the Closing Date; (ii) any liability of any of the Taxpayers for Taxes of others (for example, by reason of transferee liability or application of Treasury Regulation Section 1.1502-6); (iii) any inaccuracy of any representation or any breach of warranty contained in Section 5.8(iii) or Section 5.9; (iv) any breach by any Taxpayer of any covenant contained in Section 8.2(b)(xx) or this Article XI; (v) any Transfer Taxes for which the Sellers are liable pursuant to Section 12.1 hereof; (vi) any failure of any of the Stockholders, Equity Seller Representative or any Taxpayer to comply with the provisions of this Article XI; (vii) any VAT receivable set forth on the Closing Statement that is taken into account in the determination of Closing Working Capital that is not collected in full by one or more of the Taxpayers within 180 days following Closing, and (viii) Taxes arising out of or in connection with any breach by the Equity Seller Representative or the Stockholders of any covenant contained in this Agreement. The Sellers shall not be liable for Taxes to the extent of the amount of the reserve for Taxes that is set forth as a current liability (other than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) on the Closing Statement and that is taken into account in the determination of the Closing Date Net Working Capital, with such reserve reduced by any amounts credited against Taxes otherwise payable by the Equity Sellers pursuant to Section 11.6 and the Closing Deductions as actually reflected on the Short Period federal income Tax Return (the Closing Deductions thus adjusted, the “Actual Closing Deductions,” and such reserve thus adjusted, the “Adjusted Tax Reserve”). Notwithstanding the provisions of this Section 11.1, claims for indemnification under this Section 11.1, together with claims for indemnification under Article X, shall be subject to

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the Basket and the Cap as provided in Section 10.5. Except as otherwise provided in Section 10.7 concerning Losses being determined net of any Tax benefit, for purposes of this Article XI, references to any “Loss” shall be deemed to include amounts that would have constituted a “Loss” but for the set-off or other utilization of any loss, deduction or credit realized in, or attributable to a Post-Closing Tax Period.

     11.2 Allocation of Taxes. In the case of Taxes that are payable with respect to the Straddle Period, the portion of such Taxes for the Pre-Closing Tax Period shall be (i) in the case of ad valorem or property Taxes, the amount of such Taxes for the entire period multiplied by a fraction, the numerator of which is the number of calendar days during the period ending on the Closing Date and the denominator of which is the total number of calendar days in the entire period, and (ii) in the case of all other Taxes be determined based on an interim closing of the books as of the close of business on the Closing Date. The Closing Deductions shall, in all events, be treated as occurring in the Short Period (as defined in Section 11.6(a)) and/or in the pre-Closing portion of the Straddle Period.

     11.3 Indemnity Payments. All amounts paid with respect to indemnity claims under this Agreement shall be treated by the parties hereto for all income Tax purposes as adjustments to the Purchase Price.

     11.4 Tax Benefits.

          (a) On the Closing Date, (i) the cancellation of the Options hereunder will give rise to compensation deductions to the extent permitted by applicable Law (the “Option Deduction”), (ii) the unamortized fees, unamortized interest and other expenses incurred by the Company or its Subsidiaries in connection with the incurrence of any indebtedness to be paid off at Closing may be deductible for income Tax purposes (the “Financing Fees Deduction”), and (iii) certain Transaction Expenses incurred by the Company or its Subsidiaries may be deductible for income Tax purposes (the “Transaction Fees Deduction” and collectively with the Option Deduction and the Financing Fees Deduction, the “Closing Deductions”).

          (b) Purchaser shall pay the following amounts (collectively, the “Tax Benefit Amount”), at the following times, to the Common Stock Sellers

     (i) Within five (5) Business Days after receipt by any member of the Buying Group (as defined in clause (iii) below), the total amount of the Tax refund (inclusive of interest) paid to any member of the Buying Group or any amount of Tax credited against Tax which any member of the Buying Group otherwise would be or would have been required to pay, in either case, with respect to any Pre-Closing Tax period but for the utilization of any of the Closing Deductions utilizing the Ordering Rule as defined in subsection (iii) below (including with respect to Prior Returns filed pursuant to Section 11.6(b)), except to the extent (A) attributable to the carryback of any tax attribute from a post-Closing Tax period (or portion thereof), (B) expressly taken into account in the computation of Closing Working Capital, or (C) otherwise payable in accordance

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with the provisions of subsection (ii) below (any such amount, a “Closing Deduction Refund or Credit”).

