<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
MIDAS GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 36-4180556
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
225 NORTH MICHIGAN AVENUE
CHICAGO, ILLINOIS 60611
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (312) 565-7500
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>
MIDAS GROUP, 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 C to the Information Statement ("Annex C"). 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 -- Midas" and in Annex C 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 C under the
captions "Midas Group 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 C 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 C under the caption "Management -- Ownership of Midas 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 C 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 C 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 C under the
captions "Financing" and "Midas Group 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 C 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 C 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 C under the
caption "Midas Group Pro Forma Combined Financial Information" and in the
financial information listed on the Index to Historical Financial Information
appearing in Annex C on page C-30, 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 1997 and for the year ended December 1996; (ii)
Pro Forma Combined Balance Sheet as of June 1997; (iii) Combined Statements of
Income for the years ended December 1996, 1995 and 1994 and for the six months
ended June 1997 and 1996; (iv) Combined Balance Sheets as of December 1996 and
1995 and as of June 1997; and (v) Combined Statements of Cash Flows for the
years ended December 1996, 1995 and 1994 and for the six months ended June 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 Midas International Corporation
10.2 Form of Tax Sharing Agreement among the Registrant, Midas International
Corporation and Whitman Corporation
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<S> <C>
10.3** Form of Revolving Credit Facility
10.4 Form of Midas Franchise and Trademark Agreement
10.5 Form of Stock Incentive Plan
10.6 Form of Change in Control Agreement
21** Subsidiaries of the Registrant
27** Financial Data Schedule
99 Information Statement
</TABLE>
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*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, thereunto duly authorized.
MIDAS GROUP, INC.
<TABLE>
<S> <C> <C>
By: R. LEE BARCLAY
------------------------------------------
R. Lee Barclay
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
</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 Midas International Corporation
10.2 Form of Tax Sharing Agreement among the Registrant, Midas International
Corporation and Whitman Corporation
10.3** Form of Revolving Credit Facility
10.4 Form of Midas Franchise and Trademark Agreement
10.5 Form of Stock Incentive Plan
10.6 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>
- ------------------------------------------------------------------------------
MIDAS GROUP, INC.
and
FIRST CHICAGO TRUST COMPANY OF NEW YORK
Rights Agent
Rights Agreement
Dated as of _____________, 1997
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
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
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
Section 32. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 33. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 34. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 35. Book-Entry Account Statements. . . . . . . . . . . . . . . . . . . . 46
</TABLE>
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<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of ____________, 1997 (the "Agreement"),
between Midas Group, 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
Illinois 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.,
Chicago time, on such date, PROVIDED, HOWEVER, that if such date is
not a Business Day it shall mean 5:00 P.M., Chicago 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 Midas
Group, 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
mail to the holder of
-7-
<PAGE>
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)
who becomes a transferee after the Acquiring Person becomes such,
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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,
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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
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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-
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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(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.
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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adjustment or the ascertaining of the existence of facts that would require
any such 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,
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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
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Illinois (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 Illinois), 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
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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.
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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
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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
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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:
Midas Group, Inc.
225 North Michigan Avenue
Suite 1100
Chicago, IL 60601
Attention: General Counsel
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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
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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
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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
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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: MIDAS GROUP, INC.
By: By:
-------------------------- -----------------------------
Name: Name:
Title: Title:
Attest: FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By: By:
-------------------------- -----------------------------
Name: Name:
Title: Title:
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Exhibit A
CERTIFICATE OF DESIGNATION
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
MIDAS GROUP, 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 Midas Group, 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, Midas Group, 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.
MIDAS GROUP, 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
MIDAS GROUP, 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 Midas Group, 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. (Chicago 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: MIDAS GROUP, 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:
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<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: MIDAS GROUP, 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 Midas Group, 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
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<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,
MIDAS GROUP, INC.
and
MIDAS INTERNATIONAL 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 . . . . . . . . . . . . . 8
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 Midas Tax Sharing Agreement . . . . . . . . . . . . . . . 10
Section 3.05 Employee Benefit Plans and Other
Compensation Arrangements . . . . . . . . . . . . . . . 10
Section 3.06 Board of Directors and Resignations . . . . . . . . . . . 20
Section 3.07 Midas Rights Agreement . . . . . . . . . . . . . . . . . 21
Section 3.08 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE IV. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.01 Indemnification by Whitman . . . . . . . . . . . . . . . 22
Section 4.02 Indemnification by Midas and
Midas Operating Company . . . . . . . . . . . . . . . . 22
Section 4.03 Limitations on Indemnification
Obligations . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.04 Procedures for Indemnification . . . . . . . . . . . . . 24
Section 4.05 Remedies Cumulative . . . . . . . . . . . . . . . . . . . 27
Section 4.06 Survival of Indemnities . . . . . . . . . . . . . . . . . 27
ARTICLE V. ACCESS TO INFORMATION . . . . . . . . . . . . . . . . . . . . 27
Section 5.01 Access to Information . . . . . . . . . . . . . . . . . . 27
Section 5.02 Production of Witnesses . . . . . . . . . . . . . . . . . 27
Section 5.03 Retention of Records . . . . . . . . . . . . . . . . . . 28
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<PAGE>
Section 5.04 Confidentiality . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VI. ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.01 Corporate Names . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.02 Privileged Matters . . . . . . . . . . . . . . . . . . . . 29
Section 6.03 Limitation on Solicitation of Employees . . . . . . . . . . 31
Section 6.04 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.05 Further Assurances . . . . . . . . . . . . . . . . . . . . 32
Section 6.06 Qualification as Tax-Free Distribution . . . . . . . . . . 32
ARTICLE VII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.01 Complete Agreement; Conflict with Midas
Tax Sharing Agreement . . . . . . . . . . . . . . . . . . . 33
Section 7.02 Survival of Agreements . . . . . . . . . . . . . . . . . 33
Section 7.03 Governing Law . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.04 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.05 Amendments . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.06 Successors and Assigns . . . . . . . . . . . . . . . . . 34
Section 7.08 No Third Party Beneficiaries . . . . . . . . . . . . . . 34
Section 7.09 Titles and Headings . . . . . . . . . . . . . . . . . . . 34
Section 7.10 Severability . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.11 Specific Performance . . . . . . . . . . . . . . . . . . 35
Section 7.12 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.13 Execution in Counterparts . . . . . . . . . . . . . . . . 35
SCHEDULE A: Midas Limits of Liability . . . . . . . . . . . . . . . . . A-1
SCHEDULE B: Whitman Indemnification of Midas Indemnitees . . . . . . . . B-1
SCHEDULE C: Midas and Midas Operating Company
Indemnification of Whitman Indemnitees . . . . . . . . . . . . . . . . . . C-1
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<PAGE>
DISTRIBUTION AND INDEMNITY AGREEMENT
DISTRIBUTION AND INDEMNITY AGREEMENT (this "AGREEMENT"), dated as of
______________, 1997, by and among WHITMAN CORPORATION, a Delaware
corporation ("WHITMAN"), MIDAS GROUP, INC., a Delaware corporation and, as of
the date hereof, a wholly-owned subsidiary of Whitman ("MIDAS"), and MIDAS
INTERNATIONAL CORPORATION, a Delaware corporation and, as of the Distribution
Date, a wholly-owned subsidiary of Midas ("MIDAS OPERATING COMPANY").
WHEREAS, the Whitman Board has determined that it is appropriate and
desirable to spin off Midas by distributing all of the shares of Midas 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, Midas and Midas 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 power to direct or cause the direction of the
management and policies of such Person,
<PAGE>
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 Midas 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.
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.
HUSSMANN COMMON STOCK: the Common Stock, $.001 par value, of
Hussmann International, Inc.
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<PAGE>
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.
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: Midas Group, Inc., a Delaware corporation and, as of the
date hereof, a wholly-owned subsidiary of Whitman.
MIDAS COMMON STOCK: the Common Stock, $.001 par value, of Midas.
MIDAS DEBT REPAYMENT: has the meaning specified in SECTION 3.02(a).
MIDAS ERP: has the meaning specified in SECTION 3.05(e)(1).
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<PAGE>
MIDAS FORM 10: the registration statement on Form 10 filed by Midas
with the Commission to effect the registration of the Midas Common Stock
pursuant to the Exchange Act.
MIDAS FUNDED WELFARE PLAN: has the meaning specified in SECTION
3.05(c)(1).
MIDAS INDEMNITEES: has the meaning specified in SECTION
3.05(a)(2)(II).
MIDAS MANAGEMENT INCENTIVE COMPENSATION PLAN: has the meaning
specified in SECTION 3.05(a)(1).
MIDAS MASTER TRUST: has the meaning specified in SECTION 3.05(e)(2).
MIDAS OPERATING COMPANY: Midas International Corporation, a Delaware
corporation and, as of the Distribution Date, a wholly-owned subsidiary of
Midas.
MIDAS PARTICIPANTS: has the meaning specified in SECTION
3.05(d)(1)(I).
MIDAS PENSION PLAN BENEFICIARIES: has the meaning specified in
SECTION 3.05(e)(1).
MIDAS PENSION PLANS: has the meaning specified in SECTION 3.05(e)(1).
MIDAS RIGHTS: Preferred Stock Purchase Rights of Midas issued
pursuant to the Midas Rights Agreement.
MIDAS RIGHTS AGREEMENT: the Rights Agreement, to be entered into on
or prior to the Distribution Date, between Midas and First Chicago Trust
Company of New York.
MIDAS RSP PLANS: has the meaning specified in SECTION 3.05(d)(1)(I).
MIDAS RSP TRUST: has the meaning specified in SECTION 3.05(d)(1)(I).
MIDAS SEPARATED EMPLOYEE: any individual (i) who, on or prior to
the Distribution Date, was employed by Whitman or any of its subsidiaries
(including Midas or any subsidiary of Midas) and who, prior to the
Distribution Date, was last employed by Midas or any Midas Subsidiary or (ii)
who, on or after the Distribution Date or otherwise in connection with the
Distribution, remains or becomes employed by Midas or any Midas Subsidiary,
including any beneficiary or dependent of such individual, as applicable.
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<PAGE>
MIDAS SPLIT DOLLAR PLAN: has the meaning specified in SECTION
3.05(f)(1).
MIDAS STOCK INCENTIVE PLAN: has the meaning specified in SECTION
3.05(b)(2).
MIDAS SUBSIDIARY: any subsidiary of Midas on the Distribution Date
that will remain a subsidiary of Midas immediately following the Distribution
Date, including Midas Operating Company, and any other subsidiary of Midas
which thereafter may be organized or acquired.
MIDAS TAX SHARING AGREEMENT: the Tax Sharing Agreement, dated the
date hereof, between Whitman, Midas and Midas Operating Company.
MIDAS WELFARE BENEFIT PLANS: has the meaning specified in SECTION
3.05(c)(1).
MIDAS WELFARE TRUST: has the meaning specified in SECTION 3.05(c)(1).
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.
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.
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).
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<PAGE>
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).
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(f)(1).
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<PAGE>
WHITMAN STOCK INCENTIVE PLAN: the Whitman Corporation Stock
Incentive Plan.
WHITMAN SUBSIDIARY: any subsidiary of Whitman other than Midas or
any Midas 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 Midas 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 Midas 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 Midas 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 Midas 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 Midas Separated Employee,
the shares of Midas Common Stock and Hussmann Common Stock distributed in the
Distribution in 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 Midas Common
Stock shall be distributed in the Distribution. Holders that request or
receive delivery of physical certificates representing Midas Common Stock in
the Distribution and holders that would receive less than one whole share of
Midas 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 Midas 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
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<PAGE>
fractional share of Midas 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 Midas 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 Midas, the Distribution and other matters. Whitman and
Midas have prepared, and Midas has filed with the Commission, the Midas Form
10, which includes or incorporates by reference portions of the Information
Statement. Whitman and Midas shall use reasonable efforts to cause the Midas
Form 10 to become effective under the Exchange Act as soon as practicable.
(b) Whitman and Midas 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 Midas 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.
(d) Whitman and Midas have prepared, and Midas has filed in
preliminary form and shall seek to make effective, an application to permit
listing of the Midas Common Stock (as well as the associated Midas Rights) on
the New York Stock Exchange. In the event that the Midas Common Stock is not
accepted for listing on the New York Stock Exchange, Midas shall apply for
quotation of the Midas Common Stock (as well as the associated Midas 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
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shall have formally approved the Distribution; (2) the Midas 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 Midas,
comprised as contemplated by SECTION 3.06(a), shall have been duly elected;
(5) the Midas 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 Midas. The steps to
be taken, the specific form and sequence of which shall be in the sole
discretion of the management of Whitman shall, among other things, result in
Midas directly owning all of the outstanding capital stock of Midas Operating
Company and directly or indirectly owning all of the foreign Subsidiaries and
Affiliates of Whitman that are related to the business of Midas. 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 Midas shall execute or
cause to be executed by the appropriate entities the Conveyance and
Assumption Instruments in such forms as Whitman and Midas shall reasonably
agree, including the transfer of any real property by deed.
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(c) Prior to the Distribution Date, Whitman and Midas shall take
all steps necessary to increase the outstanding shares of Midas Common Stock
so that immediately prior to the Distribution, Whitman shall own the number
of shares of Midas Common Stock necessary to effect the Distribution.
Section 3.02 REPAYMENT OF INTERCOMPANY INDEBTEDNESS AND CASH
DIVIDEND.
(a) Prior to the Distribution, Midas shall repay to Whitman all
intercompany indebtedness owing by Midas and the Midas Subsidiaries to
Whitman and the Whitman Subsidiaries at the time of such repayment (the
"MIDAS DEBT REPAYMENT").
(b) Prior to the Distribution, Midas shall pay a cash dividend to
Whitman in an amount which, when added to the amount of the Midas Debt
Repayment, equals an aggregate of $____ million.
Section 3.03 SATISFACTION AND WAIVER OF ANY CLAIMS. Midas agrees,
on behalf of itself and each Midas Subsidiary, except as may otherwise be
provided in the Midas Tax Sharing Agreement, that Midas and each Midas
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 Midas or any Midas
Subsidiary at any time prior to the Distribution.
Section 3.04 MIDAS TAX SHARING AGREEMENT. On or prior to the date
hereof, Whitman, Midas and Midas Operating Company will execute and deliver
the Midas Tax Sharing Agreement.
Section 3.05 EMPLOYEE BENEFIT PLANS AND OTHER COMPENSATION
ARRANGEMENTS.
(a) MANAGEMENT INCENTIVE COMPENSATION PLAN.
(1) Midas shall establish a Management Incentive Compensation Plan
(the "MIDAS MANAGEMENT INCENTIVE COMPENSATION PLAN"). Midas and the Midas
Subsidiaries shall be solely liable and responsible for all Liabilities
whatsoever arising under the Midas Management Incentive Compensation Plan,
and neither Whitman nor any Whitman Subsidiary shall have any Liabilities in
respect thereof at any time. Midas and Midas 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
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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 Midas 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) Midas and the Midas 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 Midas
Separated Employee, and neither Whitman nor any Whitman Subsidiary shall
have any Liabilities in respect thereof at any time. Midas and Midas
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 Midas 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 MIC Plan in connection with any claims made by or on behalf of
any individual, and neither Midas nor any Midas Subsidiary shall have any
Liabilities in respect thereof at any time. Whitman shall indemnify,
defend and hold harmless Midas, each Affiliate of Midas and each of Midas'
and Midas Operating Company's directors, officers and employees and each of
the heirs, executors, successors and assigns of any of the foregoing (the
"MIDAS INDEMNITEES") from and against any and all Losses of the Midas
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 Midas 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 Midas 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 Midas Common Stock
shall be considered outstanding and exercisable according to
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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 Midas shall cooperate and take all action necessary
so that as of the Distribution Date, each Option held by a Midas 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 Midas 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 Midas
(the "MIDAS STOCK INCENTIVE PLAN") to purchase shares of Midas Common Stock.
The number of shares of Midas 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 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 Midas 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 Midas Separated Employees holding shares
of Restricted Stock on the Record Date will receive shares of Midas Common
Stock and Hussmann 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 Midas 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 Midas Separated
Employee, Whitman and Midas 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 Midas Common Stock of
equivalent value and a Restricted Stock Award Agreement issued under the
Midas Stock Incentive
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Plan having the same vesting schedule as that contained in the Agreement
which it replaced.
