<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10/A NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
HUSSMANN INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 43-1791715
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
12999 ST. CHARLES ROCK ROAD
BRIDGETON, MISSOURI 63044
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (314) 291-2000
Securities to be registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- ---------------------------------------- --------------------------------------
Common Stock, $.001 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities to be registered pursuant to Section 12(g) of the Act: None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
HUSSMANN INTERNATIONAL, INC.
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED BY REFERENCE INTO FORM 10
Certain information required to be included herein is incorporated by
reference to specifically identified portions of the body of the Information
Statement filed herewith as Exhibit 99 (the "Information Statement") or portions
of Annex B to the Information Statement ("Annex B"). None of the information
contained in the Information Statement (including the Annexes thereto) shall be
incorporated by reference herein or deemed to be a part hereof unless such
information is specifically incorporated by reference.
ITEM 1. BUSINESS
The information required by this Item is contained in the body of the
Information Statement under the caption "Summary -- Hussmann" and in Annex B
under the caption "Business," and such information is incorporated herein by
reference.
ITEM 2. FINANCIAL INFORMATION
The information required by this Item is contained in Annex B under the
captions "Hussmann International Summary of Operations" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
such information is incorporated herein by reference.
ITEM 3. PROPERTIES
The information required by this Item is contained in Annex B under the
caption "Properties" and such information is incorporated herein by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is contained in the body of the
Information Statement under the caption "Principal Shareholders of Each Company"
and in Annex B under the caption "Management -- Ownership of Hussmann Common
Stock by Management," and such information is incorporated herein by reference.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this Item is contained in Annex B under the
captions "Management -- Directors" and "Management -- Executive Officers," and
such information is incorporated herein by reference.
ITEM 6. EXECUTIVE COMPENSATION
The information required by this Item is contained in Annex B under the
captions "Management -- Compensation of Directors" and "Management --
Compensation of Executive Officers," and such information is incorporated herein
by reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is contained in the body of the
Information Statement under the caption "Arrangements Between Whitman and Each
of the Companies Relating to the Distribution," and in Annex B, under the
captions "Financing" and "Hussmann International Pro Forma Combined Financial
Information" and in Note 3 to the "Notes to Combined Financial Statements," and
such information is incorporated herein by reference.
ITEM 8. LEGAL PROCEEDINGS
The information required by this Item is contained in Annex B under the
caption "Business -- Regulatory Compliance and Legal Proceedings," and such
information is incorporated herein by reference.
2
<PAGE>
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The information required by this Item is contained in the body of the
Information Statement under the caption "The Distribution -- Listing and Trading
of the Common Stock of the Companies" and in Annex B under the caption
"Post-Distribution Dividend Policy," and such information is incorporated herein
by reference.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
On September 2, 1997, the Registrant sold 1,000 shares of its Common Stock
to Whitman Corporation for $1,000 in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended, by reason of the
provisions of Section 4(2) thereof relating to sales by an issuer not involving
any public offering.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The information required by this Item is contained in the body of the
Information Statement under the captions "Description of Capital Stock of the
Companies" and "Certain Antitakeover Effects of Certain Charter and By-Law
Provisions, the Rights and Delaware Law," and such information is incorporated
herein by reference.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The information required by this Item is contained in the body of the
Information Statement under the caption "Liability and Indemnification of
Directors and Officers," and such information is incorporated herein by
reference.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is contained in Annex B under the
caption "Hussmann International Pro Forma Combined Financial Information" and in
the financial information listed on the Index to Hussmann Historical Financial
Information appearing in Annex B on page B-28 and such information is
incorporated herein by reference.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. The following financial statements are filed as a
part of this Registration Statement: (i) Pro Forma Combined Statements of Income
for the six months ended June 30, 1997 and for the year ended December 31, 1996;
(ii) Pro Forma Balance Sheet as of June 30, 1997; (iii) Combined Statements of
Income for the years ended December 31, 1996, 1995 and 1994 and for the six
months ended June 30, 1997 and 1996; (iv) Combined Balance Sheets as of December
31, 1996 and 1995 and as of June 30, 1997; and (v) Combined Statements of Cash
Flows for the years ended December 31, 1996, 1995 and 1994 and for the six
months ended June 30, 1997 and 1996.
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<S> <C>
3(i)* Certificate of Incorporation
3(ii)* By-Laws
4 Form of Rights Agreement between the Registrant and First Chicago Trust
Company of New York, as Rights Agent
10.1 Form of Distribution and Indemnity Agreement by and among Whitman
Corporation, the Registrant and Hussmann Corporation
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<S> <C>
10.2 Form of Tax Sharing Agreement among the Registrant, Hussmann Corporation
and Whitman Corporation
10.3** Form of Revolving Credit Facility
10.4 Form of Stock Incentive Plan
10.5 Form of Change in Control Agreement
21** Subsidiaries of the Registrant
27** Financial Data Schedule
99 Information Statement
</TABLE>
- ------------------------
*Previously filed.
**To be filed by amendment.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereto duly authorized.
HUSSMANN INTERNATIONAL, INC.
<TABLE>
<S> <C> <C>
By: MICHAEL D. NEWMAN
------------------------------------------
Michael D. Newman
SENIOR VICE PRESIDENT-CHIEF FINANCIAL
OFFICER AND TREASURER
</TABLE>
Date: November 13, 1997
5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<S> <C>
3(i)* Certificate of Incorporation
3(ii)* By-Laws
4 Form of Rights Agreement between the Registrant and First Chicago Trust
Company of New York, as Rights Agent
10.1 Form of Distribution and Indemnity Agreement by and among Whitman
Corporation, the Registrant and Hussmann Corporation
10.2 Form of Tax Sharing Agreement among the Registrant, Hussmann Corporation
and Whitman Corporation
10.3** Form of Revolving Credit Facility
10.4 Form of Stock Incentive Plan
10.5 Form of Change in Control Agreement
21** Subsidiaries of the Registrant
27** Financial Data Schedule
99 Information Statement
</TABLE>
- ------------------------
*Previously filed.
**To be filed by amendment.
<PAGE>
Exhibit 4
- ------------------------------------------------------------------------------
HUSSMANN INTERNATIONAL, INC.
and
FIRST CHICAGO TRUST COMPANY OF NEW YORK
Rights Agent
-----------------------
Rights Agreement
Dated as of _____________, 1997
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
SECTION PAGE
- ------- ----
Section 1. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Appointment of Rights Agent. . . . . . . . . . . . . . . . . . 5
Section 3. Issue of Rights Certificates . . . . . . . . . . . . . . . . . 6
Section 4. Form of Rights Certificates. . . . . . . . . . . . . . . . . . 8
Section 5. Countersignature and Registration. . . . . . . . . . . . . . . 9
Section 6. Transfer, Split Up, Combination and
Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen
Rights Certificates. . . . . . . . . . . . . . . . . . . . . .10
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.11
Section 8. Cancellation and Destruction of Rights Certificates. . . . . .13
Section 9. Reservation and Availability of Capital
Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Section 10. Preferred Stock Record Date. . . . . . . . . . . . . . . . . .16
Section 11. Adjustment of Purchase Price, Number
and Kind of Shares or Number of Rights . . . . . . . . . . . .16
Section 12. Certificate of Adjusted Purchase
Price or Number of Shares. . . . . . . . . . . . . . . . . . .27
Section 13. Consolidation, Merger or Sale or
Transfer of Assets or Earning Power. . . . . . . . . . . . . .28
Section 14. Fractional Rights and Fractional Shares. . . . . . . . . . . .31
Section 15. Rights of Action . . . . . . . . . . . . . . . . . . . . . . .32
Section 16. Agreement of Rights Holders. . . . . . . . . . . . . . . . . .33
Section 17. Rights Certificate Holder Not Deemed a Stockholder . . . . . .34
Section 18. Concerning the Rights Agent. . . . . . . . . . . . . . . . . .34
Section 19. Merger or Consolidation or Change of
Name of Rights Agent . . . . . . . . . . . . . . . . . . . . .34
Section 20. Duties of Rights Agent . . . . . . . . . . . . . . . . . . . .35
Section 21. Change of Rights Agent . . . . . . . . . . . . . . . . . . . .38
Section 22. Issuance of New Rights Certificates. . . . . . . . . . . . . .39
Section 23. Redemption and Termination . . . . . . . . . . . . . . . . . .40
Section 24. Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Section 25. Notice of Certain Events . . . . . . . . . . . . . . . . . . .42
Section 26. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Section 27. Supplements and Amendments . . . . . . . . . . . . . . . . . .44
Section 28. Successors . . . . . . . . . . . . . . . . . . . . . . . . . .45
Section 29. Determination and Actions by the
Board of Directors, etc. . . . . . . . . . . . . . . . . . . .45
Section 30. Benefits of this Agreement . . . . . . . . . . . . . . . . . .45
Section 31. Severability . . . . . . . . . . . . . . . . . . . . . . . . .45
-i-
<PAGE>
SECTION PAGE
- ------- ----
Section 32. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . .46
Section 33. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . .46
Section 34. Descriptive Headings . . . . . . . . . . . . . . . . . . . . .46
Section 35. Book-Entry Account Statements. . . . . . . . . . . . . . . . .46
-ii-
<PAGE>
RIGHTS AGREEMENT
----------------
RIGHTS AGREEMENT, dated as of ____________, 1997 (the "Agreement"),
between Hussmann International, Inc., a Delaware corporation (the "Company"),
and First Chicago Trust Company of New York, a New York corporation (the "Rights
Agent").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, on ____________, 1997 (the "Rights Dividend Declaration
Date"), the Board of Directors of the Company authorized and declared a dividend
distribution of one Right (as hereinafter defined) for each share of Common
Stock (as hereinafter defined) of the Company outstanding at the close of
business on ____________, 1997, after giving effect to the distribution of
shares of Common Stock (the "Spin-off") by Whitman Corporation to its
stockholders (the "Record Date"), each Right initially representing the right to
purchase one one-hundredth of a share of Series A Junior Participating Preferred
Stock of the Company having the rights, powers and preferences set forth in the
form of Certificate of Designation attached hereto as Exhibit A, upon the terms
and subject to the conditions hereinafter set forth (the "Rights"), and has
further authorized the issuance of one Right (as such number may hereinafter be
adjusted pursuant to the provisions of Section 11(p) hereof) for each share of
Common Stock of the Company issued between the Record Date and the Distribution
Date (as hereinafter defined);
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be
the Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding, but shall not include the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary
of the Company, or any Person organized, appointed or established by
the Company for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall become
<PAGE>
an "Acquiring Person" as the result of an acquisition of shares of Common
Stock by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially
owned by such Person to 15% or more of the shares of Common Stock then
outstanding; PROVIDED, HOWEVER, that if a Person shall become the
Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding by reason of share purchases by the Company and shall, after
such share purchases by the Company, become the Beneficial Owner of any
additional shares of Common Stock, then such Person shall be deemed to
be an "Acquiring Person". Notwithstanding the foregoing, if the Board
of Directors of the Company determines in good faith that a Person who
would otherwise be an "Acquiring Person" (as defined pursuant to the
foregoing provisions of this paragraph (a)) has become such
inadvertently, and such Person divests as promptly as practicable a
sufficient number of shares of Common Stock so that such Person would no
longer be an "Acquiring Person" (as defined pursuant to the foregoing
provisions of this paragraph (a)), then such Person shall not be deemed
to be an "Acquiring Person" for any purposes of this Agreement.
(b) "Act" shall mean the Securities Act of 1933, as amended.
(c) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended and
in effect on the date of this Agreement (the "Exchange Act").
(d) A Person shall be deemed the "Beneficial Owner" of, and
shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the right
to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement
or understanding (whether or not in writing) or upon the exercise
of conversion rights, exchange rights, rights, warrants or
options, or otherwise; PROVIDED, HOWEVER, that a Person shall not
be deemed the "Beneficial Owner"
-2-
<PAGE>
of, or to "beneficially own," (A) securities tendered pursuant to a
tender or exchange offer made by such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange, or (B) securities issuable upon exercise of Rights
at any time prior to the occurrence of a Triggering Event, or (C)
securities issuable upon exercise of Rights from and after the
occurrence of a Triggering Event which Rights were acquired by such
Person or any such Person's Affiliates or Associates prior to the
Distribution Date or pursuant to Section 3(a) or Section 22 hereof (the
"Original Rights") or pursuant to Section 11(i) hereof in connection
with an adjustment made with respect to any Original Rights;
(ii) which such Person or any of such Person's Affiliates
or Associates, directly or indirectly, has the right to vote or
dispose of or has "beneficial ownership" of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under
the Exchange Act), including pursuant to any agreement,
arrangement or understanding, whether or not in writing;
PROVIDED, HOWEVER, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such security if such
agreement, arrangement or understanding: (A) arises solely from
a revocable proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the
applicable provisions of the General Rules and Regulations under
the Exchange Act, and (B) is not also then reportable by such
Person on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person (or any Affiliate or Associate thereof) with
which such Person (or any of such Person's Affiliates or
Associates) has any agreement, arrangement or understanding
(whether or not in writing), for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy as
described in the proviso to subparagraph (ii) of this paragraph
-3-
<PAGE>
(d)) or disposing of any voting securities of the Company;
PROVIDED, HOWEVER, that nothing in this paragraph (d) shall cause a
Person engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities
acquired through such Person's participation in good faith in a firm
commitment underwriting until the expiration of forty days after the
date of such acquisition.
(e) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of
Missouri are authorized or obligated by law or executive order to
close.
(f) "close of business" on any given date shall mean 5:00 P.M.,
St. Louis time, on such date, PROVIDED, HOWEVER, that if such date is
not a Business Day it shall mean 5:00 P.M., St. Louis time, on the next
succeeding Business Day.
(g) "Common Stock" shall mean the common stock, par value $.001
per share, of the Company, except that "Common Stock" when used with
reference to any Person other than the Company shall mean the capital
stock of such Person with the greatest voting power, or the equity
securities or other equity interest having power to control or direct
the management, of such Person.
(h) "Person" shall mean any individual, firm, limited liability
company, corporation, partnership or other entity.
(i) "Preferred Stock" shall mean shares of Series A Junior
Participating Preferred Stock, par value $.001 per share, of the
Company, and, to the extent that there is not a sufficient number of
shares of Series A Junior Participating Preferred Stock authorized to
permit the full exercise of the Rights, any other series of preferred
stock, par value $.001 per share, of the Company designated for such
purpose containing terms substantially similar to the terms of the
Series A Junior Participating Preferred Stock.
(j) "Section 11(a)(ii) Event" shall mean the event described in
Section 11(a)(ii) hereof.
-4-
<PAGE>
(k) "Section 13 Event" shall mean any event described in clauses
(x), (y) or (z) of Section 13(a) hereof.
(l) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the
Exchange Act) by the Company or an Acquiring Person that an Acquiring
Person has become such.
(m) "Subsidiary" shall mean, with reference to any Person, any
corporation of which an amount of voting securities sufficient to
elect at least a majority of the directors of such corporation is
beneficially owned, directly or indirectly, by such Person, or
otherwise controlled by such Person.
(n) "Triggering Event" shall mean any Section 11(a)(ii) Event or
any Section 13 Event.
In addition, for purposes of this Agreement, the following terms
have the meanings indicated in specified sections of this Agreement: (i)
"Adjustment Shares" shall have the meaning set forth in Section 11(a)(ii)
hereof; (ii) "common stock equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof; (iii) "current market price" shall have the
meaning set forth in Section 11(d) hereof; (iv) "Current Value" shall have
the meaning set forth in Section 11(a)(iii) hereof; (v) "Distribution Date"
shall have the meaning set forth in Section 3(a) hereof; (vi) "equivalent
preferred stock" shall have the meaning set forth in Section 11(b) hereof;
(vii) "Exchange Ratio" shall have the meaning set forth in Section 24(a)
hereof; (viii) "Expiration Date" shall have the meaning set forth in Section
7(a) hereof; (ix) "Final Expiration Date" shall have the meaning set forth in
Section 7(a) hereof; (x) "NASDAQ" shall have the meaning set forth in Section
11(d)(i) hereof; (xi) "Principal Party" shall have the meaning set forth in
Section 13(b) hereof; (xii) "Purchase Price" shall have the meaning set forth
in Section 4(a) hereof; (xiii) "Record Date" shall have the meaning set forth
in the recitals hereof; (xiv) "Redemption Price" shall have the meaning set
forth in Section 23(a) hereof; (xv) "Rights" shall have the meaning set forth
in the recitals hereof; (xvi) "Rights Certificates" shall have the meaning
set forth in Section 3(a) hereof; (xvii) "Section 11(a)(ii) Trigger Date"
shall have the meaning set forth in Section 11(a)(iii) hereof; (xviii)
"Spread" shall have the meaning set forth in Section 11(a)(iii) hereof; (xix)
"Substitution Period" shall have the meaning set forth in Section 11(a)(iii)
hereof; (xx) "Summary
-5-
<PAGE>
of Rights" shall have the meaning set forth in Section 3(b) hereof; and (xxi)
"Trading Day" shall have the meaning set forth in Section 11(d)(i) hereof.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of
the Rights (who, in accordance with Section 3 hereof, shall, prior to the
Distribution Date, also be the holders of the Common Stock) in accordance
with the terms and conditions hereof, and the Rights Agent hereby accepts
such appointment. The Company may from time to time appoint such co-Rights
Agents as it may deem necessary or desirable.
Section 3. ISSUE OF RIGHTS CERTIFICATES.
(a) Until the earlier of (i) the close of business on the tenth day
after the Stock Acquisition Date (or, if the tenth day after the Stock
Acquisition Date occurs before the Record Date, the close of business on the
Record Date), or (ii) the close of business on the tenth Business Day (or
such later date as may be determined by action of the Board of Directors of
the Company prior to such time as any Person becomes an Acquiring Person)
after the date that a tender or exchange offer by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any Person organized,
appointed or established by the Company for or pursuant to the terms of any
such plan) is first published or sent or given within the meaning of Rule
14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon
consummation thereof, such Person would be the Beneficial Owner of 15% or
more of the shares of Common Stock then outstanding (the earlier of (i) and
(ii) being herein referred to as the "Distribution Date"), (x) the Rights
will be evidenced (subject to the provisions of paragraph (b) of this Section
3) by the certificates for the Common Stock registered in the names of the
holders of the Common Stock (which certificates for Common Stock shall be
deemed also to be certificates for Rights) and not by separate certificates
and (y) the Rights will be transferable only in connection with the transfer
of the underlying shares of Common Stock (including a transfer to the
Company). As soon as practicable after the Distribution Date, the Rights
Agent will send by first-class, insured, postage prepaid mail, to each record
holder of the Common Stock as of the close of business on the Distribution
Date, at the address of such holder shown on the records of the Company, one
or more Rights certificates, in substantially the form of Exhibit B hereto
(the "Rights Certificates"), evidencing one Right for each share of Common
Stock so held, subject to adjustment as provided herein. In the event that an
adjustment in the number of Rights per share of
-6-
<PAGE>
Common Stock has been made pursuant to Section 11(p) hereof, at the time of
distribution of the Rights Certificates, the Company shall make the necessary
and appropriate rounding adjustments (in accordance with Section 14(a)
hereof) so that Rights Certificates representing only whole numbers of Rights
are distributed and cash is paid in lieu of any fractional Rights. As of and
after the Distribution Date, the Rights will be evidenced solely by such
Rights Certificates.
(b) As promptly as practicable following the Record Date, the
Company will send a copy of a Summary of Rights to Purchase Preferred Stock,
in substantially the form attached hereto as Exhibit C (the "Summary of
Rights"), by first-class, postage prepaid mail, to each record holder of the
Common Stock as of the close of business on the Record Date, at the address
of such holder shown on the records of the Company. With respect to
certificates for the Common Stock outstanding as of the Record Date, until
the Distribution Date, the Rights will be evidenced by such certificates
registered in the names of the holders thereof together with a copy of the
Summary of Rights attached thereto. Until the earlier of the Distribution
Date or the Expiration Date (as such term is defined in Section 7(a) hereof),
the surrender for transfer of any certificate representing shares of Common
Stock in respect of which Rights have been issued, with or without a copy of
the Summary of Rights attached thereto, shall also constitute the transfer of
the Rights associated with such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of Common Stock
which are issued (whether originally issued or from the Company's treasury)
after the Record Date but prior to the earlier of the Distribution Date or
the Expiration Date or, in certain circumstances provided in Section 22
hereof, after the Distribution Date. Certificates representing such shares
of Common Stock shall also be deemed to be certificates for Rights, and shall
bear a legend substantially in the following form:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in the Rights Agreement between Hussmann
International, Inc.(the "Company") and First Chicago Trust Company of
New York (the "Rights Agent") dated as of ____________, 1997 (the
"Rights Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal offices
of the Company. Under certain circumstances, as set forth in the
Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. The
Company will
-7-
<PAGE>
mail to the holder of this certificate a copy of the Rights Agreement,
as in effect on the date of mailing, without charge promptly after
receipt of a written request therefor. Under certain circumstances set
forth in the Rights Agreement, Rights issued to, or held by, any Person
who is, was or becomes an Acquiring Person or any Affiliate or Associate
thereof (as such terms are defined in the Rights Agreement), may become
null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the
surrender for transfer of any of such certificates shall also constitute the
transfer of the Rights associated with the Common Stock represented by such
certificates.
Section 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to purchase
and of assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such
marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required
to comply with any applicable law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on
which the Rights may from time to time be listed, or to conform to usage.
Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates, whenever distributed, shall be dated as of the Record Date and
on their face shall entitle the holders thereof to purchase such number of
one one-hundredths of a share of Preferred Stock as shall be set forth
therein at the price set forth therein (such exercise price per one
one-hundredth of a share, the "Purchase Price"), but the amount and type of
securities purchasable upon the exercise of each Right and the Purchase Price
thereof shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by any Person
known to be: (i) an Acquiring Person or any Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate)
-8-
<PAGE>
who becomes a transferee after the Acquiring Person becomes such, or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person
becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of
Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect avoidance of Section
7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or
Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Rights Certificate referred to in this sentence, shall contain (to the
extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person
or an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights
Certificate and the Rights represented hereby may become null and void
in the circumstances specified in Section 7(e) of such Agreement.
Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman, its President or any Vice President, either manually
or by facsimile signature, and shall have affixed thereto the Company's seal
or a facsimile thereof which shall be attested by the Secretary or an
Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be countersigned manually or by
facsimile signature by the Rights Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who
shall have signed any of the Rights Certificates shall cease to be such
officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Rights Certificates, nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the
Company with the same force and effect as though the person who signed such
Rights Certificates had not ceased to be such officer of the Company; and any
Rights Certificates may be signed on behalf of the Company by any person who,
at the actual date of the execution of such Rights Certificate, shall be a
proper officer of the Company to sign such Rights Certificate,
-9-
<PAGE>
although at the date of the execution of this Rights Agreement any such
person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates
issued hereunder. Such books shall show the names and addresses of the
respective holders of the Rights Certificates, the number of Rights evidenced
on its face by each of the Rights Certificates and the certificate number and
the date of each of the Rights Certificates.
Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES. (a)
Subject to the provisions of Section 4(b), Section 7(e) and Section 14
hereof, at any time after the close of business on the Distribution Date, and
at or prior to the close of business on the Expiration Date, any Rights
Certificate or Certificates (other than Rights Certificates representing
Rights that have been exchanged pursuant to Section 24 hereof) may be
transferred, split up, combined or exchanged for another Rights Certificate
or Certificates, entitling the registered holder to purchase a like number of
one one-hundredths of a share of Preferred Stock (or, following a Triggering
Event, Common Stock, other securities, cash or other assets, as the case may
be) as the Rights Certificate or Certificates surrendered then entitled such
holder (or former holder in the case of a transfer) to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any
Rights Certificate or Certificates shall make such request in writing
delivered to the Rights Agent, and shall surrender the Rights Certificate or
Certificates to be transferred, split up, combined or exchanged at the
principal office or offices of the Rights Agent designated for such purpose.
Neither the Rights Agent nor the Company shall be obligated to take any
action whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates
or Associates thereof as the Company shall reasonably request. Thereupon the
Rights Agent shall, subject to Section 4(b), Section 7(e), Section 14 and
Section 24 hereof, countersign and deliver to the Person entitled thereto a
Rights Certificate or Rights Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to cover any
tax
-10-
<PAGE>
or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation
of a Rights Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental
thereto, and upon surrender to the Rights Agent and cancellation of the
Rights Certificates if mutilated, the Company will execute and deliver a new
Rights Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered owner in lieu of the Rights Certificate so lost,
stolen, destroyed or mutilated.
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS. (a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section
23(a) hereof) in whole or in part at any time after the Distribution Date
upon surrender of the Rights Certificate, with the form of election to
purchase and the certificate on the reverse side thereof duly executed, to
the Rights Agent at the principal office or offices of the Rights Agent
designated for such purpose, together with payment of the aggregate Purchase
Price with respect to the total number of one one-hundredths of a share of
Preferred Stock (or other securities, cash or other assets, as the case may
be) as to which such surrendered Rights are then exercisable, at or prior to
the earliest of (i) the close of business on December 31, 2007 (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as provided
in Section 23 hereof or (iii) the time at which such Rights are exchanged
pursuant to Section 24 hereof (the earliest of (i), (ii) and (iii) being
herein referred to as the "Expiration Date").
(b) The Purchase Price for each one one-hundredth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $__,
and shall be subject to adjustment from time to time as provided in Sections
11 and 13(a) hereof and shall be payable in accordance with paragraph (c)
below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly
executed, accompanied by payment, with respect to each Right so exercised, of
the Purchase Price per one one-
-11-
<PAGE>
hundredth of a share of Preferred Stock (or other shares, securities, cash or
other assets, as the case may be) to be purchased as set forth below and an
amount equal to any applicable transfer tax, the Rights Agent shall, subject
to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any
transfer agent of the shares of Preferred Stock (or make available, if the
Rights Agent is the transfer agent for such shares) certificates for the
total number of one one-hundredths of a share of Preferred Stock to be
purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) if the Company shall have elected to
deposit the total number of shares of Preferred Stock issuable upon exercise
of the Rights hereunder with a depositary agent, requisition from the
depositary agent depositary receipts representing such number of one
one-hundredths of a share of Preferred Stock as are to be purchased (in which
case certificates for the shares of Preferred Stock represented by such
receipts shall be deposited by the transfer agent with the depositary agent)
and the Company will direct the depositary agent to comply with such request,
(ii) requisition from the Company the amount of cash, if any, to be paid in
lieu of fractional shares in accordance with Section 14 hereof, (iii) after
receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Rights
Certificate, registered in such name or names as may be designated by such
holder, and (iv) after receipt thereof, deliver such cash, if any, to or upon
the order of the registered holder of such Rights Certificate. The payment
of the Purchase Price (as such amount may be reduced pursuant to Section
11(a)(iii) hereof) shall be made in cash or by certified bank check or bank
draft payable to the order of the Company. In the event that the Company is
obligated to issue other securities (including Common Stock) of the Company,
pay cash and/or distribute other property pursuant to Section 11(a) hereof,
the Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution by the
Rights Agent, if and when appropriate. The Company reserves the right to
require prior to the occurrence of a Triggering Event that, upon any exercise
of Rights, a number of Rights be exercised so that only whole shares of
Preferred Stock would be issued.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or
-12-
<PAGE>
names as may be designated by such holder, subject to the provisions of
Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
from and after the first occurrence of a Section 11(a) (ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of
an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights pursuant to
either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring Person or to any
Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a
transfer which the Board of Directors of the Company has determined is part
of a plan, arrangement or understanding which has as a primary purpose or
effect the avoidance of this Section 7(e), shall become null and void without
any further action and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under any provision of this
Agreement or otherwise. The Company shall use all reasonable efforts to
ensure that the provisions of this Section 7(e) and Section 4(b) hereof are
complied with, but shall have no liability to any holder of Rights
Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or any of its Affiliates,
Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any
purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the
form of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise, and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner)
or Affiliates or Associates thereof as the Company shall reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES.
All Rights Certificates surrendered for the purpose of exercise, transfer,
split up, combination or exchange shall, if surrendered to the Company or any
of its agents, be delivered to the Rights Agent for cancellation or in
canceled form, or, if surrendered to the Rights Agent, shall be canceled
-13-
<PAGE>
by it, and no Rights Certificates shall be issued in lieu thereof, except as
expressly permitted by any of the provisions of this Agreement. The Company
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any other Rights Certificates
purchased or acquired by the Company otherwise than upon the exercise
thereof. The Rights Agent shall deliver all canceled Rights Certificates to
the Company, or shall, at the written request of the Company, destroy such
canceled Rights Certificates, and in such case shall deliver a certificate of
destruction thereof to the Company.
Section 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK. (a) The
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued shares of Preferred Stock (and,
following the occurrence of a Triggering Event, out of its authorized and
unissued shares of Common Stock and/or other securities or out of its
authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) that, as provided in this Agreement, including
Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full
of all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities)
issuable and deliverable upon the exercise of the Rights may be listed on any
national securities exchange, the Company shall use its best efforts to
cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed on such exchange upon official notice
of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a
Section 11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, a registration statement under the Act with
respect to the securities purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to become effective
as soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (A) the date as of which the
Rights are no longer exercisable for such securities, and (B) the date of the
expiration of the Rights. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection
-14-
<PAGE>
with the exercisability of the Rights. The Company may temporarily suspend,
for a period of time not to exceed ninety (90) days after the date set forth
in clause (i) of the first sentence of this Section 9(c), the exercisability
of the Rights in order to prepare and file such registration statement and
permit it to become effective. Upon any such suspension, the Company shall
issue a public announcement stating that the exercisability of the Rights has
been temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. In addition, if the Company shall
determine that a registration statement is required following the
Distribution Date, and a Section 11(a)(ii) Event has not occurred, the
Company may temporarily suspend the exercisability of Rights until such time
as a registration statement has been declared effective. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be
exercisable in any jurisdiction if the requisite qualification in such
jurisdiction shall not have been obtained, the exercise thereof shall not be
permitted under applicable law or a registration statement shall not have
been declared effective.
(d) The Company covenants and agrees that it will take all such
actions as may be necessary to ensure that all one one-hundredths of a share
of Preferred Stock (and, following the occurrence of a Triggering Event,
Common Stock and/or other securities) delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such shares (subject
to payment of the Purchase Price), be duly and validly authorized and issued
and fully paid and nonassessable.
(e) The Company further covenants and agrees that it will pay, when
due and payable, any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for a number of one one-hundredths of a
share of Preferred Stock (or Common Stock and/or other securities, as the
case may be) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Rights Certificates to a Person other than, or the
issuance or delivery of a number of one one-hundredths of a share of
Preferred Stock (or Common Stock and/or other securities, as the case may be)
in respect of a name other than that of, the registered holder of the Rights
Certificates evidencing Rights surrendered for exercise or to issue or
deliver any certificates for a number of one one-hundredths of a share of
Preferred Stock (or Common Stock and/or other securities, as the case may be)
in a name other than that of the registered holder upon the exercise of any
Rights until such tax shall have been paid (any such tax being payable by the
-15-
<PAGE>
holder of such Rights Certificate at the time of surrender) or until it has
been established to the Company's satisfaction that no such tax is due.
Section 10. PREFERRED STOCK RECORD DATE. Each person in whose name
any certificate for a number of one one-hundredths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) is issued
upon the exercise of Rights shall for all purposes be deemed to have become
the holder of record of such fractional shares of Preferred Stock (or Common
Stock and/or other securities, as the case may be) represented thereby on,
and such certificate shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and all applicable transfer taxes) was made; PROVIDED,
HOWEVER, that if the date of such surrender and payment is a date upon which
the Preferred Stock (or Common Stock and/or other securities, as the case may
be) transfer books of the Company are closed, such Person shall be deemed to
have become the record holder of such shares (fractional or otherwise) on,
and such certificate shall be dated, the next succeeding Business Day on
which the Preferred Stock (or Common Stock and/or other securities, as the
case may be) transfer books of the Company are open. Prior to the exercise
of the Rights evidenced thereby, the holder of a Rights Certificate shall not
be entitled to any rights of a stockholder of the Company with respect to
shares or other securities for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or
other distributions or to exercise any preemptive rights, and shall not be
entitled to receive any notice of any proceedings of the Company, except as
provided herein.
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES
OR NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date
of this Agreement (A) declare a dividend on the Preferred Stock
payable in shares of Preferred Stock, (B) subdivide the outstanding
Preferred Stock, (C) combine the outstanding Preferred Stock into a
smaller number of shares, or (D) issue any shares of its capital stock
in a reclassification of the Preferred Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation), except as
otherwise provided in this Section 11(a) and
-16-
<PAGE>
Section 7(e) hereof, the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such
subdivision, combination or reclassification, and the number and
kind of shares of Preferred Stock or capital stock, as the case may be,
issuable on such date, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled to
receive, upon payment of the Purchase Price then in effect, the
aggregate number and kind of shares of Preferred Stock or capital
stock, as the case may be, which, if such Right had been exercised
immediately prior to such date and at a time when the Preferred Stock
transfer books of the Company were open, such holder would have owned
upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. If an event
occurs which would require an adjustment under both this Section 11(a)(i)
and Section 11(a)(ii) hereof, the adjustment provided for in this
Section 11(a)(i) shall be in addition to, and shall be made prior to,
any adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or
of any Subsidiary of the Company, or any Person organized, appointed
or established by the Company for or pursuant to the terms of any such
plan), alone or together with its Affiliates and Associates, shall, at
any time after the Rights Dividend Declaration Date, become an
Acquiring Person, then each holder of a Right (except as provided
below and in Section 7(e) hereof) shall thereafter have the right to
receive, upon exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, in lieu of a number of
one one-hundredths of a share of Preferred Stock, such number of
shares of Common Stock of the Company as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the
then number of one one-hundredths of a share of Preferred Stock for
which a Right was exercisable immediately prior to the first
occurrence of a Section 11(a)(ii) Event and (y) dividing that product
(which, following such first occurrence shall thereafter be referred
to as the "Purchase Price" for each Right and for all purposes of this
Agreement) by 50% of the current market price (determined pursuant to
Section 11(d) hereof) per share of Common Stock on the
-17-
<PAGE>
date of such first occurrence (such number of shares, the "Adjustment
Shares").
(iii) In the event that the number of shares of Common Stock which
are authorized by the Company's certificate of incorporation, but not
outstanding or reserved for issuance for purposes other than upon exercise
of the Rights, is not sufficient to permit the exercise in full of the
Rights in accordance with the foregoing subparagraph (ii) of this Section
11(a), the Company shall: (A) determine the value of the Adjustment Shares
issuable upon the exercise of a Right (the "Current Value"), and (B) with
respect to each Right, make adequate provision to substitute for the
Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash,
(2) a reduction in the Purchase Price, (3) Common Stock or other equity
securities of the Company (including, without limitation, shares, or units
of shares, of preferred stock, such as the Preferred Stock, which the Board
of Directors of the Company has deemed to have the same value or economic
rights as shares of Common Stock (such shares of preferred stock, "common
stock equivalents")), (4) debt securities of the Company, (5) other assets,
or (6) any combination of the foregoing, having an aggregate value equal to
the Current Value (less the amount of any reduction in the Purchase Price),
where such aggregate value has been determined by the Board of Directors of
the Company based upon the advice of a nationally recognized investment
banking firm selected by the Board of Directors of the Company; PROVIDED,
HOWEVER, if the Company shall not have made adequate provision to deliver
value pursuant to clause (B) above within thirty (30) days following the
later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the
date on which the Company's right of redemption pursuant to Section 23(a)
expires (the later of (x) and (y) being referred to herein as the "Section
11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver,
upon the surrender for exercise of a Right and without requiring payment of
the Purchase Price, shares of Common Stock (to the extent available) and
then, if necessary, cash, which shares and/or cash have an aggregate value
equal to the Spread. For purposes of the preceding sentence, the term
"Spread" shall mean the excess of (i) the Current Value over (ii) the
Purchase Price. If the Board of Directors of the Company shall determine
in good faith that it is likely that sufficient additional shares of Common
Stock could be authorized for issuance upon exercise in full of the Rights,
the thirty (30) day period set forth above may be extended to the extent
necessary, but not more than ninety (90) days
-18-
<PAGE>
after the Section 11(a)(ii) Trigger Date, in order that the Company
may seek stockholder approval for the authorization of such
additional shares (such thirty (30) day period, as it may be
extended, the "Substitution Period"). To the extent that action is
to be taken pursuant to the first and/or third sentences of this
Section 11(a)(iii), the Company (x) shall provide, subject to Section
7(e) hereof, that such action shall apply uniformly to all
outstanding Rights, and (y) may suspend the exercisability of the
Rights until the expiration of the Substitution Period in order to
seek such stockholder approval for such authorization of additional
shares and/or to decide the appropriate form of distribution to be
made pursuant to such first sentence and to determine the value
thereof. In the event of any such suspension, the Company shall
issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. For
purposes of this Section 11(a)(iii), the value of each Adjustment
Share shall be the current market price (as determined pursuant to
Section 11(d) hereof) per share of the Common Stock on the Section
11(a)(ii) Trigger Date and the value of any "common stock equivalent"
shall be deemed to equal the current market price (as determined
pursuant to Section 11(d) hereof) per share of the Common Stock on
such date.
(b) In case the Company shall fix a record date for the issuance
of rights (other than the Rights), options or warrants to all holders
of Preferred Stock entitling them to subscribe for or purchase (for a
period expiring within forty-five (45) calendar days after such record
date) Preferred Stock (or shares having the same rights, privileges
and preferences as the shares of Preferred Stock ("equivalent
preferred stock")) or securities convertible into Preferred Stock or
equivalent preferred stock at a price per share of Preferred stock or
per share of equivalent preferred stock (or having a conversion price
per share, if a security convertible into Preferred Stock or
equivalent preferred stock) less than the current market price (as
determined pursuant to Section 11(d) hereof) per share of Preferred
Stock on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price
in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock
outstanding on such record date, plus the number of shares of
Preferred Stock which the
-19-
<PAGE>
aggregate offering price of the total number of shares of Preferred Stock
and/or equivalent preferred stock so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be offered)
would purchase at such current market price, and the denominator of
which shall be the number of shares of Preferred Stock outstanding on
such record date, plus the number of additional shares of Preferred
Stock and/ or equivalent preferred stock to be offered for subscription
or purchase (or into which the convertible securities so to be offered
are initially convertible). In case such subscription price may be
paid by delivery of consideration part or all of which may be in a form
other than cash, the value of such consideration shall be as determined
in good faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the holders of the Rights.
Shares of Preferred Stock owned by or held for the account of the
Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such
a record date is fixed, and in the event that such rights or warrants
are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had
not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such
distribution made in connection with a consolidation or merger in
which the Company is the continuing corporation) of evidences of
indebtedness, cash (other than a regular quarterly cash dividend out
of the earnings or retained earnings of the Company), assets (other
than a dividend payable in Preferred Stock, but including any dividend
payable in stock other than Preferred Stock) or subscription rights or
warrants (excluding those referred to in Section 11(b) hereof), the
Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall
be the current market price (as determined pursuant to Section 11(d)
hereof) per share of Preferred Stock on such record date, less the
fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent
-20-
<PAGE>
and shall be binding on the Rights Agent and the holders of the Rights)
of the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a
share of Preferred Stock and the denominator of which shall be such current
market price (as determined pursuant to Section 11(d) hereof) per
share of Preferred Stock. Such adjustments shall be made successively
whenever such a record date is fixed, and in the event that such
distribution is not so made, the Purchase Price shall be adjusted to
be the Purchase Price which would have been in effect if such record
date had not been fixed.
(d) (i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the "current
market price" per share of Common Stock on any date shall be deemed to
be the average of the daily closing prices per share of such Common
Stock for the thirty (30) consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date, and for purposes
of computations made pursuant to Section 11(a)(iii) hereof, the
"current market price" per share of Common Stock on any date shall be
deemed to be the average of the daily closing prices per share of such
Common Stock for the ten (10) consecutive Trading Days immediately
following such date; PROVIDED, HOWEVER, that in the event that the
current market price per share of the Common Stock is determined
during a period following the announcement by the issuer of such
Common Stock of (A) a dividend or distribution on such Common Stock
payable in shares of such Common Stock or securities convertible into
shares of such Common Stock (other than the Rights), or (B) any
subdivision, combination or reclassification of such Common Stock, and
the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification shall not
have occurred prior to the commencement of the requisite thirty (30)
Trading Day or ten (10) Trading Day period, as set forth above, then,
and in each such case, the "current market price" shall be properly
adjusted to take into account any trading during the period prior to
such ex-dividend date or record date. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated
-21-
<PAGE>
transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if
the shares of Common Stock are not listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the shares of Common
Stock are listed or admitted to trading or, if the shares of Common
Stock are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ") or such other system then in
use, or, if on any such date the shares of Common Stock are not quoted
by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in
the Common Stock selected by the Board of Directors of the Company.
If on any such date no market maker is making a market in the Common
Stock, the fair value of such shares on such date as determined in
good faith by the Board of Directors of the Company shall be used.
The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the shares of Common Stock are
listed or admitted to trading is open for the transaction of business
or, if the shares of Common Stock are not listed or admitted to
trading on any national securities exchange, a Business Day. If the
Common Stock is not publicly held or not so listed or traded, "current
market price" per share shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the "current
market price" per share of Preferred Stock shall be determined in the
same manner as set forth above for the Common Stock in clause (i) of
this Section 11(d) (other than the last sentence thereof). If the
current market price per share of Preferred Stock cannot be determined
in the manner provided above, or if the Preferred Stock is not
publicly held or listed or traded in a manner described in clause (i)
of this Section 11(d), the "current market price" per share of
Preferred Stock shall be conclusively deemed
-22-
<PAGE>
to be an amount equal to 100 (as such number may be appropriately
adjusted for such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock occurring after
the date of this Agreement) multiplied by the current market price
per share of the Common Stock. If neither the Common Stock nor the
Preferred Stock is publicly held or so listed or traded, "current
market price" per share of the Preferred Stock shall mean the fair
value per share as determined in good faith by the Board of Directors
of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights. For all purposes of this Agreement,
the "current market price" of one one-hundredth of a share of
Preferred Stock shall be equal to the "current market price" of one
share of Preferred Stock divided by 100.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least one
percent (1%) in the Purchase Price; PROVIDED, HOWEVER, that any
adjustments which by reason of this Section 11(e) are not required to
be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall
be made to the nearest cent or to the nearest one ten-thousandth of a
share of Common Stock or other share or one one-millionth of a share
of Preferred Stock, as the case may be. Notwithstanding the first
sentence of this Section 11(e), any adjustment required by this
Section 11 shall be made no later than the earlier of (i) three (3)
years from the date of the transaction which mandates such adjustment,
or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital stock
other than Preferred Stock, thereafter the number of such other shares
so receivable upon exercise of any Right and the Purchase Price
thereof shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions
with respect to the Preferred Stock contained in Sections 11(a), (b),
(c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of
Sections 7, 9, 10, 13
-23-
<PAGE>
and 14 hereof with respect to the Preferred Stock shall apply on like terms
to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the
right to purchase, at the adjusted Purchase Price, the number of one
one-hundredths of a share of Preferred Stock purchasable from time to
time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price
as a result of the calculations made in Sections 11(b) and (c), each
Right outstanding immediately prior to the making of such adjustment
shall thereafter evidence the right to purchase, at the adjusted
Purchase Price, that number of one-hundredths of a share of Preferred
Stock (calculated to the nearest one-millionth) obtained by (i)
multiplying (x) the number of one one-hundredths of a share covered by
a Right immediately prior to this adjustment, by (y) the Purchase
Price in effect immediately prior to such adjustment of the Purchase
Price, and (ii) dividing the product so obtained by the Purchase Price
in effect immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment
of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of one one-hundredths of a share of Preferred
Stock purchasable upon the exercise of a Right. Each of the Rights
outstanding after the adjustment in the number of Rights shall be
exercisable for the number of one one-hundredths of a share of
Preferred Stock for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment
of the number of Rights shall become that number of Rights (calculated
to the nearest one-ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the
Purchase Price. The Company shall make a public announcement of its
election to adjust the number of Rights, indicating the record date
for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be
-24-
<PAGE>
the date on which the Purchase Price is adjusted or any day
thereafter, but, if the Rights Certificates have been issued, shall
be at least ten (10) days later than the date of the public
announcement. If Rights Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i),
the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates on such
record date Rights Certificates evidencing, subject to Section 14
hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such
holders prior to the date of adjustment, and upon surrender thereof,
if required by the Company, new Rights Certificates evidencing all the
Rights to which such holders shall be entitled after such adjustment.
Rights Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein (and may bear, at the
option of the Company, the adjusted Purchase Price) and shall be
registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-hundredths of a share of Preferred
Stock issuable upon the exercise of the Rights, the Rights
Certificates theretofore and thereafter issued may continue to express
the Purchase Price per one one-hundredth of a share and the number of
one one-hundredths of a share which were expressed in the initial
Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then stated value, if any, of
the number of one one-hundredths of a share of Preferred Stock
issuable upon exercise of the Rights, the Company shall take any
corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of Preferred Stock at such
adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be
-25-
<PAGE>
made effective as of a record date for a specified event, the Company may
elect to defer until the occurrence of such event the issuance to the
holder of any Right exercised after such record date the number of one
one-hundredths of a share of Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise over and
above the number of one one-hundredths of a share of Preferred Stock and
other capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such
adjustment; PROVIDED, HOWEVER, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares (fractional or
otherwise) or securities upon the occurrence of the event requiring
such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding,
the Company shall be entitled to make such reductions in the Purchase
Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that the Board of Directors of the
Company, in its good faith judgment, shall determine to be advisable
in order that any (i) consolidation or subdivision of the Preferred
Stock, (ii) issuance wholly for cash of any shares of Preferred Stock
at less than the current market price, (iii) issuance wholly for cash
of shares of Preferred Stock or securities which by their terms are
convertible into or exchangeable for shares of Preferred Stock, (iv)
stock dividends or (v) issuance of rights, options or warrants
referred to in this Section 11, hereafter made by the Company to
holders of its Preferred Stock shall not be taxable to such
stockholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other
Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), (ii) merge with or into any other
Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), or (iii) sell or transfer (or
permit any Subsidiary to sell or transfer), in one transaction, or a
series of related transactions, assets or earning power aggregating
more than 50% of the assets or earning power of the Company and its
Subsidiaries
-26-
<PAGE>
(taken as a whole) to any other Person or Persons (other
than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), if (x)
at the time of or immediately after such consolidation, merger, sale
or transfer there are any rights, warrants or other instruments or
securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to
be afforded by the Rights or (y) prior to, simultaneously with or
immediately after such consolidation, merger, sale or transfer, the
stockholders of the Person who constitutes, or would constitute, the
"Principal Party" for purposes of Section 13(a) hereof shall have
received a distribution of Rights previously owned by such Person or
any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or
Section 27 hereof, take (or permit any Subsidiary to take) any action
if at the time such action is taken it is reasonably foreseeable that
such action will diminish substantially or otherwise eliminate the
benefits intended to be afforded by the Rights.
(p) In the event that the Company shall at any time after the
Rights Dividend Declaration Date and prior to the Distribution Date
(i) declare a dividend on the outstanding shares of Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding
shares of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, the number of Rights
associated with each share of Common Stock then outstanding, or issued
or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter
associated with each share of Common Stock following any such event
shall equal the result obtained by multiplying the number of Rights
associated with each share of Common Stock immediately prior to such
event by a fraction the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to the
occurrence of the event and the denominator of which shall be the
total number of shares of Common Stock outstanding immediately
following the occurrence of such event.
-27-
<PAGE>
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF
SHARES. Whenever an adjustment is made as provided in Section 11 and Section
13 hereof, the Company shall (a) promptly prepare a certificate setting forth
such adjustment and a brief statement of the facts accounting for such
adjustment, (b) promptly file with the Rights Agent, and with each transfer
agent for the Preferred Stock and the Common Stock, a copy of such
certificate, and (c) mail a brief summary thereof to each holder of a Rights
Certificate (or, if prior to the Distribution Date, to each holder of a
certificate representing shares of Common Stock) in accordance with Section
26 hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained and shall not be deemed
to have knowledge of such adjustment unless and until it shall have received
such certificate.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(a) In the event that, following the Stock Acquisition Date,
directly or indirectly, (x) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), and the Company shall
not be the continuing or surviving corporation of such consolidation or
merger, (y) any Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof) shall consolidate with,
or merge with or into, the Company, and the Company shall be the continuing
or surviving corporation of such consolidation or merger and, in connection
with such consolidation or merger, all or part of the outstanding shares of
Common Stock shall be changed into or exchanged for stock or other securities
of any other Person or cash or any other property, or (z) the Company shall
sell or otherwise transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer), in one transaction or a series of related transactions,
assets or earning power aggregating more than 50% of the assets or earning
power of the Company and its Subsidiaries (taken as a whole) to any Person or
Persons (other than the Company or any Subsidiary of the Company in one or
more transactions each of which complies with Section 11(o) hereof), then,
and in each such case (except as may be contemplated by Section 13(d)
hereof), proper provision shall be made so that: (i) each holder of a Right,
except as provided in Section 7(e) hereof, shall thereafter have the right to
receive upon the exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, such number of validly
authorized and issued, fully paid, nonassessable and freely tradeable shares
of Common Stock of the Principal Party (as such
-28-
<PAGE>
term is hereinafter defined), not subject to any liens, encumbrances, rights
of first refusal or other adverse claims, as shall be equal to the result
obtained by (l) multiplying the then current Purchase Price by the number of
one one-hundredths of a share of Preferred Stock for which a Right is
exercisable immediately prior to the first occurrence of a Section 13 Event
(or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence
of a Section 13 Event, multiplying the number of such one one-hundredths of a
share of Preferred Stock for which a Right was exercisable immediately prior
to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in
effect immediately prior to such first occurrence), and dividing that product
(which, following the first occurrence of a Section 13 Event, shall be
referred to as the "Purchase Price" for each Right and for all purposes of
this Agreement) by (2) 50% of the current market price (determined pursuant
to Section 11(d)(i) hereof) per share of the Common Stock of such Principal
Party on the date of consummation of such Section 13 Event; (ii) such
Principal Party shall thereafter be liable for, and shall assume, by virtue
of such Section 13 Event, all the obligations and duties of the Company
pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to such Principal Party, it being specifically intended that
the provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event; (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation
of a sufficient number of shares of its Common Stock) in connection with the
consummation of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to its shares of Common Stock thereafter deliverable upon the
exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof
shall be of no effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (x) or
(y) of the first sentence of Section 13(a), the Person that is the
issuer of any securities into which shares of Common Stock of the
Company are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to such
merger or consolidation; and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion
-29-
<PAGE>
of the assets or earning power transferred pursuant to such transaction
or transactions;
PROVIDED, HOWEVER, that in any such case, (1) if the Common Stock of such
Person is not at such time and has not been continuously over the preceding
twelve (12) month period registered under Section 12 of the Exchange Act, and
such Person is a direct or indirect Subsidiary of another Person the Common
Stock of which is and has been so registered, "Principal Party" shall refer
to such other Person; and (2) in case such Person is a Subsidiary, directly
or indirectly, of more than one Person, the Common Stocks of two or more of
which are and have been so registered, "Principal Party" shall refer to
whichever of such Persons is the issuer of the Common Stock having the
greatest aggregate market value.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of authorized shares of its Common Stock which have not been issued or
reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in paragraphs (a)
and (b) of this Section 13 and further providing that, as soon as practicable
after the date of any consolidation, merger, sale or transfer of assets
mentioned in paragraph (a) of this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the Act,
with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and will use its best
efforts to cause such registration statement to (A) become effective
as soon as practicable after such filing and (B) remain effective
(with a prospectus at all times meeting the requirements of the Act)
until the Expiration Date; and
(ii) will deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form
10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers
or consolidations or sales or other transfers. In the event that a Section
13 Event shall occur at any time after the occurrence of a Section 11(a)(ii)
Event, the Rights
-30-
<PAGE>
which have not theretofore been exercised shall thereafter become exercisable
in the manner described in Section 13(a).
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights
or to distribute Rights Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders
of the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price of
the Rights for any day shall be the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the Rights are
not listed or admitted to trading on the New York Stock Exchange, as reported
to the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading, or if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by NASDAQ or such other system
then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by
a professional market maker making a market in the Rights selected by the
Board of Directors of the Company. If on any such date no such market maker
is making a market in the Rights the fair value of the Rights on such date as
determined in good faith by the Board of Directors of the Company shall be
used.
(b) The Company shall not be required to issue fractions of shares
of Preferred Stock (other than fractions which are integral multiples of one
one-hundredth of a share of Preferred Stock) upon exercise of the Rights or
to distribute certificates which evidence fractional shares of Preferred
Stock (other than fractions which are integral multiples of one one-hundredth
of a share of Preferred Stock). Fractions of shares of Preferred Stock in
integral multiples of one one-hundredth of a share may, at the election of
the Company, be evidenced by
-31-
<PAGE>
depositary receipts pursuant to an appropriate agreement between the Company
and a depositary selected by it; PROVIDED, HOWEVER, that such agreement shall
provide that the holders of such depositary receipts shall have all the
rights, privileges and preferences to which they are entitled as beneficial
owners of the shares represented by such depositary receipts. In lieu of
fractional shares of Preferred Stock that are not integral multiples of one
one-hundredth of a share of Preferred Stock, the Company shall pay to the
registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of
the current market value of one one-hundredth of a share of Preferred Stock.
For purposes of this Section 14(b), the current market value of one
one-hundredth of a share of Preferred Stock shall be one one-hundredth of the
closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date
of such exercise.
(c) Following the occurrence of a Triggering Event, the Company
shall not be required to issue fractions of shares of Common Stock upon
exercise of the Rights or to distribute certificates which evidence
fractional shares of Common Stock. In lieu of fractional shares of Common
Stock, the Company shall pay to the registered holders of Rights Certificates
at the time such Rights are exercised as herein provided an amount in cash
equal to the same fraction of the current market value of one share of Common
Stock. For purposes of this Section 14(c), the current market value of one
share of Common Stock shall be the closing price of one share of Common Stock
(as determined pursuant to Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares
upon exercise of a Right, except as permitted by this Section 14.
Section 15. RIGHTS OF ACTION. All rights of action in respect of
this Agreement, other than rights of action vested in the Rights Agent
pursuant to Section 18 hereof, are vested in the respective registered
holders of the Rights Certificates (and, prior to the Distribution Date, the
registered holders of the Common Stock); and any registered holder of any
Rights Certificate (or, prior to the Distribution Date, of the Common Stock),
without the consent of the Rights Agent or of the holder of any other Rights
Certificate (or, prior to the Distribution Date, of the Common Stock), may,
in his own behalf and for his own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise
-32-
<PAGE>
act in respect of, his or her right to exercise the Rights evidenced by such
Rights Certificate in the manner provided in such Rights Certificate and in
this Agreement. Without limiting the foregoing or any remedies available to
the holders of Rights, it is specifically acknowledged that the holders of
Rights would not have an adequate remedy at law for any breach of this
Agreement and shall be entitled to specific performance of the obligations
hereunder and injunctive relief against actual or threatened violations of
the obligations hereunder of any Person subject to this Agreement.
Section 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right
by accepting the same consents and agrees with the Company and the Rights
Agent and with every holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if
surrendered at the principal office or offices of the Rights Agent
designated for such purposes, duly endorsed or accompanied by a proper
instrument of transfer and with the appropriate forms and certificates
fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company
and the Rights Agent may deem and treat the person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated
Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Rights Certificates or the associated
Common Stock certificates made by anyone other than the Company or the
Rights Agent) for all purposes whatsoever, and neither the Company nor
the Rights Agent, subject to the last sentence of Section 7(e) hereof,
shall be required to be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to
perform any of its obligations under this Agreement by reason of any
preliminary or permanent injunction or other
-33-
<PAGE>
order, decree or ruling issued by a court of competent jurisdiction
or by a governmental, regulatory or administrative agency or commission,
or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; PROVIDED, HOWEVER, the Company must
use reasonable efforts to have any such order, decree or ruling lifted
or otherwise overturned as soon as possible.
Section 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose to be the holder of the number of one
one-hundredths of a share of Preferred Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate,
as such, any of the rights of a stockholder of the Company or any right to
vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificate shall have been exercised in accordance
with the provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to
time, on demand of the Rights Agent, its reasonable expenses and counsel fees
and disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any
Rights Certificate or certificate for Common Stock or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the
proper Person or Persons.
-34-
<PAGE>
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS
AGENT.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or stock transfer business of the Rights
Agent or any successor Rights Agent, shall be the successor to the Rights
Agent under this Agreement without the execution or filing of any paper or
any further act on the part of any of the parties hereto; PROVIDED, HOWEVER,
that such corporation would be eligible for appointment as a successor Rights
Agent under the provisions of Section 21 hereof. In case at the time such
successor Rights Agent shall succeed to the agency created by this Agreement,
any of the Rights Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of
a predecessor Rights Agent and deliver such Rights Certificates so
countersigned; and in case at the time any of the Rights Certificates shall
not have been countersigned, any successor Rights Agent may countersign such
Rights Certificates either in the name of the predecessor or in the name of
the successor Rights Agent; and in all such cases such Rights Certificates
shall have the full force provided in the Rights Certificates and in this
Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed, and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Rights Certificates so
countersigned; and in case, at that time, any of the Rights Certificates
shall not have been countersigned, the Rights Agent may countersign such
Rights Certificates either in its prior name or in its changed name; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes
the duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Company and the holders of Rights
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall
be full and complete authorization and protection to the Rights Agent
as to
-35-
<PAGE>
any action taken or omitted by it in good faith and in
accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter (including, without limitation, the identity of any
Acquiring Person and the determination of "current market price") be
proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by the
Chairman, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the
Company and delivered to the Rights Agent; and such certificate shall
be full authorization to the Rights Agent for any action taken or
suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recital contained in this Agreement or in
the Rights Certificates or be required to verify the same (except as
to its countersignature on such Rights Certificates), but all such
statements and recitals are and shall be deemed to have been made by
the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent)
or in respect of the validity or execution of any Rights Certificate
(except its countersignature thereof); nor shall it be responsible for
any breach by the Company of any covenant or condition contained in
this Agreement or in any Rights Certificate; nor shall it be
responsible for any adjustment required under the provisions of
Section 11, Section 13 or Section 24 hereof or responsible for the
manner, method or amount of any such adjustment or the ascertaining of
the existence of facts that would require any such
-36-
<PAGE>
adjustment (except with respect to the exercise of Rights evidenced by
Rights Certificates after actual notice of any such adjustment); nor shall
it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any shares of Common Stock
or Preferred Stock to be issued pursuant to this Agreement or any
Rights Certificate or as to whether any shares of Common Stock or
Preferred Stock will, when so issued, be validly authorized and
issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by the Rights
Agent for the carrying out or performing by the Rights Agent of the
provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder
from the Chairman, the President, any Vice President, the Secretary,
any Assistant Secretary, the Treasurer or any Assistant Treasurer of
the Company, and to apply to such officers for advice or instructions
in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance
with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested,
or contract with or lend money to the Company or otherwise act as
fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys or agents, and the Rights Agent
shall not be answerable or accountable for any act, default, neglect
or misconduct of any such attorneys or agents or for any loss to the
Company resulting from any such act,
-37-
<PAGE>
default, neglect or misconduct; PROVIDED, HOWEVER, that reasonable care
was exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the
exercise of its rights if there shall be reasonable grounds for
believing that repayment of such funds or adequate indemnification
against such risk or liability is not reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to
the form of assignment or form of election to purchase, as the case
may be, has either not been completed or indicates an affirmative
response to clause 1 and/or 2 thereof, the Rights Agent shall not take
any further action with respect to such requested exercise or transfer
without first consulting with the Company.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under
this Agreement upon thirty (30) days' notice in writing mailed to the
Company, and to each transfer agent of the Common Stock and Preferred Stock,
by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. The Company may remove the Rights Agent or
any successor Rights Agent upon thirty (30) days' notice in writing, mailed
to the Rights Agent or successor Rights Agent, as the case may be, and to
each transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise
become incapable of acting, the Company shall appoint a successor to the
Rights Agent. If the Company shall fail to make such appointment within a
period of thirty (30) days after giving notice of such removal or after it
has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Rights
Certificate (who shall, with such notice, submit his or her Rights
Certificate for inspection by the Company), then any registered holder of any
Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be a corporation organized
and doing business under the laws of the United States or of the State of
Missouri
-38-
<PAGE>
(or of any other state of the United States so long as such
corporation is authorized to do business as a banking institution in the
State of Missouri, in good standing, having an office or agency
in the State of New York, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver
any further reasonable assurance, conveyance, act or deed necessary for the
purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights
Agent and each transfer agent of the Common Stock and the Preferred Stock,
and mail a notice thereof in writing to the registered holders of the Rights
Certificates. Failure to give any notice provided for in this Section 21 or
any defect therein shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
Section 22. ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding
any of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights
in such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the redemption or expiration of
the Rights, the Company (a) shall, with respect to shares of Common Stock so
issued or sold pursuant to the exercise of stock options or under any
employee plan or arrangement, granted or awarded prior to the Distribution
Date, or upon the exercise, conversion or exchange of securities hereinafter
issued by the Company, and (b) may, in any other case, if deemed necessary or
appropriate by the Board of Directors of the Company, issue Rights
Certificates representing an appropriate number of Rights in connection with
such issuance or sale; PROVIDED, HOWEVER, that (i) no such Rights Certificate
shall be issued if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk of material
adverse tax consequences to
-39-
<PAGE>
the Company or the Person to whom such Rights Certificate would be issued,
and (ii) no such Rights Certificate shall be issued if, and to the extent
that, appropriate adjustment shall otherwise have been made in lieu of the
issuance thereof.
Section 23. REDEMPTION AND TERMINATION.
(a) The Board of Directors of the Company may, at its option, at
any time prior to the earlier of (i) the close of business on the tenth day
following the Stock Acquisition Date (or, if the Stock Acquisition Date shall
have occurred prior to the Record Date, the close of business on the tenth
day following the Record Date), or (ii) the Final Expiration Date, redeem all
but not less than all of the then outstanding Rights at a redemption price of
$.01 per Right, as such amount may be appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the
"Redemption Price"). Notwithstanding anything contained in this Agreement to
the contrary, the Rights shall not be exercisable after the first occurrence
of a Section 11(a)(ii) Event until such time as the Company's right of
redemption hereunder has expired. The Company may, at its option, pay the
Redemption Price in cash, shares of Common Stock (based on the "current
market price", as defined in Section 11(d)(i) hereof, of the Common Stock at
the time of redemption) or any other form of consideration deemed appropriate
by the Board of Directors. The redemption of the Rights by the Board of
Directors may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent and without any further action and without
any notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price for each Right so held. Promptly after the action of the Board of
Directors ordering the redemption of the Rights, the Company shall give
notice of such redemption to the Rights Agent and the holders of the then
outstanding Rights by mailing such notice to all such holders at each
holder's last address as it appears upon the registry books of the Rights
Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Stock. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made.
-40-
<PAGE>
Section 24. EXCHANGE.
(a) The Board of Directors of the Company may, at its option, at
any time after any Person becomes an Acquiring Person, exchange all or part
of the then outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of Section 7(e)
hereof) for shares of Common Stock at an exchange ratio of one share of
Common Stock per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (such
exchange ratio being hereinafter referred to as the "Exchange Ratio").
Notwithstanding the foregoing, the Board of Directors shall not be empowered
to effect such exchange at any time after any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the Company or of
any Subsidiary of the Company, or any Person organized, appointed or
established by the Company for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of fifty percent (50%) or more of the Common Stock then
outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the
right to exercise such Rights shall terminate and the only right thereafter
of a holder of such Rights shall be to receive that number of shares of
Common Stock equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public
notice of any exchange; PROVIDED, HOWEVER, that the failure to give, or any
defect in, such notice shall not affect the validity of such exchange. The
Company promptly shall mail a notice of any such exchange to all of the
holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the
exchange of the Common Stock for Rights will be effected and, in the event of
any partial exchange, the number of Rights which will be exchanged. Any
partial exchange will be effected pro rata based on the number of Rights
(other than Rights which have become void pursuant to the provisions of
Section 7(e) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at
its option, may substitute shares of Preferred Stock (or equivalent preferred
stock, as such term is defined in paragraph (b) of Section 11 hereof) for
shares of Common Stock exchangeable for Rights, at the initial rate of one
one-hundredth
-41-
<PAGE>
of a share of Preferred Stock (or equivalent preferred stock) for each share
of Common Stock, as appropriately adjusted to reflect adjustments in the
voting rights of the Preferred Stock pursuant to the terms thereof, so that
the fraction of a share of Preferred Stock delivered in lieu of each share of
Common Stock shall have the same voting rights as one share of Common Stock.
(d) In the event that there shall not be sufficient shares of
Common Stock issued but not outstanding or authorized but unissued to permit
any exchange of Rights as contemplated in accordance with this Section 24,
the Company shall take all such actions as may be necessary to authorize
additional shares of Common Stock for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of shares
of Common Stock or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of such fractional shares of Common Stock,
there shall be paid to the registered holders of the Rights Certificates with
regard to which such fractional shares of Common Stock would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole share of Common Stock. For the purposes of this subsection
(e), the current market value of a whole share of Common Stock shall be the
closing price of a share of Common Stock (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.
Section 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to
the holders of Preferred Stock or to make any other distribution to the
holders of Preferred Stock (other than a regular quarterly cash dividend out
of earnings or retained earnings of the Company), or (ii) to offer to the
holders of Preferred Stock rights or warrants to subscribe for or to purchase
any additional shares of Preferred Stock or shares of stock of any class or
any other securities, rights or options, or (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification
involving only the subdivision of outstanding shares of Preferred Stock), or
(iv) to effect any consolidation or merger into or with any other Person
(other than a Subsidiary of the Company in a transaction which complies with
Section 11(o) hereof), or to effect any sale or other transfer (or to permit
one or more of its Subsidiaries to effect any sale or other transfer), in one
transaction or a series of related transactions, of more than 50% of the
assets or earning power of
-42-
<PAGE>
the Company and its Subsidiaries (taken as a whole) to any other Person or
Persons (other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), or (v) to
effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to each holder of a Rights
Certificate, to the extent feasible and in accordance with Section 26 hereof,
a notice of such proposed action, which shall specify the record date for the
purposes of such stock dividend, distribution of rights or warrants, or the
date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the shares of Preferred Stock, if any
such date is to be fixed, and such notice shall be so given in the case of
any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action,
at least twenty (20) days prior to the date of the taking of such proposed
action or the date of participation therein by the holders of the shares of
Preferred Stock, whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof shall
occur, then, in any such case, (i) the Company shall as soon as practicable
thereafter give to each holder of a Rights Certificate, to the extent
feasible and in accordance with Section 26 hereof, a notice of the occurrence
of such event, which shall specify the event and the consequences of the
event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Preferred Stock shall be deemed
thereafter to refer to Common Stock and/or, if appropriate, other securities.
Section 26. NOTICES. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any
Rights Certificate to or on the Company shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as follows:
Hussmann International, Inc.
12999 St. Charles Rock Road
Bridgeton, MO 63044
Attention: General Counsel
-43-
<PAGE>
Subject to the provisions of Section 21, any notice or demand authorized by
this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
First Chicago Trust Company of New York
525 Washington Boulevard
Suite 4660
Jersey City, New Jersey 07310
Attention: Tenders & Exchanges Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27. SUPPLEMENTS AND AMENDMENTS. The Company may from time
to time supplement or amend this Agreement without the approval of any
holders of Rights Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions
with respect to the Rights which the Company may deem necessary or desirable,
any such supplement or amendment to be evidenced by a writing signed by the
Company and the Rights Agent; PROVIDED, HOWEVER, that from and after such
time as any Person becomes an Acquiring Person, this Agreement shall not be
amended in any manner which would adversely affect the interests of the
holders of Rights. Prior to the Distribution Date, the interest of the
holders of Rights shall be deemed coincident with the interests of the
holders of Common Stock. Without limiting the foregoing, the Company may at
any time prior to such time as any Person becomes an Acquiring Person amend
this Agreement (a) to lower the thresholds set forth in Sections 1(a) and
3(a) to a percentage that (subject to exceptions for specified Persons or
Groups excepted from the definition of "Acquiring Person") is not less than
the greater of (i) the sum of .001% and the largest percentage of the
outstanding shares of Common Stock then known by the Company to be
beneficially owned by any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, any Person organized, appointed or established by the Company
for or pursuant to the terms of any such plan or, to the extent excepted from
the definition of "Acquiring Person", other specified
-44-
<PAGE>
Persons or Groups) and (ii) 10.0% or (b) to raise the thresholds set forth in
Sections 1(a) and 3(a) to a percentage that is not greater than 20.0%.
Section 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS,
ETC. For all purposes of this Agreement, any calculation of the number of
shares of Common Stock outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares
of Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(l)(i) of the General Rules
and Regulations under the Exchange Act. The Board of Directors of the
Company shall have the exclusive power and authority to administer this
Agreement and to exercise all rights and powers specifically granted to the
Board of Directors of the Company or to the Company, or as may be necessary
or advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including, but not limited to, a
determination to redeem or not redeem the Rights or to amend this Agreement).
All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to
the foregoing) which are done or made by the Board of Directors of the
Company in good faith shall (x) be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Rights and all other parties,
and (y) not subject the Board of Directors of the Company to any liability to
the holders of the Rights.
Section 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to
the Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Rights Agent
and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock).
Section 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of
-45-
<PAGE>
competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated; PROVIDED, HOWEVER, that
notwithstanding anything in this Agreement to the contrary, if any such term,
provision, covenant or restriction is held by such court or authority to be
invalid, void or unenforceable and the Board of Directors of the Company
determines in its good faith judgment that severing the invalid language from
this Agreement would adversely affect the purpose or effect of this
Agreement, the right of redemption set forth in Section 23 hereof shall be
reinstated and shall not expire until the close of business on the tenth day
following the date of such determination by the Board of Directors of the
Company.
Section 32. GOVERNING LAW. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be
governed by and construed in accordance with the laws of such State
applicable to contracts made and to be performed entirely within such State.
Section 33. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the
provisions hereof.
Section 35. BOOK-ENTRY ACCOUNT STATEMENTS. Except where the
context otherwise indicates (a) if at any time or from time to time the
Company determines that shares of Common Stock shall be [evidenced] by
book-entry account statements or similar instruments or documents
("Book-Entry Account Statements"), then all references in this Agreement to
certificates for Common Stock [or certificates for shares of Common Stock]
shall be deemed to [refer to][include] such Book-Entry Account Statements
which [evidence] such shares of Common Stock, (b) if at any time or from time
to time the Company determines that after the Distribution Date the Rights
shall be [evidenced] by Book-Entry Account Statements, then all references in
this Agreement to certificates for Rights or Rights Certificates shall be
deemed to [refer to] [include] such Book-Entry Account Statements which
[evidence] such Rights and (c) if at any time or from time to time the
Company determines that shares of Preferred Stock issued
-46-
<PAGE>
upon the exercise of Rights shall be [evidenced] by Book-Entry Account
Statements, then all references in this Agreement to certificates for such
shares of Preferred Stock shall be deemed to [refer to] [include] such
Book-Entry Account Statements which [evidence] such shares of Preferred
Stock.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
Attest: HUSSMANN INTERNATIONAL, INC.
By: By:
----------------------- ------------------------
Name: Name:
Title: Title:
Attest: FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By: By:
----------------------- ------------------------
Name: Name:
Title: Title:
-47-
<PAGE> Exhibit A
CERTIFICATE OF DESIGNATION
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
HUSSMANN INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
- --------------------------------------------------------------------------------
The undersigned do hereby certify that the following resolution was
duly adopted by the Board of Directors of Hussmann International, Inc., a
Delaware corporation (the "Corporation"), at a meeting duly convened and held on
____________, 1997, at which a quorum was present and acting throughout:
RESOLVED, that pursuant to the authority vested in the board of
directors of the Corporation by the Certificate of Incorporation, the Board of
Directors does hereby create, authorize and provide for the issue of a series of
Preferred Stock, par value $.001 per share, of the Corporation, to be designated
"Series A Junior Participating Preferred Stock" (hereinafter referred to as the
"Series A Preferred Stock"), initially consisting of _________ shares, and to
the extent that the designations, powers, preferences and relative and other
special rights and the qualifications, limitations or restrictions of the Series
A Preferred Stock are not stated and expressed in the Certificate of
Incorporation, does hereby fix and herein state and express such designations,
powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions thereof, as follows (all terms used
herein which are defined in the Certificate of Incorporation shall be deemed to
have the meanings provided therein):
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" and the number
of shares constituting such series shall be _________.
<PAGE>
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first business day of January, April,
July and October in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $.01 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, par
value $.001 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. In the event the Corporation
shall at any time after December 31, 1997 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a small number of shares, then in each case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); PROVIDED, HOWEVER, that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, subject to the prior and superior rights of the
holders of
A-2
<PAGE>
any shares of any series of Preferred Stock ranking prior to and superior to
the shares of Series A Preferred Stock with respect to dividends, a dividend
of $.01 per share on the Series A Preferred Stock shall nevertheless by
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 60 days prior to the date fixed
for the payment thereof.
Section 3. VOTING RIGHTS.
The holders of shares of Series A Preferred Stock shall have the
following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the
A-3
<PAGE>
number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common Stock
shall vote collectively as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Preferred Stock
shall be in arrears in an amount equal to six (6) quarterly dividends thereon,
the occurrence of such contingency shall mark the beginning of a period (herein
called a "default period") which shall extend until such time when all accrued
and unpaid dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all shares of Series A Preferred Stock then
outstanding shall have been declared and paid or set apart for payment. During
each default period, all holders of Preferred Stock (including holders of the
Series A Preferred Stock) with dividends in arrears in an amount equal to six
(6) quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect two (2) Directors.
(ii) During any default period, such voting right of the holders of
Series A Preferred Stock may be exercised initially at a special meeting
called pursuant to subparagraph (iii) of this Section 3(C) or at any annual
meeting of stockholders, and thereafter at annual meetings of stockholders,
provided that such voting right shall not be exercised unless the holders
of ten percent (10%) in number of shares of Preferred Stock outstanding
shall be present in person or by proxy. The absence of a quorum of the
holders of Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting rights. At any meeting at which the holders
of Preferred Stock shall exercise such voting right initially during an
existing default period, they shall have the right, voting as a class, to
elect Directors to fill such vacancies, if any, in the Board of Directors
as may then exist up to two (2) Directors or, if such right is exercised at
an annual meeting, to elect two (2) Directors. If the number which may be
so elected at any special meeting does not amount to the required number,
the holders of the Preferred Stock shall have the right to make such
increase in the number of Directors as shall be necessary to permit the
election by them of the required number. After the holders of the
Preferred Stock shall have exercised their right to elect
A-4
<PAGE>
Directors in any default period and during the continuance of such period,
the number of Directors shall not be increased or decreased except by vote
of the holders of Preferred Stock as herein provided or pursuant to the
rights of any equity securities ranking senior to or PARI PASSU with the
Series A Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect Directors,
the Board of Directors may order, or any stockholder or stockholders owning
in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request,
the calling of special meeting of the holders of Preferred Stock, which
meeting shall thereupon be called by the Chairman, the President, a Vice
President or the Secretary of the Corporation. Notice of such meeting and
of any annual meeting at which holders of Preferred Stock are entitled to
vote pursuant to this paragraph (C)(iii) shall be given to each holder of
record of Preferred Stock by mailing a copy of such notice to him or her at
his or her last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than 10
days and not later than 50 days after such order or request, or in default
of the calling of such meeting within 50 days after such order or request,
such meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of the
total number of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this paragraph (C)(iii), no such special meeting shall be
called during the period within 50 days immediately preceding the date
fixed for the next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and, if
applicable, other classes of capital stock of the Corporation, shall
continue to be entitled to elect the whole number of Directors until the
holders of Preferred Stock shall have exercised their right to elect two
(2) Directors voting as a class, after the exercise of which right (x) the
Directors so elected by the holders of Preferred Stock shall continue in
office until their successors shall have been elected by such holders or
until the expiration of the default period, and (y) any vacancy in the
Board of Directors may (except as provided in paragraph (C)(ii) of this
Section 3) be filled by vote of a majority of the remaining Directors
theretofore elected by the holders of the class of capital stock which
elected the
A-5
<PAGE>
Director whose office shall have become vacant. References in this
paragraph (C) to Directors elected by the holders of a particular
class of stock shall include Directors appointed by such Directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect Directors shall
cease, (y) the term of any Directors elected by the holders of Preferred
Stock as a class shall terminate, and (z) the number of Directors shall be
such number as may be provided for in the certificate of incorporation or
by-laws irrespective of any increase made pursuant to the provisions of
paragraph (C)(ii) of this Section 3 (such number being subject, however, to
change thereafter in any manner provided by law or in the certificate of
incorporation or by-laws). Any vacancies in the Board of Directors
effected by the provisions of clauses (y) and (z) in the preceding sentence
may be filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of capital stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which
A-6
<PAGE>
dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any capital stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any capital stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of capital stock ranking on
a parity with the Series A Preferred Stock, except in accordance with
a purchase offer made in writing or by publication (as determined by
the Board of Directors) to all holders of such shares upon such terms
as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. REACQUIRED SHARES.