     (ii) Within five (5) Business Days after the filing of any Tax Return or the payment of any estimated Taxes, for any taxable period covered by Section 11.4(b)(iii), Purchaser shall (A) provide to the Equity Sellers Representative a written certificate as to the amount, if any, and the calculation thereof, of the Utilized Tax Attributes (as defined in clause (iii) below) for the Buying Group for such Tax Return; and (B) pay to the Common Stock Sellers an amount equal to such Utilized Tax Attributes.

     (iii) For purposes hereof, “Utilized Tax Attributes” shall mean any reduction in the cash outlay for Taxes of any member of the Company or Buying Group that otherwise would be payable (including with respect to any Short Period and the portion of any Straddle Period ending on and including the Closing Date) but for the utilization of the Closing Deductions, determined by giving effect to the Ordering Rule, to the extent such reduction in cash outlay is reflected or taken into account (A) on any estimated tax payment or Tax Return filed on or before March 15, 2015, or, (B) as a result of any benefit from any Federal or state net operating loss or credit carryforward to a post-Closing tax period, in each case generated by the Closing Deductions. If the Company or the Buying Group has other items of deduction, loss or credit, such other items shall be deemed used subsequent to use of the Closing Deductions in connection with the determination of the amount of any Utilized Tax Attributes payable to the Common Stock Sellers under this subsection (c) (such convention with respect to the ordering of the use of the Closing Deductions and other Tax benefits, the “Ordering Rule”). For purposes hereof, “Buying Group” shall mean Purchaser and each of its Subsidiaries and any other member included in any consolidated income tax filing by the group in which Purchaser and/or Parent are a member.

     (iv) Any Closing Deductions Refund or Credit and any Utilized Tax Attributes required to be paid hereunder shall be reduced by (i) any amount required by applicable Law to be withheld from such payments, including the incremental (net of Federal tax benefit) payroll taxes (e.g., FICA, Medicare, FUTA, SUTA), (ii) if applicable, 401(k) matches paid by the Company or its Subsidiaries with respect to the gross wages generated by the Closing Deductions, to the extent applicable thereto and (iii) any reasonable out-of-pocket expense incurred in connection with realizing any cash benefit of Closing Deduction Refund or Credit or Utilized tax Attributes.

     (v) For the avoidance of doubt, the parties agree that the provisions of Section 11.1, Section 11.4 and Section 11.6 are intended to be interpreted to provide the Equity Sellers with value which is no less, and no more, than the value of the Tax Benefit Amount.

          (c) Purchaser shall provide access and make available upon request (at reasonable times, on adequate notice and subject to the payment by the Equity Sellers

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Representative of any out-of-pocket charges imposed on any member of the Buying Group), to the Equity Sellers Representative and its representatives, all applicable post-Closing Tax Returns, workpapers, personnel, representatives and such other information requested that is reasonably necessary to verify the propriety of the calculation of any Tax Benefit Amount or any Utilized Tax Attributes; provided, that the foregoing shall be subject to professional standards and the Company’s independent accountant’s generally applicable firm policy; and provided further that such materials shall be treated by the Equity Sellers Representative, and the Equity Sellers Representative shall cause its representatives to treat such materials, as confidential, and not disclose such materials to any other party except as required by applicable law or to establish its entitlement to payment under this Section 11.4.