(4) Midas and the Midas 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 Midas Separated Employee, and
neither Whitman nor any Whitman Subsidiary shall have any Liabilities in
respect thereof at any time. Midas and Midas 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 Midas or any of its Affiliates to pay, perform
or otherwise discharge such Liabilities or the failure by any Midas 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 Midas nor any Midas Subsidiary shall
have any Liabilities in respect thereof at any time. Whitman shall
indemnify, defend and hold harmless the Midas Indemnitees from and against
any and all Losses of the Midas 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.
(6) Midas shall establish the Midas Stock Incentive Plan
substantially in the form in which it has been filed as an Exhibit to the
Midas Form 10. The Midas Stock Incentive Plan shall become effective as of
the Distribution Date for Midas Separated Employees. Whitman shall approve
the Midas Stock Incentive Plan as the sole shareholder of Midas. Midas and
the Midas Subsidiaries shall be solely liable and responsible for all
Liabilities whatsoever arising under the Midas Stock Incentive Plan, and
neither Whitman nor any Whitman Subsidiary shall have any Liabilities in
respect thereof at any time. Midas and Midas 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 Midas or any of its Affiliates to pay, perform
or otherwise discharge such Liabilities.
(c) WELFARE BENEFITS.
(1) Midas shall, effective on a date which is on or prior to the
Distribution Date ("WELFARE EFFECTIVE DATE"), establish the Midas International
Corporation Group Benefits Plan ("MIDAS FUNDED WELFARE PLAN") and the Midas
International Corporation Welfare Benefit Trust ("MIDAS 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.
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The Midas Funded Welfare Plan and the Midas 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 Midas Separated Employee. Midas shall continue to provide, effective
on the Distribution Date, welfare benefit plans (as described in ERISA
Section 3(c)) it or any Midas Subsidiary currently sponsors to each and every
Midas Separated Employee substantially similar to the welfare benefits
provided to each and every Midas Separated Employee on the date hereof (all
such plans herein referred to as "MIDAS WELFARE BENEFIT PLANS").
(2) Midas and the Midas Subsidiaries shall be solely liable and
responsible for all Liabilities whatsoever arising under all Midas Welfare
Benefit Plans or the Midas Welfare Trust, and neither Whitman nor any Whitman
Subsidiary shall have any Liabilities in respect thereof at any time. Midas
and the Midas Subsidiaries shall be solely liable and responsible for all
Liabilities whatsoever to each and every Midas Separated Employee with
respect to the Midas Welfare Benefit Plans or the Midas Welfare Trust at any
time. Midas and Midas 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 or due to the failure or alleged failure of the Midas Welfare Benefit
Plans, the Midas Welfare Trust, Midas or any of its Affiliates to pay,
perform or otherwise discharge such Liabilities.
(3) Whitman shall provide to Midas, 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 Midas 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 Midas 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 Midas Separated
Employee.
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(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 Midas, the Midas
Funded Welfare Plan or the Midas Welfare Trust, respectively, for the benefit
only of a Midas 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 Midas 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 Midas Separated Employee.
(d) RETIREMENT SAVINGS PLANS.
(1)(i) Midas 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 Midas
(respectively referred to below as the "MIDAS RSP PLANS" and "MIDAS 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 Midas Common Stock fund)
and the Whitman Corporation Defined Contribution Master Trust (respectively
referred to below as the "WHITMAN RSP PLANS" and the "WHITMAN RSP TRUST")
covering, among others, each and every Midas 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 "MIDAS PARTICIPANTS").
Each of the Midas RSP Plans and the Midas 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 Midas Participants.
(ii) Midas and the Midas Subsidiaries shall be solely liable and
responsible for all Liabilities whatsoever arising under the Midas RSP
Plans and Midas RSP Trust, and neither Whitman nor any Whitman Subsidiary
shall have any Liabilities in respect thereof at any time. Midas and the
Midas Subsidiaries shall be solely liable and responsible for all
Liabilities whatsoever to Midas Participants with respect to the Midas RSP
Plans and Midas RSP Trust at any time. Midas and Midas 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
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the failure or alleged failure of the Midas RSP Plans, the Midas RSP
Trust, Midas 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 Midas 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 Midas 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 Midas
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 Midas Participants under the Whitman RSP Plans were
invested in such investment alternatives. Midas shall cause all assets so
transferred to the Midas RSP Trust to be allocated among the Midas RSP Plans
in a manner such that the value of the assets of each of the Midas RSP Plans
so allocated shall be equal to the value of assets transferred from each of
the respective Whitman RSP Plans.
(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 Midas, the Midas RSP Plans or the Midas RSP
Trust, respectively, for the benefit only of Midas 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 Midas Participants.
(e) DEFINED BENEFIT PENSION PLANS.
(1) Midas shall continue, on and after the Distribution Date,
qualified defined benefit pension plans ("MIDAS PENSION PLANS"), which are
presently being funded by the Whitman Corporation Defined Benefit Master Trust
("WHITMAN MASTER TRUST"), and a nonqualified Midas International Corporation
Executive Retirement Plan ("MIDAS ERP"), all of which Midas or a Midas
Subsidiary currently sponsors for current and former employees and beneficiaries
of employees or former employees of Midas and Midas Subsidiaries (the "MIDAS
PENSION PLAN BENEFICIARIES"). Midas and the Midas Subsidiaries shall be solely
liable and responsible for all Liabilities whatsoever arising under the Midas
Pension Plans and Midas 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 Midas Participant under a
qualified defined benefit pension plan maintained by Whitman or a Whitman
Subsidiary which is offset by the Midas Pension Plans against any benefit
accrual under the Midas Pension Plans based on the same period of credited
service. Midas and the Midas Subsidiaries
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shall be solely liable and responsible to all Midas Pension Plan
Beneficiaries for all Liabilities whatsoever with respect to the Midas
Pension Plans and Midas ERP at any time. Midas and Midas 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 Midas Pension Plans, Midas Master Trust (defined
below), Midas or any of its Affiliates to pay, perform or otherwise discharge
such Liabilities.
(2) Midas shall, as of a date on or prior to the Distribution Date
("PENSION EFFECTIVE DATE"), adopt a Midas International Corporation Defined
Benefit Master Trust ("MIDAS MASTER TRUST") substantially similar to the
Whitman Master Trust and designate a trustee for the Midas Master Trust for
each of the Midas 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 Midas Master Trust, a
PRO RATA portion (net of accrued expenses, contributions and benefits
attributable to each and every Midas Separated Employee) of the cash,
securities and other assets in the Whitman Master Trust as determined solely
by the Management Committee on or as soon as practicable after the Pension
Effective Date.
Midas shall cause all assets so transferred to the Midas Master
Trust to be allocated among the Midas Pension Plans in a manner such that the
value of the assets of each of the Midas Pension Plans (net of accrued
expenses, contributions, and benefits attributable to each such Midas 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) Midas shall, effective on a date which is on or prior to the
Distribution Date ("SPLIT DOLLAR EFFECTIVE DATE"), establish the Midas
Executive Split Dollar Life Insurance Plan ("MIDAS SPLIT DOLLAR PLAN")
substantially similar to the Whitman Corporation Executive Split Dollar Life
Insurance Plan ("WHITMAN SPLIT DOLLAR PLAN"). The Midas 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 Midas Separated Employee.
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(2) Whitman shall provide to Midas on or before the Split Dollar
Effective Date a list of outstanding life insurance policies issued pursuant
to the Whitman Split Dollar Plan to Midas Separated Employees and premiums
paid by Whitman for such policies since the inception of the Whitman Split
Dollar Plan. Whitman and Midas shall cooperate in obtaining new Split Dollar
Agreements and Collateral Assignments by Midas Split Dollar Plan participants
assigning to Midas 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 Midas Separated Employees.
Subject to the execution of such Split Dollar Agreements and Collateral
Assignments by Midas Split Dollar Plan participants, Midas shall reimburse
Whitman for all premium contributions made by Whitman in respect of Midas
Separated Employees since the inception of the Whitman Split Dollar Plan
pursuant to SECTION 3.02(a).
(3) Midas and the Midas Subsidiaries shall be solely liable and
responsible for all Liabilities whatsoever arising under the Midas Split
Dollar Plan, and neither Whitman nor any Whitman Subsidiary shall have any
Liabilities in respect thereof at any time. Midas and the Midas Subsidiaries
shall be solely liable and responsible for all Liabilities whatsoever to each
and every Midas Separated Employee with respect to the Midas Split Dollar
Plan at any time. Midas and Midas 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 Midas Split Dollar Plan, Midas 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 Midas 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 Midas Separated
Employees shall be terminated, and that Midas will adopt and approve
agreements between Midas and such Midas 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 Midas Form 10.
(2) Midas and the Midas Subsidiaries shall be solely liable and
responsible for all Liabilities whatsoever arising in connection with any
claims made by
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or on behalf of Midas 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. Midas
and Midas 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 Midas
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 Midas
Separated Employee as of the Distribution Date or in connection with the
Distribution, and neither Midas nor any Midas Subsidiary shall have any
Liabilities in respect thereof at any time. Whitman shall indemnify, defend and
hold harmless the Midas Indemnitees from and against any and all Losses of the
Midas 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) MIDAS LIABILITY TO MIDAS SEPARATED EMPLOYEES. As of the
Distribution Date, Midas and the Midas Subsidiaries shall be solely liable and
responsible for all Liabilities whatsoever arising in connection with any claims
made by or on behalf of Midas 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 Midas 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. Midas and Midas 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 Midas or any of its Affiliates to pay, perform or
otherwise discharge such Liabilities. To the extent not otherwise provided in
this Agreement, Whitman and Midas shall take such action as is necessary to
effect an adjustment to the books of Whitman and of Midas 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 Midas and the Midas 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
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other expenses or Liabilities in respect of a Midas Separated Employee not
otherwise provided for in this Agreement, Midas and the Midas 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 Midas Separated
Employees. Except as otherwise specifically provided, (1) this Agreement shall
not affect any Midas or Midas Subsidiary Employee Benefit Plans or other
compensation arrangements which Midas or the Midas 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.
(j) COOPERATION. Whitman and Midas 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 Midas or any subsidiary of Whitman or Midas 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) Midas and Whitman shall take all actions which may be required to
elect as directors of Midas, on or prior to the Distribution Date, the persons
named in the Midas Form 10 to constitute the Board of Directors of Midas 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 Midas and any Midas Subsidiary; and Midas 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;
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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 MIDAS RIGHTS AGREEMENT. Midas shall enter into the
Midas Rights Agreement substantially in the form attached as an Exhibit to the
Midas Form 10.
Section 3.08 INSURANCE.
(a) Since April 1, 1978, Whitman has provided insurance coverage to
Midas and the Midas Subsidiaries through Whitman's wholly-owned insurance
subsidiary, Whitman Insurance Co., Ltd., for workers' compensation, general
liability, automobile liability and products liability. Midas 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 Midas and the Midas 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 Northwestern
National Insurance Co., 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 Midas and the Midas 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
Midas and the Midas 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 Midas shall have the right to present
claims to Whitman or Whitman's insurers under all policies of insurance placed
by Whitman on
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behalf of Midas or any Midas Subsidiary or which include Midas or any Midas
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 Midas for incidents occurring on or prior to the
Distribution Date but which are first reported after the Distribution Date.
ARTICLE IV
INDEMNIFICATION
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 Midas
Indemnitees from and against any and all Losses of the Midas 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 Midas or any Midas Subsidiary in respect of any Tax
(as such term is defined in the Midas Tax Sharing Agreement), except as
otherwise provided on SCHEDULE B hereto or in the Midas Tax Sharing Agreement.
Section 4.02 INDEMNIFICATION BY MIDAS AND MIDAS OPERATING COMPANY.
Except with respect to employee benefits or other Liabilities to employees,
which shall be governed by SECTION 3.05 hereof, Midas and Midas 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 Midas 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 Midas nor
any Midas Subsidiary shall have any Liabilities whatsoever to Whitman or any
Whitman Subsidiary in respect of any Tax (as such term is defined in the Midas
Tax Sharing Agreement), except as otherwise provided on SCHEDULE C hereto or in
the Midas 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
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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
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
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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
(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
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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 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
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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.
(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
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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, Midas and Midas Operating Company under this Article IV shall survive
the sale or other transfer by it of any assets or businesses or the assignment
by 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 Midas 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.
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Section 5.03 RETENTION OF RECORDS. Except as otherwise required by
law or agreed to in writing, each of Whitman and Midas 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 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 Midas 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 Midas' expense, Midas shall, and
shall cause the Midas Subsidiaries to, remove (or, if necessary, on an interim
basis, cover up) any
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and all exterior signs and other identifiers located on any of Midas' or any
Midas 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 Midas' expense, Midas
shall, and shall cause the Midas 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 Midas shall not be
required to take any such action with respect to materials in the possession of
franchisees or customers), and neither Midas nor any Midas Subsidiary shall use
or display the Whitman name, logo or other trademarks or Whitman intellectual
property without the prior written consent of Whitman.
(c) Whitman acknowledges that it has no interest in nor any right to
use or display the Midas name or any Midas 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 Midas 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 Midas 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 Midas or any Midas 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 Midas or any of their subsidiaries.
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(b) Midas shall be entitled, in perpetuity, to control the assertion
or waiver of all privileges in connection with privileged Information which
relates solely to Midas or any Midas Subsidiary or the business of Midas or any
Midas Subsidiary, whether or not the privileged Information is in the possession
of or under the control of Whitman or Midas or any of their subsidiaries. Midas
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 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 Midas or any Midas Subsidiary, whether or not the privileged Information
is in the possession of or under the control of Whitman or Midas 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 Midas or any Midas
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
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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 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 Midas Separated Employee or induce or attempt to induce any Midas
Separated Employee to leave his or her employment.
(b) Midas 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.
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(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 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 Midas 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 Midas Common Stock, (3) fees charged by rating agencies
for rating Midas 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 Midas or Midas Operating
Company, (7) costs incurred in printing and engraving the stock certificates of
Midas, and (8) one-third of the cost of printing and distributing the Midas Form
10, the Information Statement and related documents, all of which shall be paid
by Midas and Midas 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 Midas 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 Midas which are known to Whitman of any transaction
contemplated by this Agreement; PROVIDED, HOWEVER, nothing in this SECTION
6.06(b) shall prohibit Whitman
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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, Midas shall not, nor
cause or permit, any Midas 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 Midas
of any transaction contemplated by this Agreement; PROVIDED, HOWEVER, nothing
in this SECTION 6.06(b) shall prohibit Midas from taking any action, or
entering into any transaction (or permitting or causing any Midas 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.
ARTICLE VII
MISCELLANEOUS
Section 7.01 COMPLETE AGREEMENT; CONFLICT WITH MIDAS TAX SHARING
AGREEMENT. This Agreement and the Midas 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 Midas Tax Sharing Agreement, the provisions of the Midas
Tax Sharing Agreement shall control.
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:
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Whitman Corporation
3501 Algonquin Road
Rolling Meadows, Illinois 60008
Attention: General Counsel
if to Midas or Midas Operating Company:
Midas Group, Inc.
225 North Michigan Avenue
Chicago, Illinois 60601
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 Midas 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 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, Midas or any Midas 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
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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 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.
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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:
MIDAS GROUP, INC.
By: ___________________
Name:
Title:
MIDAS INTERNATIONAL CORPORATION
By: ___________________
Name:
Title:
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SCHEDULE A
MIDAS LIMITS OF LIABILITY
POLICY PERIOD LIMITS OF LIABILITY
4/1/78 - 4/1/79 50% of the first $250,000 each and every
loss, all lines
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
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$1,000,000 each and every loss, Workers'
Compensation and Automobile Liability
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
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4/1/97 - Distribution Date $2,000,000 each and every loss, General
Liability, Workers' Compensation and
Automobile Liability
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
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exposures of $25,000 for All Risk Property
Insurance
*General Liability (including Products Liability), Automobile Liability and
Workers' Compensation.
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SCHEDULE B
WHITMAN INDEMNIFICATION OF MIDAS INDEMNITEES
Items with respect to which Whitman will indemnify the Midas
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 Midas or Midas Operating Company (whether
directly or through a subsidiary or Affiliate of Midas or Midas Operating
Company), the Midas Subsidiaries or any previously-owned division, subsidiary or
Affiliate of Midas or Midas Operating Company (including, without limitation,
the former Sea Nymph division); 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 Midas.
(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 - Hussmann," (c) "Introduction," (d) "The
Distribution" and (e) any information derived from such information and (ii) in
Annex A and Annex B of the Information Statement.
(3) All Losses arising out of any Action brought by shareholders of
Whitman or Midas 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 Midas or any Midas Subsidiary or a breach
by Midas or Midas Operating Company of the Midas Tax Sharing Agreement.