Any shares of Series A Preferred Stock purchased or otherwise acquired
by the Corporation in any manner whatsoever shall be retired and canceled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock to be created by resolution
or resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
A-7
<PAGE>
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of capital stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment
(the "Series A Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional distributions shall
be made to the holders of shares of Series A Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as
set forth in subparagraph C below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock) (such number
in clause (ii), the "Adjustment Number"). Following the payment of the full
amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series A Preferred Stock and Common Stock,
respectively, and the payment of liquidation preferences of all other shares of
capital stock which rank prior to or on a parity with Series A Preferred Stock,
holders of Series A Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event, however,
that there are not sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding
A-8
<PAGE>
Common Stock into a smaller number of shares, then in each such case the
Adjustment Number in effect immediately prior to such event shall be adjusted
by multiplying such Adjustment Number by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC.
In case the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of Series A Preferred Stock shall at
the same time be similarly exchanged or changed into an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 100
times the aggregate amount of capital stock, securities, cash and/or any other
property (payable in kind), as the case may be, for which or into which each
share of Common Stock is exchanged or changed. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A Preferred
Stock shall be adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 8. NO REDEMPTION.
The shares of Series A Preferred Stock shall not be redeemable.
Section 9. RANKING.
The Series A Preferred Stock shall rank junior to all other series of
the Corporation's Preferred Stock as to the payment of dividends and the
distribution of assets, whether or not upon the dissolution, liquidation or
winding up of the Corporation, unless the terms of any such series shall provide
otherwise.
A-9
<PAGE>
Section 10. AMENDMENT.
The Certificate of Incorporation of the Corporation shall not be
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of a majority of the
outstanding shares of Series A Preferred Stock, voting separately as a class.
Section 11. FRACTIONAL SHARES.
Series A Preferred Stock may be issued in fractions of a share which
shall entitle the holder, in proportion to such holder's fractional shares, to
exercise voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Series A Preferred Stock.
A-10
<PAGE>
IN WITNESS WHEREOF, Hussmann International, Inc. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
__________________, its _______, and the same to be attested to by
______________, its ________________, this ____ day of _________, 1997.
HUSSMANN INTERNATIONAL, INC.
By: __________________________
Name:
Title:
(Corporate Seal)
Attest:
________________________
A-11
<PAGE>
EXHIBIT B
[Form of Rights Certificate]
Certificate No. R- __________ Rights
NOT EXERCISABLE AFTER DECEMBER 31, 2007 OR EARLIER IF REDEEMED BY THE COMPANY.
THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER
RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR
WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH AGREEMENT.] *
- ---------------
* The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
<PAGE>
Rights Certificate
HUSSMANN INTERNATIONAL, INC.
This certifies that _______________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions
of the Rights Agreement, dated as of ____________, 1997 (the "Rights
Agreement"), between Hussmann International, Inc., a Delaware corporation
(the "Company"), and First Chicago Trust Company of New York , a New York
corporation (the "Rights Agent"), to purchase from the Company at any time
prior to 5:00 P.M. (St. Louis time) on December 31, 2007 at the office or
offices of the Rights Agent designated for such purpose, or its successors
as Rights Agent, one one-hundredth of a fully paid, nonassessable
share of Series A Junior Participating Preferred Stock, par value $.001 per
share (the "Preferred Stock"), of the Company, at a purchase price of $__ per
one one-hundredth of a share (the "Purchase Price"), upon presentation and
surrender of this Rights Certificate with the Form of Election to Purchase
and related Certificate duly executed. The number of Rights evidenced by
this Rights Certificate (and the number of shares which may be purchased upon
exercise thereof) set forth above, and the Purchase Price per share set forth
above, are the number and Purchase Price as of December 31, 1997, based on
the Preferred Stock as constituted at such date. The Company reserves the
right to require prior to the occurrence of a Triggering Event (as such term
is defined in the Rights Agreement) that, upon any exercise of Rights, a
number of Rights be exercised so that only whole shares of Preferred Stock
will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate
or Associate of any such Acquiring Person (as such terms are defined in the
Rights Agreement), (ii) a transferee of any such Acquiring Person, Associate
or Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person or an Affiliate or Associate of such Person, such Rights
shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section
11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the
number and kind of shares of Preferred Stock or other securities which may be
purchased upon the exercise of the Rights
B-2
<PAGE>
evidenced by this Rights Certificate are subject to modification and
adjustment upon the happening of certain events, including Triggering Events.
This Rights Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description
of the rights, limitations of rights, obligations, duties and immunities
hereunder of the Rights Agent, the Company and the holders of the Rights
Certificates, which limitations of rights include the temporary suspension of
the exercisability of such Rights under the specific circumstances set forth
in the Rights Agreement. Copies of the Rights Agreement are on file at the
above-mentioned office of the Rights Agent and are also available upon
written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent
designated for such purpose, may be exchanged for another Rights Certificate
or Rights Certificates of like tenor and date evidencing Rights entitling the
holder to purchase a like aggregate number of one one-hundredths of a share
of Preferred Stock as the Rights evidenced by the Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may, in each case at the option of the Company,
be (i) redeemed by the Company at its option at a redemption price of $.01
per Right or (ii) exchanged in whole or in part for shares of Common Stock or
other securities of the Company. Immediately upon the action of the Board of
Directors of the Company authorizing redemption, the Rights will terminate
and the only right of the holders of Rights will be to receive the redemption
price.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which
are integral multiples of one one-hundredth of a share of Preferred Stock,
which may, at the election of the Company, be evidenced by depositary
receipts), but in lieu thereof a cash payment will be made, as provided in
the Rights Agreement.
B-3
<PAGE>
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of
Preferred Stock or of any other securities of the Company which may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action,
or, to receive notice of meetings or other actions affecting stockholders
(except as provided in the Rights Agreement), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by
this Rights Certificate shall have been exercised as provided in the Rights
Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned manually or by facsimile
signature by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of _______ __, ____
ATTEST: HUSSMANN INTERNATIONAL, INC.
_________________________ By: ________________________
Secretary Name:
Title:
Countersigned:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By: ____________________
Authorized Signature
B-4
<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED ___________________________________________________________
hereby sells, assigns and transfers unto _____________________________________
______________________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________ Attorney, to
transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ___________________, ____
_____________________________
Signature
Signature Guaranteed:
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of an Acquiring Person
(as such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by
this Rights Certificate from any Person who is, was or subsequently
became an Acquiring Person or an Affiliate or Associate of an
Acquiring Person.
Dated: _______, ____ ____________________________
Signature
Signature Guaranteed:
B-5
<PAGE>
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise Rights represented by the
Rights Certificate.)
TO: HUSSMANN INTERNATIONAL, INC.
The undersigned hereby irrevocably elects to exercise ______ Rights
represented by this Rights Certificate to purchase the shares of Preferred
Stock issuable upon the exercise of the Rights (or such other securities of
the Company or of any other person which may be issuable upon the exercise of
the Rights) and requests that certificates for such shares (or other
securities) be issued in the name of and delivered to:
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by
this Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
B-6
<PAGE>
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
Dated: _____________, ____
________________________________________
Signature
Signature Guaranteed:
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ]
are not being exercised by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of an Acquiring Person
(as such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by
this Rights Certificate from any Person who is, was or became an
Acquiring Person or an Affiliate or Associate of an Acquiring Person.
Dated: _________, ____ __________________________________________________
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
B-7
<PAGE>
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
On ____________, 1997, the Board of Directors of Hussmann
International, Inc. (the "Company") declared a dividend distribution of one
Right for each outstanding share of the Company's common stock, par value
$.001 per share ("Common Stock"), to stockholders of record at the close of
business on ____________, 1997. Each Right entitles the registered holder to
purchase from the Company a unit consisting of one one-hundredth of a share
(a "Unit") of Series A Junior Participating Preferred Stock, par value $.001
per share (the "Preferred Stock"), at a Purchase Price of $__ per Unit,
subject to adjustment. The description and terms of the Rights are set forth
in a Rights Agreement (the "Rights Agreement") dated as of ____________, 1997
between the Company and First Chicago Trust Company of New York, as Rights
Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Rights
certificates will be distributed. The Rights will separate from the Common
Stock and the Distribution Date will occur upon the earlier of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 15% or more of the outstanding
shares of Common Stock (the "Stock Acquisition Date"), or (ii) 10 business
days (or such later date as may be determined by action of the Board of
Directors prior to such time as any person or group becomes an Acquiring
Person) following the commencement of a tender offer or exchange offer that
would result in a person or group beneficially owning 15% or more of the
outstanding shares of Common Stock.
Until the Distribution Date, (i) the Rights will be evidenced by the
Common Stock certificates and will be transferred with and only with such
Common Stock certificates, (ii) new Common Stock certificates issued on or
after ____________, 1997 will contain a notation incorporating the Rights
Agreement by reference and (iii) the surrender for transfer of any
certificates for Common Stock outstanding will also constitute the transfer
of the Rights associated with the Common Stock represented by such
certificate.
Pursuant to the Rights Agreement, the Company reserves the right to
require prior to the occurrence of a Triggering
<PAGE>
Event (as defined below) that, upon any exercise of Rights, a number of
Rights be exercised so that only whole shares of Preferred Stock will be
issued.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on ____________, 2007, unless earlier
redeemed by the Company as described below.
As soon as practicable after the Distribution Date, Rights
certificates will be mailed to holders of record of the Common Stock as of
the close of business on the Distribution Date and, thereafter, the separate
Rights certificates alone will represent the Rights. Except as otherwise
provided in the Rights Agreement, only shares of Common Stock issued prior to
the Distribution Date will be issued with Rights.
In the event that, at any time following the Distribution Date, a
person or group becomes an Acquiring Person, each holder of a Right will
thereafter have the right to receive, upon exercise, Common Stock having a
value equal to two times the exercise price of the Right. If an insufficient
number of shares of Common Stock is authorized for issuance, then the Board
would be required to substitute cash, property or other securities of the
Company for the Common Stock. Notwithstanding any of the foregoing,
following the occurrence of the event set forth in this paragraph, all Rights
that are, or (under certain circumstances specified in the Rights Agreement)
were, beneficially owned by any Acquiring Person will be null and void.
However, Rights are not exercisable following the occurrence of the event set
forth in this paragraph until such time as the Rights are no longer
redeemable by the Company as set forth below.
For example, at an exercise price of $___ [insert exercise price]
per Right, each Right not owned by an Acquiring Person (or by certain related
parties) following an event set forth in the preceding paragraph would
entitle its holder to purchase $___ [insert two times exercise price] worth
of Common Stock (or other consideration, as noted above) for $___
[insert exercise price]. Assuming that the Common Stock had a per share value
of $___ [insert approximate trading price] at such time, the holder of each
valid Right would be entitled to purchase _____
[insert two times exercise price divided by trading price inserted above]
shares of Common Stock for $___ [insert exercise price].
In the event that, at any time following the Stock Acquisition Date,
(i) the Company is acquired in a merger or other business combination
transaction in which the Company is
C-2
<PAGE>
not the surviving corporation, or (ii) 50% or more of the Company's assets or
earning power is sold or transferred, each holder of a Right (except Rights
which previously have been voided as set forth above) shall thereafter have
the right to receive, upon exercise, common stock of the acquiring company
having a value equal to two times the exercise price of the Right. The
events set forth in this paragraph and in the second preceding paragraph are
referred to as the "Triggering Events." In addition, the Rights may be
exchanged, in whole or in part, for shares of the Common Stock, or shares of
Preferred Stock having essentially the same value or economic rights as such
shares.
The purchase price payable, and the number of Units of Preferred
Stock or other securities or property issuable, upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i) in the
event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Stock, (ii) if holders of the Preferred
Stock are granted certain rights or warrants to subscribe for Preferred Stock
or convertible securities at less than the current market price of the
Preferred Stock, or (iii) upon the distribution to holders of the Preferred
Stock of evidences of indebtedness or assets (excluding regular quarterly
cash dividends) or of subscription rights or warrants (other than those
referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an
adjustment in cash will be made based on the market price of the Preferred
Stock on the last trading date prior to the date of exercise.
At any time after any person or group becomes an Acquiring Person
and prior to the acquisition by such person or group of 50% or more of the
outstanding shares of Common Stock, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such person or group which
will have become void), in whole or in part, at an exchange ratio of one
share of Common Stock, or one one-hundredth of a share of Preferred Stock (or
of a share of a class or series of the Company's preferred stock having
equivalent rights, preferences and privileges), per Right (subject to
adjustment).
In general, the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (payable in cash, Common Stock or other
consideration deemed appropriate by the Board of Directors) at any time until
ten days following the
C-3
<PAGE>
Stock Acquisition Date. Immediately upon the action of the Board of
Directors authorizing any redemption, the Rights will terminate and the only
right of the holders of Rights will be to receive the redemption price.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not result in the recognition of taxable income by stockholders or the
Company, stockholders may, depending upon the circumstances, recognize
taxable income in the event that the Rights become exercisable for Common
Stock (or other consideration of the Company) or for common stock of the
acquiring company as set forth above.
The terms of the Rights may be amended by the Board of Directors of
the Company without the consent of the holders of the Rights, including an
amendment to lower certain thresholds described above to not less than the
greater of (i) the sum of .001% and the largest percentage of the outstanding
shares of Common Stock then known to the Company to be beneficially owned by
any person or group of affiliated or associated persons and (ii) 10%, and (b)
to raise such thresholds to not more than 20%, except that from and after
such time as any person or group of affiliated or associated persons becomes
an Acquiring Person no such amendment may adversely affect the interests of
the holders of the Rights.
A copy of the Rights Agreement is available free of charge from the
Rights Agent. This description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, which
is incorporated herein by reference.
C-4
<PAGE>
DISTRIBUTION AND INDEMNITY AGREEMENT
DATED AS OF _________, 1997
BY AND AMONG
WHITMAN CORPORATION,
HUSSMANN INTERNATIONAL, INC.
and
HUSSMANN CORPORATION
<PAGE>
DISTRIBUTION AND INDEMNITY AGREEMENT
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.01 General . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II. THE DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . .7
Section 2.01 The Distribution. . . . . . . . . . . . . . . . . . . . .7
Section 2.02 Cooperation Prior to the Distribution . . . . . . . . . .8
Section 2.03 Conditions to the Distribution. . . . . . . . . . . . . .9
ARTICLE III. TRANSACTIONS RELATING TO THE DISTRIBUTION. . . . . . . . . . .9
Section 3.01 Intercorporate Reorganization . . . . . . . . . . . . . .9
Section 3.02 Repayment of Intercompany Indebtedness
and Cash Dividend . . . . . . . . . . . . . . . . . . 10
Section 3.03 Satisfaction and Waiver of Any Claims . . . . . . . . . 10
Section 3.04 Hussmann Tax Sharing Agreement. . . . . . . . . . . . . 11
Section 3.05 Employee Benefit Plans and Other
Compensation Arrangements . . . . . . . . . . . . . . 11
Section 3.06 Board of Directors and Resignations . . . . . . . . . . 21
Section 3.07 Hussmann Rights Agreement . . . . . . . . . . . . . . . 21
Section 3.08 Insurance . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE IV. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.01 Indemnification by Whitman. . . . . . . . . . . . . . . 23
Section 4.02 Indemnification by Hussmann and
Hussmann Operating Company. . . . . . . . . . . . . . 23
Section 4.03 Limitations on Indemnification
Obligations . . . . . . . . . . . . . . . . . . . . . 23
Section 4.04 Procedures for Indemnification. . . . . . . . . . . . . 25
Section 4.05 Remedies Cumulative . . . . . . . . . . . . . . . . . . 27
Section 4.06 Survival of Indemnities . . . . . . . . . . . . . . . . 27
ARTICLE V. ACCESS TO INFORMATION. . . . . . . . . . . . . . . . . . . . 28
Section 5.01 Access to Information . . . . . . . . . . . . . . . . . 28
Section 5.02 Production of Witnesses . . . . . . . . . . . . . . . . 28
Section 5.03 Retention of Records. . . . . . . . . . . . . . . . . . 28
-1-
<PAGE>
Section 5.04 Confidentiality . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VI. ADDITIONAL COVENANTS. . . . . . . . . . . . . . . . . . . . . 29
Section 6.01 Corporate Names . . . . . . . . . . . . . . . . . . . . . 29
Section 6.02 Privileged Matters. . . . . . . . . . . . . . . . . . . . 30
Section 6.03 Limitation on Solicitation of Employees . . . . . . . . . 32
Section 6.04 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.05 Further Assurances. . . . . . . . . . . . . . . . . . . . 33
Section 6.06 Qualification as Tax-Free Distribution. . . . . . . . . . 33
Section 6.07 Insurance Coverage Litigation . . . . . . . . . . . . . . 34
ARTICLE VII. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.01 Complete Agreement; Conflict with Hussmann
Tax Sharing Agreement . . . . . . . . . . . . . . . . . 34
Section 7.02 Survival of Agreements. . . . . . . . . . . . . . . . . 35
Section 7.03 Governing Law . . . . . . . . . . . . . . . . . . . . . 35
Section 7.04 Notices . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.05 Amendments. . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.06 Successors and Assigns. . . . . . . . . . . . . . . . . 35
Section 7.07 Termination . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.08 No Third Party Beneficiaries. . . . . . . . . . . . . . 36
Section 7.09 Titles and Headings . . . . . . . . . . . . . . . . . . 36
Section 7.10 Severability. . . . . . . . . . . . . . . . . . . . . . 36
Section 7.11 Specific Performance. . . . . . . . . . . . . . . . . . 36
Section 7.12 Waivers . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.13 Execution in Counterparts . . . . . . . . . . . . . . . 37
SCHEDULE A: Hussmann Limits of Liability . . . . . . . . . . . . . . . .A-1
SCHEDULE B: Whitman Indemnification of Hussmann Indemnitees . . . . . . .B-1
SCHEDULE C: Hussmann and Hussmann Operating Company Indemnification
of Whitman Indemnitees. . . . . . . . . . . . . . . . . . . .C-1
-ii-
<PAGE>
DISTRIBUTION AND INDEMNITY AGREEMENT
DISTRIBUTION AND INDEMNITY AGREEMENT (this "AGREEMENT"), dated as of
______________, 1997, by and among WHITMAN CORPORATION, a Delaware
corporation ("WHITMAN"), HUSSMANN INTERNATIONAL, INC., a Delaware corporation
and, as of the date hereof, a wholly-owned subsidiary of Whitman
("HUSSMANN"), and HUSSMANN CORPORATION, a Missouri corporation and, as of the
Distribution Date, a wholly-owned subsidiary of Hussmann ("HUSSMANN OPERATING
COMPANY").
WHEREAS, the Whitman Board has determined that it is appropriate and
desirable to spin off Hussmann by distributing all of the shares of Hussmann
Common Stock owned by Whitman on the Distribution Date on a pro rata basis to
the holders of record of Whitman Common Stock as of the Record Date; and
WHEREAS, Whitman, Hussmann and Hussmann Operating Company have
determined that it is appropriate and desirable to set forth the principal
corporate transactions required to effect such distribution and certain other
agreements that will govern certain matters relating to such distribution;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 GENERAL. In this Agreement, the following terms have
the meanings specified or referred to in this Article I and shall be equally
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement. Unless the context clearly indicates otherwise, the word "including"
means "including but not limited to."
ACTION: any action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
AFFILIATE: when used with respect to a specified Person, another
Person that controls, is controlled by, or is under common control with the
Person specified. As used in this Agreement, "control" means the possession,
directly or indirectly, of the
<PAGE>
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or other
interests, by contract or otherwise.
AGENT: First Chicago Trust Company of New York, as distribution
agent.
AVAILABLE WHITMAN RESERVES: has the meaning specified in SECTION
3.05(c)(3).
CODE: the Internal Revenue Code of 1986, as amended, and the Treasury
regulations promulgated thereunder, including any successor legislation.
COMMISSION: the Securities and Exchange Commission.
CONVEYANCE AND ASSUMPTION INSTRUMENTS: collectively, the various
agreements, instruments and other documents to be entered into to effect the
transfer of assets and the assumption of Liabilities contemplated by this
Agreement.
DISTRIBUTION: the distribution to holders of record of Whitman Common
Stock as of the Record Date of all of the shares of Hussmann Common Stock owned
by Whitman on the Distribution Date.
DISTRIBUTION DATE: the date determined by the Whitman Board (or a
duly authorized committee thereof) on which the Distribution shall be effected.
EMPLOYEE BENEFIT PLAN: an employee welfare benefit plan or an
employee pension benefit plan as defined in Sections 3(1) and 3(2) of ERISA or a
plan which is both an employee welfare benefit plan and an employee pension
benefit plan.
ENVIRONMENTAL COVERAGE LITIGATION: has the meaning specified in
SECTION 6.07.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended, or any successor legislation.
EXCHANGE ACT: the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder, including any successor
legislation.
FOREIGN EXCHANGE RATE: with respect to any currency other than United
States dollars as of any date of determination, the average of the opening bid
and asked rates on such date at which such currency may be exchanged for United
States dollars as quoted by The First National Bank of Chicago or, if not quoted
by said Bank, by Citicorp, N.A.
-2-
<PAGE>
HUSSMANN: Hussmann International, Inc., a Delaware corporation and,
as of the date hereof, a wholly-owned subsidiary of Whitman.
HUSSMANN COMMON STOCK: the Common Stock, $.001 par value, of
Hussmann.
HUSSMANN DEBT REPAYMENT: has the meaning specified in SECTION
3.02(a).
HUSSMANN ERP: has the meaning specified in SECTION 3.05(e)(1).
HUSSMANN FORM 10: the registration statement on Form 10 filed by
Hussmann with the Commission to effect the registration of the Hussmann Common
Stock pursuant to the Exchange Act.
HUSSMANN FUNDED WELFARE PLAN: has the meaning specified in SECTION
3.05(c)(1).
HUSSMANN INDEMNITEES: has the meaning specified in SECTION
3.05(a)(2)(II).
HUSSMANN MANAGEMENT INCENTIVE COMPENSATION PLAN: has the meaning
specified in SECTION 3.05(a)(1).
HUSSMANN MASTER TRUST: has the meaning specified in SECTION
3.05(e)(2).
HUSSMANN OPERATING COMPANY: Hussmann Corporation, a Missouri
corporation and, as of the Distribution Date, a wholly-owned subsidiary of
Hussmann.
HUSSMANN PARTICIPANTS: has the meaning specified in SECTION
3.05(d)(1)(I).
HUSSMANN PENSION PLAN BENEFICIARIES: has the meaning specified in
SECTION 3.05(e)(1).
HUSSMANN PENSION PLANS: has the meaning specified in SECTION
3.05(e)(1).
HUSSMANN RIGHTS: Preferred Stock Purchase Rights of Hussmann issued
pursuant to the Hussmann Rights Agreement.
-3-
<PAGE>
HUSSMANN RIGHTS AGREEMENT: the Rights Agreement, to be entered into
on or prior to the Distribution Date, between Hussmann and First Chicago Trust
Company of New York.
HUSSMANN RSP PLANS: has the meaning specified in SECTION
3.05(d)(1)(I).
HUSSMANN RSP TRUST: has the meaning specified in SECTION
3.05(d)(1)(I).
HUSSMANN SEPARATED EMPLOYEE: any individual (i) who, on or prior to
the Distribution Date, was employed by Whitman or any of its subsidiaries
(including Hussmann or any subsidiary of Hussmann) and who, prior to the
Distribution Date, was last employed by Hussmann or any Hussmann Subsidiary or
(ii) who, on or after the Distribution Date or otherwise in connection with the
Distribution, remains or becomes employed by Hussmann or any Hussmann
Subsidiary, including any beneficiary or dependent of such individual, as
applicable.
HUSSMANN SPLIT DOLLAR PLAN: has the meaning specified in SECTION
3.05(f)(1).
HUSSMANN STOCK INCENTIVE PLAN: has the meaning specified in SECTION
3.05(b)(2).
HUSSMANN SUBSIDIARY: any subsidiary of Hussmann on the Distribution
Date that will remain a subsidiary of Hussmann immediately following the
Distribution Date, including Hussmann Operating Company, and any other
subsidiary of Hussmann which thereafter may be organized or acquired.
HUSSMANN TAX SHARING AGREEMENT: the Tax Sharing Agreement, dated the
date hereof, between Whitman, Hussmann and Hussmann Operating Company.
HUSSMANN WELFARE BENEFIT PLANS: has the meaning specified in SECTION
3.05(c)(1).
HUSSMANN WELFARE TRUST: has the meaning specified in SECTION
3.05(c)(1).
INDEMNIFYING PARTY: has the meaning specified in SECTION 4.03(a).
INDEMNITEE: has the meaning specified in SECTION 4.03(a).
INFORMATION: has the meaning specified in SECTION 5.01.
-4-
<PAGE>
INFORMATION STATEMENT: the Information Statement sent to the holders
of Whitman Common Stock in connection with the Distribution.
INSURANCE PROCEEDS: those monies (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of an insured,
in either case net of any applicable premium adjustments (including reserves),
retrospectively rated premium adjustments, deductibles, retentions, costs paid
by such insured or repayments by such insured to such insurance carrier of any
monies previously received by such insured from such insurance carrier.
IRS: the Internal Revenue Service.
LIABILITIES: any and all debts, liabilities and obligations, absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising (unless otherwise specified in
this Agreement), including all costs and expenses relating thereto, and
including, without limitation, those debts, liabilities and obligations arising
under any law, rule, regulation, Action, threatened Action, order or consent
decree of any governmental entity or any award of any arbitrator of any kind,
and those arising under any contract, commitment or undertaking.
LOSS and LOSSES: have the meanings specified in SECTION 3.05(a)(1).
MANAGEMENT COMMITTEE: has the meaning specified in SECTION
3.05(e)(2).
MIDAS COMMON STOCK: the Common Stock, $.001 par value, of Midas
Group, Inc.
OPTION: any option granted under the Whitman Stock Incentive Plan.
PENSION EFFECTIVE DATE: has the meaning specified in SECTION
3.05(e)(2).
PERSON: any natural person, corporation, business trust, joint
venture, limited liability company, association, company, partnership or
government, or any agency or political subdivision thereof.
PNEUMO ABEX: has the meaning specified in SECTION 6.07.
RECORD DATE: the close of business, New York time, on the date to be
determined by the Whitman Board (or a duly authorized committee thereof) as the
record date for the Distribution.
-5-
<PAGE>
REPRESENTATIVES: has the meaning specified in SECTION 5.01.
RESTRICTED STOCK: any award of restricted shares of Whitman Common
Stock granted under the Restricted Stock Award provisions of the Whitman Stock
Incentive Plan.
RSP COMMITTEE: has the meaning specified in SECTION 3.05(d)(2).
RSP EFFECTIVE DATE: has the meaning specified in SECTION
3.05(d)(1)(I).
SPLIT DOLLAR EFFECTIVE DATE: has the meaning specified in SECTION
3.05(f)(1).
SPREAD: has the meaning specified in SECTION 3.05(b)(1).
SUBSIDIARIES: the term "subsidiaries" as used herein with respect to
any entity shall mean any corporation, partnership or other entity of which such
entity (i) owns, directly or indirectly, ownership interests sufficient to elect
a majority of the board of directors (or individuals performing similar
functions) (irrespective of whether at the time any other class or classes of
ownership interests of such corporation, partnership or other entity shall or
might have such voting power upon the occurrence of any contingency) or (ii) is
a general partner or an entity performing similar functions, and
shall, unless otherwise indicated, be deemed to refer to both direct and
indirect subsidiaries of such entity.
TAXING SAVING: has the meaning specified in SECTION 4.03(b).
THIRD PARTY CLAIM: has the meaning specified in SECTION 4.04(b)(1).
WELFARE COMMITTEE: has the meaning specified in SECTION 3.05(c)(3).
WELFARE EFFECTIVE DATE: has the meaning specified in SECTION
3.05(c)(1).
WHITMAN: Whitman Corporation, a Delaware corporation.
WHITMAN BOARD: the Board of Directors of Whitman.
WHITMAN COMMON STOCK: the Common Stock, without par value, of
Whitman.
WHITMAN FUNDED WELFARE PLAN: has the meaning specified in SECTION
3.05(c)(1).
-6-
<PAGE>
WHITMAN INDEMNITEES: has the meaning specified in SECTION 3.05(a)(1).
WHITMAN MASTER TRUST: has the meaning specified in SECTION
3.05(e)(1).
WHITMAN MIC PLAN: has the meaning specified in SECTION 3.05(a)(2).
WHITMAN RSP PLANS: has the meaning specified in SECTION
3.05(d)(1)(I).
WHITMAN RSP TRUST: has the meaning specified in SECTION
3.05(d)(1)(I).
WHITMAN SPLIT DOLLAR PLAN: has the meaning specified in SECTION
3.05(d)(1).
WHITMAN STOCK INCENTIVE PLAN: the Whitman Corporation Stock Incentive
Plan.
WHITMAN SUBSIDIARY: any subsidiary of Whitman other than Hussmann or
any Hussmann Subsidiary.
WHITMAN WELFARE TRUST: has the meaning specified in SECTION
3.05(c)(1).
ARTICLE II
THE DISTRIBUTION
Section 2.01 THE DISTRIBUTION.
(a) Subject to SECTION 2.03 and SECTION 7.07 hereof, prior to the
Distribution Date, Whitman shall deliver to the Agent, for the benefit of the
holders of record of Whitman Common Stock on the Record Date, one or more stock
certificates, endorsed by Whitman in blank, representing all of the then
outstanding shares of Hussmann Common Stock owned by Whitman, and shall instruct
the Agent on the Distribution Date either to distribute in certificated form, or
make book-entry credits for, the appropriate number of such shares of Hussmann
Common Stock to each such holder (and, if applicable, cash in lieu of any
fractional shares obtained in the manner provided in SECTION 2.01(c)). Each of
Whitman and Hussmann shall provide to the Agent all share certificates and any
information required in order to complete the Distribution on the basis of one
share of Hussmann Common Stock for every ___ shares of Whitman Common Stock
outstanding on the Record Date. With respect to any Restricted Stock
outstanding as of the close of business on the Distribution Date that is then
held on behalf of a Hussmann Separated Employee, the shares of Hussmann Common
Stock and Midas Common Stock distributed in the Distribution in
-7-
<PAGE>
respect of such Restricted Stock shall be treated in the manner set forth in
SECTION 3.05(b)(3).
(b) The Distribution shall be effective as of the close of business,
New York time, on the Distribution Date.
(c) No certificates representing fractional shares of Hussmann Common
Stock shall be distributed in the Distribution. Holders that request or receive
delivery of physical certificates representing Hussmann Common Stock in the
Distribution and holders that would receive less than one whole share of
Hussmann Common Stock in the Distribution will receive cash in lieu of any
fractional shares. As soon as practicable after the Distribution Date, Whitman
shall instruct the Agent to determine the number of fractional shares of
Hussmann Common Stock allocable to each holder of record of Whitman Common Stock
as of the Record Date who will receive cash in lieu of a fractional share of
Hussmann Common Stock, to aggregate all such fractional shares and sell the
whole shares obtained thereby on the New York Stock Exchange or otherwise, in
each case at then prevailing trading prices, and to cause to be distributed to
each such holder, in lieu of any fractional share, such holder's ratable share
of the proceeds of such sale, after deducting an amount equal to all brokerage
charges, commissions and transfer taxes attributed to such sale.
Section 2.02 COOPERATION PRIOR TO THE DISTRIBUTION.
(a) Whitman and Hussmann have prepared, and Whitman shall mail, prior
to the Distribution Date, to the holders of Whitman Common Stock as of the
Record Date, the Information Statement, which shall set forth appropriate
disclosure concerning Hussmann, the Distribution and other matters. Whitman and
Hussmann have prepared, and Hussmann has filed with the Commission, the Hussmann
Form 10, which includes or incorporates by reference portions of the Information
Statement. Whitman and Hussmann shall use reasonable efforts to cause the
Hussmann Form 10 to become effective under the Exchange Act as soon as
practicable.
(b) Whitman and Hussmann shall cooperate in preparing, filing with
the Commission and causing to become effective any registration statements or
amendments thereof which are required to reflect the establishment of, or
amendments to, any employee benefit and other plans contemplated by the
Distribution and this Agreement.
(c) Whitman and Hussmann shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States (and any comparable laws of
any foreign jurisdiction), in connection with the transactions contemplated by
this Agreement.
-8-
<PAGE>
(d) Whitman and Hussmann have prepared, and Hussmann has filed in
preliminary form and shall seek to make effective, an application to permit
listing of the Hussmann Common Stock (as well as the associated Hussmann Rights)
on the New York Stock Exchange. In the event that the Hussmann Common Stock is
not accepted for listing on the New York Stock Exchange, Hussmann shall apply
for quotation of the Hussmann Common Stock (as well as the associated Hussmann
Rights) on The Nasdaq Stock Market.
Section 2.03 CONDITIONS TO THE DISTRIBUTION. This Agreement and the
consummation of each of the transactions provided for herein shall be subject to
approval of the Whitman Board. The Whitman Board (or a duly authorized
committee thereof) shall in its discretion establish the Record Date and the
Distribution Date and all appropriate procedures in connection with the
Distribution, but in no event shall the Distribution Date occur prior to such
time as each of the following have occurred or have been waived by the Whitman
Board in its sole discretion: (1) the Whitman Board shall have formally
approved the Distribution; (2) the Hussmann Form 10 shall have been declared
effective by the Commission; (3) a ruling(s) from the IRS shall have been
obtained, and continue in effect, that in substance provides that the
Distribution will qualify as a tax-free "spin-off" under Section 355 of the
Code, and such ruling(s) shall be in form and substance satisfactory to Whitman
in its sole discretion; (4) the Board of Directors of Hussmann, comprised as
contemplated by SECTION 3.06(a), shall have been duly elected; (5) the Hussmann
Common Stock shall have been accepted for listing on the New York Stock Exchange
or for quotation on The Nasdaq Stock Market; (6) the transactions contemplated
by SECTION 3.01 and SECTION 3.02 shall have been consummated in all material
respects; and (7) no order, injunction or decree issued by any court or agency
of competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Distribution shall be in effect and no other event shall
have occurred or failed to occur that prevents the consummation of the
Distribution; PROVIDED, HOWEVER, that the satisfaction of such conditions shall
not create any obligation on the part of Whitman to effect the Distribution or
in any way limit Whitman's power of termination set forth in SECTION 7.07 or
alter the consequences of any such termination from those specified in such
Section.
ARTICLE III
TRANSACTIONS RELATING TO THE DISTRIBUTION
Section 3.01 INTERCORPORATE REORGANIZATION.
(a) At least one business day prior to the Distribution Date, a
series of steps shall be consummated for the purpose of separating from Whitman
any assets that are related to the business of Hussmann. The steps to be taken,
the specific form
-9-
<PAGE>
and sequence of which shall be in the sole discretion of the management of
Whitman shall, among other things, result in Hussmann directly owning all of
the outstanding capital stock of Hussmann Operating Company and directly or
indirectly owning all of the foreign Subsidiaries and Affiliates of Whitman
that are related to the business of Hussmann. The transfer of capital stock
shall be effected by means of delivery of one or more stock certificates duly
endorsed or accompanied by duly executed stock powers and notation on the
stock records books of the corporation or other legal entities involved and,
to the extent required by applicable law, by notation on appropriate
registries.
(b) In connection with transfers of assets other than capital stock
and the assumptions of any Liabilities, Whitman and Hussmann shall execute or
cause to be executed by the appropriate entities the Conveyance and Assumption
Instruments in such forms as Whitman and Hussmann shall reasonably agree,
including the transfer of any real property by deed.
(c) Prior to the Distribution Date, Whitman and Hussmann shall take
all steps necessary to increase the outstanding shares of Hussmann Common Stock
so that immediately prior to the Distribution, Whitman shall own the number of
shares of Hussmann Common Stock necessary to effect the Distribution.
Section 3.02 REPAYMENT OF INTERCOMPANY INDEBTEDNESS AND CASH
DIVIDEND.
(a) Prior to the Distribution, Hussmann shall repay to Whitman all
intercompany indebtedness owing by Hussmann and the Hussmann Subsidiaries to
Whitman and the Whitman Subsidiaries at the time of such repayment (the
"HUSSMANN DEBT REPAYMENT").
(b) Prior to the Distribution, Hussmann shall pay a cash dividend to
Whitman in an amount which, when added to the amount of the Hussmann Debt
Repayment, equals an aggregate of $____ million.
Section 3.03 SATISFACTION AND WAIVER OF ANY CLAIMS. Hussmann agrees,
on behalf of itself and each Hussmann Subsidiary, except as may otherwise be
provided in the Hussmann Tax Sharing Agreement, that Hussmann and each Hussmann
Subsidiary hereby waives any claim they might otherwise have against Whitman or
any Whitman Subsidiary by reason of dividends or tax benefits paid or made
available to Whitman or any Whitman Subsidiary, by Hussmann or any Hussmann
Subsidiary at any time prior to the Distribution.
-10-
<PAGE>
Section 3.04 HUSSMANN TAX SHARING AGREEMENT. On or prior to the date
hereof, Whitman, Hussmann and Hussmann Operating Company will execute and
deliver the Hussmann Tax Sharing Agreement.
Section 3.05 EMPLOYEE BENEFIT PLANS AND OTHER COMPENSATION
ARRANGEMENTS.
(a) MANAGEMENT INCENTIVE COMPENSATION PLAN.
(1) Hussmann shall establish a Management Incentive Compensation Plan
(the "HUSSMANN MANAGEMENT INCENTIVE COMPENSATION PLAN"). Hussmann and the
Hussmann Subsidiaries shall be solely liable and responsible for all Liabilities
whatsoever arising under the Hussmann Management Incentive Compensation Plan,
and neither Whitman nor any Whitman Subsidiary shall have any Liabilities in
respect thereof at any time. Hussmann and Hussmann Operating Company shall
indemnify, defend and hold harmless Whitman, each Affiliate of Whitman and each
of Whitman's directors, officers and employees and each of the heirs, executors,
successors and assigns of any of the foregoing (the "WHITMAN INDEMNITEES") from
and against any and all losses, Liabilities, claims, damages, payments, absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown (including, without limitation, the costs and
expenses of any and all Actions, threatened Actions, demands, assessments,
judgments, settlements and compromises relating thereto and attorneys' fees and
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any such Actions or threatened Actions (collectively,
"LOSSES" and, individually, a "LOSS")) of the Whitman Indemnitees arising out of
or due to the failure or alleged failure of Hussmann or any of its Affiliates to
pay, perform or otherwise discharge such Liabilities.
(2) With respect to the Whitman Corporation Management Incentive
Compensation Plan (the "WHITMAN MIC PLAN"):
(i) Hussmann and the Hussmann Subsidiaries shall be solely liable and
responsible for all Liabilities whatsoever arising under the Whitman MIC
Plan in connection with any claims made by or on behalf of any Hussmann
Separated Employee, and neither Whitman nor any Whitman Subsidiary shall
have any Liabilities in respect thereof at any time. Hussmann and Hussmann
Operating Company shall indemnify, defend and hold harmless the Whitman
Indemnitees from and against any and all Losses of the Whitman Indemnitees
arising out of or due to the failure or alleged failure of Hussmann or any
of its Affiliates to pay, perform or otherwise discharge such Liabilities.
(ii) Except as set forth in SECTION 3.05(a)(2)(I), Whitman shall be
solely liable and responsible for all Liabilities whatsoever arising under
the Whitman
-11-
<PAGE>
MIC Plan in connection with any claims made by or on behalf of
any individual, and neither Hussmann nor any Hussmann Subsidiary shall have
any Liabilities in respect thereof at any time. Whitman shall indemnify,
defend and hold harmless Hussmann, each Affiliate of Hussmann and each of
Hussmann's and Hussmann Operating Company's directors, officers and
employees and each of the heirs, executors, successors and assigns of any
of the foregoing (the "HUSSMANN INDEMNITEES") from and against any and all
Losses of the Hussmann Indemnitees arising out of or due to the failure or
alleged failure of Whitman or any of its Affiliates to pay, perform or
otherwise discharge such Liabilities.
(b) STOCK INCENTIVE PLAN.
(1) With respect to any Options issued to Hussmann Separated
Employees, the Distribution constitutes a termination of employment from Whitman
and its subsidiaries under the terms of Section 7(E) of the Whitman Stock
Incentive Plan. Each Option held by a Hussmann Separated Employee which is
exercisable on, and not exercised on or prior to, the Distribution Date and with
respect to which the holder has elected prior to the Distribution Date not to
surrender for an option to purchase shares of Hussmann Common Stock shall be
considered outstanding and exercisable according to its terms and the terms of
the Whitman Corporation Stock Incentive Plan. The number of shares of Whitman
Common Stock subject to, and the exercise price of such Option to be determined
in accordance with the requirements of Section 424 of the Code and the
regulations promulgated thereunder. The exercise price of any such Option shall
be rounded to the nearest $.01; the number of shares subject to any such Option
shall be rounded down to the nearest whole share; the aggregate Spread of such
Option immediately after the Distribution Date shall be equal to the Spread of
such Option immediately before the Distribution Date. "SPREAD" means, as of the
same date, the excess of the fair market value of the shares subject to the
option over the aggregate option price.
(2) Whitman and Hussmann shall cooperate and take all action
necessary so that as of the Distribution Date, each Option held by a Hussmann
Separated Employee and which is either (i) exercisable on, and not exercised on
or prior to, the Distribution Date and with respect to which the holder has
elected prior to the Distribution Date to surrender in exchange for an option to
purchase shares of Hussmann Common Stock; or (ii) not exercisable on or prior to
the Distribution Date, shall both, without any action on the part of the holder
thereof, be considered to be surrendered to Whitman in exchange for an option to
be issued from the Stock Incentive Plan to be established by Hussmann (the
"HUSSMANN STOCK INCENTIVE PLAN") to purchase shares of Hussmann Common Stock.
The number of shares of Hussmann Common Stock subject to and the exercise price
of such option shall be determined in accordance with the requirements of
Section 424 of the Code and the regulations promulgated thereunder. The
exercise price of any such option shall be rounded to the
-12-
<PAGE>
nearest $.01; the number of shares subject to any such option shall be
rounded down to the nearest whole share; the aggregate Spread of such option
immediately after the Distribution Date shall be equal to the Spread of each
Option surrendered for it immediately before the Distribution Date; and such
options shall be granted under the Hussmann Stock Incentive Plan with an
outstanding exercise period and vesting schedule which is the same as the
exercise period and vesting schedule of the Option surrendered for it.
(3) The parties agree that Hussmann Separated Employees holding
shares of Restricted Stock on the Record Date will receive shares of Hussmann
Common Stock and Midas Common Stock as a dividend on the Distribution Date, in
common with all other shareholders of Whitman, free of any restriction but
subject to applicable withholding taxes. Whitman and Hussmann will separately
arrange for the payment of such withholding taxes by the recipient. With
respect to any shares of Restricted Stock outstanding as of the close of
business on the Distribution Date that are then held by a Hussmann Separated
Employee, Whitman and Hussmann shall cooperate and take all action necessary so
that as of the close of business on the Distribution Date such shares of
Restricted Stock and the underlying Restricted Stock Award Agreement will be
canceled and replaced with shares of restricted Hussmann Common Stock of
equivalent value and a Restricted Stock Award Agreement issued under the
Hussmann Stock Incentive Plan having the same vesting schedule as that contained
in the Agreement which it replaced.
(4) Hussmann and the Hussmann Subsidiaries shall be solely liable and
responsible for all Liabilities whatsoever arising under the Whitman Stock
Incentive Plan or Options or Restricted Stock issued thereunder in connection
with any claims made by or on behalf of any Hussmann Separated Employee, and
neither Whitman nor any Whitman Subsidiary shall have any Liabilities in respect
thereof at any time. Hussmann and Hussmann Operating Company shall indemnify,
defend and hold harmless the Whitman Indemnitees from and against any and all
Losses of the Whitman Indemnitees arising out of or due to the failure or
alleged failure of Hussmann or any of its Affiliates to pay, perform or
otherwise discharge such Liabilities or the failure by any Hussmann Separated
Employee to pay the applicable withholding taxes referred to in SECTION
3.05(b)(3).
(5) Except as set forth in SECTION 3.05(b)(4), Whitman shall be
solely liable and responsible for all Liabilities whatsoever arising under the
Whitman Stock Incentive Plan in connection with any claims made by or on behalf
of any individual, and neither Hussmann nor any Hussmann Subsidiary shall have
any Liabilities in respect thereof at any time. Whitman shall indemnify, defend
and hold harmless the Hussmann Indemnitees from and against any and all Losses
of the Hussmann Indemnitees arising out of or due to the failure or alleged
failure of Whitman or any of its Affiliates to pay, perform or otherwise
discharge such Liabilities.
-13-
<PAGE>
(6) Hussmann shall establish the Hussmann Stock Incentive Plan
substantially in the form in which it has been filed as an Exhibit to the
Hussmann Form 10. The Hussmann Stock Incentive Plan shall become effective as
of the Distribution Date for Hussmann Separated Employees. Whitman shall
approve the Hussmann Stock Incentive Plan as the sole shareholder of Hussmann.
Hussmann and the Hussmann Subsidiaries shall be solely liable and responsible
for all Liabilities whatsoever arising under the Hussmann Stock Incentive Plan,
and neither Whitman nor any Whitman Subsidiary shall have any Liabilities in
respect thereof at any time. Hussmann and Hussmann Operating Company shall
indemnify, defend and hold harmless the Whitman Indemnitees from and against any
and all Losses of the Whitman Indemnitees arising out of or due to the failure
or alleged failure of Hussmann or any of its Affiliates to pay, perform or
otherwise discharge such Liabilities.
(c) WELFARE BENEFITS.
(1) Hussmann shall, effective on a date which is on or prior to the
Distribution Date ("WELFARE EFFECTIVE DATE"), establish the Hussmann Corporation
Group Benefits Plan ("HUSSMANN FUNDED WELFARE PLAN") and the Hussmann
Corporation Welfare Benefit Trust ("HUSSMANN WELFARE TRUST"), each substantially
similar to the Whitman Corporation Group Benefits Plan ("WHITMAN FUNDED WELFARE
PLAN") and the Whitman Corporation Welfare Benefit Trust ("WHITMAN WELFARE
TRUST"), respectively. The Hussmann Funded Welfare Plan and the Hussmann
Welfare Trust shall, as of the Welfare Effective Date, assume all Liabilities
whatsoever arising (before, on or after the Welfare Effective Date) under the
Whitman Funded Welfare Plan or the Whitman Welfare Trust, respectively, at any
time with respect to each and every Hussmann Separated Employee. Hussmann shall
continue to provide, effective on the Distribution Date, welfare benefit plans
(as described in ERISA Section 3(c)) it or any Hussmann Subsidiary currently
sponsors to each and every Hussmann Separated Employee substantially similar to
the welfare benefits provided to each and every Hussmann Separated Employee on
the date hereof (all such plans herein referred to as "HUSSMANN WELFARE BENEFIT
PLANS").
(2) Hussmann and the Hussmann Subsidiaries shall be solely liable and
responsible for all Liabilities whatsoever arising under all Hussmann Welfare
Benefit Plans or the Hussmann Welfare Trust, and neither Whitman nor any Whitman
Subsidiary shall have any Liabilities in respect thereof at any time. Hussmann
and the Hussmann Subsidiaries shall be solely liable and responsible for all
Liabilities whatsoever to each and every Hussmann Separated Employee with
respect to the Hussmann Welfare Benefit Plans or the Hussmann Welfare Trust at
any time. Hussmann and Hussmann Operating Company shall indemnify, defend and
hold harmless the Whitman Funded Welfare Plan, the Whitman Welfare Trust, and
the Whitman Indemnitees from and against any and all Losses of the Whitman
Funded Welfare Plan, the Whitman Welfare Trust, and the Whitman Indemnitees
arising out of
-14-
<PAGE>
or due to the failure or alleged failure of the Hussmann Welfare Benefit
Plans, the Hussmann Welfare Trust, Hussmann or any of its Affiliates to pay,
perform or otherwise discharge such Liabilities.
(3) Whitman shall provide to Hussmann, as of the Welfare Effective
Date, a determination of the fair market value of the assets held by the Whitman
Welfare Trust as of the Welfare Effective Date (but excluding the sum of
$__________) ("AVAILABLE WHITMAN RESERVES"). The Whitman Welfare Trust shall
deliver to the Hussmann Welfare Trust an amount, as determined by the Welfare
Benefit Trust Committee for the Whitman Benefit Trust ("WELFARE COMMITTEE"), of
the Available Whitman Reserves, equal to (1) minus (2) where (1) is an amount
determined by multiplying the Available Whitman Reserves times a fraction, the
numerator of which is Whitman's estimate of claim reserve for the fiscal year
ended December 31, 1997, based on historical and current transactions of the
Whitman Welfare Trust attributable to each and every Hussmann Separated
Employee, and the denominator of which is the aggregate claim reserve for the
fiscal year ended December 31, 1997, based on historical and current
transactions of the Whitman Welfare Trust attributable to all activity under the
Whitman Funded Welfare Plan; and (2) is an amount equal to expenses and
contributions incurred but not paid on and prior to the Welfare Effective Date
attributable to each and every Hussmann Separated Employee.
(4) As of the Welfare Effective Date, Whitman, the Welfare Committee,
the Whitman Funded Welfare Plan, and the Whitman Welfare Trust, each to the
extent applicable, shall cause to be issued to Hussmann, the Hussmann Funded
Welfare Plan or the Hussmann Welfare Trust, respectively, for the benefit only
of a Hussmann Separated Employee, all insurance contracts (including health
maintenance organization contracts), administration contracts, or other service
contracts which are either substantially similar to such contracts held by each
or applicable only with respect to a Hussmann Separated Employee. Each such
contract shall include, if any, reserves or retrospective refunds or premiums
due based on the experience realized thereunder with respect to each and every
Hussmann Separated Employee.
(d) RETIREMENT SAVINGS PLANS.
(1)(i) Hussmann shall, as of a date which is on or prior to the
Distribution Date ("RSP EFFECTIVE DATE"), establish two defined
contribution plans and related trust(s) with a trustee designated by
Hussmann (respectively referred to below as the "HUSSMANN RSP PLANS" and
"HUSSMANN RSP TRUST") substantially similar to the Whitman Corporation
Retirement Savings Plan and the Whitman Corporation Master Retirement
Savings Plan (with the exception that on and after the Distribution Date
instead of a Whitman Common Stock fund in both there will be offered a
Hussmann Common Stock fund) and the Whitman Corporation Defined
Contribution Master Trust (respectively referred to below as
-15-
<PAGE>
the "WHITMAN RSP PLANS" and the "WHITMAN RSP TRUST") covering, among
others, each and every Hussmann Separated Employee or beneficiary
thereof who, on or prior to the RSP Effective Date, is either a
participant or a beneficiary, respectively, in either of the Whitman
RSP Plans who has or has accrued a right to an account balance in either
of the Whitman RSP Plans (such persons are referred to as "HUSSMANN
PARTICIPANTS"). Each of the Hussmann RSP Plans and the Hussmann RSP
Trust shall, effective as of the RSP Effective Date, assume all
Liabilities whatsoever arising (before, on or after the RSP Effective
Date) under each of the respective Whitman RSP Plans and the respective
portion of the Whitman RSP Trust with respect to Hussmann Participants.
(ii) Hussmann and the Hussmann Subsidiaries shall be solely liable
and responsible for all Liabilities whatsoever arising under the Hussmann
RSP Plans and Hussmann RSP Trust, and neither Whitman nor any Whitman
Subsidiary shall have any Liabilities in respect thereof at any time.
Hussmann and the Hussmann Subsidiaries shall be solely liable and
responsible for all Liabilities whatsoever to Hussmann Participants with
respect to the Hussmann RSP Plans and Hussmann RSP Trust at any time.
Hussmann and Hussmann Operating Company shall indemnify, defend and hold
harmless the Whitman RSP Plans, the Whitman RSP Trust and the Whitman
Indemnitees from and against any and all Losses of the Whitman RSP Plans,
the Whitman RSP Trust and the Whitman Indemnitees arising out of or due to
the failure or alleged failure of the Hussmann RSP Plans, the Hussmann RSP
Trust, Hussmann or any of its Affiliates to pay, perform or otherwise
discharge such Liabilities.
(2) As of a valuation date not later than 30 calendar days after the
RSP Effective Date, as provided in the Whitman RSP Trust, there shall be
transferred to the Hussmann RSP Trust assets the value of which as of such
valuation date is equal to, as determined by the Administrative Committee of the
Whitman RSP Trust ("RSP COMMITTEE"), the value of the account balances of, and
liabilities with respect to, all Hussmann Participants, as of such valuation
date not otherwise distributed or to be distributed pursuant to the Whitman RSP
Plans, less expenses or contributions incurred or due but not paid as of such
date of transfer with respect to each and every Hussmann Separated Employee.
Such assets shall consist of cash, contract rights, beneficial interests in
collective funds, and shares of stock to the extent that the accounts of
Hussmann Participants under the Whitman RSP Plans were invested in such
investment alternatives. Hussmann shall cause all assets so transferred to the
Hussmann RSP Trust to be allocated among the Hussmann RSP Plans in a manner such
that the value of the assets of each of the Hussmann RSP Plans so allocated
shall be equal to the value of assets transferred from each of the respective
Whitman RSP Plans.
-16-
<PAGE>
(3) As of the RSP Effective Date, Whitman, the RSP Committee, the
Whitman RSP Plans, and the Whitman RSP Trust, each to the extent applicable,
shall cause to be issued to Hussmann, the Hussmann RSP Plans or the Hussmann RSP
Trust, respectively, for the benefit only of Hussmann Participants, all
insurance contracts, administration contracts, or other service contracts which
are either substantially similar to such contracts held by each or applicable
only with respect to Hussmann Participants.
(e) DEFINED BENEFIT PENSION PLANS.
(1) Hussmann shall continue, on and after the Distribution Date,
qualified defined benefit pension plans ("HUSSMANN PENSION PLANS"), which are
presently being funded by the Whitman Corporation Defined Benefit Master Trust
("WHITMAN MASTER TRUST"), and a nonqualified Hussmann Corporation Executive
Retirement Plan ("HUSSMANN ERP"), all of which Hussmann or a Hussmann Subsidiary
currently sponsors for current and former employees and beneficiaries of
employees or former employees of Hussmann and Hussmann Subsidiaries (the
"HUSSMANN PENSION PLAN BENEFICIARIES"). Hussmann and the Hussmann Subsidiaries
shall be solely liable and responsible for all Liabilities whatsoever arising
under the Hussmann Pension Plans and Hussmann ERP, and neither Whitman nor any
Whitman Subsidiary shall have any Liabilities in respect thereof at any time,
except to the extent such Liabilities relate to a benefit accrued by the
Hussmann Participant under a qualified defined benefit pension plan maintained
by Whitman or a Whitman Subsidiary which is offset by the Hussmann Pension Plans
against any benefit accrual under the Hussmann Pension Plans based on the same
period of credited service. Hussmann and the Hussmann Subsidiaries shall be
solely liable and responsible to all Hussmann Pension Plan Beneficiaries for all
Liabilities whatsoever with respect to the Hussmann Pension Plans and Hussmann
ERP at any time. Hussmann and Hussmann Operating Company shall indemnify,
defend and hold harmless the Whitman Master Trust and the Whitman Indemnitees
from and against any and all Losses of the Whitman Master Trust and the Whitman
Indemnitees arising out of or due to the failure or alleged failure of the
Hussmann Pension Plans, Hussmann Master Trust (defined below), Hussmann or any
of its Affiliates to pay, perform or otherwise discharge such Liabilities.
(2) Hussmann shall, as of a date on or prior to the Distribution Date
("PENSION EFFECTIVE DATE"), adopt a Hussmann Corporation Defined Benefit Master
Trust ("HUSSMANN MASTER TRUST") substantially similar to the Whitman Master
Trust and designate a trustee for the Hussmann Master Trust for each of the
Hussmann Pension Plans. As provided in the Whitman Master Trust, the Management
Committee of the Whitman Master Trust ("MANAGEMENT COMMITTEE") shall cause the
Whitman Master Trust to transfer to the Hussmann Master Trust, a PRO RATA
portion (net of accrued expenses, contributions and benefits attributable to
each and every Hussmann Separated Employee) of the cash, securities and other
assets in the Whitman Master
-17-
<PAGE>
Trust as determined solely by the Management Committee on or as soon as
practicable after the Pension Effective Date.
Hussmann shall cause all assets so transferred to the Hussmann Master
Trust to be allocated among the Hussmann Pension Plans in a manner such that the
value of the assets of each of the Hussmann Pension Plans (net of accrued
expenses, contributions, and benefits attributable to each such Hussmann Pension
Plan) so allocated shall be equal to the value of such assets immediately prior
to the transfer from the Whitman Master Trust.
(3) On or as soon as administratively possible after the Distribution
Date, Whitman shall terminate the Canadian Master Trust and the Management
Committee shall cause the Canadian Master Trust to transfer assets to trusts
participating in the Canadian Master Trust in accordance with the terms of the
Canadian Master Trust.
(f) EXECUTIVE SPLIT DOLLAR LIFE INSURANCE PLAN
(1) Hussmann shall, effective on a date which is on or prior to the
Distribution Date ("SPLIT DOLLAR EFFECTIVE DATE"), establish the Hussmann
Executive Split Dollar Life Insurance Plan ("HUSSMANN SPLIT DOLLAR PLAN")
substantially similar to the Whitman Corporation Executive Split Dollar Life
Insurance Plan ("WHITMAN SPLIT DOLLAR PLAN"). The Hussmann Split Dollar Plan
shall, as of the Split Dollar Effective Date, assume all Liabilities whatsoever
arising (before, on or after the Split Dollar Effective Date) under the Whitman
Split Dollar Plan at any time with respect to each and every Hussmann Separated
Employee.
(2) Whitman shall provide to Hussmann on or before the Split Dollar
Effective Date a list of outstanding life insurance policies issued pursuant to
the Whitman Split Dollar Plan to Hussmann Separated Employees and premiums paid
by Whitman for such policies since the inception of the Whitman Split Dollar
Plan. Whitman and Hussmann shall cooperate in obtaining new Split Dollar
Agreements and Collateral Assignments by Hussmann Split Dollar Plan participants
assigning to Hussmann the right to Whitman's Corporate Capital Interest as
provided in the Whitman Split Dollar Plan with respect to past premium
contributions made by Whitman in respect of Hussmann Separated Employees.
Subject to the execution of such Split Dollar Agreements and Collateral
Assignments by Hussmann Split Dollar Plan participants, Hussmann shall reimburse
Whitman for all premium contributions made by Whitman in respect of Hussmann
Separated Employees since the inception of the Whitman Split Dollar Plan
pursuant to SECTION 3.02(a).
(3) Hussmann and the Hussmann Subsidiaries shall be solely liable and
responsible for all Liabilities whatsoever arising under the Hussmann Split
Dollar Plan, and neither Whitman nor any Whitman Subsidiary shall have any
Liabilities in respect
-18-
<PAGE>
thereof at any time. Hussmann and the Hussmann Subsidiaries shall be solely
liable and responsible for all Liabilities whatsoever to each and every
Hussmann Separated Employee with respect to the Hussmann Split Dollar Plan at
any time. Hussmann and Hussmann Operating Company shall indemnify, defend
and hold harmless the Whitman Split Dollar Plan and the Whitman Indemnitees
from and against any and all Losses of the Whitman Split Dollar Plan and the
Whitman Indemnitees arising out of or due to the failure or alleged failure
of the Hussmann Split Dollar Plan, Hussmann or any of its Affiliates to pay,
perform or otherwise discharge such Liabilities.
(g) SEVERANCE PAY.
(1) The parties agree that, with respect to any individual who, in
connection with the Distribution, ceases to be an employee of Whitman or a
Whitman Subsidiary and becomes or continues to be a Hussmann Separated Employee,
such cessation shall not be deemed to be a severance or termination of
employment from Whitman or a Whitman Subsidiary for purposes of any policy,
plan, program or agreement of Whitman or a Whitman Subsidiary that provides for
the payment of severance or salary continuation benefits. The parties agree
that, as of the Distribution Date, all severance compensation agreements between
Whitman or a Whitman Subsidiary and Hussmann Separated Employees shall be
terminated, and that Hussmann will adopt and approve agreements between Hussmann
and such Hussmann Separated Employees, in lieu of such terminated agreements,
which agreements shall be substantially in the form of the Change in Control
Agreement filed as an Exhibit to the Hussmann Form 10.
(2) Hussmann and the Hussmann Subsidiaries shall be solely liable and
responsible for all Liabilities whatsoever arising in connection with any claims
made by or on behalf of Hussmann Separated Employees in respect of severance pay
or salary continuation obligations relating to the termination or alleged
termination of any such individual's employment as of the Distribution Date or
in connection with the Distribution, and neither Whitman nor any Whitman
Subsidiary shall have any Liabilities in respect thereof at any time. Hussmann
and Hussmann Operating Company shall indemnify, defend and hold harmless the
Whitman Indemnitees from and against any and all Losses of the Whitman
Indemnitees arising out of or due to the failure or alleged failure of Hussmann
or any of its Affiliates to pay, perform or otherwise discharge such
Liabilities.
(3) Except as set forth in SECTION 3.05(g)(2), Whitman shall be
solely liable and responsible for all Liabilities whatsoever arising in
connection with any claims made by or on behalf of any individual in respect of
severance pay or salary continuation obligations relating to the termination or
alleged termination of employment of such individual, other than any claim
relating to the termination or alleged termination of employment of a Hussmann
Separated Employee as of the
-19-
<PAGE>
Distribution Date or in connection with the Distribution, and neither
Hussmann nor any Hussmann Subsidiary shall have any Liabilities in respect
thereof at any time. Whitman shall indemnify, defend and hold harmless the
Hussmann Indemnitees from and against any and all Losses of the Hussmann
Indemnitees arising out of or due to the failure or alleged failure of
Whitman or any of its Affiliates to pay, perform or otherwise discharge such
Liabilities.
(h) HUSSMANN LIABILITY TO HUSSMANN SEPARATED EMPLOYEES. As of the
Distribution Date, Hussmann and the Hussmann Subsidiaries shall be solely liable
and responsible for all Liabilities whatsoever arising in connection with any
claims made by or on behalf of Hussmann Separated Employees in respect of any
Employee Benefit Plan or Liabilities not otherwise provided for in this
Agreement, as well as with respect to any employee benefit or payment to a
Hussmann Separated Employee not otherwise provided for in this Agreement, and
neither Whitman nor any Whitman Subsidiary shall have any Liabilities in respect
thereof at any time. Hussmann and Hussmann Operating Company shall indemnify,
defend and hold harmless the Whitman Indemnitees and any relevant Employee
Benefit Plan of the Whitman Indemnitees from and against any and all Losses of
the Whitman Indemnitees and any such Employee Benefit Plan arising out of or due
to the failure or alleged failure of Hussmann or any of its Affiliates to pay,
perform or otherwise discharge such Liabilities. To the extent not otherwise
provided in this Agreement, Whitman and Hussmann shall take such action as is
necessary to effect an adjustment to the books of Whitman and of Hussmann and of
their subsidiaries so that, as of the Distribution Date, the prepaid expense
balances and accrued employee Liabilities, if any, with respect to any employee
Liabilities assumed or retained as of the Distribution Date by Whitman and the
Whitman Subsidiaries, on the one hand, and Hussmann and the Hussmann
Subsidiaries, on the other hand, are appropriately reflected on their respective
balance sheets as of the Distribution Date. To the extent that Whitman pays for
any other expenses or Liabilities in respect of a Hussmann Separated Employee
not otherwise provided for in this Agreement, Hussmann and the Hussmann
Subsidiaries shall reimburse Whitman as of the Distribution Date, to the extent
not previously reimbursed.
(i) WHITMAN LIABILITY TO WHITMAN EMPLOYEES. Except as otherwise
specifically provided in this SECTION 3.05, this Agreement shall not affect any
Employee Benefit Plan or other compensation arrangement of Whitman in respect of
any employees of Whitman or the Whitman Subsidiaries who are not Hussmann
Separated Employees. Except as otherwise specifically provided, (1) this
Agreement shall not affect any Hussmann or Hussmann Subsidiary Employee Benefit
Plans or other compensation arrangements which Hussmann or the Hussmann
Subsidiaries have maintained on or before the Distribution Date and (2) Whitman
shall have no Liabilities with respect to such Employee Benefit Plans or
arrangements at any time.
-20-
<PAGE>
(j) COOPERATION. Whitman and Hussmann shall, in connection with the
transactions and transfers described in SECTION 3.05(d) and SECTION 3.05 (e),
cooperate in making any and all appropriate filings required under the Code or
ERISA and the regulations thereunder and any applicable securities laws and take
all such action as may be necessary to cause such transactions and transfers to
take place on or as soon as practicable after the Distribution Date.
(k) MISCELLANEOUS. Nothing in this Agreement shall be interpreted as
requiring Whitman or Hussmann or any subsidiary of Whitman or Hussmann to
maintain any Employee Benefit Plan or other benefit plan for any period of time
or shall impair the right of any of the foregoing to amend or terminate any such
Employee Benefit Plan or other benefit plan in accordance with its terms or
applicable law. Nothing in this Agreement shall be construed to create a right
in any employee or dependent or beneficiary of any employee under an Employee
Benefit Plan or other benefit plan which such employee, dependent or beneficiary
would not otherwise have under the terms of such Employee Benefit Plan or other
benefit plan.
Section 3.06 BOARD OF DIRECTORS AND RESIGNATIONS.
(a) Hussmann and Whitman shall take all actions which may be required
to elect as directors of Hussmann, on or prior to the Distribution Date, the
persons named in the Hussmann Form 10 to constitute the Board of Directors of
Hussmann on the Distribution Date.
(b) Whitman shall cause each of its employees to resign, effective as
of the close of business on the Distribution Date, from all positions as a
director and/or officer of Hussmann and any Hussmann Subsidiary; and Hussmann
shall cause each of its employees to resign, effective as of the close of
business on the Distribution Date, from all positions as a director and/or
officer of Whitman or any Whitman Subsidiary; PROVIDED, HOWEVER, that no
individual shall be required by any party hereto to resign from any position or
office with another party hereto (or a subsidiary of such other party) if such
individual is named or identified in the Information Statement as the individual
who is to hold such position or office after the Distribution.
Section 3.07 HUSSMANN RIGHTS AGREEMENT. Hussmann shall enter into
the Hussmann Rights Agreement substantially in the form attached as an Exhibit
to the Hussmann Form 10.
Section 3.08 INSURANCE.
(a) Since April 1, 1979, Whitman has provided insurance coverage to
Hussmann and the Hussmann Subsidiaries through Whitman's wholly-owned insurance
subsidiary, Whitman Insurance Co., Ltd., for workers' compensation, general
liability,
-21-
<PAGE>
automobile liability and products liability. Hussmann Operating Company has
paid premiums to Whitman Insurance Co., Ltd. to provide such insurance,
without deductibles, and for varying limits of liability, as detailed on
SCHEDULE A. Whitman shall cause Whitman Insurance Co., Ltd. to provide
coverage to Hussmann and the Hussmann Subsidiaries for all those coverages
named above, without deductibles, and up to the limits shown on SCHEDULE A,
for all insured incidents occurring from the date such coverage first
commenced through and including the Distribution Date. The provisions of
insurance coverage applicable to the above are stipulated in policies of
insurance issued to Whitman by Continental Insurance Co., National Union Fire
Insurance Co. and Old Republic Insurance Co.
(b) Since April 1, 1994, Whitman has provided Employment Practices
Liability insurance coverage to Hussmann and the Hussmann Subsidiaries through
Whitman Insurance Co., Ltd. for $900,000 per occurrence with an aggregate of
$2,000,000 per policy period for Whitman and its Subsidiaries excess of the per
occurrence deductible of $100,000, as shown on SCHEDULE A. The insurance
applicable to this coverage is stipulated in policies of insurance issued to
Whitman by Lexington Insurance Co. and Whitman Insurance Co., Ltd.
(c) Since April 1, 1996 Whitman has provided General Liability and
since July 1, 1996 Whitman has provided All Risk Property insurance coverage to
Hussmann and the Hussmann Subsidiaries located outside of the United States and
Canada through Whitman Insurance Co., Ltd. for varying limits excess of varying
deductibles, as shown on SCHEDULE A. The insurance applicable to this coverage
is stipulated in policies of insurance issued to Whitman by Cigna Insurance
Company, CNA and Winterthur Insurance Company.
(d) The parties agree that Hussmann shall have the right to present
claims to Whitman or Whitman's insurers under all policies of insurance placed
by Whitman on behalf of Hussmann or any Hussmann Subsidiary or which include
Hussmann or any Hussmann Subsidiary within them, whether placed through Whitman
Insurance Co., Ltd. or otherwise, for insured incidents occurring from the date
said coverage first commenced until the Distribution Date. The parties agree
that any such policies written on a "claims made" rather than "occurrence" basis
may not provide coverage to Hussmann for incidents occurring on or prior to the
Distribution Date but which are first reported after the Distribution Date.
ARTICLE IV
INDEMNIFICATION
-22-
<PAGE>
Section 4.01 INDEMNIFICATION BY WHITMAN. Except with respect to
employee benefits or other Liabilities to employees, which shall be governed by
SECTION 3.05 hereof, Whitman shall indemnify, defend and hold harmless the
Hussmann Indemnitees from and against any and all Losses of the Hussmann
Indemnities arising out of or due to the failure or alleged failure of Whitman
or any of its Affiliates to pay, perform or otherwise discharge in due course
any item set forth on SCHEDULE B. Anything in this SECTION 4.01 to the contrary
notwithstanding, neither Whitman nor any Whitman Subsidiary shall have any
Liabilities whatsoever to Hussmann or any Hussmann Subsidiary in respect of any
Tax (as such term is defined in the Hussmann Tax Sharing Agreement), except as
otherwise provided on SCHEDULE B hereto or in the Hussmann Tax Sharing
Agreement.
Section 4.02 INDEMNIFICATION BY HUSSMANN AND HUSSMANN OPERATING
COMPANY. Except with respect to employee benefits or other Liabilities to
employees, which shall be governed by SECTION 3.05 hereof, Hussmann and Hussmann
Operating Company shall indemnify, defend and hold harmless the Whitman
Indemnitees from and against any and all Losses of the Whitman Indemnitees
arising out of or due to the failure or alleged failure of Hussmann or any of
its Affiliates to pay, perform or otherwise discharge in due course any item set
forth on SCHEDULE C. Anything in this SECTION 4.02 to the contrary
notwithstanding, neither Hussmann nor any Hussmann Subsidiary shall have any
Liabilities whatsoever to Whitman or any Whitman Subsidiary in respect of any
Tax (as such term is defined in the Hussmann Tax Sharing Agreement), except as
otherwise provided on SCHEDULE C hereto or in the Hussmann Tax Sharing
Agreement.
Section 4.03 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS.
(a) The amount which any party (an "INDEMNIFYING PARTY") is or may be
required to pay to any other Person (an "INDEMNITEE") pursuant to the
indemnification provisions contained in SECTION 3.05, SECTION 4.01 or SECTION
4.02 shall be reduced (including, without limitation, retroactively) by any
Insurance Proceeds or other amounts actually recovered by or on behalf of such
Indemnitee, in reduction of the related Loss. If an Indemnitee shall have
received the payment required by SECTION 3.05, 4.01 or 4.02 of this Agreement
from an Indemnifying Party in respect of any Loss and shall subsequently
actually receive Insurance Proceeds or other amounts in respect of such Loss,
then such Indemnitee shall pay to such Indemnifying Party a sum equal to the
amount of such Insurance Proceeds or other amounts actually received (subject to
the enforcement of the following sentence and up to but not in excess of the
amount of any indemnity payment made hereunder). An insurer who would otherwise
be obligated to pay any claim shall not be relieved of the responsibility with
respect thereto, or, solely by virtue of the indemnification provisions hereof,
have any subrogation rights with respect thereto, it being expressly understood
and agreed that no insurer or any other third party shall be entitled to a
"windfall" (I.E., a benefit they
-23-
<PAGE>
would not be entitled to receive in the absence of the indemnification
provisions) by virtue of the indemnification provisions hereof.
(b) If an Indemnitee shall actually realize a tax saving by reason of
having incurred a Loss for which such Indemnitee shall have received a payment
from an Indemnifying Party, then such Indemnitee shall pay to such Indemnifying
Party an amount equal to such tax saving. Whenever there is a substantial
likelihood that an Indemnitee will receive a tax saving by reason of a Loss,
such Indemnitee shall file its tax returns in a manner designed to do so,
provided that such Indemnitee shall have the sole responsibility for the
preparation of its tax returns and reporting thereon such Loss and any payments
received from such Indemnifying Party. An Indemnitee shall be deemed actually
to have realized a tax saving with respect to a Loss if, and to the extent that,
for any taxable period, whether ending before, on or after the Distribution
Date, the aggregate federal, state, local and foreign tax liability actually
payable by such Indemnitee and any of its wholly-owned subsidiaries, computed by
taking into account any deductions, credits or other items attributable to a
Loss (including the receipt of an Indemnity Payment with respect thereto and the
payment of any amounts pursuant to this SECTION 4.03(b)), is less than such
aggregate tax liability, computed without regard to such deductions, credits or
other items attributable to a Loss (including the receipt of an indemnity
payment with respect thereto and the payment of any amounts pursuant to this
SECTION 4.03(b)). In the event that, following a payment by an Indemnitee
pursuant to this SECTION 4.03(b) in respect of a tax saving, there shall be an
adjustment to the amount of such tax saving as a result of an audit or other
proceeding in respect of such Indemnitee's tax returns, the parties shall take
appropriate actions to reflect such adjustment. The term "TAX SAVING" shall
also be deemed to include any interest received from a governmental tax
authority, net of any federal, state, local or foreign taxes payable thereon.
(c) In the event that an indemnity payment shall be denominated in a
currency other than United States dollars, the amount of such payment shall be
translated into United States dollars using the Foreign Exchange Rate for such
currency determined in accordance with the following rules:
(1) with respect to a Loss arising from payment by a financial
institution under a guarantee, comfort letter, letter of credit, foreign
exchange contract or similar instrument, the Foreign Exchange Rate for such
currency shall be determined as of the date on which such financial
institution shall have been reimbursed;
(2) with respect to a Loss covered by insurance, the Foreign Exchange
Rate for such currency shall be the Foreign Exchange Rate employed by the
insurance company providing such insurance in settling such Loss with the
Indemnifying Party; and
-24-
<PAGE>
(3) with respect to a Loss not covered by clause (1) or (2) of this
SECTION 4.03(c), the Foreign Exchange Rate for such currency shall be
determined as of the date that notice of the claim with respect to such
Loss shall be given to the Indemnitee.
(d) If the amount of any Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
Section 4.04 PROCEDURES FOR INDEMNIFICATION.
(a) Any claim under SECTION 3.05, SECTION 4.01 or SECTION 4.02 or any
other Section of this Agreement on account of a Loss which does not result from
a Third Party Claim shall be asserted by written notice given by or on behalf of
an Indemnitee to the relevant Indemnifying Party. Such Indemnifying Party shall
have a period of 30 calendar days after the receipt of such notice within which
to respond thereto. If any such claim is not paid in full by an Indemnifying
Party within 30 calendar days after written notice has been received by the
Indemnifying Party, such Indemnitee and Indemnifying Party shall negotiate in
good faith for a reasonable period of time to settle such amount claimed;
PROVIDED, HOWEVER, that such reasonable period shall not, unless otherwise
agreed by such Indemnitee and Indemnifying Party in writing, exceed 45 calendar
days from the time they began such negotiations; PROVIDED, FURTHER, that if such
Indemnifying Party does not respond within such 30-day period or rejects such
claim in whole or in part, such Indemnifying Party shall be deemed to have
refused to accept responsibility to make payment. The Indemnitee may, but need
not, at any time thereafter bring an Action against the Indemnifying Party to
recover the unpaid amount of the claim and, if successful in whole or in part,
the Indemnitee also shall be entitled to be paid the expenses of prosecuting
such claim; PROVIDED, HOWEVER, that in the event of any such Action, neither the
Indemnitee nor the Indemnifying Party shall assert the defenses of statute of
limitations and laches arising for the period beginning after the date they
began negotiations hereunder as provided in the preceding sentence.
(b) Procedures for indemnification of Third Party Claims shall be as
follows:
(1) If an Indemnitee shall receive notice or otherwise learn of the
assertion by a Person (including, without limitation, any governmental entity)
who is not a party to this Agreement of any claim or of the commencement by any
such Person of any Action (a "THIRD PARTY CLAIM") with respect to which an
Indemnifying Party may be obligated to provide indemnification pursuant to
SECTION 3.05, SECTION 4.01 or SECTION 4.02 or any other Section of this
Agreement, such Indemnitee or other party shall give such Indemnifying Party
written notice thereof promptly (and in any event within 30
-25-
<PAGE>
calendar days) after becoming aware of such Third Party Claim; PROVIDED,
HOWEVER, that the failure of any Indemnitee to give notice as provided in
this SECTION 4.04(b)(1) shall not relieve such Indemnifying Party of its
obligations under this Article IV, except and only to the extent that such
Indemnifying Party is prejudiced by such failure to give notice. Such notice
shall describe the Third Party Claim in reasonable detail and, if
ascertainable, shall indicate the amount (estimated if necessary) of the Loss
that has been or may be sustained by such Indemnitee.