     11.5 Tax Contests. The Purchaser shall promptly notify the Equity Sellers Representative in writing upon receipt by the Purchaser, a Taxpayer or any of their Affiliates of a written notice (the “Tax Claim Notice”) of any pending or threatened Tax audits or assessments for which the Sellers may have liability pursuant to this Agreement (“Tax Contest Claims”); provided, however, no failure or delay by the Purchaser to provide notice of a Tax Contest Claim shall reduce or otherwise affect the obligation of the Sellers hereunder except to the extent the Sellers are prejudiced thereby. The Purchaser and the Equity Sellers Representative shall cooperate with each other in the conduct of any Tax Contest Claim. The Equity Sellers Representative shall have the right to control the conduct of any Tax Contest Claim if it exercises such right by delivering a written notice to such effect to the Purchaser within ten (10) business days after receipt of the Tax Claim Notice with respect to the Tax Contest Claim in question, provided that: (i) the Equity Sellers Representative shall keep the Purchaser informed regarding the progress and substantive aspects of any Tax Contest Claim, including providing the Purchaser with all written materials relating to such Tax proceeding received from and submitted to the relevant Taxing Authority within ten (10) business days of receipt or submission of such materials, (ii) the Purchaser shall have an opportunity to comment on any written materials prepared in connection with any Sellers’ Tax Contest Claim at least five (5) business days prior to submission and (iii) shall have the right to attend any conferences relating to any Tax Contest Claim and to consent (which consent shall not be unreasonably withheld, conditioned or delayed) to any compromise or settlement, in each case, if such Tax Contest Claim could reasonably be expected to have any material adverse effect on any of the Purchaser or any of the Taxpayers or any of their affiliates in any Post-Closing tax period. Except as otherwise provided above in this Section 11.5, Purchaser shall be entitled to control all other examinations, audits, or administrative, judicial or other proceedings with respect to Taxes.

     11.6 Preparation of Tax Returns.

          (a) In order to apportion appropriately any Taxes relating to a taxable period that otherwise would include (but not end on) the Closing Date, the parties hereto will, to the extent permitted by applicable Law, cause the taxable year of the Company to close on (and include) the Closing Date (a “Short Period”).

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          (b) Equity Sellers Representative shall cause to be prepared by the Company’s regular pre-Closing accountants, at the Company’s expense (to be reimbursed by the Equity Sellers within 30 days after presentation of a written invoice from the Company), as promptly as practicable after the Closing Date, but in no event later than thirty (30) days prior to the due date for filing any such Tax Return (taking into account any applicable extensions of time to file) for review and comment by the Equity Sellers Representative and the Purchaser: all Tax Returns required to be filed for any Pre-Closing Tax Periods (the “Pre-Closing Tax Returns”), including (i) the federal, state and local income Tax Returns for the fiscal year ending December 31, 2005; (ii) net operating loss carryback claims arising out of the Closing Deductions for any filed Tax Return of the Company to the extent permitted by applicable Law; and (iii) Tax Returns for the period beginning on January 1, 2006 and ending on the Closing Date (the “Stub Period Returns”) (such Tax Returns and claims described in clauses (i-iii) above are collectively referred to as the “Prior Returns”). Except to the extent of the Adjusted Tax Reserve, as defined in Section 11.1 (other than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) and any Estimated Taxes previously paid, the Common Stock Sellers shall pay all Taxes shown as due and owing with respect to such Pre-Closing Tax Returns to the Company no later than two (2) Business Days prior to the due date for filing such returns, giving effect to applicable extensions, and the Company shall file such returns and pay the Taxes due and owing with respect thereto. No election under Treasury Regulation Section 1.1502-76(b)(2)(ii)(D) to ratably allocate income to the Short Period shall be made. The Equity Sellers Representative shall cause to be prepared, and Purchaser shall cause the Company to file, the Prior Returns on a basis consistent with those prepared for prior taxable periods to the extent permitted by applicable Law, and to include the Closing Deductions in the Stub Period Returns to the extent permitted by applicable Law; provided that the amount of the Closing Deductions included shall be subject to the prior written approval of the Purchaser as to their deductibility for income Tax purposes, not to be unreasonably withheld, conditioned or delayed. The Purchaser shall not subsequently claim for its benefit, and will cause the Taxpayers and their Affiliates not claim for their benefit, any Closing Deductions that it does not approve pursuant to the preceding sentence. No election under Section 172(b)(3) of the Code will be made to forego the net operating loss carryback.