(4) All Losses arising out of any breach by Whitman or any Whitman
Subsidiary of this Agreement or the Midas Tax Sharing Agreement.
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SCHEDULE C
MIDAS AND MIDAS OPERATING COMPANY INDEMNIFICATION OF WHITMAN INDEMNITEES
Items with respect to which Midas and Midas 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 Midas or Midas Operating Company (whether
directly or through a subsidiary or Affiliate of Midas or Midas Operating
Company), the Midas Subsidiaries and any previously-owned division, subsidiary
or Affiliate of Midas or Midas 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 Midas 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 Midas 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 Midas or any Midas Subsidiary or a breach by Midas or Midas
Operating Company of the Midas Tax Sharing Agreement.
(4) All Losses arising out of any breach by Midas or Midas Operating
Company of this Agreement or the Midas Tax Sharing Agreement.
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TAX SHARING AGREEMENT
This Tax Sharing Agreement (the "Agreement") dated as
of_______________, 1997, by and among Whitman Corporation, a Delaware
corporation ("Whitman"), Midas Group, Inc., a Delaware corporation ("Midas")
and Midas International Corporation, a Delaware corporation ("International").
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 Midas and of Hussmann International, Inc., a
Delaware corporation ("Hussmann"), will be distributed by Whitman (pro rata)
to the holders of its common stock (the "Distribution");
WHEREAS, Midas was incorporated on August 29, 1997, and, at the time of
the Distribution, Midas will own all of the issued and outstanding shares of
common stock of International;
WHEREAS, Whitman and International 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 Midas
Group, as hereinafter defined (hereinafter referred to as the "Whitman
Group"), and Midas and International, 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 Hussmann (hereinafter referred to as the
"Midas 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
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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.
"Midas Businesses" means the former, present and future subsidiaries,
divisions and businesses of any member of the Midas 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 Midas
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 Midas 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.
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"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 Midas
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 Midas Group that are required to be filed for
periods beginning on or before the Distribution Date shall be prepared and
filed by Whitman. Midas shall, for each of its taxable periods for which it
and/or International 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 Midas Group, (ii) separate
federal income tax returns for each member of the Midas Group and (iii) a
reconciliation of book income to federal taxable income for each member of
the Midas Group. Midas hereby agrees to and
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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 Midas 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, Midas 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 Midas Group, reduced by all estimated payments
theretofore made by Midas or International to Whitman on account of such
liability, or if such estimated payments in the aggregate exceed the federal
income tax liability of the Midas Group, Whitman shall pay such excess to
Midas within five (5) days of the filing by Whitman of its consolidated
federal income tax return. Anything herein to the contrary notwithstanding,
Midas for itself and the members of the Midas 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 Midas Group. In no event will any
member of the Midas 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 Midas Group. To permit Whitman to
prepare and file such returns, Midas or International 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 Midas Group,
prepared on both a separate company basis as well as on a unitary basis which
includes all members of the Midas 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 Midas
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, Midas shall pay to Whitman the lesser of (x) the
aggregate amount of the separate company Illinois tax liability
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of each member of the Midas Group for each such period, or (y) the Illinois
corporate income tax liability as computed above for the Midas 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 Midas
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, Midas or
International on behalf of all of the members of the Midas 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 members of the Whitman Group and
any members of the Midas 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. Midas or International shall, for each taxable period
for which a member of the Midas 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 Midas Group members which are
required to file in the Netherlands, (ii) separate Netherlands income tax
returns for such Midas Group members and (iii) a reconciliation of book
income to Netherlands taxable income for such Midas Group members. Midas
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, Midas 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 Midas Group, reduced by all estimated tax payments theretofore
made by Midas 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 Midas Group members, Whitman shall pay such
excess to Midas within ten (10) days of the filing by Whitman of the
consolidated Netherlands income tax return which included members of the
Whitman Group. Anything herein to the contrary notwithstanding, Midas for
itself and for members of the Midas Group shall remit to Whitman at least ten
(10) days prior to the due date of each Whitman estimated
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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 Midas Group members.
In no event will any member of the Midas 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) CERTAIN DISTRIBUTIONS.
Notwithstanding any provision of this Agreement to the contrary,
International shall be responsible and pay for any tax liabilities imposed as
a result of any distributions of cash by Midas France S.A., Midas Canada,
Inc., Midas Canada Holdings, Ltd., or Finanza II B.V. in anticipation of the
Distribution, and Midas shall be entitled to any subsequent refunds of any
such taxes.
(e) OTHER TAX RETURNS.
All Tax Returns of any member of the Whitman Group or the Midas 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, 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
Midas 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 Midas Group if such Tax Returns relate to
Midas Businesses.
SECTION 2.04. CERTIFICATION. Each tax return and computation of tax
liability required to be provided to Whitman by any member of the Midas 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
Midas 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.
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ARTICLE III
DEFICIENCIES AND REFUNDS OF TAXES
SECTION 3.01. PAYMENT OF DEFICIENCIES BY MIDAS 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 Midas 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 Midas Group, then each member of
the Midas Group shall be jointly and severally liable to Whitman for such
increases, including interest and penalties thereon. If any member of the
Midas Group shall have any liability as a result of this Section 3.01, the
amount thereof shall be paid by Midas to Whitman within ten (10) days of the
receipt by Midas of written notice of such liability, together with a
computation of the amount due and supporting documentation in such detail as
Midas may reasonably request to verify the computation of the amount due.
SECTION 3.02. PAYMENT OF REFUNDS TO MIDAS 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 Midas 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 Midas 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 Midas any refunds of Taxes, together with any interest thereon,
received by it as a result of the adjustments attributable to a member of the
Midas Group. Whitman shall pay any amounts due from it to Midas 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 Midas 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 Midas Group, any Restructuring
Taxes are imposed upon any member of the Midas Group, then Whitman shall pay
and shall indemnify and hold harmless Midas and each member of the Midas
Group from and against all Restructuring Taxes, including, without
limitation, any Restructuring Taxes at any time paid by Midas or any member
of the Midas Group. Such payment and indemnification shall be made by Whitman
no later than fifteen (15) days after the
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later to occur of: (a) written notice from Midas, 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.
(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 Midas or of any member of the Midas 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 Midas
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 Midas 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 Midas and/or any
member of the Midas 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 Midas or any member of the Midas 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 Midas 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 Midas 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 Midas and any members of the Midas Group
covered by this section upon written request directed to the Chief Financial
Officer of Midas. Midas 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.
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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
Midas 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 Midas
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 Midas
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 Midas or any
member of the Midas Group and will give Midas such information with respect
thereto as Midas may reasonably request. Upon notice to Whitman, Midas 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 Midas
representative is satisfactory to Whitman, and Midas 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 Midas or any member of the Midas Group. Anything in this
Section 4.01 to the contrary notwithstanding, if Whitman determines to
terminate Midas' 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, Midas 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 Midas to close such audit or contest.
Anything in this Section 4.01 or elsewhere in this Agreement to the
contrary notwithstanding, if Whitman permits Midas to litigate any U.S.
federal tax issue or other tax issue in any forum, Midas 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.
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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 Midas or other
members of the Midas Group that are paid for by Whitman or by members of the
Whitman Group which are allowed as a deduction to Midas or to any other
member of the Midas 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 Midas to Whitman
within ten (10) days of the receipt by Midas of written notice of such item,
together with a computation of the amount due and supporting documentation in
such detail as Midas may reasonably request to verify the computation of the
amount due.
SECTION 4.03. RETENTION OF BOOKS AND RECORDS.
Midas and Whitman each agrees that they will take provisions to insure
that both they and the members of the Midas 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) MIDAS' OBLIGATIONS.
In addition to any obligations imposed pursuant to the Distribution
Agreement, Midas and each other member of the Midas 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 Midas Group member of
any power of attorney required to allow Whitman and its counsel to represent
Midas or such other Midas 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, necessary or
useful in connection with any tax inquiry, audit, examination, investigation,
dispute, litigation or any other matter.
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(b) WHITMAN'S OBLIGATIONS.
Except as otherwise provided in this Article IV, Whitman shall fully
cooperate with Midas 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 Midas 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 Midas by Whitman of any power of attorney required to allow Midas
and its counsel to participate on behalf of Midas or other Midas 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 Midas, 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 Midas is not for any reason
fulfilling its obligations under Section 4.04(a), or if Midas reasonably
determines that Whitman is not for any reason fulfilling its obligations
under Section 4.04(b), then Whitman or Midas, 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
Midas 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.
Midas shall, and shall cause each Midas 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. Midas further agrees that during
the three-year period following the Distribution Date, it (i) shall cause
International 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
outstanding stock of Midas 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
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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 Midas 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 Midas, 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 Midas or of any other member of
the Midas 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.
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.
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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 Midas and International:
Midas Group, Inc.
225 N. Michigan Avenue
Chicago, Illinois 60601
Attention: Chief Financial Officer
SECTION 6.05. APPLICATION TO PRESENT AND FUTURE SUBSIDIARIES. This
Agreement is being entered into by Whitman, Midas and International on behalf
of themselves and each member of the Whitman Group and the Midas 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
Midas Group in the future. Whitman, Midas and International hereby guarantee
the performance of all actions, agreements and obligations provided for under
this Agreement of each member of the Whitman Group and the Midas Group,
respectively. Whitman, Midas and International 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.
SECTION 6.06. 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.
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.
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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.
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
MIDAS GROUP, INC.
By:_____________________________
Chief Financial Officer
MIDAS INTERNATIONAL CORPORATION
By:_____________________________
Chief Financial Officer
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MIDAS FRANCHISE AND TRADEMARK AGREEMENT
THIS AGREEMENT is made as of _____________________ by and between Midas
International Corporation, a Delaware corporation (hereafter referred to as
"Midas"), and _______________________________________ (hereafter referred to as
"Franchisee").
RECITALS:
Midas and Franchisee mutually acknowledge as follows:
Midas is engaged in the business of operating, and of licensing the
operation by others, of automotive specialty shops known as "Midas Shops", which
engage in the sale and installation of those products listed in Schedule A
attached hereto, and in the performance of those services listed in said
Schedule A. Midas makes available and furnishes to its franchisees genuine Midas
products which are offered, sold, and installed by said shops, certain of which
products carry a unique and valuable guarantee to the consumer public.
All of said Midas Shops are operated in connection with and through the
use of various trademarks, tradenames, and service marks consisting of or
containing the words "Midas", "Midas Shops", and certain related words, letters,
and symbols, (all of which are hereafter collectively referred to as the
"Proprietary Marks"), and in connection with certain designs of signs and
buildings, logos, and copyrighted materials, (all of which are hereafter
collectively referred to as the Midas "indicia"). The Proprietary Marks include,
but are not limited to, those registered in the United States Patent Office as
Nos. 620,322, 641,711, 651,747, 655,353, 657,036, 674,939, 678,396, 681,974,
700,490, 716,626, 716,627, 722,195, 726,350, 733,724, 736,168, 749,922, 753,876,
757,630, 798,254, 803,611, 803,612, 803,613, 803,614, 855,053, 855,054, 858,213,
864,048, 864,049, 864,889, 867,496, 864.889, 886,623, 886,624, 888,471, 892,784,
902,166, 1,238,734, 1,247,295, 1,244,801, and 1,258,822. In addition, other
applications for registration are presently pending and/or may be applied for in
the future.
Midas has also developed a unique and successful system for the
establishment and operation of said shops, (hereinafter referred to as the
"Midas System"), which includes site selection, shop 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 said shops and the
maintenance of high standards of quality.
Midas has expended large sums of money over a period of many years in
developing and improving the Midas System, and in advertising, promoting, and
publicizing the Midas Proprietary Marks and indicia, as well as the various
unique Midas guarantees, all of which have become well and favorably known to
the public throughout the United States and Canada, and Midas has acquired a
valuable goodwill therein. The public has come to associate said Proprietary
Marks and indicia exclusively with the products and services offered, sold,
installed, and rendered by authorized Midas Shops.
In order to assist authorized Midas franchisees to get started in business
and to achieve maximum results, Midas makes available to all franchisees both
initial and continuing information, experience, advice, guidance, and know-how
with respect to shop management, operation, financing, and promotion.
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Franchisee desires to establish and operate a Midas Muffler Shop at the
location hereafter designated, to use in connection therewith the Midas
Proprietary Marks and indicia and the Midas System, to have the right to sell
and install therein genuine Midas products and to issue and honor the Midas
guarantees in connection therewith, and to derive the benefits of Midas'
information, experience, advice, guidance, know-how, and customer goodwill.
Franchisee acknowledges that it is essential to the maintenance of the
high standards which the public has come to expect of authorized Midas Shops, to
the preservation of the integrity of the Midas Proprietary Marks, indicia, and
goodwill, and to the value of the Midas guarantees, that each franchisee adhere
to certain uniform standards, procedures and policies hereafter described.
In consideration of the foregoing recitals, of the mutual covenants
hereafter set forth, and of other good and valuable considerations, Midas and
Franchisee agree as follows:
ARTICLE ONE
GRANT, TERM AND INITIAL FEE
1.1 GRANT OF LICENSE. Midas hereby grants to Franchisee, and Franchisee
hereby accepts from Midas, the right, franchise and license, for the term and
upon the terms and conditions hereafter set forth:
(a) To establish and operate a Midas Muffler Shop at the
following location only _______________________________________________.
(b) To use, in connection with the operation of said shop, the
Midas Proprietary Marks and indicia, and the Midas System;
(c) To purchase from Midas and to resell from said shop those
genuine Midas products listed in Schedule A attached hereto, and to sell
and install said genuine Midas products in or from Franchisee's shop;
(d) To perform in Franchisee's shop those genuine Midas services
listed in Schedule A attached hereto; and
(e) To issue and honor the various Midas guarantees in connection
with such of said products and services as may be subject to guarantee
from time to time.
1.2 NON-EXCLUSIVITY. The right, franchise, and license granted
herein shall be non-exclusive. Midas shall at all times have the right
either to establish and operate itself, or to license any other party or
parties to establish and operate, a Midas Muffler Shop or Shops at any
other location or locations whatever.
1.3 TERM. The term of this Agreement and of the right, franchise,
and license herein granted shall commence on ___________________ and shall
end on ___________________ unless sooner terminated in accordance with the
terms hereof.
1.4 INITIAL FRANCHISE FEE. Franchisee has paid to Midas, or will
concurrently with the execution of this Agreement pay to Midas, the sum of
twenty thousand dollars ($20,000.00) as an initial fee for the right,
franchise and license hereby granted. Said fee shall be deemed fully
earned by Midas upon the execution and delivery of this Agreement by
Midas, subject only to the provisions of the next sentence, and is in
addition to the periodic royalty payable pursuant to Section 4 1 below, to
any and all amounts paid or to be paid by Franchisee to Midas Realty
Corporation (a wholly-owned subsidiary of Midas International Corporation)
for its services in relation to the location and development of the shop,
and to any and all other amounts, whether for merchandise, or for any
other reason, which may be owed to Midas from time to time. In the event
this
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Agreement is terminated by either party or in any manner in accordance
with the terms hereof effective on any date within one year from the date
of this Agreement, said initial fee shall be refunded to the Franchisee to
the extent of sixteen thousand dollars ($16,000.00) only, without
interest. Except as expressly stated in the immediately preceding
sentence, said initial fee of twenty thousand dollars ($20,000.00) shall
not be refunded, in whole or in part, upon termination of this Agreement
nor at any other time or under any other circumstances whatever.
ARTICLE TWO
PROPRIETARY MARKS, INDICIA,
AND CONFIDENTIAL INFORMATION
2.1 VALIDITY AND USE OF PROPRIETARY MARKS. Franchisee hereby
acknowledges the validity of the Proprietary Marks, and acknowledges that
the same are the sole property of Midas. Franchisee shall use the
Proprietary Marks only for so long as the right, franchise, and license
granted herein remains in force, and only in connection with the sale and
installation of genuine Midas products and the rendition of genuine
authorized Midas services, in the manner and for the purposes specified in
this Agreement. Franchisee shall not, either during or after the term of
this Agreement, do anything, or aid or assist any other party to do
anything, which would infringe upon, harm, or contest the rights of Midas
in any of the Proprietary Marks or in any other mark or name which
incorporates the word "Midas." Franchisee shall not use any mark or name
other than as herein licensed in connection with the sale of any genuine
Midas products or services, and shall not place any name or mark, other
than the names or marks originally appearing thereon, on any products,
packages, or other materials which Franchisee obtains from Midas.