(2) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third Party Claim. Within 30 calendar days of the
receipt of notice from an Indemnitee in accordance with SECTION 4.04(b)(1) (or
sooner, if the nature of such Third Party Claim so requires), the Indemnifying
Party shall notify the Indemnitee of its election whether the Indemnifying Party
will assume responsibility for defending such Third Party Claim, which election
shall specify any reservations or exceptions. After notice from an Indemnifying
Party to an Indemnitee of its election to assume the defense of a Third Party
Claim, such Indemnifying Party shall not be liable to such Indemnitee under this
Article IV for any legal or other expenses (except expenses approved in writing
in advance by the Indemnifying Party) subsequently incurred by such Indemnitee
in connection with the defense thereof; PROVIDED, HOWEVER, that if the
defendants in any such Third Party Claim include both the Indemnifying Party and
one or more Indemnitees and in any Indemnitee's reasonable judgment a conflict
of interest between one or more of such Indemnitees and such Indemnifying Party
exists in respect of such Third Party Claim or if the Indemnifying Party shall
have assumed responsibility for such Third Party Claim with any reservations or
exceptions, such Indemnitees shall have the right to employ separate counsel to
represent such Indemnitees and in that event the reasonable fees and expenses of
such separate counsel (but not more than one separate counsel (other than local
counsel) reasonably satisfactory to the Indemnifying Party) shall be paid by
such Indemnifying Party. If an Indemnifying Party elects not to assume
responsibility for defending a Third Party Claim, or fails to notify an
Indemnitee of its election as provided in this SECTION 4.04(b)(2), such
Indemnitee may defend or (subject to the remainder of this SECTION 4.04(b)(2))
seek to compromise or settle such Third Party Claim. Notwithstanding the
foregoing, neither an Indemnifying Party nor an Indemnitee may settle or
compromise any Third Party Claim over the objection of the other; PROVIDED,
HOWEVER, that consent to settlement or compromise shall not be unreasonably
withheld. Neither an Indemnifying Party nor an Indemnitee shall consent,
without the written approval of the Indemnitee or Indemnifying Party (as the
case may be) to entry of any judgment or enter into any settlement of any Third
Party Claim which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnitee, in the case of a consent or
settlement by an Indemnifying Party, or the Indemnifying Party, in the case of a
consent or settlement by the Indemnitee, of a written release from all
Liabilities in respect to such Third Party Claim.
-26-
<PAGE>
(3) If an Indemnifying Party chooses to defend or to seek to
compromise or settle any Third Party Claim, the related Indemnitee shall make
available to such Indemnifying Party any personnel or any books, records or
other documents within its control or which it otherwise has the ability to make
available that are necessary or appropriate for such defense, settlement or
compromise, and shall otherwise cooperate in the defense, settlement or
compromise of such Third Party Claim.
(4) Notwithstanding anything else in this SECTION 4.04(b) to the
contrary, if an Indemnifying Party notifies the related Indemnitee in writing of
such Indemnifying Party's desire to settle or compromise a Third Party Claim on
the basis set forth in such notice (provided that such settlement or compromise
includes as an unconditional term thereof the giving by the claimant or
plaintiff of a written release of the Indemnitee from all Liabilities in respect
thereof) and the Indemnitee shall notify the Indemnifying Party in writing that
such Indemnitee declines to accept any such settlement or compromise, such
Indemnitee may continue to contest such Third Party Claim, free of any
participation by such Indemnifying Party, at such Indemnitee's sole expense. In
such event, the obligation of such Indemnifying Party to such Indemnitee with
respect to such Third Party Claim shall be equal to (i) the costs and expenses
of such Indemnitee prior to the date such Indemnifying Party notifies such
Indemnitee of the offer to settle or compromise (to the extent such costs and
expenses are otherwise indemnifiable hereunder) PLUS (ii) the lesser of (A) the
amount of any offer of settlement or compromise which such Indemnitee declined
to accept and (B) the actual out-of-pocket amount such Indemnitee is obligated
to pay subsequent to such date as a result of such Indemnitee's continuing to
pursue such Third Party Claim.
(5) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third Party Claim, such Indemnifying Party
shall be subrogated to and shall stand in the place of such Indemnitee as to any
events or circumstances in respect of which such Indemnitee may have any right
or claim relating to such Third Party Claim against any claimant or plaintiff
asserting such Third Party Claim or against any other person. Such Indemnitee
shall cooperate with such Indemnifying Party in a reasonable manner, and at the
cost and expense of such Indemnifying Party, in prosecuting any subrogated right
or claim.
Section 4.05 REMEDIES CUMULATIVE. The remedies provided in this
Article IV shall be cumulative and shall not preclude assertion by any
Indemnitee of any other rights or the seeking of any and all other remedies
against any Indemnifying Party.
Section 4.06 SURVIVAL OF INDEMNITIES. The obligations of each of
Whitman, Hussmann and Hussmann Operating Company under this Article IV shall
survive the sale or other transfer by it of any assets or businesses or the
assignment by
-27-
<PAGE>
it of any Liabilities, with respect to any Loss of the other parties related
to such assets, businesses or Liabilities.
ARTICLE V
ACCESS TO INFORMATION
Section 5.01 ACCESS TO INFORMATION. Subject to SECTION 6.02, from
and after the Distribution Date, each party hereto shall afford to each other
party and its authorized accountants, counsel and other designated
representatives (collectively, "REPRESENTATIVES") reasonable access (including
using reasonable efforts to give access to Persons possessing information) and
duplicating rights during normal business hours to all business records, books,
contracts, instruments, computer data and other data and information
(collectively, "INFORMATION") within such party's possession relating to such
other party or any subsidiary of such other party, insofar as such access is
reasonably required by such other party. Information may be requested under
this Article V for, without limitation, audit, accounting, claims, litigation
and tax purposes, as well as for purposes of fulfilling disclosure and reporting
obligations and for performing this Agreement and the transactions contemplated
hereby.
Section 5.02 PRODUCTION OF WITNESSES. After the Distribution Date,
each of Whitman and Hussmann and their respective subsidiaries shall use
reasonable efforts to make available to the other parties and their
subsidiaries, upon written request, their present and former directors,
officers, employees and agents as witnesses to the extent that any such
individual may reasonably be required in connection with any legal,
administrative or other proceedings in which the requesting party may from time
to time be involved.
Section 5.03 RETENTION OF RECORDS. Except as otherwise required by
law or agreed to in writing, each of Whitman and Hussmann shall retain, and
shall cause its subsidiaries to retain, for a period of at least seven years
following the Distribution Date, all significant Information relating to the
business of the other parties and the other parties' subsidiaries. In addition,
after the expiration of such seven-year period, such Information shall not be
destroyed or otherwise disposed of at any time, unless, prior to such
destruction or disposal, (a) the party proposing to destroy or otherwise dispose
of such Information shall provide no less than 30 calendar days' prior written
notice to the party to which such Information relates, specifying in reasonable
detail the Information proposed to be destroyed or disposed of and (b) if a
recipient of such notice shall request in writing prior to the scheduled date
for such destruction or disposal that any of the Information proposed to be
destroyed or disposed of be delivered to such requesting party, the party
proposing the destruction or disposal shall
-28-
<PAGE>
promptly arrange for the delivery of such of the Information as was requested
at the expense of the party requesting such Information.
Section 5.04 CONFIDENTIALITY. Each party shall hold, and shall
cause its subsidiaries and Representatives to hold, in strict confidence, all
Information concerning the other parties in its possession or furnished by the
other parties or the other parties' Representatives pursuant to either this
Agreement or the Hussmann Tax Sharing Agreement (except to the extent that such
Information (a) is on the date hereof or hereafter becomes generally available
to the public other than as a result of a disclosure, directly or indirectly, by
such party or its Representatives or (b) was or becomes available to such party
on a nonconfidential basis prior to its disclosure to such party or its
Representatives, in each case from a source other than the party furnishing such
Information, which source was not itself bound by a confidentiality agreement
with the party furnishing such Information and had not received such
Information, directly or indirectly, from a Person so bound), and each party
shall not release or disclose such Information to any other Person, except its
auditors, attorneys, financial advisors, bankers and other consultants and
advisors, unless compelled to disclose by judicial or administrative process or,
as advised by its counsel, by other requirements of law.
ARTICLE VI
ADDITIONAL COVENANTS
Section 6.01 CORPORATE NAMES.
(a) As soon as reasonably practicable after the Distribution Date but
in any event within six months thereafter, at Hussmann's expense, Hussmann
shall, and shall cause the Hussmann Subsidiaries to, remove (or, if necessary,
on an interim basis, cover up) any and all exterior signs and other identifiers
located on any of Hussmann's or any Hussmann Subsidiary's property or premises
or on the property or premises used by any of the foregoing which refer or
pertain to Whitman or which include the Whitman name, logo or other trademark or
other Whitman intellectual property.
(b) As soon as is reasonably practicable after the Distribution Date
but in any event within 90 calendar days thereafter, at Hussmann's expense,
Hussmann shall, and shall cause the Hussmann Subsidiaries to, remove from all
letterhead, envelopes, business cards, invoices and other communications media
of any kind, all references to Whitman, including the Whitman name, logo and any
other trademark or other Whitman intellectual property (except that Hussmann
shall not be required to take any such action with respect to materials in the
possession of customers), and neither
-29-
<PAGE>
Hussmann nor any Hussmann Subsidiary shall use or display the Whitman name,
logo or other trademarks or Whitman intellectual property without the prior
written consent of Whitman.
(c) If Whitman Netherlands B.V. shall be a Subsidiary of Hussmann
on and after the Distribution Date, Hussmann shall cause said Whitman
Netherlands B.V. to change its name within 90 calendar days after the
Distribution Date to a name that does not include "Whitman."
(d) Whitman acknowledges that it has no interest in nor any right to
use or display the Hussmann name or any Hussmann trademark or intellectual
property in any way, and shall cease any such use or display within 90 calendar
days after the Distribution Date.
Section 6.02 PRIVILEGED MATTERS. The parties hereto recognize that
legal and other professional services that have been and will be provided on and
prior to the Distribution Date have been and will be rendered for the benefit of
Whitman and Hussmann and their subsidiaries, and that each of the foregoing
should be deemed to be the client for the purposes of asserting all privileges
which may be asserted under applicable law. To allocate the interests of each
party in the Information as to which any party or any its subsidiaries is
entitled to assert a privilege, the parties agree as follows:
(a) Whitman shall be entitled, in perpetuity, to control the
assertion or waiver of all privileges in connection with privileged Information
which relates solely to Whitman or any Whitman Subsidiary or the business of
Whitman or any Whitman Subsidiary, whether or not the privileged Information is
in the possession of or under the control of Whitman or Hussmann or any of their
subsidiaries. Whitman shall also be entitled, in perpetuity, to control the
assertion or waiver of all privileges in connection with privileged Information
that relates solely to the subject matter of any claims arising out of any item
set forth on SCHEDULE B or any claims which may be asserted in the future in any
lawsuits or other proceedings (not involving Hussmann or any Hussmann
Subsidiary) initiated against or by Whitman or any Whitman Subsidiary, whether
or not the privileged Information is in the possession of or under the control
of Whitman or Hussmann or any of their subsidiaries.
(b) Hussmann shall be entitled, in perpetuity, to control the
assertion or waiver of all privileges in connection with privileged Information
which relates solely to Hussmann or any Hussmann Subsidiary or the business of
Hussmann or any Hussmann Subsidiary, whether or not the privileged Information
is in the possession of or under the control of Whitman or Hussmann or any of
their subsidiaries. Hussmann shall also be entitled, in perpetuity, to control
the assertion or waiver of all privileges in connection with privileged
Information which relates solely to the subject matter of any
-30-
<PAGE>
claims arising out of any item set forth on SCHEDULE C or any claims which
may be asserted in the future in any lawsuits or other proceedings (not
involving Whitman or any Whitman Subsidiary) initiated against or by Hussmann
or any Hussmann Subsidiary, whether or not the privileged Information is in
the possession of or under the control of Whitman or Hussmann or any of their
subsidiaries.
(c) The parties hereto agree that they shall have a shared privilege,
with equal right to assert or waive, subject to the restrictions in this SECTION
6.02, with respect to all privileges not allocated pursuant to the terms of
SECTIONS 6.02(a) and (b); PROVIDED, HOWEVER, that no party shall have a shared
privilege in connection with privileged Information that does not relate to such
party, any of its subsidiaries or their respective businesses. All privileges
relating to any claims, proceedings, litigation, disputes, or other matters
which involve Whitman or any Whitman Subsidiary and/or Hussmann or any Hussmann
Subsidiary in respect of which each party retains any responsibility or
liability under this Agreement, shall be subject to a shared privilege among
them.
(d) No party hereto may waive any privilege which could be asserted
under any applicable law, and in which any other party hereto has a shared
privilege, without the consent of the other party, except to the extent
reasonably required in connection with any litigation as provided in
SUBSECTION (e) below. Consent shall be in writing, or shall be deemed to be
granted unless written objection is made within 20 calendar days after
written notice from the party requesting such consent.
(e) In the event of any litigation or dispute between or among the
parties hereto, any party and a subsidiary of another party hereto, or a
subsidiary of one party hereto and a subsidiary of another party hereto, either
such party may waive a privilege in which the other party has a shared
privilege, without obtaining the consent of the other party; PROVIDED, HOWEVER,
that such waiver of a shared privilege shall be effective only as to the use of
information with respect to the litigation or dispute between the relevant
parties and/or their subsidiaries, and shall not operate as a waiver of the
shared privilege with respect to third parties.
(f) If a dispute arises between or among the parties hereto or their
respective subsidiaries regarding whether a privilege should be waived to
protect or advance the interest of any party, each party agrees that it shall
negotiate in good faith, shall endeavor to minimize any prejudice to the rights
of the other parties, and shall not unreasonably withhold consent to any request
for waiver by another party. Each party hereto specifically agrees that it will
not withhold consent to waiver for any purpose except to protect its own
legitimate interests.
(g) Upon receipt by any party hereto or by any subsidiary thereof of
any subpoena, discovery or other request which arguably calls for the production
or
-31-
<PAGE>
disclosure of Information subject to a shared privilege or as to which
another party has the sole right hereunder to assert a privilege, or if any
party obtains knowledge that any of its or any of its subsidiaries' current or
former directors, officers, agents or employees has received any subpoena,
discovery or other requests which arguably calls for the production or
disclosure of such privileged Information, such party shall promptly notify the
other party or parties of the existence of the request and shall provide the
other party or parties a reasonable opportunity to review the Information and to
assert any rights it or they may have under this SECTION 6.02 or otherwise to
prevent the production or disclosure of such privileged Information.
(h) The furnishing and delivery of Information pursuant to this
Agreement is made in reliance on the agreement of the parties, as set forth in
SECTION 5.04, to maintain the confidentiality of confidential or privileged
Information and to assert and maintain all applicable privileges. The access to
Information being granted pursuant to SECTION 5.01, the agreement to provide
witnesses pursuant to SECTION 5.02, and the furnishing of notices and documents
and other cooperative efforts contemplated by Article IV, shall not be deemed a
waiver of any privilege that has been or may be asserted under this Agreement or
otherwise.
Section 6.03 LIMITATION ON SOLICITATION OF EMPLOYEES.
(a) Whitman agrees on behalf of itself, its subsidiaries and
Affiliates which it controls, without any separate bargained for consideration,
but rather as an integral part of the Distribution provided for in this
Agreement, that it shall not directly or indirectly, through a subsidiary or
otherwise, until one year after the Distribution Date, employ or attempt to
employ any Hussmann Separated Employee or induce or attempt to induce any
Hussmann Separated Employee to leave his or her employment.
(b) Hussmann agrees on behalf of itself, its subsidiaries and
Affiliates which it controls, without any separate bargained for consideration,
but rather as an integral part of the Distribution provided for in this
Agreement, that it shall not directly or indirectly, through a subsidiary or
otherwise, until one year after the Distribution Date, employ or attempt to
employ any employee of Whitman or any Whitman Subsidiary or induce or attempt to
induce any employee of Whitman or any Whitman Subsidiary to leave his or her
employment.
(c) The parties agree and acknowledge that the restrictions contained
in this SECTION 6.03 are reasonable in scope and duration and are necessary to
protect the other party hereto.
Section 6.04 EXPENSES. Except as otherwise set forth in this
Agreement, all costs and expenses arising on or prior to the Distribution Date
(whether or not then payable) in connection with the Distribution shall be paid
by Whitman to the extent that
-32-
<PAGE>
appropriate documentation concerning such costs and expenses shall be
provided to Whitman, other than (1) costs incurred in connection with any
financing arrangements entered into by Hussmann or any of its subsidiaries,
(2) listing fees of any national securities exchange or fees of the National
Association of Securities Dealers, Inc. incurred with respect to listing or
quoting the Hussmann Common Stock, (3) fees charged by rating agencies for
rating Hussmann securities, (4) one-third of the legal fees and expenses of
Sidley & Austin and McDermott, Will & Emery, (5) one-half of the fees and
expenses of KPMG Peat Marwick which directly relate to the Distribution, (6)
the fees and expenses of any outside consultant retained by Hussmann or
Hussmann Operating Company, (7) costs incurred in printing and engraving the
stock certificates of Hussmann, and (8) one-third of the cost of printing and
distributing the Hussmann Form 10, the Information Statement and related
documents, all of which shall be paid by Hussmann and Hussmann Operating
Company, whether invoiced by Whitman before or after the Distribution Date.
Section 6.05 FURTHER ASSURANCES. From time to time after the
Distribution Date, each party shall do, execute and deliver, or cause to be
done, executed and delivered, to another party hereto, or its successors and
assigns, all such further acts, deeds, assignments, powers of attorney and
other instruments of conveyance and transfer as such party may reasonably
request as may be necessary to consummate the Distribution and the
transactions contemplated hereby, including filings with, and obtaining the
approval of, any governmental body.
Section 6.06 QUALIFICATION AS TAX-FREE DISTRIBUTION.
(a) After the Distribution Date, neither Whitman nor Hussmann shall
take, or permit any of its subsidiaries to take, any action which could
reasonably be expected to prevent the Distribution from qualifying as a tax-free
distribution within the meaning of Section 355 of the Code or any other
transaction contemplated by this Agreement which is intended by the parties to
be tax-free from failing so to qualify.
(b) After the Distribution Date, Whitman shall not, nor cause or
permit, any Whitman Subsidiary to take any action or enter into any transaction
which could reasonably be expected to materially adversely impact the expected
tax consequences to Hussmann which are known to Whitman of any transaction
contemplated by this Agreement; PROVIDED, HOWEVER, nothing in this SECTION
6.06(b) shall prohibit Whitman from taking any action, or entering into any
transaction (or permitting or causing any Whitman Subsidiary so to act or
enter), in the ordinary course of business or in connection with the settlement
of any audit issue or the filing of any tax return. After the Distribution
Date, Hussmann shall not, nor cause or permit, any Hussmann Subsidiary to take
any action or enter into any transaction which could reasonably be expected to
materially adversely impact the reasonably expected tax consequences to Whitman
which are known to Hussmann of any transaction contemplated by this
-33-
<PAGE>
Agreement; PROVIDED, HOWEVER, nothing in this SECTION 6.06(b) shall prohibit
Hussmann from taking any action, or entering into any transaction (or
permitting or causing any Hussmann Subsidiary so to act or enter) in the
ordinary course of business or in connection with the settlement of any audit
issue or the filing of any tax return.
Section 6.07 INSURANCE COVERAGE LITIGATION. Hussmann Operating
Company together with Whitman and its former subsidiaries, Pneumo Abex
Corporation ("PNEUMO ABEX") and Jensen-Kelly Corporation, are co-plaintiffs in
an environmental coverage lawsuit filed in 1992 in the Superior Court of the
State of California, County of Los Angeles, entitled JENSEN-KELLY CORPORATION V.
ALLIANZ INSURANCE CO., ET AL., Case No. BC069018 (the "ENVIRONMENTAL COVERAGE
LITIGATION"). The Environmental Coverage Litigation seeks recovery for
environmental liabilities at numerous sites involving present or former
Subsidiaries or Affiliates of Whitman, including one or more sites attributable
to Hussmann Operating Company or any Subsidiary of Hussmann. Hussmann and
Hussmann Operating Company agree that, from and after the Distribution Date,
they will continue to cooperate at their expense in the prosecution by Whitman
and Pneumo Abex of the Environmental Coverage Litigation to the extent
reasonably requested by Whitman and/or Pneumo Abex, which cooperation will
include but not be limited to the production of documents and the furnishing of
testimony. Such cooperation shall extend to any other insurance coverage action
to which Whitman may be a party and involving any present or former properties
or activities of Hussmann Operating Company or Hussmann Subsidiaries which are
not currently part of the Environmental Coverage Litigation. In exchange for
such cooperation, Whitman agrees to pay to Hussmann Operating Company any
insurance proceeds it may receive in settlement of those claims pertaining to
Hussmann properties and activities, net of attorneys' fees and other reasonable
costs and expenses incurred by Whitman in prosecuting or defending the same.
ARTICLE VII
MISCELLANEOUS
Section 7.01 COMPLETE AGREEMENT; CONFLICT WITH HUSSMANN TAX SHARING
AGREEMENT. This Agreement and the Hussmann Tax Sharing Agreement, including any
schedules and exhibits hereto or thereto, and other agreements and documents
referred to herein, shall constitute the entire agreement between the parties
with respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter.
Notwithstanding any other provisions in this Agreement to the contrary, in the
event and to the extent that there shall be a conflict between the provisions of
this Agreement and the Hussmann Tax Sharing Agreement, the provisions of the
Hussmann Tax Sharing Agreement shall control.
-34-
<PAGE>
Section 7.02 SURVIVAL OF AGREEMENTS. Except as otherwise
specifically contemplated by this Agreement, all covenants and agreements of the
parties contained in this Agreement shall survive the Distribution Date.
Section 7.03 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of laws thereof.
Section 7.04 NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be delivered by
hand, mailed by registered or certified mail (postage prepaid and return receipt
requested) or sent by telecopy (confirmed by regular, first-class mail, postage
prepaid) to the parties at the following addresses (or at such other addresses
for a party as shall be specified by like notice) and shall be deemed given on
the date on which such notice is received:
if to Whitman:
Whitman Corporation
3501 Algonquin Road
Rolling Meadows, Illinois 60008
Attention: General Counsel
if to Hussmann or Hussmann Operating Company:
Hussmann International, Inc.
12999 St. Charles Rock Road
Bridgeton, Missouri 63044-2483
Attention: General Counsel
Section 7.05 AMENDMENTS. This Agreement may not be modified or
amended except by an agreement in writing signed by each of the parties.
Section 7.06 SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns. No party may assign its
respective rights or delegate its respective obligations under this Agreement
without the express prior written consent of the other parties hereto.
Section 7.07 TERMINATION. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in the
sole discretion of the Whitman Board without the approval of either Hussmann or
of Whitman's shareholders. In the event of such termination, no party shall
have any Liabilities of any kind to any other party on account of such
termination except that
-35-
<PAGE>
expenses incurred in connection with the transactions contemplated hereby
shall be paid as provided in SECTION 6.04.
Section 7.08 NO THIRD PARTY BENEFICIARIES. Except for the provisions
of SECTION 3.03, SECTION 3.05 and ARTICLE IV relating to Indemnitees, this
Agreement is solely for the benefit of the parties hereto and their respective
Affiliates and should not be deemed to confer upon third parties (including any
employee of Whitman, any Whitman Subsidiary, Hussmann or any Hussmann
Subsidiary) any remedy, claim, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement.
Section 7.09 TITLES AND HEADINGS. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be part of or to affect the meaning or interpretation of this Agreement.
Section 7.10 SEVERABILITY. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances or in jurisdictions other than those as to which it has been held
invalid or unenforceable, shall remain in full force and effect and shall in no
way be affected, impaired or invalidated thereby, so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination, the parties shall
negotiate in good faith in an effort to agree upon such a suitable and equitable
provision to effect the original intent of the parties.
Section 7.11 SPECIFIC PERFORMANCE. In the event of any actual or
threatened default in, or breach of, any of the terms, conditions and provisions
of this Agreement, the party or parties who are or are to be thereby aggrieved
shall have the right to specific performance and injunctive or other equitable
relief of its rights under this Agreement, in addition to any and all other
rights and remedies at law or in equity, and all such rights and remedies shall
be cumulative. The parties agree that the remedies at law for any breach or
threatened breach, including monetary damages, are inadequate compensation for
any loss and that any defense in any action for specific performance that a
remedy at law would be adequate is waived. Any requirements for the securing or
posting of any bond with such remedy are waived.
Section 7.12 WAIVERS. Any term or provision of this Agreement may be
waived, or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Agreement if, as to any party,
it is authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such
-36-
<PAGE>
provision, nor in any way to affect the validity of this Agreement or any
part hereof or the right of any party thereafter to enforce each and every
such provision. No waiver of any breach of this Agreement shall be held to
constitute a waiver of any other or subsequent breach.
Section 7.13 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement, and
shall become binding when such counterparts have been signed by each of the
parties hereto and delivered to each of the other parties hereto.
-37-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
WHITMAN CORPORATION
By: ___________________
Name:
Title:
HUSSMANN INTERNATIONAL, INC.
By: ___________________
Name:
Title:
HUSSMANN CORPORATION
By: ___________________
Name:
Title:
-38-
<PAGE>
SCHEDULE A
HUSSMANN LIMITS OF LIABILITY
POLICY PERIOD LIMITS OF LIABILITY
4/1/79 - 4/1/80 50% of the first $250,000 each and every
loss, all lines
4/1/80 - 4/1/81 50% of the first $250,000 each and every
loss, all lines*
4/1/81 - 4/1/82 $250,000 each and every loss, all lines*
4/1/82 - 4/1/83 50% of the first $250,000 each and every
loss, all lines*
4/1/83 - 4/1/84 $250,000 each and every loss, all lines*
4/1/84 - 4/1/85 $250,000 each and every loss, all lines*
4/1/85 - 4/1/86 $500,000 each and every loss, General
Liability
$250,000 each and every loss, Workers'
Compensation and Automobile Liability
4/1/86 - 4/1/87 $2,000,000 each and every loss, General
Liability
$500,000 each and every loss, Automobile
Liability
$250,000 each and every loss,
Workers' Compensation
4/1/87 - 4/1/88 $2,000,000 each and every loss, General
Liability
$1,000,000 each and every loss, Workers'
Compensation and Automobile Liability
4/1/88 - 4/1/89 $2,000,000 each and every loss, General
Liability
$1,000,000 each and every loss, Workers'
Compensation and Automobile Liability
A-1
<PAGE>
4/1/89 - 4/1/90 $2,000,000 each and every loss, General
Liability
$1,000,000 each and every loss, Workers'
Compensation and Automobile Liability
4/1/90 - 4/1/91 $2,000,000 each and every loss, General
Liability
$1,000,000 each and every loss, Workers'
Compensation and Automobile Liability
4/1/91 - 4/1/92 $2,000,000 each and every loss, General
Liability
$1,000,000 each and every loss, Workers'
Compensation and Automobile Liability
4/1/92 - 4/1/93 $2,000,000 each and every loss, General
Liability
$1,000,000 each and every loss, Workers'
Compensation and Automobile Liability
4/1/93 - 4/1/94 $2,000,000 each and every loss, General
Liability
$1,000,000 each and every loss, Workers'
Compensation and Automobile Liability
4/1/94 - 4/1/95 $2,000,000 each and every loss, General
Liability
$1,000,000 each and every loss, Workers'
Compensation and Automobile Liability
4/1/95 - 4/1/96 $2,000,000 each and every loss, General
Liability
$1,000,000 each and every loss, Workers'
Compensation and Automobile Liability
4/1/96 - 4/1/97 $2,000,000 each and every loss, General
Liability, Workers' Compensation and
Automobile Liability
4/1/97 - Distribution Date $2,000,000 each and every loss, General
Liability, Workers' Compensation and
Automobile Liability
A-2
<PAGE>
4/1/94 - 4/1/95 $900,000 excess of a $100,000 deductible per
occurrence with an overall aggregate of
$2,000,000 on a Claims made basis, Employment
Practices Liability Coverage.
4/1/95 - 4/1/96 $900,000 excess of a $100,000 deductible per
occurrence with an overall aggregate of
$2,000,000 on a Claims made basis, Employment
Practices Liability Coverage.
4/1/96 - 4/1/97 $900,000 excess of a $100,000 deductible per
occurrence with an overall aggregate of
$2,000,000 on a Claims made basis, Employment
Practices Liability Coverage.
4/1/97 - Distribution Date $900,000 excess of a $100,000 deductible
per occurrence with an overall aggregate
of $2,000,000 on a Claims made basis,
Employment Practices Liability Coverage.
4/1/96 - 4/1/97 $25,000 per occurrence less underlying
deductible for non - U.S. and Canadian
exposures of General Liability.
Underlying Deductibles:
U.K. $10,000
Mexico $10,000
Elsewhere $ 4,500
4/1/97 - Distribution Date $25,000 per occurrence less underlying
deductible for non - U.S. and Canadian
exposures of General Liability.
Underlying Deductibles:
U.K. $10,000
Mexico $10,000
Elsewhere $ 4,500
7/1/96 - 7/1/97 $100,000 per occurrence less underlying
deductible for non - U.S. and Canadian
exposures of $25,000 for All Risk Property
Insurance
*General Liability (including Products Liability), Automobile Liability and
Workers' Compensation.
A-3
<PAGE>
SCHEDULE B
WHITMAN INDEMNIFICATION OF HUSSMANN INDEMNITEES
Items with respect to which Whitman will indemnify the Hussmann
Indemnitees in accordance with SECTION 4.01 of this Agreement:
(1) All Losses arising out of the businesses conducted (formerly or
currently) or to be conducted by Whitman (whether directly or through a
subsidiary or Affiliate of Whitman), the Whitman Subsidiaries, and any
previously-owned division, subsidiary or Affiliate of Whitman, whether such
Losses relate to events occurring, or whether such Losses are asserted, before,
on or after the Distribution Date; PROVIDED, HOWEVER, that Whitman shall not be
liable for Losses arising out of (i) the businesses conducted (formerly or
currently) or to be conducted by Hussmann or Hussmann Operating Company (whether
directly or through a subsidiary or Affiliate of Hussmann or Hussmann Operating
Company), the Hussmann Subsidiaries or any previously-owned division, subsidiary
or Affiliate of Hussmann or Hussmann Operating Company; and PROVIDED, FURTHER,
that, except as set forth in SUBSECTION (3) below, Whitman shall be liable for
Losses arising out of the businesses of Whitman that are otherwise not related
to the business of Hussmann.
(2) All Losses arising out of or based upon any untrue statement or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading, with respect to all information set forth in the Information
Statement or any supplement thereto (i) on the cover page of the Information
Statement and in the body of the Information Statement under the headings (a)
"Summary - The Distribution," (b) "Summary -Midas," (c) "Introduction," (d)
"The Distribution" and (e) any information derived from such information and
(ii) in Annex A and Annex C of the Information Statement.
(3) All Losses arising out of any Action brought by shareholders of
Whitman or Hussmann because the Distribution is or becomes taxable to such
shareholders for any reason other than as a result of the occurrence of a
transaction on or after the Distribution Date involving either the stock or
assets (or any combination thereof) of Hussmann or any Hussmann Subsidiary or a
breach by Hussmann or Hussmann Operating Company of the Hussmann Tax Sharing
Agreement.
(4) All Losses arising out of any breach by Whitman or any Whitman
Subsidiary of this Agreement or the Hussmann Tax Sharing Agreement.
B-1
<PAGE>
SCHEDULE C
HUSSMANN AND HUSSMANN OPERATING COMPANY INDEMNIFICATION OF WHITMAN INDEMNITEES
Items with respect to which Hussmann and Hussmann Operating Company
will indemnify the Whitman Indemnitees in accordance with SECTION 4.02 of this
Agreement:
(1) All Losses arising out of the businesses conducted (formerly or
currently) or to be conducted by Hussmann or Hussmann Operating Company (whether
directly or through a subsidiary or Affiliate of Hussmann or Hussmann Operating
Company), the Hussmann Subsidiaries and any previously-owned division,
subsidiary or Affiliate of Hussmann or Hussmann Operating Company, whether such
Losses relate to events occurring, or whether such Losses are asserted, before,
on or after the Distribution Date.
(2) All Losses arising out of or based upon any untrue statement or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading, with
respect to all information set forth in the Information Statement or any
supplement thereto, except for information with respect to which Whitman will
indemnify the Hussmann Indemnitees as set forth in Paragraph (2) of SCHEDULE B
of this Agreement.
(3) All Losses arising out of any Action brought by shareholders of
Whitman or Hussmann because the Distribution is or becomes taxable to such
shareholders as a result of the occurrence of a transaction on or after the
Distribution Date involving either the stock or assets (or any combination
thereof) of Hussmann or any Hussmann Subsidiary or a breach by Hussmann or
Hussmann Operating Company of the Hussmann Tax Sharing Agreement.
(4) All Losses arising out of any breach by Hussmann or Hussmann
Operating Company of this Agreement or the Hussmann Tax Sharing Agreement.
C-1
<PAGE>
TAX SHARING AGREEMENT
This Tax Sharing Agreement (the "Agreement") dated as of ______________,
1997, by and among Whitman Corporation, a Delaware corporation ("Whitman"),
Hussmann International, Inc., a Delaware corporation ("International") and
Hussmann Corporation, a Missouri corporation ("Hussmann").
WHEREAS, the parties have entered into a Distribution and Indemnity
Agreement of even date herewith (the Distribution Agreement");
WHEREAS, pursuant to the Distribution Agreement all of the issued and
outstanding common stock of International and of Midas Group, Inc., a
Delaware corporation ("Midas"), will be distributed by Whitman (pro rata) to
the holders of its common stock (the "Distribution");
WHEREAS, International was incorporated on August 29, 1997, and, at the
time of the Distribution, International will own all of the issued and
outstanding shares of common stock of Hussmann;
WHEREAS, Whitman and Hussmann are parties to certain tax allocation
agreements (collectively referred to as the "Tax Allocation Agreements")
which deal with the payment of U.S. federal, state and foreign income taxes
and other taxes; and
WHEREAS, the Tax Allocation Agreements did not contemplate the
Distribution;
NOW, THEREFORE, Whitman, on behalf of itself and its former, present and
future direct or indirect subsidiaries, other than the members of the
Hussmann Group, as hereinafter defined (hereinafter referred to as the
"Whitman Group"), and International and Hussmann, on behalf of themselves and
their former, present and future direct or indirect subsidiaries, other than
those subsidiaries which, immediately after the Distribution, will be direct
or indirect subsidiaries of Whitman or Midas (hereinafter referred to as the
"Hussmann Group"), enter into this Agreement for the purposes of replacing
and superseding the Tax Allocation Agreements and to define the rights of the
parties hereto with respect to certain potential tax controversies, all as
hereinafter provided.
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
1
<PAGE>
following meanings (such meanings to be equally applicable to both the singular
and the plural forms of the terms defined):
"Code" means the U.S. Internal Revenue Code of 1986, as amended, or any
successor thereto.
"Distribution Date" means the date of the Distribution. For all
purposes of this Agreement, the Distribution shall be deemed effective as of
the close of business on the Distribution Date.
"Foreign" means outside the United States of America.
"Hussmann Businesses" means the former, present and future subsidiaries,
divisions and businesses of any member of the Hussmann Group.
"Regulations" means any U.S. Treasury regulations under the Code and any
other state, foreign, or local regulations with respect to taxes.
"Restructuring Taxes" means any Taxes, including, without limitation,
any Taxes imposed pursuant to or as a result of Code Section 311 (together
with related interest, penalties and additions to Tax), resulting from the
transfer or other disposition of stock, assets, or debt including the
Distribution and from those transactions undertaken to separate the Hussmann
Businesses from the Whitman Businesses as contemplated by the Distribution
Agreement.
"Tax" or "Taxes" means all forms of taxation, whenever created or
imposed, and whether of the United States of America or otherwise, and
whether imposed by a local, municipal, governmental, state, federation or
other body, and without limiting the generality of the foregoing, shall
include income, sales, use, ad valorem, gross receipts, value added,
franchise, transfer, recording, withholding, payroll, employment, excise,
occupation, premium or property taxes, together with any related interest,
penalties and additions to tax, or additional amounts imposed by any taxing
authority (domestic or foreign) upon the Hussmann Group, the Whitman Group or
any of their respective members or divisions or branches.
"Tax Benefit" means the amount by which any item, including, but not
limited to, any item of income or deduction, gain or loss or tax credit,
decreases the liability for Taxes on or with respect to a Tax Return.
"Tax Detriment" means the amount by which any item, including, but not
limited to, any item of income or deduction, gain or loss, or tax credit,
increases the liability for Taxes on or with respect to a Tax Return.
2
<PAGE>
"Tax Return" means any return, filing, questionnaire, or other document
required to be filed, including amended returns that may be filed, for any
period with any taxing authority (whether U.S. domestic or foreign) in
connection with any Tax or Taxes (whether or not a payment is required to be
made with respect to such filing).
"Whitman Businesses" means the former, present and future subsidiaries,
divisions and businesses of any member of the Whitman Group which are not, or
are not contemplated by the Distribution Agreement to be, part of the
Hussmann Group immediately after the Distribution.
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
Section 2.01. MANNER OF PREPARATION. All Tax Returns filed after the
Distribution Date shall be prepared on a basis which is consistent with the
income tax rulings obtained from the U.S. Internal Revenue Service ("IRS") or
any other governmental authority in connection with the restructuring of
Whitman contemplated by the Distribution Agreement (in the absence of a
controlling change in law or circumstances) and shall be filed on a timely
basis by the party responsible for such filing under this Agreement. To the
extent that an inconsistent position taken by one party hereto or a member of
its group would result in a Tax Detriment to the other party hereto or a
member of its group, and in the absence of a controlling change in law or
circumstances, all Tax Returns filed after the date of this Agreement shall
be prepared on a basis consistent with the elections, accounting methods,
conventions, and principles of taxation used for the most recent taxable
periods for which Tax Returns involving similar items have been filed.
Subject to the provisions of this Agreement, all decisions relating to the
preparation and filing of Tax Returns and any audit or other review of such
Tax Returns shall be made in the sole discretion of the party responsible
under this Agreement for such filing.
Section 2.02. PREPARATION AND FILING OF AND ELECTIONS WITH RESPECT TO
PRE-DISTRIBUTION TAX RETURNS AND TAX RETURNS FOR PERIODS THROUGH, TO AND
INCLUDING THE DISTRIBUTION DATE.
(a) CONSOLIDATED U.S. FEDERAL INCOME AND OTHER U.S. FEDERAL TAX RETURNS.
All consolidated U.S. federal income and other U.S. federal (including
excise, withholding, fuel and payroll) Tax Returns which include a member of
the Whitman Group and the Hussmann Group that are required to be filed for
periods beginning on or before the Distribution Date shall be prepared and
filed by Whitman. International shall, for each of its taxable periods for
which it and/or Hussmann is included in the consolidated federal income tax
return of the Whitman Group, provide Whitman with (i) a true and correct
consolidated federal income tax return for the Hussmann Group, (ii) separate
federal income tax returns for each member of the Hussmann Group and (iii) a
reconciliation of book income to federal taxable income for each member of
the Hussmann Group. International
3
<PAGE>
hereby agrees to and shall utilize the Fast-Tax system for U.S. federal
income tax return preparation in preparing the aforesaid returns and
computations and shall use its best efforts to provide Whitman with such
returns and computations on or before the first day of the sixth month
following the end of the period to which such returns and computations relate
but in any event International shall provide such returns and computations no
later than the fifteenth day of the sixth month following the end of the
period to which such returns and computations relate. Simultaneously with
providing the aforesaid returns and computations, International shall pay to
Whitman the amount of total U.S. federal income tax liability shown on the
above-referenced consolidated federal income tax return for the Hussmann
Group, reduced by all estimated payments theretofore made by International or
Hussmann to Whitman on account of such liability, or if such estimated
payments in the aggregate exceed the federal income tax liability of the
Hussmann Group, Whitman shall pay such excess to International within five
(5) days of the filing by Whitman of its consolidated federal income tax
return. Anything herein to the contrary notwithstanding, International for
itself and the members of the Hussmann Group shall calculate in accordance
with past practice and shall remit to Whitman at least five (5) days prior to
the due date of each Whitman estimated quarterly federal income tax payment
the quarterly estimated federal income tax payment that Whitman is required
to remit on behalf of the Hussmann Group. In no event will any member of the
Hussmann Group receive any tax benefit for purposes of this Section unless
Whitman recognizes and obtains said benefit on its consolidated federal
income tax return.
(b) STATE OF ILLINOIS CORPORATE INCOME TAX RETURNS.
All State of Illinois corporate income tax returns that may be or
are required to be filed by Whitman for periods beginning on or before the
Distribution Date shall be prepared and filed by Whitman on a unitary group
basis and shall include members of the Hussmann Group. To permit Whitman to
prepare and file such returns, International or Hussmann shall, for each
taxable period for which it is included in the Illinois state income tax return
of Whitman's unitary group, provide Whitman with (i) a computation of the
Illinois corporate income tax liability of each member of the Hussmann Group,
prepared on both a separate company basis as well as on a unitary basis which
includes all members of the Hussmann Group; (ii) a reconciliation of its
separate company Illinois corporate taxable income to its separate taxable
income for U.S. federal income tax purposes (as determined pursuant to Section
2.02(a) above); and (iii) the apportionment factors prescribed by Illinois law
and all other information necessary or appropriate for the proper apportionment
of the unitary group income. Each member of the Hussmann Group shall use its
best efforts to provide Whitman with the above material on or before the first
day of the sixth month following the end of each such period, but in any event
such material shall be provided no later than the fifteenth day of such sixth
month. Simultaneously with providing the aforesaid material,
4
<PAGE>
International shall pay to Whitman the lesser of (x) the aggregate amount of
the separate company Illinois tax liability of each member of the Hussmann
Group for each such period, or (y) the Illinois corporate income tax
liability as computed above for the Hussmann Group on a unitary basis, in
either case reduced by all estimated payments theretofore made to Whitman on
account of such liability, or if such estimated payments in the aggregate
exceed the aggregate Illinois tax liability for the Hussmann Group, Whitman
shall pay such excess to International within five (5) days of filing by
Whitman of its Illinois corporate income tax return for such period.
Anything herein to the contrary notwithstanding, International or Hussmann on
behalf of all of the members of the Hussmann Group shall make estimated
Illinois corporate income tax payments to Whitman at such time and in such
amount as shall permit Whitman to remit the same to the appropriate authority
on a timely basis, but in any event each such payment shall be made within
five (5) days of Whitman's written demand for the same.
(c) NETHERLANDS CORPORATE INCOME TAX, CAPITAL DUTY TAX AND WITHHOLDING TAX
RETURNS.
Any tax returns required to be filed that include Whitman
Netherlands B.V., Finanza I B.V., Finanza II B.V., any other members of the
Whitman Group and any members of the Hussmann Group in the Netherlands for
corporate income tax, capital duty tax or withholding tax purposes for periods
beginning on or before the Distribution Date shall be prepared, reviewed and
filed under the direction of Whitman consistent with the positions taken by
Whitman in any tax rulings obtained from the U.S. Internal Revenue Service and
the Netherlands taxing authorities in a timely manner in accordance with the
law of the Netherlands. International or Hussmann shall, for each taxable
period for which a member of the Hussmann Group is included in the consolidated
income tax return (also referred to as a "fiscal unity" return in the
Netherlands) with members of the Whitman Group, provide Whitman with (i) a true
and correct Netherlands income tax return for such Hussmann Group members which
are required to file in the Netherlands, (ii) separate Netherlands income tax
returns for such Hussmann Group members and (iii) a reconciliation of book
income to Netherlands taxable income for such Hussmann Group members.
International agrees to utilize Moret Ernst & Young to prepare the income tax
returns in the Netherlands for this purpose and shall use its best efforts to
provide Whitman with such returns and computations on or before sixty (60) days
before the tax returns must be filed (including extensions to file granted by
the Netherlands). Simultaneously with providing the aforesaid returns and
computations, International shall pay Whitman the amount of total Netherlands
income taxes (and any other applicable taxes) shown on the above-referenced
consolidated Netherlands income tax return due and payable relating to the
members of the Hussmann Group, reduced by all estimated tax payments
theretofore made by Hussmann Group members to Whitman on account of such
Netherlands tax liabilities. If such estimated payments in the aggregate
exceed the Netherlands tax liability of the Hussmann Group members, Whitman
shall pay such excess to International within ten (10) days of the filing by
Whitman of the consolidated Netherlands income tax return which included
members of the
5
<PAGE>
Whitman Group. Anything herein to the contrary notwithstanding,
International for itself and for members of the Hussmann Group shall remit to
Whitman at least ten (10) days prior to the due date of each Whitman
estimated Netherlands income tax payment (also known as "preliminary
assessments" in the Netherlands) the estimated Netherlands tax payment that
Whitman (or a Whitman Group member) is required to remit on behalf of
Hussmann Group members. In no event will any member of the Hussmann Group
receive any tax benefit for purposes of this Section unless a member of the
Whitman Group recognizes and obtains said benefit on its consolidated
Netherlands income tax return.
(d) OTHER TAX RETURNS.
All Tax Returns of any member of the Whitman Group or the Hussmann
Group, other than (1) the consolidated U.S. federal income tax returns, (2)
the State of Illinois corporate income tax returns and (3) the corporate
income tax, the capital duty tax and the withholding tax returns filed in the
Netherlands, which are required to be filed for periods beginning on or
before the Distribution Date shall be filed by the member of the Whitman
Group or the Hussmann Group, as the case may be, which filed the
corresponding Tax Return for the most recent period for which such a Tax
Return has been filed, or, if no such corresponding Tax Return has been
filed, by the appropriate member in accordance with local law or custom.
Section 2.03. FILING OF POST-DISTRIBUTION TAX RETURNS. All Tax Returns
for periods beginning after the Distribution Date shall be the responsibility
of the Whitman Group if such Tax Returns relate to Whitman Businesses, and
shall be the responsibility of the Hussmann Group if such Tax Returns relate
to Hussmann Businesses.
Section 2.04. CERTIFICATION. Each tax return and computation of tax
liability required to be provided to Whitman by any member of the Hussmann
Group pursuant to either Section 2.02(a), Section 2.02(b) or Section 2.02(c)
hereof shall be accompanied by a statement signed by the Chief Financial
Officer of International to the effect that such officer has reviewed for
completeness and accuracy the tax return and computation of the tax liability
and the documentation in support thereof and has determined that such return
and computation properly reflect the taxable income (or loss), tax liability
and tax credits of the entity or entities, as the case may be, to which such
tax return and computation relate for the period covered thereby.
6
<PAGE>
ARTICLE III
DEFICIENCIES AND REFUNDS OF TAXES
Section 3.01. PAYMENT OF DEFICIENCIES BY HUSSMANN GROUP MEMBERS.
If any adjustments are made with respect to any Tax Returns of Whitman
(or any member of the Whitman Group) in which any member of the Hussmann
Group is included for taxable periods beginning on or before the Distribution
Date, and such adjustments are either consented to by Whitman or are upheld
on administrative appeal or litigation, to the extent that such adjustments
increase the tax liability with respect to any taxing jurisdiction or taxing
authority attributable to any member of the Hussmann Group, then each member
of the Hussmann Group shall be jointly and severally liable to Whitman for
such increases, including interest and penalties thereon. If any member of
the Hussmann Group shall have any liability as a result of this Section 3.01,
the amount thereof shall be paid by International to Whitman within ten (10)
days of the receipt by International of written notice of such liability,
together with a computation of the amount due and supporting documentation in
such detail as International may reasonably request to verify the computation
of the amount due.
Section 3.02. PAYMENT OF REFUNDS TO HUSSMANN GROUP MEMBERS.
If any adjustments are made with respect to any Tax Returns of Whitman
(or any member of the Whitman Group) in which any member of the Hussmann
Group is included for any taxable period beginning on or before the
Distribution Date, and such adjustments are either consented to by Whitman or
are upheld on administrative appeal or litigation, to the extent that such
adjustments decrease the tax liability attributable to any member of the
Hussmann Group as determined and calculated under this Agreement and result
in a Tax Benefit for Whitman or for other members of the Whitman Group, then
Whitman shall remit to International any refunds of Taxes, together with any
interest thereon, received by it as a result of the adjustments attributable
to a member of the Hussmann Group. Whitman shall pay any amounts due from it
to International as a result of this Section 3.02 within ten (10) days of
receipt of the relevant refund from the respective taxing authority. Such
payments shall be accompanied by a computation of the amount due and
supporting documentation in such detail as International may reasonably
request to verify the computation of the amount due.
Section 3.03. RESTRUCTURING TAXES.
(a) WITH RESPECT TO TRANSACTIONS OCCURRING ON OR BEFORE THE DISTRIBUTION DATE.
If as a result of any transaction occurring on or before the
Distribution Date and involving either the stock, assets or debt (or any
combination thereof) of any member of the Hussmann Group, any Restructuring
Taxes are imposed upon any member of the Hussmann Group, then Whitman shall
pay and shall indemnify and hold harmless International and each member of
the Hussmann Group from and against all Restructuring Taxes, including,
without limitation, any Restructuring Taxes at any time paid by International
or any member of the Hussmann Group. Such payment and indemnification shall
be made by Whitman no later than fifteen (15) days after the later to occur
of: (a) written notice from International, which notice shall be accompanied
by a computation of the amounts
7
<PAGE>
due; or (b) a final determination of said Restructuring Taxes is made after
exhausting any informal, administrative, arbitration or judicial remedies.
(b) TRANSACTIONS OCCURRING AFTER THE DISTRIBUTION DATE.
If as a result of any transaction occurring after the Distribution
Date and involving either the stock, assets or debt (or any combination
thereof) of International or of any member of the Hussmann Group (including any
transactions of the type described in Section 4.05 below), any Restructuring
Taxes are imposed upon Whitman or any other member of the Whitman Group, then
International shall pay and shall indemnify and hold harmless Whitman and each
member of the Whitman Group from and against all such Restructuring Taxes at
any time paid by Whitman or any member of the Whitman Group. Such payment and
indemnification shall be made by International no later than fifteen (15) days
after the later to occur of: (a) written notice from Whitman, which notice
shall be accompanied by a computation of the amounts due; or (b) a final
determination of said Restructuring Taxes is made after exhausting any
informal, administrative, arbitration or judicial remedies.
(c) TAX BENEFITS REGARDING BASIS DETERMINATIONS RELATING TO RESTRUCTURING
TAXES.
To the extent that Whitman shall pay or indemnify International
and/or any member of the Hussmann Group with respect to Restructuring Taxes
pursuant to Section 3.03(a) above, the basis of the stock, assets or debt which
are the subject of the Restructuring Taxes payable increases, and such stock,
assets or debt are transferred by International or any member of the Hussmann
Group in a taxable transaction to which the basis increase is reflected in the
computation of the gain or loss on such taxable transaction during any taxable
year which includes the Distribution Date and the five (5) taxable years
immediately following the taxable year in which the Distribution Date falls,
then International shall promptly notify Whitman in writing of such taxable
transaction and of the amount of the Tax Benefit resulting from such basis
increase. Such notice shall include supporting documentation in such detail as
Whitman may need to verify the computation of the amount. The amount of such
Tax Benefit shall be payable by International to Whitman within ten (10) days
of sending to Whitman written notice of such amount due. In order to verify
the amount of such Tax Benefit, Whitman shall have access to inspect the Tax
Returns for the taxable years of International and any members of the Hussmann
Group covered by this section upon written request directed to the Chief
Financial Officer of International. International shall comply with such
request to make a copy of the Tax Returns in question available at a reasonable
place during normal business hours within thirty (30) days of receiving said
request and Whitman may make copies of portions of the Tax Returns which it
deems relevant to this inquiry.
8
<PAGE>
ARTICLE IV
TAX AUDITS, TRANSACTIONS AND OTHER MATTERS
Section 4.01. TAX AUDITS AND CONTROVERSIES.
Except as otherwise provided in this Section 4.01, Whitman,
at its own expense, shall have the exclusive authority to represent each member
of the Hussmann Group before the IRS or any other governmental agency or
authority or before any court with respect to any matter affecting the U.S.
federal income or other U.S. federal tax liability or any other tax liability
(whether state, local or foreign) of any member of the Whitman Group or the
Hussmann Group for any tax period beginning on or before the Distribution Date.
Such representation shall include, but shall not be limited to exclusive
control over (i) any response to any examination by the IRS or any other taxing
authorities of U.S. federal income tax returns, other U.S. federal tax returns
or the tax returns of other taxing jurisdictions and (ii) any contest through a
final determination of any issue included in any Tax Return that includes a
member of the Whitman Group, including, but not limited to (A) whether and in
what forum to conduct such contest, and (B) whether and on what basis to settle
such contest. Whitman shall give timely notice to International of any
inquiry, the assertion of any claim or the commencement of any suit, action or
proceeding in respect of which indemnity for U.S. federal taxes or any other
taxes may be sought under this Agreement against International or any member of
the Hussmann Group and will give International such information with respect
thereto as International may reasonably request. Upon notice to Whitman,
International may at its own expense participate in any such inquiry, audit or
other administrative proceeding and assume the defense or prosecution, as the
case may be, of any suit, action or proceeding; provided, that each
International representative is satisfactory to Whitman, and International
shall thereafter consult with Whitman upon Whitman's request for such
consultation from time to time with respect to such inquiry, suit, action or
proceeding. Whitman is authorized and empowered to settle any claim, suit,
action or proceeding in respect of which indemnity for U.S. federal taxes or
any other taxes may be sought against International or any member of the
Hussmann Group. Anything in this Section 4.01 to the contrary notwithstanding,
if Whitman determines to terminate International's participation in any such
inquiry or in the defense of any such suit, action or proceeding, then upon
receipt of notice from Whitman to such effect, International shall have no
further right to commence or continue such discussions or submissions with
respect to the matter, and Whitman shall have the right to close and to cause
International to close such audit or contest.
Anything in this Section 4.01 or elsewhere in this Agreement
to the contrary notwithstanding, if Whitman permits International to litigate
any U.S. federal tax issue or other tax issue in any forum, International shall
pay and shall indemnify and hold harmless each member of the Whitman Group from
any and all costs, expenses and/or liabilities of any type or nature,
including, without limitation, any tax liability (including interest and
penalties thereon), that are incurred by or imposed upon Whitman or any member
of the Whitman Group which Whitman or such Whitman Group member would not
otherwise have incurred.
9
<PAGE>
Section 4.02. CODE SECTION 355 DISTRIBUTION RELATED PROFESSIONAL
AND CONSULTING FEES.
The Tax Benefits arising out of any professional fees or
consulting fees in connection with the Code section 355 Distribution of
International or other members of the Hussmann Group that are paid for by
Whitman or by members of the Whitman Group which are allowed as a deduction to
International or to any other member of the Hussmann Group, rather than as a
deduction to Whitman or to a member of the Whitman Group which paid for such
professional or consulting fees in question, shall be reimbursed to Whitman or
to the member of the Whitman Group that actually made the payment of such
professional or consulting fees. The amount thereof shall be payable by
International to Whitman within ten (10) days of the receipt by International
of written notice of such item, together with a computation of the amount due
and supporting documentation in such detail as International may reasonably
request to verify the computation of the amount due.
Section 4.03. RETENTION OF BOOKS AND RECORDS.
International and Whitman each agrees that they will take
provisions to insure that both they and the members of the Hussmann Group and
the members of the Whitman Group, respectively, will retain all Tax Returns,
related schedules and workpapers, and all material records and other documents
relating thereto existing on the date hereof or created through or with respect
to taxable periods beginning on or before the Distribution Date, until the
later of (a) the expiration of the statute of limitations (including
extensions) of the taxable years to which such Tax Returns and other documents
relate, or (b) September 16, 2008.
Section 4.04. COOPERATION WITH RESPECT TO TAX RETURN FILINGS,
EXAMINATIONS AND TAX RELATED CONTROVERSIES.
(a) INTERNATIONAL'S OBLIGATIONS.
In addition to any obligations imposed pursuant to the
Distribution Agreement, International and each other member of the Hussmann
Group shall fully cooperate with Whitman and its representatives, in a prompt
and timely manner, in connection with (i) the preparation and filing of and
(ii) any inquiry, audit, examination, investigation, dispute, or litigation
involving, any Tax Return filed or required to be filed by or for any member of
the Whitman Group for any taxable period beginning on or before the
Distribution Date. Such cooperation shall include, but not be limited to, (x)
the execution and delivery to Whitman by the appropriate Hussmann Group member
of any power of attorney required to allow Whitman and its counsel to represent
International or such other Hussmann Group member in any controversy which
Whitman shall have the right to control pursuant to the terms of Section 4.01
of this Agreement, and (y) making available to Whitman, during normal business
hours, and within sixty (60) days of any request therefor, all books, records
and information, and the assistance of all officers and employees,
10
<PAGE>
necessary or useful in connection with any tax inquiry, audit, examination,
investigation, dispute, litigation or any other matter.
(b) WHITMAN'S OBLIGATIONS.
Except as otherwise provided in this Article IV, Whitman shall
fully cooperate with International and its representatives, in a prompt and
timely manner, in connection with (i) the preparation and filing of and (ii)
any inquiry, audit, examination, investigation, dispute, or litigation
involving, any Tax Return filed or required to be filed by or for any member of
the Hussmann Group which includes Whitman or any other member of the Whitman
Group. Such cooperation shall include, but not be limited to, (x) the
execution and delivery to International by Whitman of any power of attorney
required to allow International and its counsel to participate on behalf of
International or other Hussmann Group members in any inquiry, audit or other
administrative proceeding and to assume the defense or prosecution, as the case
may be, of any suit, action or proceeding pursuant to the terms of and subject
to the conditions set forth in Section 4.01 of this Agreement, (y) making
available to International, during normal business hours, and within sixty (60)
days of any request therefor, all books, records and information, and the
assistance of all officers and employees, necessary or useful in connection
with any tax inquiry, audit, examination, investigation, dispute, litigation or
any other matter.
(c) REMEDY FOR FAILURE TO COMPLY.
If Whitman reasonably determines that International is not for
any reason fulfilling its obligations under Section 4.04(a), or if
International reasonably determines that Whitman is not for any reason
fulfilling its obligations under Section 4.04(b), then Whitman or
International, as the case may be, shall have the right to appoint, at the
expense of the other, an independent entity such as a nationally-recognized
public accounting firm to assist the other in meeting its obligations under
this Section 4.04. Such entity shall have complete access, during normal
business hours, to all books, records and information, and the complete
cooperation of all officers and employees, of International or Whitman, as the
case may be. The remedy provided in this Section 4.04(c) shall not be deemed
exclusive.
Section 4.05. CERTAIN POST-DISTRIBUTION DATE TRANSACTIONS.
(a) WITH RESPECT TO U.S. FEDERAL INCOME TAXES.
International shall, and shall cause each Hussmann Group
member to, comply with each representation and statement made, or to be made,
to the IRS or other governmental authority in connection with any rulings
obtained, or to be obtained, by Whitman with respect to the Distribution, and
any other transaction contemplated by this Agreement. International further
agrees that during the three-year period following the Distribution Date, it
(i) shall cause Hussmann and Whitman Netherlands B.V. to continue to be engaged
in an active trade or business within the meaning of Section 355(b)(2) of the
Code, (ii) shall not issue any shares of, or options with respect to, its
stock, except that it may issue shares of , or options with respect to, its
stock if such issuances would not exceed (when aggregated with prior issuances)
twenty percent (20%) of the issued and
11
<PAGE>
outstanding common of International immediately following the Distribution,
(iii) shall not purchase any shares of its stock other than through stock
purchases permitted by the ruling issued to Whitman by the IRS regarding the
Distribution, (iv) shall not liquidate or merge with any other corporation or
transfer substantially all of its assets to any other corporation, and (v)
shall not recommend to its shareholders that they agree to an acquisition of
their stock in International by another entity. Anything in this Section 4.05
to the contrary notwithstanding, an act or omission otherwise inconsistent
with the representations herein shall be permitted if, in the unqualified
opinion of nationally recognized counsel to International, which counsel
shall be satisfactory to Whitman, or pursuant to a supplemental ruling letter
obtained from the IRS and satisfactory to Whitman, such act or omission would
not adversely affect the rulings issued by the IRS or by any other
governmental authority with respect to the Distribution. Nothing in this
Section 4.05 should be interpreted as altering the obligations of
International or of any other member of the Hussmann Group under Section
3.03(b) of this Agreement.
ARTICLE V
TAX ALLOCATION AGREEMENTS TERMINATED
Section 5.01 COMPLETE AGREEMENT AND TERMINATION OF TAX ALLOCATION
AGREEMENTS.
This Agreement shall constitute the entire agreement between the parties with
respect to the subject matter hereof and shall supersede all previous
negotiations and commitments and the prior Tax Allocation Agreements, which
shall be replaced and superseded in their entirety by this Agreement and shall
be of no further force and effect.
ARTICLE VI
MISCELLANEOUS
Section 6.01. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable, the
enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby.
Section 6.02. MODIFICATION OF AGREEMENT. No modification, amendment or
waiver of any provision of this Agreement shall be effective unless the same
shall be in writing and signed by each of the parties hereto and then such
modification, amendment or waiver shall be effective only in the specific
instance and for the purpose for which given.
12
<PAGE>
Section 6.03. CONFLICT WITH THE DISTRIBUTION AGREEMENT.
In the event and to the extent that there shall be a conflict between the
provisions of this Agreement and the Distribution Agreement, the provisions of
this Agreement shall control.
Section 6.04. NOTICES. All notices or other communications
required or permitted under this Agreement shall be delivered by hand, mailed
by certified or registered mail, postage prepaid with return receipt requested,
or sent by cable, telegram, telex or telecopy (confirmed by regular, first-
class mail), to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice) and shall be deemed
given on the date on which such notice is received:
(a) In the case of Whitman, to
Whitman Corporation
3501 Algonquin Road
Rolling Meadows, Illinois 60008
Attention: Chief Financial Officer
(b) In the case of International and Hussmann:
Hussmann International, Inc.
12999 St. Charles Rock Road
Bridgeton, Missouri 63044
Attention: Chief Financial Officer
Section 6.05. APPLICATION TO PRESENT AND FUTURE SUBSIDIARIES.
This Agreement is being entered into by Whitman, International and Hussmann on
behalf of themselves and each member of the Whitman Group and the Hussmann
Group, respectively. This Agreement shall constitute a direct obligation of
each such member and shall be deemed to have been readopted and affirmed on
behalf of any corporation which becomes a member of the Whitman Group or of the
Hussmann Group in the future. Whitman, International and Hussmann hereby
guarantee the performance of all actions, agreements and obligations provided
for under this Agreement of each member of the Whitman Group and the Hussmann
Group, respectively. Whitman, International and Hussmann shall, upon the
written request of the other, cause any of their respective group members
formally to execute this Agreement. This Agreement shall be binding upon, and
shall inure to the benefit of, the successors, assigns and persons controlling
any of the corporations bound hereby.
Section6.06. TERM. This Agreement shall commence on the
date of execution indicated above and shall continue in effect until otherwise
agreed to in writing by the parties hereto, or their respective successors or
assigns.
Section 6.07. TITLES AND HEADINGS. Titles and headings to
sections herein are inserted for the convenience of reference only and are not
intended to be a part or to affect the meaning or interpretation of this
Agreement.
13
<PAGE>
Section 6.08. SINGULAR AND PLURAL. As used herein, the singular
shall include the plural and vice versa.
Section 6.09. GOVERNING LAW. This Agreement shall be
governed by the laws of the State of Delaware.
Section 6.10. COUNTERPARTS. This Agreement may be executed
in one or more counterparts, all of which shall be considered one and the same
agreement, and shall become a binding agreement when one or more counterparts
have been signed by each party and delivered to the other parties.
Section 6.11. FORM OF PAYMENTS AND LATE PAYMENTS. Any
payment owed by one party to another under this Agreement shall be made in the
currency in which the tax to which such payment relates, and shall be paid in
immediately available funds and in such other manner as the party to whom such
payment is owed may reasonably request. Any payments required by this
Agreement that are not made when due shall bear interest at the prime rate plus
six percent (6%) from the due date of the payment to the date paid.
Section. 6.12 TREATMENT OF PAYMENTS. The parties agree that, in
the absence of any change in law or fact, any indemnification payments made
under this Agreement shall be treated, for tax purposes, as occurring before
the Distribution Date.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers, all on the day
and year first above written.
WHITMAN CORPORATION
By:
----------------------------
Vice President-Taxes
HUSSMANN INTERNATIONAL, INC.
By:
----------------------------
Chief Financial Officer
HUSSMANN CORPORATION
By:
----------------------------
Chief Financial Officer
15
<PAGE>
HUSSMANN INTERNATIONAL, INC.
STOCK INCENTIVE PLAN
(DATED AS OF __________, 1997)
1. Definitions
The following definitions shall be applicable throughout this Plan:
(a) "CODE" shall mean the Internal Revenue Code of 1986, as the same
may be amended from time to time. Reference in the Plan to any section of
the Code shall be deemed to include any amendments or successor provision
to such section and any regulations under such section.
(b) "COMMITTEE" shall mean the Committee selected by the Board of
Directors as provided in Paragraph 4, consisting of two or more members of
the Board of Directors, each of whom shall be (i) a "Non-Employee Director"
within the meaning of Rule 16b-3 under the Exchange Act, and (ii) an
"outside director" within the meaning of Section 162(m) of the Code.
(c) "COMMON STOCK" shall mean common stock of the Corporation, with
par value of $.001 per share.
(d) "CORPORATION" shall mean Hussmann International, Inc., a Delaware
corporation.
(e) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(f) "HOLDER" shall mean an individual who has been granted an Option,
Restricted Stock Award or Performance Award.
(g) "OPTION" shall mean any option granted under the Plan for the
purchase of Common Stock.
(h) "PERFORMANCE AWARD" shall mean an award granted under the
Performance Award provisions of the Plan.
(i) "PLAN" shall mean the Corporation's Stock Incentive Plan, as
amended from time to time.
(j) "RESTRICTED STOCK AWARD" shall mean an award of Common Stock
granted under the Restricted Stock Award provisions of the Plan.
<PAGE>
(k) "RETIREMENT" shall mean cessation of active employment or service
with the Corporation or a subsidiary pursuant to the Corporation's
retirement policies and programs.
(l) "SAR" shall mean a stock appreciation right which is issued in
tandem with, or by reference to, an Option, which entitles the Holder
thereof to receive, upon exercise of such SAR and surrender for
cancellation of all or a potion of such Option, shares of Common Stock,
cash or a combination thereof with an aggregate value equal to the excess
of the fair market value of one share of Common Stock on the date of
exercise over the purchase price specified in such Option, multiplied by
the number of shares of Common Stock subject to such Option, or portion
thereof, which is surrendered.
2. PURPOSE
It is the purpose of the Plan to provide a means through which the
Corporation may attract able persons to enter its employ and the employ of its
subsidiaries, to serve as directors and to provide a means whereby those persons
upon whom the responsibilities of the successful administration and management
of the Corporation or its subsidiaries rest, and whose present and potential
contributions to the welfare of the Corporation or its subsidiaries are of
importance, can acquire and maintain stock ownership. Such persons should thus
have a greater than ordinary concern for the welfare of the Corporation and/or
its subsidiaries and would be expected to strengthen and maintain a desire to
remain in the employ or service of the Corporation or its subsidiaries. It is a
further purpose of the Plan to provide such persons with additional incentive
and reward opportunities designed to enhance the profitable growth of the
Corporation. So that the maximum incentive can be provided each participant in
the Plan by granting such participant an Option or award best suited to such
participant's circumstances, the Plan provides for granting "incentive stock
options" (as defined in Section 422 of the Code) and nonqualified stock options
(with or without SARs), Restricted Stock Awards and Performance Awards, or any
combination of the foregoing.
3. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan is subject to approval by Whitman Corporation ("WHITMAN"),
the sole shareholder of the Corporation, and shall become effective concurrently
with the distribution by Whitman to its shareholders of all of the outstanding
shares of Common Stock held by Whitman (the "DISTRIBUTION"). The Plan may be
submitted at the 1999 annual meeting of the shareholders of the Corporation for
approval in accordance with Section 162(m) of the Code. The Plan shall remain
in effect until all Options granted under the Plan have been exercised, all
restrictions imposed upon Restricted Stock Awards have been eliminated and all
Performance Awards have been satisfied.
2
<PAGE>
4. ADMINISTRATION
The members of the Committee shall be selected by the Board of
Directors to administer the Plan. A majority of the Committee shall constitute
a quorum. Subject to the express provisions of the Plan, the Committee shall
have authority, in its discretion, to determine the individuals to receive
Options (with or without SARs), Restricted Stock Awards and Performance Awards,
the time or times when they shall receive them, whether an "incentive stock
option" under Section 422 of the Code or nonqualified option shall be granted,
the number of shares to be subject to each Option and Restricted Stock Award and
the value of each Performance Award. In making such determinations the
Committee shall take into account the nature of the services rendered by each
individual, such individual's present and potential contribution to the
Corporation's success, and such other factors as the Committee shall deem
relevant.
The Committee shall have such additional powers as are delegated to it
by the other provisions of the Plan and, subject to the express provisions of
the Plan, to construe the respective Option, Restricted Stock Award and
Performance Award agreements and the Plan, to prescribe, amend and rescind rules
and regulations relating to the Plan and to determine the terms, restrictions
and provisions of the Option, Restricted Stock Award and Performance Award
agreements (which need not be identical) including such terms, restrictions and
provisions as shall be requisite in the judgment of the Committee to cause
certain Options to qualify as "incentive stock options" under Section 422 of the
Code, and to make all other determinations necessary or advisable for
administering the Plan. The Committee may, in its sole discretion and for any
reason at any time, subject to the requirements imposed under Section 162(m) of
the Code and regulations promulgated thereunder in the case of an award intended
to be qualified performance-based compensation, take action such that (i) any or
all outstanding Options shall become exercisable in part or in full, (ii) all or
some of the restrictions applicable to any outstanding Restricted Stock Award
shall lapse and (iii) all or a portion of any outstanding Performance Award
shall be satisfied. The Committee may correct any defect or supply any omission
or reconcile any inconsistency in the Plan or in any Option, Restricted Stock
Award or Performance Award agreement in the manner and to the extent it shall
deem expedient to carry it into effect, and it shall be the sole and final judge
of such expediency. The determinations of the Committee on matters referred to
in this Paragraph 4 shall be conclusive.
The Committee shall act by majority action at a meeting, except that
action permitted to be taken at a meeting may be taken without a meeting if
written consent thereto is given by all members of the Committee.
3
<PAGE>
5. GRANTS OF OPTIONS, RESTRICTED STOCK AWARDS AND PERFORMANCE AWARDS; SHARES
SUBJECT TO THE PLAN
The Committee may from time to time grant both "incentive stock
options" under Section 422 of the Code and nonqualified options to purchase
shares of Common Stock (with or without SARs), Restricted Stock Awards and
Performance Awards to one or more officers, key employees or directors
determined by it to be eligible for participation in accordance with the
provisions of Paragraph 6 and providing for the issuance of such number of
shares and, in the case of Performance Awards, having such value as in the
discretion of the Committee may be fitting and proper. Subject to Paragraph 10,
not more than [4,000,000] shares of Common Stock may be issued upon exercise of
Options or SARs or pursuant to Restricted Stock Awards or Performance Awards
granted under the Plan, plus the number of shares of Common Stock issued under
Options or Restricted Stock Awards substituted for options to purchase Common
Stock or restricted stock awards of Whitman in connection with the Distribution.
Performance Awards which may be exercised or paid only in cash shall not affect
the number of shares of Common Stock available for issuance under the Plan.
The Common Stock to be offered under the Plan pursuant to Options,
SARs, Restricted Stock Awards and Performance Awards may be authorized but
unissued Common Stock or Common Stock previously issued and outstanding and
reacquired by the Corporation.
The number of shares of Common Stock available for issuance under the
Plan shall be reduced by the sum of the aggregate number of shares of Common
Stock then subject to outstanding Options, Restricted Stock Awards and
outstanding Performance Awards which may be paid solely in shares of Common
Stock or in either shares of Common Stock or cash. To the extent (i) that an
outstanding Option expires or terminates unexercised or is canceled or forfeited
(other than in connection with the exercise of an SAR for Common Stock as set
forth in the immediately following sentence) or (ii) that an outstanding
Restricted Stock Award or outstanding Performance Award which may be paid solely
in shares of Common Stock or in either shares of Common Stock or cash expires or
terminates without vesting or is canceled or forfeited or (iii) shares of Common
Stock are withheld or delivered pursuant to the provisions on Share Withholding
set forth in Paragraph 11(A), then the shares of Common Stock subject to such
expired, terminated, unexercised, canceled or forfeited portion of such Option,
Restricted Stock Award or Performance Award, or the shares of Common Stock so
withheld or delivered, shall again be available for issuance under the Plan. In
the event all or a portion of an SAR is exercised, the number of shares of
Common Stock subject to the related Option (or portion thereof) shall again be
available for issuance under the Plan, except to the extent that shares of
Common Stock were actually issued upon exercise of the SAR.
4
<PAGE>
To the extent necessary for an award hereunder to be qualified
performance-based compensation under Section 162(m) of the Code and the rules
and regulations thereunder, the maximum number of shares of Common Stock with
respect to which Options, SARs or Restricted Stock Awards or a combination
thereof may be granted during any calendar year to any person shall be
[500,000,] subject to adjustment as provided in Paragraph 10. Grants of
Options, Restricted Stock Awards or Performance Awards that are canceled
shall count toward the maximum stated in the preceding sentence.
6. ELIGIBILITY
Options, Restricted Stock Awards and Performance Awards may be granted
only to persons who, at the time of the grant or award, are officers, other key
employees or directors of the Corporation or any of its present and future
subsidiaries within the meaning of Section 424(f) of the Code (herein called
subsidiaries). Options, Restricted Stock Awards or Performance Awards, or any
combination thereof, may be granted on more than one occasion to the same
person. A person who has received or is eligible to receive options to purchase
stock of any subsidiary of the Corporation or incentive awards from any
subsidiary of the Corporation will not, by reason thereof, be ineligible to
receive Options, Restricted Stock Awards or Performance Awards under the Plan
unless prohibited by the plan of such subsidiary.
Nothing in the Plan or any Option, Restricted Stock Award or
Performance Award agreement shall be construed to constitute or be evidence of
an agreement or understanding, expressed or implied, on the part of the
Corporation or its subsidiaries to employ any person for any specific period of
time.
7. OPTIONS AND SARS
(A) NUMBER OF SHARES. The Committee may, in its discretion, grant
Options to such eligible persons as may be selected by the Committee. With
respect to each Option, the Committee shall determine the number of shares
subject to the Option and the manner and the time of exercise of such Option.
The Committee shall make such other determinations which in its discretion
appear to be fitting and proper.
(B) STOCK OPTION AGREEMENT. Each Option shall be evidenced by a
stock option agreement in such form containing such provisions not inconsistent
with the provisions of the Plan as the Committee from time to time shall
approve, including, without limitation, provisions to qualify certain Options as
"incentive stock options" under Section 422 of the Code. An incentive stock
option may not be granted to any person who is not an employee of the
Corporation or any parent or subsidiary (as defined in Section 424 of the Code).
Each incentive stock option shall be granted within ten years of the earlier of
the date the Plan is adopted by the Corporation's
5
<PAGE>
Board of Directors and the date the Plan is approved by Whitman as the sole
shareholder of the Corporation. To the extent that the aggregate fair market
value (determined as of the date of grant) of shares of Common Stock with
respect to which Options designated as incentive stock options are exercisable
for the first time by a person during any calendar year exceeds the amount
(currently $100,000) established by the Code, such Options shall be deemed to be
non-qualified stock options.
(C) OPTION PRICE AND TERM OF OPTION. The purchase price per share of
the Common Stock under each Option shall be determined by the Committee;
PROVIDED, HOWEVER, that the purchase price per share of Common Stock purchasable
upon exercise of an incentive stock option shall not be less than 100% of the
fair market value of the Common Stock at the date such Option is granted;
PROVIDED, FURTHER, that if an incentive stock option shall be granted to any
person who, at the time such Option is granted, owns capital stock of the
Corporation possessing more than ten percent of the total combined voting power
of all classes of capital stock of the Corporation (or of any parent or
subsidiary of the Corporation) (a "TEN PERCENT HOLDER"), such purchase price
shall be the price (currently 110% of fair market value) required by the Code in
order to constitute an incentive stock option.
The period during which an Option may be exercised shall be determined
by the Committee; PROVIDED, HOWEVER, that no incentive stock option shall be
exercised later than ten years after its date of grant; PROVIDED FURTHER, that
if an incentive stock option shall be granted to a Ten Percent Holder, such
option shall not be exercised later than five years after its date of grant.