          (c) The Purchaser shall cause to be prepared in a manner consistent with past practices (except where otherwise required by applicable Law) and in accordance with Section 11.6 of this Agreement all Tax Returns of the Taxpayers for any Straddle Periods (“Straddle Period Returns”), and shall cause such Tax Returns to be delivered to the Equity Sellers Representative for consent (which consent shall not be unreasonably withheld, conditioned, or delayed), no later than thirty (30) days prior to the due date for filing any such Straddle Period Return (taking into account any applicable extensions of time to file). Except to the extent reflected in the Adjusted Tax Reserve (other than any reserve for deferred Taxes established to reflect timing differences between book and Tax income), no later than two (2) Business Days prior to the due date for the payment of any Taxes with respect to any such Straddle Period Return, the Equity Sellers Representative, on behalf of the Common Stock Sellers, shall pay to the Purchaser an amount equal to the portion of Taxes attributable to the pre-Closing portion of the Straddle Period as determined pursuant to the principles set forth in Section 11.2. The

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Purchaser shall cause such Straddle Period Returns to be timely filed and shall cause to be paid any Taxes payable with respect to such Straddle Period Returns. The Equity Sellers Representative and the Purchaser shall provide each other with any information reasonably necessary to prepare and file complete and accurate Tax Returns.

     11.7 Cooperation. The Equity Sellers Representative and Purchaser shall cooperate as and to the extent reasonably requested by the other party and at the requesting party’s out-of-pocket expenses, in connection with the filing of any Tax Returns for the Taxpayers, the filing of any Tax Returns for the Taxpayers, the filing and prosecution of any Tax claims and any audit, litigation, or other proceeding with respect to Taxes of the Taxpayers. Such cooperation shall include the retention of all books and records relating to the Taxpayers’ Taxes for a period of six (6) years after the Closing and (upon the other party’s request and expense) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.

     11.8 Conflict. To the extent there is any conflict between the provisions of this Article XI and Article X, the provisions of this Article XI shall control.

     11.9 Survival. The covenants and agreements of the parties contained in this Article XI shall survive the Closing and shall remain in full force and effect until such covenant or agreement is fully performed.

     11.10 Successors. For purposes of this Article XI, references to any of the Company, the Sellers, the Equity Sellers Representative, the Purchaser or any Taxpayer shall include successor entities.

ARTICLE XII

MISCELLANEOUS

     12.1 Payment of Sales, Use or Similar Taxes. All sales, use, transfer, intangible, recordation, documentary stamp or similar Taxes or charges, of any nature whatsoever, applicable to, or resulting from, the transactions contemplated by this Agreement shall be borne one-half by Purchaser and one-half by the Sellers as a Transaction Expense when due, and the Sellers will, at their expense, file all necessary Tax Returns and other documentation with respect to all such Taxes. If required by applicable law, the Purchaser will, and will cause its Affiliates to, join in the execution of any such Tax Returns and other documentation.

     12.2 Expenses. Except as otherwise provided in this Agreement, (a) the Purchaser shall bear its own expenses incurred in connection with the negotiation and execution of this Agreement and each other agreement, document and instrument contemplated by this Agreement and the consummation of the transactions contemplated hereby and thereby and (b) the Company shall bear all expenses incurred by the Company, the Sellers and their Affiliates in connection with the negotiation and

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execution of this Agreement and each other agreement, document and instrument contemplated by this Agreement and the consummation of the transactions contemplated hereby and thereby (it being understood and agreed that the Sellers will reimburse the Company for any such expenses not paid as Transaction Expenses and not otherwise accrued as liabilities in Closing Working Capital); provided, however, that the fees and expenses of the Independent Accountant, if any, shall be paid in the manner set forth in Section 3.2(d).