2.2 DESIGNATION OF SHOP AND FIRM NAME. Franchisee shall operate,
advertise, and promote his shop under the designation "Midas Shops,
"without the addition of any prefix or suffix, or under such other name or
names as Midas may from time to time designate, and under no other name or
designation whatever. However, Franchisee shall not use the name "Midas
Shops," any other name containing the word "Midas," or any other
Proprietary Mark in or as part of the firm or corporate name of
Franchisee. Franchisee shall, upon the demand of Midas at any time,
promptly discontinue the use of any such name or word (or any confusingly
similar name or word) in its firm or corporate name, and shall promptly
take such steps as may be necessary or appropriate in the opinion of Midas
to eliminate any such name or word from Franchisee's firm or corporate
name.
2.3 VALIDITY AND USE OF MIDAS INDICIA. Franchisee acknowledges
that the Midas indicia are the exclusive property of Midas. Franchisee
shall not, either during or after the term of this Agreement, utilize any
of the Midas indicia, or any indicia confusingly similar thereto, except
in accordance with the terms of this Agreement. Franchisee agrees that any
further rights that may develop in any Proprietary Marks or in any of the
Midas indicia in the future as trade names, trademarks, or service marks
shall inure and accrue to the benefit of Midas.
2.4 CONFIDENTIAL NATURE OF MIDAS SYSTEM. Franchisee hereby
acknowledges that Midas is the sole owner of all proprietary rights in and
to the Midas System and each and every part thereof and all material and
information now or hereafter revealed to Franchisee under this Agreement
relating to the System. Franchisee further acknowledges that the Midas
System, in its entirety, constitutes trade secrets of Midas which are
revealed to Franchisee in confidence, solely for the purpose of enabling
Franchisee to establish and operate the shop herein licensed in accordance
with the terms of this Agreement. Such trade secrets include, but are not
limited to, product catalogues, price lists, training manuals, policy
manuals, sales promotion aids, business forms, accounting procedures,
marketing reports, informational bulletins, and inventory systems.
Franchisee agrees that both during and after the term of this Agreement,
(a) he will not reveal any of such trade secrets to any other person,
firm, or entity, and (b), he will not use any of such trade secrets in
connection with any business or venture in which he has a direct or
indirect interest, whether as proprietor, partner, joint venture,
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shareholder, officer, director, or in any other capacity whatever, other
than in connection with the operation of the shop herein licensed.
Franchisee acknowledges that the products, methods of doing
business, and other elements of the Midas System are unique and
distinctive and have been developed by Midas at great effort, time and
expense; that Franchisee has regular and continuing access to valuable and
confidential information, training, and trade secrets regarding the Midas
System; that as a result of the foregoing, it would be impossible for
Franchisee to engage in a similar business without making use of or
revealing Midas, confidential information, procedures, and trade secrets;
and that Franchisee has an obligation to promote sales under the Midas
System. Franchisee accordingly agrees that during the term of this
Agreement, including any renewals or extensions thereof, Franchisee shall
not, without the prior written consent of Midas, directly or indirectly,
individually or as a member of any business organization, engage or have
an interest, as an employee, owner, investor, partner (inactive or
otherwise) or agent, or as a stockholder, director or officer of a
corporation, or otherwise, in any business whose activities include the
sale at wholesale or the sale or installation at retail of exhaust system
components, shock absorbers, or and other product or service nationally
offered by Midas Shops and which conducts such activities--
(a) within 15 miles of the Midas Muffler Shop licensed herein,
(b) within 15 miles of any other then-existing Midas Muffler
Shop, or
(c) at any other location.
In the event that Franchisee is a corporation, the foregoing restrictions
shall apply to each shareholder owning 25% or more of the capital stock thereof,
and in the event that Franchisee is more than one person, the foregoing
restrictions shall apply to them jointly and severally; provided that the
foregoing restrictions shall not apply to investment in the shares or stock of a
public company which at the time of investment is listed on a recognized Stock
Exchange so long as such shares or stock are listed.
The restrictions contained in this Section 2.4 shall be severable in
accordance with the provisions of Section 10.7 of this Agreement.
2.5 GOODWILL. Franchisee acknowledges that all goodwill which may arise
from Franchisee's use of the Proprietary Marks, the Midas indicia, or the Midas
System, is and shall at all times remain the sole and exclusive property of
Midas and shall inure to the sole benefit of Midas. Nothing contained in the
preceding sentence shall be construed to prohibit Franchisee from receiving for
a sale of his business made in compliance with the provisions of Article Seven a
price which includes payment for any goodwill belonging to Franchisee.
2.6 UNAUTHORIZED USE. Franchisee shall promptly report to Midas any
unauthorized use of the Proprietary Marks or Midas indicia that comes to his
attention in any manner whatsoever. If requested by Midas, Franchisee will
cooperate with Midas in precluding unauthorized use of the Proprietary Marks and
Midas indicia, or any confusingly similar mark or indicia, but at the sole
expense of Midas.
ARTICLE THREE
CONTINUING OBLIGATIONS OF MIDAS
3.1 SERVICES TO BE RENDERED BY MIDAS. In addition to any assistance
which Midas may have heretofore rendered to Franchisee relating to site
selection, shop construction and layout, and equipment selection and
installation, Midas agrees that it will perform the following continuing
services for the benefit of Franchisee:
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(a) If Franchisee's shop has not yet opened, Midas will instruct
Franchisee, prior to the opening of Franchisee's shop, in all aspects of
the Midas System by providing a training program which shall be attended
by Franchisee and such of his management and supervisory personnel as
Midas may reasonably designate. From time to time after the opening of
Franchisee's shop, Midas may, at its option, provide a training program or
programs to Franchisee and such of his employees as Midas may reasonably
designate, and Franchisee agrees to attend and to cause all such
designated employees to attend such training program or programs. All
expenses of travel, lodging, meals, and other living expenses, incurred by
Franchisee and/or such employees in attending such initial or subsequent
program or programs shall be borne and paid by Franchisee.
(b) Midas agrees to make available to Franchisee from time to
time all improvements and additions to the Midas System, to the same
extent and in the same manner as they are made available to Midas
franchisees generally.
(c) Midas agrees to counsel with and to assist Franchisee on a
continuing basis with respect to the management and operation of
Franchisee's shop, and will make available to Franchisee the benefits of
Midas' information, experience, advice, guidance, and know-how in
connection therewith.
(d) Midas agrees that it will purchase and place from time to
time advertising promoting the products and services sold by Franchisees.
Subject to the provisions hereafter set forth, all decisions from time to
time regarding whether to utilize national/ regional, or local
advertising, or some combination thereof, and regarding selection of the
particular media and advertising content, shall be within the sole
discretion of Midas and such agencies or others as it may appoint. Midas
agrees that it will expend for media costs, commissions and fees,
production costs, and other costs of such advertising, with respect to all
Midas franchisees, an amount not less than one-half of the royalties
actually received by Midas from all Midas franchisees. Such amounts, as so
computed, shall be expended for advertising which is published, broadcast,
displayed, or otherwise disseminated either during the calendar year
within which such royalties are received by Midas, or during the
immediately succeeding calendar year. Nothing herein shall be deemed to
prohibit Franchisee from engaging in any advertising or promotion of his
shop or business, in addition to the advertising paid for by Midas,
provided such advertising or promotion shall be at the sole cost of
Franchisee and without deduction or credit against royalties or other
amounts owed by Franchisee to Midas, and shall be subject to the
provisions of Section 6.8.
(e) On or before May 1st of each year, Midas shall provide
Franchisee with its certificate, signed by an officer of Midas, stating
with respect to the preceding calendar year, (1) the amount of royalties
actually received, and (2) the amount expended for advertising pursuant to
this Section 3.1. Midas shall also provide Franchisee with details of the
amounts expended for media costs, commission and fees, and production
costs relating to the advertising.
In the event Midas expends for such advertising an amount in excess
of one-half of royalties actually received in any calendar year, then such
excess may be applied by Midas in satisfying the expenditure requirement
during the succeeding calendar year.
3.2 SALES OF PRODUCTS BY MIDAS. (a) Midas agrees to sell to Franchisee,
during the term of this Agreement and subject to the terms hereafter set forth,
such quantities of those genuine Midas products referred to in Schedule A
attached hereto as Franchisee may order from time to time, provided however,
that Midas may at any time and from time to time, in its sole discretion,
discontinue the sale to all its franchisees of any product or products, if, in
the opinion of Midas, the continued sale of such product or products becomes
unfeasible, unprofitable, or otherwise undesirable, and upon such
discontinuation the license herein granted with respect to such product or
products shall terminate unless Midas has provided for alternative sources of
supply meeting its standards and specifications and expressly elects to continue
such license subject to such standards and specifications.
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(b) The prices, delivery terms, terms of payment, and other terms
relating to the sale of such products by Midas shall be as prescribed by
Midas from time to time, and shall be subject to change by Midas without
prior notice at any time.
(c) Upon the giving by Franchisee of notice of termination of
this Agreement pursuant to Section 8.1, or upon the giving by Midas of
notice of termination pursuant to Section 8.2 (subject to the provisions
of paragraph (e) of such Section 8.2), or upon the termination of this
Agreement pursuant to Section 8.3, Midas shall not be obligated to fill or
ship any orders for merchandise theretofore or at any time thereafter
received from Franchisee.
(d) Midas shall in no event be liable to Franchisee for
unavailability of or delay in shipment or receipt of merchandise due to
temporary product shortages or unavailabilities, order backlogs,
production difficulties, delays in or unavailability of transportation,
fire, strikes, work stoppages, or other causes beyond the reasonable
control of Midas.
ARTICLE FOUR
ROYALTIES
4.1 PAYMENT OF ROYALTY. Franchisee agrees to pay to Midas, within ten
days after the close of each calendar month during the term of this Agreement, a
royalty in an amount equal to ten percent ( 10%) of Franchisee's Net Revenue for
said preceding month. For purposes of this Section 4.1, Net Revenue is defined
as the total gross revenue derived by Franchisee from the operation of his shop,
whether from sales for cash or credit, and irrespective of the collection
thereof, including sales of both merchandise and services, and including
installation charges for installation of automobile mufflers or any other
products which may be permitted pursuant to the terms of the Midas guarantees on
such mufflers and other products, but exclusive of all sales taxes, use taxes,
gross receipts taxes, and other similar taxes added to the sales price and
collected from the customer, and less any bona fide refunds, rebates, and
discounts. Royalties received by Midas pursuant to this Section 4.1 shall not be
deemed trust funds nor shall Midas be required to segregate such funds in any
way, but they shall be deemed general funds of Midas for all purposes.
4.2 REPORTS AND RECORDS. (a) Franchisee shall submit to Midas, with and
at the time each monthly payment of royalty is required pursuant to Section 4.1
above, a true, correct and complete statement of Net Revenue (as defined in
Section 4.1) on forms provided by Midas, containing all information called for
by such forms and certified to by Franchisee.
(b) If the term of this Agreement commences or ends on a day
other than the first or last day of a calendar month, respectively, the
royalty for such month shall be based upon Net Revenue for the portion of
the month commencing or ending with the date of commencement or
termination of the term of this Agreement, as the case may be.
(c) Within sixty days after the close of Franchisee's fiscal
year, Franchisee shall furnish a statement, on forms provided by Midas,
containing all the information requested on such forms, certified to by
Franchisee and signed by Franchisee's accountant, showing the total Net
Revenue for said preceding fiscal year, as finally adjusted and reconciled
after the closing and review of Franchisee's books and records for such
fiscal year. If such statement disclosed any underpayment of royalties for
such fiscal year, Franchisee shall pay to Midas, at the time of submitting
such statement, the amount of any such underpayment. Any overpayment shall
be credited to Franchisee's account.
(d) Franchisee shall maintain his books and records in such
manner as to clearly and accurately reflect Net Revenue as defined in
Section 4.1. All such books and records shall also be maintained in
accordance with the minimum standards as prescribed from time to time by
Midas, and shall be preserved for a period of not less than five years
after the close of Franchisee's fiscal year to which they relate and
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shall be open at all reasonable times to inspection and verification by
Midas or any of its representatives. Midas shall be entitled at any time
to have Franchisee's books and records (including federal, state and local
tax returns) examined or audited at Midas' expense, and Franchisee shall
cooperate fully with the party or parties making such examination or audit
on behalf of Midas. Franchisee shall promptly pay to Midas, or Midas shall
credit to Franchisee's account, as the case may be, any underpayment or
overpayment of royalties disclosed by such examination or audit. If any
examination or audit is necessitated by Franchisee's failure to submit
statements of Net Revenue or to maintain books and records as required by
this Section 4.2, or in the event that the Net Revenues reported by
Franchisee for any period of twelve consecutive months are more than five
percent (5%) below the actual Net Revenues of Franchisee for such period
as determined by any such examination or audit, then Franchisee shall
immediately pay to Midas the cost of such examination or audit (including
reasonable compensation for any time necessarily expended by Midas' own
employees and reimbursement for expenses necessarily incurred by them), as
well as any additional amount of royalties shown to be due. Such payments
shall be without prejudice to any right of Midas to terminate this
Agreement on account of such defaults by Franchisee, in accordance with
the terms of Section 8.2 below.
(e) Any amount properly owing from Franchisee to Midas for
royalties, if not paid when due, whether such amount has been shown on any
report required to be submitted by Franchisee or has subsequently been
determined by verification, examination, or audit to have been due for any
month, shall bear interest at the rate per annum of three percentage
points above the prime lending rate of The First National Bank of Chicago
in effect on the first day of each month for the period during which any
such amount is outstanding, beginning ten ( 10) days after the date such
amount was or would have been due until paid, except that if the amount is
not paid within thirty (30) days after the due date, it shall bear the
said interest from the due date.
ARTICLE FIVE
WARRANTIES AND GUARANTEES
5.1 EXCLUSION OF WARRANTIES AND GUARANTEES. There are no warranties or
guarantees, expressed or implied, made by Midas either to Franchisee or to any
of his customers, with respect to any products purchased by Franchisee from or
through Midas, except as expressly set forth in Sections 5.2 and 5.3 below.
Franchisee shall make no warranties or guarantees to his customers with respect
to any such product or with respect to any services licensed hereunder except as
expressly set forth in said Sections 5.2 and 5.3. Midas shall not be liable to
Franchisee or to any of his customers, on account of any alleged warranty,
express or implied, except to the extent and in the manner set forth in Sections
5.2 and 5.3.
5.2 WARRANTY AGAINST FACTORY DEFECTS. All products purchased by
Franchisee from Midas, including those covered by specific guarantees as set
forth in Section 5.3, are warranted by Midas to the ultimate consumer for 90
days from the date of such consumer's purchase against defects in materials and
workmanship. If a product disclosing any such defect is returned to Franchisee
within that time, whether the product was installed by Franchisee or any other
Midas franchisee, Franchisee shall replace the product by installation of
another genuine Midas product of like grade and quality and which is proper for
the application as specified in the Midas parts catalogue or product bulletins
issued pursuant thereto, and shall make no charge whatever to the customer
either for the product or for installation thereof. Upon compliance with
policies and procedures then in force governing the return of such defective
products, Franchisee shall be entitled to credit in an amount equal to the then
current price at which such product is being offered by Midas to Franchisee,
plus the cost of shipping such product back to Midas or its supplier if and as
directed by Midas, but exclusive of any other freight or any other applicable
charges.
5.3 MIDAS GUARANTEES. Certain products purchased by Franchisee from
Midas are and may from time to time be guaranteed by Midas to the ultimate
consumer in accordance with the terms of a printed "Guarantee",
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furnished by Midas. With respect to those products as to which Midas from time
to time furnishes such a printed Guarantee, it is agreed by Midas and Franchisee
as follows:
(a) Franchisee will deliver to each and every customer who
purchases such a product (except such classes of customers as Midas may
from time to time expressly exclude from the operation of such Guarantee)
the printed Midas Guarantee applicable thereto, and will not issue,
deliver, or otherwise furnish any other warranty or guarantee whatsoever
in connection therewith.
(b) Franchisee will not deliver or otherwise furnish any such
printed Midas Guarantee in connection with any product other than the
genuine Midas product to which such Guarantee is made applicable by Midas.
(c) Franchisee will honor each such printed Midas Guarantee
presented to Franchisee by the holder thereof, in accordance with the
respective terms thereof and in accordance with policies and procedures
promulgated by Midas from time to time, irrespective of whether such
Guarantee was furnished by Franchisee or by any other Midas franchisee.
Franchisee will replace the part so guaranteed only with another genuine
Midas part of like grade and quality, and which is proper for the
application as specified in the Midas parts catalogue or product bulletins
issued pursuant thereto, and shall deliver to the customer a like
Guarantee in connection with such replacement part.