The Committee shall determine whether an Option shall become exercisable in
cumulative or non-cumulative installments and in part or in full at any time.
An exercisable Option, or portion thereof, may be exercised only with respect to
whole shares of Common Stock.
(D) PAYMENT. An Option may be exercised by giving written notice to
the Corporation specifying the number of shares of Common Stock to be purchased
and accompanied by payment of the purchase price in full (or arrangement made
for such payment to the Corporation's satisfaction). As determined by the
Committee at the time of grant of an Option and set forth in the agreement
evidencing the Option, the purchase price may be paid (a) in cash or (b) by
delivery (either actual delivery or by attestation procedures established by the
Corporation) of previously-owned whole shares of Common Stock (for which the
holder has good title, free and clear of all liens and encumbrances and which
such holder either (i) has held for at least six months or (ii) has purchased on
the open market) valued at their fair market value on the date of exercise. If
applicable, a person exercising an Option shall surrender to the Corporation any
SARs which are canceled by reason of the exercise of such Option.
(E) TERMINATION OF EMPLOYMENT OR SERVICE OR DEATH OF HOLDER. In the
event of any termination of the employment or service of a Holder with the
Corporation or one of its subsidiaries, other than by reason of death or, in the
case of a Holder of a
6
<PAGE>
nonqualified option, Retirement, the Holder may (unless otherwise provided in
the Option agreement) exercise each Option held by such Holder at any time
within three months (or one year if the Holder is permanently and totally
disabled within the meaning of Section 22(e)(3) of the Code) after such
termination of employment or service, but only if and to the extent such Option
is exercisable at the date of such termination of employment or service, and in
no event after the date on which such Option would otherwise terminate;
PROVIDED, HOWEVER, that if such termination of employment or service is for
cause or voluntary on the part of the Holder without the written consent of the
Corporation, any Option held by such Holder under the Plan shall terminate
unless otherwise provided in the Option agreement.
In the event of the termination of employment or service of a Holder
of a nonqualified option by reason of Retirement, then each nonqualified option
held by the Holder shall be fully exercisable, and, subject to the following
paragraph, such nonqualified option shall be exercisable by the Holder at any
time up to and including (but not after) the date on which the nonqualified
option would otherwise terminate (unless otherwise provided in the Option
Agreement).
In the event of the death of a Holder (i) while employed by or
providing service to the Corporation or one of its subsidiaries or after
Retirement, (ii) within three months after termination of the Holder's
employment, other than a termination by reason of permanent and total disability
within the meaning of Section 22(e)(3) of the Code, or (iii) within one year
after termination of the Holder's employment by reason of such disability, then
each Option held by such Holder may be exercised by the legatees of the Holder
under his last will, or by his personal representatives or distributees, at any
time within a period of nine months after the Holder's death, but only if and to
the extent such Option is exercisable at the date of death (unless death occurs
while the Holder is employed by or providing service to the Corporation or one
of its subsidiaries, in which case each Option held by the Holder shall be fully
exercisable), and in no event after the date on which such Option would
otherwise terminate.
(F) PRIVILEGES OF THE HOLDER AS SHAREHOLDER. The Holder shall be
entitled to all the privileges and rights of a shareholder with respect only to
such shares of Common Stock as have been actually purchased under the Option and
registered in the Holder's name.
(G) SARS. The Committee may, in its sole discretion, grant an SAR
(concurrently with the grant of the Option or, in the case of a nonqualified
option which is not intended to be qualified performance-based compensation
under Section 162(m) of the Code and the rules and regulations thereunder,
subsequent to such grant) to any Holder of any Option granted under the Plan (or
such Holder's legatees, personal representatives or distributees then entitled
to exercise such Option). An SAR may be exercised (i) by giving written notice
to the Corporation specifying the number of SARs which are being exercised and
(ii) by surrendering to the Corporation any Options
7
<PAGE>
which are canceled by reason of the exercise of the SAR. An SAR shall be
exercisable upon such additional terms and conditions as may from time to time
be prescribed by the Committee. No fractional share shall be issued upon the
exercise of any SAR.
(H) NON-TRANSFERABILITY. Unless otherwise specified in the agreement
evidencing an Option or SAR, no Option or SAR hereunder shall be transferable
other than by will or the laws of descent and distribution or pursuant to
beneficiary designation procedures approved by the Corporation. Except to the
extent permitted by the foregoing sentence, each Option or SAR may be exercised
during the Holder's lifetime only by the Holder or the Holder's legal
representative or similar person. Except as permitted by the second preceding
sentence, no Option or SAR hereunder shall be sold, transferred, assigned,
pledged, hypothecated, encumbered or otherwise disposed of (whether by operation
of law or otherwise) or be subject to execution, attachment or similar process.
Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of any Option or SAR hereunder, such Option or SAR and all
rights thereunder shall immediately become null and void.
8. RESTRICTED STOCK AWARDS
(A) RESTRICTION PERIOD TO BE ESTABLISHED BY THE COMMITTEE. At the
time of the making of a Restricted Stock Award, the Committee shall establish a
period of time (the "RESTRICTION PERIOD") applicable to such award. The
Committee may establish different Restriction Periods from time to time and each
Restricted Stock Award may have a different Restriction Period, in the
discretion of the Committee.
(B) OTHER TERMS AND CONDITIONS. Common Stock, when awarded pursuant
to a Restricted Stock Award, shall be represented by a stock certificate or
book-entry credits registered in the name of the Holder who receives the
Restricted Stock Award or a nominee for the benefit of the Holder. The Holder
shall have the right to receive dividends (or the cash equivalent thereof)
during the Restriction Period and shall also have the right to vote such Common
Stock and all other shareholder's rights (in each case unless otherwise provided
in the agreement evidencing the Restricted Stock Award), with the exception that
(i) the Holder shall not be entitled to delivery of the stock certificate (or
the removal of restrictions in the Corporation's books and records) until the
Restriction Period established by the Committee pursuant to Paragraph 8(A) shall
have expired, (ii) the Corporation shall retain custody of the stock certificate
during the Restriction Period, (iii) the Holder may not sell, transfer, pledge,
exchange, hypothecate or dispose of such Common Stock during the Restriction
Period, and (iv) a breach of restriction or breach of terms and conditions
established by the Committee pursuant to the Restricted Stock Award shall cause
a forfeiture of the Restricted Stock Award. If requested by the Corporation, a
Holder of a Restricted Stock Award shall deposit with the Corporation stock
powers or other instruments of assignment (including a power of attorney), each
endorsed in blank with a guarantee of
8
<PAGE>
signature if deemed necessary or appropriate by the Corporation, which would
permit transfer to the Corporation of all or a portion of the shares of Common
Stock subject to the Restricted Stock Award in the event such award is forfeited
in whole or in part. A distribution with respect to shares of Common Stock,
other than a distribution in cash, shall be subject to the same restrictions as
the shares of Common Stock with respect to which such distribution was made,
unless otherwise determined by the Committee. The Committee may, in addition,
prescribe additional restrictions, terms or conditions upon or to the Restricted
Stock Award in the manner prescribed by Paragraph 4. The Committee may, in its
sole discretion, also establish rules pertaining to the Restricted Stock Award
in the event of termination of employment or service (by Retirement, disability,
death or otherwise) of a Holder of such award prior to the expiration of the
Restriction Period.
(C) RESTRICTED STOCK AWARD AGREEMENT. Each Restricted Stock Award
shall be evidenced by an agreement in such form and containing such provisions
not inconsistent with the provisions of the Plan as the Committee from time to
time shall approve.
(D) PAYMENT FOR RESTRICTED STOCK. Restricted Stock Awards may be
made by the Committee whereby the Holder receives Common Stock subject to those
terms, conditions and restrictions established by the Committee but is not
required to make any payment for said Common Stock. The Committee may also
establish terms as to each Holder whereby such Holder, as a condition to the
Restricted Stock Award, is required to pay, in cash or other consideration, all
(or any lesser amount than all) of the fair market value of the Common Stock,
determined as of the date the Restricted Stock Award is made.
(E) TERMINATION OF EMPLOYMENT OR SERVICE OR DEATH OF HOLDER. A
Restricted Stock Award shall terminate for all purposes if the Holder does not
remain continuously in the employ or service of the Corporation or a subsidiary
at all times during the applicable Restriction Period, except as may otherwise
be determined by the Committee.
9. PERFORMANCE AWARDS
(A) PERFORMANCE PERIOD. The Committee shall establish with respect
to each Performance Award a performance period over which the performance of the
Holder shall be measured. The performance period shall be established at the
time of such award.
(B) PERFORMANCE AWARDS. Each Performance Award shall have a maximum
value established by the Committee at the time of such award.
9
<PAGE>
(C) PERFORMANCE MEASURES. Performance Awards shall be awarded to an
eligible person contingent upon future performance of the Corporation and/or the
Corporation's subsidiary, division or department in which such person is
employed over the performance period. The Committee shall establish the
performance measures applicable to such performance. The performance measures
determined by the Committee shall be established prior to the beginning of each
performance period but, except as necessary to qualify a Performance Award as
"performance-based compensation" under Section 162(m) of the Code and the rules
and regulations thereunder, may be subject to such later revisions to reflect
significant, unforeseen events or changes, as the Committee shall deem
appropriate.
(D) AWARD CRITERIA. In determining the value of Performance
Awards, the Committee shall take into account an eligible person's
responsibility level, performance, potential, cash compensation level,
unexercised stock options, other incentive awards and such other
considerations as it deems appropriate. Notwithstanding the preceding
sentence, to the extent necessary for a Performance Award to be qualified
performance-based compensation under Section 162(m) of the Code and the rules
and regulations thereunder, the performance period shall be not less than
three years and, if a Performance Award is payable in shares of Common Stock,
the maximum number of shares that may be paid under the Performance Award
during such performance period shall be [500,000] and, if a Performance Award
is payable in cash, the maximum amount that may be paid under the Performance
Award during such performance period shall be $10,000,000.
(E) PAYMENT. Following the end of each performance period, the
Holder of each Performance Award shall be entitled to receive payment of an
amount, not exceeding the maximum value of the Performance Award, based on the
achievement of the performance measures for such performance period, as
determined by the Committee. Payment of Performance Awards may be made wholly
in cash, wholly in shares of Common Stock or a combination thereof, all at the
discretion of the Committee. Payment shall be made in a lump sum or in
installments, and shall be subject to such vesting and other terms and
conditions as may be prescribed by the Committee for such purpose.
Notwithstanding anything contained herein to the contrary, in the case of a
Performance Award intended to be qualified performance-based compensation under
Section 162(m) and the rules and regulations thereunder, no payment shall be
made under any such Performance Award until the Committee certifies in writing
that the performance measures for the performance period have in fact been
achieved.
(F) TERMINATION OF EMPLOYMENT OR SERVICE OR DEATH OF HOLDER. A
Performance Award shall terminate for all purposes if the Holder does not remain
continuously in the employ or service of the Corporation or a subsidiary at all
times during the applicable performance period, except as may otherwise be
determined by the Committee.
10
<PAGE>
In the event that a Holder of a Performance Award ceases to be an
employee or director of the Corporation following the end of the applicable
performance period but prior to full payment according to the terms of the
Performance Award, payment shall be made in accordance with terms established by
the Committee for the payment of such Performance Award.
(G) OTHER TERMS AND CONDITIONS. When a Performance Award is payable
in installments in Common Stock, if determined by the Committee, one or more
stock certificates or book-entry credits registered in the name of the Holder
representing shares of Common Stock which would have been issuable to the Holder
of the Performance Award if such payment had been made in full on the day
following the end of the applicable performance period may be registered in the
name of such Holder, and during the period until such installment becomes due
such Holder shall have the right to receive dividends (or the cash equivalent
thereof) and shall also have the right to vote such Common Stock and all other
shareholder's rights (in each case unless otherwise provided in the agreement
evidencing the Performance Award), with the exception that (i) the Holder shall
not be entitled to delivery of any stock certificate until the installment
payable in shares becomes due, (ii) the Corporation shall retain custody of any
stock certificates until such time and (iii) the Holder may not sell, transfer,
pledge, exchange, hypothecate or dispose of such Common Stock until such time.
A distribution with respect to shares of Common Stock payable in installments
which has not become due, other than a distribution in cash, shall be subject to
the same restrictions as the shares of Common Stock with respect to which such
distribution was made, unless otherwise determined by the Committee.
(H) PERFORMANCE AWARD AGREEMENTS. Each Performance Award shall be
evidenced by an agreement in such form and containing such provisions not
inconsistent with the provisions of the Plan as the Committee from time to time
shall approve.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CHANGE IN CONTROL
(A) Notwithstanding any other provision of the Plan, each Option,
Restricted Stock Award or Performance Award agreement may contain such
provisions as the Committee shall determine to be appropriate for the adjustment
of (i) the number and class of shares or other consideration subject to any
Option or to be delivered pursuant to any Restricted Stock Award or Performance
Award and (ii) the Option or Restricted Stock Award price, in the event of a
stock dividend, spin-off, split-up, recapitalization, merger, consolidation,
combination or exchange of shares, or the like. In such event, the maximum
number and class of shares available under the Plan, and the number and class of
shares subject to Options, SARs, Restricted Stock Awards or Performance Awards,
shall be appropriately adjusted by the Committee, whose determination shall be
conclusive.
11
<PAGE>
(B)(i) In the event of a "change in control" (as hereinafter defined)
pursuant to subparagraph (C)(i) or (ii) below, or in the event of a change in
control pursuant to subparagraph (C)(iii) or (iv) below in connection with which
the holders of Common Stock receive consideration other than shares of common
stock that are registered under Section 12 of the Exchange Act:
(1)(x) each Option granted under the Plan shall be exercisable in
full, (y) each Holder of an Option shall receive from the Corporation
within 60 days after the change in control, in exchange for the surrender
of the Option or any portion thereof to the extent the Option is then
exercisable in accordance with clause (x), an amount in cash equal to the
difference between the fair market value (as determined by the Committee)
on the date of the change in control of the Common Stock covered by the
Option or portion thereof which is so surrendered and the purchase price of
such Common Stock under the Option and (z) each SAR shall be surrendered by
the Holder thereof and shall be canceled simultaneously with the
cancellation of the related Option;
(2) each Holder of a Restricted Stock Award shall receive from the
Corporation within 60 days after the change in control, in exchange for the
surrender of the Restricted Stock Award, an amount in cash equal to the
fair market value (as determined by the Committee) on the date of the
change in control of the Common Stock subject to the Restricted Stock
Award;
(3) each Holder of a Performance Award for which the performance
period has not expired shall receive from the Corporation within 60 days
after the change in control, in exchange for the surrender of the
Performance Award, an amount in cash equal to the product of the value of
the Performance Award and a fraction the numerator of which is the number
of whole months which have elapsed from the beginning of the performance
period to the date of the change in control and the denominator of which is
the number of whole months in the performance period; and
(4) each Holder of a Performance Award that has been earned but not
yet paid shall receive an amount in cash equal to the value of the
Performance Award.
(ii) Notwithstanding any other provision of the Plan or any agreement
relating to an Option, Restricted Stock Award or Performance Award, in the event
of a change in control pursuant to subparagraph (C)(iii) or (iv) below in
connection with which the holders of Common Stock receive shares of common stock
that are registered under Section 12 of the Exchange Act:
(1) each Option and SAR granted under the Plan shall be exercisable
in full;
12
<PAGE>
(2) the Restriction Period applicable to any outstanding Restricted
Stock Award shall lapse and, if applicable, any other restrictions, terms
or conditions shall lapse and/or be deemed to be satisfied at the maximum
value or level;
(3) the performance measures applicable to any outstanding
Performance Award shall be deemed to be satisfied at the maximum value; and
(4) there shall be substituted for each share of Common Stock
remaining available for issuance under the Plan, whether or not then
subject to an outstanding Option (and SAR), Restricted Stock Award or
Performance Award, the number and class of shares into which each
outstanding share of Common Stock shall be converted pursuant to such
Change in Control. In the event of any such substitution, the purchase
price per share in the case of an Option shall be appropriately adjusted by
the Committee (whose determination shall be conclusive), such adjustments
to be made without any increase in the aggregate purchase price.
(C) For purposes of this paragraph, the term "CHANGE IN CONTROL"
shall mean:
(i) the acquisition by any individual, entity or group (a "PERSON"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act, of beneficial ownership within the meaning of Rule 13d-3
promulgated under the Exchange Act, of 25% or more of either (x) the then
outstanding shares of common stock of the Corporation (the "OUTSTANDING COMMON
STOCK") or (y) the combined voting power of the then outstanding securities of
the Corporation entitled to vote generally in the election of directors (the
"OUTSTANDING VOTING SECURITIES"); excluding, however, the following: (1) any
acquisition directly from the Corporation (excluding any acquisition resulting
from the exercise of an exercise, conversion or exchange privilege unless the
security being so exercised, converted or exchanged was acquired directly from
the Corporation), (2) any acquisition by the Corporation, (3) any acquisition by
an employee benefit plan (or related trust) sponsored or maintained by the
Corporation or any corporation controlled by the Corporation or (4) any
acquisition by any corporation pursuant to a transaction which complies with
clauses (1), (2) and (3) of clause (iii) in this definition of change in
control;
(ii) individuals who, as of the effective date of the Plan, constitute
the Board of Directors of the Corporation (the "INCUMBENT BOARD") cease for any
reason to constitute at least a majority of such Board; PROVIDED, HOWEVER, that
any individual who becomes a director of the Corporation subsequent to such
effective date whose election, or nomination for election by the Corporation's
shareholders, was approved by the vote of at least a majority of the directors
then comprising the Incumbent Board shall be deemed a member of the Incumbent
Board; and PROVIDED FURTHER, that any individual who was initially elected as a
director of the Corporation as a result of an
13
<PAGE>
actual or threatened election contest, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act, or any other actual or
threatened solicitation of proxies or consents by or on behalf of any Person
other than the Board of Directors shall not be deemed a member of the Incumbent
Board;
(iii) the consummation of a reorganization, merger or consolidation of
the Corporation or sale or other disposition of all or substantially all of the
assets of the Corporation (a "CORPORATE TRANSACTION"); excluding, however, a
Corporate Transaction pursuant to which (1) all or substantially all of the
individuals or entities who are the beneficial owners, respectively, of the
Outstanding Common Stock and the Outstanding Voting Securities immediately prior
to such Corporate Transaction will beneficially own, directly or indirectly,
more than 66 2/3% of, respectively, the outstanding shares of common stock, and
the combined voting power of the outstanding securities of such corporation
entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's assets either
directly or indirectly) in substantially the same proportions relative to each
other as their ownership, immediately prior to such Corporate Transaction, of
the Outstanding Common Stock and the Outstanding Voting Securities, as the case
may be, (2) no Person (other than: the Corporation; any employee benefit plan
(or related trust) sponsored or maintained by the Corporation or any corporation
controlled by the Corporation; the corporation resulting from such Corporate
Transaction; and any Person which beneficially owned, immediately prior to such
Corporate Transaction, directly or indirectly, 25% or more of the Outstanding
Common Stock or the Outstanding Voting Securities, as the case may be) will
beneficially own, directly or indirectly, 25% or more of, respectively, the
outstanding shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the outstanding securities
of such corporation entitled to vote generally in the election of directors and
(3) individuals who were members of the Incumbent Board will constitute at least
a majority of the members of the board of directors of the corporation resulting
from such Corporate Transaction; or
(iv) the consummation of a plan of complete liquidation or
dissolution of the Corporation.
(D) With respect to any Holder of an Option or SAR who is subject to
Section 16 of the Exchange Act, (i) notwithstanding the exercise periods set
forth in Paragraph 7(E) or as set forth pursuant to Paragraph 7(E) in any
agreement evidencing such Option or SAR and (ii) notwithstanding the expiration
date of the term of such Option or SAR, in the event the Corporation is involved
in a business combination which is intended to be treated as a pooling of
interests for financial accounting purposes (a "POOLING TRANSACTION") or
pursuant to which such Holder receives a substitute option to purchase
securities of any entity, including an entity directly or indirectly acquiring
the Corporation, then each Option or SAR (or option or stock
14
<PAGE>
appreciation right in substitution thereof) held by such Holder shall be
exercisable to the extent set forth in the agreement evidencing such Option or
SAR until and including the latest of (x) the expiration date of the term of the
Option or SAR or, in the event of such Holder's termination of employment or
service, the date determined pursuant to Paragraph 7(E), (y) the date which is
six months and ten business days after the consummation of such business
combination and (z) the date which is ten business days after the date of
expiration of any period during which such Holder may not dispose of a security
issued in the Pooling Transaction in order for the Pooling Transaction to be
accounted for as a pooling of interests.
11. WITHHOLDING TAXES
(A) If provided in the agreement evidencing an Option, SAR,
Restricted Stock Award or Performance Award, the Holder thereof may elect, by
written notice to the Corporation at the office of the Corporation designated
for that purpose, to pay through withholding by the Corporation all or a portion
of the estimated federal, state, local and other taxes arising from (1) the
exercise of an Option or SAR and (2) the vesting or distribution of shares of
Common Stock pursuant to a Restricted Stock Award or Performance Award (a) by
having the Corporation withhold shares of Common Stock or (b) by delivering
previously-owned shares (collectively, "SHARE WITHHOLDING"), in each case being
such number of shares of Common Stock as shall have a fair market value equal to
the amount of taxes to be withheld, rounded up to the nearest whole share.
(B) A Share Withholding election shall be subject to disapproval by
the Corporation.
(C) If the date as of which the amount of tax to be withheld is
determined (the "TAX DATE") is deferred until after the exercise of an Option or
SAR, the expiration of the Restriction Period applicable to a Restricted Stock
Award or the payment of a Performance Award, and if the Holder elects Share
Withholding, the Corporation shall issue to the Holder the full number of shares
of Common Stock, if any, resulting from such exercise, expiration or payment and
the Holder shall be unconditionally obligated to deliver to the Corporation on
the Tax Date such number of shares of Common Stock as shall have an aggregate
fair market value equal to the amount to be withheld on the Tax Date, rounded up
to the nearest whole share.
(D) The fair market value of shares of Common Stock used for payment
of taxes, as provided in this Paragraph 11, shall be the mean sale price per
share, as reported for New York Stock Exchange Composite Transactions, on the
Tax Date.
15
<PAGE>
12. TERMINATION OF PLAN
The Plan may be terminated at any time by the Board of Directors,
except with respect to any Options, SARs, Restricted Stock Awards or Performance
Awards then outstanding. The Corporation reserves the right to restrict, in
whole or in part, the exercise of any Options or SARs or the delivery of Common
Stock pursuant to any Restricted Stock Awards or Performance Awards granted
under the Plan until such time as:
(A) any legal requirements or regulations have been met relating to
the issuance of the shares covered thereby or to their registration under
the Securities Act of 1933 or to any applicable State laws; and
(B) satisfactory assurances are received that the shares when issued
will be duly listed on the New York Stock Exchange, Inc.
13. AMENDMENT OF THE PLAN
The Board of Directors may amend the Plan; PROVIDED, HOWEVER, that
without approval of the shareholders the Board of Directors may not amend the
Plan, subject to Paragraph 10, to (a) increase the maximum number of shares
which may be issued on exercise of Options or SARs or pursuant to Restricted
Stock Awards or Performance Awards granted under the Plan or (b) effect any
change inconsistent with Section 422 of the Code.
14. EFFECT OF THE PLAN
Neither the adoption of the Plan nor any action of the Board of
Directors or of the Committee shall be deemed to give any person any right to be
granted an Option, a right to a Restricted Stock Award or a right to a
Performance Award or any rights hereunder except as may be evidenced by an
Option agreement, Restricted Stock Award agreement or Performance Award
agreement, duly executed on behalf of the Corporation, and then only to the
extent and on the terms and conditions expressly set forth therein.
16
<PAGE>
CHANGE IN CONTROL AGREEMENT
This CHANGE IN CONTROL AGREEMENT dated as of December ___, 1997, between
HUSSMANN INTERNATIONAL, INC., a Delaware corporation (the "Company"), and
________________________________________ (the "Executive").
WHEREAS, the Company's Board of Directors has determined that, in light of
the importance of the Executive's continued services to the stability and
continuity of management of the Company and its subsidiaries, it is appropriate
and in the best interests of the Company and of its shareholders to reinforce
and encourage the Executive's continued disinterested attention and undistracted
dedication to his duties in the potentially disturbing circumstances of a
possible change in control of the Company by providing some degree of personal
financial security;
WHEREAS, the Company is currently a subsidiary of Whitman Corporation
("Whitman");
WHEREAS, on December 31, 1997, Whitman intends to distribute to its
shareholders all of the issued and outstanding shares of the Company's common
stock (such date, or any subsequent date on which such distribution shall
finally occur is hereinafter referred to as the "Effective Date");
WHEREAS, in order to induce the Executive to remain in the employ of the
Company or a subsidiary of the Company (a "Subsidiary"), the Company's Board of
Directors has determined that it is desirable to pay the Executive the severance
compensation set forth below if the Executive's employment with the Company or a
<PAGE>
Subsidiary terminates in one of the circumstances described below following a
Change in Control (as defined below); and
WHEREAS, Whitman and/or a Subsidiary have previously entered into Severance
Compensation and Change in Control Agreements with certain executive officers of
the Company and its Subsidiaries, and this Agreement shall, as of the Effective
Date, replace in its entirety any and all such prior Agreements ("Prior
Agreements") to which the Executive is a party;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the Company and the Executive agree as follows:
1. TERM OF AGREEMENT. (a) The term of this Agreement shall commence on
the Effective Date and shall terminate, except to the extent that any obligation
of the Company hereunder remains unpaid as of such time, on the earlier to occur
of the date on which the Executive reaches age 65 and the third anniversary of
the Effective Date, subject to extension as provided in Section l(b) below;
provided, however, that this Agreement shall continue in effect until the
earlier to occur of the date on which the Executive reaches age 65 and the date
three years beyond the initial or any extended date of termination of this
Agreement if a Change in Control shall have occurred prior to such date of
termination of this Agreement (and shall continue for such additional period as
any obligation of the Company under this Agreement shall remain unpaid).
(b) Commencing on the date after the Effective Date and continuing on each
date thereafter (each such date being hereinafter referred to as a "Renewal
Date"), the term of this
-2-
<PAGE>
Agreement shall be automatically extended so as to terminate three years
thereafter, unless at least 60 days prior to a specified Renewal Date the
Company shall give written notice to the Executive that the term of this
Agreement shall not be so extended.
2. CHANGE IN CONTROL. No compensation shall be payable under this
Agreement unless and until (a) there shall have been a Change in Control while
the Executive is still an employee of the Company or a Subsidiary, and (b) the
Executive's employment by the Company or a Subsidiary thereafter shall have been
terminated in accordance with Section 3 of this Agreement.
For purposes of this Agreement, a "Change in Control" shall mean:
(i) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of beneficial ownership within the meaning of Rule
13d-3 promulgated under the Exchange Act, of 25% or more of either (A)
the then outstanding shares of common stock of the Company (the
"Outstanding Common Stock") or (B) the combined voting power of the
then outstanding securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Voting Securities");
excluding, however, the following: (1) any acquisition directly from
the Company (excluding any acquisition resulting from the exercise of
an exercise, conversion or exchange privilege unless the security
being so exercised, converted or exchanged was acquired directly from
the Company), (2) any acquisition by the Company, (3) any acquisition
by an employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company or (4) any
acquisition by any corporation pursuant to a transaction which
complies with clauses (A), (B) and (C) of clause (iii) in this
definition of Change in Control;
(ii) individuals who, as of the Effective Date, constitute the Board
of Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of such Board; provided that
any individual who becomes a director of the Company subsequent to the
-3-
<PAGE>
Effective Date whose election, or nomination for election by the
Company's shareholders, was approved by the vote of at least a
majority of the directors then comprising the Incumbent Board shall be
deemed a member of the Incumbent Board; and provided further, that any
individual who was initially elected as a director of the Company as a
result of an actual or threatened election contest, as such terms are
used in Rule l4a-11 of Regulation 14A promulgated under the Exchange
Act, or any other actual or threatened solicitation of proxies or
consents by or on behalf of any Person other than the Board shall not
be deemed a member of the Incumbent Board;
(iii) the consummation of a reorganization, merger or consolidation
of the Company or sale or other disposition of all or substantially
all of the assets of the Company (a "Corporate Transaction");
excluding, however, a Corporate Transaction pursuant to which (A) all
or substantially all of the individuals or entities who are the
beneficial owners, respectively, of the Outstanding Common Stock and
the Outstanding Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than
66-2/3% of, respectively, the outstanding shares of common stock, and
the combined voting power of the outstanding securities of such
corporation entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Corporate
Transaction (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or indirectly) in
substantially the same proportions relative to each other as their
ownership, immediately prior to such Corporate Transaction, of the
Outstanding Common Stock and the Outstanding Voting Securities, as the
case may be, (B) no Person (other than: the Company; any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company; the corporation
resulting from such Corporate Transaction; and any Person which
beneficially owned, immediately prior to such Corporate Transaction,
directly or indirectly, 25% or more of the Outstanding Common Stock or
the Outstanding Voting Securities, as the case may be) will
beneficially own, directly or indirectly, 25% or more of,
respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding securities of such corporation
entitled to vote generally in the election of directors and (C)
individuals who were members of the Incumbent Board will constitute at
least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(iv) the consummation of a plan of complete liquidation or
dissolution of the Company.
-4-
<PAGE>
3. TERMINATION FOLLOWING CHANGE IN CONTROL. (a) If a Change in Control
shall have occurred while the Executive is still an employee of the Company or a
Subsidiary, the Executive shall be entitled to the compensation provided in
Section 4 of this Agreement upon the subsequent termination of the Executive's
employment with the Company or Subsidiary within three years of the date upon
which the Change in Control shall have occurred, unless such termination is as a
result of (i) the Executive's death, (ii) the Executive's Disability (as defined
in Section 3(b) below), (iii) the Executive's Retirement (as defined in Section
3(c) below), (iv) the Executive's termination for Cause (as defined in Section
3(d) below), or (v) the Executive's decision to terminate employment other than
for Good Reason (as defined in Section 3(e) below). Notwithstanding anything to
the contrary in this Agreement, if a Change in Control occurs and if the
Executive's employment with the Company or a Subsidiary was terminated prior to
the date on which the Change in Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who had taken steps reasonably calculated to effect the
Change in Control, or (ii) otherwise arose in connection with or anticipation of
the Change in Control, then for all purposes of this Agreement, the termination
of the Executive's employment shall be deemed to have occurred immediately
following the Change in Control.
(b) DISABILITY. If, as a result of the Executive's incapacity due to a
medically determinable physical or mental illness which can be expected to be
permanent or of indefinite duration (as certified in writing by a physician
selected by the Company and reasonably acceptable to the Executive), the
Executive
-5-
<PAGE>
shall qualify for benefits under the long-term disability plan of the Company
or a Subsidiary and shall have been absent from his duties with the Company
or a Subsidiary on a full-time basis for a continuous period of six months
commencing with the date of the Change in Control or the first day of such
absence (whichever is later) the Company or such Subsidiary may terminate the
Executive's employment for "Disability" without the Executive being entitled
to the compensation provided in Section 4.
(c) RETIREMENT. The term "Retirement" as used in this Agreement shall
mean termination by the Company or a Subsidiary or the Executive of the
Executive's employment based on the Executive having reached age 65 without the
Executive being entitled to the compensation provided in Section 4. Termination
based on "Retirement" shall not include, for purposes of this Agreement, the
Executive's taking of early retirement by reason of a termination by the
Executive of his employment for Good Reason.
(d) CAUSE. The Company or a Subsidiary may terminate the Executive's
employment for Cause without the Executive being entitled to the compensation
provided in Section 4. For purposes of this Agreement, the Company or Subsidiary
shall have "Cause" to terminate the Executive's employment ONLY on the basis of
(i) the Executive's wilful and continued failure substantially to perform his
duties with the Company or Subsidiary (other than any such failure resulting
from his incapacity due to physical or mental illness or any such failure
resulting from the Executive's termination for Good Reason), after a written
demand for substantial performance is delivered to the Executive by the Chief
Executive Officer (or if the Executive is Chief Executive Officer, by the
-6-
<PAGE>
Board of Directors) which specifically identifies the manner in which the
Chief Executive Officer (or the Board of Directors if the Executive is Chief
Executive Officer) believes that the Executive has not substantially
performed his duties, or (ii) the Executive's wilful engagement in gross
conduct materially and demonstrably injurious to the Company or a Subsidiary.
For purposes of this subsection, no act or failure to act on the Executive's
part shall be considered "wilful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company or a Subsidiary. The
Executive shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to the Executive a written statement of
the Chief Executive Officer (or if the Executive is Chief Executive officer,
a copy of a resolution duly adopted by the affirmative vote of not less than
two-thirds of the entire membership of the Board of Directors at a duly
convened meeting of the Board of Directors), finding that in the good faith
opinion of the Chief Executive Officer (or the Board of Directors if the
Executive is Chief Executive Officer) the Executive was guilty of conduct set
forth in clause (i) or (ii) of the second sentence of this Section 3(d) and
specifying the particulars thereof in detail.
(e) GOOD REASON. The Executive may terminate the Executive's employment
with the Company or a Subsidiary for Good Reason within three years after a
Change in Control and during the term of this Agreement and become entitled to
the compensation provided in Section 4. For purposes of this Agreement, "Good
-7-
<PAGE>
Reason" shall mean any of the following events, unless it occurs with the
Executive's express prior written consent:
(i) the assignment to the Executive by the Company or a
Subsidiary of any duties inconsistent with, or a diminution of, the
Executive's position, duties, titles, offices, responsibilities or
status with the Company or a Subsidiary immediately prior to a Change
in Control, or any removal of the Executive from or any failure to
reelect the Executive to any of such positions, except in connection
with the termination of the Executive's employment for Disability,
Retirement or Cause or as a result of the Executive's death or by the
Executive other than for Good Reason;
(ii) a reduction by the Company or a Subsidiary in the
Executive's base salary as in effect on the date hereof or as the same
may be increased from time to time during the term of this Agreement
or the Company's or Subsidiary's failure to increase (within 15 months
of the Executive's last increase in base salary) the Executive's base
salary after a Change in Control in an amount which is substantially
similar, on a percentage basis, to the average percentage increase in
base salary for all officers of the Company or the Subsidiary effected
during the preceding 12 months, other than a reduction of the
Executive's base salary pursuant to the terms of the short-term or
long-term disability plans of the Company or a Subsidiary during a
period in which the Executive is disabled (within the meaning of such
plan or plans) and qualifies for benefits under such plan or plans;
-8-
<PAGE>
(iii) any failure by the Company or a Subsidiary to continue in
effect any benefit plan or arrangement (including, without limitation,
any pension or retirement plan, employee stock ownership plan, group
life insurance plan, medical, dental, accident and disability plans
and educational assistance reimbursement plan) in which the Executive
is participating at the time of a Change in Control (or to substitute
and continue other plans providing the Executive with substantially
similar benefits) (hereinafter referred to as "Benefit Plans"), the
taking of any action by the Company or a Subsidiary which would
adversely affect the Executive's participation in or materially reduce
the Executive's benefits under any such Benefit Plan or deprive the
Executive of any material fringe benefit enjoyed by the Executive at
the time of a Change in Control, or the failure by the Company or
Subsidiary to provide the Executive with the number of paid vacation
days to which the Executive is entitled in accordance with the
vacation policies in effect at the time of a Change in Control;
(iv) any failure by the Company or a Subsidiary to continue in
effect any incentive plan or arrangement (including, without
limitation, the Company's annual bonus and contingent bonus
arrangements and credits and the right to receive performance awards
and similar incentive compensation benefits) in which the Executive is
participating at the time of a Change in Control (or to substitute and
continue other plans or arrangements providing the
-9-
<PAGE>
Executive with substantially similar benefits) (hereinafter referred to
as "Incentive Plans") or the taking of any action by the Company or a
Subsidiary which would adversely affect the Executive's participation in
any such Incentive Plan or reduce the Executive's benefits under any
such Incentive Plan in an amount which is not substantially similar, on
a percentage basis, to the average percentage reduction of benefits
under any such Incentive Plan effected during the preceding 12 months
for all officers of the Company or a Subsidiary participating in any
such Incentive Plan;
(v) any failure by the Company or a Subsidiary to continue in
effect any plan or arrangement to receive securities of the Company or
awards the value of which is derived from securities of the Company
(including, without limitation, the Company's Stock Incentive Plan and
any other plan or arrangement to receive and exercise stock options,
stock appreciation rights, restricted stock, phantom stock or grants
thereof or to acquire stock or other securities of the Company) in
which the Executive is participating at the time of a Change in
Control (or to substitute and continue plans or arrangements providing
the Executive with substantially similar benefits) (hereinafter
referred to as "Securities Plans") or the taking of any action by the
Company or a Subsidiary which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits under
any such Securities Plan;
-10-
<PAGE>
(vi) a relocation of the Company's principal executive offices
or the Executive's relocation to any metropolitan area other than the
metropolitan area in which the Executive performed the Executive's
duties immediately prior to a Change in Control;
(vii) a substantial increase in the Executive's business travel
obligations over such obligations as they existed at the time of a
Change in Control;
(viii) any material breach by the Company or a Subsidiary of any
provision of this Agreement;
(ix) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company pursuant to
Section 7(a); or
(x) any purported termination by the Company or a Subsidiary of
the Executive's employment which is not effected pursuant to a Notice
of Termination satisfying the requirements of Section 3(f), including
any purported termination of employment under the circumstances
described in the last sentence of Section 3(a).
(f) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or a Subsidiary pursuant to Section 3(b), 3(c) or 3(d)
or by the Executive pursuant to Section 3(e) shall be communicated to the other
party by a Notice of Termination. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon and which sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's
-11-
<PAGE>
employment under the provision so indicated. For purposes of this Agreement,
no such purported termination by the Company or Subsidiary shall be effective
without such Notice of Termination.
(g) DATE OF TERMINATION. "Date of Termination" shall mean (a) if the
Executive's employment is terminated by the Company or a Subsidiary for
Disability, 30 days after Notice of Termination is given to the Executive
(provided that the Executive shall not have returned to the performance of the
Executive's duties on a full-time basis during such 30-day period) or (b) if the
Executive's employment is terminated for any other reason, the date on which a
Notice of Termination is given.
4. SEVERANCE COMPENSATION UPON TERMINATION. (a) If the Executive's
employment by the Company or a Subsidiary is terminated (i) by the Company or
Subsidiary pursuant to Section 3(b), 3(c) or 3(d) or by reason of death or (ii)
by the Executive other than for Good Reason, the Executive shall not be entitled
to any severance compensation under this Agreement, but the absence of the
Executive's entitlement to any benefits under this Agreement shall not prejudice
the Executive's right to the full realization of any and all other benefits to
which the Executive shall be entitled pursuant to the terms of any employee
benefit plans or other agreements or policies of the Company or a Subsidiary in
which the Executive is a participant or to which the Executive is a party.
(b) If the Executive's employment by the Company or a Subsidiary is
terminated (x) by the Company or such Subsidiary other than pursuant to Section
3(b), 3(c) or 3(d) or by reason of death or (y) by the Executive for Good
Reason, then the Executive shall be entitled to the severance compensation
provided below:
-12-
<PAGE>
(i) In lieu of any further salary or incentive payments to the
Executive for periods subsequent to the Date of Termination, the
Company shall pay in cash as severance compensation to the Executive
at the time specified in subsection (ii) below, a lump-sum severance
payment equal to three (3) times the Executive's Adjusted Annual
Compensation. For purposes of this Agreement, "Adjusted Annual
Compensation" shall mean the sum of (x) an amount equal to the highest
level of the Executive's annual base salary in effect (calculated
prior to any deferral of salary, qualified or nonqualified) between
the time of the Change in Control and the Date of Termination, (y) an
amount equal to the greater of the amounts earned by the Executive
under the annual incentive compensation plan of the Company or a
Subsidiary (or under the Whitman Management Incentive Compensation
Plan, if applicable) for the two preceding calendar years (calculated
prior to any deferral of salary, qualified or nonqualified), or, if
the Executive has participated in such plan for only one year, an
amount equal to the amount earned under such plan for the preceding
calendar year, and (z) an amount equal to one-third of the sum of the
amounts of the current "Target" values for the Executive under any
annual or long term incentive compensation plans of the Company or a
Subsidiary, such Target values to be prorated from the beginning of
the applicable measurement period for each such plan through the end
of the month in which the Date of Termination occurs.
-13-
<PAGE>
(ii) The severance compensation provided for in subsection (i)
above shall be paid not later than the 10th day following the Date of
Termination; provided, however, that, if the amount of such
compensation cannot be finally determined on or before such day, the
Company shall pay to the Executive on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such
compensation and shall pay the remainder of such compensation
(together with interest at the rate provided in Section 1274(b)(2)(B)
of the Internal Revenue Code of 1986, as amended (the "Code")) as soon
as the amount thereof can be determined, but in no event later than
the 30th day after the Date of Termination. In the event that the
amount of the estimated payment exceeds the amount subsequently
determined to have been payable, such excess shall constitute a loan
by the Company to the Executive payable on the 30th day after demand
by the Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code, commencing on the 31st day following such
demand).
(iii) The Company shall arrange to provide the Executive for a
period of thirty-six (36) months following the Date of Termination or
until the Executive's earlier death, with life, medical, dental,
accident and disability insurance benefits and a package of "executive
benefits", including to the extent applicable capital assessments and
dues for pre-existing club memberships and the use of an automobile or
an allowance therefor (collectively,
-14-
<PAGE>
"Employment Benefits"), substantially similar to those which the
Executive was receiving immediately prior to the Date of Termination.
(iv) During the term of this Agreement and through the period of
thirty-six (36) months following the Date of Termination, all benefits
under any pension or retirement plans, employee stock ownership plan
or any other plan or agreement relating to retirement benefits
(collectively, "Retirement Benefits") in which the Executive
participates shall continue to accrue to the Executive, crediting of
service of the Executive with respect to Retirement Benefits shall
continue, and the Executive shall be entitled to receive all
Retirement Benefits provided to the Executive as a fully vested
participant under any such plan or agreement relating to retirement
benefits. No contributions shall be required to be made by the
Executive to any plan providing for employee contributions following
the Date of Termination. To the extent that the amount of any
Retirement Benefits are or would be payable from a nonqualified plan,
the Company shall, as soon as practicable following the Date of
Termination (but in no event later than the 30th day after the Date of
Termination), pay directly to the Executive in one lump sum, cash in
an amount equal to the additional benefits that would have been
provided had such accrual or crediting been taken into account in
calculating such Retirement Benefits. Such lump sum payment shall be
calculated as provided in the relevant plan and, in the case of a
defined
-15-
<PAGE>
contribution plan, shall include an amount equal to the gross amount of
the maximum employer contributions.
(c) In the event the severance compensation payable under this
Section 4, either alone or together with any other payments to the Executive
from the Company or a Subsidiary (including, but not limited to, payments under
the Company's Stock Incentive Plan or any agreement or award issued pursuant to
such Plan or any successor plan), would constitute a "parachute payment" (as
defined in Section 280G of the Code), and subject the Executive to the excise
tax imposed by Section 4999 of the Code, the Company shall pay the Executive, as
additional severance compensation hereunder and payable at the same time or
times as such severance compensation, the amount of such excise tax and any
additional taxes payable by the Executive by reason of such payment (on the
basis of a customary "gross-up" formula), as calculated by the Company. The
Company agrees to indemnify and hold harmless the Executive from and against any
liability for the payment of additional taxes arising from any deficiency in the
amount of such excise tax and any additional taxes thereon so calculated by the
Company, together with any interest or penalties applicable thereto; provided,
however, that it shall be a condition of this obligation to indemnify and hold
harmless the Executive that the Executive shall have timely notified the Company
of any proposed assessment relating to any claimed deficiency therein and
offered the Company the right to contest such assessment or participate in, at
the expense of the Company, any proceeding relating thereto.
-16-
<PAGE>
5. PAYMENT OF TAXES; CONTINUATION OF EMPLOYMENT. Notwithstanding any
other provision of this Agreement or the premises hereto, in the event the
Executive is entitled to receive compensation (whether in the form of cash,
securities or other form of compensation) under or pursuant to any plan or
agreement of or with the Company or a Subsidiary as the result of a Change in
Control, the Company shall pay to the Executive any applicable excise tax, and
any taxes thereon, and shall indemnify and hold harmless the Executive in
respect thereof, as provided in Section 4(c) above, regardless of whether the
employment of the Executive with the Company or a Subsidiary shall have
terminated.
6. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS. (a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive after the
termination of the Executive's employment with the Company or a Subsidiary.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or arrangement of
the Company or any Subsidiary.
7. SUCCESSOR TO THE COMPANY. (a) The Company will require any successor
or assign (whether direct or indirect, by purchase,
-17-
<PAGE>
merger, consolidation or otherwise) to all or substantially all the
business and/or assets of the Company, by agreement in form and
substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform it if no such succession or assignment had taken place. Any
failure of the Company to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material
breach of this Agreement and shall entitle the Executive to terminate
the Executive's employment for Good Reason. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any
successor or assign to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this Section 7 or
which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts are still payable to the Executive
hereunder all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisees,
legatees, or other designees or, if there be no such designee, to the
Executive's estate.
8. NOTICES. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
given by United States certified mail (return receipt requested, postage
prepaid), by personal delivery or by a
-18-
<PAGE>
nationally recognized express delivery service, and shall be deemed to
have been given when actually received, as follows:
If to the Company:
Hussmann International, Inc.
12999 St. Charles Rock Road
Bridgeton, Missouri 63044
Attention of: General Counsel
If to the Executive, to the Executive's home address as shown on the
Company's personnel records; or such other address as either party may have
given to the other in writing in accordance herewith.
9. MISCELLANEOUS. No provision of this Agreement may be modified, waived
or discharged unless such modification, waiver or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
10. EMPLOYMENT. The Executive agrees to be bound by the terms and
conditions of this Agreement and to remain in the employ of the Company or a
Subsidiary during any period following any public announcement by any person of
any proposed transaction or
-19-
<PAGE>
transactions which, if effected, would result in a Change in Control until a
Change in Control has taken place or, in the opinion of the Board of
Directors, such person has abandoned or terminated its efforts to effect a
Change in Control. Subject to the foregoing and to the last sentence of
Section 3(a), nothing contained in this Agreement shall impair or interfere
in any way with the right of the Executive to terminate the Executive's
employment or the right of the Company or any Subsidiary to terminate the
employment of the Executive with or without cause prior to a Change in
Control. Nothing contained in this Agreement shall be construed as a
contract of employment between the Company or any Subsidiary and the
Executive or as a right of the Executive to continue in the employ of the
Company or any Subsidiary, or as a limitation of the right of the Company or
any Subsidiary to discharge the Executive with or without cause prior to a
Change in Control.
11. VALIDITY. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
13. LEGAL FEES AND EXPENSES. (a) The Company shall pay all legal fees and
expenses which the Executive may incur as a result of the Company or a
Subsidiary contesting the validity, enforceability or the Executive's
interpretation of, or determinations under, this Agreement.
-20-
<PAGE>
(b) The Company shall pay all legal fees and expenses which the
Executive may incur by reason of the termination of the Executive's employment,
other than as a result of (i) the Executive's death, (ii) the Executive's
Disability (as defined in Section 3(b) above), (iii) the Executive's Retirement
(as defined in Section 3(c) above), (iv) the Executive's termination for Cause
(as defined in Section 3(d) above), or (v) the Executive's decision to terminate
employment other than for Good Reason (as defined in Section 3(e) above; such
fees and expenses shall include, without limitation, those incurred in
contesting or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement.
(c) The Company shall pay all legal fees and expenses which the
Executive may incur as a result of any tax assessments or proceedings arising
from payments made by the Company pursuant to Section 4(c) or Section 5 above.
(d) If the payment by the Company of any legal fees and expenses
pursuant to this Section 13 shall constitute compensation to the Executive, the
Company agrees, as a separate and independent undertaking, to pay to the
Executive upon demand any and all taxes, of whatever nature or description,
applicable to such payment, together with any taxes thereon (on the basis of a
customary "gross-up" formula).
14. CONFIDENTIALITY. The Executive shall retain in confidence any and all
confidential information known to the Executive concerning the Company and its
Subsidiaries and their business so long as such information is not otherwise
publicly disclosed.
-21-
<PAGE>
15. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION OF PRIOR
AGREEMENT(S). This Agreement shall become effective on the Effective Date,
whereupon the Prior Agreements shall be terminated and be of no further force
or effect. Whitman shall be and be deemed a third-party beneficiary of this
Section 15.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
HUSSMANN INTERNATIONAL, INC.
By
-------------------------------
Name:
Title:
EXECUTIVE
By
-------------------------------
Name:
-22-
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
PRELIMINARY COPY DATED NOVEMBER 13, 1997
INFORMATION STATEMENT
<TABLE>
<S> <C>
HUSSMANN INTERNATIONAL, INC. MIDAS GROUP, INC.
COMMON STOCK COMMON STOCK
</TABLE>
This Information Statement is being furnished to shareholders of Whitman
Corporation ("Whitman") in connection with the distribution (the "Distribution")
by Whitman to its shareholders of all of the outstanding shares of common stock
of Hussmann International, Inc. ("Hussmann") and all of the outstanding shares
of common stock of Midas Group, Inc. ("Midas"). Hussmann and Midas are sometimes
individually referred to as a "Company" and collectively as the "Companies." The
shares of common stock of the Companies to be distributed in the Distribution
are sometimes referred to as the "Distributed Shares."
Each Company is a newly-formed, wholly-owned subsidiary of Whitman. Prior to
the Distribution, Whitman will contribute all of the outstanding shares of
common stock of Hussmann Corporation and Midas International Corporation to
Hussmann and Midas, respectively. Hussmann Corporation and Midas International
Corporation will be the principal operating subsidiaries of Hussmann and Midas,
respectively.
Whitman expects that the Distribution will be made in book-entry form on or
about [ , 1997] (the "Distribution Date"), to holders of record of common
stock, without par value, of Whitman ("Whitman Common Stock"), at the close of
business on [ , 1997] (the "Record Date"), on the basis of one share of common
stock of Hussmann ("Hussmann Common Stock") for every [ ] shares of Whitman
Common Stock held and one share of common stock of Midas ("Midas Common Stock")
for every [ ] shares of Whitman Common Stock held. Fractional interests in
Distributed Shares will also be distributed to Whitman shareholders in
book-entry form. However, cash will be paid in lieu of a fractional interest in
a Distributed Share to any holder who requests a certificate for Distributed
Shares or who would be entitled to less than one whole share of common stock of
either Company. NO CONSIDERATION WILL BE PAYABLE BY WHITMAN SHAREHOLDERS FOR THE
DISTRIBUTED SHARES, NOR WILL THEY BE REQUIRED TO SURRENDER OR EXCHANGE SHARES OF
WHITMAN COMMON STOCK OR TAKE ANY OTHER ACTION IN ORDER TO RECEIVE THE
DISTRIBUTED SHARES. Each Distributed Share will be accompanied by one Preferred
Stock Purchase Right ("Right") of the Company to which such Distributed Share
relates.
There is currently no public market for the common stock of either Company,
although it is expected that a "when-issued" trading market may develop on or
about the Record Date. The common stock of each Company has been approved for
listing on the New York Stock Exchange (the "NYSE"), subject to official notice
of issuance. Hussmann Common Stock will trade under the symbol "HSM" and Midas
Common Stock will trade under the symbol "MDS."
IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE CAPTION "RISK FACTORS" COMMENCING ON PAGE 7.
---------------------
NO VOTE OF SHAREHOLDERS IS REQUIRED IN CONNECTION WITH
THE DISTRIBUTION. WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
------------------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
The date of this Information Statement is [ ], 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information.................................................................. 1
Summary................................................................................ 2
The Distribution..................................................................... 2
Hussmann............................................................................. 4
Midas................................................................................ 5
Risk Factors........................................................................... 7
No Recent Operating History as Independent Companies................................. 7
Risks Relating to Restructurings..................................................... 7
No Prior Market for the Common Stock of Either Company............................... 7
Limited Relevance of Historical Combined Financial Information....................... 8
Possibility of Substantial Sales of Common Stock of Either Company................... 8
Certain Antitakeover Effects......................................................... 8
Effects on Whitman Common Stock...................................................... 8
Certain Federal Income Tax Considerations............................................ 9
Introduction........................................................................... 9
The Distribution....................................................................... 9
Background and Reasons for the Distribution.......................................... 9
Manner of Effecting the Distribution................................................. 10
Whitman Dividend Reinvestment Plan................................................... 11
Listing and Trading of the Common Stock of the Companies............................. 11
Certain Federal Income Tax Consequences of the Distribution.......................... 12
Conditions; Termination.............................................................. 13
Opinions of Financial Advisor........................................................ 13
Principal Shareholders of Each Company................................................. 13
Arrangements Between Whitman and the Companies Relating to the Distribution............ 14
Distribution and Indemnity Agreements................................................ 14
Tax Sharing Agreements............................................................... 16
Description of Capital Stock of the Companies.......................................... 17
Authorized Capital Stock............................................................. 17
Common Stock......................................................................... 17
Preferred Stock...................................................................... 17
Rights Agreements.................................................................... 17
Certain Antitakeover Effects of Certain Charter and By-Law Provisions,
the Rights and Delaware Law........................................................... 20
Certificate of Incorporation and By-Laws............................................. 20
The Rights........................................................................... 24
Delaware Law......................................................................... 24
Liability and Indemnification of Directors and Officers................................ 24
Indemnification of Directors and Officers............................................ 24
Additional Information............................................................... 26
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ANNEX A--INFORMATION ABOUT WHITMAN
Principal Business to Be Retained by Whitman........................................... A-1
Pre-Distribution Payments to Whitman................................................... A-1
Post-Distribution Dividend Policy...................................................... A-1
Whitman Corporation Pro Forma Condensed Consolidated Financial Information............. A-2
ANNEX B--INFORMATION ABOUT HUSSMANN
Business............................................................................... B-1
Overview............................................................................. B-1
Market Overview...................................................................... B-1
Strategy............................................................................. B-2
Products............................................................................. B-2
Product Development and Proprietary Information...................................... B-3
Manufacturing Operations............................................................. B-4
Sales and Marketing.................................................................. B-5
Competition.......................................................................... B-5
Customers............................................................................ B-5
Backlog and Seasonality.............................................................. B-6
Regulatory Compliance and Legal Proceedings.......................................... B-6
Employees............................................................................ B-6
Properties............................................................................. B-6
Financing.............................................................................. B-7
Post-Distribution Dividend Policy...................................................... B-7
Hussmann International Pro Forma Combined Financial Information........................ B-8
Hussmann International Summary of Operations........................................... B-13
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................ B-14
Introduction......................................................................... B-14
Results of Operations--Nine Months Ended September 30, 1997 Compared to Nine Months
Ended Septembere 30, 1996.......................................................... B-14
Results of Operations--1996 Compared to 1995......................................... B-15
Results of Operations--1995 Compared to 1994......................................... B-16
Liquidity, Financial Condition and Capital Resources................................. B-18
Future Change in Accounting Standards................................................ B-19
Management............................................................................. B-20
Directors............................................................................ B-20
Committees of the Board of Directors................................................. B-20
Compensation of Directors............................................................ B-21
Executive Officers................................................................... B-22
Ownership of Hussmann Common Stock by Management..................................... B-23
Compensation of Executive Officers................................................... B-24
1999 Annual Meeting of Shareholders.................................................... B-27
Hussmann International Historical Financial Information................................ B-28
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ANNEX C--INFORMATION ABOUT MIDAS
Business............................................................................... C-1
Overview............................................................................. C-1
Market Overview...................................................................... C-1
Strategy............................................................................. C-2
Franchises and the Midas System...................................................... C-2
Proprietary Information.............................................................. C-4
Manufacturing and Resale Operations.................................................. C-4
Competition.......................................................................... C-5
Customers............................................................................ C-5
Seasonality.......................................................................... C-5
Regulatory Compliance and Legal Proceedings.......................................... C-5
Employees............................................................................ C-5
Properties............................................................................. C-6
Financing.............................................................................. C-6
Post-Distribution Dividend Policy...................................................... C-6
Midas Group Pro Forma Combined Financial Information................................... C-7
Midas Group Summary of Operations...................................................... C-12
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................ C-13
Introduction......................................................................... C-13
Fiscal Reporting Periods............................................................. C-14
Results of Operations--Nine Months Ended September 1997 Compared to Nine Months Ended
September 1996..................................................................... C-14
Results of Operations--1996 Compared to 1995......................................... C-17
Results of Operations--1995 Compared to 1994......................................... C-19
Liquidity, Financial Condition and Capital Resources................................. C-21
Future Change in Accounting Standards................................................ C-22
Management............................................................................. C-23
Directors............................................................................ C-23
Committees of the Board of Directors................................................. C-23
Compensation of Directors............................................................ C-24
Executive Officers................................................................... C-24
Ownership of Midas Common Stock by Management........................................ C-25
Compensation of Executive Officers................................................... C-26
1999 Annual Meeting of Shareholders.................................................... C-29
Midas Group Historical Financial Information........................................... C-30
</TABLE>
iii
<PAGE>
AVAILABLE INFORMATION
Hussmann has filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form 10 (the "Hussmann Registration Statement") under
the Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder (the "Exchange Act"), with respect to the Hussmann Common Stock and
associated Rights described herein. Midas has filed with the SEC a Registration
Statement on Form 10 (the "Midas Registration Statement" and together with the
Hussmann Registration Statement, the "Registration Statements") under the
Exchange Act with respect to the Midas Common Stock and associated Rights
described herein. This Information Statement does not contain all of the
information set forth in the Registration Statements and the exhibits and
schedules thereto. For further information, reference is made hereby to the
Registration Statements, exhibits and schedules. Statements contained herein
concerning any document are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
applicable Registration Statement. Each such statement is qualified in its
entirety by such reference. Copies of these documents may be inspected without
charge at the principal office of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the SEC at 7 World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661. Copies of these documents may be
obtained from the SEC upon payment of the charges prescribed by the SEC and from
the SEC's Web site located at
http://www.sec.gov.
Following the Distribution, each Company will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the SEC. Each Company will be subject to the proxy
solicitation requirements of the Exchange Act and, accordingly, will furnish
audited financial statements to its shareholders in connection with its annual
meetings of shareholders. Each Company will also file with the NYSE copies of
such reports, proxy statements and other information which then can be inspected
at the offices of the NYSE at 20 Broad Street, New York, New York 10005.
NO PERSON IS AUTHORIZED BY WHITMAN OR EITHER COMPANY TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED.
------------------------
AS USED HEREIN, UNLESS THE CONTEXT OTHERWISE CLEARLY REQUIRES: "HUSSMANN"
REFERS TO HUSSMANN INTERNATIONAL, INC. AND ITS CONSOLIDATED SUBSIDIARIES
IMMEDIATELY FOLLOWING THE DISTRIBUTION, INCLUDING, WITHOUT LIMITATION, HUSSMANN
CORPORATION, AND "MIDAS" REFERS TO MIDAS GROUP, INC. AND ITS CONSOLIDATED
SUBSIDIARIES IMMEDIATELY FOLLOWING THE DISTRIBUTION, INCLUDING, WITHOUT
LIMITATION, MIDAS INTERNATIONAL CORPORATION.
------------------------
THE FOLLOWING TRADEMARKS ARE MENTIONED IN THIS INFORMATION STATEMENT:
HUSSMANN, PROTOCOL AND IMPACT, WHICH ARE REGISTERED TRADEMARKS OF HUSSMANN
CORPORATION, AND MIDAS, HUTH AND IPC, WHICH ARE REGISTERED TRADEMARKS OF MIDAS
INTERNATIONAL CORPORATION. THE NAMES OF CERTAIN OTHER ENTITIES ARE MENTIONED IN
THIS INFORMATION STATEMENT AND ARE THE TRADEMARKS OR TRADE NAMES OF SUCH
ENTITIES.
1
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS INFORMATION STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION SET FORTH ELSEWHERE IN THIS
INFORMATION STATEMENT (INCLUDING THE ANNEXES HERETO).
THE DISTRIBUTION
<TABLE>
<S> <C>
Distributing Company.............. Whitman Corporation, a Delaware corporation
Distributed Shares................ Based on the number of shares of Whitman Common Stock
outstanding on [ , 1997], Whitman expects to
distribute in the Distribution approximately [ ]
million shares of Hussmann Common Stock, together with the
associated Rights, and approximately [ ] million
shares of Midas Common Stock, together with the associated
Rights. See "The Distribution--Manner of Effecting the
Distribution."
Distribution Ratios............... One share of Hussmann Common Stock, together with the
associated Right, for every [ ] shares of Whitman
Common Stock held and one share of Midas Common Stock,
together with the associated Right, for every [ ]
shares of Whitman Common Stock held. See "The
Distribution--Manner of Effecting the Distribution."
Fractional Share Interests........ Fractional interests in Distributed Shares will be
distributed to Whitman shareholders in book-entry form.
However, cash will be paid in lieu of a fractional
interest in a Distributed Share to any holder who requests
a certificate for Distributed Shares or who would be
entitled to less than one whole share of common stock of
either Company. See "The Distribution--Manner of Effecting
the Distribution."
Federal Income Tax Consequences... Whitman has applied for a ruling from the Internal Revenue
Service to the effect that, for United States federal
income tax purposes, no gain or loss will be recognized by
holders of Whitman Common Stock upon receipt of
Distributed Shares in the Distribution, except with
respect to cash received in lieu of fractional interests
in Distributed Shares. See "The Distribution--Certain
Federal Income Tax Consequences of the Distribution."
Trading Market.................... There is currently no public market for the common stock
of either Company, although it is expected that a
"when-issued" trading market may develop on or about the
Record Date. The common stock of each Company has been
approved for listing on the NYSE, subject to official
notice of issuance. Hussmann Common Stock will trade under
the symbol "HSM" and Midas Common Stock will trade under
the symbol "MDS." See "The Distribution--Listing and
Trading of the Common Stock of the Companies."
Record Date....................... [ , 1997]
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Distribution Date................. Commencing on or about [ , 1997], the Distribution
Date, the Distribution Agent will commence mailing
book-entry account statements reflecting ownership of the
Distributed Shares to holders of Whitman Common Stock on
the Record Date. No consideration will be payable by
Whitman shareholders for the Distributed Shares, nor will
they be required to surrender or exchange shares of
Whitman Common Stock or take any other action in order to
receive the Distributed Shares. See "The
Distribution--Manner of Effecting the Distribution."
Distribution Agent................ First Chicago Trust Company of New York
Conditions; Termination........... The Distribution is subject to certain conditions set
forth in the Distribution Agreements (as defined below).
Even if all such conditions are satisfied, the Board of
Directors of Whitman may, in its sole discretion,
terminate and abandon the Distribution at any time prior
to the Distribution Date. See "The
Distribution--Conditions; Termination."
Principal Business to Be Retained
by Whitman...................... After the Distribution, Whitman's principal business will
be the production and distribution of Pepsi-Cola and other
non-alcoholic beverage products by Pepsi-Cola General
Bottlers, Inc. See "Principal Business to Be Retained by
Whitman" in Annex A.
Post-Distribution Dividend
Policies........................ The payment and level of cash dividends by Whitman and
each of the Companies after the Distribution will be
subject to the discretion of their respective Boards of
Directors. Dividend decisions will be based upon a number
of factors, including the operating results and financial
requirements of Whitman and of each Company, as the case
may be. No determination has been made by the Board of
Directors of Whitman or the Board of Directors of either
Company with respect to the initial cash dividend that
would be paid commencing after the Distribution. However,
it is expected that the combined cash dividend that will
initially be paid by Whitman and the Companies will be at
an annual rate below the $0.46 per share annual dividend
rate currently paid by Whitman, and will be determined, in
part, by reference to dividend payment levels of entities
engaged in businesses comparable to the businesses in
which Whitman and each Company are engaged. See
"Post-Distribution Dividend Policy" in Annex A, Annex B
and Annex C.
</TABLE>
3
<PAGE>
HUSSMANN
<TABLE>
<S> <C>
Hussmann.......................... Hussmann manufactures, sells, installs and services
merchandising and refrigeration systems for the world's
commercial food industry. Products include refrigerated and
non-refrigerated display merchandisers, refrigeration
systems, beverage coolers, air handlers, condensers, coils
and walk-in storage coolers and freezers. Hussmann utilizes
advanced technology to create energy efficient products that
are designed to provide low life-cycle cost. Hussmann's wide
product line features high quality products intended to meet
the needs of a broad range of customers. Hussmann
Corporation was incorporated in Missouri in 1929. Hussmann
International, Inc. was incorporated in Delaware in August
1997 in connection with the Distribution. Hussmann's
principal executive offices are located at 12999 St. Charles
Rock Road, Bridgeton, Missouri 63044 and its telephone
number is (314) 291-2000. For further information concerning
Hussmann, see Annex B.
Hussmann Restructuring............ Hussmann is restructuring its U.K. operations. During the
third quarter of 1997, Hussmann recorded non-recurring
charges of $30.7 million ($29.6 million on an after-tax
basis) relating to the recognition of goodwill impairment
and the consolidation of sales and service branches in the
U.K. The Hussmann charges also include expenses relating to
the consolidation of certain manufacturing facilities in the
U.S. Hussmann expects to record additional non-recurring
charges in the fourth quarter of 1997 of approximately $25
million ($17 million on an after-tax basis). See
"Business--Market Overview," "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
and Note 13 to the Combined Financial Statements of Hussmann
in Annex B.
Pre-Distibution Payments to
Whitman......................... Prior to the Distribution Date, Hussmann will pay to Whitman
approximately $250 million, which will be applied to settle
all intercompany loans and advances from Whitman with the
balance to be paid as a cash dividend. At September 30, 1997
such intercompany loans and advances amounted to
approximately $198.7 million. Of such payments to Whitman
approximately $240 million will be financed from the
proceeds of new borrowings by Hussmann. See "Financing" in
Annex B.
Financial Information............. For Hussmann historical and pro forma financial information,
see Annex B. See "Hussmann International Summary of
Operations" in Annex B for Hussmann summary financial
information.
Management of Hussmann............ Immediately after the Distribution, Hussmann will continue
to be managed by substantially the same senior management as
currently manages Hussmann. See "Management" in Annex B.
Preferred Stock Purchase Rights... Certificates and book-entry credits issued in the
Distribution representing shares of Hussmann Common Stock
will also initially represent an equivalent number of the
associated Rights. See "Description of Capital Stock of the
Companies--Rights Agreements."
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Certain Antitakeover Effects of
Certain Charter and By-Law
Provisions, the Rights and
Delaware Law.................... The Hussmann Certificate of Incorporation (the "Hussmann
Certificate of Incorporation") and By-Laws (the "Hussmann
By-Laws"), the Rights Agreement governing the Rights
associated with the Hussmann Common Stock and the General
Corporation Law of the State of Delaware ("Delaware Law")
contain provisions that could make more difficult a change
in control of Hussmann in a transaction not approved by the
Hussmann Board of Directors (the "Hussmann Board"). See
"Risk Factors--Certain Antitakeover Effects" and "Certain
Antitakeover Effects of Certain Charter and By-Law
Provisions, the Rights and Delaware Law."
Liability and Indemnification of
Directors and Officers.......... The Hussmann Certificate of Incorporation would eliminate
certain liabilities of Hussmann directors and officers in
connection with the performance of their duties and provide
for indemnification of Hussmann directors and officers to
the fullest extent permitted from time to time by Delaware
Law. See "Liability and Indemnification of Directors and
Officers."
Transfer Agent and Registrar...... First Chicago Trust Company of New York will be the Transfer
Agent and Registrar for Hussmann after the Distribution.
</TABLE>
MIDAS
<TABLE>
<S> <C>
Midas............................. Midas provides retail automotive services in the U.S.,
Canada, France and other locations in Europe, Australia,
Southeast Asia, the Middle East, Latin America and the
Caribbean. Franchised and Midas-operated stores offer
exhaust, brake, suspension, air conditioning and maintenance
services. Midas also manufactures and sells exhaust and
other parts for the automotive aftermarket under the Midas
and IPC brand names. Domestic manufacturing plants produce
approximately 2,000 different types of mufflers and 3,200
types of exhaust and tail pipes to service approximately
1,200 makes and models of automobiles. Midas International
Corporation was incorporated in Delaware in 1959. Midas
Group, Inc. was incorporated in Delaware in August 1997 in
connection with the Distribution. Midas' principal executive
offices are located at 225 North Michigan Avenue, Chicago,
Illinois 60601 and its telephone number is (312) 565-7500.
For further information concerning Midas, see Annex C.
Midas Restructuring............... Midas is restructuring its U.S. operations. Major actions
that have been undertaken include the discontinuance of the
segment that comprises the U.S. Midas-operated stores,
reductions of asset values to recognize impairments,
modification of certain ongoing programs that support U.S.
franchisees and a reduction in the level of employment. To
provide for the costs associated with the discontinuance of
the segment, Midas recorded, in the third quarter of 1997, a
loss of $35.5 million ($23.7 million on an after-tax basis).
To provide for the other costs associated with these
actions, Midas recorded, in the third quarter of 1997,
non-recurring charges totalling $32.1 million ($22.5 million
on an after-tax basis). See "Business--Market Overview,"
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Notes 2 and 3 to the Combined
Financial Statements of Midas in Annex C.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Pre-Distribution Payments to
Whitman......................... Prior to the Distribution Date, Midas will pay to Whitman
approximately $225 million, which will be applied to settle
all intercompany loans and advances from Whitman with the
balance to be paid as a cash dividend. At September 30, 1997
such intercompany loans and advances amounted to
approximately $66.2 million. Such payments to Whitman will
be financed from the proceeds of new borrowings by Midas.
See "Financing" in Annex C.
Financial Information............. For Midas historical and pro forma financial information,
see Annex C. See "Midas Group Summary of Operations" in
Annex C for Midas summary financial information.
Management of Midas............... Immediately after the Distribution, Midas will continue to
be managed by substantially the same senior management as
currently manages Midas. See "Management" in Annex C.
Preferred Stock Purchase Rights... Certificates and book-entry credits issued in the
Distribution representing shares of Midas Common Stock will
also initially represent an equivalent number of the
associated Rights. See "Description of Capital Stock of the
Companies--Rights Agreements."
Certain Antitakeover Effects of
Certain Charter and By-Law
Provisions, the Rights and
Delaware Law.................... The Midas Certificate of Incorporation (the "Midas
Certificate of Incorporation") and By-Laws (the "Midas
By-Laws"), the Rights Agreement governing the Rights
associated with the Midas Common Stock and the Delaware Law
contain provisions that could make more difficult a change
in control of Midas in a transaction not approved by the
Midas Board of Directors (the "Midas Board"). See "Risk
Factors-- Certain Antitakeover Effects" and "Certain
Antitakeover Effects of Certain Charter and By-Law
Provisions, the Rights and Delaware Law."
Liability and Indemnification of
Directors and Officers.......... The Midas Certificate of Incorporation would eliminate
certain liabilities of Midas directors and officers in
connection with the performance of their duties and provide
for indemnification of Midas directors and officers to the
fullest extent permitted from time to time by Delaware Law.
See "Liability and Indemnification of Directors and
Officers."
Transfer Agent and Registrar...... First Chicago Trust Company of New York will be the Transfer
Agent and Registrar for Midas after the Distribution.
</TABLE>
6
<PAGE>
RISK FACTORS
Shareholders should carefully consider and evaluate all of the information
set forth in this Information Statement, including the risk factors described
below. Each Company also cautions readers that, in addition to the historical
information included herein, this Information Statement includes certain
"forward-looking statements" that are based on its management's beliefs as well
as on assumptions made by and information currently available to its management.
When used in this Information Statement, the words "expect," "anticipate,"
"intend," "plan," "believe," "seek," "estimate," and similar expressions are
intended to identify such forward-looking statements. However, this Information
Statement also contains other forward-looking statements. Such forward-looking
statements involve known and unknown risks, including, but not limited to,
economic and market conditions, exchange rates, cost and availability of raw
materials, competitive activities or other business conditions. Although each
Company believes that its expectations with respect to the forward-looking
statements are based upon reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results, performance or achievements of either Company will not differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Readers are cautioned not to put
undue reliance on forward-looking statements.
NO RECENT OPERATING HISTORY AS INDEPENDENT COMPANIES
Neither Company has any recent operating history as an independent public
company. While each Company has been profitable as part of Whitman, there can be
no assurance that as an independent company profits will continue at the same
level. Each Company's success in operating as an independent public company will
depend, in part, on the ability of its management to successfully administer the
additional obligations associated therewith. Neither the management of Hussmann
nor the management of Midas has any recent experience operating a public
company. Each Company has historically relied on Whitman for various financial
and administrative services. After the Distribution, each Company will maintain
its own lines of credit and financial and administrative functions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Annex B and Annex C.
RISKS RELATING TO RESTRUCTURINGS
Each Company announced a restructuring in September 1997. There can be no
assurance that either restructuring will be implemented successfully or have the
intended effect. See "Business--Market Overview" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Annex B and
Annex C.
NO PRIOR MARKET FOR THE COMMON STOCK OF EITHER COMPANY
There is currently no public market for the common stock of either Company.
Although the common stock of each Company has been approved for listing on the
NYSE, subject to official notice of issuance, there can be no assurance as to
the prices at which the common stock of either Company will trade. Until an
orderly trading market develops, the prices at which trading in such shares
occurs may fluctuate significantly. There can be no assurance that an active
trading market in the common stock of either Company will develop or be
sustained in the future.
The prices at which the common stock of each Company trades will be
determined by the marketplace and may be influenced by many factors, including,
among others, the performance and prospects of each Company, the depth and
liquidity of the market for such common stock, investor perception of each
Company and of their respective industries, the dividend policy of each Company,
general financial and other market conditions, and domestic and international
economic conditions. In addition, financial markets, including the NYSE, have
experienced extreme price and volume fluctuations that have affected the market
price of the shares of many companies and such fluctuations could be viewed as
unrelated or disproportionate to the operating performance of such companies.
Such fluctuations have also affected the share prices of many newly public
issuers. Such volatility and other factors may materially adversely affect the
market price of the common stock of either or both Companies.
See "The Distribution--Listing and Trading of the Common Stock of the
Companies."
7
<PAGE>
LIMITED RELEVANCE OF HISTORICAL COMBINED FINANCIAL INFORMATION
The historical combined financial information included in Annex B and Annex
C may not necessarily reflect the results of operations, financial position and
cash flows of either Company in the future or the results of operations,
financial position and cash flows had either Company operated as an independent
company during the periods presented. The combined financial information
included herein does not reflect any changes that may occur in the funding and
operations of either Company as a result of the Distribution. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Annex B and Annex C.
POSSIBILITY OF SUBSTANTIAL SALES OF COMMON STOCK OF EITHER COMPANY
The Distribution will involve the distribution to Whitman shareholders of an
aggregate of approximately [ ] million shares of Hussmann Common Stock and
approximately [ ] million shares of Midas Common Stock, representing all of the
outstanding shares of common stock of each Company. It is expected that none of
the Distributed Shares will constitute "restricted securities" under the
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the
Distributed Shares will be freely transferable, except for shares received by
persons who may be deemed to be "affiliates" of a Company under the Securities
Act. Neither Whitman nor either Company is able to predict whether substantial
amounts of common stock of the Companies will be sold in the open market
following the Distribution. Any sales of substantial amounts of the common stock
of either Company in the public market, or the perception that such sales might
occur, whether as a result of the Distribution or otherwise, could materially
adversely affect the market price of the common stock of either Company. See
"The Distribution--Listing and Trading of the Common Stock of the Companies."
CERTAIN ANTITAKEOVER EFFECTS
The Certificate of Incorporation and By-Laws of each Company, their
respective Rights Agreements and Delaware Law contain provisions that could make
more difficult a change in control of a Company in a transaction not approved by
its Board of Directors. Certain provisions of the Certificate of Incorporation
and the By-Laws of each Company, among other things: (i) divide the Board of
Directors into three classes, with each class serving for staggered three-year
terms; (ii) provide that a director may be removed only for cause and only upon
the affirmative vote of holders of at least 80% of the voting power of the then
outstanding shares of stock entitled to vote generally in the election of
directors ("Voting Stock"), voting together as a single class; (iii) provide
that only the Board of Directors may call special meetings of the shareholders;
(iv) prohibit shareholder action without a meeting; (v) provide that
shareholders must comply with certain advance notice procedures in order to
nominate candidates for election to the Board of Directors or bring other
business before an annual meeting of shareholders; and (vi) provide that
shareholders may amend the By-Laws or any of the foregoing provisions of the
Certificate of Incorporation only by the affirmative vote of the holders of at
least 80% of the voting power of the then outstanding shares of Voting Stock,
voting together as a single class. The Rights would cause substantial dilution
to a person or group that attempts to acquire a Company on terms not approved in
advance by such Company's Board of Directors. Delaware Law generally imposes
certain restrictions on mergers and other business combinations between a
Company and any holder of 15% or more of such Company's outstanding Voting Stock
if the holder's acquisition of such Voting Stock was not approved in advance by
such Company's Board of Directors. In addition, the stock incentive plan of each
Company is expected to contain provisions providing for the acceleration or
modification of benefits upon a change in control of such Company. Also, each
Company will enter into severance agreements, or similar arrangements, to
provide specified employees with certain benefits in the event of a change in
control. See "Certain Antitakeover Effects of Certain Charter and By-Law
Provisions, the Rights and Delaware Law" and "Management--Compensation of
Executive Officers--Termination Benefits" in Annex B and Annex C.