     12.3 Seller Representative and Equity Sellers Representative.

          (a) With respect to all matters other than those reserved for the Equity Sellers Representative under Section 3.2 and Article XI, each Seller hereby irrevocably appoints ACAS (the “Seller Representative”) as such Seller’s representative, attorney-in-fact and agent, with full power of substitution to act in the name, place and stead of such Seller with respect to the transfer of such Seller’s Securities to Purchasers in accordance with the terms and provisions of this Agreement and to act on behalf of such Seller in any amendment of or litigation or arbitration involving this Agreement (other than those arising under Section 3.2 and Article XI), including, without limitation, defending, negotiating, settling or otherwise dealing with claims under Article X hereof, and to do or refrain from doing all such further acts and things, and to execute all such documents, as such Seller Representative shall deem necessary or appropriate in conjunction with any of the transactions contemplated by this Agreement (subject to the foregoing limitation), including, without limitation, the power:

     (i) to take all action necessary or desirable in connection with the waiver of any condition to the obligations of the Sellers to consummate the transactions contemplated by this Agreement;

     (ii) to negotiate, execute and deliver all ancillary agreements, statements, certificates, notices, approvals, extensions, waivers, undertakings, amendments and other documents required or permitted to be given in connection with the consummation of the transactions contemplated by this Agreement (it being understood that such Seller shall execute and deliver any such documents which the Seller Representative agrees to execute);

     (iii) to give and receive all notices and communications to be given or received under this Agreement and the transactions contemplated hereby and to receive service of process in connection with the any claims (other than those arising under Section 3.2 and Article XI) under this Agreement and the transactions contemplated hereby; and

     (iv) to take all actions which under this Agreement and the transactions contemplated hereby may be taken by the Sellers and to do or refrain from doing any further act or deed on behalf of the Sellers which the Seller Representative deems necessary or appropriate in its sole discretion relating to the subject matter of this Agreement and the transactions contemplated hereby as fully and completely as such Seller could do if personally present.

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          (b) With respect to all matters reserved for the Equity Sellers Representative under Section 3.2 and Article XI, each Equity Seller hereby irrevocably appoints William T. Blackerby, Jr. (the “Equity Sellers Representative”) as such Equity Seller’s representative, attorney-in-fact and agent, with full power of substitution to act on behalf of such Equity Seller in litigation or arbitration involving this Agreement (limited to those matters arising under Section 3.2 and Article XI), including, without limitation, defending, negotiating, settling or otherwise dealing with claims under Article XI hereof, and to do or refrain from doing all such further acts and things, and to execute all such documents, as such Equity Sellers Representative shall deem necessary or appropriate in conjunction with any of the transactions contemplated by this Agreement (subject to the foregoing limitation), including, without limitation, the power:

     (i) to give and receive all notices and communications to be given or received under this Agreement and the transactions contemplated hereby and to receive service of process in connection with the any claims (limited to those arising under Section 3.2 and Article XI) under this Agreement and the transactions contemplated hereby; and

     (ii) to take all actions which under this Agreement and the transactions contemplated hereby may be taken by the Equity Sellers and to do or refrain from doing any further act or deed on behalf of the Equity Sellers which the Equity Sellers Representative deems necessary or appropriate in its sole discretion relating to the subject matter of this Agreement and the transactions contemplated hereby as fully and completely as such Equity Seller could do if personally present.

          (c) Neither the Seller Representative nor the Equity Sellers Representative shall be liable to the Sellers for any act taken or omitted by it as permitted under this Agreement and the transactions contemplated hereby, except if such act is taken or omitted in bad faith or by willful misconduct. Both the Seller Representative and the Equity Sellers Representative shall also be fully protected against the Sellers in relying upon any written notice, demand, certificate or document that it in good faith believes to be genuine (including facsimiles thereof).

          (d) Until the amount of Losses in accordance with Section X exceeds the ACAS Cap, the Primary Indemnitors agree, severally but not jointly, in accordance with their respective Indemnification Percentage, to indemnify the Seller Representative, and Theodore V. Swaldo and William T. Blackerby Jr. agree, jointly and severally, to indemnify (i) the Equity Sellers Representative and (ii) after the amount of Losses under Section X exceeds the ACAS Cap, the Seller Representative for, and to hold each of the Seller Representative and the Equity Sellers Representative harmless against, any loss, liability or expense incurred without willful misconduct or bad faith on the part of the Seller Representative or the Equity Sellers Representative, arising out of or in connection with the Seller Representative’s or the Equity Sellers Representative’s carrying out its duties under this Agreement and the transactions contemplated hereby, including costs and expenses of successfully defending Seller Representative and Equity Sellers Representative against any claim of liability with respect thereto. The Seller

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Representative and the Equity Sellers Representative may consult with counsel of its own choice and will have full and complete authorization and protection for any action taken and suffered by it in good faith and in accordance with the opinion of such counsel.