(d) Franchisee will make no charge to the customer for honoring
any such printed Guarantee, except to the extent permitted by the express
terms of the Guarantee. Where such terms permit the making of an
installation charge, such charge shall not exceed an amount which is
reasonable for the labor involved in installing the part so installed
pursuant to the Guarantee.
(e) Franchisee will comply with all reasonable policies and
procedures promulgated from time to time by Midas relating to such
Guarantees, including but not limited to the delivery and validation
thereof, the honoring thereof, and the presentation thereof to Midas for
credit.
(f) Upon presentation to Midas of proper evidence of having duly
honored any such printed Guarantee and upon having complied with all
applicable policies and procedures then in force with respect to requests
for credit thereunder, Franchisee shall be entitled to full or partial
credit from Midas, if any, in such amounts and in such manner as may be
prescribed from time to time by Midas, subject to the provisions of
paragraph (g) below.
(g) Midas may from time to time furnish such printed Guarantees
with respect to additional categories of products, or may discontinue or
modify said Guarantees or the policies of reimbursement to its franchisees
therefor, with respect to any category or categories of products now or
hereafter covered, without any liability to Franchisee, provided however,
that notwithstanding any such discontinuance or modification by Midas,
Franchisee shall honor, in accordance with the terms thereof, all
Guarantees delivered to customers prior to the date of such discontinuance
or modification, and Franchisee shall remain entitled, with respect to all
such previously delivered Guarantees, to credit from Midas in the same
amounts as were available at the time of delivery of such Guarantees.
5.4 NO SET-OFF. Franchisee agrees not to set off against any amounts due
to Midas any claims for credit pursuant to warranties or Guarantees honored by
Franchisee, except to the extent that such credits have been granted by the
issuance of a written credit memorandum to Franchisee prior to the dates such
amounts are due to Midas. If, after such payment is made by Franchisee,
Franchisee shall receive any such written credit memorandum, Midas agrees to
credit the same against the next future payments owing from Franchisee, or to
pay Franchisee the amount thereof if Franchisee is not then indebted to Midas
and has no orders pending.
5.5 MISREPRESENTATION AND DISCLOSURE. Franchisee shall make no untrue or
misleading representations to customers or potential customers, whether written
or oral, concerning the warranties or
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Guarantees described in Sections 5.2 and 5.3 above, and shall make all
affirmative disclosures which may at any time be required by Midas or by law in
order to properly advise customers with respect to such warranties and
Guarantees and to avoid possible deception or confusion in connection therewith.
5.6 IMPROPER WORK AND UNAUTHORIZED GUARANTEES. In the event any Midas
franchisee replaces or does corrective work with respect to a product sold or
installed by Franchisee, whether or not pursuant to any warranty or Guarantee,
and such replacement or corrective work is the result of an improper, incorrect,
faulty, or defective installation by Franchisee, or any such Guarantee was
issued in violation of the provisions of Section 5.3 or of the policies and
procedures applicable thereto, Franchisee shall promptly pay to Midas for
reimbursement to the shop making such replacement or doing such corrective work
the total cost to the shop of all parts and the total labor cost involved, or if
Franchisee is the shop making such replacement or doing such corrective work,
then Franchisee shall receive no credit from Midas with respect thereto. Subject
to the right of reimbursement as provided in the preceding sentence, Franchisee
shall honor all Midas warranties and Guarantees presented by customers,
irrespective of whether Franchisee or any other Midas franchisee made an
improper, incorrect, faulty, or defective installation or issued such a
Guarantee in violation of the provisions of Section 5.3 or of the policies and
procedures applicable thereto. Nothing contained in this Section 5.6 shall
authorize a violation of such provisions, policies, or procedures, or shall
impair any remedy given Midas elsewhere in this Agreement for such violation.
5.7 POST-TERMINATION OBLIGATIONS. Midas agrees that every warranty or
Guarantee properly issued to Franchisee's customers during the term of this
Agreement will be honored by Midas or by an authorized Midas franchisee. Upon
termination of this Agreement under any circumstances, Franchisee shall not
honor any further warranties or Guarantees and shall not be entitled to credit
with respect to any such further warranties or Guarantees honored by Franchisee
in violation of the provisions of this Section 5.7. Franchisee shall thereafter
refer all requests for honoring of such warranties and Guarantees to Midas or to
such other Midas franchisee or franchisees as Midas may from time to time
designate.
ARTICLE SIX
AGREEMENTS OF FRANCHISEE WITH RESPECT TO
OPERATION OF SHOP
6.1 GENERAL. Franchisee will keep his shop open to the public during all
normal business days and hours throughout the year during the term of this
Agreement, and will at all times operate the shop diligently so as to maximize
the revenues and profits therefrom.
6.2 PROMOTION OF MIDAS PRODUCTS AND SERVICES. FRANCHISEE will at all
times actively promote the sale of Midas products and services and will use his
best efforts to cultivate, develop, and expand the market therefor. Franchisee
shall not sell any product or perform any service not listed on Schedule A to
this Agreement without the prior written consent of Midas.
6.3 MAINTENANCE OF INVENTORY. Franchisee acknowledges that a large
public demand has been created and exists for genuine Midas products of all
types, and that members of the public have come to expect that they will be able
to obtain such products at an authorized Midas Muffler Shop. Accordingly,
Franchisee agrees that he will at all times during the term of this Agreement
maintain an inventory of those genuine Midas products listed in Schedule A
attached hereto which is adequate both in terms of range of items covered and in
terms of quantities of the respective items, to fulfill the public demand in
Franchisee's market for such genuine Midas products and to promptly satisfy
customers seeking such genuine Midas products at Franchisee's shop, including
customers' requests for replacement under the terms of the Midas Guarantees.
6.4 MANAGERIAL RESPONSIBILITY. (a) Subject to the provisions of
paragraphs (b) and (c) of this Section 6.4, it is agreed that at all times
during the term of this Agreement,_________________________________________.
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(i) shall devote his full time and effort to the active
management and operation of Franchisee's shop, (ii) shall, irrespective of
any delegation of authority not inconsistent with clause (i), reserve and
exercise ultimate authority and responsibility with respect to the
management and operation of Franchisee's shop, and (iii) shall represent
and act on behalf of Franchisee in all dealings with Midas. If two or more
individuals are named in this paragraph (a), each of them shall fulfill
the requirements of clause (i), and both or all of them shall jointly
fulfill the requirements of clauses (ii) and (iii).
(b) If Franchisee operates or hereafter commences to operate
under license from Midas, one or more additional Midas Shops, and if the
individual or individuals named in paragraph (a) of this Section 6.4 is or
are also named in the corresponding provision of such other agreement or
agreements, then such provisions shall be deemed to apply to all such
shops in the aggregate.
(c) In the event of the resignation, disability, or death of such
individual or individuals, the provisions of Article Seven shall govern,
provided however that if two or more individuals are named in paragraph
(a) of this Section 6.4, then upon the resignation, disability, or death
of one or more but less than all of such individuals, the provisions of
Article Seven shall not govern and the provisions of this Section 6.4
shall apply to the remaining or surviving individual or individuals.
6.5 SHOP DESIGN AND APPEARANCE. Franchisee acknowledges that the design
and appearance of both the exterior and interior of his shop building are part
of the Midas indicia, subject to modification of such indicia from time to time
by Midas, and that it is essential to the integrity of said indicia that as
great a degree of uniformity as possible be maintained among the various shop
premises of Midas franchisees. Accordingly, Franchisee agrees that:
(a) He will make no change, addition, or alteration of any kind
to the structural elements of the shop building or to the adjacent areas,
without the prior written consent of Midas.
(b) He will at his sole expense maintain interior and exterior
painting and decor in such manner and form as may be reasonably prescribed
from time to time by Midas.
(c) He will follow the reasonable instructions of Midas with
respect to floor layout and character of interior furnishings.
(d) He will purchase and display, on and about the interior and
exterior of the shop building, such and only such signs, emblems, logos,
lettering, and pictorial materials as may be reasonably prescribed by
Midas from time to time.
6.6 SHOP MAINTENANCE. Franchisee will at all times maintain his shop
premises in a clean, wholesome, attractive, and safe condition, and will keep
the same in good maintenance and repair.
6.7 STANDARDS OF OPERATION. Franchisee will at all times give prompt,
courteous, and efficient service to the public, will perform work competently
and in a workmanlike manner; and in all business dealings with members of the
public will be governed by the highest standards of honesty, integrity, fair
dealing, and ethical conduct. Franchisee will do nothing which would tend to
discredit, dishonor, reflect adversely upon, or in any manner injure the
reputation of Midas, Franchisee, or any other Midas franchisee.
6.8 ADVERTISING MATERIALS. Franchisee will not use, display, publish,
broadcast, or in any manner disseminate any advertising or promotional material
unless the same has first been approved in writing by Midas. In the event that
Midas from time to time furnishes to Franchisee any advertising, promotional or
informational materials to be used, displayed, or distributed in or about
Franchisee's shop, Franchisee agrees to follow the instructions of Midas in
connection therewith.
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6.9 INSURANCE. Franchisee alone shall be responsible for all loss or
damage arising out of or relating to the operation of Franchisee's shop or
arising out of the acts or omissions of Franchisee or any of his agents,
servants, or contractors in connection with the sale of products or rendering of
services by Franchisee, and for all claims for damage to property or for injury
or death of any persons directly or indirectly resulting therefrom, and
Franchisee agrees to indemnify and hold Midas harmless against and from any and
all such claims, loss, and damage, including costs and reasonable attorney fees.
Franchisee shall obtain and at all times during the term of this Agreement
maintain in force and pay the premiums for public liability or garage liability
insurance, in either case with completed operations coverage, in companies
acceptable to Midas, with $2,000,000 combined single limit per occurrence. Such
limits of liability shall be increased, and modified or additional types of
coverage shall be obtained at the direction of Midas, as and when changed
circumstances reasonably so require. Said policies of insurance shall expressly
protect both Franchisee and Midas and shall require the insurer to defend both
Franchisee and Midas in any such action. Franchisee shall furnish to Midas a
certified copy or certificate with respect to each such policy, evidencing
coverage as set forth above, naming Midas as an additional insured, and
providing that such policy shall not be canceled, amended, or modified except
upon ten days prior written notice to Midas. Maintenance of the insurance
required under this Section shall not relieve Franchisee of the obligations of
indemnification contained in the first sentence of this Section. If Franchisee
fails to procure or maintain in force any insurance as required by this Section
6.9 or to furnish the certified copies or certificates thereof required
hereunder, Midas may, in addition to all other remedies it may have, procure
such insurance and/or certified copies or certificates, and Franchisee shall
promptly reimburse Midas for all premiums and other costs incurred in connection
therewith.
6.10 FINANCIAL INFORMATION. In addition to the reports required of
Franchisee pursuant to Sections 4.2 (a) and (c) above, Franchisee shall submit
to Midas, within ninety days after the end of each fiscal year of Franchisee,
complete financial statements in form prescribed by Midas, including balance
sheet, profit and loss statement, and statement of source and disposition of
funds. In addition Franchisee shall submit to Midas such other reports and
financial information as Midas may from time to time require, including by way
of example and not limitation, sales and cost data and analyses, data on jobs
performed under the Midas Guarantee, and personal financial statements of any
persons having a material financial interest in Franchisee's business. If any
report actually submitted willfully and materially understates Net Revenue, then
Midas may, in addition to its other rights under this Agreement including
termination, require Franchisee to have its annual financial statement audited
by a certified public accountant and submitted to Midas, beginning for the
fiscal year in which the request is made, and for each subsequent year
thereafter until Midas determines that Franchisee's books and records clearly
and accurately reflect the business of the Shop.
6.11 PAYMENT OF BILLS. Franchisee will pay all indebtedness to Midas, as
reflected by invoices and customer statements rendered by Midas, in strict
accordance with the payment and credit terms applicable thereto from time to
time. Any such amount not paid when due, as well as any amount due from
Franchisee pursuant to Section 5.6 or Section 6.9, shall bear interest at the
rate per annum of three percentage points above the prime lending rate of The
First National Bank of Chicago in effect on the first day of each month for the
period during which any such amount is outstanding, beginning ten (10) days
after the date such amount was or would have been due until paid, except that if
the amount is not paid within thirty (30) days after the due date, it shall bear
the said interest from the due date. The payment of such interest shall not be
deemed to authorize any delay in payment of such invoices, statements or other
amounts. Franchisee will further pay when due all bills and other amounts owed
to third parties, but Midas shall not by virtue hereof become liable to any such
third party.
6.12 COMPLIANCE WITH LAWS. Franchisee shall comply with all federal,
state, county, municipal, or other statutes, laws, ordinances, regulations,
rules, or orders of any governmental or quasi-governmental entity, body, agency,
commission, board, or official applicable to the Franchisee's shop or business.
Nothing herein shall prevent Franchisee from engaging in a bona fide contest of
the validity or applicability thereof in any manner permitted by law.
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6.13 INTERFERENCE WITH EMPLOYMENT RELATIONS. During the term of this
agreement, and for a period of 12 months thereafter, Franchisee shall not,
without the written consent of such person's employer, employ or attempt to
employ any person who is at the time employed by Midas or by any other Midas
franchisee, and Midas shall not, without the written consent of Franchisee,
employ or attempt to employ any person who is at the time employed by
Franchisee, nor shall Franchisee or Midas otherwise directly or indirectly
induce or attempt to induce any such person to leave his employment as
aforesaid.
6.14 FRANCHISEE NOT AGENT OF MIDAS. This Agreement does not in any way
create the relationship of principal and agent between Midas and Franchisee, and
in no circumstances shall Franchisee be considered an agent of Midas. Franchisee
shall not act or attempt to act, or represent himself, directly, or by
implication, as an agent of Midas or in any manner assume or create or attempt
to assume or create any obligation on behalf of or in the name of Midas, nor
shall Franchisee act or represent himself as an affiliate of any other
authorized Midas franchisee.
6.15 COMPLIANCE WITH POLICIES, REGULATIONS, AND PROCEDURES. Franchisee
shall at all times comply with all lawful and reasonable policies, regulations,
and procedures promulgated or prescribed from time to time by Midas in
connection with Franchisee's shop or business, including but not limited to
standards, techniques, and procedures in the installation or servicing of
products or the rendering of other services, selection, supervision, and
training of personnel, sales, advertising, and promotional techniques, programs,
and procedures, maintenance and appearance of shop and shop premises, policies
and procedures relating to warranties or guarantees, payment, credit, and
accounting, and financial reporting policies and procedures.
6.16 RIGHT TO INSPECT SHOP. Midas, through its authorized
representatives, shall have the right at all reasonable times, to visit
Franchisee's shop for the purpose of inspecting the merchandise and equipment on
hand, inspecting the nature and quality of goods sold and services rendered,
examining and auditing Franchisee's books and records, and observing the manner
and method of operating the shop. If any of Franchisee's books, records, or
inventory is located outside the shop premises, Midas shall have similar rights
with regard to the same.
ARTICLE SEVEN
TRANSFERABILITY
7.1 GENERAL. Except as set forth in sections 7.2 through 7.10,
inclusive, and subject to all the terms and provisions thereof and of Section
7.11, Franchisee shall not make or suffer any assignment of this Agreement or of
any rights or interest herein. For all purposes of this Agreement, each of the
following shall be deemed to be an assignment of this Agreement:
(a) Any sale, assignment, transfer, subfranchise, or sublicense
by Franchisee of or with respect to this Agreement or any rights or
interest herein.
(b) Any pledge, encumbrance, or grant of any security interest
herein by Franchisee.
(c) Sale at judicial sale or under power of sale, conveyance or
retention of collateral in satisfaction of debt, or other procedure to
enforce the terms of any pledge, encumbrance, or security interest in this
Agreement which results in disposition of Franchisee's interest herein.
(d) The passing by operation of law to any other party or parties
of Franchisee's interest in this Agreement or any part thereof.
(e) In the event Franchisee is a corporation, partnership, or
other form of business association, any act, transaction, or event of a
nature described in paragraphs (a), (b), (c), or (d) above which, instead
of operating upon his Agreement as such, operates upon or affects any
interest in such corporation,
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partnership, or association and results in any change in the present
controlling interest in such corporation, partnership, or association,
whether by means of one or a sequence of more than one transaction or
event. If Franchisee herein is two or more individuals, Franchisee shall
be deemed to be a partnership for all purposes of this Article Seven,
irrespective of whether or not such individuals are designated herein as a
partnership.