EFFECTS ON WHITMAN COMMON STOCK
After the Distribution, the Whitman Common Stock will continue to be listed
and traded on the NYSE, the Chicago Stock Exchange and the Pacific Stock
Exchange. As a result of the Distribution, the trading prices of Whitman Common
Stock will be lower than the trading prices of Whitman Common Stock immediately
prior to the Distribution. The combined trading prices of Whitman Common Stock,
Hussmann Common Stock and Midas Common Stock after the Distribution may be less
than, equal to or greater than the trading prices of Whitman
8
<PAGE>
Common Stock prior to the Distribution. In addition, until the market has fully
analyzed the operations of Whitman without the businesses of the Companies, the
prices at which the Whitman Common Stock trades may fluctuate significantly.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Whitman has applied for a ruling (the "Tax Ruling") from the Internal
Revenue Service (the "IRS") to the effect that, among other things, for United
States federal income tax purposes, the Distribution will qualify as a tax-free
distribution under Section 355 of the Internal Revenue Code of 1986, as amended
(the "Code"). See "The Distribution--Certain Federal Income Tax Consequences of
the Distribution." The Tax Ruling will be based on certain factual
representations and assumptions. Neither Whitman nor either Company is aware of
any facts or circumstances which should cause such representations and
assumptions to be untrue. A Whitman shareholder who receives cash in lieu of a
fractional interest in a Distributed Share will recognize gain or loss equal to
the difference betweeen the basis of the fractional interest and the amount of
cash received. Should the Distribution ultimately be determined not to qualify
under Section 355 of the Code, (i) Whitman shareholders would be required to
recognize ordinary dividend income upon their receipt of Distributed Shares
(including fractional shares) in an amount equal to the fair market value of
such Distributed Shares on the Distribution Date and (ii) Whitman would
recognize a gain upon the Distribution equal to the excess, if any, of the fair
market value of the Distributed Shares over Whitman's tax basis in the
Distributed Shares. The Tax Sharing Agreements (as defined below) provide that
neither Whitman nor either Company is to take any action inconsistent with, nor
fail to take any action required by, the request for the Tax Ruling or the Tax
Ruling unless required to do so by law or the other party has given its prior
written consent or, in certain circumstances, a supplemental ruling permitting
such action is obtained. Whitman and each Company have agreed to indemnify each
other with respect to any tax liability resulting from their respective failures
to comply with such provisions. See "Arrangements Between Whitman and the
Companies Relating to the Distribution--Tax Sharing Agreements."
INTRODUCTION
On June 23, 1997, Whitman announced that its Board of Directors (the
"Whitman Board") had authorized management to proceed with a plan to spin-off
the Companies from Whitman. The spin-off will be effected through the
Distribution. It is expected that the Distribution Date will be [ ,
1997].
The principal executive offices of Hussmann are located at 12999 St. Charles
Rock Road, Bridgeton, Missouri 63044 and its telephone number is (314) 291-2000.
The principal executive offices of Midas are located at 225 North Michigan
Avenue, Chicago, Illinois 60601 and its telephone number is (312) 565-7500.
Whitman shareholders with inquiries relating to the Distribution should
contact First Chicago Trust Company of New York (the "Distribution Agent"),
telephone number (800) 446-2617 or Whitman Corporation, 3501 Algonquin Road,
Rolling Meadows, Illinois 60008, telephone number (847) 818-5000. First Chicago
Trust Company of New York will also be the transfer agent and registrar for the
Hussmann Common Stock and the Midas Common Stock following the Distribution.
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
Whitman was originally incorporated in 1962 under the name Illinois Central
Industries, Inc. for the purpose of becoming a holding company for the Illinois
Central Railroad. The corporate name was changed to IC Industries, Inc. in 1975,
and the present name of Whitman Corporation was adopted in 1988.
Between 1968 and 1986, Whitman effected a series of acquisitions aimed at
diversifying beyond the railroad business. Pepsi-Cola General Bottlers, Inc.
("Pepsi General") was acquired in 1970, Midas International Corporation was
acquired in 1972 and Hussmann Corporation was acquired in 1978 as part of
Whitman's acquisition of Pet Incorporated. In 1987 Whitman began a program of
strategic restructuring designed to transform itself into an enterprise more
focused on consumer goods and services. In 1988 Whitman sold its Pneumo Abex
Corporation aerospace and defense subsidiary, and in January 1989 Whitman spun
off its railroad operations to shareholders. Pet
9
<PAGE>
Incorporated was spun off in April 1991, with Whitman retaining Pepsi General,
Hussmann Corporation and Midas International Corporation as its operating
companies.
Over the past several years the Whitman Board has from time to time
considered splitting up Whitman as one of a number of strategic options.
However, despite the absence of any meaningful synergies among Whitman's three
operating companies, there did not appear to be any compelling reason to do so.
In recent periods, however, the confluence of several factors has made it
increasingly clear to Whitman management that a division of Whitman into three
separate and independent publicly-traded corporations is in the best interests
of Whitman and its shareholders. The Distribution is expected to achieve a
variety of important benefits for Whitman and each Company. Hussmann has been
adversely affected by its affiliation with Pepsi General through their common
ownership by Whitman. In Mexico and Latin America, the Coca-Cola Company has
ceased buying beverage coolers from Hussmann due to such affiliation, a
relationship which previously produced in excess of $20 million in annual sales.
Hussmann is optimistic that such business would be regained if it were an
independent company. Additionally, the automotive aftermarket service and repair
industry has undergone, and continues to undergo, significant changes in
products, technology, service formats and consumer needs. It is believed that,
with its own Board of Directors and separate management, Midas would be able to
bring greater focus and entrepreneurship to its business, without the diversions
that are characteristic of a conglomerate, in order to better respond to the
changing competitive environment.
As separate companies, Hussmann and Midas will be able to benefit from and
maximize the motivational impact of substantial stock-based compensation and
incentive programs linked to their respective businesses. This will also enhance
the ability of each Company to recruit senior management personnel with the
prospect of running a public company and of being rewarded with highly
responsive equity-based incentives.
Whitman and the Companies each expect to be able to access the capital
markets freely in order to finance their respective operations and expansion,
and each will enjoy the prestige and visibility of being a public company with
its shares listed on the NYSE. Additionally, significant ongoing savings are
expected to be achieved by the elimination of a layer of management at the
holding company level.
Whitman believes that, in addition to the benefits described above, the
Distribution will allow investors to better evaluate the merits of the separate
businesses of Whitman, Hussmann and Midas. This will enhance the likelihood that
each will achieve more appropriate market recognition of its performance.
MANNER OF EFFECTING THE DISTRIBUTION
Prior to the Distribution Date, certificates representing the Distributed
Shares will be delivered to the Distribution Agent. Commencing on or about the
Distribution Date, the Distribution Agent will begin mailing book-entry account
statements reflecting ownership of the Distributed Shares to holders of Whitman
Common Stock as of the close of business on the Record Date on the basis of one
share of Hussmann Common Stock for every [ ] shares of Whitman Common Stock
held on the Record Date and one share of Midas Common Stock for every [ ]
shares of Whitman Common Stock held on the Record Date. Each Distributed Share
will be fully paid, nonassessable and free of preemptive rights. See
"Description of Capital Stock of the Companies." Each Distributed Share will be
accompanied by one Preferred Stock Purchase Right of the Company to which such
Distributed Share relates. See "Description of Capital Stock of the
Companies--Rights Agreements."
Fractional interests in Distributed Shares will also be distributed to
Whitman shareholders in book-entry form. However, no certificates representing a
fractional interest in a Distributed Share will be distributed to any
shareholder who requests a certificate for Distributed Shares or who would be
entitled to less than one whole share of Hussmann Common Stock or Midas Common
Stock as part of the Distribution. In lieu of receiving a fractional interest in
a share of Hussmann Common Stock or Midas Common Stock, such Whitman shareholder
will receive cash for such fractional interest. The Distribution Agent will, as
soon as practicable after the Distribution Date, aggregate and sell all such
fractional interests at then prevailing trading prices and distribute the net
proceeds to shareholders entitled thereto. See "--Certain Federal Income Tax
Consequences of the Distribution."
10
<PAGE>
The Distribution will not affect the number of, or the rights attaching to,
outstanding shares of Whitman Common Stock. Certificates representing
outstanding shares of Whitman Common Stock will continue to represent rights to
purchase shares of Whitman's Junior Participating Second Preferred Stock (Series
1) pursuant to the Rights Agreement dated as of January 20, 1989, between
Whitman and First Chicago Trust Company of New York, as Rights Agent. No
adjustment will be made to the purchase price payable upon exercise of such
rights or the number of shares of such Whitman Preferred Stock covered by each
right by virtue of the Distribution.
NO CONSIDERATION WILL BE PAYABLE BY WHITMAN SHAREHOLDERS FOR THE DISTRIBUTED
SHARES, NOR WILL THEY BE REQUIRED TO SURRENDER OR EXCHANGE SHARES OF WHITMAN
COMMON STOCK OR TAKE ANY OTHER ACTION IN ORDER TO RECEIVE THE DISTRIBUTED
SHARES.
WHITMAN DIVIDEND REINVESTMENT PLAN
Whitman has a dividend reinvestment and direct stock purchase plan (the
"Dividend Reinvestment Plan") pursuant to which shareholders may invest in
Whitman Common Stock by reinvesting quarterly cash dividends or by direct cash
investments. Shareholder accounts in the Dividend Reinvestment Plan also include
fractional interests in Whitman Common Stock. Hussmann Common Stock and Midas
Common Stock will be distributed to participants in the Dividend Reinvestment
Plan on the same basis as shareholders of record. Fractional interests in
Distributed Shares will be issued in respect of fractional interests in Whitman
Common Stock held under the Dividend Reinvestment Plan.
On November [ ], 1997, the Whitman Board declared a regular quarterly cash
dividend in the amount of [ ] per share of Whitman Common Stock that will be
paid on January 1, 1998 to holders of record of Whitman Common Stock at the
close of business on December 15, 1997. The full amount of dividend payments
payable to participants in the Dividend Reinvestment Plan will be reinvested in
Whitman Common Stock pursuant to the Dividend Reinvestment Plan.
LISTING AND TRADING OF THE COMMON STOCK OF THE COMPANIES
There is currently no public market for the common stock of either Company,
although it is expected that a "when-issued" trading market may develop on or
about the Record Date. The common stock of each Company has been approved for
listing on the NYSE, subject to official notice of issuance. Hussmann Common
Stock will trade under the symbol "HSM" and Midas Common Stock will trade under
the symbol "MDS."
As of November 12, 1997, Whitman had 17,088 shareholders of record. Except
for those shareholders who would be entitled to receive less than one share of
Hussmann Common Stock or Midas Common Stock, and assuming that each such
shareholder is a shareholder of record on the Record Date, each such shareholder
will become a shareholder of record of both Hussmann and Midas. For certain
information regarding options and other equity-based awards involving Hussmann
Common Stock or Midas Common Stock which may become outstanding after the
Distribution, see "Management--Compensation of Executive Officers" in Annex B
and Annex C.
None of the Distributed Shares will constitute "restricted securities" under
the Securities Act and, accordingly, the Distributed Shares will be freely
transferable, except for shares received by persons who may be deemed to be
"affiliates" of a Company under the Securities Act. Persons who may be deemed to
be affiliates of a Company generally include individuals or entities that
control, are controlled by, or are under common control with, such Company and
may include certain officers and directors of such Company as well as principal
shareholders of such Company, if any. Persons who are affiliates of a Company
will be permitted to sell their shares of common stock of such Company only
pursuant to an effective registration statement under the Securities Act or an
exemption from the registration requirements of the Securities Act, such as the
exemption afforded by Rule 144 under the Securities Act (relating to public
sales).
See "Risk Factors--No Prior Market for the Common Stock of Either Company"
and "--Possibility of Substantial Sales of Common Stock of Either Company."
11
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The Distribution is intended to qualify as a tax-free distribution under
Section 355 of the Code and is conditioned upon receipt of the Tax Ruling to
that effect from the IRS. Whitman has applied to the IRS for the Tax Ruling in
which it has requested rulings generally to the effect that, among other things:
(1) No gain or loss will be recognized by (and no amount will otherwise
be included in the income of) Whitman shareholders on their receipt of
Distributed Shares.
(2) The holding period of the Distributed Shares received by Whitman
shareholders will include the holding period of the Whitman Common Stock
with respect to which the Distribution will be made, provided that such
Whitman Common Stock is held as a capital asset on the Distribution Date.
(3) The basis of the Whitman Common Stock and the Distributed Shares in
the hands of Whitman shareholders after the Distribution will be the same as
the aggregate basis of the Whitman Common Stock in the hands of Whitman
shareholders immediately before the Distribution. Such basis will be
allocated among the Whitman Common Stock and the Distributed Shares in
proportion to the fair market value of each on the Distribution Date.
Notwithstanding the requested rulings, the payment of cash in lieu of
fractional interests in the Distributed Shares will be treated for federal
income tax purposes as if such fractional interests were issued as part of the
Distribution and then redeemed by the Companies for the amount of the cash
payments. A Whitman shareholder will recognize gain or loss on such transaction
equal to the difference between the basis of the fractional interest (determined
in accordance with paragraph (3) above) and the amount of cash received.
Treasury regulations under Section 355 of the Code require that each Whitman
shareholder who receives Distributed Shares pursuant to the Distribution attach
a statement to such shareholder's federal income tax return for the taxable year
in which such stock is received, which statement shows the applicability of
Section 355 of the Code to the Distribution. Whitman will provide its
shareholders with the information necessary to comply with this requirement.
The Tax Ruling will be based on certain factual representations and
assumptions by Whitman and each Company. Neither Whitman nor either Company is
aware of any present facts or circumstances which should cause such
representations and assumptions to be untrue. However, certain extraordinary
purchases of Whitman Common Stock, Hussmann Common Stock or Midas Common Stock,
events which are not within the control of Whitman or either Company, could
cause the Distribution not to qualify as tax-free. The Distribution Agreements
provide that, notwithstanding anything to the contrary therein or in the Tax
Sharing Agreements, if as a result of the acquisition of all or a portion of the
capital stock or assets of either Company the Distribution fails to qualify as a
tax-free distribution under Section 355 of the Code, then Hussmann or Midas, as
the case may be, will be liable for any and all increases in Tax (as defined in
the Tax Sharing Agreements) attributable thereto. See "Arrangements Between
Whitman and the Companies Relating to the Distribution--Tax Sharing Agreements."
Should the Distribution ultimately be determined not to qualify under
Section 355 of the Code, Whitman shareholders would be required to recognize
ordinary dividend income upon their receipt of Distributed Shares (including
fractional shares) in an amount equal to the fair market value of such
Distributed Shares on the Distribution Date. Whitman shareholders would have a
tax basis for such Distributed Shares equal to such fair market value, and their
tax basis for their Whitman Common Stock generally would not be affected.
Whitman would recognize a gain upon the Distribution equal to the excess, if
any, of the fair market value of the Distributed Shares over Whitman's tax basis
in the Distributed Shares.
THE FOREGOING SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
DISTRIBUTION IS FOR GENERAL INFORMATION ONLY AND MAY NOT APPLY TO WHITMAN
SHAREHOLDERS WHO ACQUIRED THEIR SHARES IN CONNECTION WITH THE GRANT OF
RESTRICTED STOCK OR OTHERWISE AS COMPENSATION, WHO ARE NOT CITIZENS OR RESIDENTS
OF THE UNITED STATES, OR WHO ARE OTHERWISE SUBJECT TO SPECIAL TREATMENT UNDER
THE CODE. ALL WHITMAN SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE
APPLICATION OF LOCAL, STATE AND FOREIGN TAX LAWS.
12
<PAGE>
CONDITIONS; TERMINATION
The Distribution is subject to certain conditions set forth in the
Distribution Agreements, including receipt of the Tax Ruling and the opinions of
Whitman's financial advisor described below. Even if all such conditions are
satisfied, the Whitman Board may, in its sole discretion, terminate and abandon
the Distribution at any time prior to the Distribution Date.
OPINIONS OF FINANCIAL ADVISOR
Whitman has engaged Credit Suisse First Boston Corporation ("Credit Suisse
First Boston") as its financial advisor in connection with the Distribution.
Whitman has requested Credit Suisse First Boston to render opinions to the
Whitman Board that (i) the Distribution would not have a material adverse effect
on the financial viability of Whitman, Hussmann or Midas during the period
immediately following the Distribution through the end of calendar year 1999 and
(ii) the Distribution is fair to Whitman's shareholders from a financial point
of view. For purposes of the opinions referred to in clause (i) above, the term
"financial viability" will mean and refer exclusively to the ability of Whitman,
Hussmann and Midas to finance their respective currently anticipated operating
and capital requirements (as projected in the financial forecasts prepared by
the management of Whitman and delivered to Credit Suisse First Boston prior to
the delivery of its opinions) following the Distribution through the end of
calendar year 1999.
It is a condition to the Distribution that the Whitman Board receive the
foregoing opinions. It is anticipated that Credit Suisse First Boston will
render such opinions immediately prior to the time that the Whitman Board takes
final action to effect the Distribution.
Credit Suisse First Boston will receive customary fees, including
reimbursement of certain out-of-pocket expenses, for its services as financial
advisor related to the Distribution, a portion of which is contingent upon the
consummation of the Distribution. Whitman has agreed to indemnify Credit Suisse
First Boston against certain liabilities and expenses in connection with its
services as financial advisor.
Credit Suisse First Boston and its affiliates have acted, and may in the
future act, as an underwriter for, and have participated as members of
underwriting syndicates with respect to, offerings of Whitman securities. Credit
Suisse First Boston has received fees from Whitman in the past for these
services. Additionally, Whitman currently has a $40 million term loan
outstanding from Credit Suisse, which is an affiliate of Credit Suisse First
Boston.
PRINCIPAL SHAREHOLDERS OF EACH COMPANY
Whitman currently owns all of the outstanding shares of common stock of each
Company. Whitman will not own any shares of common stock of either Company
immediately following the Distribution. As of the date hereof and based solely
on a review of statements on Schedule 13G filed by Cooke & Bieler, Inc. and FMR
Corp., respectively, with the SEC reflecting their ownership of Whitman Common
Stock as of December 31, 1996, no other person is known by Whitman to be the
beneficial owner of more than 5% of the Whitman Common Stock. Assuming that
Cooke & Bieler, Inc. and FMR Corp. hold the shares of Whitman Common Stock set
forth below on the Record Date, the percentages set forth below also represent
their respective percentage ownership of each Company immediately after the
Distribution.
13
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
AND NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OWNERSHIP OF CLASS
- ------------------------------------------------------------------ ------------------- -----------
<S> <C> <C>
Cooke & Bieler, Inc............................................... 5,481,800(a) 5.30%
1700 Market, Suite 3222
Philadelphia, Pennsylvania 19103
FMR Corp.......................................................... 5,577,696(b) 5.38%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- ------------------------
(a) Cooke & Bieler, Inc. reported sole voting power as to 4,260,900 shares,
sole dispositive power as to 5,400,500 shares, and no voting power or
dispositive power as to the remainder of the shares held by it.
(b) Through its subsidiaries, Fidelity Management & Research Company and
Fidelity Management Trust Company, FMR Corp. reported sole voting power as
to 248,594 shares, no voting power as to the remainder of such shares, and
sole dispositive power as to all 5,577,696 shares held by it.
ARRANGEMENTS BETWEEN WHITMAN AND THE COMPANIES RELATING TO THE DISTRIBUTION
For the purpose of effecting the Distribution and governing certain of the
relationships between Whitman and each Company after the Distribution, Whitman
and the Companies have entered into the various agreements described below.
THE AGREEMENTS SUMMARIZED BELOW HAVE BEEN FILED AS EXHIBITS TO THE
REGISTRATION STATEMENTS, AND THE FOLLOWING SUMMARIES ARE QUALIFIED IN THEIR
ENTIRETY BY REFERENCE TO THE AGREEMENTS AS FILED. SEE "AVAILABLE INFORMATION."
DISTRIBUTION AND INDEMNITY AGREEMENTS
Whitman has entered into a separate Distribution and Indemnity Agreement
(each, a "Distribution Agreement") with each Company providing for, among other
things, the principal corporate transactions required to effect the Distribution
and certain other agreements governing the relationship between Whitman and each
Company with respect to or as a result of the Distribution.
The Distribution Agreements provide that (i) Whitman will indemnify each
Company against any liabilities arising out of the businesses conducted or to be
conducted by Whitman or any subsidiary of Whitman and any previously-owned
division, subsidiary or affiliate of Whitman (other than such Company); (ii)
Hussmann will indemnify Whitman against any liabilities arising out of
businesses conducted or to be conducted by Hussmann or any subsidiary of
Hussmann and any previously-owned division, subsidiary or affiliate of Hussmann;
and (iii) Midas will indemnify Whitman against any liabilities arising out of
businesses conducted or to be conducted by Midas or any subsidiary of Midas and
any previously-owned division, subsidiary or affiliate of Midas; PROVIDED,
HOWEVER, that neither Whitman nor either Company will have any liability to each
other for taxes except as provided in the Tax Sharing Agreements. The
indemnities will be limited to the extent that the indemnitee receives insurance
proceeds or a tax benefit with respect to the claimed loss.
The Distribution Agreements set forth a series of steps required in order to
separate from Whitman, prior to the Distribution, any assets that are related to
the respective businesses of the Companies. Such steps involve, among other
things, the transfer to Hussmann and Midas, respectively, of Hussmann
Corporation and Midas International Corporation and all of the foreign
businesses conducted by Hussmann Corporation and Midas International Corporation
which are held by a Netherlands company owned by Whitman.
The Distribution Agreements provide that, except as otherwise set forth
therein or in the Tax Sharing Agreements, all costs and expenses arising on or
prior to the Distribution Date in connection with the Distribution will be paid
by Whitman, other than (i) costs related to each Company's new financing
arrangements, to the listing of the common stock of each Company on the NYSE and
to printing new stock certificates, (ii) fees of rating agencies for rating each
Company's securities, (iii) two-thirds of the legal fees for the Distribution,
(iv) the
14
<PAGE>
accounting and audit fees related to the Distribution, (v) fees of outside
consultants retained by the Companies and (vi) two-thirds of the cost of
printing and distributing the Registration Statements and this Information
Statement.
Each Distribution Agreement also provides that each party thereto will
indemnify the other party in the event of certain liabilities arising under the
Exchange Act.
In connection with certain employee compensation and benefit matters, each
Distribution Agreement provides that, with certain exceptions, each Company and
its subsidiaries will be responsible for all liabilities to, or under benefit
plans or programs with respect to, any current, former and future employee (and
their dependents and beneficiaries) of such Company or any of its subsidiaries
prior to, on and after the Distribution ("Separated Employees"). Further, except
as specifically provided therein, the Distribution Agreements will not affect
any employee benefit plan or compensation arrangement (i) of Whitman in respect
of employees of Whitman and its subsidiaries who are not Separated Employees or
(ii) of either Company or their respective subsidiaries which were maintained by
either Company or their respective subsidiaries prior to the Distribution Date.
The Distribution Agreements provide that options to purchase Whitman Common
Stock that are held by Separated Employees (other than retirees) will, unless
exercised prior to the Distribution Date, be exchanged for new options of
equivalent value granted under the Hussmann Stock Incentive Plan or the Midas
Stock Incentive Plan, as applicable, except that a Separated Employee may elect
not to surrender an exercisable option to purchase Whitman Common Stock, in
which case the number of shares of Whitman Common Stock subject to such option
and the purchase price will be adjusted to reflect the Distribution. Separated
Employees who hold restricted shares of Whitman Common Stock will receive
Distributed Shares, in common with all other shareholders of Whitman, free of
any restrictions. The restricted shares of Whitman Common Stock will then be
exchanged for restricted shares of equivalent value of Hussmann Common Stock or
Midas Common Stock, as the case may be.
The Distribution Agreements further provide that each Company will
establish, as of the Distribution Date, a funded welfare benefit plan and trust
identical to the Whitman Corporation Group Benefits Plan (the "Whitman Benefit
Plan") and the Whitman Corporation Welfare Benefit Trust (the "Whitman Benefit
Trust") on behalf of Separated Employees of such Company and its subsidiaries,
and will cause such plan and trust to assume all liabilities under the Whitman
Benefit Plan and Whitman Benefit Trust relating to such Separated Employees.
Whitman will cause the Whitman Benefit Trust, which currently funds incurred but
not reported liabilities of the Whitman Benefit Plan, to allocate assets to the
welfare benefit plans and trusts of Hussmann and Midas attributable to such
liabilities for Separated Employees of each Company and its subsidiaries not
otherwise paid pursuant to the Whitman Benefit Plan.
In addition, the Companies will establish, on or before the Distribution
Date, four defined contribution plans: the Hussmann Retirement Savings Plan, the
Hussmann Master Retirement Savings Plan, the Midas Retirement Savings Plan and
the Midas Master Retirement Savings Plan (collectively, the "New Savings Plans")
and related trusts substantially similar to the defined contribution plans
currently maintained by Whitman (the "Whitman Retirement Savings Plans") and
related trust (the "Whitman Trust"), with the exception that the New Savings
Plans adopted by Midas and its subsidiaries will contain an employee stock
ownership plan feature. The New Savings Plans will cover, and each Company will
cause its applicable New Savings Plans to assume all liabilities under the
Whitman Retirement Savings Plans and the Whitman Benefit Trust with respect to,
all Separated Employees and beneficiaries of deceased Separated Employees who,
immediately prior to the Distribution Date, are a participant or beneficiary,
respectively, in either of the Whitman Retirement Savings Plans and who have or
have accrued a right to account balances in either of the Whitman Retirement
Savings Plans (such persons being referred to as the "Hussmann Participants" and
"Midas Participants," respectively). Following the Distribution, Whitman will
cause the Whitman Trust to transfer to the trusts established for the New
Savings Plans assets with a value equal to the value of the account balances of,
and liabilities with respect to, the Hussmann Participants and Midas
Participants, respectively, not otherwise distributed or to be distributed
pursuant to the Whitman Retirement Savings Plans.
Pursuant to the Distribution Agreements, each Company will continue,
effective on the Distribution Date, its qualified defined benefit pension plans
(the "Hussmann Pension Plans" and "Midas Pension Plans," respectively), which
are presently being funded by the Whitman Defined Benefit Master Trust (the
"Pension Trust"), for current and former employees (and beneficiaries of current
and former employees) of the Companies and their respective subsidiaries.
Following the Distribution, Whitman will cause the Pension Trust to transfer to
a successor trustee
15
<PAGE>
established under the Hussmann Pension Plans and Midas Pension Plans a portion
of the investments in the Pension Trust equal in value to the assets of the
Hussmann Pension Plans and Midas Pension Plans, respectively.
Neither Company is required to maintain any specific employee benefit plan
and each Company may amend or terminate any employee benefit plan in accordance
with its terms or applicable law.
The Distribution Agreements provide that then existing Change in Control
Agreements between Whitman or any subsidiary and any Separated Employee will be
terminated as of the Distribution Date and Hussmann and Midas will execute new
agreements with such employees in the form described in
"Management--Compensation of Executive Officers--Termination Benefits" in Annex
B and Annex C.
TAX SHARING AGREEMENTS
Hussmann and Midas have been and will continue to be included in the
consolidated U.S. Federal income tax returns of Whitman through and including
the Distribution Date. Whitman has previously entered into certain Tax
Allocation Agreements (collectively, the "Tax Allocation Agreements") with
Hussmann Corporation and Midas International Corporation with respect to U.S.
Federal income taxes. The Tax Allocation Agreements provide, among other things,
that if Hussmann Corporation or Midas International Corporation, respectively,
leave the consolidated group, such agreements will terminate and Hussmann
Corporation and Midas International Corporation, respectively, will not be
entitled to the value of any tax benefits that it may have made available to the
Whitman consolidated group while included in such group.
As part of the plan of Distribution, Hussmann International, Inc. and
Hussmann Corporation, and Midas Group, Inc. and Midas International Corporation,
respectively, have entered into separate agreements with Whitman (the "Tax
Sharing Agreements") which replace the Tax Allocation Agreements. The Tax
Sharing Agreements provide that in order to avoid adversely affecting the
intended tax consequences of the Distribution, Hussmann and Midas, respectively,
shall not (i) cease to engage in an active trade or business within the meaning
of the Code, (ii) issue any shares of Hussmann stock or Midas stock,
respectively, except for issuances of stock or stock options which do not, in
the aggregate, exceed 20% of the issued and outstanding Hussmann Common Stock or
Midas Common Stock, as the case may be, immediately following the Distribution,
(iii) purchase any shares of its stock other than through stock purchases
permitted by the Tax Ruling, (iv) liquidate or merge with any other corporation
or transfer substantially all of its assets to any other corporation, or (v)
recommend to its shareholders that they agree to an acquisition of their
Hussmann or Midas stock by another entity, unless either (a) an opinion is
obtained from counsel to Hussmann or Midas, as the case may be, which counsel
shall be satisfactory to Whitman, or (b) a supplemental ruling is obtained from
the IRS, in either case to the effect that such act or omission would not
adversely affect the U.S. Federal income tax consequences, as set forth in the
Tax Ruling, of the Distribution to any of Whitman, its shareholders, Hussmann or
Midas. Hussmann and Midas, respectively, do not expect that these limitations
will significantly inhibit their activities or their ability to respond to
unanticipated developments. In addition, the Tax Sharing Agreements provide
that, if as a result of any transaction occurring after the Distribution Date
involving either the stock, assets or debt, or any combination thereof, of
either Hussmann or any of its subsidiaries, or, of Midas or any of its
subsidiaries, respectively, the Distribution fails to qualify as tax-free under
Section 355 of the Code, Hussmann or Midas, as the case may be, will indemnify
Whitman for all taxes, including penalties and interest, incurred by Whitman by
reason of the Distribution. The Tax Sharing Agreements further provide that if
the Distribution fails to qualify as tax-free under Section 355 of the Code as a
result of any transaction occurring on or before the Distribution Date and
involving the stock, assets or debt, or any combination thereof, of Hussmann or
any of its subsidiaries, or Midas or any of its subsidiaries, then Whitman, and
not Hussmann or Midas shall be liable for such taxes described above. See "The
Distribution--Certain Federal Income Tax Consequences of the Distribution."
The Tax Sharing Agreements generally provide that Hussmann and Midas will be
liable for all Federal, state, local and foreign tax liabilities, including any
such liabilities resulting from the audit or other adjustment to previously
filed tax returns, which are attributable to Hussmann's businesses and Midas'
businesses, respectively, and that Whitman will be responsible for all such
taxes attributable to the businesses being retained by Whitman.
16
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF THE COMPANIES
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Hussmann consists of 150,000,000 shares of
Hussmann Common Stock, par value $.001 per share, and 20,000,000 shares of
preferred stock, par value $.001 per share (the "Hussmann Preferred Stock"). The
authorized capital stock of Midas consists of 100,000,000 shares of Midas Common
Stock, par value $.001 per share, and 20,000,000 shares of preferred stock, par
value $.001 per share (the "Midas Preferred Stock"). No shares of Hussmann
Preferred Stock or Midas Preferred Stock will be issued in connection with the
Distribution. The Distribution will involve the distribution to Whitman
shareholders of an aggregate of approximately [ ] million shares of Hussmann
Common Stock and approximately [ ] million shares of Midas Common Stock,
representing all of the outstanding shares of common stock of each Company. Each
Distributed Share will be fully paid, nonassessable and free of preemptive
rights.
THE FOLLOWING SUMMARY DESCRIPTION OF THE CAPITAL STOCK OF HUSSMANN AND MIDAS
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE CERTIFICATE OF INCORPORATION OF
HUSSMANN AND MIDAS (THE "CERTIFICATE OF INCORPORATION") AND THE BY-LAWS OF
HUSSMANN AND MIDAS (THE "BY-LAWS"), WHICH ARE FILED AS EXHIBITS TO THE
REGISTRATION STATEMENTS. SEE "AVAILABLE INFORMATION."
COMMON STOCK
Holders of common stock of each Company are entitled to one vote for each
share held on all matters submitted to a vote of shareholders, including
elections of directors, and except as otherwise required by law or as may be
applicable to any series of preferred stock of such Company, the holders of such
common stock will possess all voting power of such Company. Holders of common
stock of each Company do not have cumulative voting rights in the election of
directors and do not have preemptive, subscription, redemption, sinking fund or
conversion rights. Subject to preferences that may be applicable to holders of
any outstanding shares of any preferred stock of a Company, holders of common
stock of each Company are entitled to such dividends as may be declared by the
Board of Directors of such Company out of funds legally available therefor. Upon
any liquidation, dissolution or winding-up of a Company, the assets legally
available for distribution to shareholders are distributable ratably among the
holders of common stock of such Company at that time outstanding, subject to
prior distribution rights of creditors of such Company and to the preferential
rights of any outstanding shares of preferred stock of such Company.
PREFERRED STOCK
Under the Certificate of Incorporation of each Company, the Board of
Directors of such Company may authorize the issuance of preferred stock of such
Company, in one or more series, and to determine, with respect to any such
series, the designations, voting powers, preferences and rights of such series,
and such qualifications, limitations or restrictions thereof, as the Board of
Directors of such Company shall determine. See "Certain Antitakeover Effects of
Certain Charter and By-Law Provisions, the Rights and Delaware Law--Certificate
of Incorporation and By-Laws." The Board of Directors of each Company will
designate a series of preferred stock in connection with the adoption of such
Company's Rights Agreement. See "--Rights Agreements."
RIGHTS AGREEMENTS
On or prior to the Distribution Date, it is expected that the Board of
Directors of each Company will adopt a Rights Agreement (each, a "Rights
Agreement") between such Company and First Chicago Trust Company of New York
(the "Rights Agent") and cause to be issued one Preferred Stock Purchase Right
(a "Right") with each share of common stock of such Company issued to holders of
Whitman Common Stock in the Distribution.
17
<PAGE>
Each Right will enable the registered holder to purchase from the Company
which issued such Right one one-hundredth of a share of Series A Junior
Participating Preferred Stock of such Company (a "Preferred Share") at a
specified price per one one-hundredth of a Preferred Share (the "Purchase
Price"), subject to adjustment. The initial Purchase Price in respect of the
Rights of each Company will be determined by the Board of Directors of such
Company prior to the Distribution Date. The terms of the Rights will be set
forth in the Rights Agreement.
THE DESCRIPTION SET FORTH BELOW IS INTENDED AS A SUMMARY ONLY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE RIGHTS AGREEMENT, THE FORM OF
WHICH IS FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENTS. SEE "AVAILABLE
INFORMATION."
Until the earlier to occur of (i) ten days following a public announcement
that a person or group of affiliated or associated persons has acquired
beneficial ownership of 15% or more of the outstanding shares of common stock of
the Company (an "Acquiring Person") or (ii) ten business days (or such later
date as may be determined by action of the Board of Directors of the Company
prior to such time as any person or group of affiliated or associated persons
becomes an Acquiring Person) following the commencement of a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of affiliated or associated persons of 15% or
more of the outstanding shares of common stock of the Company (the earlier of
(i) and (ii) being the "Rights Distribution Date"), the Rights will be
evidenced, with respect to any shares of common stock of the Company outstanding
as of the Record Date, by the certificates or book-entry credits representing
such shares.
The Rights Agreement provides that, until the Rights Distribution Date (or
earlier redemption or expiration of the Rights), (i) the Rights will be
transferred only in connection with the transfer of shares of common stock of
the Company, (ii) new common stock certificates issued after the Record Date
upon transfer or new issuance of common stock of the Company will contain a
notation incorporating the Rights Agreement by reference and (iii) the transfer
of any outstanding shares of common stock of either Company will also constitute
the transfer of the Rights associated therewith. As soon as practicable
following the Rights Distribution Date, separate certificates or book-entry
statements evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of common stock of the Company as of the close of business on
the Rights Distribution Date and such separate Rights Certificates or book-entry
credits reflected on such statements alone will evidence the Rights.
The Rights will not be exercisable until the Rights Distribution Date. The
Rights will expire on [ ], 2007 (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the Rights are earlier redeemed
or exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase the Preferred Shares at a price, or
securities convertible into the Preferred Shares with a conversion price, less
than the then-current market price per share of the Preferred Shares, or (iii)
upon the distribution to holders of the Preferred Shares of evidences of
indebtedness, cash (other than a regular quarterly cash dividend out of the
earnings or retained earnings of the Company), assets (other than a dividend
payable in Preferred Shares) or of subscription rights or warrants (other than
those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the common stock of the Company or a
stock dividend on the common stock of the Company payable in common stock of the
Company or subdivisions, consolidations or combinations of the common stock of
the Company occurring, in any such case, prior to the Rights Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per share of common stock
of the Company. In the event of liquidation, the holders of the Preferred Shares
will be entitled to an aggregate payment of 100 times the payment made per share
of common stock of the Company (with a minimum preferential payment of $100 per
share). Each Preferred Share will have 100 votes, voting together with the
common stock of the Company. Finally, in the event of any consolidation, merger
or other transaction in which shares of common stock of the Company are
exchanged,
18
<PAGE>
each Preferred Share will be entitled to receive 100 times the amount received
per share of common stock of the Company. The Rights will be protected by
customary antidilution provisions.
Because of the nature of the dividend, liquidation and voting rights, the
value of the one one-hundredth of a Preferred Share purchasable upon exercise of
each Right should approximate the value of one share of common stock of the
Company.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise that number of shares of common stock of the Company having a market
value of two times the exercise price of the Right. In the event that the
Company is acquired in a merger or other business combination transaction or 50%
or more of its consolidated assets or earning power are sold after a person or
group of affiliated or associated persons has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then-current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or group
of 50% or more of the outstanding shares of common stock of the Company, the
Board of Directors of the Company may exchange the Rights (other than Rights
owned by such person or group which will have become void), in whole or in part,
at an exchange ratio of one share of common stock of the Company, or one
one-hundredth of a Preferred Share (or of a share of a class or series of
preferred stock of the Company having equivalent rights, preferences and
privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Preferred Shares will be issued (other than fractions which
are integral multiples of one one-hundredth of a Preferred Share, which may, at
the election of the Company, be evidenced by depositary receipts) and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.
In general, the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right (payable in cash, common stock of the Company or other
consideration deemed appropriate by the Board of Directors of the Company) at
any time until ten days following the first public announcement that a person or
group of affiliated or associated persons has become an Acquiring Person.
Immediately upon the action of the Board of Directors of the Company authorizing
any redemption, the Rights will terminate and the only right of the holders of
Rights will be to receive the redemption price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to change the 15% thresholds described above to be not less than 10% nor more
than 20%, except that from and after such time as any person or group of
affiliated or associated persons becomes an Acquiring Person no such amendment
may adversely affect the interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of the Company, including, without limitation, the right to
vote or to receive dividends.
19
<PAGE>
CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS, THE
RIGHTS AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation and the By-Laws of each Company contain
certain provisions that could make more difficult the acquisition of such
Company by means of a tender offer, proxy contest or otherwise.
THE FOLLOWING SUMMARY DESCRIPTION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE CERTIFICATE OF INCORPORATION AND BY-LAWS OF HUSSMANN AND MIDAS, WHICH ARE
FILED AS EXHIBITS TO THE REGISTRATION STATEMENTS. SEE "AVAILABLE INFORMATION."
CLASSIFIED BOARD OF DIRECTORS. The Certificate of Incorporation and By-Laws
provide that the board of directors will be divided into three classes of
directors, with the classes to be as nearly equal in number as possible.
Immediately after the Distribution, the Hussmann Board will consist of the
persons referred to in "Management-- Directors" contained in Annex B and the
Midas Board will consist of the persons referred to in "Management-- Directors"
contained in Annex C. The Certificate of Incorporation and the By-Laws provide
that, of the initial directors of each Company, approximately one-third will
continue to serve until the 1999 Annual Meeting of Shareholders, approximately
one-third will continue to serve until the 2000 Annual Meeting of Shareholders,
and approximately one-third will continue to serve until the 2001 Annual Meeting
of Shareholders.
The classification of directors will have the effect of making it more
difficult for shareholders to change the composition of the board of directors
of a Company. At least two annual meetings of shareholders, instead of one, will
generally be required to effect a change in a majority of the board of directors
of a Company. Such a delay may help ensure that the directors of a Company, if
confronted by a holder attempting to force a proxy contest, a tender or exchange
offer or an extraordinary corporate transaction, would have sufficient time to
review the proposal as well as any available alternatives to the proposal and to
act in what they believe to be the best interest of the Company. The
classification provisions will apply to every election of directors, however,
regardless of whether a change in the composition of the board of directors
would be beneficial to a Company and its shareholders and whether a majority of
the shareholders of such Company believe that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of a Company, even though such an attempt might be
beneficial to such Company and its shareholders. The classification of the board
of directors could thus increase the likelihood that incumbent directors will
retain their position.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES. The Certificate of
Incorporation provides that, subject to any rights of holders of preferred stock
to elect additional directors under specific circumstances, the number of
directors will be fixed in the manner provided in the By-Laws. The By-Laws
provide that, subject to any rights of holders of preferred stock to elect
directors under specified circumstances, the number of directors will be fixed
from time to time exclusively pursuant to a resolution adopted by directors
constituting a majority of the total number of directors that a Company would
have if there were no vacancies on the board of directors of such Company (the
"Whole Board"), but must consist of not less than three directors. In addition,
the By-Laws provide that, subject to any rights of holders of preferred stock,
and unless the board of directors otherwise determines, any vacancies, or newly
created directorships, will be filled only by the affirmative vote of a majority
of the remaining directors, though less than a quorum. Accordingly, absent an
amendment to the By-Laws, the board of directors of a Company could prevent any
shareholder from enlarging the board of directors of such Company and filling
the new directorships created thereby with such shareholder's own nominees.
Under the Delaware Law, unless otherwise provided in the Certificate of
Incorporation, directors serving on a classified board may only be removed by
the shareholders for cause. In addition, the Certificate of Incorporation and
the By-Laws provide that directors may be removed only for cause and only upon
the affirmative vote of holders of at least 80% of the voting power of the then
outstanding shares of Voting Stock, voting together as a single class.
NO SHAREHOLDER ACTION BY WRITTEN CONSENT; LIMITATIONS ON CALL OF SPECIAL
MEETINGS. The Certificate of Incorporation and the By-Laws provide that,
subject to the rights of any holders of preferred stock to elect
20
<PAGE>
additional directors under specific circumstances, shareholder action can be
taken only at an annual or special meeting of shareholders and prohibit
shareholder action by written consent in lieu of a meeting. The By-Laws provide
that, subject to the rights of holders of any series of preferred stock to elect
additional directors under specific circumstances, special meetings of
shareholders can be called only by the board of directors of a Company pursuant
to a resolution adopted by a majority of the Whole Board. Shareholders are not
permitted to call a special meeting or to require that the board of directors
call a special meeting of shareholders. Moreover, the business permitted to be
conducted at any special meeting of shareholders is limited to the business
brought before the meeting pursuant to the notice of special meeting given by a
Company.
The provisions of the Certificate of Incorporation and the By-Laws
prohibiting shareholder action by written consent may have the effect of
delaying consideration of a shareholder proposal until the next annual meeting
unless a special meeting is called by a majority of the Whole Board. These
provisions would also prevent the holders of a majority of the voting power of
the Voting Stock from unilaterally using the written consent procedure to take
shareholder action. Moreover, a shareholder could not force shareholder
consideration of a proposal over the opposition of the board of directors by
calling a special meeting of shareholders prior to the time a majority of the
Whole Board believes such consideration to be appropriate.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER
PROPOSALS. The By-Laws establish an advance notice procedure for shareholders
to make nominations of candidates for election as directors, or bring other
business before an annual meeting of shareholders of a Company (the "Shareholder
Notice Procedure"). The Shareholder Notice Procedure provides that only persons
who are nominated by, or at the direction of, the board of directors of a
Company, or by a shareholder who has given timely written notice to the
Secretary of such Company prior to the meeting at which directors are to be
elected, will be eligible for election as directors of such Company. The
Shareholder Notice Procedure also provides that at an annual meeting only such
business may be conducted as has been brought before the meeting by, or at the
direction of, the board of directors of a Company or by a shareholder who has
given timely written notice to the Secretary of a Company of such shareholder's
intention to bring such business before such meeting.
Under the Shareholder Notice Procedure, notice of a shareholder nomination
or other business to be brought before an annual meeting will be timely only if
it is delivered to a Company not earlier than the close of business on the 90th
calendar day nor later than the close of business on the 70th calendar day prior
to the first anniversary of the preceding year's annual meeting of such Company
(except that if the date of the annual meeting is more than 30 calendar days
before or more than 70 calendar days after such anniversary date, notice by the
shareholder to be timely must be delivered to such Company not earlier than the
close of business on the 90th calendar day prior to such annual meeting and not
later than the close of business on the later of (i) the 70th calendar day prior
to such annual meeting and (ii) the 10th calendar day after public announcement
is first made by such Company of the date of such annual meeting).
Notwithstanding the foregoing, in the event that the number of directors to be
elected to such Company's board of directors is increased and there is no public
announcement by a Company naming all of the nominees for directors or specifying
the size of the increased board of directors made by such Company at least 80
calendar days prior to the first anniversary of the preceding year's annual
meeting, a shareholder's notice will be timely, but only with respect to
nominees for any new positions created by such increase, if it is delivered to
such Company not later than the close of business on the 10th calendar day after
such public announcement is first made by such Company. Under the Shareholder
Notice Procedure, notice of a shareholder nomination to be made at a special
meeting at which directors are to be elected will be timely only if it is
delivered to a Company not earlier than the close of business on the 90th
calendar day prior to such special meeting and not later than the close of
business on the later of (i) the 70th calendar day prior to such special meeting
and (ii) the 10th calendar day after public announcement is first made by such
Company of the date of such special meeting and of the nominees proposed by such
Company's board of directors to be elected at such special meeting. For the
purpose of determining whether a shareholder's notice is timely delivered for
the 1999 annual meeting, the first anniversary of the preceding year's annual
meeting is deemed to be May 7, 1999. See "1999 Annual Meeting of Shareholders"
in Annex B and Annex C.
Under the Shareholder Notice Procedure, a shareholder's notice to a Company
proposing to nominate a person for election as a director must contain certain
information including, without limitation, the identity and address of the
nominating shareholder, the class and number of shares of stock of such Company
which are owned
21
<PAGE>
by such shareholder, and all information regarding the proposed nominee that
would be required to be included in a proxy statement soliciting proxies for the
proposed nominee. A shareholder's notice relating to the conduct of business
other than the nomination of directors must contain certain information about
such business and about the proposing shareholders, including, without
limitation, a brief description of the business the shareholder proposes to
bring before the meeting, the reasons for conducting such business at such
meeting, the name and address of such shareholder, the class and number of
shares of stock of such Company beneficially owned by such shareholder, and any
material interest of such shareholder in the business so proposed. If the
Chairman or other officer presiding at a meeting determines that a person was
not nominated or other business was not brought before the meeting in accordance
with the Shareholder Notice Procedure, such person will not be eligible for
election as a director or such business will not be conducted at such meeting,
as the case may be.
Although the By-Laws do not give the board of directors any power to approve
or disapprove shareholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the election of
directors or the consideration of shareholder proposals if the proper procedures
are not followed, and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to a Company and its shareholders.
PREFERRED STOCK. The Certificate of Incorporation authorizes the board of
directors of a Company to establish one or more series of preferred stock and to
determine, with respect to any series of preferred stock, the terms and rights
of such series, including (i) the designation of the series, (ii) the number of
shares of the series, which number the board of directors of such Company may
thereafter (except where otherwise provided in the related Preferred Stock
Designation) increase or decrease (but not below the number of shares thereof
then outstanding), (iii) whether dividends, if any, will be cumulative or
noncumulative and the dividend rate of the series, (iv) the dates at which
dividends, if any, will be payable, (v) the redemption rights and price or
prices, if any, for shares of the series, (vi) the terms and amounts of any
sinking fund provided for the purchase or redemption of shares of the series,
(vii) the amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of such
Company, (viii) whether the shares of the series will be convertible into shares
of any other class or series, or any other security, of such Company or any
other corporation, and, if so, the specification of such other class or series
or such other security, the conversion price or prices or rate or rates, any
adjustments thereof, the date or dates as of which such shares shall be
convertible and all other terms and conditions upon which such conversion may be
made, (ix) restrictions on the issuance of shares of the same series or of any
other class or series, and (x) the voting rights, if any, of the holders of such
series.
The authorized shares of preferred stock of a Company, as well as shares of
common stock of such Company, will be available for issuance without further
action by the shareholders of such Company, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation system
on which such Company's securities may be listed or traded. The NYSE currently
requires shareholder approval as a prerequisite to listing shares in several
instances, including in certain situations where the present or potential
issuance of shares could result in an increase in the number of shares of common
stock or in the voting power outstanding of 20% or more.
Although the board of directors of each Company has no intention at the
present time of doing so, a Company could issue a series of preferred stock that
could, depending on the terms of such series, impede the completion of a merger,
tender offer or other takeover attempt. The board of directors of a Company will
make any determination to issue such shares based on its judgment as to the best
interests of such Company and its shareholders. The board of directors of a
Company, in so acting, could issue preferred stock having terms that could
discourage an acquisition attempt through which an acquirer may be able to
change the composition of such board of directors, including a tender offer or
other transaction that some, or a majority, of such Company's shareholders might
believe to be in their best interests or in which shareholders might receive a
premium for their stock over the then-current market price of such stock.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY. The Certificate of
Incorporation authorizes the board of directors of a Company to create and issue
rights entitling the holders thereof to purchase from such Company shares of
stock or other securities of such Company or any other corporation. The times at
which and terms upon which such rights are to be issued would be determined by
the board of directors of such Company and set forth in
22
<PAGE>
the contracts or other instruments that evidence such rights. The authority of
the board of directors with respect to such rights includes, but is not limited
to, determination of (i) the initial purchase price per share or other unit of
the stock or other securities or property to be purchased upon exercise of such
rights, (ii) provisions relating to the times at which and the circumstances
under which such rights may be exercised or sold or otherwise transferred,
either together with or separately from any other stock or other securities of
such Company, (iii) provisions that adjust the number or exercise price of such
rights or amount or nature of the stock or other securities or property
receivable upon exercise of such rights in the event of a combination, split or
recapitalization of any stock of such Company, a change in ownership of such
Company's stock or other securities or a reorganization, merger, consolidation,
sale of assets or other occurrence relating to such Company or any stock of such
Company, and provisions restricting the ability of such Company to enter into
any such transaction absent an assumption by the other party or parties thereto
of the obligations of such Company under such rights, (iv) provisions that deny
the holder of a specified percentage of the outstanding stock or other
securities of such Company the right to exercise such rights and/or cause such
rights held by such holder to become void, (v) provisions that permit such
Company to redeem or exchange such rights, and (vi) the appointment of the
rights agent with respect to such rights. This provision is intended to confirm
the board of directors' authority to issue rights to purchase shares of stock or
other securities of such Company or any other corporation. See "Description of
Capital Stock of the Companies--Rights Agreements."
AMENDMENT OF CERTAIN PROVISIONS IN THE CERTIFICATE OF INCORPORATION AND
BY-LAWS. Under Delaware Law, the shareholders of a corporation have the right
to adopt, amend or repeal the by-laws and, with the approval of the board of
directors, the certificate of incorporation of a corporation. In addition, under
Delaware Law if the certificate of incorporation so provides, the by-laws may be
adopted, amended or repealed by the board of directors. The Certificate of
Incorporation provides that the affirmative vote of the holders of at least 80%
of the voting power of the outstanding shares of Voting Stock, voting together
as a single class, is required to amend provisions of the Certificate of
Incorporation relating to: the prohibition of shareholder action without a
meeting; the number, election and term of directors; the removal of directors;
the issuance of rights; and the adoption, amendment or repeal of the By-Laws by
the board of directors or by the affirmative vote of the holders of at least 80%
of the voting power of the outstanding shares of Voting Stock, voting together
as a single class. The vote of the holders of a majority of the voting power of
the outstanding shares of Voting Stock is required to amend all other provisions
of the Certificate of Incorporation. The Certificate of Incorporation further
provides that the By-Laws may be amended by the board of directors or by the
affirmative vote of the holders of at least 80% of the voting power of the
outstanding shares of Voting Stock, voting together as a single class. These 80%
voting requirements will have the effect of making more difficult any amendment
by shareholders of the By-Laws or of any of the provisions of the Certificate of
Incorporation described above, even if a majority of the shareholders of a
Company believe that such amendment would be in their best interests.
OTHER PROVISIONS. The Certificate of Incorporation expressly authorizes the
board of directors of a Company to take such action as it may determine to be
reasonably necessary or desirable to encourage any person or entity to enter
into negotiations with such board of directors and management of such Company
respecting any transaction which may result in a change in control of such
Company, and to contest or oppose any such transaction which such board of
directors determines to be unfair, abusive or otherwise undesirable to such
Company, its businesses or shareholders. In this connection, the Certificate of
Incorporation specifically permits the board of directors of a Company to adopt
plans or to issue securities of such Company (including common stock or
preferred stock of such Company, rights or debt securities), which securities
may be exchangeable or convertible into cash or other securities on such terms
as such board of directors determines and may provide for differential and
unequal treatment of different holders or classes of holders. The existence of
this authority or the actions which may be taken by the board of directors of a
Company pursuant thereto may deter potential acquirers from proposing
unsolicited transactions not approved by the board of directors and might enable
the board of directors to hinder or frustrate such a transaction if proposed.
These provisions are included in the Certificate of Incorporation to confirm and
support the authority of the board of directors of a Company to take the various
actions authorized thereby. The Certificate of Incorporation is also designed to
enable the board of directors of a Company to utilize such other tactics or
mechanisms as are developed in the future to carry out the general authorization
set forth therein.
23
<PAGE>
THE RIGHTS
The Rights will have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire a Company on
terms not approved by the board of directors of such Company. The Rights should
not interfere with any merger or other business combination approved by the
board of directors of a Company because the Rights may be redeemed by such
Company until the tenth day following the first public announcement that a
person or group of affiliated or associated persons has become an Acquiring
Person.
DELAWARE LAW
Section 203 of the Delaware Law provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any interested stockholder for a three-year period following the date that
such stockholder becomes an interested stockholder unless (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares); or
(iii) on or subsequent to such date, the business combination is approved by the
board of directors of the corporation and by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified in Section 203 of the Delaware Law, an
"interested stockholder" is defined to include (x) any person that is the owner
of 15% or more of the outstanding voting stock of the corporation, or is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation, at any time within three years
immediately prior to the relevant date and (y) the affiliates and associates of
any such person.
Under certain circumstances, Section 203 of the Delaware Law makes it more
difficult for a person who would be an interested stockholder to effect various
business combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Certificate of Incorporation does not exclude a Company from the
restrictions imposed under Section 203 of the Delaware Law. It is anticipated
that the provisions of Section 203 of the Delaware Law may encourage companies
interested in acquiring a Company to negotiate in advance with the board of
directors of such Company, since the stockholder approval requirement would be
avoided if a majority of the directors then in office approves either the
business combination or the transaction which results in the stockholder
becoming an interested stockholder.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation provides that a director of a Company will
not be personally liable to such Company or its shareholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to such Company or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware Law, which concerns unlawful payments of dividends, stock purchases
or redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit.
While the Certificate of Incorporation provides directors with protection
from awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Certificate of Incorporation will have no
effect on the availability of equitable remedies such as an injunction or
rescission based on a director's breach of his or her duty of care. The
provisions of the Certificate of Incorporation described above apply to an
officer of a Company only if he or she is a director of such Company and is
acting in his or her capacity as director, and do not apply to officers of a
Company who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation provides that each person who is or was or
had agreed to become a director or officer of a Company, or each person who is
or was serving or who had agreed to serve at the request of the board of
directors of such Company or an officer of such Company as a director, officer
or employee or agent of another corporation, partnership, joint venture, trust
or other enterprise (including the heirs, executors, administrators or estate of
such person), will be indemnified by such Company, in accordance with and
pursuant to the By-Laws. In addition, a Company may provide indemnification to
its employees and agents to the extent provided by action of
24
<PAGE>
its board of directors pursuant to the By-Laws. A Company may also enter into
one or more agreements with any person providing for indemnification greater or
different than that provided in the Certificate of Incorporation.
The By-Laws provide that each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit, or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative is or was a director or officer of a Company or
is or was serving at the request of such Company as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such Proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, will be indemnified and
held harmless by such Company to the fullest extent authorized by Delaware law
as the same exists or may in the future be amended (but, in the case of any such
amendment, only to the extent that such amendment permits such Company to
provide broader indemnification rights than said law permitted such Company to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, excise taxes under the Employee
Retirement Income Security Act of 1974 or penalties and amounts paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification will continue as to a person who has ceased
to be a director, officer, employee or agent and will inure to the benefit of
his or her heirs, executors and administrators; PROVIDED, HOWEVER, that except
as described in the following paragraph with respect to Proceedings to enforce
rights to indemnification, such Company will indemnify any such person seeking
indemnification in connection with a Proceeding (or part thereof) initiated by
such person only if such Proceeding (or part thereof) was authorized by the
board of directors of such Company. A Company's board of directors may provide
indemnification to employees and agents of such Company to the same extent as
provided to directors and officers of such Company.
Pursuant to the By-Laws, if a claim described in the preceding paragraph is
not paid in full by such Company within thirty days after a written claim has
been received by such Company, the claimant may at any time thereafter bring
suit against such Company to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant will also be entitled to be paid
the expense of prosecuting such claim. The By-Laws provide that it will be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any Proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to such Company) that the claimant has not met the standards of conduct
which make it permissible under the Delaware Law for such Company to indemnify
the claimant for the amount claimed, but the burden of proving such defense will
be on such Company. Neither the failure of a Company (including the board of
directors of such Company, independent legal counsel or shareholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the Delaware Law, nor an
actual determination by such Company (including the board of directors of such
Company, independent legal counsel or shareholders) that the claimant has not
met such applicable standard of conduct, will be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
The By-Laws provide that the right to indemnification and the payment of
expenses incurred in defending a Proceeding in advance of its final disposition
conferred in the By-Laws will not be exclusive of any other right which any
person may have or may in the future acquire under any statute, provision of the
Certificate of Incorporation, the By-Laws, agreement, vote of shareholders or
disinterested directors or otherwise. The By-Laws permit a Company to maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of such Company or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
such Company would have the power to indemnify such person against such expense,
liability or loss under the Delaware Law. Each Company intends to obtain
liability insurance providing coverage to its directors and officers.
The By-Laws provide that the right to indemnification conferred therein is a
contract right and includes the right to be paid by a Company the expenses
incurred in defending any such Proceeding in advance of its final disposition,
except that if the Delaware Law requires, the payment of such expenses incurred
by a director or officer in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such person
while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a Proceeding, will
be made only upon delivery to such Company of an
25
<PAGE>
undertaking by or on behalf of such director or officer, to repay all amounts so
advanced if it is ultimately determined that such director or officer is not
entitled to be indemnified under the By-Laws or otherwise.
ADDITIONAL INFORMATION
The Delaware Law provides that a contract between a corporation and a
director thereof is not void or voidable solely because the interested director
is present at the meeting authorizing the contract if the material facts
relating to the contract are known to the board of directors and the board of
directors in good faith authorizes the contract by the affirmative vote of a
majority of the disinterested directors, or the material facts relating to the
contract are known to the shareholders and the shareholders in good faith
authorize the contract, or the contract is fair to the corporation at the time
it is authorized or approved.
26
<PAGE>
ANNEX A -- INFORMATION ABOUT WHITMAN
PRINCIPAL BUSINESS TO BE RETAINED BY WHITMAN
After the Distribution, Whitman's principal business will be the production
and distribution of Pepsi-Cola and other non-alcoholic beverage products by
Pepsi General. Whitman will also continue to own certain other assets, including
undeveloped real estate, most of which is located in downtown Chicago, a finance
leasing portfolio pursuant to which Whitman is the lessor of certain railroad
locomotives and freight cars, and an investment in the common stock of
Northfield Laboratories Inc. Whitman will also remain liable as an indemnitor
for certain environmental and other liabilities associated with previously sold
businesses, including principally those relating to Pneumo Abex Corporation.
PRE-DISTRIBUTION PAYMENTS TO WHITMAN
Prior to the Distribution Date, Hussmann will pay to Whitman approximately
$250 million and Midas will pay to Whitman approximately $225 million, which, in
each case, will be applied to settle all intercompany loans and advances from
Whitman to Hussmann or Midas, as the case may be, with the balance to be paid as
a cash dividend. At September 30, 1997, intercompany loans and advances from
Whitman to Hussmann amounted to approximately $198.7 million and intercompany
loans and advances from Whitman to Midas amounted to approximately $66.2
million. Whitman intends to use a portion of the proceeds from the repayment of
intercompany loans and cash dividends to be received by it from Hussmann and
Midas in connection with the Distribution to retire certain outstanding
indebtedness. See "Financing" in Annex B and Annex C. The balance of the
proceeds from such repayments and dividends may be used for general corporate
purposes.
POST-DISTRIBUTION DIVIDEND POLICY
The payment and level of cash dividends by Whitman after the Distribution
will be subject to the discretion of the Whitman Board. Dividend decisions will
be based upon a number of factors, including Whitman's operating results and
financial requirements. No determination has been made by the Whitman Board with
respect to the initial cash dividend that would be paid after the dividend
payable on January 1, 1998. However, it is expected that the cash dividend
initially paid by Whitman following the Distribution will be at an annual rate
below the $0.46 per share annual dividend rate currently in effect and will be
determined, in part, by reference to dividend payment levels of entities engaged
in the soft drink and other beverage business comparable to the businesses in
which Pepsi General is engaged.
A-1
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
INTRODUCTION TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited Pro Forma Condensed Consolidated Statements of Income of
Whitman and its subsidiaries for the nine months ended September 30, 1997 and
for the year ended December 31, 1996 present the pro forma condensed
consolidated results of the continuing operations of Whitman, assuming that the
transactions contemplated by the Distribution, including the borrowings to be
incurred by Hussmann International and the Midas Group in connection with the
Distribution, had been completed as of the beginning of the respective periods,
and include all material adjustments necessary to restate Whitman's historical
results. The adjustments required to reflect such transactions are set forth in
the "Pro Forma Adjustments" column. In addition, the Pro Forma Condensed
Consolidated Statements of Income reflect the reclassifications of Hussmann
International and the Midas Group to discontinued operations.
The unaudited Pro Forma Condensed Consolidated Balance Sheet of Whitman and
its subsidiaries as of September 30, 1997, presents the pro forma condensed
consolidated financial position of Whitman, assuming that the transactions
contemplated by the Distribution described in the preceding paragraph had been
completed as of that date. The adjustments required to reflect such transactions
are set forth in the "Pro Forma Adjustments" column. In addition, the Pro Forma
Condensed Consolidated Balance Sheet reflects the reclassifications of Hussmann
International and the Midas Group to discontinued operations.
The historical amounts are derived from the historical financial statements
of Whitman. The unaudited pro forma condensed consolidated financial information
of Whitman should be read in conjunction with the historical financial
statements and related notes of Whitman included in its 1996 annual report on
Form 10-K and its most recent quarterly report on Form 10-Q filed with the SEC
(File No. 1-04710), copies of which are available from Whitman. The pro forma
financial information presented is for informational purposes only and may not
necessarily reflect future results of operations or financial position of
Whitman or what the results of operations or financial position of Whitman would
actually have been had Hussmann International and the Midas Group operated as
independent companies during the periods shown.
A-2
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED AND IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
---------------------------------------------------
RECLASSIFY
HUSSMANN
INTERNATIONAL
AND THE
MIDAS GROUP
TO
DISCONTINUED PRO FORMA
HISTORICAL OPERATIONS ADJUSTMENTS PRO FORMA
--------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales and revenues............................................. $ 2,376.1 $ (1,197.2) $ -- $ 1,178.9
Costs of goods sold............................................ 1,535.3 (801.8) -- 733.5
--------- -------------- ----------- -----------
Gross profit................................................. 840.8 (395.4) -- 445.4
Selling, general and administrative expenses................... 562.3 (271.2) (5.3) (a) 285.8
Amortization expense........................................... 15.4 (3.8) -- 11.6
Non-recurring charges.......................................... 107.7 (98.3) 9.4
--------- -------------- ----------- -----------
Operating income............................................. 155.4 (22.1) 5.3 138.6
Interest expense, net.......................................... (50.4) 18.1 (2.3)(b) (34.6)
Other expense, net............................................. (15.4) 0.7 -- (14.7)
--------- -------------- ----------- -----------
Income before income taxes................................... 89.6 (3.3) 3.0 89.3
Income tax provisions.......................................... 57.5 (16.1) 1.1(c) 42.5
--------- -------------- ----------- -----------
Income before minority interests............................. 32.1 12.8 1.9 46.8
Minority interests............................................. 13.8 -- -- 13.8
--------- -------------- ----------- -----------
Income from continuing operations............................ 18.3 12.8 1.9 33.0
Loss from discontinued operations.............................. (2.9) (12.8) -- (15.7)
--------- -------------- ----------- -----------
Net income................................................... $ 15.4 $ -- $ 1.9 $ 17.3
--------- -------------- ----------- -----------
--------- -------------- ----------- -----------
Average number of shares outstanding........................... 103.3 103.3
--------- -----------
--------- -----------
Net income (loss) per common share:
Continuing operations........................................ $ 0.18 $ 0.32
Discontinued operations...................................... (0.03) (0.15)
--------- -----------
Net income................................................. $ 0.15 $ 0.17
--------- -----------
--------- -----------
</TABLE>
See accompanying notes to pro forma financial information.
A-3
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED AND IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------
RECLASSIFY
HUSSMANN
INTERNATIONAL
AND THE
MIDAS GROUP
TO
DISCONTINUED PRO FORMA
HISTORICAL OPERATIONS ADJUSTMENTS PRO FORMA
--------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Sales and revenues............................................. $ 3,111.3 $ (1,609.9) $ -- $ 1,501.4
Cost of goods sold............................................. 2,008.0 (1,083.6) -- 924.4
--------- -------------- ------ -----------
Gross profit................................................. 1,103.3 (526.3) -- 577.0
Selling, general and administrative expenses................... 716.7 (349.9) (7.0) (a) 359.8
Amortization expense........................................... 20.0 (4.6) -- 15.4
--------- -------------- ------ -----------
Operating income............................................. 366.6 (171.8) 7.0 201.8
Interest expense, net.......................................... (65.3) 23.8 (2.3) (b) (43.8)
Other expense, net............................................. (25.6) -- -- (25.6)
--------- -------------- ------ -----------
Income before income taxes................................... 275.7 (148.0) 4.7 132.4
Income tax provisions.......................................... 117.2 (56.1) 1.8(c) 62.9
--------- -------------- ------ -----------
Income before minority interests............................. 158.5 (91.9) 2.9 69.5
Minority interests............................................. 19.1 (0.3) -- 18.8
--------- -------------- ------ -----------
Income from continuing operations............................ 139.4 (91.6) 2.9 50.7
Income from discontinued operations............................ -- 91.6 -- 91.6
--------- -------------- ------ -----------
Net income................................................... $ 139.4 $ -- $ 2.9 $ 142.3
--------- -------------- ------ -----------
--------- -------------- ------ -----------
Average number of shares outstanding........................... 106.4 106.4
--------- -----------
--------- -----------
Net income per common share:
Continuing operations........................................ $ 1.31 $ 0.48
Discontinued operations...................................... -- 0.86
--------- -----------
Net income................................................. $ 1.31 $ 1.34
--------- -----------
--------- -----------
</TABLE>
See accompanying notes to pro forma financial information.
A-4
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED AND IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------------------------
RECLASSIFY
HUSSMANN
INTERNATIONAL
AND THE
MIDAS GROUP
TO DISCONTINUED PRO FORMA
HISTORICAL OPERATIONS ADJUSTMENTS PRO FORMA
--------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.................................... $ 79.3 $ (45.5) $ -- $ 33.8
Short-term investments....................................... -- -- 175.0(d) 175.0
Receivables, net............................................. 469.4 (269.5) -- 199.9
Inventories, net............................................. 335.1 (253.7) -- 81.4
Other current assets......................................... 78.8 (26.3) -- 52.5
Net current assets of companies held for disposition......... -- 324.1 (324.1) (e) --
--------- ------ ----------- -----------
Total current assets....................................... 962.6 (270.9) (149.1) 542.6
--------- ------ ----------- -----------
Property and equipment, net.................................... 751.0 (352.8) -- 398.2
Intangible assets, net......................................... 497.6 (32.9) -- 464.7
Net non-current assets of companies held for disposition....... -- 367.3 (367.3) (e) --
Investments and other assets................................... 282.3 (68.2) -- 214.1
--------- ------ ----------- -----------
Total assets............................................... $ 2,493.5 $ (357.5) $ (516.4) $ 1,619.6
--------- ------ ----------- -----------
--------- ------ ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Short-term debt, including current portion of long-term
debt....................................................... $ 143.8 $ (8.8) $ (135.0) (d) $ --
Accounts and dividends payable............................... 293.9 (155.8) -- 138.1
Other current liabilities.................................... 227.1 (106.3) -- 120.8
--------- ------ ----------- -----------
Total current liabilities.................................. 664.8 (270.9) (135.0) 258.9
--------- ------ ----------- -----------
Long-term debt................................................. 797.8 (20.7) (165.0) (d) 612.1
Deferred income taxes and other liabilities.................... 209.5 (57.1) -- 152.4
Minority interest.............................................. 249.2 (8.8) (20.3) (f) 220.1
Shareholders' equity........................................... 572.2 -- (196.1) (g) 376.1
--------- ------ ----------- -----------
Total liabilities and shareholders' equity................. $ 2,493.5 $ (357.5) $ (516.4) $ 1,619.6
--------- ------ ----------- -----------
--------- ------ ----------- -----------
</TABLE>
See accompanying notes to pro forma financial information.
A-5
<PAGE>
WHITMAN CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL INFORMATION
(a) To record the estimated reduction in general and administrative expenses
that would have been realized by Whitman subsequent to the Distribution.
This reduction in general and administrative expenses was based upon a
detailed analysis of personnel requirements at Whitman after the
Distribution occurs. Because of the need for an orderly transition, the
estimated cost reductions are not expected to be fully realized in the first
year after the Distribution but do represent the estimated full year cost
reductions once the transition period is completed.
(b) To record the assumed change in interest expense arising from the decrease
in interest expense resulting from the repayment of indebtedness by Whitman
using the funds received from Hussmann International and the Midas Group
compared to interest earned on loans and advances to those subsidiaries. It
is assumed the indebtedness repaid by Whitman had an average interest rate
of 7.25%. No earnings were assumed on $175 million of excess cash classified
as short-term investments.
(c) To record income tax benefits attributable to adjustments (a) and (b) at a
combined Federal and state income tax rate of 38%.
(d) To record the assumed reduction in indebtedness and increase in short-term
investments arising from the settlement of loans and advances payable to
Whitman by Hussmann International and the Midas Group and the receipt of
cash dividends in conjunction with the Distribution.
(e) To record the distribution of the assets and the liabilities of Hussmann
International and the Midas Group.
(f) To record the acquisition of the outstanding non-voting preferred stock of
Pepsi-Cola General Bottlers, Inc. from the holder of the minority interest
in exchange for Whitman Common Stock. This exchange of shares is an integral
part of the various transactions involved in effecting the Distribution.
(g) To record the effects of adjustments (d), (e) and (f) on shareholders'
equity.
A-6
<PAGE>
ANNEX B -- INFORMATION ABOUT HUSSMANN
BUSINESS
OVERVIEW
Hussmann manufactures, sells, installs and services merchandising and
refrigeration systems for the world's commercial food industry. Products include
refrigerated and non-refrigerated display merchandisers, refrigeration systems,
beverage coolers, air handlers, condensers, coils and walk-in storage coolers
and freezers. Hussmann utilizes advanced technology to create energy efficient
products that are designed to provide low life-cycle cost. Hussmann's wide
product line features high quality products intended to meet the needs of a
broad range of customers.
Hussmann's 1996 sales of approximately $1.0 billion included approximately
$480 million from the sale of display merchandisers, approximately $160 million
from refrigeration systems, approximately $245 million from installation and
service and approximately $120 million from the sale of other products,
including beverage coolers. For further information about Hussmann's historical
results of operations, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this Annex.
Hussmann operates in three geographic segments, the U.S. and Canada, the
United Kingdom and Other International, which includes Mexico, Latin America,
Asia Pacific, continental Europe and the Middle East. Hussmann's 1996 sales,
before eliminations of sales between geographic areas, included $827 million
from U.S. and Canada operations, $140 million from U.K. operations and $82
million from Other International operations. See Note 16 of Hussmann's Combined
Financial Statements included elsewhere in this Annex B for further information
about Hussmann's foreign and domestic operations and export sales.
Hussmann Corporation is the successor to the business started by Harry L.
Hussmann in 1906 which sold butchers' supplies. Hussmann introduced the first
meat display case in 1917 and the first frozen food case for Clarence Birdseye
in 1933. Since 1933, Hussmann Corporation has grown to be the market leader in
the manufacture and sale of refrigerated display merchandisers and refrigeration
systems in the U.S., Canada, the U.K., Mexico and Chile. Hussmann Corporation
was incorporated in Missouri in 1929. Hussmann International, Inc. was
incorporated in Delaware in August 1997 in connection with the Distribution.
Hussmann's principal executive offices are located at 12999 St. Charles Rock
Road, Bridgeton, Missouri 63044 and its telephone number is (314) 291-2000.
MARKET OVERVIEW
In the U.S. and Canada, Hussmann sells its products primarily to
supermarkets and convenience stores, including both national chains and local
retailers. Since 1995, supermarkets and convenience stores have accelerated
their expansion by remodeling their facilities and modernizing their equipment.
Changes have also resulted from growth in the number of dual wage-earner
families who demand more convenience in food preparation. Supermarkets and
convenience stores have also begun to focus on higher margin products such as
prepared foods which require more refrigerated or heated display merchandising
space.
In addition to the expansion by supermarkets and convenience stores, the
retail food service market, which includes outlets such as Boston Market and
Kenny Rogers, is now one of the fastest growing parts of the commercial food
industry in the U.S. This growth is attributable to the same factors driving
supermarkets and convenience stores to sell more prepared foods. Another growing
market within the commercial food industry is commercial/industrial
refrigeration, including processing, produce ripening and cold storage
warehousing facilities.
The international market represents a significant long-term growth
opportunity as countries develop their infrastructure, as well as their food
distribution and preservation needs. Many countries are also experiencing
economic growth, creating demand for more technologically advanced products.
Finally, in Mexico and Latin America, local retailers are expanding and
remodeling their stores as a result of competition from U.S. and European chains
that are entering these markets. However, since 1995, Hussmann has experienced
declining sales in the U.K. Hussmann did not have operating income in the U.K.
in 1996. In the nine months ended September 30,
B-1
<PAGE>
1997, Hussmann's operating loss in the U.K. was $5.8 million. Hussmann's
management has decided to restructure its U.K. operations. During the third
quarter of 1997, Hussmann recorded non-recurring charges of $30.7 million ($29.6
million on an after-tax basis) relating to the recognition of goodwill
impairment and the consolidation of sales and service branches in the U.K. The
Hussmann charges also include expenses relating to the consolidation of certain
manufacturing facilities in the U.S. Hussmann expects to record additional
non-recurring charges in the fourth quarter of 1997 of approximately $25 million
($17 million on an after-tax basis). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 13 of Hussmann's
Combined Financial Statements included elsewhere in this Annex B.
STRATEGY
Hussmann's business strategy is to maintain and improve its position as a
leader in the mature markets in which it competes while expanding its presence
in the food service market and evolving international markets.
SALES GROWTH. In the U.S. and Canada, Hussmann is seeking to improve its
sales to those customers which it has historically served in the commercial food
industry while increasing sales to higher growth areas of the food service
market. Hussmann plans to achieve these goals by (i) continuing to develop
proprietary products such as the Impact line and the Protocol refrigeration
system described below in order to differentiate Hussmann from its competitors,
(ii) expanding into the food service market by leveraging its existing
technological and manufacturing expertise and (iii) pursuing strategic
acquisitions to broaden its service and distribution network and manufacturing
capabilities.
INTERNATIONAL EXPANSION. Hussmann seeks to participate in the growth of
developing regions throughout the world by further strengthening a manufacturing
and distribution presence in these regions. In order to more effectively serve
these regions and follow the globalization of its customer base, Hussmann is
investing in manufacturing facilities that have the technology to produce
specific products tailored to local customer demand. Hussmann expects to
increase its global competitiveness by locating manufacturing facilities in
various regions throughout the world. More than one-third of Hussmann's 1996
sales were to customers outside of the U.S.