          (e) If ACAS becomes unable to serve as Seller Representative, or William T. Blackerby, Jr. becomes unable to serve as Equity Sellers Representative, such other Person or Persons as may be designated by a majority of the Sellers, based on each Seller’s Pro Rata Share, shall succeed as the Seller Representative or Equity Sellers Representative, as the case may be. If ACAS’s liability for Losses shall have reached the ACAS Cap, then ACAS shall resign as Seller Representative and the Equity Sellers Representative shall also become the Seller Representative.

     12.4 Submission to Jurisdiction; Consent to Service of Process.

          (a) The parties hereto hereby irrevocably submit to the jurisdiction of any federal or state court located within the borough of Manhattan of the City, County and State of New York over any dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby and each party hereby irrevocably agrees that all claims in respect of such dispute or any suit, action proceeding related thereto may be heard and determined in such courts. The parties hereby irrevocably waive, to the fullest extent permitted by applicable Law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.

          (b) Each of the parties hereto hereby consents to process being served by any party to this Agreement in any suit, action or proceeding by the delivery of a copy thereof in accordance with the provisions of Section 12.7.

     12.5 Entire Agreement; Amendments and Waivers. This Agreement (including the schedules and exhibits hereto), the Company Confidentiality Agreement and the Purchaser Confidentiality Agreement and each other agreement being entered into among the parties in writing substantially concurrently herewith represent the entire understanding and agreement between the parties hereto with respect to the subject matter hereof and thereof. This Agreement can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this Agreement signed by the party against whom enforcement of any such amendment, supplement, modification or waiver is sought. No action taken pursuant to this Agreement, including any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach. No failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial

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exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

     12.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and performed in such State without giving effect to the choice of law principles of such state that would require or permit the application of the laws of another jurisdiction.

     12.7 Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed given (i) when delivered personally by hand (with written confirmation of receipt), (ii) when sent by facsimile (with written confirmation of transmission) or (iii) one business day following the day sent by overnight courier (with written confirmation of receipt), in each case at the following addresses and facsimile numbers (or to such other address or facsimile number as a party may have specified by notice given to the other party pursuant to this provision):

If to any Seller, to:

American Capital Strategies, Ltd., as Seller Representative

461 Fifth Avenue
25th Floor
New York, NY 10017
Attn:   Todd Wilson
Facsimile:   (212) 213-2060

William T. Blackerby, Jr., as Equity Sellers Representative
6902 Victoria Court Street
Canton, OH 44718

With a copy (which shall not constitute notice) to:

American Capital Strategies, Ltd.
2 Bethesda Metro Center
14th Floor
Bethesda, MD 20814
Attn:   Compliance Officer
Telecopier:   (301) 654-6714

With a copy (which shall not constitute notice) to:

Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attn:   Christopher Aidun, Esq.
Facsimile:   (212) 310-8007

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With a copy (which shall not constitute notice) to:

Calfee, Halter & Griswold LLP
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, OH 44114-2688
Attn: Robert Ross, Esq.
Facsimile: (216) 622-8454

If to Purchaser, to:

United Components, Inc.
Highway 41 North
Evansville, IN 47725
Attn:   Keith Zar, General Counsel
Facsimile:   (812) 867-4157

With copies to:

The Carlyle Group
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, DC 20004
Attn:   Ian Fujiyama
Facsimile:   (202) 347-1818

and:

Latham & Watkins LLP
555 11th Street, N.W.
Suite 1000
Washington, DC 20004
Attn:   David S. Dantzic, Esq.
Facsimile:   (202) 637-2201

     12.8 Severability. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any law or public policy, all other terms or provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.