(f) In the event the person or persons designated in Section 6.4
of this Agreement cease to comply with any one or more of the provisions
of that Section, whether by reason of voluntary action or inaction,
disability, death, or other cause, subject however, to the proviso of
paragraph (c) of Section 6.4.
Any assignment of this Agreement, other than in accordance with and
subject to all the terms and provisions of Sections 7.2 through 7.11
inclusive, shall constitute a breach of this Agreement, shall be subject
to the provisions of Section 8.2 (d) (iv), and shall confer no rights or
interest whatever under this Agreement upon any other party.
7.2 TRANSFER TO CONTROLLED CORPORATION. If Franchisee is an individual or
a partnership, he or they may at any time assign and transfer this Agreement to
a corporation organized and operated for the sole purpose of conducting the
business for which Franchisee is franchised and licensed hereunder, subject to
the following conditions:
(a) Franchisee shall be and remain the owner of one hundred
percent (100%) of the issued and outstanding capital stock of said
corporation, provided that he or they may cause stock possessing not more
than forty-nine percent (49%) of the total voting power in said
corporation to be issued to his or their wife or wives.
(b) The person or persons designated in Section 6.4 shall
continue to comply with all the requirements of that Section.
(c) Such assignment and transfer shall be evidenced by a written
instrument, in form reasonably satisfactory to Midas, in which said
corporation expressly assumes all obligations of Franchisee hereunder,
whether accrued at the time of such assignment or arising thereafter, and
agrees to be bound by all the terms and provisions of this Agreement to
the same extent and in the same manner as Franchisee. A copy of said
instrument, executed by both Franchisee and said corporation, shall be
promptly delivered to Midas.
(d) Franchisee shall execute and deliver to Midas its then
standard forms of personal guaranty of such corporation's debts to Midas
and of subordination agreement. Further, Franchisee shall not be released
from but shall remain personally bound and liable to Midas,
notwithstanding said assignment and transfer, with respect to all
non-monetary obligations of Franchisee under this Agreement then accrued
or thereafter arising, and to evidence such obligations shall execute the
personal undertaking set forth at the end of this Agreement, following the
signatures of Midas and Franchisee.
7.3 SALE OF BUSINESS. In the event it is proposed to sell the business
operated pursuant to this Agreement, whether by sale of assets thereof, by sale
of a controlling interest in Franchisee if Franchisee is a corporation,
partnership, or other form of business association, or by any other means which
directly or indirectly transfers said business or control thereof, there shall
first be submitted to Midas a copy of any bona fide written offer made or
received, or if none, a statement in writing of all the terms of the proposed
sale and the identity of any proposed purchaser. Midas shall have the
irrevocable first right and option to purchase the business on the same terms as
stated therein, exercisable by notifying Franchisee in writing of its election
to do so within 14 days after its receipt of such written offer or statement. If
Midas does not so notify Franchisee within said 14-day period, then a sale of
the business to a third party may be consummated, but only on all the same terms
as are set forth in said written offer or statement and to the same party, if
any, identified therein, and subject to all the provisions, conditions, and
limitations of Sections 7.1 and 7.4. If such a sale is not
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consummated with the third party within 120 days after receipt by Midas of such
written offer or statement, then the proposed sale shall be deemed withdrawn,
and all the provisions of this Section 7.3 shall again become fully applicable,
as if no such sale had been proposed. Nothing contained in this Section 7.3
shall abrogate, impair, or limit the application of any of the provisions of
Section 7.1 or 7.4.
7.4 CONSENT OF MIDAS TO VOLUNTARY ASSIGNMENT. In the event Franchisee
desires or proposes to voluntarily sell, assign, or transfer this Agreement to
any party other than a corporation described in Section 7.2, or if Franchisee is
a corporation, partnership, or other form of business association, then in the
event Franchisee and/or the holder or holders of any interest in such
corporation, partnership, or association desire or propose to take any action
which would constitute or create an assignment of this Agreement within the
meaning of Section 7.1, Franchisee or the holders of such interest, as the case
may be, shall first notify Midas in writing of such proposed sale, assignment,
transfer, or other action, setting forth in detail the nature of the item or
interest to be sold, assigned, transferred, or otherwise acted upon, the name
and address of the proposed purchaser, assignee, or transferee, or party
acquiring any interest, and the consideration, if any, therefor. Subject to
prior compliance with the provisions of Section 7.3, Midas shall consent to the
proposed transaction provided that each of the following conditions is
fulfilled:
(a) It shall be demonstrated to the reasonable satisfaction of
Midas that the proposed purchaser, assignee, transferee, or person
otherwise to acquire an interest, is of good moral character, and
possesses the business experience and capability, credit standing, health,
and financial resources necessary to successfully operate Franchisee's
shop in accordance with the terms of this Agreement. If the proposed
purchaser, assignee, or transferee is a corporation, partnership, or other
business association, the provisions of the preceding sentence shall apply
to the individuals who are to own such corporation, partnership, or
association. Franchisee shall cooperate with Midas in making available
such information as Midas may require to make the above-described
determinations.
(b) The person who is to be substituted in Section 6.4 of this
Agreement shall have been approved by Midas and shall have successfully
completed the training course then in effect for Midas franchisees. Upon
consummation of the transaction, this Agreement shall be deemed amended to
insert the name of such person in Section 6.4 hereof.
(c) Franchisee shall not be in default under any provision of
this Agreement, and shall pay in full all amounts owed to Midas at or
prior to the closing of the transaction.
(d) Any sale, assignment or transfer of this Agreement as such to
be made by Franchisee shall be evidenced by a written instrument, in form
reasonably satisfactory to Midas, in which the purchaser. assignee or
transferee expressly assumes all obligations of Franchisee hereunder,
whether accrued at the time of such assignment or arising thereafter, and
agrees to be bound by all the terms and provisions of this Agreement to
the same extent and in the same manner as Franchisee. A copy of said
instrument executed by both Franchisee and such purchaser, assignee, or
transferee, shall be promptly delivered to Midas. If the purchaser,
assignee, or transferee is a corporation, limited partnership, or other
entity any of the owners of which enjoy limited liability by law, the
individual or individuals who own the controlling interest therein shall
execute and deliver to Midas its then standard forms of personal guaranty
and subordination agreement, and shall further execute the personal
undertaking set forth at the end of this Agreement following the
signatures of Midas and Franchisee.
(e) In the case of any party or parties who are to acquire an
interest in Franchisee, the individual or individuals who are to acquire,
directly or indirectly, the controlling interest in Franchisee shall have
executed and delivered to Midas its then standard forms of personal
guaranty and subordination agreement, and shall further execute the
personal undertaking set forth at the end of this Agreement following the
signatures of Midas and Franchisee.
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(f) Franchisee and each of its stockholders, directors, and
officers shall have executed and delivered to Midas a general release of
any and all claims and causes of action against Midas, its affiliated
corporation, and their respective officers, agents, and employees.
(g) That Franchisee shall have paid Midas a transfer fee equal to
one-half of one percent (0.5%) of the sale price (excluding that part of
the price, if any, fairly attributable to the sale of the real estate). If
the shop is sold following the refusal of Midas to extend the franchise
relationship as provided for in Section 9.6, no transfer fee shall be due
Midas.
7.5 CONSENT OF MIDAS TO PLEDGE. In the event Franchisee desires or
proposes to pledge, encumber, or grant any security interest in this Agreement,
or, if Franchisee is a corporation, partnership, or other form of business
association, then in the event the holder of any interest in such corporation,
partnership, or association desires or proposes to pledge, encumber, or grant
any security interest therein under circumstances which would constitute or
create an assignment of this Agreement within the meaning of Section 7.1,
Franchisee or the holder of such interest, as the case may be, shall first
notify Midas in writing of such proposed transaction. Midas shall not
unreasonably withhold its consent to such transaction, subject, however, to the
following conditions:
(a) Any consent so granted shall not be deemed a consent to such
pledgee, encumbrancer, or secured party exercising any rights or
prerogatives of Franchisee under this Agreement, nor to its exercise of
any rights or prerogatives of a holder of an ownership interest in
Franchisee.
(b) Any consent so granted shall not be deemed a consent to any
subsequent disposition described in Section 7.1 (c) or so much of Section
7.1 (e) as refers to Section 7.1 (c). Any such subsequent disposition
shall be deemed an assignment of this Agreement within the meaning of
Section 7.1, and shall be subject to the provisions of Section 7.6.
(c) The pledgee, encumbrancer, or secured party shall have
executed and delivered to Midas an instrument in writing agreeing to be
bound by the provisions of this Article Seven.
7.6 CONSENT OF MIDAS TO DISPOSITION TO OR BY SECURED PARTY. In the event
any party proposes to acquire the interest of Franchisee in this Agreement, if
Franchisee is an individual, in a transaction described in Section 7.1 (c), or
any such party proposes to acquire the interest of any party or parties having
an interest in Franchisee, if Franchisee is a corporation, partnership, or other
business association, in a transaction described in Section 7.1 (e) of a type
described in Section 7.1 (c), the party proposing to acquire such interest
shall notify Midas thereof in writing. Subject to prior compliance with the
provisions of Section 7.3, Midas shall consent to the proposed transaction,
provided that each of the following conditions is fulfilled:
(a) It shall be demonstrated to the reasonable satisfaction of
Midas that such party is of good moral character, and possesses the
business experience and capability, credit standing, health, and financial
resources necessary to successfully operate Franchisee's shop in
accordance with the terms of this Agreement. If such party is a
corporation, partnership, or other business association, other than a
corporation whose stock is publicly traded, the provisions of the
preceding sentence shall apply to the individuals who own the same.
(b) The person who is to be substituted in Section 6.4 of this
Agreement shall have been approved by Midas and shall have successfully
completed the training course then in effect for Midas franchisees. Upon
consummation of the transaction, this Agreement shall be deemed amended to
insert the name of such person in Section 6.4 thereof.
(c) There shall be no existing default in any of the obligations
of Franchisee under this Agreement, and all amounts owed to Midas shall be
paid in full at or prior to the consummation of such transaction.
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(d) Such party shall have submitted to Midas satisfactory
evidence that he has acquired and has become entitled to all rights of
Franchisee hereunder, or to all rights in Franchisee belonging to the
party or parties whose interests have been acquired as the case may be. If
the interest of Franchisee hereunder is to be acquired, the party
acquiring such interest shall have executed and delivered to Midas a
written instrument, in form reasonably satisfactory to Midas, by which he
expressly assumes all obligations of Franchisee hereunder, whether then
accrued or thereafter arising, and agrees to be bound by all the terms and
provisions of this Agreement to the same extent and in the same manner as
Franchisee. In addition, if such acquiring party is a corporation other
than a corporation whose stock is publicly traded or is a limited
partnership or other entity any of whose owners enjoy limited liability by
law, the individual or individuals who own the controlling interest
therein shall execute and deliver to Midas its then standard forms of
personal guaranty and subordination agreement, and shall further execute
the personal undertaking set forth at the end of this Agreement, following
the signatures of Franchisee and Midas. If an interest in Franchisee is to
be acquired, the individual or individuals who are to acquire, directly,
or indirectly, the controlling interest in Franchisee shall have executed
and delivered to Midas said forms of guaranty and subordination agreement
and shall have executed the said personal undertaking set forth at the end
of this Agreement.
7.7 DEATH. In the event of the death of Franchisee, if Franchisee is an
individual, or, if Franchisee is a corporation, partnership, or other form of
business association, then in the event of the death of any party or parties
owning an interest in Franchisee, which death results in an assignment of this
Agreement within the meaning of Section 7.1, Midas shall consent to an
assignment and transfer of this Agreement to the executor, administrator, or
other personal representative of the deceased, and subsequently to the person or
persons entitled to distribution from the deceased's estate, (or directly to the
latter persons if no probate proceedings are instituted with respect to the
estate), provided that each of the following conditions is fulfilled with
respect to each such assignment and transfer:
(a) It shall be demonstrated to the reasonable satisfaction of
Midas that such executor, administrator, personal representative, or
distributee is of good moral character, and possesses the business
experience and capability, credit standing, health, and financial
resources necessary to successfully operate Franchisee's shop in
accordance with the terms of this Agreement. Such executor, administrator,
personal representative, or distributee shall cooperate with Midas in
making available such information as Midas may require to make the
above-described determinations.
(b) The person who is to be substituted in Section 6.4 of this
Agreement shall have been approved by Midas and shall have successfully
completed the training course then in effect for Midas franchisees. Upon
such approval and completion, this Agreement shall be deemed amended to
insert the name of such person in Section 6.4 thereof.
(c) There shall not be an existing default in any of the
obligations of Franchisee hereunder, and all amounts owed to Midas as of
the date of death shall be paid in full.
(d) Such executor, administrator, personal representative, or
distributee shall have submitted to Midas satisfactory evidence that he
has succeeded or otherwise become entitled to all rights of Franchisee
hereunder, or to all rights of the deceased in Franchisee, as the case may
be. If the deceased was the Franchisee, such executor, administrator,
personal representative, or distributee shall have executed and delivered
to Midas a written instrument, in form satisfactory to Midas, by which he
expressly assumes all obligations of Franchisee hereunder, whether accrued
at the date of Franchisee's death or arising thereafter, and agrees to be
bound by all the terms and provisions of this Agreement to the same extent
and in the same manner as Franchisee. If the deceased was the owner of an
interest in Franchisee, such executor, administrator, personal
representative, or distributee shall execute and deliver to Midas its then
standard forms of personal guaranty and subordination agreement (limited,
in the case of an executor, administrator, or personal representative to
his representative capacity), and shall execute the personal
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undertaking (similarly limited to such representative capacity) set forth
at the end of this Agreement, following the signatures of Midas and
Franchisee.
Any consent by Midas to an assignment and transfer of this Agreement
or of any interest in Franchisee to the executor, administrator, or
personal representative of the deceased shall not constitute a consent to
any subsequent assignment or transfer thereof from such executor,
administrator, or personal representative of the estate. Any consent by
Midas to such subsequent assignment or transfer shall be subject to
fulfillment, with respect to said subsequent assignment or transfer
separately and specifically. of all the conditions stated in
this Section 7.7.
7.8 CONSENT TO TRANSFER OF MANAGERIAL RESPONSIBILITY. In the event the
person designated in Section 6.4 of this Agreement ceases to comply with any one
or more of the provisions thereof, whether by reason of voluntary action or
inaction, disability, death, or other cause, (or, if two or more persons are
designated in Section 6.4, then in the event all of them cease to comply as
aforesaid), other than in connection with a transaction described in Sections
7.4, 7.6, or 7.7, Midas shall consent to the designation by Franchisee of
another person or persons to be substituted therein, and Section 6.4 hereof
shall be amended accordingly. but only if Midas in its reasonable discretion
finds such person or persons acceptable and he or they shall thereafter
successfully complete the training course then in effect for Midas franchisees.
7.9 TIME LIMITATION. In the case of any transaction described in Section
7.2, 7.4, 7.5, 7.6, or 7.7, Midas shall not be required to give its consent to
such transaction unless each condition precedent to such consent requiring
action by Franchisee or any third party has been fulfilled within 90 days from
the date of the event giving rise to the requirements of such consent, provided
however, if in any case the person who is to be substituted in Section 6.4 of
this Agreement has been unable, within said 90-day period, to complete the
required training course solely by reason of such course not having been offered
by Midas at an earlier date, and if all other conditions to Midas' consent have
been fulfilled within said 90-day period, then Midas shall consent to such
transaction conditioned upon successful completion of such training course by
such person at the earliest practicable date.
7.10 EXCLUSION. Nothing contained in this Article Seven shall be deemed
to refer to any event referred to in paragraph (b), (c), or (d) of Section 8.3.