INCREASED CAPACITY. The commercial food industry in the U.S. has
experienced significant growth since the beginning of 1995. As a result,
Hussmann's plants operated at full capacity during the third and fourth quarters
of 1995 and 1996. In order to capitalize on the industry's growth while
providing timely delivery to existing customers, Hussmann has expanded its plant
in Chino, California and reorganized its shop floor at its Addison, Illinois
plant. In addition, Hussmann intends to increase capacity at its Bridgeton,
Missouri plant. See "Properties" appearing elsewhere in this Annex.
COST REDUCTION. Hussmann has implemented aggressive cost and expense
containment programs, including rationalizing similar manufacturing operations,
instituting centralized purchasing of frequently used components, consolidating
engineering efforts and striving to keep selling, general and administrative and
fixed costs constant through the year 2000.
PRODUCTS
Hussmann products include refrigerated and non-refrigerated display
merchandisers, refrigeration systems, beverage coolers, air handlers,
condensers, coils and walk-in storage coolers and freezers. Hussmann utilizes
advanced technology to create energy efficient products that are designed to
provide low life-cycle cost. Hussmann's wide product line features high quality
products intended to meet the needs of a broad range of customers. All of
Hussmann's products are certified to relevant national or international industry
standards, as appropriate, by independent laboratories.
MERCHANDISERS. Refrigerated display merchandisers preserve perishable food
products while allowing attractive display and accessibility to the consumer.
Display merchandisers are used to display refrigerated and frozen products in
supermarkets, convenience stores, food service outlets and delicatessens. These
merchandisers are either self-contained or linked to a remote refrigeration
system through a system of pipes. Hussmann's display merchandisers can be
customized to display a variety of items.
B-2
<PAGE>
Hussmann's current standard product line of merchandisers, the Impact line,
was introduced in 1995. Hussmann has positioned Impact as a global merchandising
platform. Before the introduction of Impact, Hussmann's operating units offered
region-specific merchandising product lines. Hussmann's operations in the U.S.,
Mexico and China have completed the transition to the Impact line. Hussmann
anticipates that its operations in Latin America and the U.K. will complete the
transition to the Impact line during 1998.
The Impact platform was designed with new technological features,
manufacturing efficiencies, and global markets in mind. Impact products utilize
many common parts and each merchandiser is designed to be dismantled and shipped
in pieces so as to more economically and efficiently address export shipment
costs as well as remote case assembly opportunities. The Impact line of
merchandisers also includes cases that are not product specific, enabling stores
to display fresh meat, bulk produce, and other products in the same merchandiser
by changing display accessories. Impact merchandisers offer lower energy,
maintenance and refrigeration costs, while featuring advanced styling and
merchandising capabilities.
Hussmann is also a leader in providing customized refrigerated display
merchandisers and accessories which complement its standard lines. The demand
for these merchandisers has increased with the growth of specialty sections in
supermarkets that require custom designed attractive merchandisers that
highlight the products displayed. These higher margin, specialized merchandisers
represent an expanding market where Hussmann can capitalize on its leadership
position and extensive branch network for selling, installing and servicing
products. Hussmann merchandisers can be refrigerated, non-refrigerated, heated
and color coordinated to store specifications. Hussmann is the only manufacturer
with extensive custom capabilities throughout the U.S. and Canada. Hussmann's
Chino, California and Brantford, Ontario plants are the largest custom
merchandiser manufacturers in North America.
REFRIGERATION SYSTEMS. Hussmann is a technological leader in centralized
refrigeration systems. These systems--which include multi-compressors, automatic
flow control systems and electronic controls--are generally located in the
store's back room, away from the display and merchandising areas. They are built
to customer specifications and vary by number of compressors, refrigerant type
and need for satellite units.
In 1993 Hussmann introduced the Protocol refrigeration system. The Protocol
system utilizes compact, multiple scroll compressor refrigeration units enclosed
in attractive housings. Unlike back room systems, individual Protocol units are
located either in or, more often, very near the sales areas, close to the
refrigerated display cases. Protocol units use minimal floor space and eliminate
the need for a refrigeration back room and related construction costs while
allowing for increased sales areas. Protocol is a chlorofluorocarbon (CFC) and
hydro chlorofluorocarbon (HCFC) free system, which uses up to 50% less
refrigerant and reduces the amount of piping and braze joints, which lessens the
likelihood of refrigerant leaks.
OTHER PRODUCTS. Hussmann manufactures numerous other products for use in
the commercial food industry. These products include a line of coolers for the
beverage industry sold primarily in Mexico and Latin America. In addition,
Hussmann manufactures air handlers, condensers and coils for the
commercial/industrial refrigeration market. Hussmann also manufactures and
installs walk-in storage coolers and freezers that are used for bulk storage and
storage for non-display items. These are typically found in the back rooms of
supermarkets and convenience stores and other commercial sites, such as hotel
and cafeteria kitchens, and are filled with items that require refrigeration
prior to sales area display. Hussmann's other products also include
self-contained refrigeration equipment utilized in convenience stores.
PRODUCT DEVELOPMENT AND PROPRIETARY INFORMATION
Hussmann strives to be the technology leader in commercial refrigeration.
Hussmann believes that technological development is an important factor in its
ability to maintain its market leadership position. Hussmann's research and
product development strategy is to centralize the development of new products
for global application. Three global design centers have been established and
responsibility assigned for creating new products with a focus on global design
for specific technologies and product lines. The goal of the design centers is
to achieve more commonality of components and modularity in Hussmann's product
lines. The centers share technologies and product designs. The Impact
merchandiser platform reflects Hussmann's global design approach.
B-3
<PAGE>
The corporate design center, located at Bridgeton, is responsible for
technology development and new supermarket display cases platforms as well as
global manufacturing support. The Glasgow, Scotland design center is responsible
for design and development of self-contained product platforms. The Mexico City
design center is responsible for entry level products such as beverage coolers
and spot merchandisers. In addition to the three global design centers, Hussmann
carries out refrigeration systems development primarily at its Bridgeton,
Atlanta, Brantford and Glasgow facilities and custom merchandiser development at
the Chino, California facility.
The corporate design center, which Hussmann believes to be unique in the
industry, represents a $21.5 million capital investment and includes nine
ambient-controlled display case test rooms, four ambient-controlled
psychrometric test rooms, one ambient-controlled test chamber, all with
dedicated computer based data acquisition systems, a "mini-factory" model shop,
materials testing lab, reverberant sound test room, transit and vibration test
area, rain test chamber and solid modeling design workstations. The corporate
design center allows Hussmann to work closely with chemical companies and
compressor, valve and controls manufacturers to create new generations of cases
and systems.
Hussmann's research and development efforts are staffed by approximately 130
engineers, designers, laboratory technicians and model makers, including
approximately 55 at the corporate design center. During 1996 Hussmann spent
approximately $6 million on research and development, of which $3.6 million was
devoted to the corporate design center. Research and development expenditures
during 1997 are expected to be consistent with 1996.
Hussmann holds patents registered in the U.S. and foreign countries for
various products. Hussmann believes that, although its patents relating to the
Impact platform and Protocol refrigeration systems are important in maintaining
its competitive and marketing advantage, no individual patent is material to its
financial condition or results of operations. Hussmann also holds various
trademarks, trade names and copyrights, none of which, other than the Hussmann
name, is considered by Hussmann to be material to its financial condition or
results of operations.
MANUFACTURING OPERATIONS
Hussmann has 10 manufacturing plants in the U.S. and Canada, each of which
is devoted to the manufacture of certain lines of Hussmann products. Hussmann
believes that efficiency and quality are increased by concentrating the
manufacture of its different product lines at separate plants. See "Properties"
appearing elsewhere in this Annex.
In Mexico, Hussmann has manufacturing plants in Mexico City and Monterrey
primarily serving the supermarket and beverage industries. During 1995, Hussmann
expanded its operations in South America with an acquisition of a 75 percent
interest in Refrigeracion Frio-Lux S.A.I. ("Frio-Lux"), a manufacturer of
self-contained refrigerated display merchandisers and walk-in storage coolers
and freezers in Chile. Hussmann purchased the remaining 25 percent of Frio-Lux
in 1997. In January, 1997, Hussmann acquired a 70 percent interest in Hussmann
Fast Frio do Brasil, Ltda. ("Fast Frio"), a Brazilian supermarket equipment
manufacturer.
Hussmann has manufacturing plants in Glasgow, Scotland and Milton Keynes,
England that make refrigerated display merchandisers and refrigeration systems.
Hussmann sells the products manufactured at these plants primarily in the U.K.
In Asia Pacific, Hussmann has a 55 percent interest in Luoyang Hussmann
Refrigeration Co. Ltd. ("Luoyang Refrigeration"), a leading producer of
refrigeration systems and display merchandisers in China. Hussmann opened a new
factory in Luoyang in 1996, and began to produce Hussmann designed products,
including the Impact line of merchandisers.
Most of Hussmann's component purchases are for standard, readily available
materials such as carbon steel, compressors and electrical components. Such
components are available from multiple suppliers, and Hussmann has not
experienced any significant shortages. Hussmann generally does not enter into
long-term supply contracts. Hussmann also purchases custom components produced
to its specifications. Although an interruption in the supply of a custom
component may cause a short-term disruption to operations, Hussmann has
alternative supply
B-4
<PAGE>
plans to mitigate any long-term effects. Hussmann believes it enjoys good
relationships with its suppliers of both standard and custom components.
SALES AND MARKETING
In the U.S., Canada, Mexico and the U.K., Hussmann sells, installs and
services products primarily through its network of approximately 35 branch
facilities. In addition to these company-operated facilities, Hussmann works
with approximately 20 independent distributors in the U.S. and Canada. It has
also entered into a joint venture with Global TH, a Hungarian manufacturer, for
the marketing of Hussmann products in Hungary. Through this network and the
Hussmann Total Service Program ("TSP"), Hussmann seeks to promote strong
customer loyalty and strengthen its reputation for quality and reliability. The
Hussmann TSP encompasses Hussmann's ability to provide store design, engineer a
broad range of standard and customized equipment, and provide installation and
service capabilities to its customers.
Hussmann has also entered into agreements throughout the U.S. with
manufacturers' representatives specializing in the food service market. Hussmann
believes that these relationships will enable it to more effectively increase
its sales in this growing market.
In Latin America, Hussmann sells through a network of approximately 20
independent distributors in those countries where it has no direct investment.
Hussmann has distribution agreements in Argentina, Colombia, El Salvador,
Brazil, Venezuela, Ecuador, Guatemala, Costa Rica and Puerto Rico. Hussmann has
its own distribution network in Chile, Brazil and Peru. In Southeast Asia,
Hussmann has a 50% owned joint venture with a distributor in Singapore that
sells, services and installs Hussmann products throughout the southern Pacific
Rim. Hussmann has agreements with distributors in Korea, Taiwan, Thailand, New
Zealand, French Polynesia and Guam.
Hussmann's pricing is usually on a competitive bid basis. Hussmann submits
individual store bids, multi-store package bids and annual contract bids. There
is standard pricing for some items such as service parts and also for wholesale
sales.
COMPETITION
In general, the markets in which Hussmann participates are highly
competitive with competition primarily based on price, variety, quality,
technology and energy conservation. Hussmann believes that it is competitive on
these bases. Hussmann's competitors vary according to product and geographic
area and include companies that manufacture a variety of products for the
commercial food industry and those that specialize in a particular product.
Hussmann faces competition from a limited number of large competitors in the
supermarket and convenience store markets in the U.S. and Canada. These
competitors include Kysor-Warren (Scotsman Industries, Inc.), Tyler
Refrigeration Corporation and Hill Phoenix, Inc. (Dover Corporation) in
supermarkets and Universal Nolin/ Kelvinator (Electrolux AB), Master-Bilt
Products, and Federal (Standex International Corporation) in convenience stores.
Competition in the U.S. and Canada in refrigeration systems, walk-in storage
coolers and freezers and other Hussmann products is more fragmented, with
Hussmann facing competition from a number of regional manufacturers.
In Mexico, Latin America and Europe, Hussmann faces competition from large
European manufacturers, such as Costan (EL. FI Elettrofinanziara S.P.A.), Linde
and Zanussi (Electrolux AB), as well as smaller local manufacturers. In Asia
Pacific, Hussmann is in competition with local manufacturers, large European
manufacturers and Japanese manufacturers, such as Sanyo and Nakano.
CUSTOMERS
No single customer accounted for more than 5% of Hussmann's sales during any
of the last three fiscal years. Hussmann's largest customers are supermarkets in
the U.S. and include 19 of the top 20 chains. The U.S. customer base is
comprised of approximately 13,000 independent and 18,000 chain-owned
supermarkets, plus over 52,000 other grocery stores. In recent years,
approximately 4,000 stores purchase refrigeration equipment annually for either
new store openings or remodelings. Historically, Hussmann's supermarket business
has been divided approximately equally between new store activity and the
remodeling of existing stores. In 1996, about 56 percent of such business was in
new store openings, and 44 percent in remodelings.
B-5
<PAGE>
BACKLOG AND SEASONALITY
The dollar amount of firm backlog at September 30, 1997 was $297.2 million,
compared with $289.9 million at September 30, 1996. Substantially all such
backlog is expected to be shipped by December 31, 1997.
Hussmann experiences the greatest demand for its products in the third and
fourth quarters of the year, with approximately 58% of annual sales occurring
during that period in 1996 and 1995. This demand results from customers'
seasonal construction cycles and desire to complete stores prior to the
holidays. On average, during the five year period ending 1996, 65% of operating
income was generated in the third and fourth quarters.
REGULATORY COMPLIANCE AND LEGAL PROCEEDINGS
Hussmann is subject to numerous federal, state and local laws and
regulations designed to protect the environment. In addition to environmental
laws, Hussmann is subject to the Federal Occupational Safety and Health Act and
other laws regulating safety and health. Hussmann maintains a program to
facilitate compliance with these laws, the capital costs of which are not
material to its financial condition or results of operations.
Hussmann is contractually obligated through 2004 to indemnify the current
owners of a previously sold operation for the costs to perform certain remedial
and monitoring activities. These activities are identified and outlined in a
Consent Order signed by Hussmann and the Missouri Department of Natural
Resources. Hussmann believes it has set aside sufficient reserves to meet these
obligations.
Hussmann has been named as a potentially responsible party under superfund
legislation at three sites. One site is a community landfill and the other two
sites are treatment, storage and disposal facilities used by Hussmann to handle
industrial waste. Hussmann is not currently utilizing any of these sites and
believes any liability it may ultimately incur at such sites would not have a
material adverse effect on its financial condition or results of operations.
Hussmann also has other contingent liabilities arising from various pending
claims and litigation on a number of matters. While the amount of liability that
may result from these matters cannot be determined, in the opinion of Hussmann
counsel, the ultimate liability will not materially affect the combined
financial condition or results of operations of Hussmann.
EMPLOYEES
At September 30, 1997, Hussmann had approximately 8,000 employees, including
approximately 5,000 covered by collective bargaining agreements. Labor contracts
with respect to approximately 1,350 and 1,200 employees expire in 1998 and 1999,
respectively. Labor contracts with respect to approximately 2,410 employees,
including approximately 1,500 employees at Hussmann's Bridgeton facility, expire
in the year 2000. Hussmann considers its relationships with employees to be
generally satisfactory.
PROPERTIES
The following table sets forth certain information with respect to
Hussmann's manufacturing facilities, all of which are owned by Hussmann except
as noted below.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE PRIMARY PRODUCTS MANUFACTURED
- --------------------------- -------------- ------------------------------------------------------------------------
<S> <C> <C>
Bridgeton, Missouri(1)..... 1,600,000 Refrigerated display merchandisers and refrigeration systems
Montgomery, Alabama(2)..... 157,000 Walk-in storage coolers and freezers
Chino, California(2)....... 400,000 Custom display merchandisers and refrigeration systems
Aurora, Colorado(2)........ 79,000 Bakery merchandisers and floral displays
Norcross, Georgia(2)....... 85,000 Refrigeration systems and air handlers
Addison, Illinois.......... 208,000 Evaporators, condensers and coils
Gloversville, New York..... 150,000 Self-contained refrigerated display merchandisers
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE PRIMARY PRODUCTS MANUFACTURED
- --------------------------- -------------- ------------------------------------------------------------------------
Seattle, Washington(2)..... 80,000 Walk-in storage coolers and freezers
<S> <C> <C>
Brantford, Ontario......... 385,000 Custom display merchandisers and refrigeration systems
St. Hubert, Quebec......... 180,000 Evaporators, condensers, air handlers and coils
Milton Keynes, England..... 80,000 Custom display merchandisers
Glasgow, Scotland.......... 270,000 Refrigerated display merchandisers and refrigeration systems
Mexico City, Mexico........ 280,000 Beverage coolers and refrigerated display merchandisers
Monterrey, Mexico.......... 235,000 Beverage coolers, refrigerated display merchandisers and walk-in storage
coolers and freezers
Santiago, Chile............ 70,000 Self-contained refrigerated display merchandisers and walk-in storage
coolers and freezers
Londrina, Brazil(3)........ 170,000 Refrigerated display merchandisers, shelving, check-out stands and
refrigeration systems
Luoyang, China(3).......... 230,000 Refrigerated display merchandisers and refrigeration systems
</TABLE>
- ------------------------
(1) Hussmann world headquarters and corporate offices.
(2) Leased.
(3) Owned with a joint venture partner.
FINANCING
Hussmann management expects to enter into a five-year, unsecured revolving
credit facility (the "Hussmann Credit Facility") with a syndicate of commercial
banks and financial institutions prior to the Distribution Date. The Hussmann
Credit Facility will enable Hussmann to borrow funds at variable interest rates
on a revolving credit basis up to an aggregate principal amount of $350 million,
subject to the terms and conditions thereof. Prior to the Distribution Date,
Hussmann will pay to Whitman approximately $250 million, which will be applied
to settle all intercompany loans and advances from Whitman with the balance to
be paid as a cash dividend. At September 30, 1997 such intercompany loans and
advances amounted to approximately $198.7 million. Of such payments to Whitman,
approximately $240 million will be financed from the proceeds of new borrowings
under the Hussmann Credit Facility. Unused amounts available under the Hussmann
Credit Facility will be available for Hussmann's working capital requirements
and general corporate purposes after the Distribution Date. Hussmann may convert
a portion of its initial debt to longer term fixed rate debt, contingent upon
acceptable market conditions.
POST-DISTRIBUTION DIVIDEND POLICY
The payment and level of cash dividends by Hussmann after the Distribution
will be subject to the discretion of the Hussmann Board. Dividend decisions will
be based upon a number of factors, including Hussmann's operating results and
financial requirements. No determination has been made by the Hussmann Board
with respect to the initial cash dividend that would be paid commencing after
the Distribution. However, it is expected that the cash dividend initially paid
by Hussmann will be determined, in part, by reference to dividend payment levels
of entities engaged in business comparable to the business in which Hussmann is
engaged.
B-7
<PAGE>
HUSSMANN INTERNATIONAL
INTRODUCTION TO PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited Pro Forma Combined Statements of Income of Hussmann
International for the nine months ended September 30, 1997 and for the year
ended December 31, 1996 present the pro forma combined results of operations of
Hussmann International, assuming that the transactions contemplated by the
Distribution, including the borrowing to be incurred by Hussmann International
in connection with the Distribution, had been completed as of the beginning of
the respective periods, and include all material adjustments necessary to
restate Hussmann International's historical results. The adjustments required to
reflect such transactions are set forth in the "Pro Forma Adjustments" column.
The unaudited Pro Forma Combined Balance Sheet of Hussmann International as
of September 30, 1997 presents the pro forma combined financial position of
Hussmann International, assuming that the transactions contemplated by the
Distribution described in the preceding paragraph had been completed as of that
date. The adjustments required to reflect such transactions are set forth in the
"Pro Forma Adjustments" column.
The unaudited pro forma combined financial statements of Hussmann
International should be read in conjunction with the historical financial
statements and related notes of Hussmann International included elsewhere in
this Annex B. The pro forma financial information presented is for informational
purposes only and may not necessarily reflect future results of operations or
financial position of Hussmann International or what the results of operations
or financial position of Hussmann International would actually have been had
Hussmann International operated as an independent company during the periods
shown.
B-8
<PAGE>
HUSSMANN INTERNATIONAL
PRO FORMA COMBINED STATEMENT OF INCOME
(UNAUDITED AND IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
---------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------- -----------
<S> <C> <C> <C>
Sales and revenues............................................................. $ 733.2 $ -- $ 733.2
Cost of goods sold............................................................. 587.3 -- 587.3
----------- ------ -----------
Gross profit................................................................. 145.9 -- 145.9
Selling, general and administrative expenses................................... 82.2 3.0(a) 85.2
Amortization expense........................................................... 1.3 -- 1.3
Non-recurring charges.......................................................... 30.7 -- 30.7
----------- ------ -----------
Operating income............................................................. 31.7 (3.0) 28.7
Whitman charges................................................................ (21.3 ) 21.3(b) --
Interest expense:
Whitman...................................................................... (13.1 ) 13.1(c) --
Other........................................................................ (1.0 ) (12.6 ) (13.6 )
----------- ------ -----------
Total interest expense..................................................... (14.1 ) 0.5 (13.6 )
Other income, net.............................................................. 1.2 -- 1.2
----------- ------ -----------
Income (loss) before income taxes............................................ (2.5 ) 18.8 16.3
Income tax provisions.......................................................... 8.4 7.0(d) 15.4
----------- ------ -----------
Net income (loss)............................................................ $ (10.9 ) $ 11.8 $ 0.9
----------- ------ -----------
----------- ------ -----------
Pro forma net income per share (e)............................................. $
-----------
-----------
</TABLE>
See accompanying notes to pro forma financial information.
B-9
<PAGE>
HUSSMANN INTERNATIONAL
PRO FORMA COMBINED STATEMENT OF INCOME
(UNAUDITED AND IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
--------- ------------- -----------
<S> <C> <C> <C>
Sales and revenues............................................................ $ 1,005.7 $ -- $ 1,005.7
Cost of goods sold............................................................ 801.8 -- 801.8
--------- ----- -----------
Gross profit................................................................ 203.9 -- 203.9
Selling, general and administrative expenses.................................. 108.6 4.0(a) 112.6
Amortization expense.......................................................... 1.5 -- 1.5
--------- ----- -----------
Operating income............................................................ 93.8 (4.0) 89.8
Whitman charges............................................................... (26.7) 26.7(b) --
Interest expense:
Whitman..................................................................... (16.7) 16.7(b) --
Other....................................................................... (1.3) (13.7) (c) (15.0)
--------- ----- -----------
Total interest expense.................................................... (18.0) 3.0 (15.0)
Other income, net............................................................. 2.6 -- 2.6
--------- ----- -----------
Income before income taxes.................................................. 51.7 25.7 77.4
Income tax provisions......................................................... 17.6 9.5(d) 27.1
--------- ----- -----------
Net income.................................................................. $ 34.1 $ 16.2 $ 50.3
--------- ----- -----------
--------- ----- -----------
Pro forma net income per share (e)............................................ $
-----------
-----------
</TABLE>
See accompanying notes to pro forma financial information.
B-10
<PAGE>
HUSSMANN INTERNATIONAL
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED AND IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ -----------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.................................................. $ 25.9 $ (10.0) (f) $ 25.9
Receivables, net........................................................... 197.3 -- 197.3
Inventories................................................................ 167.5 -- 167.5
Other current assets....................................................... 5.1 -- 5.1
----------- ------------ -----------
Total current assets..................................................... 395.8 (10.0) 395.8
Property and equipment, net.................................................. 152.2 -- 152.2
Intangible assets, net....................................................... 15.7 -- 15.7
Other assets................................................................. 27.7 -- 27.7
----------- ------------ -----------
Total assets............................................................. $ 591.4 $ (10.0) $ 591.4
----------- ------------ -----------
----------- ------------ -----------
LIABILITIES AND EQUITY:
Current liabilities:
Short-term debt............................................................ $ 3.1 $ -- $ 3.1
Accounts payable........................................................... 123.8 -- 123.8
Income taxes payable....................................................... 4.8 -- 4.8
Accrued expenses........................................................... 46.4 -- 46.4
----------- ------------ -----------
Total current liabilities................................................ 178.1 -- 178.1
Loans and advances........................................................... 198.7 (198.7) (f) --
Long-term debt............................................................... -- 240.0(f) 240.0
Deferred income taxes and other liabilities.................................. 38.8 -- 38.8
----------- ------------ -----------
Total liabilities........................................................ 415.6 41.3 456.9
----------- ------------ -----------
Shareholder equity........................................................... 175.8 (51.3) (f) 134.5
----------- ------------ -----------
Total liabilities and equity............................................. $ 591.4 $ (10.0) $ 591.4
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
See accompanying notes to pro forma financial information.
B-11
<PAGE>
HUSSMANN INTERNATIONAL
NOTES TO PRO FORMA FINANCIAL INFORMATION
(a) To record the estimated additional administrative expenses that would have
been incurred by Hussmann International as a publicly held, independent
company. Corporate administrative expenses that would have been incurred
include corporate governance costs, increased compensation and benefits
costs principally related to new corporate-level positions, and other costs
such as stock transfer agent costs.
(b) To eliminate the Whitman charges and interest paid to Whitman.
(c) To record the interest expense on the funds assumed to be borrowed under
the Hussmann Credit Facility. The borrowings are assumed to bear an
annualized interest rate of 7.0%, which is management's estimate of the
currently available rate for borrowings under comparable credit facilities.
This rate may change prior to the incurrence of such debt on or before the
Distribution Date; further, after the Distribution the interest rate on the
borrowings under the Hussmann Credit Facility will continue to be subject to
changes in interest rates generally. The following table reflects the effect
on the pro forma combined income statements of an increase or decrease of
1/8 of a percentage point in the annualized interest rate (in millions):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------------ ------------------------
6.875% 7.125% 6.875% 7.125%
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income before income taxes................................... $ 16.5 $ 16.1 $ 77.6 $ 77.2
Net income................................................... $ 1.1 $ .8 $ 50.4 $ 50.2
</TABLE>
(d) To record income tax benefits attributable to adjustments (a), (b) and (c)
at a combined Federal and state tax rate of 37%.
(e) [FOOTNOTE TO BE ADDED IN FUTURE FILING.]
(f) To record payments to be made to Whitman by Hussmann International,
anticipated to aggregate $250 million, which will be applied to settle all
intercompany loans and advances with the balance to be paid as a cash
dividend.
B-12
<PAGE>
HUSSMANN INTERNATIONAL SUMMARY OF OPERATIONS
The following table presents selected historical combined financial
information of Hussmann International. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical combined financial
statements of Hussmann International and the notes thereto included elsewhere in
this Annex B. The combined operating results data set forth below for each of
the years ended December 31, 1996, 1995 and 1994 and the combined balance sheet
data as of December 31, 1996 and 1995 are derived from, and are qualified by
reference to, the audited combined financial statements of Hussmann
International included elsewhere in this Annex B, and should be read in
conjunction with those financial statements and notes thereto. The combined
operating results data for each of the years ended December 31, 1993 and 1992
and the combined balance sheet data as of December 31, 1994, 1993 and 1992 are
derived from unaudited combined financial statements of Hussmann International
not included herein. The combined balance sheet data as of September 30, 1996
are derived from unaudited combined financial statements of Hussmann
International not included herein. The combined operating results data for the
nine-month periods ended September 30, 1997 and 1996, and the combined balance
sheet data as of September 30, 1997 are derived from, and are qualified by
reference to, the unaudited interim combined financial statements of Hussmann
International included elsewhere in this Annex B, and should be read in
conjunction with those financial statements and the notes thereto. See "Hussmann
International Index to Historical Financial Information." Per share data has not
been presented because Hussmann International was wholly-owned by Whitman during
the periods presented below.
The combined historical financial information presented below may not
necessarily reflect future results of operations or financial position of
Hussmann International or what the results of operations or financial position
of Hussmann International would actually have been had Hussmann International
operated as an independent company during the periods shown. See "Risk
Factors--Limited Relevance of Historical Combined Financial Information" in the
body of the Information Statement.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS ENDED DECEMBER 31,
ENDED SEPTEMBER 30, ---------------------------------------------------------
------------------------ 1993 1992
(IN MILLIONS) 1996 1996 1995 1994 ----------- -----------
----------- --------- --------- --------- (UNAUDITED) (UNAUDITED)
1997 (UNAUDITED)
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED OPERATING RESULTS DATA:
Sales and revenues.................... $ 733.2 $ 682.1 $ 1,005.7 $ 921.7 $ 859.5 $ 846.5 $ 791.2
Whitman charges....................... (21.3) (20.9) (26.7) (28.6) (28.3) (33.6) (32.0)
Income (loss) from continuing
operations (a)...................... (10.9) 18.1 34.1 23.9 23.6 23.0 20.0
Net income (loss) (b)................. (10.9) 18.1 34.1 23.9 23.6 10.8 (3.8)
COMBINED BALANCE SHEET DATA:
Total assets.......................... $ 591.4 $ 574.7 $ 611.4 $ 547.4 $ 503.6 $ 490.4 $ 477.6
Loans and advances from Whitman....... 198.7 210.7 211.4 186.9 150.6 134.4 126.7
Shareholder equity.................... 175.8 170.8 192.6 161.1 173.2 164.2 155.8
OTHER DATA:
EBITDA (c).......................... $ 79.5 $ 75.0 $ 114.0 $ 98.3 $ 99.8 $ 100.0 $ 94.0
EBITDA as a percent of sales and
revenues.......................... 10.8% 11.0% 11.3% 10.7% 11.6% 11.8% 11.9%
</TABLE>
- ------------------------
(a) Included in the nine months ended September 30, 1997 are the non-recurring
charges of $30.7 million ($29.6 million after taxes). See Note 13 to the
Combined Financial Statements of Hussmann International.
(b) Included in the year ended December 31, 1993 is the cumulative effect of a
change in accounting for post-retirement benefits, which reduced net income
by $10.5 million on an after-tax basis. Included in the years ended December
31, 1993 and 1992 are the after-tax losses on disposition of discontinued
operations, which amounted to $1.7 million and $23.8 million, respectively.
(c) EBITDA is defined as operating income before non-recurring charges plus
depreciation and amortization and is generally accepted as providing useful
information regarding a company's financial performance. EBITDA should not
be considered an alternative to net income, an indicator of Hussmann
International's operating performance, or an alternative to Hussmann
International's cash flow from operating activities as a measure of
liquidity.
B-13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Hussmann manufactures, sells, installs and services merchandising and
refrigeration systems for the world's commercial food industry. Products include
refrigerated and non-refrigerated display merchandisers, refrigeration systems,
beverage coolers, air handlers, condensers, coils and walk-in storage coolers
and freezers. Hussmann operates in three geographic segments, the U.S. and
Canada, the United Kingdom and Other International, which includes Mexico, Latin
America, Asia Pacific, continental Europe and the Middle East, with
approximately 90% of 1996 sales from the U.S. and Canada and U.K. operations.
In general, the markets in which Hussmann participates are highly
competitive with competition primarily based on price, variety, quality,
technology and energy conservation. Hussmann's competitors vary according to
product and geographic area and include companies that manufacture a variety of
products for the commercial food industry and those that specialize in a
particular product. In the U.S. and Canada, which comprised approximately 75% of
Hussmann's sales in 1996, Hussmann sells its products primarily to supermarkets
and convenience stores, including both national and local retailers. In
addition, Hussmann's sales are historically seasonal, with the greatest demand
for its products in the third and fourth quarters of the year. This demand
results from customers' seasonal construction cycles and the desire to complete
stores prior to the holidays.
Since 1995, Hussmann has experienced declining sales in the U.K. Hussmann
did not have operating income in the U.K. in 1996. In the nine months ended
September 30, 1997, Hussmann's operating loss in the U.K. was $5.8 million.
Hussmann's management has decided to restructure its U.K. operations. During the
third quarter of 1997, Hussmann recorded non-recurring charges of $30.7 million
($29.6 million on an after-tax basis) relating to the recognition of goodwill
impairment and the consolidation of sales and service branches in the U.K. The
Hussmann charges also include expenses relating to the consolidation of certain
manufacturing facilities in the U.S. See "Business--Market Overview" and Note 13
to the Combined Financial Statements of Hussmann included elsewhere in this
Annex B. Hussmann expects to record additional non-recurring charges in the
fourth quarter of 1997 of approximately $25 million ($17 million on an after-tax
basis).
RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE
MONTHS ENDED
SEPTEMBER 30, 1996
SALES AND REVENUES
Sales and revenues during the nine months ended September 30, 1997 of $733.2
million were $51.1 million or 7.5% over sales and revenues of $682.1 million
during the comparable 1996 period principally driven by volume increases. Sales
and revenue increases in the U.S. and Brazil drove the overall improvement.
Historically, Hussmann has realized approximately 69% of its annual sales and
revenues in the first nine months of the year due to construction seasonality
and supermarket customers' desire to finish projects prior to the holiday
season. The following is a summarized analysis of the increase in sales and
revenues (in millions):
<TABLE>
<CAPTION>
SALES AND REVENUES
NINE MONTHS % INCREASE
ENDED CHANGE FROM (DECREASE)
SEPTEMBER 30, 1997 1996 FROM 1996
------------------- ----------- -------------
<S> <C> <C> <C>
U.S. and Canada..................................... $ 605.4 $ 38.7 6.8%
U.K. ............................................... 78.5 (6.0) (7.1)
Other International................................. 80.8 23.5 40.5
Eliminations........................................ (31.5) (5.1) (19.3)
------ -----------
Total............................................. $ 733.2 $ 51.1 7.5%
------ -----------
------ -----------
</TABLE>
The 6.8% increase in sales and revenues in the U.S. and Canada was
principally driven by continued strong U.S. supermarket demand. The decrease in
sales and revenues in the U.K. of 7.1% was due to a continued soft market in the
U.K., plus startup delays at a new plant in Milton Keynes, England. The increase
in sales and
B-14
<PAGE>
revenues of 40.5% or $23.5 million in Other International, which includes
Mexico, Latin America, Asia Pacific, continental Europe and the Middle East, was
principally due to the acquisition of Fast Frio in Brazil in January 1997, which
had $14.9 million of sales and revenues in the first nine months of 1997.
GROSS PROFIT AND OPERATING INCOME
As a percent of sales and revenues, gross profit margin in the first nine
months of 1997 was 19.9% compared to 20.3% in the first nine months of 1996.
U.S. and Canada gross profit percentage of 21.8% was 0.3 points above 1996 gross
profit percentage of 21.5%. The U.S. market has been particularly price
competitive since 1995. Productivity improvements from the new Impact product
line were mostly offset by inflation in material costs which was not offset by
customer price increases. Gross profit percentage in both the U.K. and Other
International operations were below 1996 levels due to lower volume and
manufacturing inefficiencies in the U.K. and a negative change in sales mix in
Mexico driven by the timing of supermarket building programs.
Total selling, general and administrative ("SG&A") expenses of $82.2 million
were $5.0 million or 6.5% higher than 1996 SG&A expenses of $77.2 million.
Increased SG&A expenses are primarily due to the acquisition of Fast Frio in
Brazil.
Operating income for the first nine months of 1997 of $62.4 million (before
non-recurring charges) was $2.1 million or 3.5% above the first nine months of
1996 operating income of $60.3 million. Non-recurring charges of $30.7 million
were recorded in the third quarter relating to the recognition of goodwill
impairment ($26.0 million) and the consolidation of sales and service branches
in the U.K. ($4.7 million). Historically, Hussmann realizes approximately 63% of
its total year operating income in the first nine months due to the seasonality
of sales. U.S. and Canada operating income of $73.5 million was $9.0 million or
14% greater than 1996 operating income of $64.5 million. This increase was
principally driven by strong volume growth plus continued control of SG&A
expenses in support areas. The U.K. operations had an operating loss of $5.8
million in the first nine months of 1997, which was $3.4 million more than the
1996 operating loss of $2.4 million. Lower volume combined with start-up driven
manufacturing inefficiencies at the Milton Keynes plant drove the result.
Operating income for the first nine months of 1997 for Other International
operations of $7.8 million was $1.1 million or 12% below 1996 operating income
of $8.9 million, attributable mainly to the timing of supermarket sales in
Mexico in 1997 compared to 1996 and the inclusion of the acquisition of Fast
Frio, Brazil.
INTEREST EXPENSE
Interest expense of $14.1 million increased $.8 million or 6.0% from 1996 to
1997 primarily due to additional funds advanced from Whitman to support capital
expenditures and higher working capital requirements.
RESULTS OF OPERATIONS--1996 COMPARED TO 1995
SALES AND REVENUES
Sales and revenues in 1996 of $1,005.7 million were $84.0 million or 9.1%
over 1995 sales and revenues of $921.7 million. Sales and revenue increases in
the U.S., Mexico and Chile led the overall increase. The following is a
summarized analysis of the increase in sales and revenues (in millions):
<TABLE>
<CAPTION>
1996 SALES % INCREASE
AND CHANGE FROM (DECREASE)
REVENUES 1995 FROM 1995
---------- ----------- -----------
<S> <C> <C> <C>
U.S. and Canada.............................................. $ 826.6 $ 88.0 11.9%
U.K. ........................................................ 139.9 (17.4) (11.1)
Other International.......................................... 82.0 14.4 21.3
Eliminations................................................. (42.8) (1.0) 2.4
---------- -----------
Total...................................................... $ 1,005.7 $ 84.0 9.1%
---------- -----------
---------- -----------
</TABLE>
U.S. and Canada 1996 sales and revenues increased 11.9% principally due to a
continued strong U.S. market which Hussmann estimates grew approximately 7.0% in
1996. The U.K. sales and revenues decrease of 11.1% was
B-15
<PAGE>
due to an approximate 20% drop in the U.K. market for refrigerated display
merchandisers due primarily to legislation restricting the building of
supermarkets within township limits.
Other International sales and revenues increased 21.3% or $14.4 million due
to a $9.2 million or 16.0% improvement in Mexico's sales and revenues plus $3.8
million in increased sales (64%) from Frio-Lux in Chile, a 1995 acquisition.
GROSS PROFIT AND OPERATING INCOME
As a percent of sales and revenues, 1996 gross profit margin was 20.3%,
compared to the prior year percentage of 19.5%. U.S. and Canada operations
increased its gross profit percentage by 0.7 percentage points from 20.2% to
20.9% principally due to improved manufacturing efficiencies driven by higher
volume in U.S. and Canadian plants, which more than offset transitional costs
associated with the introduction of the Impact product line in the U.S. The U.K.
operations experienced a 2.2 percentage point decrease in its gross profit
margin, from 10.7% in 1995 to 8.5% in 1996, primarily as a result of reduced
sales of higher margin equipment and start-up costs in a new plant in Milton
Keynes, England. Approximately 78% of U.K. sales are from service and
contracting which have historically had lower margins than the remaining 22% of
sales from supermarket equipment. Other International gross profit margin
increased 3.2 percentage points, from 23.1% in 1995 to 26.3% in 1996, primarily
from volume driven manufacturing efficiencies combined with selling price
increases in Mexico.
Total SG&A expenses increased by 9.6% from $99.1 million in 1995 to $108.6
million in 1996. The primary causes of this increase were the additional
compensation costs of new employees in China, Chile and the Asia sales force, as
well as increased compensation for existing employees.
1996 operating income of $93.8 million increased $15.1 million or 19.2% more
than 1995 operating income of $78.7 million. U.S. and Canada operating income of
$94.4 million was $15.8 million or 20.1% more than 1995 operating income of
$78.6 million due primarily to strong volume growth and leverage over SG&A costs
which increased at a slower rate than sales principally due to a company-wide
cost reduction program. U.K. 1996 operating income was down $5.8 million from
1995 operating income of $5.8 million due principally to the deterioration in
gross profit percentage. Operating income for Other International operations of
$14.3 million increased $5.2 million or 57.1% more than 1995 operating income of
$9.1 million. This improvement was primarily due to Mexico's $4.7 million or
65.2% increase in operating income over 1995. Stronger exports, selling price
increases and cost controls drove Mexico's improvement.
INTEREST EXPENSE
Interest expense of $18.0 million increased $1.2 million, or 7.1% from 1995
to 1996 primarily due to additional funds advanced from Whitman to support
higher working capital requirements.
EFFECTIVE CORPORATE TAX RATE
Hussmann's effective corporate tax rate of 34.0% in 1996 was 2.8 percentage
points lower than the 1995 effective rate of 36.8% due principally to a credit
to Mexican deferred taxes driven by adjustments to fixed assets for higher
inflation realized in Mexico in 1994 and 1995.
RESULTS OF OPERATIONS--1995 COMPARED TO 1994
SALES AND REVENUES
1995 sales and revenues of $921.7 million were $62.2 million, or 7.2%, over
1994 sales and revenues of $859.5 million. Strong sales and revenues in the
U.S., Canada and the U.K. more than offset the negative impact of the Mexican
peso devaluation which effectively reduced sales and revenues by $39.5 million
in 1995 as compared
B-16
<PAGE>
to 1994. Excluding the effect of the peso devaluation, Hussmann's 1995 sales and
revenues would have been up 11.8% over 1994. The following is a summarized
analysis of the increase in sales and revenues (in millions):
<TABLE>
<CAPTION>
% INCREASE
1995 SALES CHANGE FROM (DECREASE)
AND REVENUES 1994 FROM 1994
------------- ----------- -------------
<S> <C> <C> <C>
U.S. and Canada........................................ $ 738.6 $ 90.9 14.0%
U.K. .................................................. 157.3 10.2 6.9
Other International.................................... 67.6 (29.8) (30.6)
Eliminations........................................... (41.8) (9.1) 27.8
------------- -----------
Total................................................ $ 921.7 $ 62.2 7.2%
------------- -----------
------------- -----------
</TABLE>
U.S. and Canada 1995 sales and revenues increased 14.0% primarily due to a
strong 1995 U.S. demand for refrigerated display merchandisers combined with
increased exports and growth in sales of custom and specialty merchandisers. The
U.K. sales and revenues increase of 6.9% was due primarily to growth in the U.K.
market and increased sales of specialty supermarket equipment. Other
International sales and revenues decreased $29.8 million or 30.6% due
principally to the Mexican peso devaluation which negatively impacted sales and
revenues $39.5 million, partially offset by $9.7 million in additional sales and
revenues from the acquisition of Frio-Lux in Chile and Luoyang Refrigeration in
China.
GROSS PROFIT AND OPERATING INCOME
As a percent of sales and revenues, gross profit margin was 19.5%, compared
to the prior year percentage of 20.7%. U.S. and Canada operations gross profit
percentage decreased by 1.0 percentage point from 21.2% to 20.2%, due primarily
to the inability to pass material and other inflationary increases along to
customers through selling price increases. The U.K. operations experienced a 0.8
percentage point improvement in gross profit margin, from 9.9% in 1994 to 10.7%
in 1995, due primarily to increased sales mix of higher margin supermarket
equipment in 1995. Other International gross profit margin decreased 4.6
percentage points, from 27.7% in 1994 to 23.1% in 1995 due primarily to lower
manufacturing efficiencies in Mexico driven by the sales volume decrease and
also due to the currency translation effect that dollar-denominated material
purchases had on Mexico's cost of goods sold.
SG&A expenses increased by 4.9% from $94.5 million in 1994 to $99.1 million
in 1995. General salary increases and the additional compensation costs of new
employees in Chile and China were the primary causes.
1995 operating income of $78.7 million was $3.8 million or 4.6% below 1994
operating income of $82.5 million. The effect of the peso devaluation had a
14.1% or $12.0 million impact on Hussmann's 1995 over 1994 operating income. The
U.K. 1995 operating income of $5.8 million was 4.9% below 1994 operating income
of $6.1 million primarily due to a flat market in the U.K. Other International
1995 operating income of $9.1 million was down $10.6 million or 53.8% under 1994
operating income of $19.7 million. The peso devaluation impact was partially
offset by $1.0 million in operating income from the Frio-Lux operations.
INTEREST EXPENSE
Interest expense of $16.8 million increased $1.2 million, or 7.7% from 1994
to 1995 primarily due to additional funds advanced from Whitman to support the
acquisitions made in China, Chile and the U.K. during 1995.
EFFECTIVE CORPORATE TAX RATE
Hussmann's effective corporate tax rate for 1995 of 36.8% was 4.3 percentage
points lower than the 1994 effective tax rate of 41.1% due to tax deductions
taken in Mexico in 1995 related to inflation adjustments on inventory,
receivables and property and equipment. Additionally, taxes in 1995 on foreign
source income were lower than in 1994 as a result of lower interest income in
Mexico.
B-17
<PAGE>
LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS. Hussmann's cash flows from operations
historically have been substantially affected by the allocations from Whitman of
expenses to its operating subsidiaries. These charges to Hussmann were $26.7
million, $28.6 million and $28.3 million during 1996, 1995 and 1994,
respectively, and $21.3 million and $20.9 million for the nine months ended
September 30, 1997 and 1996, respectively. These charges are not necessarily
indicative of the costs that would have been incurred by Hussmann if Hussmann
had been an independent company during the periods presented, and such charges
will be eliminated after the Distribution Date. After the Distribution Date,
Hussmann will be responsible for the expenses of being a public company. In
addition, Whitman has charged Hussmann interest on loans and advances from
Whitman. Hussmann's management believes it will be able to borrow funds after
the Distribution Date at interest rates equal to or below those paid to Whitman,
which would result in lower interest expense to Hussmann. See Note 3 to Combined
Financial Statements of Hussmann International and "Hussmann International Pro
Forma Combined Financial Information" included elsewhere in this Annex B.
On a historical basis, Hussmann generated net cash from operations of $26.1
million, $(4.0) million and $9.3 million during the years ended December 31,
1996, 1995 and 1994 respectively. The $30.1 million improvement in 1996 was
principally driven by a $10.2 million (43%) increase in net income and $13.2
million in favorable timing of income tax payments. The $13.3 million
deterioration in 1995 cash flows from operating activities was driven by flat
net income and a $14.2 million negative impact from the timing of income tax
payments.
For the nine-month period ended September 30, 1997, Hussmann generated net
cash from operations of $30.6 million, compared to net cash used by operations
of $1.8 million for the nine-month period ended September 30, 1996. This
increase in net cash was principally due to improved management of third quarter
seasonal inventory and positive cash flow from the non-cash portion of the
restructuring charge, which together more than offset the $30.7 million in
non-recurring charges described above.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing activities
was $27.3 million, $36.7 million and $32.6 million during the years ended
December 31, 1996, 1995 and 1994, respectively. Capital investments of $33.5
million, $29.3 million and $32.7 million in such years were the principal
component of investing activities. Additionally, in 1995 net payments for
companies acquired were $8.4 million, principally as a result of Hussmann's
acquisitions of a 55% interest in Luoyang Refrigeration in Luoyang, China, the
remaining 50% interest in Capital Metalwork Limited in Luton, England, and a 75%
interest in Frio-Lux, Chile.
Net cash used in investing activities was $37.7 million and $20.0 million in
the nine months ended September 30, 1997 and 1996, respectively. Capital
investments of $25.7 million and $26.1 million in 1997 and 1996, respectively
were the principal components of investing activities. Net cash used in
investing activities during the nine months ended September 30, 1997 also
reflect net payments for companies acquired of $12.4 million, due to Hussmann's
acquisitions of the remaining 25% interest in Frio-Lux, Chile, and a 70%
interest in Fast Frio, Brazil.
Hussmann's management expects capital investments to be in the range of $30
million to $40 million per year during the period 1997 through 1999, excluding
any net cash used for acquisitions and capital investments made in respect of
any such acquisitions. Approximately one-third of such capital investments is
the cost of converting to an integrated company-wide information system. In
addition, Hussmann's management will continue to review potential acquisitions.
See "Business--Strategy" included elsewhere in this Annex B.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing
activities was $14.3 million, $32.9 million and $4.3 million during the years
ended December 31, 1996, 1995 and 1994, respectively. Whitman historically has
served as the primary source of financing for Hussmann. Under Whitman's cash
management procedures, Hussmann has advanced cash not needed for current
operations to Whitman at the then-current commercial bank prime lending rate and
Whitman has advanced cash to Hussmann on the same basis. Due primarily to
Hussmann's investing activities, such as capital investments and acquisitions,
and the allocation of expenses by Whitman to Hussmann, Hussmann has been a net
cash user and, accordingly, there has been a net increase in advances from
Whitman of $24.5 million, $36.4 million and $16.1 million during the years ended
December 31, 1996, 1995 and 1994, respectively. However, for the first nine
months of 1997, there was a decrease in advances from Whitman of $12.7 million
due to improved cash flow resulting from higher sales volumes. These advances
are included in loans
B-18
<PAGE>
and advances from Whitman on Hussmann's Combined Balance Sheets. See Note 3 to
Combined Financial Statements of Hussmann International included elsewhere in
this Annex B. With the elimination of Whitman charges after the Distribution
Date and the expected reductions in interest expense and the level of cash
dividends paid (if any), Hussmann's management believes that cash flows from
operations will be sufficient to cover planned capital expenditures. See
"Hussmann International Pro Forma Combined Financial Information" included
elsewhere in this Annex B.
AVAILABLE CASH AND CREDIT FACILITY. Hussmann's cash and cash equivalents
totaled $25.9 million as of September 30, 1997, compared to $47.1 million and
$34.1 million as of December 31, 1996 and 1995, respectively.
Hussmann management expects to enter into the Hussmann Credit Facility prior
to the Distribution Date. The Hussmann Credit Facility will enable Hussmann to
borrow funds at variable interest rates on a revolving credit basis up to an
aggregate principal amount of $350 million, subject to the terms and conditions
thereof. Prior to the Distribution Date, Hussmann will pay to Whitman
approximately $250 million, which will be applied to settle all intercompany
loans and advances from Whitman with the balance to be paid as a cash dividend
to Whitman. At September 30, 1997 such intercompany loans and advances amounted
to approximately $198.7 million. Of such payments to Whitman, approximately $240
million will be financed from the proceeds of new borrowings under the Hussman
Credit Facility. Unused amounts available under the Hussmann Credit Facility
will be available for Hussmann's working capital requirements and general
corporate purposes after the Distribution Date. Hussmann may convert a portion
of its initial debt to longer term fixed rate debt, contingent upon acceptable
market conditions.
Hussmann management believes that cash flows from operations, unused amounts
available under the Hussmann Credit Facility, and access to capital markets will
be sufficient to satisfy Hussmann's future working capital, capital investment,
acquisition and other financing requirements for the foreseeable future.
Hussmann's management believes that Hussmann will be able to access capital
markets on terms satisfactory to Hussmann, although there can be no assurance
that will be the case.
NON-U.S. OPERATIONS. The most significant non-U.S. operations are located
in Canada, Mexico and the U.K., with other operations located in, among other
countries, Brazil, Chile, China and Singapore. Because Hussmann's non-U.S.
entities conduct business in their respective local currencies, Hussmann is
subject to foreign currency risks when translating its non-U.S. entity financial
statements into U.S. dollars for financial reporting purposes. In general, a
rising U.S. dollar in relation to a foreign currency will have a negative effect
on Hussmann's results of operations, while a falling U.S. dollar will have the
opposite effect on Hussmann's results. In addition to the foreign currency
translation risks faced by Hussmann, other risks associated with non-U.S.
operations include the potential for restrictive actions taken by host country
governments, the risks relating to non-U.S. economic and political conditions,
and the risks relating to limits on the transfer of funds from non-U.S. entities
to Hussmann. Hussmann does not use foreign currency risk management instruments
to manage its exposure to changes in currency exchange rates. However, as the
significance of Hussmann's foreign operations grows, management will reassess
whether it would be appropriate to use foreign currency risk management
instruments.
FUTURE CHANGE IN ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board ("FASB") issued its
Statement No. 130, "Reporting Comprehensive Income." This Statement establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. All items that are
required to be recognized under accounting standards as components of
comprehensive income must be reported in a financial statement with the same
prominence as other financial statements. Statement No. 130 is effective for
fiscal years beginning after December 15, 1997. With respect to Hussmann, the
adoption of Statement No. 130 will result in the inclusion, in the statement of
comprehensive income, of the periodic adjustments arising from the translation
into U.S. dollars of foreign currency financial statements of non-U.S. entities.
In accordance with the FASB's Statement No. 52, "Foreign Currency Translation,"
such translation adjustments are excluded from the combined statements of income
but are included in the combined balance sheets as a component of shareholder
equity.
B-19
<PAGE>
MANAGEMENT
DIRECTORS
Immediately after the Distribution Date, the Hussmann Board is expected to
consist of the individuals named in the following table. The Hussmann Board will
be divided into three classes. Directors in each class will serve until the
annual meeting of shareholders held in the year in which the term for such class
expires and will serve thereafter for three years. See "Certain Antitakeover
Effects of Certain Charter and By-Law Provisions, the Rights and Delaware Law"
in the body of the Information Statement.
<TABLE>
<CAPTION>
YEAR TERM
NAME AGE EXPIRES BACKGROUND
- --------------------------------- --- ----------- ------------------------------------------------------------------
<S> <C> <C> <C>
[name]........................... [ ] 1999 [ ]
[name]........................... [ ] 1999 [ ]
[name]........................... [ ] 2000 [ ]
[name]........................... [ ] 2000 [ ]
[name]........................... [ ] 2001 [ ]
[name]........................... [ ] 2001 [ ]
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
Hussmann will be managed under the direction of its Board of Directors. The
Hussmann Board will meet on a regular basis to review Hussmann's operations,
strategic and business plans, acquisitions and dispositions, and other
significant developments affecting Hussmann, and to act on matters requiring
approval of the Hussmann Board. It will also hold special meetings when an
important matter requires Hussmann Board action between scheduled meetings.
Members of senior management will be regularly invited to Hussmann Board
meetings to discuss the progress of and future plans relating to their areas of
responsibility.
To facilitate independent director review, and to make the most effective
use of the directors' time and capabilities, the Hussmann Board is expected to
establish various committees, including those described below.
The EXECUTIVE COMMITTEE of the Hussmann Board will be constituted by the
Hussmann Board to act, except as limited by applicable law, in lieu of the
Hussmann Board and between meetings of the Hussmann Board. The Executive
Committee is expected to consist of [ ].
The AUDIT COMMITTEE will review the audit report of Hussmann as prepared by
its designated certified public accountants, recommend the selection of a
certified public accounting firm each year and review audit and any non-audit
fees paid to Hussmann's certified public accountants. The Hussmann internal
audit reports will also be available for review by the Audit Committee. The
Committee will report its findings and recommendations to the Hussmann Board for
appropriate action. The Audit Committee is expected to consist of
[ ].
The MANAGEMENT RESOURCES AND COMPENSATION COMMITTEE will be charged with the
responsibility of supervising the compensation policies of Hussmann,
administering Hussmann's employee incentive plans, reviewing officers' salaries,
approving significant changes in salaried employee benefits and recommending to
the Hussmann Board such other forms of remuneration as it deems appropriate. The
Management Resources and Compensation Committee is expected to consist of
[ ].
The FINANCE AND PENSION COMMITTEE will supervise the financial affairs of
Hussmann and receive and review reports of those persons who supervise and
manage the Hussmann pension plans. The Hussmann Board may delegate to the
Finance and Pension Committee and certain officers its authority to approve
financing transactions within specified dollar limitations. The Finance and
Pension Committee is expected to consist of [ ].
B-20
<PAGE>
The Hussmann Board, acting as a committee of the whole, will have the
responsibility for considering nominations for prospective board members. The
Hussmann Board will consider nominees recommended by other directors,
shareholders and management who present for evaluation by the Hussmann Board
appropriate data with respect to the suggested candidate, provided that
nominations by shareholders must be made in accordance with the Hussmann
By-Laws. See "Certain Antitakeover Effects of Certain Charter and By-Law
Provisions, the Rights and Delaware Law--Certificate of Incorporation and
By-Laws" in the body of the Information Statement.
The Hussmann Board may also establish other committees.
COMPENSATION OF DIRECTORS
Directors who are not employees of Hussmann will receive an annual retainer
of [$ ], plus [$ ] for each meeting of the Hussmann Board and [$ ] for each
Hussmann Board Committee meeting attended. The Chairman of each Hussmann Board
Committee will be paid an additional [$ ] annual retainer. Non-employee
directors may also receive awards pursuant to the Hussmann Stock Incentive Plan.
B-21
<PAGE>
EXECUTIVE OFFICERS
Set forth below is information with respect to those individuals who are
expected to serve as executive officers of Hussmann immediately following the
Distribution.
<TABLE>
<CAPTION>
NAME, AGE AND POSITION BACKGROUND AND EXPERIENCE
- ----------------------------------------- --------------------------------------------------------------------------
<S> <C>
J. Larry Vowell (56) .................... Mr. Vowell has spent his entire professional career with Hussmann. After
President and Chief Executive Officer holding a variety of management positions, Mr. Vowell became President and
Chief Operating Officer--Hussmann U.S.A. early in 1990 and President and
Chief Executive Officer later that year.
John S. Gleason (56) .................... Following a lengthy career with J. I. Case, Mr. Gleason joined Hussmann in
Executive Vice President--North 1988 as President--International Group. He served as Executive Vice
American Operations President--Sales and Marketing for North America from 1991 to 1995.
John Schlee (54) ........................ Mr. Schlee joined Hussmann in 1988 as Group Vice President--
Senior Vice President--Europe and Manufacturing. He became Senior Vice President--Manufacturing in 1989, was
Middle East Senior Vice President--International from 1995 to 1996 and was Senior Vice
President--Global Development from 1996 to November 1997.
Michael D. Newman (41) .................. Mr. Newman joined Hussmann in 1996. Prior to that, he spent seventeen
Senior Vice President--Chief Financial years with General Electric Company in various financial positions, most
Officer and Treasurer recently as Manager, America's Finance.
Lawrence R. Rauzon (48) ................. Mr. Rauzon served as Vice President--Western United States from 1989-1994
Vice President--Asia Pacific when he was appointed Vice President and Region Manager, Western United
States. He was appointed to his present position in 1996. He has been with
Hussmann since 1978.
Mark C. Schaefer (40) ................... Mr. Schaefer joined Hussmann in 1981. He became President-- Hussmann
Vice President--Mexico and Latin Mexico in 1992, and was appointed to his present position in 1995.
America
Burton Halpern (56) ..................... Mr. Halpern has served in various legal capacities with Hussmann since
Vice President, General Counsel and 1970. He became General Counsel in 1985.
Secretary
Joseph R. Pinkston III (42) ............. Mr. Pinkston joined Hussmann in 1995. From 1992-1995 he served as Group
Vice President--Human Resources Director of Human Resources for the Bowman Distribution Division of the
Barnes Group. Prior to that, he served in various human resource positions
with units of AlliedSignal.
</TABLE>
B-22
<PAGE>
OWNERSHIP OF HUSSMANN COMMON STOCK BY MANAGEMENT
All Hussmann Common Stock is currently owned by Whitman and no director or
executive officer of Hussmann owns any shares of Hussmann Common Stock. The
following table sets forth the beneficial ownership of Whitman Common Stock on
November 1, 1997 by the individuals expected to be directors of Hussmann, the
executive officers named in the Summary Compensation Table below and by all
directors and executive officers of Hussmann as a group. Directors and executive
officers of Hussmann will receive shares of Hussmann Common Stock in respect of
the shares of Whitman Common Stock held by them on the Record Date on the same
basis as other Whitman shareholders. Each of the following individuals and
members of the group has sole voting and investment power with respect to the
shares shown unless otherwise indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OR IDENTITY OF GROUP BENEFICIAL OWNERSHIP CLASS
- ----------------------------------------------------------------------------------- -------------------- -------------
<S> <C> <C>
[name]............................................................................. [ ](a) *
[name]............................................................................. [ ](a) *
[name]............................................................................. [ ](a) *
J. Larry Vowell.................................................................... [ ](a) *
John S. Gleason.................................................................... [ ](a) *
John Schlee........................................................................ [ ](a) *
Michael D. Newman.................................................................. [ ](a) *
Bruce E. Ryan...................................................................... [ ](a) *
All Directors and Executive Officers as a Group ([ ] persons)...................... [ ](b) [ ]
</TABLE>
- ------------------------
* Less than 1%.
(a) Includes shares which the named director or executive officer has the right
to acquire within 60 days after November 1, 1997, through exercise of stock
options, as follows: Mr. Vowell, [ ] shares; Mr. Gleason, [ ] shares;
Mr. Schlee, [ ] shares; Mr. Newman, [ ] shares; and Mr. Ryan, [ ]
shares.
(b) The number of shares shown as beneficially owned include [ ] shares which
directors and executive officers have the right to acquire within 60 days
after November 1, 1997, through the exercise of Whitman Common Stock
options, [ ] shares subject to possible forfeiture under outstanding
Whitman restricted stock awards, and [ ] shares representing the vested
beneficial interest of such persons under the Whitman Retirement Savings
Plan.
B-23
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows annual and long-term compensation for each of
Hussmann's five most highly compensated executive officers for services in all
capacities to Hussmann and its subsidiaries and affiliates during 1996.
Compensation, as reflected in this table and the tables on stock options which
follow, is presented on the basis of rules of the SEC and does not, in the case
of certain stock-based awards or accruals, necessarily represent the amount of
compensation realized or which may be realized in the future. References to
"restricted stock" and "stock options" relate to awards under Whitman's Stock
Incentive Plan.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------
AWARDS
---------------------------
ANNUAL COMPENSATION WHITMAN
--------------------------------------- RESTRICTED WHITMAN ALL OTHER
OTHER ANNUAL STOCK AWARDS STOCK OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($) (B) (#) ($) (A)
- --------------------------------- ----------- ----------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Larry Vowell.................. 307,500 265,000 13,550 353,500 59,200 57,504
President and Chief Executive
Officer
John S. Gleason.................. 233,746 160,000 8,751 207,050 34,800 32,156
Executive Vice President--
North American Operations
John Schlee...................... 183,246 115,000 8,751 159,075 26,900 22,926
Senior Vice President--
Global Development
Michael D. Newman................ 151,598 115,000 8,022 159,075 26,900 13,742
Senior Vice President--Chief
Financial Officer and Treasurer
Bruce E. Ryan.................... 176,997 49,000 8,751 159,075 26,900 21,017
Former Vice President--
Europe and Middle East
</TABLE>
- ------------------------
(a) The amounts shown for All Other Compensation are amounts accrued under a
nonqualified retirement plan (Mr. Vowell, $30,152; Mr. Gleason, $20,495; Mr.
Schlee, $14,293; Mr. Newman, $9,095; and Mr. Ryan, $13,620), together with
the 1996 values of premiums paid by Hussmann for an executive split dollar
life insurance program established July 1, 1996, to replace benefits
formerly provided under a group program (Mr. Vowell, $27,352; Mr. Gleason,
$11,661; Mr. Schlee, $8,633; Mr. Newman, $4,647; and Mr. Ryan, $7,397).
(b) The number of shares of restricted Whitman Common Stock and the market value
thereof held by Messrs. Vowell, Gleason, Schlee, Newman and Ryan at December
31, 1996, was as follows: Mr. Vowell, 18,967 shares ($433,870); Mr. Gleason,
11,001 shares ($251,648); Mr. Schlee, 8,467 shares ($193,683); Mr. Newman,
6,300 shares ($144,113); and Mr. Ryan, 7,900 shares ($180,713). Such shares
vest ratably over a period of three years. Dividend equivalents are paid on
restricted stock at the times and in the same amount as dividends paid to
all Whitman shareholders.
B-24
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table, options granted in respect of Whitman Common
Stock during 1996 pursuant to Whitman's Stock Incentive Plan. No stock
appreciation rights were granted. Hussmann employees who do not exercise options
to purchase Whitman Common Stock prior to the Distribution Date will, as of the
Distribution Date, have such options replaced with options to purchase Hussmann
Common Stock of equivalent value, except that a Hussmann employee may elect not
to surrender an exercisable option to purchase Whitman Common Stock, in which
case the number of shares of Whitman Common Stock subject to such option and the
purchase price will be adjusted to reflect the Distribution.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS OPTION
OPTIONS GRANTED TO TERM (B)
GRANTED EMPLOYEES EXERCISE EXPIRATION ---------------------
NAME (#)(A) IN 1996 PRICE ($/SH) DATE 5% ($) 10% ($)
- ------------------------------------------- ----------- --------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. Larry Vowell............................ 59,200 2.5 25.31 5/2/06 942,306 2,387,987
John S. Gleason............................ 34,800 1.5 25.31 5/2/06 553,923 1,403,749
John Schlee................................ 26,900 1.1 25.31 5/2/06 428,176 1,085,082
Michael D. Newman.......................... 26,900 1.1 25.31 5/2/06 428,176 1,085,082
Bruce E. Ryan.............................. 26,900 1.1 25.31 5/2/06 428,176 1,085,082
</TABLE>
- ------------------------
(a) All options were granted at a price equal to 100% of the fair market value
of Whitman Common Stock at date of grant, which was May 2, 1996. Options
become exercisable as to 1/3 on the first anniversary of the date of grant,
2/3 on the second anniversary, and in full on the third anniversary.
(b) The dollar amounts under these columns are the result of calculations at the
5% and 10% assumed annual growth rates mandated by the SEC and, therefore,
are not intended to forecast possible future appreciation, if any, in the
price of Whitman Common Stock. The calculations were based on the exercise
price per share and the ten-year term of the options.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table regarding the exercise of
options to purchase Whitman Common Stock during 1996 and unexercised options
held as of December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
HELD AT OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996
(#) ($) (A)
SHARES ACQUIRED ON VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------ ------------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C>
J. Larry Vowell..................... -- -- 35,000/77,800 272,676/99,008
John S. Gleason..................... 57,098 612,115 17,133/45,467 130,102/55,313
John Schlee......................... -- -- 61,108/35,167 607,815/42,846
Michael D. Newman................... -- -- -0-/26,900 -0-/-0-
Bruce E. Ryan....................... -- -- 3,233/33,367 14,954/29,908
</TABLE>
- ------------------------
(a) Based on the closing price of Whitman Common Stock ($22.875) on December
31, 1996, as reported for New York Stock Exchange Composite Transactions.
B-25
<PAGE>
STOCK INCENTIVE PLAN
Hussmann intends to adopt, with the approval of Whitman in its capacity as
the sole stockholder of Hussmann, the Hussmann Stock Incentive Plan (the
"Hussmann Stock Plan"). The Hussmann Stock Plan will be administered by the
Management Resources and Compensation Committee of the Hussmann Board. Hussmann
intends to seek shareholder approval of the Hussmann Stock Plan at its 1999
annual meeting of shareholders.
The Hussmann Stock Plan provides for the grant of incentive stock options
that qualify under Section 422 of the Code, nonqualified stock options, stock
appreciation rights, restricted stock awards and performance awards to employees
and non-employee directors (except that non-employee directors may not receive
incentive stock options). Hussmann has reserved for issuance under the Hussmann
Stock Plan [ ] shares of Hussmann Common Stock. The committee administering
the Hussmann Stock Plan is expected to grant, subject to completion of the
Distribution, nonqualified options to purchase Hussmann Common Stock to
Hussmann's executive officers and certain other persons who will be employees of
Hussmann. Each such option will have an exercise price equal to 100% of the fair
market value of Hussmann Common Stock on the effective date of grant, and will
be for a term of ten years. In addition, as described under "Arrangements
between Whitman and the Companies Relating to the Distribution--Distribution and
Indemnity Agreements" in the body of the Information Statement, employees of
Hussmann who hold options and restricted stock under the Whitman Stock Incentive
Plan may receive substitute awards of equivalent value under the Hussmann Stock
Plan, following completion of the Distribution.
PENSION PLANS
Hussmann maintains qualified, defined benefit pension plans and nonqualified
retirement plans paying benefits in optional forms elected by the employee based
upon percentage multipliers which are applied to Covered Compensation and
Credited Service. The pension plans and related nonqualified plans were amended
effective January 1, 1992, to reinstate benefit accruals that were frozen for
most employees as of December 31, 1988, when Hussmann changed its benefit plan
structure. The revised benefit formula provides a normal retirement benefit of
1% of Covered Compensation for each year of Credited Service (excluding
1989-1991), up to a maximum of 20 years. The changes also include special
minimum benefits based on Credited Service accrued through December 31, 1988,
and Covered Compensation at retirement.
The following table reflects future benefits, payable as life annuities upon
retirement, in terms of a range of amounts determined under the revised benefit
formula mentioned above, at representative periods of Credited Service.
PROJECTED ANNUAL PENSION
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE (B)
--------------------------------------------
COVERED COMPENSATION (A) 5 10 15 20 OR MORE
- ------------------------------------------------------------------------ --------- --------- --------- -----------
<S> <C> <C> <C> <C>
$200,000................................................................ $ 10,000 $ 20,000 $ 30,000 $ 40,000
$300,000................................................................ 15,000 30,000 45,000 60,000
$400,000................................................................ 20,000 40,000 60,000 80,000
$500,000................................................................ 25,000 50,000 75,000 100,000
</TABLE>
- ------------------------
(a) Covered Compensation includes salary and bonus, as shown in the Summary
Compensation Table, averaged over the five consecutive years in which such
compensation is the highest.
(b) As of December 31, 1996, Messrs. Gleason, Schlee, Newman and Ryan had 5, 5,
1 and 11, years of Credited Service, respectively.
The benefit for Mr. Vowell, who had 29 years of Credited Service at December
31, 1988, will be determined under the minimum benefit formula (33.3% of Covered
Compensation). Such benefits are not subject to deduction for social security or
other offset amounts. As of December 31, 1996, Mr. Vowell had an accrued annual
benefit payable at normal retirement age of approximately $171,000.
B-26
<PAGE>
TERMINATION BENEFITS
Hussmann has entered into Change in Control Agreements (the "Change in
Control Agreements"), with Messrs. Vowell, Gleason, Schlee, Newman, Ryan and
certain other officers. The Change in Control Agreements were a result of a
determination by the Hussmann Board that it was important and in the best
interests of Hussmann and its shareholders to ensure that, in the event of a
possible change in control of Hussmann, the stability and continuity of
management would continue unimpaired, free of the distractions incident to any
such change in control. The Change in Control Agreements become effective on the
Distribution Date.
For purposes of the Change in Control Agreements, a "change in control"
includes (i) a reorganization, merger or consolidation of Hussmann or sale or
other disposition of all or substantially all of Hussmann's assets, other than a
transaction in which the beneficial owners of the Hussmann Common Stock prior to
the transaction own at least two-thirds of the voting securities of the
corporation resulting from such transaction, no person owns 25% or more of the
voting securities of the corporation resulting from such transaction and the
members of the Hussmann Board constitute at least a majority of the members of
the board of directors of the corporation resulting from such transaction, (ii)
the consummation of a plan of complete liquidation or dissolution of Hussmann,
(iii) the acquisition by any person or group of 25% or more of Hussmann's voting
securities, or (iv) persons who are directors of Hussmann on the Distribution
Date (or their successor as approved by a majority of the members of the
Hussmann Board) cease to constitute a majority of the Hussmann Board.
Benefits are payable under the Change in Control Agreements only if a change
in control has occurred and within three years thereafter the officer's
employment is terminated involuntarily without cause or voluntarily by the
officer for reasons such as demotion, relocation, loss of benefits or other
changes. The principal benefits to be provided to officers under the Change in
Control Agreements are (i) a lump sum payment equal to three years' compensation
(base salary and incentive compensation), and (ii) continued participation in
Hussmann's employee benefit programs or equivalent benefits for three years
following termination. The Change in Control Agreements provide that, if
separation payments thereunder, either alone or together with payments under any
other plan of Hussmann, would constitute a "parachute payment" as defined in the
Code and subject the officer to the excise tax imposed by Section 4999 of the
Code, Hussmann will pay such tax and any taxes on such payment.
The Change in Control Agreements are not employment agreements, and do not
impair the right of Hussmann to terminate the employment of the officer with or
without cause prior to a change in control, or, absent a potential or pending
change in control, the right of the officer to voluntarily terminate his
employment.
1999 ANNUAL MEETING OF SHAREHOLDERS
The Hussmann By-Laws provide that an annual meeting of shareholders will be
held each year on a date specified by the Hussmann Board. Prior to the Record
Date, Whitman, which was then and is currently the sole shareholder of Hussmann,
elected the current members of the Hussmann Board. The first annual meeting of
Hussmann shareholders after the Distribution is expected to be held on May 5,
1999.
In order to be considered for inclusion in Hussmann's proxy materials for
the 1999 annual shareholders meeting, any proposals by shareholders must be
received at Hussmann's principal executive offices at 12999 St. Charles Rock
Road, Bridgeton, Missouri 63044, within a reasonable time before solicitation of
proxies for such meeting is made. Hussmann anticipates commencing solicitation
of proxies for the 1999 annual shareholders meeting on or about March 15, 1999.
In addition, shareholders at the Hussmann 1999 annual meeting may consider
shareholder proposals or nominations brought by a shareholder of record on the
record date for the 1999 annual meeting, who is entitled to vote at such annual
meeting and who has complied with the Shareholder Notice Procedure established
by the Hussmann By-Laws. A shareholder proposal or nomination intended to be
brought before the Hussmann 1999 annual meeting must be received by the
Secretary of Hussmann on or after February 5, 1999 and on or prior to February
25, 1999. See "Certain Antitakeover Effects of Certain Charter and By-Law
Provisions, the Rights and Delaware Law--Certificate of Incorporation and
By-Laws--Advance Notice Provisions for Shareholder Nominations and Shareholder
Proposals" in the body of the Information Statement.
B-27
<PAGE>
HUSSMANN INTERNATIONAL
INDEX TO HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report................................................................................. B-29
Combined Statements of Income for the years ended December 31, 1996, 1995 and 1994 and for the nine months
ended September 30, 1997 and 1996 (unaudited).............................................................. B-30
Combined Balance Sheets as of December 31, 1996 and 1995 and as of September 30, 1997 (unaudited)............ B-31
Combined Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 and for the nine
months ended September 30, 1997 and 1996 (unaudited)....................................................... B-32
Notes to Combined Financial Statements....................................................................... B-33
</TABLE>
B-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Whitman Corporation:
We have audited the accompanying combined balance sheets of Hussmann
International as of December 31, 1996 and 1995, and the related combined
statements of income and cash flows for each of the years in the three-year
period ended December 31, 1996. These combined financial statements are the
responsibility of Hussmann International's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Hussmann
International as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
January 8, 1997
B-29
<PAGE>
HUSSMANN INTERNATIONAL
COMBINED STATEMENTS OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED
ENDED SEPTEMBER 30 DECEMBER 31
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales and revenues................................................. $ 733.2 $ 682.1 $ 1,005.7 $ 921.7 $ 859.5
Cost of goods sold................................................. 587.3 543.5 801.8 742.4 681.4
--------- --------- --------- --------- ---------
Gross profit..................................................... 145.9 138.6 203.9 179.3 178.1
Selling, general and administrative expenses....................... 82.2 77.2 108.6 99.1 94.5
Amortization expense............................................... 1.3 1.1 1.5 1.5 1.1
Non-recurring charges.............................................. 30.7 -- -- -- --
--------- --------- --------- --------- ---------
Operating income................................................. 31.7 60.3 93.8 78.7 82.5
Whitman charges.................................................... (21.3) (20.9) (26.7) (28.6) (28.3)
Interest expense:
Whitman.......................................................... (13.1) (12.3) (16.7) (14.7) (13.5)
Other............................................................ (1.0) (1.0) (1.3) (2.1) (2.1)
--------- --------- --------- --------- ---------
Total interest expense......................................... (14.1) (13.3) (18.0) (16.8) (15.6)
Other income, net.................................................. 1.2 2.1 2.6 4.5 1.5
--------- --------- --------- --------- ---------
Income (loss) before income taxes................................ (2.5) 28.2 51.7 37.8 40.1
Income tax provisions.............................................. 8.4 10.1 17.6 13.9 16.5
--------- --------- --------- --------- ---------
Net income (loss)................................................ $ (10.9) $ 18.1 $ 34.1 $ 23.9 $ 23.6
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to combined financial statements.
B-30
<PAGE>
HUSSMANN INTERNATIONAL
COMBINED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
SEPTEMBER 30 --------- ---------
-------------
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents........................................................ $ 25.9 $ 47.1 $ 34.1
Receivables, net................................................................. 197.3 199.5 185.6
Inventories...................................................................... 167.5 154.5 124.1
Other current assets............................................................. 5.1 4.2 7.1
------ --------- ---------
Total current assets........................................................... 395.8 405.3 350.9
Property and equipment, net........................................................ 152.2 138.4 127.3
Goodwill, net...................................................................... 15.7 38.7 37.8
Other assets....................................................................... 27.7 29.0 31.4
------ --------- ---------
Total assets................................................................... $ 591.4 $ 611.4 $ 547.4
------ --------- ---------
------ --------- ---------
LIABILITIES AND EQUITY:
Current liabilities:
Short-term debt.................................................................. $ 3.1 $ 1.9 $ 3.8
Accounts payable................................................................. 123.8 113.4 109.0
Income taxes payable............................................................. 4.8 10.2 3.5
Accrued expenses................................................................. 46.4 46.2 40.4
------ --------- ---------
Total current liabilities...................................................... 178.1 171.7 156.7
Loans and advances................................................................. 198.7 211.4 186.9
Deferred income taxes and other liabilities........................................ 38.8 35.7 42.7
------ --------- ---------
Total liabilities.............................................................. 415.6 418.8 386.3
Shareholder equity................................................................. 175.8 192.6 161.1
------ --------- ---------
Total liabilities and equity................................................... $ 591.4 $ 611.4 $ 547.4
------ --------- ---------
------ --------- ---------
</TABLE>
See accompanying notes to combined financial statements.