     12.9 No Conflict. Purchasers and the Company (on behalf of itself and its Subsidiaries) agree that, notwithstanding any current or prior representation of the

86

Company and the Subsidiaries by Weil, Gotshal & Manges LLP (“WGM”) or Calfee, Halter & Griswold, LLP (“CHG”), WGM and/or CHG shall be allowed to represent any Seller, the Seller Representative, the Equity Sellers Representative or any of their Affiliates in any matters and disputes (or any other matter), including in any matter or dispute adverse to Purchasers, the Company or any Subsidiary that either is existing on the date hereof or that arises in the future and relates to this Agreement and the transactions contemplated hereby and Purchasers and the Company (on behalf of itself and the Subsidiaries) hereby waive any claim they have or may have that WGM or CHG has a conflict of interest or is otherwise prohibited from engaging in such representation.

     12.10 Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any person or entity not a party to this Agreement except as provided below. No assignment of this Agreement or of any rights or obligations hereunder may be made by either the Sellers or Purchaser, directly or indirectly (by operation of law or otherwise), without the prior written consent of the other parties hereto and any attempted assignment without the required consents shall be void; provided, however, that nothing herein shall prevent Purchaser from granting a Lien (for customary collateral purposes) on this Agreement to its lenders providing the financing contemplated pursuant to the Debt Commitment Letter. No assignment of any obligations hereunder shall relieve the parties hereto of any such obligations. Upon any such permitted assignment, the references in this Agreement to Purchaser shall also apply to any such assignee unless the context otherwise requires.

     12.11 Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.

     12.12 Termination of Agreements.

          (a) Effective upon the Closing, each of the Company and the Sellers agree that the Seller Stockholders Agreement shall be terminated in its entirety and no party thereto shall have any further rights, duties, liabilities or obligations of any nature whatsoever with respect to, in connection with or otherwise arising under the Seller Stockholders Agreement. With respect to the transactions contemplated by this Agreement, each of the Company and the Sellers hereby waives compliance with the Seller Stockholders Agreement (including with respect to notice), to the extent that any section would require any action or notice on the part of the Company or the Sellers on or prior to the Closing Date.

          (b) Effective upon the Closing, each of the Company and ACAS agree that the Letter Agreement and the ACAS Management Agreement shall be terminated in its entirety and no party thereto shall have any further rights, duties, liabilities or obligations of any nature whatsoever with respect to, in connection with or otherwise arising under the Letter Agreement.

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     12.13 Specific Performance. The Sellers agree that the Company Common Stock represents unique property that cannot be readily obtained on the open market and that the Purchaser would be irreparably injured if this Agreement is not specifically enforced after default. Therefore, the Purchaser shall have the right to specifically enforce the Sellers’ and the Company’s performance of their obligations under this Agreement, and the Sellers and the Company agree to waive the defense in any such suit that the Purchaser has an adequate remedy at law and to interpose no opposition, legal or otherwise, as to the propriety of specific performance as a remedy, and that the Purchaser shall have the right to obtain specific performance of the terms of this Agreement without being required to prove actual damages, post bond or furnish other security. In addition, the Purchaser shall be entitled to obtain from any Seller or the Company against whom specific performance is granted, court costs and reasonable attorneys’ fees incurred by the Purchaser in enforcing its rights hereunder. As a condition to seeking specific performance, the Purchaser shall not be required to have tendered the Purchase Price but shall be ready, willing and able to do so.

** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective authorized officers, as of the date first written above.

UNITED COMPONENTS, INC.
By:
	Name:
	Title:
ACAS ACQUISITIONS (ASC), INC.
By:
	Name:
	Title:
SELLERS:
AMERICAN CAPITAL STRATEGIES, LTD.
By:
	Name:
	Title:
Linda Swaldo
William T. Blackerby, Jr.
Christina Blackerby
Scott Swaldo

EXHIBIT A

Seller Information and Indemnification Percentage

Seller	Total		Rollover		Cancelled		Pro Rata			Indemnification
	Shares		Amount		Options		Share			Percentage
					Vested
Common Stock Sellers
Linda Swaldo		131,000	$	8,000,000				81.237	%		N/A
William T. Blackerby, Jr.		15,000	$	300,000				9.300	%	see below
Christina Blackerby		2,000						1.240	%		N/A
Scott Swaldo		2,000				1,186		1.975	%		N/A
Option Holders
Ying Hua Li						1,186		0.735	%		N/A
Tao Ain						1,186		0.735	%		N/A
Jeff Sandt						1,186		0.735	%		N/A
Geoff Doke						1,186		0.735	%		N/A
Dave Tate						1,186		0.735	%		N/A
Chris Johnson						1,186		0.735	%		N/A
Song De Shi						1,186		0.735	%		N/A
William Thomas						1,186		0.735	%		N/A
Al Barry						593		0.368	%		N/A
Primary Indemnitors
Linda Swaldo											60.03	%
William T. Blackerby, Jr.											6.67	%
ACAS											33.30	%

* Both a Common Stock Seller and an Option Holder.

EX-2.1

exv2w1

EX-21.1

Exhibit 21.1

List of Subsidiaries

	State or Country of
Name	Organization
Airtex Industries, LLC	Delaware
Airtex Mfg., Inc. (f/k/a Airtex Products, Inc.)	Illinois
Airtex Products Ltd.	United Kingdom
Airtex Products, LP	Delaware
Airtex Products S.A.	Spain
Automotive Accessory Co. Ltd.	Manitoba, Canada
Brummer Mexicana en Puebla, S.A. de C.V.	Mexico
Brummer Seal de Mexico, S.A. de C.V.	Mexico
Champion Laboratories, Inc.	Delaware
Chefford Master Manufacturing Co., Inc.	Illinois
Eurofilter (Air Filters) Limited	United Kingdom
Eurofilter ECS Limited	United Kingdom
Eurofilter SARL	France
Eurosofiltra SARL	France
Filtros Champion Laboratories, S. de R.I. de C.V.	Mexico
Filtros Champion Sales de Mexico, S. de R.I. de C.V.	Mexico
Flexible Lamps Ltd.	United Kingdom
Flexible Lamps France SARL	France
Fuel Filter Technologies, Inc.	Michigan
G. Weil Limited	United Kingdom
International Development Company, S. de R.I. de C.V.	Mexico
Neapco Inc.	Pennsylvania
Pee Cee Manufacturing Co., Inc.	Illinois
Pioneer, Inc.	Mississippi
Rubbolite Industries Limited	United Kingdom
Talleres Mecanicos Montserrat, S.A. de C.V.	Mexico
T.H. Quinton Limited	United Kingdom
UCI-Airtex Holdings, Inc.	Delaware
UCI Investments, L.L.C	Delaware
UIS Industries, Ltd.	United Kingdom
Wells Manufacturera de Mexico, S.A. de C.V.	Mexico
Wells Manufacturing Canada Limited	Ontario, Canada
Wells Manufacturing Corp.	Wisconsin

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Bruce M. Zorich, Chief Executive Officer of United Components, Inc. certify that:

1.	I have reviewed this annual report on Form 10-K of United Components, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2006
	By:	/s/ Bruce M. Zorich
		Name: Bruce M. Zorich
		Title: Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Charles T. Dickson, Chief Financial Officer of United Components, Inc. certify that:

1.	I have reviewed this annual report on Form 10-K of United Components, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2006
	By:	/s/ Charles T. Dickson
		Name: Charles T. Dickson
		Title: Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF PERIODIC REPORT

The undersigned officers of United Components, Inc. hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to their knowledge,

1.	the annual report on Form 10-K of United Components, Inc. for the period ended December 31, 2005 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
2.	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of United Components, Inc.

Date: March 31, 2006
	By:	/s/ Bruce M. Zorich
		Name: Bruce M. Zorich
		Title: Chief Executive Officer
Date: March 31, 2006
	By:	/s/ Charles T. Dickson
		Name: Charles T. Dickson
		Title: Chief Financial Officer

     The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. §. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

     A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.