7.11 ARBITRATION. In the event that Midas is requested, pursuant to
Section 7.4, 7.5, 7.6, 7.7, or 7.8, to grant any consent, subject to the
conditions set forth in said sections and in Section 7.9, and if Midas fails or
refuses to grant such consent, then upon written demand made by Franchisee upon
Midas at any time within 10 days after Franchisee's receipt of written refusal
by Midas to grant such consent, or if no such written refusal is sent by Midas,
then at any time within 10 days after expiration of the period defined in
Section 7.9 within which the conditions to Midas' consent are to be fulfilled or
within 10 days after earlier written notice of Franchisee's binding election to
waive the balance of such period and to stand upon the circumstances then
existing, such dispute shall be submitted to arbitration in accordance with and
subject to all the same terms, provisions, and conditions as are set forth in
paragraph (e) of Section 8.2 (including all subparagraphs thereof except
subparagraphs (vi) and (vii), and except that the time within which such
arbitration is to be requested shall be as provided in this Section 7.11, and
except further that the issues of fact and law referred to in subparagraph (iii)
of said paragraph (e) shall be those the determination of which is necessary to
determine whether Midas is required, pursuant to and subject to all the
conditions of Section 7.4. 7.5, 7.6, 7.7, or 7.8, and of Section 7.9, to grant
such consent. If Franchisee fails to serve proper written demand for arbitration
as set forth in this Section 7.11 within the time specified herein, Franchisee
shall be barred from seeking any relief, whether by way of arbitration or by way
of action or defense in any court, with respect to any matter of issue which was
subject to arbitration pursuant to this Section 7.11. If Franchisee makes proper
and timely written demand for arbitration pursuant to this Section 7.11, then
Midas shall grant the required consent promptly upon termination of the
proceedings in favor of Franchisee, either by rendition of final decision or
award by the arbitrator or by entry of a final and non-appealable order of any
court of competent jurisdiction in which lawful review of such decision
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or award may be sought by Midas or Franchisee. Midas shall not be liable to
Franchisee for any damage alleged to have accrued to Franchisee by reason of the
fact that such consent shall have been delayed until termination of the
proceedings as aforesaid.
7.12 ASSIGNABILITY BY MIDAS. This Agreement may be assigned by Midas or
by any hereafter referred-to successor, to any corporation which may succeed to
the business of Midas or of such successor by sale of assets, merger, or
consolidation, and may also be assigned by Midas or by such successor to the
shareholder or shareholders thereof in connection with any distribution of the
assets of said corporation.
ARTICLE EIGHT
DEFAULT AND TERMINATION
8.1 TERMINATION BY FRANCHISEE. Franchisee may terminate this Agreement
at any time, at the will of Franchisee and without cause, by giving to Midas
written notice of such termination no less than thirty days prior to the date of
termination.
8.2 TERMINATION BY MIDAS. (a) In the event Franchisee fails to make any
payment of money owed to Midas when due, or fails to submit to Midas when due
any report required by Section 4.2 or 6.10 hereof, and such default is not
totally cured within thirty days after Midas gives written notice of such
default to Franchisee, then Midas may terminate this Agreement at any time
thereafter by giving written notice of such termination to Franchisee.
(b) In the event Franchisee fails to perform any obligation imposed
upon Franchisee by this Agreement, other than those referred to in
paragraph (a) or (d) of this Section 8.2, and such default is not totally
cured within thirty day after Midas gives written notice of such default
to Franchisee, then Midas may terminate this Agreement at any time
thereafter by giving written notice of such termination to Franchisee,
provided however, that if the default is of such nature that it is not
capable of being totally cured with reasonable diligence by Franchisee
within said thirty-day period, then this Agreement shall not be terminated
by Midas if Franchisee has commenced, immediately upon receipt of such
notice, to exercise reasonable diligence to cure such default, Franchisee
continues to be diligently engaged in curing same upon the expiration of
said thirty-day period, and the curing thereof is completed as soon
thereafter as is reasonably practicable.
(c) In the event Franchisee has been given written notice of default
by Midas three times within any period of twelve consecutive months
pursuant to paragraphs (a) and/or (b) above, and in each of such prior
instances Franchisee has cured the default within the time permitted, then
in the event Franchisee again fails, within said twelve-month period, to
perform any obligation referred to in paragraph (a) or ( b), Midas may at
any time thereafter terminate this Agreement forthwith, without giving
prior notice of such default and without affording Franchisee any period
in which to cure such default, by giving written notice of such
termination to Franchisee.
(d) Midas may terminate this Agreement forthwith, by giving written
notice to Franchisee, on account of any of the following matters:
(i) Any willful and material falsification by Franchisee of any
report, statement, or other written data furnished to Midas. Any report
submitted pursuant to Section 4.2 shall be conclusively deemed to be
materially false if it willfully understates Net Revenue.
(ii) Any willful and repeated deception of customers by
Franchisee, relating to the source, nature, or quality of goods sold, or
relating to the terms or applicability of any of the Midas Guarantees.
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(iii) Any willful and repeated refusal to honor any of the Midas
Guarantees in accordance with the provisions of Article Five, or any
willful and repeated issuance of guarantees other than those permitted and
authorized by said Article Five.
(iv) Any attempted or purported assignment of this Agreement (as
defined in Section 7.1) not in compliance with Sections 7.2 through 7.11,
provided that if Midas does not elect to exercise its right to terminate
this Agreement pursuant to this Section 8 (d) (iv), such inaction shall
not be deemed to constitute a consent to such assignment nor to confer any
rights or interest whatever upon the purported assignee, but this
Agreement shall remain binding and in full force and effect as between
Midas and Franchisee herein unless and until Midas elects to terminate the
same.
(v) The conviction of, or a plea of guilty or no contest to, any
crime for which the maximum penalty includes imprisonment for one year or
more.
Any act or omission described in subparagraph (ii) or (iii) above
shall be conclusively deemed to be willful and repeated if it occurs after
written notice from Midas to cease and desist therefrom, but nothing in
this sentence shall be construed to mean that acts or omissions described
in either of said subparagraphs may not be considered to be willful and
repeated in the absence of such notice from Midas. Any notice of
termination given by Midas pursuant to this paragraph (d) shall be fully
effective, and this Agreement shall thereby be terminated, notwithstanding
that Franchisee may have ceased engaging in, or may not at the time of
such notice be engaged in, any of the acts which give rise to such notice,
and notwithstanding that Franchisee may have taken steps to counteract the
effects of any such acts.
(e)
(i) In the event that Midas gives to Franchisee any notice of
default and/or notice of termination pursuant to paragraph (a), (b), (c),
or (d) of this Section 8.2, and Franchisee disputes the right of Midas to
terminate this Agreement pursuant to said notice or notices, then upon
written demand made by Franchisee upon Midas at any time prior to or
within ten days after notice of termination, such dispute shall be
submitted to arbitration in accordance with the rules and procedures for
commercial arbitration of the American Arbitration Association or any
successor organization, and in accordance with and subject to all the
provisions of the Uniform Arbitration Act as in force in the State of
Illinois. The place of arbitration shall be Chicago, Illinois.
(ii) The procedure for selection of the arbitrator shall be as
may be then prescribed by said Association or its successor, provided
however, that if said Association or a successor is not in existence or
does not provide such a procedure, then Midas and Franchisee shall each
select one arbitrator and said arbitrators shall select a third, and in
the event of the death, resignation, or disability of any such arbitrator,
his successor shall be chosen in the same manner as the arbitrator so
succeeded.
(iii) The arbitrator or arbitrators shall have full power to
determine all issues of fact and of law necessary to determine whether
Midas has the right to terminate this Agreement pursuant to the notice or
notices given, and the determination of the arbitrators thereon shall be
final and conclusive upon the parties, subject only to the provisions of
said Uniform Arbitration Act. Any such determination of an issue of fact
or law made by the arbitrators, however, shall be binding upon the parties
only with respect to and in connection with the particular arbitration
proceeding and the specific final decision or award of the arbitrators
made therein, and shall not be binding upon the parties nor shall it be
admissible in any other proceeding or for any other purpose, provided that
nothing herein shall prevent any party from enforcing the specific
decision or award of the arbitrators by any appropriate and lawful means.
(iv) The costs of arbitration (not including attorneys fees)
shall be taxed and borne as provided in said Uniform Arbitration Act.
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(v) The arbitrators shall not have the power to determine or decide
any issue or matter other than those hereinabove expressly set forth, and
shall in no event have any right or power to award or assess damages to or
against any party.
(vi) The serving of a proper and timely demand for arbitration
shall suspend the running of any period for curing a default or shall
suspend the effectiveness of any termination of this Agreement, as the
case may be, until the decision or award of the arbitrator is made. If
such decision or award is in favor of Midas, such curative period shall
immediately resume running or such termination shall immediately take
effect, as the case may be, notwithstanding the pendency of any
proceedings to modify, set aside, or vacate said decision or award,
whether taken or brought before the arbitrators or in any court.
(vii) If Franchisee fails to serve proper written demand for
arbitration as set forth in subparagraph (i) above within the time
specified in said subparagraph, Franchisee shall be barred from seeking
any relief, whether by way of arbitration or by way of action or defense
in any court, with respect to any matter or issue which was subject to
arbitration in accordance with this paragraph (e).
(f) No notice of default or notice of termination purporting to be
given pursuant to paragraph (a), (b), (c), or (d) of this Section 8.2
shall be of any force or effect unless signed by a corporate officer of
Midas. Regional directors, district managers, and other agents of Midas
having authority with respect to a specific geographic area shall in no
event be deemed corporate officers for purposes of this paragraph (f).
(g) The right of Midas to terminate this Agreement pursuant to this
Section 8.2, whether or not exercised, shall not be exclusive of any other
remedies given Midas by this Agreement or by law on account of any default
of Franchisee hereunder.
8.3 AUTOMATIC TERMINATION. This Agreement shall terminate immediately upon
the occurrence of any of the following events, without the necessity of notice
of any kind by Midas or Franchisee:
(a) Any termination of Franchisee's right to possession of the
premises designed in Section 1.1 (a), subject however, to the provisions
of Section 8.4.
(b) The adjudication of Franchisee a bankrupt, or the filing of any
petition by or against Franchisee, under the Federal Bankruptcy laws or
the laws of any State or territory relating to relief of debtors, for
reorganization, arrangement, or other similar relief provided therein,
unless such petition filed against Franchisee is dismissed within 30 days,
or the making by Franchisee of a general assignment for the benefit of
creditors.
(c) The appointment of any receiver, trustee, sequestrator, or
similar officer to take charge of Franchisee's business, or any
attachment, execution, levy, seizure, or appropriation by any legal
process of Franchisee's interest in this Agreement, unless the appointment
of such officer is vacated or discharged or the effect of such legal
process is otherwise released within thirty days.
(d) If Franchisee is a corporation, partnership, or other business
association, the occurrence of any act of a type described in paragraph
(b) or (c) above which relates to, involves, or affects the interest of
any person owning a controlling interest in Franchisee.
8.4 RELOCATION OF SHOP IN CERTAIN EVENTS. (a) If Franchisee's right to
possession of the premises designated in Section 1.1 (a) is terminated, prior to
expiration of the term of this Agreement specified in Section 1.3, without fault
or affirmative action on the part of Franchisee, including without limitation,
(i) expiration of the term of Franchisee's lease or sublease by
lapse of time.
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(ii) destruction by casualty or taking by eminent domain of all
or part of the premises resulting in termination of such lease or sublease
by its terms or by action of a party other than Franchisee, or
(iii) the taking by eminent domain of all or a material part of
the premises if such premises are owned by Franchisee,
then within 120 days after Franchisee notifies Midas in writing that
such event has occurred or will occur on a date certain not more than six
months after the date of such notice, Midas shall, subject to the
provisions of paragraphs (b), (c), and (d) of this Section 8.4, propose to
Franchisee a new location at which Franchisee's shop may be operated for
the remainder of the term of this Agreement specified in Section 1.3.
(b) The location to be proposed by Midas as provided in paragraph
(a) of this Section 8.4 shall be within the trading area of the shop
theretofore operated by Franchisee, provided however, that if Midas
determines that no appropriate location is available within said trading
area, then Midas shall propose the next nearest location determined by it
to be appropriate and available. The definition of the trading area of
Franchisee's shop, the selection of a particular location within such
trading area, the determination that an appropriate location is not
available within such trading area, and the determination, if necessary,
of the next nearest appropriate and available location outside
Franchisee's trading area, shall all be within the sole and absolute
discretion of Midas, and its decisions thereon shall be final, provided
however, that a given location within or without the trading area of the
shop theretofore operated by Franchisee shall not be deemed inappropriate
or unavailable pursuant to this paragraph (b) solely because of a
determination by Midas to establish and operate itself, or to license any
party other than Franchisee to establish and operate, a shop at such
location, if Midas has not become legally committed with respect thereto.
(c) The proposal by Midas of a new location at which Franchisee's
shop may be operated, as provided in paragraphs (a) and (b) of this
Section 8.4, shall be given to Franchisee in writing. If such location is
to be leased, subleased, or sold by Midas or any affiliated corporation to
Franchisee, such proposal shall be accompanied by the form of lease,
sublease, or sale contract to be entered into by Franchisee, which shall
include such provisions as may be prescribed by Midas relating to the
construction or alteration of improvements on the premises. If such
location is not leased, subleased, or sold by Midas or any affiliated
corporation to Franchisee, such proposal shall be accompanied by a
statement of such requirements as may be prescribed by Midas relating to
the construction or alteration of improvements on the premises, but Midas
shall not require that Franchisee sell, assign, grant, or transfer to
Midas or any affiliated entity, upon termination of this Agreement,
ownership of or a leasehold interest in such premises. Midas shall not
submit to Franchisee any lease or sublease with Midas or any affiliated
entity the terms of which extends beyond the term of this Agreement
specified in Section 1.3.
(d) If, within 30 days after receipt of Midas, proposal of such
location, Franchisee gives to Midas written notice of acceptance of such
proposal, and either enters into such tendered lease, sublease, or sale
contract, or if none is tendered, agrees in writing to comply with any and
all requirements prescribed by Midas relating to construction or
alteration of improvements on the premises, then notwithstanding the
provisions of paragraph (a) of Section 8.3, this Agreement shall be
reinstated for the remainder of the term specified in Section 1.3 as if it
has not been terminated, and paragraph (a) of Section 1.1 shall be deemed
amended to refer to such new location. If Franchisee fails to comply with
the provisions of this paragraph (d) within said 30-day period, then the
termination of this Agreement pursuant to Section 8.3 (a) shall be and
remain effective and Franchisee shall have no further rights under or by
virtue of this Section 8.4.
8.5 RELIEF IN EQUITY AGAINST CERTAIN DEFAULTS. Franchisee agrees that
neither termination of this Agreement, nor an action at law, nor both, would be
an adequate remedy for a breach or default by Franchisee, or by any other
persons bound thereby, in the performance of any obligation relating to the
Midas Proprietary Marks or indicia, the trade secrets revealed to Franchisee in
confidence hereunder, the Midas Guarantees, or the
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obligations of Franchisee and such others upon and after termination of this
Agreement, including, but not limited to, the provisions of Sections 2.1, 2.2,
2.3, 2.4, 2.5, 5.1, 5.2, 5.3, 5.5, 5.6, 5.7, 6.4, 6.5, 6.7, 6.8, 6.13, 6.14,
6.15 (including any policies, regulations and procedures referred to therein),
6.16, 8.7 and 8.8 (c). It is agreed that in the event of any such breach or
default, in addition to all other remedies provided elsewhere in this Agreement
or by law, Midas shall be entitled to relief in equity (including a temporary
restraining order, temporary or preliminary injunction, and permanent mandatory
or prohibitory injunction), to restrain the continuation of any such breach or
default or to compel compliance with such provisions of this Agreement.
8.6 LIQUIDATED DAMAGES. Midas, Franchisee, and the other parties bound
hereunder, mutually acknowledge that it would be difficult to ascertain the
exact amount of damages incurred by Midas in the event of any breach or default
described in Section 8.5, and that in addition to all other remedies provided
elsewhere in this Agreement or by law, Midas shall be entitled to recover from
all such parties jointly and severally, as and for its liquidated damages, the
sum of $100.00 for each day's continuance of such breach or default after
written notification thereof by Midas to Franchisee, it being agreed that said
sum represents a reasonable estimate of the damage which would thereby accrue to
Midas, reserving to Midas the right to recover such other or additional damages
as may be provided by law.
8.7 OBLIGATIONS UPON AND AFTER TERMINATION. Upon termination of this
Agreement, whether by lapse of time, by termination pursuant to any provision of
this Article Eight, by mutual consent of the parties, by operation of law, or in
any other manner, Franchisee shall cease to be an authorized Midas franchisee as
to any products or services whatever, and Franchisee and all persons directly or
indirectly owning any interest in Franchisee or in any way associated with or
related to Franchisee shall:
(a) Promptly cause Franchisee to pay Midas all liquidated or
ascertainable sums owing from Franchisee to Midas, without set-off or
other diminution on account of unliquidated claims.
(b) Immediately and permanently discontinue the use of any of the
Proprietary Marks, any of the Midas indicia or the Midas System, or any
marks, names or indicia which in the opinion of Midas are confusingly
similar thereto, or any other materials which may in any way indicate or
tend to indicate that Franchisee is or was an authorized Midas franchisee
or is or was in any way associated with Midas.