B-31
<PAGE>
HUSSMANN INTERNATIONAL
COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED DECEMBER 31
ENDED SEPTEMBER 30
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ (10.9) $ 18.1 $ 34.1 $ 23.9 $ 23.6
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization...................................... 17.1 14.7 20.2 19.6 17.3
Non-recurring charges.............................................. 30.7 -- -- -- --
Changes in assets and liabilities, exclusive of acquisitions:
(Increase) decrease in receivables............................... 6.6 (0.5) (13.9) (12.8) (4.0)
(Increase) in inventories........................................ (11.4) (36.7) (30.4) (12.5) (6.6)
Increase (decrease) in accounts payable.......................... 7.6 3.6 4.4 3.8 (18.3)
Increase (decrease) in income taxes payable...................... (5.4) (1.3) 6.7 (6.5) 7.7
Net change in other assets and liabilities....................... (3.7) 0.3 5.0 (19.5) (10.4)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities.................... 30.6 (1.8) 26.1 (4.0) 9.3
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital investments.................................................. (25.7) (26.1) (33.5) (29.3) (32.7)
Proceeds from sales of property and equipment........................ 0.4 6.1 6.2 1.0 2.4
Companies acquired, net of cash acquired............................. (12.4) -- -- (8.4) (2.3)
--------- --------- --------- --------- ---------
Net cash used in investing activities.................................. (37.7) (20.0) (27.3) (36.7) (32.6)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Net increase (decrease) in short-term debt........................... 1.3 (2.1) (1.9) 3.8 --
Net increase (decrease) in loans and advances from Whitman........... (12.7) 23.9 24.5 36.4 16.1
Dividends to Whitman................................................. (2.2) (8.3) (8.3) (7.3) (11.8)
--------- --------- --------- --------- ---------
Net cash provided by financing activities.............................. (13.6) 13.5 14.3 32.9 4.3
Effects of exchange rate changes on cash and cash equivalents.......... (0.5) -- (0.1) (2.9) (0.3)
--------- --------- --------- --------- ---------
Net change in cash and cash equivalents................................ (21.2) (8.3) 13.0 (10.7) (19.3)
Cash and cash equivalents as of beginning of period.................... 47.1 34.1 34.1 44.8 64.1
--------- --------- --------- --------- ---------
Cash and cash equivalents as of end of period.......................... $ 25.9 $ 25.8 $ 47.1 $ 34.1 $ 44.8
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to combined financial statements.
B-32
<PAGE>
HUSSMANN INTERNATIONAL
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Hussmann International manufactures, sells, installs, and services
merchandising and refrigeration systems for the world's commercial food
industry.
PRINCIPLES OF COMBINATION
These combined financial statements present the operations of Hussmann
International, which is comprised of wholly-owned and majority-owned
subsidiaries of Whitman Corporation (Whitman). Hussmann International consists
of Hussmann Corporation and its subsidiaries and of other companies owned by
Whitman but directly managed by Hussmann Corporation.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
Assets and liabilities of non-U.S. operations are translated into U.S.
dollars using exchange rates as of the end of each fiscal period. Income and
expense items are translated at average exchange rates prevailing during each
fiscal period. The resulting translation adjustments are recorded as a component
of shareholder equity. For those non-U.S. entities of Hussmann International
operating in countries whose economies considered to be highly inflationary,
translation gains and losses are included in net income. Gains and losses from
foreign currency transactions are included in net income.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of deposits with banks and financial
institutions which are unrestricted as to withdrawal or use, and which have
original maturities of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Hussmann International's financial instruments include cash and cash
equivalents, receivables, short-term debt, and accounts payable; the carrying
amounts approximate fair values because of the short maturity of these
instruments. Because of the intercompany nature of the indebtedness, it is not
considered meaningful to present fair value information with respect to the
loans and advances from Whitman.
INVENTORIES
Inventories are valued at the lower of cost (principally determined on the
first-in, first-out or average methods) or net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method. When property is sold or retired, the cost and
accumulated depreciation are eliminated from the accounts and gains or losses
are recorded in other income (expense), net. Expenditures for maintenance and
repairs are expensed as incurred. The approximate ranges of annual depreciation
rates are 2% to 5% for buildings and improvements and 8% to 33% for machinery
and equipment.
GOODWILL
Goodwill represents the excess of cost over fair market value of tangible
assets of acquired businesses. Such excess amounts are being amortized on
straight-line bases over 40 years, with minor amounts being amortized over
shorter periods.
B-33
<PAGE>
HUSSMANN INTERNATIONAL
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CARRYING VALUES OF LONG-LIVED ASSETS
Hussmann International evaluates the carrying values of its long-lived
assets to be held and used in the business by reviewing undiscounted cash flows
by operating unit. Such evaluations are performed whenever events and
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the projected undiscounted cash flows over the
remaining lives of the related assets does not exceed the carrying value of the
assets, the carrying values would be adjusted for the difference between the
fair value and the carrying values.
REVENUE RECOGNITION
Revenue is recognized when products are shipped or when services are
performed. Revenue for installation projects is recognized upon completion of
the project and acceptance by the customer. Most products carry a one-year
warranty while installation projects carry a three-month warranty. Hussmann
estimates and records provisions for warranties in the period the sale is
reported, based on its historical experience.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. These costs
amounted to $6.0 million, $5.6 million and $5.0 million in 1996, 1995, and 1994,
respectively.
ACCOUNT CLASSIFICATIONS
Certain amounts presented in the accompanying combined financial statements
are classified in a manner that differs, in minor respects, from the manner in
which such amounts have been classified in Whitman's consolidated financial
statements.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these combined financial statements in conformity with
generally accepted accounting principles. Actual results could differ from these
estimates.
B-34
<PAGE>
HUSSMANN INTERNATIONAL
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(2) CHANGES IN EQUITY
The following table presents the changes in equity for the years ended
December 31, 1994, 1995, and 1996 and for the nine months ended September 30,
1997 (in millions):
<TABLE>
<CAPTION>
HUSSMANN CUMULATIVE
INTERNATIONAL CURRENCY
CAPITAL TRANSLATION SHAREHOLDER
ACCOUNTS ADJUSTMENTS EQUITY
------------- ------------- -----------
<S> <C> <C> <C>
JANUARY 1, 1994........................................ $ 185.1 $ (20.9) $ 164.2
Net income............................................. 23.6 -- 23.6
Stock compensation plans............................... 0.2 -- 0.2
Dividends to Whitman................................... (11.8) -- (11.8)
Translation adjustments................................ -- (3.0) (3.0)
------ ------ -----------
DECEMBER 31, 1994...................................... 197.1 (23.9) 173.2
Net income............................................. 23.9 -- 23.9
Stock compensation plans............................... 0.6 -- 0.6
Dividends to Whitman................................... (7.3) -- (7.3)
Translation adjustments................................ -- (29.3) (29.3)
------ ------ -----------
DECEMBER 31, 1995...................................... 214.3 (53.2) 161.1
Net income............................................. 34.1 -- 34.1
Stock compensation plans............................... 1.0 -- 1.0
Dividends to Whitman................................... (8.3) -- (8.3)
Translation adjustments................................ -- 4.7 4.7
------ ------ -----------
DECEMBER 31, 1996...................................... 241.1 (48.5) 192.6
Net income (unaudited)................................. (10.9) -- (10.9)
Dividends to Whitman (unaudited)....................... (2.2) -- (2.2)
Translation adjustments (unaudited).................... -- (3.7) (3.7)
------ ------ -----------
SEPTEMBER 30, 1997 (unaudited)......................... $ 228.0 $ (52.2) $ 175.8
------ ------ -----------
------ ------ -----------
</TABLE>
(3) TRANSACTIONS WITH WHITMAN
CASH MANAGEMENT AND ADVANCES
Whitman manages the cash not considered necessary for current operating
requirements of certain of its subsidiaries, including the U.S. operations of
Hussmann International. Cash not needed for current operations is advanced to
Whitman at the then-current commercial bank prime lending rate; cash is advanced
by Whitman on the same basis. All advances to or from Whitman are included in
advances and loans from Whitman in the combined balance sheets. Interest income
and expense on such advances are included in interest expense-- Whitman in the
combined statements of income.
DIVIDENDS PAID TO WHITMAN
Hussmann International has paid dividends to Whitman, as summarized in Note
2.
NOTE PAYABLE TO WHITMAN
Included in loans and advances from Whitman as of December 31, 1996 and 1995
is a junior subordinated note in the amount of $117.3 million, which is due in
2001 and bears a floating (prime) rate of interest.
B-35
<PAGE>
HUSSMANN INTERNATIONAL
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(3) TRANSACTIONS WITH WHITMAN (CONTINUED)
WHITMAN CHARGES
Whitman allocates portions of its corporate office general and
administrative expenses and interest expense to its subsidiaries. Hussmann
International's share of such costs amounted to $26.7 million in 1996, $28.6
million in 1995, and $28.3 million in 1994. Such charges represent an allocation
of Whitman's estimated total expenses, and are charged to Whitman's subsidiaries
based on budgeted revenues. Whitman considers this method to be a reasonable
basis for allocation.
(4) RECEIVABLES
Receivables are stated net of allowance for doubtful accounts of $1.9
million (unaudited) as of September 30, 1997, $2.2 million as of December 31,
1996, and $1.5 million as of December 31, 1995.
(5) INVENTORIES
Inventories as of September 30, 1997 and December 31, 1996 and 1995
consisted of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
SEPTEMBER 30 --------- ---------
-------------
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and supplies..................................... $ 67.3 $ 66.2 $ 54.8
Work in process................................................ 65.5 59.8 46.6
Finished goods................................................. 34.7 28.5 22.7
------ --------- ---------
$ 167.5 $ 154.5 $ 124.1
------ --------- ---------
------ --------- ---------
</TABLE>
(6) PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 1997 and December 31, 1996 and
1995 consisted of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
SEPTEMBER 30 --------- ---------
-------------
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
Land........................................................... $ 5.5 $ 4.9 $ 4.0
Buildings and improvements..................................... 83.0 78.8 70.7
Machinery and equipment........................................ 211.9 188.7 173.9
------ --------- ---------
Total property and equipment................................... 300.4 272.4 248.6
Accumulated depreciation....................................... (148.2) (134.0) (121.3)
------ --------- ---------
Property and equipment, net.................................... $ 152.2 $ 138.4 $ 127.3
------ --------- ---------
------ --------- ---------
</TABLE>
(7) GOODWILL
Goodwill is stated net of accumulated amortization of $8.6 million
(unaudited) as of September 30, 1997, $17.5 million as of December 31, 1996, and
$15.1 million as of December 31, 1995.
B-36
<PAGE>
HUSSMANN INTERNATIONAL
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(8) ACCRUED EXPENSES
Accrued expenses as of September 30, 1997 and December 31, 1996 and 1995
consisted of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
SEPTEMBER 30 --------- ---------
---------------
1997
---------------
(UNAUDITED)
<S> <C> <C> <C>
Salaries and wages............................................... $ 13.9 $ 16.5 $ 16.1
Taxes other than income taxes.................................... 5.9 8.2 8.2
Warranty......................................................... 7.3 8.2 6.1
Pension.......................................................... 7.8 7.8 4.5
Other............................................................ 11.5 5.5 5.5
----- --------- ---------
$ 46.4 $ 46.2 $ 40.4
----- --------- ---------
----- --------- ---------
</TABLE>
(9) LEASES
As of December 31, 1996, annual minimum rental payments under operating
leases that have initial non-cancelable terms in excess of one year were as
follows (in millions):
<TABLE>
<CAPTION>
LEASES
-----------
<S> <C>
1997..................................................................................... $ 12.5
1998..................................................................................... 8.9
1999..................................................................................... 6.4
2000..................................................................................... 2.9
2001..................................................................................... 2.2
Thereafter............................................................................... 12.0
-----
Total minimum lease payments............................................................. $ 44.9
-----
-----
</TABLE>
Total rent expense applicable to operating leases amounted to $9.6 million,
$9.0 million and $8.7 million in 1996, 1995 and 1994, respectively. A majority
of Hussman International's leases provide that Hussmann International pay taxes,
maintenance, insurance and certain other operating expenses which are not
included in the above lease amounts.
B-37
<PAGE>
HUSSMANN INTERNATIONAL
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(10) INCOME TAXES
Hussmann International's U.S. operations have been included in the
consolidated U.S. Federal and certain state unitary income tax returns of
Whitman. Income tax provisions have been allocated to Hussmann International as
if Hussmann International had filed separate income tax returns.
The income tax provisions consisted of (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current:
U.S. Federal.......................................................... $ 10.1 $ 3.1 $ 3.6
Non-U.S............................................................... 5.6 6.8 14.3
U.S. state and local.................................................. 1.2 0.7 1.2
--------- --------- ---------
Total current..................................................... 16.9 10.6 19.1
--------- --------- ---------
Deferred:
U.S. Federal.......................................................... 0.1 1.1 (0.1)
Non-U.S............................................................... 0.6 2.0 (2.5)
U.S. state and local.................................................. -- 0.2 --
--------- --------- ---------
Total deferred...................................................... 0.7 3.3 (2.6)
--------- --------- ---------
Income tax provisions................................................... $ 17.6 $ 13.9 $ 16.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
The items which gave rise to differences between the income tax provisions
in the combined statements of income and income taxes computed at the U.S.
statutory rate are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Income tax expense computed at U.S. statutory rate...................... 35.0% 35.0% 35.0%
U.S. state and local taxes, net of U.S. Federal income tax benefit...... 1.5 1.6 1.9
Higher (lower) non-U.S. effective tax rates............................. (3.3) 0.3 2.5
Other items, net........................................................ 0.8 (0.1) 1.7
--------- --------- ---------
Income tax provisions................................................... 34.0% 36.8% 41.1%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Pretax income from non-U.S. operations amounted to $23.3 million, $25.6
million, and $32.5 million in 1996, 1995 and 1994, respectively. U.S. income
taxes have not been provided on the undistributed income ($85.1 million) of
Hussmann International's non-U.S. operations, which currently is not intended to
be remitted to the U.S. No deferred tax liability has been recognized with
regard to the potential remittance of such undistributed income. It is not
practicable to estimate the incremental income tax liability that might be
incurred if such income was remitted to the U.S.
B-38
<PAGE>
HUSSMANN INTERNATIONAL
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(10) INCOME TAXES (CONTINUED)
Deferred income taxes are created by "temporary differences" which exist
between amounts of assets and liabilities recorded for financial reporting
purposes and such amounts as reported under income tax regulations. Deferred tax
assets and liabilities as of December 31, 1996 and 1995 consisted of (in
millions):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets attributable to:
Post-retirement benefit accruals.............................................. $ 6.2 $ 5.8
Other accruals................................................................ 7.6 6.1
--------- ---------
Total deferred tax assets................................................... 13.8 11.9
--------- ---------
Deferred tax liabilities attributable to:
Property and equipment, principally depreciation method differences........... (8.2) (9.8)
Pensions...................................................................... (6.6) (6.3)
Inventories................................................................... (5.2) (3.1)
Other......................................................................... (1.5) --
--------- ---------
Total deferred tax liabilities.............................................. (21.5) (19.2)
--------- ---------
Net deferred tax liability...................................................... $ (7.7) $ (7.3)
--------- ---------
--------- ---------
Net deferred tax asset (liability) included in:
Other assets.................................................................. $ 0.9 $ 3.0
Deferred income taxes and other liabilities................................... (8.6) (10.3)
--------- ---------
Net deferred tax liability...................................................... $ (7.7) $ (7.3)
--------- ---------
--------- ---------
</TABLE>
Management believes it is more likely than not that all deferred tax assets
will be realized and, accordingly no valuation allowance is required.
(11) PENSION AND OTHER POST-RETIREMENT PLANS
HUSSMANN INTERNATIONAL-SPONSORED DEFINED BENEFIT PENSION PLANS
Substantially all of Hussmann International's U.S. employees are covered
under various defined benefit pension plans sponsored and funded by Hussmann
International. Plans covering salaried employees provide pension benefits based
on years of service and generally are limited to a maximum of 20% of an
employee's average annual compensation during the five years preceding
retirement. Plans covering hourly employees generally provide benefits of stated
amounts for each year of service. Plan assets are invested primarily in common
stocks, corporate bonds and government securities.
Net periodic pension cost for 1996, 1995 and 1994 included the following
components (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits earned during period........................... $ 4.2 $ 3.6 $ 3.6
Interest cost on projected benefit obligation......................... 10.4 9.7 9.1
Actual return on assets............................................... (16.2) (19.1) (4.2)
Net amortization and deferral......................................... 4.9 8.7 (5.9)
--------- --------- ---------
Total net periodic pension cost....................................... $ 3.3 $ 2.9 $ 2.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
B-39
<PAGE>
HUSSMANN INTERNATIONAL
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(11) PENSION AND OTHER POST-RETIREMENT PLANS (CONTINUED)
The principal economic assumptions used in the determination of net periodic
pension cost include the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Discount rate........................................................... 7.5% 8.5% 7.0%
Expected long-term rate of return on assets............................. 9.5% 9.5% 10.0%
Rate of increase in compensation levels................................. 5.0% 6.0% 4.5%
</TABLE>
Pension costs are funded in amounts not less than minimum levels required by
regulation. The following table reconciles the pension plans' funded status to
the amounts recognized in Hussmann International's combined balance sheets as of
December 31, 1996 and 1995 (in millions):
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligation (measured as of
September 30):
Vested benefit obligation.......... $ (80.5) $ (34.7) $ (78.0) $ (29.0)
------ ------ ------ ------
------ ------ ------ ------
Accumulated benefit obligation..... (82.5) (37.5) (80.3) (31.8)
------ ------ ------ ------
------ ------ ------ ------
Projected benefit obligation....... (98.3) (39.0) (93.5) (32.9)
Plan assets at fair market value
(measured as of September 30)...... 116.0 32.3 103.8 29.0
Plan assets in excess of (less than)
projected benefit obligation....... 17.7 (6.7) 10.3 (3.9)
Unrecognized net asset at
transition......................... (0.3) -- (0.3) (0.1)
Unrecognized prior service costs..... 5.4 8.0 6.3 3.4
Unrecognized net loss (gain)......... (11.7) 1.4 (5.7) 2.3
Additional liability required to
recognize minimum liability........ -- (7.8) -- (4.5)
------ ------ ------ ------
Prepaid (accrued) pension cost
recognized in balance sheets....... $ 11.1 $ (5.1) $ 10.6 $ (2.8)
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The principal economic assumptions used in determining the above benefit
obligations were discount rates of 7.5% in both 1996 and 1995 and rates of
increase in future compensation levels of 5.0% in both 1996 and 1995.
HUSSMANN INTERNATIONAL-SPONSORED DEFINED CONTRIBUTION PLANS
Substantially all U.S. salaried employees, certain U.S. hourly employees and
certain Canadian employees participate in voluntary, contributory defined
contribution plans to which Hussmann International makes full or partial
matching contributions. Hussmann International matching contributions to these
plans amounted to $3.1 million, $2.9 million and $3.0 million in 1996, 1995 and
1994, respectively.
B-40
<PAGE>
HUSSMANN INTERNATIONAL
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(11) PENSION AND OTHER POST-RETIREMENT PLANS (CONTINUED)
MULTI-EMPLOYER PENSION PLANS
Hussmann International participates in a number of multi-employer pension
plans which provide benefits to certain unionized employee groups. Amounts
contributed to the plans totaled $3.4 million, $2.8 million and $2.4 million in
1996, 1995 and 1994, respectively.
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
Hussmann International provides substantially all former U.S. salaried
employees who retired prior to July 1, 1989 and selected other employees in the
U.S. and Canada with certain life and health care benefits. U.S. salaried
employees retiring after July 1, 1989 generally are required to pay the full
cost of these benefits. Eligibility for these benefits varies with the
employee's classification prior to retirement. Accrued post-retirement benefit
costs recorded in Hussmann International's combined balance sheets were $14.4
million and $15.1 million as of December 31, 1996 and 1995, respectively. The
costs associated with the program were immaterial in each of the years 1994
through 1996.
MULTI-EMPLOYER POST-RETIREMENT MEDICAL AND LIFE INSURANCE
Hussmann International participates in a number of multi-employer plans
which provide health care and survivor benefits to unionized employees during
their working lives and after retirement. Portions of the benefit contributions,
which cannot be disaggregated, related to post-retirement benefits for plan
participants. Total amounts charged against income and contributed to the plans
(including benefit coverage during their working lives) amounted to $5.1
million, $4.0 million, and $4.0 million in 1996, 1995 and 1994, respectively.
(12) OTHER INCOME, NET
Other income, for the nine months ended September 30, 1997 (unaudited) and
the years ended December 31, 1996 and 1995 consisted of the following (in
millions):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED DECEMBER
ENDED SEPTEMBER 30, 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gain(loss) on sale of assets.............................................. $ 0.1 $ 0.6 $ 0.5 $ 0.2 $ (0.8)
Interest income........................................................... 1.3 1.7 2.1 3.7 3.8
Other..................................................................... (0.2) (0.2) -- 0.6 (1.5)
--------- --------- --------- --------- ---------
$ 1.2 $ 2.1 $ 2.6 $ 4.5 $ 1.5
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(13) NON-RECURRING CHARGES (UNAUDITED)
During the third quarter of 1997, Hussmann recorded non-recurring charges of
$30.7 million ($29.6 million on an after-tax basis) consisting of approximately
$26.0 million relating to the recognition of goodwill impairment and $4.7
million relating to the consolidation of sales and service branches in the U.K.
B-41
<PAGE>
HUSSMANN INTERNATIONAL
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(14) OTHER FINANCIAL INFORMATION
Net cash provided by operating activities includes cash payments or cash
receipts as follows (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest paid........................................................... $ 18.0 $ 16.3 $ 15.2
Income taxes paid....................................................... 8.5 4.9 2.2
</TABLE>
There were no significant acquisitions in either 1996 or 1994. In 1995
Hussmann International acquired an equipment distributor in Chile, the remaining
50% interest in a refrigeration manufacturer and distributor in the U.K. The
total amount paid for all acquisitions was $9.4 million. All such acquisitions
were accounted for as purchases, and Hussmann International's combined operating
results include such acquisitions from the dates of purchase. The effects of
these acquisitions, had they been made as of January 1, 1995, would not have
been significant to Hussmann International's combined operating results.
(15) CONTINGENCIES
Hussmann International has certain contingent liabilities arising from
various pending claims and litigation on a number of matters. While the amount
of liability that may result from these matters cannot be determined, in the
opinion of Hussmann International counsel, the ultimate liability will not
materially affect the combined financial position or results of operations of
Hussmann International.
(16) BUSINESS SEGMENT INFORMATION
Hussmann International is engaged in manufacturing, sales, installation and
servicing of commercial refrigeration systems and equipment in various markets
throughout the world. As the products and services sold are similar throughout
the world, Hussmann International manages the business with separate senior
management teams responsible for geographic regions. Therefore, the segments
below correspond to these geographic regions. The following tables present
financial information for each of these business segments as of and for the
years ended December 31, 1996, 1995 and 1994 (in millions):
<TABLE>
<CAPTION>
SALES AND REVENUES OPERATING INCOME
------------------------------- --------------------
1996 1995 1994 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
U.S. and Canada.......................................................... $ 826.6 $ 738.6 $ 647.7 $ 94.4 $ 78.6
U. K..................................................................... 139.9 157.3 147.1 -- 5.8
Other International...................................................... 82.0 67.6 97.4 14.3 9.1
Eliminations............................................................. (42.8) (41.8) (32.7) -- --
--------- --------- --------- --------- ---------
Total before corporate and other expenses................................ $ 1,005.7 $ 921.7 $ 859.5 108.7 93.5
--------- --------- ---------
--------- --------- ---------
Hussmann International corporate administrative expenses................. (14.9) (14.8)
--------- ---------
Total operating income................................................... 93.8 78.7
Whitman charges.......................................................... (26.7) (28.6)
Interest expense......................................................... (18.0) (16.8)
Other income, net........................................................ 2.6 4.5
--------- ---------
Income before income taxes............................................... $ 51.7 $ 37.8
--------- ---------
--------- ---------
<CAPTION>
1994
---------
<S> <C>
U.S. and Canada.......................................................... $ 70.1
U. K..................................................................... 6.1
Other International...................................................... 19.7
Eliminations............................................................. --
---------
Total before corporate and other expenses................................ 95.9
Hussmann International corporate administrative expenses................. (13.4)
---------
Total operating income................................................... 82.5
Whitman charges.......................................................... (28.3)
Interest expense......................................................... (15.6)
Other income, net........................................................ 1.5
---------
Income before income taxes............................................... $ 40.1
---------
---------
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION
IDENTIFIABLE ASSETS AND AMORTIZATION
------------------------------- -------------------------------
1996 1995 1994 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. and Canada............................................ $ 350.3 $ 324.9 $ 285.0 $ 12.5 $ 10.6 $ 9.2
U. K....................................................... 115.0 116.1 106.7 2.9 4.9 4.5
Other International........................................ 84.1 58.6 61.0 2.0 1.6 1.5
Corporate assets........................................... 62.0 47.8 50.9 2.8 2.5 2.1
--------- --------- --------- --------- --------- ---------
$ 611.4 $ 547.4 $ 503.6 $ 20.2 $ 19.6 $ 17.3
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<CAPTION>
CAPITAL
INVESTMENTS
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
U.S. and Canada............................................ $ 19.4 $ 19.1 $ 16.5
U. K....................................................... 6.2 4.1 5.5
Other International........................................ 6.8 4.2 8.6
Corporate assets........................................... 1.1 1.9 2.1
--------- --------- ---------
$ 33.5 $ 29.3 $ 32.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
B-42
<PAGE>
HUSSMANN INTERNATIONAL
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(16) BUSINESS SEGMENT INFORMATION (CONTINUED)
Foreign currency gains or losses were not significant. Sales to any single
customer and sales to domestic or foreign governments were each less than ten
percent of combined sales and revenues.
Included in U.S. and Canada sales shown above were export sales to the
following geographic areas (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Europe and Middle East.................................................. $ 1.5 $ 2.7 $ 4.6
Latin America........................................................... 8.5 9.5 7.5
Asia Pacific............................................................ 8.1 5.8 4.0
--------- --------- ---------
Total exports........................................................... $ 18.1 $ 18.0 $ 16.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
Information regarding Hussmann International's sales and revenues and its
operating income, by business segment, for the nine-month periods ended
September 30, 1997 and 1996 is as follows (unaudited and in millions):
<TABLE>
<CAPTION>
OPERATING INCOME
SALES AND REVENUES
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
U.S. and Canada.................................................................. $ 605.4 $ 566.7 $ 73.5 $ 64.5
U. K............................................................................. 78.5 84.5 (36.5) (2.4)
Other International.............................................................. 80.8 57.3 7.8 9.0
Eliminations..................................................................... (31.5) (26.4) -- --
--------- --------- --------- ---------
Total before corporate and other expenses........................................ $ 733.2 $ 682.1 44.8 71.1
--------- ---------
--------- ---------
Hussmann International corporate administrative expenses......................... (13.1) (10.8)
Total operating income........................................................... 31.7 60.3
Whitman charges.................................................................. (21.3) (20.9)
Interest expense................................................................. (14.1) (13.3)
Other income, net................................................................ 1.2 2.1
--------- ---------
Income before income taxes....................................................... $ (2.5) $ 28.2
--------- ---------
--------- ---------
</TABLE>
The operating income by business segment for the nine months ended September
30, 1997 includes non-recurring charges of $30.7 million ($29.6 million on an
after-tax basis) previously described in Note 13.
B-43
<PAGE>
HUSSMANN INTERNATIONAL
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(17) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents Hussmann International's sales and revenues,
gross profit, and net income on a quarterly basis (in millions):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER FULL YEAR
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1997
Sales and revenues................................................. $ 198.6 $ 250.8 $ 283.8
Gross profit....................................................... 34.9 48.4 62.6
Net income (loss).................................................. (0.7) 5.7 (15.9)
1996
Sales and revenue.................................................. $ 194.6 $ 226.0 $ 261.5 $ 323.6 $ 1,005.7
Gross profit....................................................... 34.5 48.1 56.0 65.3 203.9
Net income (loss).................................................. (1.8) 6.6 13.2 16.1 34.1
1995
Sales and revenue.................................................. $ 168.7 $ 220.6 $ 241.4 $ 291.0 $ 921.7
Gross profit....................................................... 28.7 46.5 49.0 55.1 179.3
Net income (loss).................................................. (0.3) 4.8 8.7 10.7 23.9
</TABLE>
(18) FUTURE CHANGE IN ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board ("FASB") issued its
Statement No. 130, "Reporting Comprehensive Income." This Statement establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. All items that are
required to be recognized under accounting standards as components of
comprehensive income must be reported in a financial statement with the same
prominence as other financial statements. Statement No. 130 is effective for
fiscal years beginning after December 15, 1997. With respect to Hussmann
International, the adoption of Statement No. 130 will result in the inclusion,
in the statement of comprehensive income, of the periodic adjustments arising
from the translation into U.S. dollars of foreign currency financial statements
of non-U.S. entities. In accordance with the FASB's Statement No. 52, "Foreign
Currency Translation," such translation adjustments are excluded from the
combined statements of operations but are included in the combined balance
sheets as a component of shareholder equity.
B-44
<PAGE>
ANNEX C -- INFORMATION ABOUT MIDAS
BUSINESS
OVERVIEW
Midas provides retail automotive services in the U.S., Canada, France and
other locations in Europe, Australia, Southeast Asia, the Middle East, Latin
America and the Caribbean. Franchised and Group-operated stores offer exhaust,
brake, suspension, air conditioning and maintenance services. In addition, Midas
manufactures and sells Midas brand products for resale at Midas stores. Midas
also manufactures exhaust products under the IPC brand name for sale to
distributors. Domestic manufacturing plants produce approximately 2,000
different types of mufflers and 3,200 types of exhaust and tail pipes to service
approximately 1,200 makes and models of automobiles. AS USED HEREIN, THE TERM
"GROUP-OPERATED STORE" MEANS A STORE OPERATED BY MIDAS AND EXCLUDES STORES
OPERATED BY FRANCHISEES.
There are approximately 2,700 Midas stores worldwide, of which approximately
1,900 are located in the U.S. The U.S. stores include approximately 1,750
franchised stores, with the balance being Group-operated. Approximately
two-thirds of the Midas stores located outside of the U.S. are franchised.
Midas brand products are sold at wholesale to franchised Midas stores and at
retail by Group-operated stores. IPC brand exhaust products are sold to
distributors. Midas also manufactures and sells shop equipment under the Huth
trademark. Midas Realty Corporation, a Midas subsidiary ("Midas Realty"),
selects, leases, acquires and constructs sites for Midas stores.
For the year ended December 31, 1996, Midas' sales and revenues were $534
million, including sales and revenues from the sales of products and equipment
of $296 million, sales and revenues from retail sales of Group-operated stores
of $131 million, franchise fee and royalty payments of $72 million, and rental
income of $35 million. For the year ended December 31, 1996, the retail service
mix at U.S. stores was approximately 47% brakes, 37% exhaust, 11% suspension
(including shock absorbers and struts) with the balance including other
maintenance services. The service mix outside of the U.S. is generally
consistent with the U.S. service mix.
Midas has been engaged in the retail automotive exhaust business since 1954,
and has granted franchises for and operated Midas stores since 1956. Midas
International Corporation was incorporated in Delaware in 1959. Midas Group,
Inc. was incorporated in Delaware in August 1997 in connection with the
Distribution. Midas' principal executive offices are located at 225 North
Michigan Avenue, Chicago, Illinois 60601 and its telephone number is (312)
565-7500.
MARKET OVERVIEW
Increased technological complexity and durability of vehicles have been the
dominant forces in the evolution of the automotive repair industry since the
1970s. As a result, the types of service providers, as well as the type and
frequency of repairs being performed, has changed. The total number of service
outlets in the U.S. has been declining over the past 15 years. The largest
decrease is attributable to a reduction in the number of local service stations
offering automotive repair. As the number of service stations offering
automotive repair has decreased, more sophisticated service providers have
emerged. The number of independent maintenance and repair shops and large
automotive repair chains has increased slightly. In addition, certain automobile
companies and dealers have announced their intention to pursue more repair
business by separating repair shops from showrooms and offering more convenient
service.
The technological sophistication of modern automobiles has also affected the
types of service needed over the lifetime of a vehicle. In general, the
automotive aftermarket has grown as the number of vehicles in operation, the
average age of these vehicles and the annual number of miles driven per vehicle
have increased. This aftermarket growth is limited by improved vehicle
durability. Vehicles are now assembled with more durable parts, such as
stainless steel exhaust systems, and suspension parts such as shocks and struts
are now more technologically advanced. As a result, the repairs performed over
the lifetime of today's vehicles are more likely to be maintenance services and
light repair work.
These industry trends have resulted over time in a decline in Midas' core
exhaust and suspension services, and a slowing in the growth of revenues derived
from brake services. These trends have also created two specific
C-1
<PAGE>
business issues that Midas management is addressing. The first issue is that
selling, general and administrative expenses in the U.S. have recently grown at
a rate that is disproportionate to sales and revenue growth. The second issue is
poor operating results of Group-operated U.S. stores.
Midas management has addressed these issues with a major restructuring of
the business. Major actions that have been undertaken include the discontinuance
of the segment that comprises the U.S. Group-operated stores, reductions of
asset values to recognize impairments, modification of certain ongoing programs
that support U.S. franchisees and a reduction in the level of employment. These
actions are designed to reverse declines in earnings and return on investment
and provide resources for future growth. To provide for the costs associated
with the discontinuance of the segment, Midas recorded, in the third quarter of
1997, a loss of $35.5 million ($23.7 million on an after-tax basis). To provide
for the other costs associated with these actions, Midas recorded, in the third
quarter of 1997, non-recurring charges totalling $32.1 million ($22.5 million on
an after-tax basis). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Notes 2 and 3 to the Combined Financial
Statements of Midas included elsewhere in this Annex C.
STRATEGY
Midas seeks to increase shareholder value by growing earnings and improving
returns through the execution of several clearly defined strategies. First,
Midas has begun a program to develop customer loyalty through expanded service
offerings and other convenience and customer service initiatives. In addition,
Midas intends to expand its non-U.S. operations to participate in the growing
international automotive repair market. Finally, Midas has rededicated itself to
its franchisee store operations through the discontinuance of its U.S.
Group-operated store division.
INCREASE CUSTOMER LOYALTY. Midas' goal is to establish long-term
relationships with customers modeled on the independent repair shop. Midas views
maintenance service as a key opportunity to develop relationships with car
owners by increasing the frequency of visits to the Midas store. Maintenance
services allow Midas to position itself as an alternative to the independent
repair shops and automobile dealers and to compete with these service providers
on the bases of convenience, quality and value. Midas has instituted other
initiatives such as Uniform Inspection Guidelines, that involve customers in the
diagnostic stage of repairs, and expanded store hours in order to build stronger
customer relationships.
INTERNATIONAL EXPANSION. In general, the international automotive repair
market is growing more quickly than the U.S. market. This growth is a result of
the growing economies and growing number of automobiles in many emerging
markets. Opportunities exist in more established markets because they are still
largely served by automobile dealers and independent repair shops. The lower
prices and convenience that Midas offers provides an alternative to these
service outlets much as it did in the U.S. twenty years ago. Midas seeks to
tailor its growth strategy to the individual market in order to successfully
establish the Midas name. Midas entered the European market in 1976 through its
development in France and Belgium, and has used a strategy of establishing the
Midas name through Group-operated stores and then initiating a franchise
program. In the future, Midas anticipates entering into master license
agreements or joint ventures with regional operators who are familiar with the
needs of local consumers as well as the regulatory structure of the region.
INCREASED U.S. FRANCHISE FOCUS. Much of the success of the Midas program
over the past 40 years has been the strength of its franchisees and the focus of
management on franchising. The decision to discontinue Group-operated stores in
the U.S. will allow Midas to concentrate its human and financial resources on
the goal of increasing franchisee retail sales and system-wide profitability.
FRANCHISES AND THE MIDAS SYSTEM
Midas has developed a system for the establishment and operation of Midas
stores that is used in both franchised and Group-operated stores worldwide. This
system includes site selection, store construction and layout, equipment
selection and installation, purchasing and inventory control methods, accounting
methods, merchandising, advertising, sales and promotional techniques,
installation techniques, personnel training and other matters relating to the
efficient and successful operation of Midas stores and the maintenance of high
standards of quality.
C-2
<PAGE>
Midas identifies and qualifies franchisees through a well-organized
recruitment program in each region of the world in which it operates.
Franchisees are qualified based primarily upon a candidate's financial
suitability and operational experience, among other criteria. Midas also
considers a franchisee's ability to work within the Midas franchise system. Each
franchisee enters into a standard franchise and trademark agreement with Midas.
The franchise and trademark agreement varies by country but these variances do
not substantially alter the franchise arrangement. THE FRANCHISE AND TRADEMARK
AGREEMENT USED IN THE U.S. (THE "U.S. FRANCHISE AGREEMENT") HAS BEEN FILED AS AN
EXHIBIT TO THE MIDAS REGISTRATION STATEMENT, AND THE FOLLOWING SUMMARY OF
PORTIONS THEREOF IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE U.S. FRANCHISE
AGREEMENT AS FILED. SEE "AVAILABLE INFORMATION" IN THE BODY OF THE INFORMATION
STATEMENT.
TERM AND FEES; ESTIMATED COSTS; ROYALTY PAYMENTS. The initial term of the
U.S. Franchise Agreement, as well as most franchise and trademark agreements
throughout the world, is twenty years. The U.S. Franchise Agreement may be
terminated by the franchisee upon thirty days written notice. In most instances
in the U.S. Midas retains, through real estate agreements between franchisees
and Midas Realty (described below), the ability to occupy a site in the event of
a termination of the applicable franchise and trademark agreement in order to
assure that the site may continue to be operated as a Midas store.
An initial franchise fee is charged upon execution of a franchise and
trademark agreement. In opening a Midas store, a franchisee makes additional
expenditures relating to fixtures, machinery and equipment and initial product
inventory. None of the fees and expenses is financed by Midas and, with the
exception of a portion of the initial franchise fee, none is refundable.
Franchisees pay Midas monthly royalties based on a percentage of sales. As
described more fully below, in most countries in which Midas does business, it
is obligated to use one-half of the royalty payments it receives for
advertising.
REALTY AGREEMENTS. Since the mid-1970s, Midas has required each U.S.
franchisee to enter into an agreement with Midas Realty giving Midas Realty the
ability to occupy a site in the event of a termination of the related franchise
and trademark agreement in order to ensure that the site may continue to be
operated as a Midas store if Midas chooses. The agreement with Midas Realty
remains in effect throughout the term of the related franchise and trademark
agreement. When Midas Realty owns the real estate or has the primary lease on a
Midas store, the franchisee is required to lease or sublease the Midas store
from Midas Realty. If the franchisee owns the real estate, the franchisee is
required to provide Midas with real estate control through one of two
alternative means. The first alternative provides for the lease by the
franchisee to Midas Realty of the premises, which in turn leases the premises
back to the franchisee. So long as the franchisee continues to be both the
landowner and the franchisee of that store, no rent is exchanged between the
franchisee and Midas Realty. If the real estate is sold to a third party or if
the franchised Midas store is sold to a new franchisee to whom the sublease is
assigned, Midas Realty will then collect rent from the franchisee and pay rent
to the landowner. Under the second alternative the franchisee enters into a
conditional option to lease with Midas Realty which grants Midas Realty the
option to lease the premises in the event that the related franchise agreement
is terminated. If the franchisee leases real estate from a third-party upon
which the Midas store is located, Midas requires that the franchisee grant to
Midas Realty a conditional assignment of the lease to take effect upon the
termination of the related franchise and trademark agreement. Approximately 75%
of existing franchised Midas stores are subject to various forms of agreements
with Midas Realty. See Note 10 to the Combined Financial Statements of the Midas
Group included elsewhere in this Annex C.
SITES AND SITE SELECTION. Midas assists franchisee candidates by
identifying and developing a site on which a Midas store will be constructed.
Midas may also approve or disapprove of a site located by the candidate. Midas
approves a particular site based upon a review of the demographic
characteristics of the site, traffic counts and patterns, population patterns,
income statistics, parking, competition, proximity of other businesses and other
commercial criteria.
TRAINING. Franchisees are required to complete the Midas initial training
program. The first part of the program includes a minimum of three weeks
observing a franchised Midas store in operation as well as completion of a
self-training program. The second part of the initial training program is held
at a Midas training center and lasts at least three weeks. Supplemental training
sessions are also offered by Midas at certain regional facilities. Midas also
makes training materials available and conducts training seminars in the field.
C-3
<PAGE>
MACHINERY, FIXTURES, INVENTORY AND OTHER GOODS. Midas recommends sources
for machinery, equipment, furniture and fixtures necessary to outfit a Midas
store for operation. In the U.S. and Canada, franchisees are required to
purchase from Midas a sufficient quantity of Midas warranted products,
principally mufflers, shock absorbers, struts and brake pads and shoes, adequate
to meet the public demand for genuine Midas products and to promptly fill
customers' requests for replacement under the terms of various Midas warranties.
Midas is the sole supplier of these warranted parts. Other products, which are
not warranted, such as pipe and brake parts, are sold by Midas, but may be
purchased by franchised stores from other sources. Store equipment, such as
lifts, alignment equipment, lathes, racking and tools may also be purchased
through Midas or from other sources.
WARRANTY PROGRAM. An important feature of the Midas system is the
requirement that the retail customer be provided a written warranty from Midas
on certain Midas products that will be honored at all Midas stores. Each Midas
store is required to honor such warranties in accordance with their terms and
with policies as issued from time to time by Midas.
ADVERTISING. Midas is obligated to use one-half of the royalty payments it
receives from franchisees for advertising placed during the calendar year the
royalties are received or during the following calendar year. Midas directs all
use of advertising funds, and all decisions regarding the creative concepts and
materials used, whether national, regional or local advertising will be used,
the particular media and advertising content, and the advertising agencies to be
used are controlled by Midas. Midas administers cooperative advertising programs
for its franchisees. In addition, Midas incurs advertising costs that are
included in its selling, general and administrative expenses. The aggregate
amounts of advertising expenditures on a system-wide basis were $96 million in
1996, $90 million in 1995 and $79 million in 1994. Such aggregate amounts do not
include expenditures incurred directly by Midas franchisees for local market
advertising.
NATIONAL MIDAS DEALERS ASSOCIATION. The National Midas Dealers Association
(the "NMDA") is an independent association of Midas franchisees. Approximately
75% of the Midas franchisees in the U.S. belong to the NMDA. Midas' management
communicates on a regular basis with NMDA representatives and various NMDA
committees to solicit franchisee input.
PROPRIETARY INFORMATION
Midas holds various patents, trademarks, trade names and copyrights, none of
which, other than the Midas name, is considered by Midas to be material to its
financial condition and results of operations. Midas vigorously defends the
Midas name throughout the world and the name is registered as a trademark in
approximately 55 countries in addition to the U.S. Midas also owns certain trade
secrets including product catalogs, price lists, training manuals and inventory
systems.
MANUFACTURING AND RESALE OPERATIONS
Midas manufactures and resells parts for the U.S. automotive aftermarket.
These products include mufflers, exhaust pipes and tail pipes manufactured by
Midas and shock absorbers, brakes, suspension, steering and front end parts
resold by Midas. Exhaust systems are manufactured by Midas at its Bedford Park,
Illinois and Hartford, Wisconsin facilities. These parts are sold at wholesale
to Midas franchised stores and at retail by Group-operated stores and are
required to be stocked by Midas stores in order to serve the demand for
warranted Midas parts. Midas IPC brand products are also manufactured at both
the Bedford Park and Hartford locations. Huth brand products are manufactured at
the Huth manufacturing plant in Hartford. Midas manufacturing plants have
limited backlogs of unprocessed orders.
Midas purchases the raw materials for the products it manufactures,
primarily steel and packaging, from various suppliers through both long-term and
short-term contracts, depending upon anticipated market conditions. Midas
purchases products for resale from various suppliers through contracts that
generally range from one to three years in duration. These raw materials and
products are available from multiple suppliers, and Midas has not experienced
any significant shortages. Midas believes it enjoys good relationships with its
suppliers.
C-4
<PAGE>
COMPETITION
The automotive repair industry is highly competitive and fragmented, and the
number, size and strength of competitors vary from region to region. Midas'
primary competitors include national and local specialty chains, both franchised
and company-operated, car dealerships, independent repair shops and service bays
operated by mass merchandisers. Certain of these competitors are
well-capitalized and a number of them have instituted expansion plans. Midas
believes that competition in the industry is primarily based on customer service
and reputation, store location, name awareness and price. Midas believes that it
generally has a favorable competitive position with respect to each of these
variables.
CUSTOMERS
The Midas business is not dependent upon a single customer or small group of
customers.
SEASONALITY
Midas experiences the greatest demand for its services in the second and
third quarters of the year, with approximately 55% of annual sales and revenues
occurring during that period in 1996 and 1995, respectively. Approximately 73%
of income from continuing operations was reported in the second and third
quarters of 1996 and 1995, respectively.
REGULATORY COMPLIANCE AND LEGAL PROCEEDINGS
FRANCHISING MATTERS. Midas is subject to a variety of federal and state
laws governing franchise sales and marketing and franchise trade practices.
Applicable laws and regulations generally require disclosure of business
information in connection with the sale of franchises. Certain state regulations
also affect the ability of the franchisor to revoke or refuse to renew a
franchise. Midas deals with franchisees in good faith and seeks to comply with
regulatory requirements. However, given the scope of the Midas business and the
nature of franchise regulation, compliance problems may be encountered from time
to time.
CONSUMER PROTECTION MATTERS. National automotive repair chains have been
the subject of investigations and reports by consumer protection agencies and
the Attorneys General of various states. Publicity in connection with such
investigations can have an adverse effect on the financial condition and results
of operations of a company. In addition to such investigations, state and local
governments have enacted numerous consumer protection laws. Midas has instituted
procedures, including uniform standards of service to be followed by all Midas
stores, to improve customer satisfaction, which also aids in regulatory
compliance.
ENVIRONMENTAL AND OCCUPATIONAL SAFETY MATTERS. Midas stores handle used
automotive oils and certain solvents that are disposed of by licensed
third-party contractors. As a result, Midas is subject to a number of federal,
state and local laws designed to protect the environment. Midas, through its
Group-operated stores, is also subject to regulation regarding the installation
of catalytic converters. In addition to environmental laws, Midas is subject to
the Federal Occupational Safety and Health Act and other laws regulating safety
and health. Midas maintains a program to facilitate compliance with these laws,
the costs of which are not material to its financial condition and results of
operations.
LEGAL PROCEEDINGS. Midas has certain contingent liabilities arising from
various pending claims and litigation related to a number of matters. While the
amount of liability that may result from these matters cannot be determined, in
the opinion of Midas counsel, the ultimate liability will not materially affect
the combined financial position or results of operations of Midas.
EMPLOYEES
As of September 30, 1997, Midas had approximately 4,000 employees, including
approximately 950 who were covered by collective bargaining agreements. Labor
contracts with respect to approximately 150, 350 and 450 employees expire in
1998, 1999 and 2000, respectively. Midas considers its relationships with
employees to be generally satisfactory. Midas franchisees hire their own
employees. As a result of the shortage of qualified mechanics in the automotive
industry, individual franchisees may have difficulty hiring qualified personnel.
C-5
<PAGE>
PROPERTIES
Midas owns two manufacturing facilities located in Bedford Park, Illinois
(180,000 square feet) and Hartford, Wisconsin (200,000 square feet). Midas also
owns an engineering and technical services facility in Chicago, Illinois. Midas
also leases 20,000 square feet of space in Hartford, Wisconsin. In addition,
Midas leases office space in Chicago, where its corporate headquarters are
located, and owns two and leases ten warehouses in the U.S. and Canada. All
facilities are adequately equipped and maintained, and capacity is considered to
be adequate for current needs.
FINANCING
Midas management expects to enter into a five-year, unsecured revolving
credit facility (the "Midas Credit Facility") with a syndicate of commercial
banks and financial institutions prior to the Distribution Date. The Midas
Credit Facility will enable Midas to borrow funds at variable interest rates on
a revolving credit basis up to an aggregate principal amount of $325 million,
subject to the terms and conditions thereof. Midas management expects to borrow
on or before the Distribution Date approximately $225 million under the Midas
Credit Facility for the purposes of settling intercompany loans and advances and
paying a cash dividend to Whitman. At September 30, 1997 such intercompany loans
and advances amounted to approximately $66.2 million. Unused amounts available
under the Midas Credit Facility will be available for Midas' working capital
requirements and general corporate purposes after the Distribution Date. Midas
may convert a portion of its initial debt to longer term fixed rate debt,
contingent upon acceptable market conditions.
POST-DISTRIBUTION DIVIDEND POLICY
The payment and level of cash dividends by Midas after the Distribution will
be subject to the discretion of the Midas Board. Dividend decisions will be
based upon a number of factors, including Midas' operating results and financial
requirements. No determination has been made by the Midas Board with respect to
the initial cash dividend that would be paid commencing after the Distribution.
However, it is expected that the cash dividend initially paid by Midas will be
determined, in part, by reference to dividend payment levels of entities engaged
in businesses comparable to the business in which Midas is engaged.
C-6
<PAGE>
MIDAS GROUP
INTRODUCTION TO PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited Pro Forma Combined Statements of Operations of the Midas Group
for the nine months ended September 1997 and for the year ended December 1996
present the pro forma combined results of operations of the Midas Group,
assuming that the transactions contemplated by the Distribution, including the
borrowing to be incurred by the Midas Group in connection with the Distribution,
had been completed as of the beginning of the respective periods, and include
all material adjustments necessary to restate the Midas Group's historical
results on a pro forma basis. The adjustments required to reflect such
transactions are set forth in the "Pro Forma Adjustments" columns.
The unaudited Pro Forma Combined Balance Sheet of the Midas Group as of
September 1997 presents the pro forma combined financial position of the Midas
Group, assuming that the transactions contemplated by the Distribution described
in the preceding paragraph had been completed as of that date. The adjustments
required to reflect such transactions are set forth in the "Pro Forma
Adjustments" column.
The unaudited pro forma combined financial statements of the Midas Group
should be read in conjunction with the historical financial statements and
related notes of the Midas Group included elsewhere in this Annex C. The pro
forma financial information presented is for informational purposes only and may
not necessarily reflect future results of operations or financial position of
the Midas Group or what the results of operations or financial position of the
Midas Group would actually have been had the Midas Group operated as an
independent company during the periods shown.
C-7
<PAGE>
MIDAS GROUP
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED AND IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 1997
---------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------- -----------
<S> <C> <C> <C>
Sales and revenues.............................................................. $ 402.9 $ -- $ 402.9
Cost of goods sold.............................................................. 197.4 -- 197.4
----------- ----- -----------
Gross profit.................................................................. 205.5 -- 205.5
Selling, general, and administrative expenses................................... 145.6 3.0(a) 148.6
Amortization expense............................................................ 1.0 -- 1.0
Non-recurring charges........................................................... 32.1 -- 32.1
----------- ----- -----------
Operating income.............................................................. 26.8 (3.0) 23.8
Whitman charges................................................................. (13.5) 13.5(b) --
Interest expense:
Whitman....................................................................... (5.5) 5.5(b) --
Other......................................................................... (0.8) (13.0) (c) (13.8)
----------- ----- -----------
Total interest expense...................................................... (6.3) (7.5) (13.8)
Other income, net............................................................... 0.7 -- 0.7
----------- ----- -----------
Income from continuing operations, before taxes............................... 7.7 3.0 10.7
Income tax provisions........................................................... 7.5 1.1(d) 8.6
----------- ----- -----------
Income from continuing operations............................................. 0.2 1.9 2.1
Loss from discontinued operations, after taxes................................ (1.2) -- (1.2)
Loss from disposition of discontinued operations, after taxes................. (23.7) -- (23.7)
----------- ----- -----------
Net income (loss)........................................................... $ (24.7) $ 1.9 $ (22.8)
----------- ----- -----------
----------- ----- -----------
Pro forma income (loss) per share (e):
Continuing operations......................................................... $
Discontinued operations.......................................................
Loss from disposition of discontinued operations..............................
-----------
Net income (loss)........................................................... $
-----------
-----------
</TABLE>
See accompanying notes to pro forma financial information.
C-8
<PAGE>
MIDAS GROUP
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED AND IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 1996
-------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Sales and revenues.............................................................. $ 533.5 $ -- $ 533.5
Cost of goods sold.............................................................. 262.1 -- 262.1
----------- ----------- -----------
Gross profit.................................................................. 271.4 -- 271.4
Selling, general, and administrative expense.................................... 190.2 4.0(a) 194.2
Amortization expense............................................................ 1.3 -- 1.3
----------- ----------- -----------
Operating income.............................................................. 79.9 (4.0) 75.9
Whitman charges................................................................. (17.2) 17.2(b) --
Interest expense:
Whitman....................................................................... (7.3) 7.3(b) --
Other......................................................................... (1.6) (17.2) (c) (18.8)
----------- ----------- -----------
Total interest expense...................................................... (8.9) (9.9) (18.8)
Other income, net............................................................... 0.8 -- 0.8
----------- ----------- -----------
Income from continuing operations, before taxes............................... 54.6 3.3 57.9
Income tax provisions........................................................... 22.5 1.3(d) 23.8
----------- ----------- -----------
Income from continuing operations............................................. 32.1 2.0 34.1
Loss from discontinued operations, after taxes................................ (1.7) -- (1.7)
----------- ----------- -----------
Net income.................................................................. $ 30.4 $ 2.0 $ 32.4
----------- ----------- -----------
----------- ----------- -----------
Pro forma income (loss) per share (e):
Continuing operations......................................................... $
Discontinued operations.......................................................
-----------
Net income.................................................................. $
-----------
-----------
</TABLE>
See accompanying notes to pro forma financial information.
C-9
<PAGE>
MIDAS GROUP
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED AND IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 1997
-------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents..................................................... $ 18.7 $ -- $ 18.7
Receivables, net.............................................................. 74.7 -- 74.7
Inventories................................................................... 80.1 -- 80.1
Other current assets.......................................................... 19.7 -- 19.7
Net assets of discontinued operations......................................... 21.5 -- 21.5
----------- ----------- -----------
Total current assets........................................................ 214.7 -- 214.7
Property and equipment, net..................................................... 187.0 -- 187.0
Intangible assets, net.......................................................... 17.9 -- 17.9
Other assets.................................................................... 26.0 -- 26.0
----------- ----------- -----------
Total assets................................................................ $ 445.6 $ -- $ 445.6
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND EQUITY:
Current liabilities:
Short-term debt............................................................... $ 1.7 $ -- $ 1.7
Accounts payable.............................................................. 35.0 -- 35.0
Income taxes payable.......................................................... 2.2 -- 2.2
Accrued expenses.............................................................. 54.3 -- 54.3
----------- ----------- -----------
Total current liabilities................................................... 93.2 -- 93.2
Loans and advances from Whitman................................................. 66.2 (66.2) (f) --
Long-term debt.................................................................. 3.3 225.0(f) 228.3
Obligations under capital leases................................................ 15.1 -- 15.1
Deferred income taxes and other liabilities..................................... 25.6 -- 25.6
----------- ----------- -----------
Total liabilities........................................................... 203.4 158.8 362.2
Shareholder equity.............................................................. 242.2 (158.8) (f) 83.4
----------- ----------- -----------
Total liabilities and equity................................................ $ 445.6 $ -- $ 445.6
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to pro forma financial information.
C-10
<PAGE>
MIDAS GROUP
NOTES TO PRO FORMA FINANCIAL INFORMATION
(a) To record the estimated additional administrative expenses that would have
been incurred by the Midas Group as a publicly held, independent company.
Corporate administrative expenses that would have been incurred include
corporate governance costs, increased compensation and benefits costs
principally related to new corporate-level positions, and other costs such
as stock transfer agent costs.
(b) To eliminate the Whitman charges and interest paid to Whitman.
(c) To record the interest expense on the funds assumed to be borrowed under
the Midas Credit Facility. The borrowings are assumed to bear an annualized
interest rate of 7.5%, which is management's estimate of the currently
available rate for borrowings under comparable credit facilities. This rate
may change prior to the incurrence of such debt on or before the
Distribution Date; further, after the Distribution the interest rate on the
borrowings under the Midas Credit Facility will continue to be subject to
changes in interest rates generally. The following table reflects the effect
on the pro forma combined statements of operations of an increase or
decrease of 1/8 of a percentage point in the annualized interest rate (in
millions):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 1997 DECEMBER 1996
-------------------- ------------------------
7.375% 7.625% 7.375% 7.625%
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Income from continuing operations, before taxes.............. $ 10.1 $ 9.7 $ 57.2 $ 56.6
Income from continuing operations............................ $ 1.7 $ 1.4 $ 33.7 $ 33.3
Net income (loss)............................................ (23.2) (23.5) $ 32.0 $ 31.6
</TABLE>
(d) To record income tax benefits attributable to adjustments (a), (b) and (c)
at a combined Federal and state tax rate of 38%.
(e) [FOOTNOTE TO BE ADDED IN FUTURE FILING.]
(f) To record payments to be made to Whitman by the Midas Group, anticipated to
aggregate $225 million, which first will be applied to settle intercompany
loans and advances, with the balance to be paid as a cash dividend.
C-11
<PAGE>
MIDAS GROUP SUMMARY OF OPERATIONS
The following table presents selected historical combined financial
information of the Midas Group. The information set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical combined financial statements of
the Midas Group and the notes thereto included elsewhere in this Annex C. The
combined operating results data set forth below for each of the years ended
December 1996, 1995 and 1994 and the combined balance sheet data as of December
1996 and 1995 are derived from, and are qualified by reference to, the audited
combined financial statements of the Midas Group included elsewhere in this
Annex C, and should be read in conjunction with those financial statements and
the notes thereto. The combined operating results data for each of the years
ended December 1993 and 1992 and the combined balance sheet data as of December
1994, 1993 and 1992 are derived from audited combined financial statements of
the Midas Group not included herein. The combined balance sheet data as of
September 1996 are derived from unaudited combined financial statements of the
Midas Group not included herein. The combined operating results data for the
nine-month periods ended September 1997 and 1996, and the combined balance sheet
data as of September 1997 are derived from, and are qualified by reference to,
the unaudited interim combined financial statements of the Midas Group included
elsewhere in this Annex C, and should be read in conjunction with those
financial statements and the notes thereto. See "Index to Midas Group Historical
Financial Information." Per share data has not been presented because the Midas
Group was wholly-owned by Whitman during the periods presented below.
The combined historical financial information presented below may not
necessarily reflect future results of operations or financial position of the
Midas Group or what the results of operations or financial position of the Midas
Group would actually have been had the Midas Group operated as an independent
company during the periods shown. See "Risk Factors--Limited Relevance of
Historical Combined Financial Information" in the body of the Information
Statement.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER FOR THE YEARS ENDED DECEMBER
-------------------- -----------------------------------------------------
(IN MILLIONS) 1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED OPERATING RESULTS DATA:
Sales and revenues............................... $ 402.9 $ 407.8 $ 533.5 $ 509.8 $ 477.2 $ 448.2 $ 433.0
Whitman charges.................................. (13.5) (13.4) (17.2) (19.0) (17.5) (21.2) (21.6)
Income from continuing operations (a)............ 0.2 27.1 32.1 32.7 26.2 20.8 26.5
Income (loss) from discontinued
operations (b)................................. (24.9) (0.8) (1.7) (1.0) 0.4 (1.4) (3.0)
Net income (loss) (c)............................ (24.7) 26.3 30.4 31.7 26.6 15.3 23.5
COMBINED BALANCE SHEET DATA:
Total assets..................................... $ 445.6 $ 476.8 $ 478.4 $ 447.7 $ 409.9 $ 393.3 $ 387.7
Obligations under capital leases................. 18.4 14.0 13.6 16.2 15.2 15.7 17.3
Loans and advances from Whitman.................. 66.2 63.9 77.2 70.3 70.0 90.1 99.7
Shareholder equity............................... 242.2 280.4 277.1 258.5 231.1 206.0 201.6
OTHER DATA:
EBITDA (d)....................................... $ 72.2 $ 78.7 $ 96.2 $ 97.2 $ 86.5 $ 80.4 $ 87.1
EBITDA as a percent of sales and revenues........ 17.9% 19.3% 18.0% 19.1% 18.1% 17.9% 20.1%
</TABLE>
- ------------------------------
(a) Included in the nine months ended September 1997 are non-recurring charges
of $32.1 million ($22.5 million after taxes). See Note 2 to the Combined
Financial Statements of the Midas Group.
(b) Included in the nine months ended September 1997 is the after-tax loss on
disposition of discontinued operations, which amounted to $23.7 million. See
Note 3 to the Combined Financial Statements of the Midas Group.
(c) Included in the year ended December 1993 is the cumulative effect of a
change in accounting for post-retirement benefits, which reduced net income
by $4.1 million on an after-tax basis.
(d) EBITDA is defined as operating income before non-recurring charges plus
depreciation and amortization and is generally accepted as providing useful
information regarding a company's financial performance. EBITDA should not
be considered an alternative to net income, an indicator of the Midas
Group's operating performance, or an alternative to the Midas Group's cash
flow from operating activities as a measure of liquidity.
C-12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Midas provides retail automotive services through approximately 2,700
franchised and Group-operated Midas stores worldwide. Midas stores offer
exhaust, brake, suspension, air conditioning and maintenance services.
Approximately 1,900 Midas stores are located in the United States, including
approximately 1,750 franchised stores and approximately 150 Group-operated
stores. Approximately two-thirds of the Midas stores located outside of the U.S.
are franchised.
Midas realizes some combination (all in the case of the U.S. and Canada) of
the following types of sales and revenues from the operation of Midas stores
worldwide: (i) ongoing royalties from franchisees; (ii) franchise and
development fees from franchisees; (iii) real estate rental revenues; (iv) sales
to franchisees of both manufactured and purchased parts; and (v) retail sales
from Group-operated stores. Midas also sells manufactured exhaust parts to
independent wholesale distributors.
INDUSTRY TRENDS. Automotive repair facilities, other than those operated by
new vehicle retailers, have become increasingly specialized in recent years.
Although the total number of service bays has experienced little growth, the
number of service bays operated by specialized aftermarket service providers has
grown. The increased durability and technological complexity of vehicles have
affected the types and frequency of services needed over the lifetime of a
vehicle. Vehicles are now assembled with more durable parts, such as stainless
steel exhaust systems. In addition, suspension parts such as shock absorbers and
struts are now more technologically advanced. As a result, aftermarket exhaust
and suspension service needs are declining on a volume basis.
An important industry characteristic is the seasonality of demand for
services. In general, the demand for services correlates with the miles that
vehicles are driven. Miles driven tend to be highest in the second and third
quarters of the year.
The foregoing factors have resulted in a highly competitive environment,
especially in the U.S. As opposed to exhaust and suspension needs, brake service
needs are growing moderately. However, the brake service market is becoming
increasingly competitive as more aftermarket service providers offer brake
service.
These industry trends have resulted over time in a decline in Midas' core
exhaust and suspension services, and a slowing in the growth of revenues derived
from brake services. To counter these declines, Midas is adding retail services,
including additional repair services and general automobile maintenance
services. See "Business-- Strategy" included elsewhere in this Annex C.
These industry trends have also created two specific business issues that
Midas management is addressing. The first issue is that selling, general and
administrative expenses in the U.S. have recently grown at a rate that is
disproportionate to sales and revenue growth. The second issue is poor operating
results of Group-operated U.S. stores.
Midas management has addressed these issues with a major restructuring of
the business. Major actions that have been undertaken include: discontinuance of
the segment that comprises the U.S. Group-operated stores, reductions of asset
values to recognize impairments, modification of certain ongoing programs that
support U.S. franchisees; and a reduction in the level of employment. These
actions are designed to reverse declines in earnings and return on investment
and provide resources to invest for future growth. To provide for the costs
associated with the discontinuance of the segment, Midas recorded, in the third
quarter of 1997, a loss of $35.5 million ($23.7 million on an after-tax basis).
This segment has been classified as discontinued operations in the Combined
Financial Statements of the Midas Group included elsewhere in this Annex C. To
provide for the other costs associated with these actions, Midas recorded, in
the third quarter of 1997, non-recurring charges totalling $32.1 million ($22.5
million on an after-tax basis). See "Business--Market Overview" and Notes 2 and
3 to the Combined Financial Statements of the Midas Group included elsewhere in
this Annex C.
C-13
<PAGE>
FISCAL REPORTING PERIODS
Fiscal 1994 through 1996 were each comprised of 52 weeks, while fiscal 1997
will be comprised of 53 weeks. The first nine months of fiscal 1997 consisted of
40 weeks, as compared to 39 weeks in fiscal 1996. The financial effects of this
additional week of operations are discussed below.
RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 1997 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 1996
MIDAS SYSTEM-WIDE RETAIL SALES. Midas System-wide retail sales (including
both franchised and Group-operated stores) increased $1.8 million, or 0.2% in
the nine months ended September 1997. Following is a summary of Midas
System-wide retail sales for the nine months ended September 1997 and 1996, by
geographic region (in millions):
MIDAS SYSTEM-WIDE RETAIL SALES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER
--------------------
1997 1996 CHANGE
--------- --------- -----------
<S> <C> <C> <C>
U.S.:............................................................ $ 896.0 $ 903.5 (0.8)%
--------- ---------
Non-U.S.:
Europe......................................................... 172.2 167.3 2.9
Canada......................................................... 99.9 96.9 3.1
Other.......................................................... 40.9 39.5 3.5
--------- ---------
Total non-U.S................................................ 313.0 303.7 3.1
--------- ---------
Total............................................................ $ 1,209.0 $ 1,207.2 0.2%
--------- ---------
--------- ---------
</TABLE>
Midas System-wide retail sales in the U.S. declined $7.5 million, or 0.8%,
in the nine months ended September 1997, to a total of $896.0 million. The
decrease was due to lower retail customer traffic in core services (exhaust,
brakes and suspension), partially offset by price increases and increased retail
customer traffic in other services.
Midas System-wide retail sales in Europe increased $4.9 million, or 2.9%,
during the nine months ended September 1997, to a total of $172.2 million. The
increase was due to a combination of a 10.4% increase in the number of stores in
operation and sales growth from stores open one year or more, as measured in
local currencies. Midas System-wide European retail sales as measured in U.S.
dollars would have been approximately $15 million higher if currency exchange
rates in the first nine months of 1997 remained the same as during the first
nine months of 1996.
Midas System-wide retail sales in Canada increased $3.0 million, or 3.1%,
during the first nine months of 1997 to a total of $99.9 million. This increase
was due to increased retail customer traffic and price increases.
C-14
<PAGE>
MIDAS GROUP SALES AND REVENUES. Sales and revenues declined $4.9 million,
or 1.2%, during the nine months ended September 1997, to a total of $402.9
million. The decline was mitigated by the fact that $6.4 million of sales and
revenues were recorded during the extra week of operations in the first nine
months at U.S. and Canadian operations. Following is a summary of sales and
revenues for the nine months ended September 1997 and 1996, by geographic region
(in millions):
MIDAS GROUP SALES AND REVENUES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER
--------------------
1997 1996 CHANGE
--------- --------- -----------
<S> <C> <C> <C>
U.S. Operations:.................................................... $ 264.2 $ 270.8 (2.4)%
--------- ---------
Non-U.S. Operations:
Europe............................................................ 86.3 85.7 0.7
Canada............................................................ 44.6 41.7 7.0
Other............................................................. 7.8 9.6 (18.8)
--------- ---------
Total non-U.S................................................... 138.7 137.0 1.2
--------- ---------
Total............................................................... $ 402.9 $ 407.8 (1.2)%
--------- ---------
--------- ---------
</TABLE>
Sales and revenues from U.S. Operations declined $6.6 million, or 2.4%, for
the nine months ended September 1997, to a total of 264.2 million. Excluding the
extra week of operations, nine month sales and revenues in the U.S. would have
declined $12.2 million, or 4.5%. The decline in U.S. sales and revenue was due
to lower retail customer traffic in core services (exhaust, brakes and
suspension) which resulted in lower wholesale parts sales and to a lesser
extent, lower royalty revenues.
European sales and revenues increased $0.6 million, or 0.7% for the nine
months ended September 1997, to a total of $86.3 million. European sales and
revenues as reported in U.S. dollars would have been $11.9 million higher if
currency exchange rates in the first nine months of 1997 remained the same as
during the first nine months of 1996. The increase in local currency sales and
revenues at European Operations for the first nine months of 1997 was due to an
increase in the number of stores in operation and sales increases from stores
open one year or more.
Canadian sales and revenues increased $2.9 million, or 7.0%, during the nine
months ended September 1997. The inclusion of an additional week of operations
in the first nine months of 1997 accounted for approximately one-third of the
increase, with the balance due to increased royalty revenues and wholesale parts
sales and increased retail sales from Group-operated stores.
Other non-U.S. Operations' sales and revenues declined $1.8 million, or
18.8%, during the first nine months due to the franchising of a number of
Group-operated stores in Australia.
GROSS PROFIT. Gross profit for the nine months ended September 1997
declined $1.8 million, or 0.9%, to a total of $205.5 million. Excluding the
additional week of operations from 1997 results, the decrease would have been
$4.3 million, or 2.1%, as compared to the prior year. The decrease in gross
profit was principally due to lower wholesale parts shipments at U.S. Operations
as gross profit margin year over year changed only 0.2%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling general and
administrative expenses increased $5.0 million, or 3.6%, during the nine months
ended September 1997, to a total of $145.6 million. The principal factors
contributing to the increase in selling, general and administrative expenses
were: increased marketing and payroll costs, severance benefits, consulting fees
and higher wholesale parts distribution costs. The additional week of operations
in 1997 was also a contributing factor to the year over year increase.
OPERATING INCOME. Operating income, before non-recurring charges, decreased
$6.9 million, or 10.5%, during the nine months ended September 1997, to a total
of $58.9 million. Operating income, after non-recurring
C-15
<PAGE>
charges, decreased $39.0 million, or 59.3%, during the nine months ended
September 1997, to a total of $26.8 million. Following is a summary of operating
income for the nine months ended September 1997 and 1996, by geographic region
(in millions):
MIDAS GROUP OPERATING INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER
--------------------
1997 1996 CHANGE
--------- --------- -----------
<S> <C> <C> <C>
U.S. Operations:....................................................... $ 57.0 $ 64.5 (11.6)%
--------- ---------
Non-U.S. Operations:
Europe............................................................... 4.5 4.4 2.3
Canada............................................................... 2.7 2.6 3.9
Other................................................................ (0.7) (0.9) (22.2)
--------- ---------
Total non-U.S...................................................... 6.5 6.1 6.6
--------- ---------
63.5 70.6 (10.6)
Corporate administrative expenses...................................... (4.6) (4.8) (4.2)
--------- ---------
Operating income, exclusive of non-recurring charges................... $ 58.9 $ 65.8 (10.5)
--------- ---------
--------- ---------
</TABLE>
In the third quarter of 1997, Midas Group recorded non-recurring charges of
$32.1 million ($22.5 million on an after-tax basis), as described under
"--Introduction" and Note 2 of Notes to Combined Financial Statements. The
non-recurring charges were recorded in the following geographic regions: U.S.
Operations--$25.4 million, Europe--$5.3 million, and other non-U.S.
Operations--$1.4 million.
Operating income from U.S. Operations declined $7.5 million, or 11.6%,
during the nine months ended September 1997, to a total of $57.0 million. The
decrease was principally due to a combination of lower royalty revenues and
wholesale parts sales and higher selling, general and administrative costs in
most major expense categories.
European operating income increased $0.1 million during the nine months
ended September 1997, which was consistent with the increase in sales and
revenues reported for the same period. Operating income as reported in U.S.
dollars would have been $0.9 million higher if currency exchange rates in the
nine months in 1997 had remained the same as during the nine months ended
September 1996.
Canadian operating income increased $0.1 million in the nine months ended
September 1997, to a total of $2.7 million. The increase was due to higher sales
and revenues.
The loss from other non-U.S. Operations declined $0.2 million during the
nine months ended September 1997, due to improved results at Australian
operations.
C-16
<PAGE>
RESULTS OF OPERATIONS--1996 COMPARED TO 1995
MIDAS SYSTEM-WIDE RETAIL SALES. Midas System-wide retail sales increased by
$57.1 million, or 3.8% in 1996 to a total of $1,566.3 million. Following is a
summary Midas System-wide retail sales for 1996 and 1995, by geographic region
(in millions):
MIDAS SYSTEM-WIDE RETAIL SALES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
--------------------
1996 1995 CHANGE
--------- --------- -----------
<S> <C> <C> <C>
U.S.:............................................................ $ 1,171.6 $ 1,144.6 2.4%
--------- ---------
Non-U.S.:
Europe......................................................... 219.9 197.4 11.4
Canada......................................................... 125.5 118.2 6.2
Other.......................................................... 49.3 49.0 0.6
--------- ---------
Total non-U.S................................................ 394.7 364.6 8.3
--------- ---------
Total............................................................ $ 1,566.3 $ 1,509.2 3.8%
--------- ---------
--------- ---------
</TABLE>
Midas System-wide retail sales in the U.S. increased $27.0 million, or 2.4%,
in 1996 to a total of $1,171.6 million. The increase in U.S. retail sales was
due to: a 1% increase in the number of stores in operation, retail price
increases, and increased retail customer brake service traffic, partially offset
by lower retail customer traffic in exhaust and suspension services.
Midas System-wide retail sales in Europe increased $22.5 million, or 11.4%,
in 1996 to a total of $219.9 million. The increase in retail sales in Europe was
due to continued rapid store expansion and gains in same store sales.
Midas System-wide retail sales in Canada increased $7.3 million, or 6.2%, in
1996 to a total of $125.5 million. The increase in retail sales in Canada was
due to increased retail customer traffic at both franchised and Group-operated
stores.
MIDAS GROUP SALES AND REVENUES. Sales and revenues increased $23.7 million,
or 4.7%, in 1996 to a total of $533.5 million. Following is a summary of sales
and revenues for 1996 and 1995, by geographic region (in millions):
MIDAS GROUP SALES AND REVENUES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
--------------------
1996 1995 CHANGE
--------- --------- ---------
<S> <C> <C> <C>
U.S. Operations:.................................................... $ 352.6 $ 347.5 1.5%
--------- ---------
Non-U.S. Operations:
Europe............................................................ 113.2 94.6 19.7
Canada............................................................ 55.0 51.7 6.4
Other............................................................. 12.7 16.0 (20.6)
--------- ---------
Total non-U.S................................................... 180.9 162.3 11.5
--------- ---------
Total............................................................... $ 533.5 $ 509.8 4.7%
--------- ---------
--------- ---------
</TABLE>
U.S. sales and revenues increased $5.1 million, or 1.5%, in 1996 to a total
of $352.6 million. The 1.5% increase in sales and revenues from U.S. Operations
was due to increased shipments of wholesale parts to non-Midas system customers
and increased royalty revenues.
C-17
<PAGE>
European sales and revenues increased $18.6 million, or 19.7%, in 1996 to a
total of $113.2 million. The increase in European sales and revenues was due to
a combination of a 15% increase in the number of stores in operation, an
increase in the number of Group-operated stores, and an increase in same store
sales.
Canadian sales and revenues increased $3.3 million, or 6.4%, in 1996 to a
total of $55.0 million. The increase in Canadian sales and revenues was due to
increases in royalty revenues, an increase in same store retail sales from
Group-operated stores, and increased sales of wholesale parts.
Sales and revenues from other non-U.S. operations decreased 20.6% in 1996
due to the franchising of Group-operated stores in Australia and generally weak
overall retail sales in Australia.
GROSS PROFIT. Gross profit increased $12.2 million, or 4.7%, in 1996 to a
total of $271.4 million. This increase was consistent with the increase in sales
and revenues. As a percentage of sales and revenues, gross profit margin was
essentially flat on a year-to-year basis.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $14.8 million, or 8.4%, in 1996 to a total of
$190.2 million. Slightly less than one-half of the increase in operating
expenses was attributable to higher expenses at Group-operated stores, due to a
combination of an increase in the number of stores in operation and higher per
store selling expenses. The remainder of the increase was due to generally
higher selling and administrative expenses, particularly at U.S. Operations.
OPERATING INCOME. Operating income decreased $3.0 million, or 3.6%, in 1996
to a total of $79.9 million. The following is a summary of operating income for
1996 and 1995, by geographic region (in millions):
MIDAS GROUP OPERATING INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
--------------------
1996 1995 CHANGE
--------- --------- ---------
<S> <C> <C> <C>
U.S. Operations:....................................................... $ 78.4 $ 85.2 (8.0)%
--------- ---------
Non-U.S. Operations:
Europe............................................................... 4.7 2.8 67.9
Canada............................................................... 2.7 1.7 58.8
Other................................................................ (1.1) (2.6) (57.7)
--------- ---------
Total non-U.S...................................................... 6.3 1.9 *
--------- ---------
84.7 87.1 (2.8)
Corporate administrative expenses...................................... (4.8) (4.2) (14.3)
--------- ---------
Total.................................................................. $ 79.9 $ 82.9 (3.6)%
--------- ---------
--------- ---------
</TABLE>
- ------------------------
* NOT MEANINGFUL.
Operating income from U.S. Operations decreased $6.8 million, or 8.0%, to a
total of $78.4 million. The decrease in operating income was primarily due to
higher operating expenses.
Operating income from European operations increased $1.9 million, or 67.9%,
in 1996 to a total of $4.7 million. The increase was due to continued rapid
store expansion, increased same store retail sales growth at both Group-operated
and franchised stores, and increased wholesale parts brokerage fees.
Operating income from Canadian operations increased $1.0 million, or 58.8%,
in 1996 to a total of $2.7 million. The increase was due to a combination of a
gain from the franchising of a Group-operated store market, increased retail
sales at both Group-operated and franchised stores, and higher sales of
wholesale parts.
The loss from other non-U.S. Operations declined $1.5 million in 1996 due to
improved results at Australian operations and reduced spending for market
research and related professional consulting fees.
C-18
<PAGE>
RESULTS OF OPERATIONS--1995 COMPARED TO 1994
MIDAS SYSTEM-WIDE RETAIL SALES. Midas System-wide retail sales increased by
$70.1 million, or 4.9%, in 1995 to a total of $1,509.2 million. Following is a
summary of Midas System-wide retail sales for 1995 and 1994, by geographic
region (in millions):
MIDAS SYSTEM-WIDE RETAIL SALES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER
--------------------
1995 1994 CHANGE
--------- --------- -----------
<S> <C> <C> <C>
U.S.:............................................................ $ 1,144.6 $ 1,110.2 3.1%
--------- ---------
Non-U.S.:
Europe......................................................... 197.4 163.6 20.7
Canada......................................................... 118.2 118.9 (0.6)
Other.......................................................... 49.0 46.4 5.6
--------- ---------
Total non-U.S................................................ 364.6 328.9 10.9
--------- ---------
Total............................................................ $ 1,509.2 $ 1,439.1 4.9%
--------- ---------
--------- ---------
</TABLE>
Midas System-wide retail sales in the U.S. increased $34.4 million, or 3.1%,
in 1995 to a total of $1,144.6 million. The growth in retail sales was due to
price increases, an increase in the number of stores in operation and an
increase in brake service customer traffic, offset partially by lower exhaust
service customer traffic.
Midas System-wide retail sales in Europe increased $33.8 million, or 20.7%,
in 1995 to a total of $197.4 million. The increase was due to a combination of a
7.5% increase in the number of stores in operation, a $9.5 million increase due
to the favorable effects of changes in currency exchange rates, and higher same
store retail traffic.
Midas System-wide retail sales in Canada were virtually flat in 1995 as
compared with 1994. Midas System-wide retail sales in other non-U.S. countries
increased 5.6% in 1995, with one-half of the increase due to the favorable
effects of changes in currency exchange rates and the balance due to same store
sales growth in Australia.
C-19
<PAGE>
MIDAS GROUP SALES AND REVENUES. Sales and revenues increased $32.6 million,
or 6.8% in 1995 to a total of $509.8 million. Following is a summary of sales
and revenues for 1995 and 1994, by geographic region (in millions):
MIDAS GROUP SALES AND REVENUES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
--------------------
1995 1994 CHANGE
--------- --------- -----------
<S> <C> <C> <C>
U.S. Operations: $ 347.5 $ 336.9 3.2%
--------- ---------
Non-U.S.Operations:
Europe............................................................ 94.6 72.1 31.2
Canada............................................................ 51.7 51.7 --
Other............................................................. 16.0 16.5 (3.0)
--------- ---------
Total non-U.S................................................... 162.3 140.3 15.7
--------- ---------
Total............................................................... $ 509.8 $ 477.2 6.8%
--------- ---------
--------- ---------
</TABLE>
U.S. sales and revenues increased $10.6 million, or 3.2%, in 1995 to a total
of $347.5 million. Increased royalty and real estate rental revenues and higher
wholesale parts shipments accounted for the growth.
European sales and revenues increased $22.5 million, or 31.2%, due to rapid
expansion of the Group-operated store network, increased royalties, and
increased wholesale product brokerage fees.
GROSS PROFIT. Gross profit increased $24.8 million, or 10.6%, in 1995 to a
total of $259.2 million. Nearly two-thirds of the increase in gross profit was
attributable to non-U.S. Operations due to increases in sales of Group-operated
stores, increased royalty and brokerage fee revenues, and a 6.9% year over year
increase in the dollar translated value of strengthening local currencies. The
remainder of the increase was due to higher gross profit at U.S. Operations due
to increased wholesale parts sales and higher royalty and real estate rental
revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $15.3 million, or 9.6%, in 1995 to $175.4
million. Substantially all of the increase in selling, general and
administrative expenses was attributable to non-U.S. Operations due to increased
Group-operated store sales levels, general growth in administrative support
costs to support aggressive store expansion objectives and a 6.9% year over year
increase in the dollar translated value of strengthening local currencies.
OPERATING INCOME. Operating income increased $9.4 million, or 12.8%, in
1995 to a total of $82.9 million. Following is a summary of operating income for
1995 and 1994, by geographic region (in millions):
MIDAS GROUP OPERATING INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
--------------------
1995 1994 CHANGE
--------- --------- -----------
<S> <C> <C> <C>
U.S. Operations........................................................ $ 85.2 $ 76.4 11.5%
--------- ---------
Non-U.S. Operations:
Europe............................................................... 2.8 2.6 7.7
Canada............................................................... 1.7 1.7 --
Other................................................................ (2.6) (3.3) 21.2
--------- ---------
Total non-U.S...................................................... 1.9 1.0 90.0
--------- ---------
87.1 77.4 12.5
Corporate administrative expenses...................................... (4.2) (3.9) (7.7)
--------- ---------
Total.................................................................. $ 82.9 $ 73.5 12.8%
--------- ---------
--------- ---------
</TABLE>
C-20
<PAGE>
Operating income from U.S. Operations increased $8.8 million, or 11.5%, in
1995 to a total of $85.2 million. The increase in U.S. operating income was due
to a combination of increased royalty and real estate rental revenues, and
increased sales of wholesale parts.
European operating income was up 7.7% in 1995 to $2.8 million due to an
increase in the number of stores and sales growth from stores opened one year or
more. The loss from other non-U.S. Operations declined $0.7 million due to
improved results at Australian operations.
LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS. Midas' cash flows from operations historically
have been substantially affected by the allocations from Whitman of expenses to
its operating subsidiaries. These charges to Midas were $17.2 million, $19.0
million and $17.5 million during 1996, 1995, and 1994, respectively, and $13.5
million and $13.4 million for the nine months ended September 1997 and 1996,
respectively. These charges are not necessarily indicative of the costs that
would have been incurred by Midas had it been an independent company during the
periods presented, and such charges will be eliminated after the Distribution
Date. After the Distribution Date, Midas will be responsible for the expenses of
being a public company. In addition, Whitman has charged Midas interest on loans
and advances from Whitman. Although Midas management believes it will be able to
borrow funds after the Distribution at interest rates equal to or below those
paid to Whitman, total interest expense to be incurred by Midas after the
Distribution Date is expected to increase substantially due to the additional
funds required to pay a cash dividend to Whitman at the Distribution Date. See
Note 5 to Combined Financial Statements of the Midas Group and "Midas Group Pro
Forma Combined Financial Information" included elsewhere in this Annex C.
On a historical basis, Midas generated net cash from continuing operations
of $31.3 million, $37.3 million and $43.5 million during 1996, 1995, and 1994,
respectively. The decline in cash provided by continuing operations in each of
the last two years was principally due to increased levels of operating working
capital (receivables and inventories, less payables), which increases were
disproportionate to the increases in sales and revenues. In addition, in 1996
there was a decline in the liability for advertising funds collected from and
disbursed for U.S. franchisees, due to higher spending levels in 1996 as
compared to 1995.
For the nine-month period ended September 1997, Midas generated net cash
from continuing operations of $33.2 million, compared to net cash from
continuing operations of $31.4 million for the same period in 1996. Significant
changes in cash flows during the nine-month periods included an increase of
$19.2 million in receivables in 1996 and a decrease in accounts payable of $17.7
million in 1997. The increase in receivables in 1996 was primarily due to strong
sales and revenues and a special wholesale parts sales promotion that included
extended payment terms. In 1997, there was no similar sales promotion and sales
and revenues were relatively weak. The decline in accounts payable in 1997 was
due to the timing of payments to several large vendors.
CASH FLOWS FROM INVESTING ACTIVITIES. During all periods presented, cash
flows for investing activities were comprised of capital investments for
property and equipment, offset by proceeds from sales of property and equipment.
During the years 1994 through 1996, average capital investments were
approximately $23.6 million; they are expected to be approximately $21 million
in 1997. Midas management anticipates that capital investments in the years 1998
through 2000 will decline to a level of approximately $15 million per year,
primarily through reductions in the level of investments in Group-operated
stores.
CASH FLOWS FROM FINANCING ACTIVITIES. The principal use of cash in
financing activities has been the payment of cash to Whitman. Net payments to
Whitman, including dividends, amounted to $4.0 million in 1996, $9.2 million in
1995, and $24.6 million in 1994. Such net payments declined on a year-to-year
basis largely because of the previously described increases in the levels of
operating working capital. During the nine months ended September 1997, net
payments to Whitman amounted to $13.2 million, as compared to $10.8 million in
the nine months ended September 1996. See "Cash Management and Advances" in Note
5 to Combined Financial Statements of the Midas Group included elsewhere in this
Annex C.
C-21
<PAGE>
AVAILABLE CASH AND CREDIT FACILITY. Midas' cash and cash equivalents
totaled $18.7 million as of September 1997 compared to $17.9 million and $10.7
million at December 1996 and 1995, respectively.
Midas management expects to enter into the Midas Credit Facility prior to
the Distribution Date. The Midas Credit Facility will enable Midas to borrow
funds at variable interest rates on a revolving credit basis up to an aggregate
principal amount of $325 million, subject to the terms and conditions thereof.
Midas management expects to borrow on or before the Distribution Date
approximately $225 million under the Midas Credit Facility for the purposes of
settling intercompany loans and advances and paying a cash dividend to Whitman.
At September 30, 1997 such intercompany loans and advances amounted to
approximately $66.2 million.
Midas management believes that cash flows from operations, asset sales and
unused amounts available under the Midas Credit Facility will be sufficient to
satisfy Midas' future working capital, capital investment and other financing
requirements for the foreseeable future.
NON-U.S. OPERATIONS. The most significant non-U.S. operations are located
in Canada and France, with other operations located in, among other countries,
Australia, Austria, Belgium, Italy and Spain. Midas is subject to foreign
currency risks when translating its non-U.S. entity financial statements into
U.S. dollars for financial reporting purposes. In general, a rising U.S. dollar
in relation to a foreign currency will have a negative effect on Midas' results
of operations, while a falling U.S. dollar will have the opposite effect on
Midas' results. In addition to the foreign currency translation risks faced by
Midas, other risks associated with non-U.S. operations include the potential for
restrictive actions taken by host country governments, the risks relating to
non-U.S. economic and political conditions, and the risks relating to limits on
the transfer of funds from non-U.S. entities to Midas. Midas does not use
foreign currency risk management instruments to manage its exposure to changes
in foreign currency exchange rates. However, Midas management plans to
periodically reassess whether it would be appropriate to use foreign currency
risk management instruments.
FUTURE CHANGE IN ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board ("FASB") issued its
Statement No. 130, "Reporting Comprehensive Income." This Statement establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. All items that are
required to be recognized under accounting standards as components of
comprehensive income must be reported in a financial statement with the same
prominence as other financial statements. Statement No. 130 is effective for
fiscal years beginning after December 15, 1997. With respect to the Midas Group,
the adoption of Statement No. 130 will result in the inclusion, in the statement
of comprehensive income, of the periodic adjustments arising from the
translation into U.S. dollars of foreign currency financial statements of
non-U.S. entities. In accordance with the FASB's Statement No. 52, "Foreign
Currency Translation," such translation adjustments are excluded from the
combined statements of operations but are included in the combined balance
sheets as a component of shareholder equity.
C-22
<PAGE>
MANAGEMENT
DIRECTORS
Immediately after the Distribution Date, the Midas Board is expected to
consist of the individuals named in the following table. The Midas Board will be
divided into three classes. Directors in each class will serve until the annual
meeting of shareholders held in the year in which the term for such class
expires and will serve thereafter for three years. See "Certain Antitakeover
Effects of Certain Charter and By-Law Provisions, the Rights and Delaware Law"
in the body of the Information Statement.
<TABLE>
<CAPTION>
YEAR TERM
NAME AGE EXPIRES BACKGROUND
- --------------------------------- --- ----------- ------------------------------------------------------------------
<S> <C> <C> <C>
[name]........................... [ ] 1999 [ ]
[name]........................... [ ] 1999 [ ]
[name]........................... [ ] 2000 [ ]
[name]........................... [ ] 2000 [ ]
[name]........................... [ ] 2001 [ ]
[name]........................... [ ] 2001 [ ]
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
Midas will be managed under the direction of its Board of Directors. The
Midas Board will meet on a regular basis to review Midas' operations, strategic
and business plans, acquisitions and dispositions, and other significant
developments affecting Midas, and to act on matters requiring approval of the
Midas Board. It will also hold special meetings when an important matter
requires Midas Board action between scheduled meetings. Members of senior
management will be regularly invited to Midas Board meetings to discuss the
progress of and future plans relating to their areas of responsibility.
To facilitate independent director review, and to make the most effective
use of the directors' time and capabilities, the Midas Board is expected to
establish various committees, including those described below.
The EXECUTIVE COMMITTEE of the Midas Board will be constituted by the Midas
Board to act, except as limited by applicable law, in lieu of the Midas Board
and between meetings of the Midas Board. The Executive Committee is expected to
consist of [ ].
The AUDIT COMMITTEE will review the audit report of Midas as prepared by its
designated certified public accountants, recommend the selection of a certified
public accounting firm each year and review audit and any non-audit fees paid to
Midas' certified public accountants. The Midas internal audit reports will also
be available for review by the Audit Committee. The Committee will report its
findings and recommendations to the Midas Board for appropriate action. The
Audit Committee is expected to consist of [ ].
The MANAGEMENT RESOURCES AND COMPENSATION COMMITTEE will be charged with the
responsibility of supervising the compensation policies of Midas, administering
Midas' employee incentive plans, reviewing officers' salaries, approving
significant changes in salaried employee benefits and recommending to the Midas
Board such other forms of remuneration as it deems appropriate. The Management
Resources and Compensation Committee is expected to consist of
[ ].
The FINANCE AND PENSION COMMITTEE will supervise the financial affairs of
Midas and receive and review reports of those persons who supervise and manage
the Midas pension plans. The Midas Board may delegate to the Finance and Pension
Committee and certain officers its authority to approve financing transactions
within specified dollar limitations. The Finance and Pension Committee is
expected to consist of [ ].
The Midas Board, acting as a committee of the whole, will have the
responsibility for considering nominations for prospective board members. The
Midas Board will consider nominees recommended by other directors, shareholders
and management who present for evaluation by the Midas Board appropriate data
with respect to the suggested candidate, provided that nominations by
shareholders must be made in accordance with the Midas By-Laws. See "Certain
Antitakeover Effects of Certain Charter and By-Law Provisions, the Rights and
Delaware Law--Certificate of Incorporation and By-Laws" in the body of the
Information Statement.
The Midas Board may also establish other committees.
C-23
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are not employees of Midas will receive an annual retainer of
[$ ], plus [$ ] for each meeting of the Midas Board and [$ ] for each Midas
Board Committee meeting attended. The Chairman of each Midas Board Committee
will be paid an additional [$ ] annual retainer. Non-employee directors may also
receive awards pursuant to the Midas Stock Incentive Plan.
EXECUTIVE OFFICERS
Set forth below is information with respect to those individuals who are
expected to serve as executive officers of Midas immediately following the
Distribution.
<TABLE>
<CAPTION>
NAME, AGE AND POSITION BACKGROUND AND EXPERIENCE
- ----------------------------------------- --------------------------------------------------------------------------
<S> <C>
John R. Moore (62) ...................... Mr. Moore has been with Midas since 1965. In the ensuing years, he held
President and Chief Executive Officer various positions with Midas, becoming President and Chief Executive
Officer in 1982.
R. Lee Barclay (55) ..................... Mr. Barclay joined Midas in 1980 as Vice President--Controller. He became
Executive Vice President and Chief Vice President and Chief Financial Officer in 1982, and has served in his
Financial Officer present position since 1989. He spent eight years as an audit manager for
Price Waterhouse in the 1970's.
Terrence E. Reynolds (58) ............... Mr. Reynolds joined Midas in 1985 as Vice President--U.S. Operations. He
Senior Vice President and General became a Senior Vice President in 1989 and assumed his current position in
Manager--U.S. Operations Group 1997.
John A. Warzecha (49) ................... Mr. Warzecha served as Vice President and General Manager of Midas'
Senior Vice President and General Group-operated stores from 1989 to 1993, and as Senior Vice
Manager--Midas U.S. President--U.S. Franchise Operations from 1993 to 1997. He first joined
Midas in 1973.
Peter J. F. Schalburg (46) .............. Mr. Schalburg has served as Senior Vice President and General
Senior Vice President and General Manager--European operations since August 1997. From 1990 to 1997 he
Manager--European Operations served as Vice President and General Manager--Europe. Prior to 1990, he
served in various international sales and marketing positions with Valeo
and Tenneco Automotive.
Robert H. Sorensen (51) ................. Mr. Sorensen joined Midas in 1995. From 1990 to 1995, Mr. Sorensen was in
Vice President, General Counsel and private practice with the law firm of Kaufman, Chaiken & Sorensen. Prior
Secretary to 1990, he served as chief legal officer with Rollins, Inc. and Burger
King Corporation.
Gerard M. Klaisle (44) .................. Mr. Klaisle recently became Senior Vice President--Human Resources of
Senior Vice President--Human Resources Midas. From 1987 to 1997 he was Midas' Vice President--Human Resources for
U.S. operations. He joined Midas in 1982.
Edwin A. Grell (53) ..................... Mr. Grell has been with Midas since 1979. He has subsequently held various
Vice President--Controller audit and accounting positions, including Treasurer and Assistant
Corporate Controller, before becoming Vice President-- Controller in
September, 1997.
</TABLE>
C-24
<PAGE>
OWNERSHIP OF MIDAS COMMON STOCK BY MANAGEMENT
All Midas Common Stock is currently owned by Whitman and no director or
executive officer of Midas owns any shares of Midas Common Stock. The following
table sets forth the beneficial ownership of Whitman Common Stock on November 1,
1997 by the individuals expected to be directors of Midas, the executive
officers named in the Summary Compensation Table below and by all directors and
executive officers of Midas as a group. Directors and executive officers of
Midas will receive shares of Midas Common Stock in respect of the shares of
Whitman Common Stock held by them on the Record Date on the same basis as other
Whitman shareholders. Each of the following individuals and members of the group
has sole voting and investment power with respect to the shares shown unless
otherwise indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OR IDENTITY OF GROUP BENEFICIAL OWNERSHIP CLASS
- ----------------------------------------------------------------------------------- -------------------- -------------
<S> <C> <C>
[name]............................................................................. [ ](a) *
[name]............................................................................. [ ](a) *
[name]............................................................................. [ ](a) *
John R. Moore...................................................................... [ ](a) *
R. Lee Barclay..................................................................... [ ](a) *
Terrence E. Reynolds............................................................... [ ](a) *
John A. Warzecha................................................................... [ ](a) *
Peter J. F. Schalburg.............................................................. [ ](a) *
All Directors and Executive Officers as a Group ([ ] persons)...................... [ ](b) [ ]
</TABLE>
- ------------------------
* Less than 1%.
(a) Includes shares which the named director or executive officer has the right
to acquire within 60 days after November 1, 1997, through exercise of
Whitman Common Stock options, as follows: Mr. Moore, [ ] shares; Mr.
Barclay, [ ] shares; Mr. Reynolds, [ ] shares; Mr. Warzecha, [ ]
shares; and Mr. Schalburg, [ ] shares.
(b) The number of shares shown as beneficially owned include [ ] shares which
directors and executive officers have the right to acquire within 60 days
after November 1, 1997, through the exercise of Whitman Common Stock
options, [ ] shares subject to possible forfeiture under outstanding
Whitman restricted stock awards, and [ ] shares representing the vested
beneficial interest of such persons under the Whitman Retirement Savings
Plan.
C-25
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows annual and long-term compensation for each of
Midas' five most highly compensated executive officers for services in all
capacities to Midas and its subsidiaries and affiliates during 1996.
Compensation, as reflected in this table and the tables on stock options which
follow, is presented on the basis of rules of the SEC and does not, in the case
of certain stock-based awards or accruals, necessarily represent the amount of
compensation realized or which may be realized in the future. References to
"restricted stock" and "stock options" relate to awards under Whitman's Stock
Incentive Plan.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------
AWARDS
ANNUAL COMPENSATION ---------------------------
--------------------------------------- WHITMAN
OTHER ANNUAL RESTRICTED WHITMAN
COMPENSATION STOCK AWARDS STOCK ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) ($) ($)(B) OPTIONS (#) COMPENSATION ($)(A)
- --------------------------------- ---------- --------- ------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
John R. Moore.................... 352,000 100,000 16,182 315,625 53,000 43,976
President and Chief Executive
Officer
R. Lee Barclay................... 237,750 41,000 8,193 161,600 32,000 41,806
Executive Vice President and
Chief Financial Officer
Terrence E. Reynolds............. 210,000 24,000 8,193 111,100 18,700 26,907
Senior Vice President and
General Manager-- U.S. Operation
Group
John A. Warzecha................. 178,875 27,000 8,193 111,100 18,700 23,259
Senior Vice President and
General Manager-- Midas U.S.
Peter J. F. Schalburg............ 199,809 101,000 -- 146,450 22,000 16,785
Senior Vice President and
General Manager-- European
Operations
</TABLE>
- ------------------------
(a) Except for Mr. Schalburg, the amounts shown for All Other Compensation are
amounts accrued under a nonqualified retirement plan (Mr. Moore, $35,832;
Mr. Barclay, $19,794; Mr. Reynolds, $17,760; and Mr. Warzecha, $15,903),
together with the 1996 values of premiums paid by Midas for an executive
split dollar life insurance program established July 1, 1996, to replace
benefits formerly provided under a group program (Mr. Moore, $8,144; Mr.
Barclay, $22,012; Mr. Reynolds, $9,147; and Mr. Warzecha, $7,356). The
amount shown for Mr. Schalburg is the amount contributed by Midas to a
private retirement arrangement that supplements the French social security
program.
(b) The number of shares of restricted Whitman Common Stock and the market value
thereof held by Messrs. Moore, Barclay, Reynolds, Warzecha and Schalburg at
December 31, 1996 was as follows: Mr. Moore, 17,134 shares ($391,940); Mr.
Barclay, 8,567 shares ($195,970); Mr. Reynolds, 6,068 shares ($138,806); Mr.
Warzecha, 6,034 shares ($138,028); and Mr. Schalburg, 6,934 shares
($158,615). Such shares vest ratably over a period of three years. Dividend
equivalents are paid on restricted stock at the times and in the same
amounts as dividends paid to all Whitman shareholders.
C-26
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table, options granted in respect of Whitman Common
Stock during 1996 pursuant to Whitman's Stock Incentive Plan. No stock
appreciation rights were granted. Midas employees who do not exercise options to
purchase Whitman Common Stock prior to the Distribution Date will, as of the
Distribution Date, have such options replaced with options to purchase Midas
Common Stock of equivalent value, except that a Midas employee may elect not to
surrender an exercisable option to purchase Whitman Common Stock, in which case
the number of shares of Whitman Common Stock subject to such option and the
purchase price will be adjusted to reflect the Distribution.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION
UNDERLYING OPTIONS FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM (B)
GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------
NAME (#)(A) 1996 ($/SH) DATE 5% ($) 10% ($)
- --------------------------- ----------- ------------ ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
John R. Moore.............. 53,000 2.20 25.31 5/2/06 843,618 2,137,894
R. Lee Barclay............. 32,000 1.30 25.31 5/2/06 509,354 1,290,804
Terrence E. Reynolds....... 18,700 .78 25.31 5/2/06 297,654 754,313
John A. Warzecha........... 18,700 .78 25.31 5/2/06 297,654 754,313
Peter J. F. Schalburg...... 22,000 .91 25.31 5/2/06 350,181 887,428
</TABLE>
- ------------------------
(a) All options were granted at a price equal to 100% of the fair market value
of Whitman Common Stock at date of grant, which was May 2, 1996. Options
become exercisable as to 1/3 on the first anniversary of the date of grant,
2/3 on the second anniversary, and in full on the third anniversary.
(b) The dollar amounts under these columns are the result of calculations at the
5% and 10% assumed annual growth rates mandated by the SEC and, therefore,
are not intended to forecast possible future appreciation, if any, in the
price of Whitman Common Stock. The calculations were based on the exercise
price per share and the ten-year term of the options.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table regarding the exercise of
options to purchase Whitman Common Stock during 1996 and unexercised options
held as of December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY
DECEMBER 31, OPTIONS AT
SHARES 1996 (#) DECEMBER 31, 1996
ACQUIRED ON VALUE EXERCISABLE / ($) (A) EXERCISABLE
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE / UNEXERCISABLE
- --------------------------- ------------ ------------ ---------------- --------------------
<S> <C> <C> <C> <C>
John R. Moore(b)........... -- -- 139,708/70,267 1,382,046/92,329
R. Lee Barclay............. -- -- 33,567/40,333 303,247/43,325
Terrence E. Reynolds....... 52,975 519,593 11,833/24,967 92,203/33,425
John A. Warzecha........... -- -- 33,737/24,833 334,055/32,467
Peter J. F. Schalburg...... 21,500 250,375 14,367/28,733 113,811/36,779
</TABLE>
- ------------------------
(a) Based on the closing price of Whitman Common Stock ($22.875) on December
31, 1996, as reported for New York Stock Exchange Composite Transactions.
(b) Includes exercisable tandem stock appreciation rights covering 3,175 shares.
C-27
<PAGE>
STOCK INCENTIVE PLAN
Midas intends to adopt, with the approval of Whitman in its capacity as the
sole stockholder of Midas, the Midas Stock Incentive Plan (the "Midas Stock
Plan"). The Midas Stock Plan will be administered by the Management Resources
and Compensation Committee of the Midas Board. Midas intends to seek shareholder
approval of the Midas Stock Plan at its 1999 annual meeting of shareholders.
The Midas Stock Plan provides for the grant of incentive stock options that
qualify under Section 422 of the Code, nonqualified stock options, stock
appreciation rights, restricted stock awards and performance awards to employees
and non-employee directors (except that non-employee directors may not receive
incentive stock options). Midas has reserved for issuance under the Midas Stock
Plan [ ] shares of Midas Common Stock. The committee administering the
Midas Stock Plan is expected to grant, subject to completion of the
Distribution, nonqualified options to purchase Midas Common Stock to Midas'
executive officers and certain other persons who will be employees of Midas.
Each such option will have an exercise price equal to 100% of the fair market
value of Midas Common Stock on the effective date of grant, and will be for a
term of ten years. In addition, as described under "Arrangements between Whitman
and the Companies Relating to the Distribution--Distribution and Indemnity
Agreements" in the body of the Information Statement, employees of Midas who
hold options and restricted stock under the Whitman Stock Incentive Plan may
receive substitute awards of equivalent value under the Midas Stock Plan,
following completion of the Distribution.
PENSION PLANS
Midas maintains qualified, defined benefit pension plans and nonqualified
retirement plans paying benefits in optional forms elected by the employee based
upon percentage multipliers which are applied to Covered Compensation and
Credited Service. The pension plans and related nonqualified plans were amended
effective January 1, 1992, to reinstate benefit accruals that were frozen for
most employees as of December 31, 1988, when Midas changed its benefit plan
structure. The revised benefit formula provides a normal retirement benefit of
1% of Covered Compensation for each year of Credited Service (excluding
1989-1991), up to a maximum of 20 years. The changes also include special
minimum benefits based on Credited Service accrued through December 31, 1988,
and Covered Compensation at retirement.
The following table reflects future benefits, payable as life annuities upon
retirement, in terms of a range of amounts determined under the revised benefit
formula mentioned above, at representative periods of Credited Service.
PROJECTED ANNUAL PENSION
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE(B)
--------------------------------------------
COVERED COMPENSATION(A) 5 10 15 20 OR MORE
- ------------------------------------------------------------------------ --------- --------- --------- -----------
<S> <C> <C> <C> <C>
$200,000................................................................ $ 10,000 $ 20,000 $ 30,000 $ 40,000
$300,000................................................................ 15,000 30,000 45,000 60,000
$400,000................................................................ 20,000 40,000 60,000 80,000
$500,000................................................................ 25,000 50,000 75,000 100,000
</TABLE>
- ------------------------
(a) Covered Compensation includes salary and bonus, as shown in the Summary
Compensation Table, averaged over the five consecutive years in which such
compensation is the highest.
(b) As of December 31, 1996, Messrs. Barclay, Reynolds and Warzecha had 16, 8
and 19 years of Credited Service, respectively.
The benefit for Mr. Moore who had 23 years of Credited Service as of
December 31, 1988, will be determined under the minimum benefit formula (28% of
Covered Compensation). Such benefits are not subject to deduction for social
security or other offset amounts. As of December 31, 1996, Mr. Moore has an
accrued annual benefit payable at normal retirement age of approximately
$124,000.
As an employee of Midas Europe and resident of Monaco, Mr. Schalburg does
not participate in a Midas pension plan. As reflected in the Summary
Compensation Table above, Midas contributes to a private retirement arrangement
for Mr. Schalburg that supplements the French social security program.
C-28
<PAGE>
TERMINATION BENEFITS
Midas has entered into Change in Control Agreements (the "Change in Control
Agreements"), with Messrs. Moore, Barclay, Reynolds, Warzecha, Schalburg and
certain other officers. The Change in Control Agreements were a result of a
determination by the Midas Board that it was important and in the best interests
of Midas and its shareholders to ensure that, in the event of a possible change
in control of Midas, the stability and continuity of management would continue
unimpaired, free of the distractions incident to any such change in control. The
Change in Control Agreements become effective on the Distribution Date.
For purposes of the Change in Control Agreements, a "change in control"
includes (i) a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of Midas' assets, other than a
transaction in which the beneficial owners of the Midas Common Stock prior to
the transaction own at least two-thirds of the voting securities of the
corporation resulting from such transaction, no person owns 25% or more of the
voting securities of the corporation resulting from such transaction and the
members of the Midas Board constitute at least a majority of the members of the
board of directors of the corporation resulting from such transaction, (ii) the
consummation of a plan of complete liquidation or dissolution of Midas, (iii)
the acquisition by any person or group of 25% or more of Midas' voting
securities, or (iv) persons who are directors of Midas on the Distribution Date
(or their successors as approved by a majority of the members of the Midas
board) cease to constitute a majority of the Midas Board.
Benefits are payable under the Change in Control Agreements only if a change
in control has occurred and within three years thereafter the officer's
employment is terminated involuntarily without cause or voluntarily by the
officer for reasons such as demotion, relocation, loss of benefits or other
changes. The principal benefits to be provided to officers under the Change in
Control Agreements are (i) a lump sum payment equal to three years' compensation
(base salary and incentive compensation), and (ii) continued participation in
Midas' employee benefit programs or equivalent benefits for three years
following termination. The Change in Control Agreements provide that, if
separation payments thereunder, either alone or together with payments under any
other plan of Midas, would constitute a "parachute payment" as defined in the
Code and subject the officer to the excise tax imposed by Section 4999 of the
Code, Midas will pay such tax and any taxes on such payment.
The Change in Control Agreements are not employment agreements, and do not
impair the right of Midas to terminate the employment of the officer with or
without cause prior to a change in control, or, absent a potential or pending
change in control, the right of the officer to voluntarily terminate his
employment.
1999 ANNUAL MEETING OF SHAREHOLDERS
The Midas By-Laws provide that an annual meeting of shareholders will be
held each year on a date specified by the Midas Board. Prior to the Record Date,
Whitman, which was then and is currently the sole shareholder of Midas, elected
the current members of the Midas Board. The first annual meeting of Midas
shareholders after the Distribution is expected to be held on May 6, 1999.
In order to be considered for inclusion in Midas' proxy materials for the
1999 annual shareholders meeting, any proposals by shareholders must be received
at Midas' principal executive offices at 225 North Michigan Avenue, Chicago,
Illinois 60601, within a reasonable time before solicitation of proxies for such
meeting is made. Midas anticipates commencing solicitation of proxies for the
1999 annual shareholders meeting on or about March 15, 1999. In addition,
shareholders at the Midas 1999 annual meeting may consider shareholder proposals
or nominations brought by a shareholder of record on the record date for the
1999 annual meeting, who is entitled to vote at such annual meeting and who has
complied with the Shareholder Notice Procedure established by the Midas By-Laws.
A shareholder proposal or nomination intended to be brought before the Midas
1999 annual meeting must be received by the Secretary of Midas on or after
February 6, 1999 and on or prior to February 26, 1999. See "Certain Antitakeover
Effects of Certain Charter and By-Law Provisions, the Rights and Delaware
Law--Certificate of Incorporation and By-Laws--Advance Notice Provisions for
Shareholder Nominations and Shareholder Proposals" in the body of the
Information Statement.
C-29
<PAGE>
MIDAS GROUP
INDEX TO HISTORICAL FINANCIAL INFORMATION
<TABLE>
<S> <C>
Independent Auditors' Report............................................................ C-31
Combined Statements of Operations for the years ended December 1996, 1995 and 1994 and
for the nine months ended September 1997 and 1996 (unaudited)......................... C-32
Combined Balance Sheets as of December 1996 and 1995 and as of September 1997
(unaudited)........................................................................... C-33
Combined Statements of Cash Flows for the years ended December 1996, 1995 and 1994 and
for the nine months ended September 1997 and 1996 (unaudited)......................... C-34
Notes to Combined Financial Statements.................................................. C-35
</TABLE>
C-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Whitman Corporation:
We have audited the accompanying combined balance sheets of the Midas Group
as of December 1996 and 1995, and the related combined statements of operations
and cash flows for each of the years in the three-year period ended December
1996. These combined financial statements are the responsibility of the Midas
Group's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Midas Group as
of December 1996 and December 1995, and the results of their operations and
their cash flows for each of the years in the three-year period ended December
1996 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 8, 1997
C-31
<PAGE>
MIDAS GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED DECEMBER
SEPTEMBER
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales and revenues.................................................. $ 402.9 $ 407.8 $ 533.5 $ 509.8 $ 477.2
Cost of goods sold.................................................. 197.4 200.5 262.1 250.6 242.8
--------- --------- --------- --------- ---------
Gross profit...................................................... 205.5 207.3 271.4 259.2 234.4
Selling, general, and administrative expenses....................... 145.6 140.6 190.2 175.4 160.1
Amortization expense................................................ 1.0 0.9 1.3 0.9 0.8
Non-recurring charges............................................... 32.1 -- -- -- --
--------- --------- --------- --------- ---------
Operating income.................................................. 26.8 65.8 79.9 82.9 73.5
--------- --------- --------- --------- ---------
Whitman charges..................................................... (13.5) (13.4) (17.2) (19.0) (17.5)
Interest expense:
Whitman........................................................... (5.5) (5.7) (7.3) (7.2) (7.1)
Other............................................................. (0.8) (1.4) (1.6) (1.0) (1.0)
--------- --------- --------- --------- ---------
Total interest expense.......................................... (6.3) (7.1) (8.9) (8.2) (8.1)
Other income (expense), net......................................... 0.7 0.7 0.8 1.7 (2.0)
--------- --------- --------- --------- ---------
Income from continuing operations, before taxes................... 7.7 46.0 54.6 57.4 45.9
Income tax provisions............................................... 7.5 18.9 22.5 24.7 19.7
--------- --------- --------- --------- ---------
Income from continuing operations................................. 0.2 27.1 32.1 32.7 26.2
Discontinued operations:
Income (loss) from discontinued operations, after taxes........... (1.2) (0.8) (1.7) (1.0) 0.4
Loss from disposition of discontinued operations, after taxes..... (23.7) -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss)............................................... $ (24.7) $ 26.3 $ 30.4 $ 31.7 $ 26.6
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to combined financial statements.
C-32
<PAGE>
MIDAS GROUP
COMBINED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER
--------------------
1996 1995
SEPTEMBER --------- ---------
-----------
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents......................................................... $ 18.7 $ 17.9 $ 10.7
Receivables, net.................................................................. 74.7 72.0 66.0
Inventories....................................................................... 80.1 82.6 70.6
Other current assets.............................................................. 19.7 18.7 16.0
Net assets of discontinued operations............................................. 21.5 43.5 43.3
----------- --------- ---------
Total current assets............................................................ 214.7 234.7 206.6
Property and equipment, net......................................................... 187.0 193.8 193.5
Intangible assets, net.............................................................. 17.9 23.9 22.7
Other assets........................................................................ 26.0 26.0 24.9
----------- --------- ---------
Total assets.................................................................... $ 445.6 $ 478.4 $ 447.7
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND EQUITY:
Current liabilities:
Short-term debt................................................................... $ 1.7 $ 3.9 $ 1.1
Accounts payable.................................................................. 35.0 52.7 45.6
Income taxes payable.............................................................. 2.2 8.3 6.2
Accrued expenses.................................................................. 54.3 24.7 31.0
----------- --------- ---------
Total current liabilities....................................................... 93.2 89.6 83.9
Loans and advances from Whitman..................................................... 66.2 77.2 70.3
Long-term debt...................................................................... 3.3 -- --
Obligations under capital leases.................................................... 15.1 13.6 16.2
Deferred income taxes and other liabilities......................................... 25.6 20.9 18.8
----------- --------- ---------
Total liabilities............................................................... 203.4 201.3 189.2
Shareholder equity.................................................................. 242.2 277.1 258.5
----------- --------- ---------
Total liabilities and equity.................................................... $ 445.6 $ 478.4 $ 447.7
----------- --------- ---------
----------- --------- ---------
</TABLE>
See accompanying notes to combined financial statements.
C-33
<PAGE>
MIDAS GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED
ENDED SEPTEMBER DECEMBER
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations.................................... $ 0.2 $ 27.1 $ 32.1 $ 32.7 $ 26.2
Adjustments to reconcile to net cash provided by operating
activities:
Depreciation and amortization...................................... 13.3 12.9 16.3 14.3 13.0
Non-recurring charges.............................................. 32.1 -- -- -- --
Changes in assets and liabilities:
(Increase) in receivables........................................ (2.7) (19.2) (6.0) (3.9) (4.2)
(Increase) decrease in inventories............................... 2.5 (4.2) (12.0) (7.2) (3.2)
Increase (decrease) in accounts payable.......................... (17.7) 1.7 7.1 (0.5) 6.3
Increase (decrease) in accrued expenses.......................... 9.9 2.6 (6.3) 5.6 6.6
(Decrease) in deferred income tax liability...................... (11.2) -- (0.6) -- (1.8)
Net change in other assets and liabilities....................... 6.8 10.5 0.7 (3.7) 0.6
--------- --------- --------- --------- ---------
Net cash provided by continuing operations............................. 33.2 31.4 31.3 37.3 43.5
Net cash (used in) provided by discontinued operations................. (2.9) (2.2) (1.9) (6.5) 0.8
--------- --------- --------- --------- ---------
Net cash provided by operating activities.............................. 30.3 29.2 29.4 30.8 44.3
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital investments.................................................. (17.6) (19.6) (23.8) (23.9) (23.1)
Proceeds from sales of property and equipment........................ 2.6 2.4 3.5 3.3 3.8
--------- --------- --------- --------- ---------
Net cash provided by investing activities.............................. (15.0) (17.2) (20.3) (20.6) (19.3)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings..................... (2.2) 2.7 3.2 0.5 --
Payments of obligations under capital leases......................... (0.9) (0.8) (1.0) (1.8) (1.0)
Long-term debt incurred.............................................. 3.3 -- -- -- --
Net increase (decrease) in loans and advances from Whitman........... (10.8) (6.4) 6.9 1.1 (20.0)
Dividends to Whitman................................................. (2.4) (4.4) (10.9) (10.3) (4.6)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities.................... (13.0) (8.9) (1.8) (10.5) (25.6)
--------- --------- --------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents........... (1.5) -- (0.1) (0.2) (0.2)
--------- --------- --------- --------- ---------
Net change in cash and cash equivalents................................ 0.8 3.1 7.2 (0.5) (0.8)
--------- --------- --------- --------- ---------
Cash and cash equivalents as of beginning of period.................... 17.9 10.7 10.7 11.2 12.0
--------- --------- --------- --------- ---------
Cash and cash equivalents as of end of period.......................... $ 18.7 $ 13.8 $ 17.9 $ 10.7 $ 11.2
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to combined financial statements.
C-34
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Midas Group provides retail automotive services through franchised and
Group-operated stores in the U.S., Canada, France and other countries. The Midas
Group also manufactures exhaust and other products for the automotive
aftermarket, which products are distributed to franchisees and others.
PRINCIPLES OF COMBINATION
These combined financial statements present the operations of the Midas
Group, which is comprised of wholly-owned subsidiaries of Whitman Corporation
(Whitman). The Midas Group consists of Midas International Corporation and its
wholly-owned subsidiaries and of other Midas companies owned by Whitman but
directly managed by Midas International Corporation.
FISCAL PERIODS
The 1996, 1995, and 1994 fiscal years ended on December 14, 16, and 17,
respectively. Each of the years consisted of 52 weeks. The fiscal six months
ended June 21, 1997 consisted of 27 weeks, while the fiscal six months ended
June 15, 1996 consisted of 26 weeks. The fiscal year of the Midas Group's
operations outside the U.S. and Canada ends in November.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
All assets and liabilities of non-U.S. operations are translated into U.S.
dollars using exchange rates as of the end of each fiscal period. Income and
expense items are translated at average exchange rates prevailing during each
fiscal period. The resulting translation adjustments are recorded as a component
of shareholder equity. Gains and losses from foreign currency transactions are
included in net earnings.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of deposits with banks and financial
institutions which are unrestricted as to withdrawal or use, and which have an
original maturity of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Midas Group's financial instruments include cash and cash equivalents,
receivables, short-term debt, accounts payable, and long-term debt. The carrying
amount and the fair value of the long-term debt differ by an immaterial amount.
The carrying amounts of the other assets and liabilities approximate fair values
because of the short maturity of these instruments. Because of the intercompany
nature of the indebtedness, it is not considered meaningful to present fair
value information with respect to the loans and advances from Whitman.
INVENTORIES
Inventories are valued at the lower of cost, determined using the first-in,
first-out method, or net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method and includes amortization of assets held under capital
leases. When property is sold or retired, the cost and accumulated depreciation
are eliminated from the accounts and gains or losses are recorded in other
income (expense), net.
C-35
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Expenditures for maintenance and repairs are expensed as incurred. The
approximate ranges of annual depreciation rates are 2% to 10% for buildings and
improvements and 8% to 20% for machinery and equipment.
INTANGIBLE ASSETS
Intangible assets primarily consist of the excess of cost over fair market
value of tangible assets of acquired businesses, substantially all of which
arose from acquisitions of non-U.S. entities in business combinations accounted
for under the purchase method. Such excess amounts (goodwill) are being
amortized on straight-line bases over periods of 20 or 40 years. In addition,
there are other minor amounts of intangible assets that are being amortized on
straight-line bases over periods of 10 to 20 years.
CARRYING VALUES OF LONG-LIVED ASSETS
The Midas Group evaluates the carrying values of its long-lived assets to be
held and used in the business by reviewing undiscounted cash flows by operating
unit. Such evaluations are performed whenever events and circumstances indicate
that the carrying amount of an asset may not be recoverable. If the sum of the
projected undiscounted cash flows over the remaining lives of the related assets
does not exceed the carrying values of the assets, the carrying values would be
adjusted for the difference between the fair value and the carrying value.
REVENUE RECOGNITION
Product sales are recognized as revenues at the time products are shipped.
Sales and revenues of Group-operated stores are recognized when customer
vehicles are repaired or serviced.
Revenues derived from initial franchise fees are recognized when the
franchised store opens. Direct costs related to securing initial franchise
agreements and performing the required services under such agreements are
charged to expenses as incurred. Franchise renewal fees are recognized when the
renewal period commences. Royalties are recognized in the periods that
correspond to the periods when retail sales and revenues are recognized by
franchisees. Lease or sublease income is recognized over the life of a lease on
a straight-line basis.
Selected products carry warranties ranging from one year to the lifetime of
a vehicle, so long as the retail customer owns the vehicle. Midas estimates and
records the net costs related to its warranty program as required, in the period
the sales are reported, based on its historical experience.
ADVERTISING
Advertising costs are expensed as incurred.
ACCOUNT CLASSIFICATIONS
Certain amounts presented in the accompanying combined financial statements
are classified in a manner that differs, in minor respects, from the manner in
which such amounts have been classified in Whitman's consolidated financial
statements. In addition, the Midas Group has classified the operations of a
former segment as discontinued operations (see Note 2), whereas Whitman did not
reclassify such operations as discontinued operations on the basis that such
reclassification was not material in the context of Whitman's consolidated
financial statements.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these combined financial statements in conformity with
generally accepted accounting principles. Actual results could differ from these
estimates.
C-36
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(2) NON-RECURRING CHARGES (UNAUDITED)
During the third quarter of 1997, the Midas Group's management approved and
commenced the implementation of several restructuring initiatives that resulted
in non-recurring charges aggregating $32.1 million ($22.5 million after taxes)
and the discontinuance of the segment comprised of Group-operated stores in the
United States (see note 3). These initiatives are intended to focus the Midas
Group's human and financial resources on the objectives of growing the core
franchising business and reducing operating costs. The non-recurring charges are
summarized as follows (in millions):
<TABLE>
<CAPTION>
Costs arising from one-time enhancements to ongoing programs that
support U.S. franchisees (a).......................................... $ 12.2
<S> <C>
Asset write-downs to recognize impairments (b)......................... 12.5
Severance and other costs (c).......................................... 7.4
---------
32.1
Income tax benefits.................................................... (9.6)
---------
$ 22.5
---------
---------
</TABLE>
(a) Midas Group policies restrict the level of excess products that may be
returned by franchisees. Costs associated with enhancements of this policy,
including a one-time special return program, aggregate $7.8 million. In
addition, the Midas Group will discontinue participation in a cooperative
advertising program and will record a non-recurring charge of $4.4 million
to supplement the advertising funds that are collected from and disbursed
for U.S. franchisees.
(b) Asset write-downs to recognize impairments include: $5.5 million related to
Group-owned real estate and improvements, which are leased to franchisees
under leases that are not expected to result in full recovery of the
investments in such assets; $5.3 million related to impaired goodwill of
certain non-U.S. operating units, based on past and projected operating
results; and $1.2 million related to computer hardware deemed obsolete due
to changes in operating procedures.
(c) Severance and other costs include $4.4 million of termination benefit for
61 employees resulting from staff reductions and $3.0 million of other
non-recurring costs. The staff reductions are expected to be completed by
early 1998, but no cash expenditures had been made as of the end of the
third quarter of 1997.
The non-recurring charges include non-cash asset write-downs of $12.5
million and it is expected that future cash outflows will be approximately $10.0
million (after consideration of tax benefits), substantially all of which will
occur in the fourth quarter of 1997 and the first half of 1998.
(3) DISCONTINUED OPERATIONS (UNAUDITED)
As part of the restructuring initiatives described in Note 2, in the third
quarter of 1997 management adopted a plan to discontinue the business segment
comprised of Group-operated stores in the United States. The operations of the
former segment have been classified as discontinued operations in the
accompanying financial statements.
The segment comprised 135 stores, of which 119 are expected to be franchised
and 16 are expected to be closed. Management expects that the program to
franchise or close the stores will be substantially completed within one year.
The estimated loss on discontinuance of the segment is $35.5 million ($23.7
million after taxes).
The net assets of discontinued operations consist primarily of tangible and
intangible assets that are to be sold to franchisees, less accruals for costs
associated with the discontinuance of the segment. Management expects that the
net proceeds from such sales, less the cash outlays for associated costs, will
approximate the amount recorded as net assets of discontinued operations in the
combined balance sheet; after consideration of related tax benefits, net cash
inflows within one year are expected to be approximately $24.2 million.
C-37
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(3) DISCONTINUED OPERATIONS (UNAUDITED) (CONTINUED)
Certain Group-operated stores have occupied leased facilities. Management
estimates that $7.7 million of costs under such leases will not be recovered
through future operations due to store closings or because subleases in
connection with franchising transactions are not expected to result in full
recovery of the related lease payments. The related accrual has been classified
as a noncurrent liability.
(4) CHANGES IN EQUITY
The following table presents the changes in equity of the Midas Group for
the years ended December 1994, 1995, and 1996 and for the nine months ended
September 1997 (in millions):
<TABLE>
<CAPTION>
CUMULATIVE
MIDAS GROUP CURRENCY
CAPITAL TRANSLATION SHAREHOLDER
ACCOUNTS ADJUSTMENTS EQUITY
--------------- ------------- -----------
<S> <C> <C> <C>
DECEMBER 1993............................................................. $ 212.6 $ (6.6) $ 206.0
Net income................................................................ 26.6 -- 26.6
Dividends to Whitman...................................................... (4.6) -- (4.6)
Translation adjustments................................................... -- 3.1 3.1
------ ------ -----------
DECEMBER 1994............................................................. 234.6 (3.5) 231.1
Net income................................................................ 31.7 -- 31.7
Capital contribution from Whitman......................................... 3.6 -- 3.6
Dividends to Whitman...................................................... (10.3) -- (10.3)
Translation adjustments................................................... -- 2.4 2.4
------ ------ -----------
DECEMBER 1995............................................................. 259.6 (1.1) 258.5
Net income................................................................ 30.4 -- 30.4
Dividends to Whitman...................................................... (10.9) -- (10.9)
Translation adjustments................................................... -- (0.9) (0.9)
------ ------ -----------
DECEMBER 1996............................................................. 279.1 (2.0) 277.1
Net loss (unaudited)...................................................... (24.7) -- (24.7)
Capital contribution from Whitman (unaudited)............................. 0.2 -- 0.2
Dividends to Whitman (unaudited).......................................... (2.4) -- (2.4)
Translation adjustments (unaudited)....................................... -- (8.0) (8.0)
------ ------ -----------
SEPTEMBER 1997 (unaudited)................................................ $ 252.2 $ (10.0) $ 242.2
------ ------ -----------
------ ------ -----------
</TABLE>
(5) TRANSACTIONS WITH WHITMAN
CASH MANAGEMENT AND ADVANCES
Whitman manages the cash not considered necessary for current operating
requirements of certain of its subsidiaries, including the U.S. operations of
the Midas Group. Cash not needed for current operations is advanced to Whitman
at the then-current commercial bank prime lending rate; cash is advanced by
Whitman on the same basis. All advances to or from Whitman are included in loans
and advances from Whitman in the combined balance sheets. Interest income and
expense on such advances are included in interest expense--Whitman in the
combined statements of income.
C-38
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(5) TRANSACTIONS WITH WHITMAN (CONTINUED)
LOANS PAYABLE TO WHITMAN
The following notes and loans are included in loans and advances from
Whitman as of December 1996 and 1995 (in millions):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Note due through 2002, 10.5%.................................................... $ 35.0 $ 40.8
Junior subordinated note due 2001, floating prime rate.......................... 29.0 29.0
Loan payable due 2013, variable rate based on tax exempt
bond market rates (average 1996 rate was 3.7%)................................ 5.0 5.0
Note, denominated in French francs, due 2001, 6.0%.............................. 6.0 --
--------- ---------
$ 75.0 $ 74.8
--------- ---------
--------- ---------
</TABLE>
DIVIDENDS AND CAPITAL CONTRIBUTIONS
The Midas Group has paid dividends to Whitman and has received capital
contributions from Whitman, as summarized in Note 4.
WHITMAN CHARGES
Whitman allocates portions of its corporate office general and
administrative expenses and interest expense to its subsidiaries. The Midas
Group's share of such costs amounted to $17.2 million in 1996, $19.0 million in
1995, and $17.5 million in 1994. Such charges represent an allocation of
Whitman's estimated total expenses, and are charged to Whitman's subsidiaries
based on budgeted revenues. Whitman considers this method to be a reasonable
basis for allocation.
(6) SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION
RECEIVABLES
Receivables are stated net of allowance for doubtful accounts of $3.7
million (unaudited) as of September 1997, $3.3 million as of December 1996, and
$2.7 million as of December 1995.
INVENTORIES
Inventories as of September 1997 and December 1996 and 1995 consisted of the
following (in millions):
<TABLE>
<CAPTION>
DECEMBER
--------------------
1996 1995
SEPTEMBER 1997 --------- ---------
-----------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and supplies..................................... $ 5.5 $ 5.3 $ 5.4
Work in process................................................ 1.3 1.9 1.5
Finished goods................................................. 73.3 75.4 63.7
----- --------- ---------
$ 80.1 $ 82.6 $ 70.6
----- --------- ---------
----- --------- ---------
</TABLE>
C-39
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(6) SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment as of September 1997 and December 1996 and 1995
consisted of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER
--------------------
1996 1995
SEPTEMBER 1997 --------- ---------
---------------
(UNAUDITED)
<S> <C> <C> <C>
Land......................................................... $ 52.5 $ 51.1 $ 51.5
Buildings and improvements................................... 128.4 128.7 129.8
Machinery and equipment...................................... 130.0 133.4 121.7
------ --------- ---------
Total property and equipment................................. 310.9 313.2 303.0
Accumulated depreciation..................................... (123.9) (119.4) (109.5)
------ --------- ---------
Property and equipment, net.................................. $ 187.0 $ 193.8 $ 193.5
------ --------- ---------
------ --------- ---------
</TABLE>
INTANGIBLE ASSETS
Intangible assets are stated net of accumulated amortization of $6.9 million
(unaudited) as of September 1997, $7.6 million as of December 1996, and $6.5
million as of December 1995.
DEBT
Short-term debt is comprised of obligations incurred by non-U.S. operating
entities. Long-term debt was incurred in connection with a 1997 business
acquisition in the U.S.
ACCRUED EXPENSES
Accrued expenses as of September 1997 and December 1996 and 1995 consisted
of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER
--------------------
1996 1995
SEPTEMBER 1997 --------- ---------
-----------------
(UNAUDITED)
<S> <C> <C> <C>
Salaries and wages............................................. $ 8.7 $ 9.1 $ 7.6
Taxes other than income taxes.................................. 8.4 6.9 7.1
Accrued non-recurring charges.................................. 13.4 -- --
Advertising.................................................... 7.6 -- 8.4
Return programs................................................ 4.3 1.1 --
Other expenses and interest.................................... 11.9 7.6 7.9
----- --------- ---------
$ 54.3 $ 24.7 $ 31.0
----- --------- ---------
----- --------- ---------
</TABLE>
C-40
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(6) SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION (CONTINUED)
SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes cash payments for
interest and income taxes as follows (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest paid--Whitman................................................... $ 7.0 $ 7.1 $ 7.2
Interest paid--other..................................................... 1.0 1.0 1.0
Income taxes paid........................................................ 20.1 23.8 26.8
</TABLE>
(7) ADVERTISING
Under the terms of its franchise agreements, the Midas Group is obligated to
use one-half of the royalty payments received from franchisees for advertising
expenditures. Amounts received from franchisees are recorded as liabilities
until they are disbursed. The Midas Group also administers cooperative
advertising programs under which amounts received from franchisees are recorded
as liabilities until they are disbursed. Aggregate expenditures under these
programs amounted to $81.6 million, $75.9 million, and $66.8 million in 1996,
1995, and 1994, respectively.
The Midas Group also incurs certain advertising costs that are included in
selling, general and administrative expenses, which amounted to $14.6 million,
$14.2 million, and $12.7 million in 1996, 1995, and 1994, respectively.
(8) INCOME TAXES
The Midas Group's U.S. operations have been included in the consolidated
U.S. Federal and the unitary State of Illinois income tax returns of Whitman.
Income tax provisions have been allocated to the Midas Group as if the Midas
Group had filed separate income tax returns. The income tax provisions consisted
of (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current:
U.S. Federal.................................................................... $ 16.1 $ 16.7 $ 14.9
Non-U.S......................................................................... 4.3 5.5 3.5
U.S. state and local............................................................ 2.7 2.5 2.9
--------- --------- ---------
Total current................................................................. 23.1 24.7 21.3
--------- --------- ---------
Deferred:
U.S. Federal.................................................................... (0.9) 0.5 (1.0)
Non-U.S......................................................................... 0.4 (0.5) (0.3)
U.S. state and local............................................................ (0.1) -- (0.3)
--------- --------- ---------
Total deferred................................................................ (0.6) -- (1.6)
--------- --------- ---------
Income tax provisions............................................................. $ 22.5 $ 24.7 $ 19.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
C-41
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(8) INCOME TAXES (CONTINUED)
The items which gave rise to differences between the income tax provisions
in the combined statements of income and income taxes computed at the U.S.
statutory rate are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Income tax expense computed at U.S. statutory rate................................ 35.0% 35.0% 35.0%
U.S. state and local taxes, net of U.S. Federal income tax benefit................ 3.1 3.0 3.7
Higher non-U.S. effective tax rates............................................... 4.1 4.4 5.9
Other items, net.................................................................. (1.0) 0.6 (1.7)
--------- --------- ---------
Income tax provisions............................................................. 41.2% 43.0% 42.9%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Pretax income from non-U.S. operations amounted to $8.7 million, $7.1
million, and $1.4 million in 1996, 1995, and 1994, respectively. U.S. income
taxes have not been provided on the undistributed income ($35.6 million) of the
Midas Group's non-U.S. operations, which currently is not intended to be
remitted to the U.S. No deferred tax liability has been recognized with regard
to the potential remittance of such undistributed income. It is not practicable
to estimate the incremental income tax liability that might be incurred if such
income was remitted to the U.S.
Deferred income taxes are created by "temporary differences" between amounts
of assets and liabilities for financial reporting purposes and such amounts as
reported under income tax regulations. Deferred tax assets and liabilities as of
December 1996 and 1995 consisted of (in millions):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets attributable to:
Employment benefit and vacation accruals......................................................... $ 4.9 $ 4.0
Capitalized leases............................................................................... 1.5 1.9
Other............................................................................................ 6.0 5.4
--------- ---------
Total deferred tax assets.......................................................................... 12.4 11.3
--------- ---------
Deferred tax liabilities attributable to:
Depreciation and amortization.................................................................... (12.2) (11.2)
Pension costs.................................................................................... (3.4) (3.4)
Other............................................................................................ (1.4) (1.9)
--------- ---------
Total deferred tax liabilities..................................................................... (17.0) (16.5)
--------- ---------
Net deferred tax liability......................................................................... $ (4.6) $ (5.2)
--------- ---------
--------- ---------
Net deferred tax asset (liability) included in:
Other current assets............................................................................. $ 2.5 $ 1.9
Deferred income taxes and other liabilities...................................................... (7.1) (7.1)
--------- ---------
Net deferred tax liability......................................................................... $ (4.6) $ (5.2)
--------- ---------
--------- ---------
</TABLE>
Management believes it is more likely than not that all deferred tax assets
will be realized and, accordingly, no valuation allowance is required.
(9) FRANCHISE AGREEMENTS
The Midas Group's franchise agreements generally cover a 20-year period and
provide for renewals. A franchise agreement can be canceled by the Midas Group
only in the event a franchisee fails to comply with the provisions of the
agreement.
C-42
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(9) FRANCHISE AGREEMENTS (CONTINUED)
Franchise agreements provide for initial and renewal fees and continuing
royalty payments based on a percentage of sales.
Worldwide stores in operation as of year-end consisted of (unaudited):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Franchised.............................................................. 2,297 2,248 2,229
Group-operated.......................................................... 380 362 346
--------- --------- ---------
Total................................................................... 2,677 2,610 2,575
--------- --------- ---------
--------- --------- ---------
</TABLE>
U.S. franchisees are required to purchase Midas guaranteed products.
Nonguaranteed products, equipment, and supplies are not required to be purchased
from the Midas Group. In most cases, franchisees also lease real estate from the
Midas Group.
U.S. revenues from the sale of guaranteed and nonguaranteed products to
franchisees amounted to $213.6 million in 1996, $214.0 million in 1995, and
$212.1 million in 1994. These product sales represented 50% of the Midas Group's
U.S. sales and revenues in 1996, 52% in 1995, and 53% in 1994.
Rental income derived from real estate leased to U.S. franchisees amounted
to $30.8 million in 1996, $30.5 million in 1995, and $29.1 million in 1994.
Rental income represented 7% of the Midas Group's U.S. sales and revenues in
1996, 1995, and 1994.
U.S. franchisees also purchased $3.9 million of store equipment from the
Midas Group in 1996, compared to $3.5 million in 1995 and $2.6 million in 1994.
(10) LEASES
Control of the real estate used by Midas stores is a fundamental strength of
the Midas program. The Midas Group employs a number of methods to ensure
continued dedication of the real estate to the Midas program. The Midas Group
leases real estate that is subleased to franchisees and owns real estate in the
U.S. that is leased to franchisees. The Midas Group has also entered into
contingent operating lease agreements that are described below. As of December
1996, approximately 75% of the Midas stores in operation worldwide were
controlled by the Midas Group using one of these methods.
LEASED REAL ESTATE
The Midas Group's gross rent expense, applicable to operating leases,
relates to rentals of stores, distribution facilities, corporate administration
facilities and other miscellaneous items.
The Midas Group's gross rent expense, the sublease rental income from
franchisees that reduced gross rent expense, and the resulting net rent expense
for 1996, 1995 and 1994 are presented below (in millions):
<TABLE>
<CAPTION>
SUBLEASE
GROSS RENT RENTAL NET RENT
EXPENSE INCOME EXPENSE
----------- ----------- -----------
<S> <C> <C> <C>
1996............................................................... $ 36.5 $ 22.6 $ 13.9
1995............................................................... 34.0 21.8 12.2
1994............................................................... 33.6 21.3 12.3
</TABLE>
C-43
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(10) LEASES (CONTINUED)
Substantially all of the Midas Group's operating leases provide that the
Midas Group pay taxes, maintenance, insurance, and certain other operating
expenses. The subleases with franchisees contain provisions for the Midas Group
to recover such costs.
As of December 1996, annual minimum rental payments due under capital and
operating leases that have initial or remaining noncancelable terms in excess of
one year, along with sublease rentals on real estate due under noncancelable
subleases were as follows (in millions):
<TABLE>
<CAPTION>
CAPITAL OPERATING SUBLEASE
LEASES LEASES RENTALS
----------- ----------- -----------
<S> <C> <C> <C>
1997.............................................................. $ 2.1 $ 33.7 $ 18.5
1998.............................................................. 2.1 30.8 17.2
1999.............................................................. 2.1 27.1 15.0
2000.............................................................. 2.0 23.7 12.4
2001.............................................................. 2.0 21.0 10.4
Thereafter........................................................ 14.3 99.6 43.8
----- ----------- -----------
Total minimum lease payments...................................... 24.6 $ 235.9 $ 117.3
----------- -----------
----------- -----------
Less imputed interest............................................. 10.3
-----
Present value of minimum lease payments........................... 14.3
Less current portion included in short-term debt.................. 0.7
-----
Obligations under capital leases--noncurrent...................... $ 13.6
-----
-----
</TABLE>
As of December 1996 and 1995, the net book value of property under capital
leases included in the combined balance sheets amounted to $10.9 million and
$13.2 million, respectively.
REAL ESTATE OWNED BY THE MIDAS GROUP AND LEASED TO FRANCHISEES
The Midas Group owns real estate located in various communities throughout
the U.S. that is leased to franchisees under operating lease agreements.
Substantially all leases are for initial terms of 20 years and provide for
minimum and contingent rentals.
Real estate leased to franchisees and included in the combined balance
sheets consisted of (in millions):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land.......................................................................... $ 37.6 $ 38.3
Buildings and improvements.................................................... 70.9 69.7
--------- ---------
Total property and equipment.................................................. 108.5 108.0
Accumulated depreciation...................................................... (22.2) (20.4)
--------- ---------
Property and equipment, net................................................... $ 86.3 $ 87.6
--------- ---------
--------- ---------
</TABLE>
Rental income for 1996 and 1995 was $15.6 million, compared to $14.6 million
in 1994. Minimum future lease payments to be received are as follows (in
millions):
<TABLE>
<S> <C>
1997.................................................................. $ 13.6
1998.................................................................. 13.5
1999.................................................................. 13.0
2000.................................................................. 11.9
2001.................................................................. 10.2
Thereafter............................................................ 56.6
---------
$ 118.8
---------
---------
</TABLE>
C-44
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(10) LEASES (CONTINUED)
CONTINGENT OPERATING LEASE AGREEMENTS
The Midas Group has entered into contingent operating lease agreements
covering real estate that is leased by U.S. and Canadian franchisees from
parties that are directly or indirectly related to the franchisees.
As of December 1996, approximately 151 stores were covered by these
contingent operating lease agreements, under which the Midas Group could be
required, under certain limited circumstances, to begin making rental payments
with respect to individual store locations. The average annual store rental is
$49 thousand with an average remaining term of seven years.
Management believes that, individually and in the aggregate, any potential
difference that might arise under these contingent lease agreements between the
rental expense and the rental income from future subleases would not materially
affect the combined financial position or results of operations of the Midas
Group.
(11) PENSION AND OTHER POST-RETIREMENT PLANS
DEFINED BENEFIT PENSION PLANS SPONSORED BY THE MIDAS GROUP
Substantially all U.S. employees are covered under various defined benefit
pension plans sponsored and funded by the Midas Group. Plans covering salaried
employees provide pension benefits based on years of service, and generally are
limited to a maximum of 20% of an employee's average annual compensation during
the five years preceding retirement. Plans covering hourly employees generally
provide benefits of stated amounts for each year of service. Plan assets are
invested primarily in common stocks, corporate bonds, and government securities.
Net periodic pension cost for 1996, 1995, and 1994 included the following
components (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits earned during period.............................. $ 1.5 $ 1.4 $ 1.3
Interest cost on projected benefit obligation............................ 2.4 2.3 1.9
Actual return on assets.................................................. (5.2) (6.2) (0.9)
Net amortization and deferral............................................ 1.7 2.9 (2.3)
--------- --------- ---------
Total net periodic pension cost.......................................... $ 0.4 $ 0.4 $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
The principal economic assumptions used in the determination of net periodic
pension cost included the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Discount rate........................................................... 7.5% 8.5% 7.0%
Expected long-term rate of return on assets............................. 9.5% 9.5% 10.0%
Rate of increase in compensation levels................................. 5.0% 6.0% 4.5%
</TABLE>
C-45
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(11) PENSION AND OTHER POST-RETIREMENT PLANS (CONTINUED)
Pension costs are funded in amounts not less than minimum levels required by
regulation. The following table reconciles the pension plans' funded status to
the amounts recognized in other noncurrent assets (liabilities) in the Midas
Group's combined balance sheets as of December 1996 and 1995 (in millions):
<TABLE>
<CAPTION>
1996 1995
------------------------------ ------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligation (measured as of September
30):
Vested benefit obligation............. $ (25.8) $ (0.4) $ (23.5) $ --
------ ----- ------ -----
Accumulated benefit obligation........ (27.4) (0.9) (25.2) (0.3)
------ ----- ------ -----
Projected benefit obligation.......... (32.0) (1.8) (29.9) (0.7)
Plan assets at fair market value
(measured as of September 30)......... 45.9 -- 41.5 --
------ ----- ------ -----
Plan assets in excess of (less than)
projected benefit obligation.......... 13.9 (1.8) 11.6 (0.7)
Unrecognized net asset at transition.... (1.7) -- (2.0) --
Unrecognized prior service costs........ 2.9 0.7 3.6 0.4
Unrecognized net gain................... (6.0) -- (4.3) (0.4)
------ ----- ------ -----
Prepaid (accrued) pension cost
recognized in balance sheets.......... $ 9.1 $ (1.1) $ 8.9 $ (0.7)
------ ----- ------ -----
------ ----- ------ -----
</TABLE>
The principal economic assumptions used in determining the above benefit
obligations were discount rates of 7.5% in both 1996 and 1995 and rates of
increase in future compensation levels of 5.0% in both 1996 and 1995.
DEFINED CONTRIBUTION PLANS SPONSORED BY MIDAS GROUP
Substantially all U.S. salaried employees, certain U.S. hourly employees,
and certain Australian and Canadian employees participate in voluntary,
contributory defined contribution plans to which the Midas Group makes full or
partial matching contributions. The Midas Group's matching contributions to
these plans amounted to $1.9 million, $2.3 million, and $1.5 million in 1996,
1995, and 1994, respectively. The Midas Group's cost for the associated
nonqualified plan was $0.3 million per year for 1996, 1995, and 1994.
MULTI-EMPLOYER PENSION PLANS
The Midas Group participates in a number of multi-employer pension plans
which provide benefits to certain unionized employee groups. Amounts contributed
to these plans totaled $0.2 million per year for 1996, 1995, and 1994.
POST-RETIREMENT MEDICAL AND LIFE INSURANCE
The Midas Group provides substantially all former U.S. salaried employees
who retired prior to July 1989 and selected other employees in the U.S. and
Canada with certain life and health care benefits. Accrued post-retirement
benefit costs recorded in the Midas Group's combined balance sheets were $6.9
million and $7.1 million as of December 1996 and 1995, respectively. The costs
associated with the programs were immaterial in each of the years 1994 through
1996.
C-46
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(12) CONTINGENCIES
The Midas Group has certain contingent liabilities arising from various
pending claims and litigation related to a number of matters. While the amount
of liability that may result from these matters cannot be determined, in the
opinion of the Midas Group counsel, the ultimate liability will not materially
affect the combined financial position or results of operations of the Midas
Group.
(13) BUSINESS SEGMENT INFORMATION
The Midas Group's most significant operations are in three geographic
regions: the U.S., Europe and Canada. The U.S. business segments are franchising
activities and the operation of Group-operated retial stores. In the third
quarter of 1997 management adopted a plan to discontinue the business segment
comprised of Group-operated stores in the U.S. (see note 3). The non-U.S.
operations are integrated operations that are managed geographically. Sales
between business segments and geographic areas were not significant. Foreign
currency gains and losses were not significant. Sales to any single customer
were less than five percent of sales and revenues in each of the years
presented.
The following tables present financial information for each of the Midas
Group's business segments as of and for the years ended December 1996, 1995 and
1994 (in millions):
<TABLE>
<CAPTION>
SALES AND REVENUES OPERATING INCOME
------------------------------- -------------------------------
1996 1995 1994 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Operations:........................................... $ 352.6 $ 347.5 $ 336.9 $ 78.4 $ 85.2 $ 76.4
--------- --------- --------- --------- --------- ---------
Non-U.S. Operations:
Europe................................................... 113.2 94.6 72.1 4.7 2.8 2.6
Canada................................................... 55.0 51.7 51.7 2.7 1.7 1.7
Other.................................................... 12.7 16.0 16.5 (1.1) (2.6) (3.3)
--------- --------- --------- --------- --------- ---------
Total non-U.S.............................................. 180.9 162.3 140.3 6.3 1.9 1.0
--------- --------- --------- --------- --------- ---------
Total before corporate and other expenses.................. $ 533.5 $ 509.8 $ 477.2 84.7 87.1 77.4
--------- --------- ---------
--------- --------- ---------
Midas Group corporate administrative expenses.............. (4.8) (4.2) (3.9)
--------- --------- ---------
Total operating income..................................... 79.9 82.9 73.5
Whitman charges............................................ (17.2) (19.0) (17.5)
Interest expense........................................... (8.9) (8.2) (8.1)
Other income (expense), net................................ 0.8 1.7 (2.0)
--------- --------- ---------
Income from continuing operations before income taxes...... $ 54.6 $ 57.4 $ 45.9
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION
IDENTIFIABLE ASSETS AND AMORTIZATION CAPITAL INVESTMENTS
------------------------------- ------------------------------- --------------------
1996 1995 1994 1996 1995 1994 1996 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Operations:..................... $ 331.3 $ 319.7 $ 293.7 $ 9.6 $ 8.7 $ 8.2 $ 11.6 $ 14.0
--------- --------- --------- --------- --------- --------- --------- ---------
Non-U.S. Operations:
Europe............................. 102.5 81.0 69.0 4.9 3.6 2.5 10.2 10.6
Canada............................. 35.1 38.4 37.1 1.2 1.3 1.4 1.5 1.2
Other.............................. 9.5 8.6 10.1 0.6 0.7 0.9 0.5 0.4
--------- --------- --------- --------- --------- --------- --------- ---------
Total non-U.S........................ 147.1 128.0 116.2 6.7 5.6 4.8 12.2 12.2
--------- --------- --------- --------- --------- --------- --------- ---------
Total................................ $ 478.4 $ 447.7 $ 409.9 $ 16.3 $ 14.3 $ 13.0 $ 23.8 $ 26.2
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
1994
---------
<S> <C>
U.S. Operations:..................... $ 12.6
---------
Non-U.S. Operations:
Europe............................. 8.2
Canada............................. 1.6
Other.............................. 1.6
---------
Total non-U.S........................ 11.4
---------
Total................................ $ 24.0
---------
---------
</TABLE>
C-47
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(13) BUSINESS SEGMENT INFORMATION (CONTINUED)
Information regarding the Midas Group's sales and revenues and its operating
income, by business segment, for the nine-month periods ended September 1997 and
1996 is as follows (unaudited and in millions):
<TABLE>
<CAPTION>
OPERATING INCOME
SALES AND REVENUES
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
U.S. Operations:................................................................. $ 264.2 $ 270.8 $ 31.6 $ 64.5
--------- --------- --------- ---------
Non-U.S. Operations:
Europe......................................................................... 86.3 85.7 (0.8) 4.4
Canada......................................................................... 44.6 41.7 2.7 2.6
Other.......................................................................... 7.8 9.6 (2.1) (0.9)
--------- --------- --------- ---------
Total non-U.S.................................................................... 138.7 137.0 (0.2) 6.1
--------- --------- --------- ---------
Total before corporate and other expenses........................................ $ 402.9 $ 407.8 31.4 70.6
--------- ---------
--------- ---------
Midas Group corporate administrative expenses.................................... (4.6) (4.8)
--------- ---------
Total operating income........................................................... 26.8 65.8
Whitman charges.................................................................. (13.5) (13.4)
Interest expense................................................................. (6.3) (7.1)
Other income, net................................................................ 0.7 0.7
--------- ---------
Income from continuing operations before income taxes............................ $ 7.7 $ 46.0
--------- ---------
--------- ---------
</TABLE>
The operating income by business segment for the nine month period ended
September 1997 includes non-recurring charges of $32.1 million ($22.5 million
after taxes) as described in Note 2. The non-recurring charges were recorded in
the following geographic regions: U.S. Operations -- $25.4 million, Europe --
$5.3 million, and Other non-U.S. Operations -- $1.4 million.
C-48
<PAGE>
MIDAS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(14) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents Midas Group's sales and revenues, gross profit,
and net income on a quarterly basis (in millions):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1997
Sales and revenues.................................................. $ 124.1 $ 139.3 $ 139.5 $ -- $ --
Gross profit........................................................ 62.6 71.1 71.8 -- --
Income from continuing operations................................... 4.0 8.4 (12.2) -- --
Net income.......................................................... 3.1 8.6 (36.4) -- --
1996
Sales and revenues.................................................. $ 115.6 $ 143.1 $ 149.1 $ 125.7 $ 533.5
Gross profit........................................................ 59.0 72.7 75.6 64.2 271.5
Income from continuing operations................................... 3.8 11.2 12.1 5.0 32.1
Net income.......................................................... 2.6 11.3 12.4 4.1 30.4
1995
Sales and revenues.................................................. $ 111.7 $ 136.7 $ 142.4 $ 119.0 $ 509.8
Gross profit........................................................ 55.9 69.3 73.7 60.3 259.2
Income from continuing operations................................... 3.3 11.2 12.8 5.4 32.7
Net income.......................................................... 2.4 11.4 13.4 4.5 31.7
</TABLE>
The first quarter of 1997 consisted of fourteen weeks, while all other
quarters consisted of thirteen weeks.
(15) FUTURE CHANGE IN ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board ("FASB") issued its
Statement No. 130, "Reporting Comprehensive Income." This Statement establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. All items that are
required to be recognized under accounting standards as components of
comprehensive income must be reported in a financial statement with the same
prominence as other financial statements. Statement No. 130 is effective for
fiscal years beginning after December 15, 1997. With respect to the Midas Group,
the adoption of Statement No. 130 will result in the inclusion, in the statement
of comprehensive income, of the periodic adjustments arising from the
translation into U.S. dollars of foreign currency financial statements of
non-U.S. entities. In accordance with the FASB's Statement No. 52, "Foreign
Currency Translation," such translation adjustments are excluded from the
combined statements of operations but are included in the combined balance
sheets as a component of shareholder equity.
C-49