(c) Immediately and permanently remove, destroy, or obliterate. at
Franchisee's expense, all signs containing any of the marks, names,
indicia, or other things the use of which is prohibited by paragraph (b)
above, and shall also sell to Midas, f.o.b. Franchisee's shop, such of the
aforesaid signs as Midas may request, at a price equal to the original
installed cost thereof to Franchisee minus a reasonable allowance for
depreciation, wear and tear, and obsolescence.
(d) Promptly destroy or surrender to Midas all stationery,
letterheads, forms, printed matter, promotional displays. and advertising
containing any of the marks, names, indicia, or other things the use of
which is prohibited by paragraph (b) above.
(e) Immediately and permanently discontinue all advertising placed
by Franchisee as an authorized Midas franchisee or which contains or makes
reference to any of the marks, names, indicia, or other things the use of
which is prohibited by paragraph (b) above, and will cancel all such
advertising already placed or contracted for which would otherwise be
published, broadcast, displayed, or disseminated after the date of
termination hereof.
(f) Immediately cease using or claiming any right to use any
telephone number which Midas, as the subscriber therefor, has allowed
Franchisee to use during the term of this Agreement. and pay all bills
incurred for the period during which Franchisee used such number or
numbers. As to each telephone number for which Franchisee may be the
subscriber and which shall have been listed or advertised by Franchisee at
any time within the 24-month period prior to termination in any telephone
directory or other medium in connection with any of the Proprietary Marks
or any similar designation, Franchisee shall
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immediately transfer and assign any such number to Midas or to such person
or firm as Midas may designate, and shall immediately execute such
instruments and take such steps as in the opinion of Midas may be
necessary or appropriate to transfer and assign each such telephone
number, and Franchisee further irrevocably appoints the then acting
President of Midas International Corporation or its successor as his duly
authorized agent and attorney-in-fact to execute all such instruments and
take all such steps to transfer and assign each such telephone number.
(g) Immediately and permanently discontinue any use of the word
"Midas" or any word confusingly similar thereto in Franchisee's firm name,
corporate name, or trade name, and take such steps as may be necessary or
appropriate in the opinion of Midas to change such names to eliminate
therefrom the word "Midas" or any word confusingly similar thereto.
(h) Sell to Midas, f.o.b. Franchisee's shop, all or such part of
inventories of genuine Midas products on hand as of the date of
termination as Midas may request in writing prior to or within 30 days
after the date of termination (and will surrender all Midas guarantee
certificates in Franchisee's possession or control), at the current
published prices then being charged by Midas to authorized Midas
franchisees operating under agreements in form similar to this Agreement,
not including any costs of storage or transportation paid by Franchisee to
bring the goods initially to the shop, minus all costs incurred or to be
incurred by Midas to restore such goods or packaging thereof to a saleable
condition, and minus a reasonable allowance for physical deterioration.
obsolescence, or damage to the extent not restored under the preceding
clause. Midas shall have the right to set off and apply any amounts due to
Franchisee pursuant to this paragraph (h) against any and all other
amounts which may be due from Franchisee to Midas.
(i) Thereafter refrain from doing anything tending to indicate that
Franchisee is or was an authorized Midas franchisee, or is or was in any
way associated with Midas.
8.8 GENERAL PROVISIONS REGARDING TERMINATION. (a) Termination of this
Agreement under any circumstances shall not abrogate, impair, release, or
extinguish any debt, obligation. or liability of Franchisee to Midas which may
have accrued hereunder, including without limitation, any such debt, obligation,
or liability which was the cause of termination or arose out of such cause.
(b) All covenants and agreements of Franchisee which by their terms
or by reasonable implication are to be performed, in whole or in part,
after the termination of this Agreement, shall survive such termination.
(c) In the event this Agreement is assigned by Franchisee within the
meaning of Section 7.1, and such assignment is consented to by Midas
pursuant to the provisions of Sections 7.4, 7.6, or 7.7, this Agreement
shall be deemed to have terminated as to the assignor or assignors as of
the date of such consent. and such assignor or assignors shall thereupon
be bound by all the provisions of Section 8.7 (except paragraph (h)
thereof) and this Section 8.8, to the same extent and in the same manner
as if this Agreement had been terminated in its entirety as of said date.
(d) Nothing contained in Section 8.7 shall be deemed to apply to or
affect the operation by Franchisee or by any other party bound thereby of
a Midas Muffler Shop at any other location pursuant to and in accordance
with the provisions of any other valid and outstanding agreement with
Midas.
ARTICLE NINE
EXTENSION OF FRANCHISE RELATIONSHIP
9.1 NOTIFICATION REGARDING EXTENSION. On or before the first day of the
thirtieth (30th) month prior to the expiration of the term of this Agreement as
set forth in Section 1.3, Midas will notify Franchisee in writing
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whether or not Midas will extend the franchise relationship with Franchisee with
respect to the shop, and under what special conditions, if any, such extension
will be granted.
9.2 GROUNDS FOR REFUSAL TO EXTEND OR IMPOSITION OF CONDITIONS. If there
is good cause, Midas may refuse to extend the franchise relationship with
Franchisee or impose special conditions for such extension. As the basis for
refusing to extend. good cause shall mean the failure of Franchisee through act
or omission to achieve and maintain those standards of operation reasonably
required by Midas to maximize the sale of goods and services or to preserve the
goodwill of the Midas indicia and franchise program. By way of illustration, but
not limitation, inadequate inventory, chronic late payment of sums due Midas,
failure to devote sufficient personal time to the business, poor quality or
workmanship performed and or products sold, substandard maintenance of shop
premises, unsatisfactory customer relations as evidenced by the number of
complaints, and inadequate hours of operation shall constitute good cause for
refusing to extend. Special conditions which Midas may impose for extending the
franchise relationship are those changes in franchisee's operations which Midas
reasonably requires to maximize the sale of goods and services by Franchisee and
to preserve the goodwill of the Midas indicia and franchise program, and could
include by way of illustration, but not limitation, renovation of shop premises
or relocation of the shop. It is agreed and understood that good cause as used
herein includes conduct by Franchisee which would not constitute grounds for
termination of this Agreement under Article Eight.
9.3 TERMS OF FRANCHISE DURING EXTENSION PERIOD. The term of the
extension of the franchise relationship shall be twenty (20) years, and the
franchise fee for such extension shall be one-half of the franchise fee charged
new franchisees by Midas at the time of the extension. In all other respects,
the form of agreement governing the extension of the franchise relationship
shall be the same as that granted to new franchisees at the time of such
extension except for special conditions, if any, which are imposed in connection
with the extension. Franchisee and each of its stockholders, directors, and
officers shall as a condition for the extension of the franchise relationship.
execute and deliver to Midas a general release of any and all claims and causes
of action against Midas, its affiliated corporations, and their respective
officers, agents, and employees.
9.4 PAYMENT OF FRANCHISE FEES UPON EXTENSION. If Franchisee has only one
Midas Muffler Shop franchise the franchise fee charged for the extension of the
relationship shall be paid to Midas in two equal installments: one on the date
of extension and the second on the same date one year later. If Franchisee has
more than one Midas Muffler Shop franchise (including franchises granted to
corporations controlled by Franchisee or its principals) for which extensions
are to be granted within any 12-month period, then the total of all the
franchisee fees must be paid in the same number of equal annual installments as
the number of relationships so extended, but not to exceed ten (10)
installments, beginning on the date of the first extension and on the same date
each year thereafter until fully paid.
9.5 EXTENSION UNDER SPECIAL CONDITIONS. If Midas notifies Franchisee
that it will extend the franchise relationship, but only under special
conditions, Midas shall set forth in detail the nature of such conditions and,
if applicable, the time within which such conditions shall be met by Franchisee.
9.6 FRANCHISEE'S RIGHT TO SELL FRANCHISED SHOP. If Midas notifies
Franchisee that the franchise relationship will not be extended upon the
expiration of the term of this Agreement or that the franchise relationship will
be extended only upon compliance with special conditions, Midas shall, in such
notice set forth the reasons therefor. Franchisee may thereafter at his option
if he is not in default under this Agreement sell his franchised Midas Muffler
Shop. Midas shall grant the transferee a new franchise agreement, provided the
provisions of Section 7.4 are satisfied and the transferee agrees to perform all
of the special conditions, if any, set forth by Midas in its notice to
Franchisee. The term of the franchise agreement granted to the transferee shall
be twenty (20) years, and the franchise fee shall be one-half of the franchise
fee charged new franchisees by Midas at the time of the sale. In all other
respects, the form of the franchise agreement shall be the same as that granted
to new franchisees at the time of such sale.
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9.7 ARBITRATION. (a) If Franchisee disputes the refusal of Midas to
extend the franchise relationship or disputes the imposition of special
conditions for extending the franchise relationship, then upon written demand
made by Franchisee upon Midas at any time within sixty (60) days after receipt
of notice of such refusal or imposition of special conditions, the dispute shall
be submitted to arbitration in accordance with Section 9.7 (b) below. The rules
and procedures for commercial arbitration of the American Arbitration
Association or any successor organization, and all the provisions of the Uniform
Arbitration Act as in force in the State of Illinois shall apply to an
arbitration under this Article. The place of arbitration shall be in Chicago,
Illinois.
(b) Midas and Franchisee shall each select one arbitrator, (who need
not be neutral), and said arbitrators shall select a third arbitrator from
a panel submitted by the American Arbitration Association and in
accordance with the rules of the Association pertaining thereto. In the
event of the death, resignation, or disability of any such arbitrator, his
successor shall be chosen in the same manner as the arbitrator so
succeeded.
(c) The arbitrators shall have full power to determine whether Midas
has good cause to refuse to extend the franchise relationship or to impose
special conditions for extending the franchise relationship pursuant to
the notice or notices given. The determination of the arbitrators thereon
shall be final and conclusive upon the parties, subject only to the
provisions of said Uniform Arbitration Act. Any determination of an issue
of fact or law made by the arbitrators, however, shall be binding upon the
parties only with respect to and in connection with the particular
arbitration proceeding and the specific final decision or award of the
arbitrators made therein, and shall not be binding upon the parties nor
shall it be admissible in any other proceeding or for any other purpose,
provided that nothing herein shall prevent any party from enforcing the
specific decision or award of the arbitrators by an appropriate and lawful
means.
(d) The cost of arbitration (not including attorneys fees) shall be
taxed and borne as provided in said Uniform Arbitration Act.
(e) The arbitrators shall not have the power to determine or decide
any issue or matter other than those hereinabove expressly set forth, and
shall in no event have any right or power to award or assess damages to or
against any party.
(f) If Franchisee fails to serve proper written demand for
arbitration as set forth in Section 9.7 (a) within the time specified
therein, Franchisee shall be barred from seeking any relief, whether by
way of arbitration or by way of action or defense in any court, with
respect to any matter or issue which was subject to arbitration under this
Article Nine. Even though a dispute is referred to arbitration, and even
though the arbitration should result in an award favorable to Midas,
Franchisee may sell his franchised Midas Muffler Shop as permitted in
Section 9.6, provided that the transferee agrees to meet any special
conditions imposed by Midas which are sustained by arbitration.
ARTICLE TEN
MISCELLANEOUS PROVISIONS
10.1 GRAMMAR. The masculine of any pronoun shall include the feminine
and/or the neuter thereof, and the singular of any noun or pronoun shall include
the plural, or vice-versa, wherever the context shall require.
10.2 FRANCHISEE. Upon any effective assignment of Franchisee's interest
in this Agreement pursuant to Article Seven, any and all references herein to
"Franchisee" shall, unless the context otherwise requires, mean and refer to
such assignee.
10.3 SECTION HEADINGS. Section headings are for convenience of reference
only, and shall not be construed as part of this Agreement, nor shall they limit
or define the meaning of any provision herein.
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10.4 COST OF ENFORCEMENT OR DEFENSE. In the event Midas is required to
employ legal counsel or to incur other expense to enforce any obligation of
Franchisee hereunder, or to defend against any claim, demand, action, or
proceeding by reason of Franchisee's failure to perform any obligation imposed
upon Franchisee by this agreement, and provided that legal action is filed by or
against Midas and such action or the settlement thereof establishes Franchisee's
default hereunder, then Midas shall be entitled to recover from Franchisee the
amount of all reasonable attorneys fees of such counsel and all other expenses
incurred in enforcing such obligation or in defending against such claim,
demand, action, or proceeding, whether incurred prior to or in preparation for
or contemplation of the filing of such action or thereafter. Nothing contained
in this Section 10.4 shall relate to arbitration proceedings pursuant to Section
7.11 or 8.2 (e).
10.5 REMEDIES CUMULATIVE. All rights and remedies conferred upon Midas by
this Agreement and by law shall be cumulative of each other, and neither the
exercise nor the failure to exercise any such right or remedy shall preclude the
exercise of any other such right or remedy.
10.6 NON-WAIVER. No failure by Midas to take action on account of any
default by Franchisee, whether in a single instance or repeatedly, shall
constitute a waiver of any such default or of the performance required of
Franchisee. No express waiver by Midas of any provision or performance hereunder
or of any default by Franchisee shall be construed as a waiver of any other or
future provision, performance, or default.
10.7 INVALIDITY. If any provision of this Agreement shall be invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall be deemed modified to the extent
necessary to render the same valid, or as not applicable to given circumstances,
or to be excised from this Agreement, as the situation may require, and this
Agreement shall be construed and enforced as if such provision had been included
herein as so modified in scope or application, or had not been included herein,
as the case may be, it being the stated intention of the parties that had they
known of such invalidity or unenforceability at the time of entering into this
Agreement, they would have nevertheless contracted upon the terms contained
herein, either excluding such provisions, or including such provisions only to
the maximum scope and application permitted by law, as the case may be. In the
event such total or partial invalidity or unenforceability of any provision of
this Agreement exists only with respect to the laws of a particular
jurisdiction, this Section 10.7 shall operate upon such provision only to the
extent that the laws of such jurisdiction are applicable to such provision.
10.8 NOTICES. Any notice or demand given or made pursuant to the terms of
this Agreement shall be served in the following manner:
(a) If given to Midas, it shall be sent by United States registered
or certified mail, postage fully prepaid, addressed to Midas International
Corporation, 225 North Michigan Avenue, Chicago, Illinois, 60601, or at
such changed address or addresses as Midas may from time to time
designate.
(b) If given to Franchisee, it shall either be delivered personally
to the person (or any one of the persons) designated in Section 6.4, or
shall be sent by United States registered or certified mail, postage fully
prepaid, addressed to Franchisee at the address of Franchisee's shop as
shown in Section 1.1 (a) hereof.
Any such notice or demand shall be deemed to have been given or made
and shall be deemed effective when the same has been received, provided
that any demand for arbitration pursuant to Section 7.11 or 8.2 (e) or any
notice pursuant to Section 8.4 (d) shall be deemed to have been made or
given and shall be deemed effective when mailed in accordance with this
Section 10.8, provided that the same is received by Midas within five
business days after expiration of the period for making or giving such
demand or notice.
10.9 ENTIRE AGREEMENT. This Agreement, together with any written lease or
sublease of the shop premises described in Section 1.1 (a) entered into between
Franchisee and Midas or any of its subsidiaries or
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affiliated corporations, constitutes and contains the entire agreement and
understanding of the parties with respect to the subject matter hereof and
thereof. There are no representations, undertakings, agreements, terms or
conditions not contained or referred to herein or in any such lease or sublease.
This Agreement supersedes and extinguishes any prior written agreement between
the parties or any of them relating to the shop location described in Section
1.1 (a) hereof, provided that it shall not abrogate, impair, release, or
extinguish any debt, obligation or liability of Franchisee to Midas accrued
immediately prior to the execution of this Agreement nor cancel any credit owed
by Midas to Franchisee at said time, nor shall it abrogate or impair any action
heretofore taken by Midas or Franchisee under any "Dealer Application, Receipt,
and Agreement, executed by Midas and Franchisee or their predecessors, or any
understandings or approvals relating to plans and specifications for the shop
building and premises or the equipment and opening inventory to be installed or
placed therein. Nothing contained herein shall affect or relate to any agreement
between the parties or any of them relating to any shop location other than the
one described in Section 1.1 (a) of this Agreement, except as expressly stated
in Section 6.4 hereof.
10.10 BINDING EFFECT. Subject to all the provisions of Article Seven
and Section 8.8 (c), this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto (including the parties whose signatures follow
those of Midas and Franchisee) and their respective heirs, executors,
administrators, personal representatives, successors, and assigns.
10.11 REFERENCE TO MIDAS. Midas International Corporation has
succeeded to all rights, interests, property, and assets of its former
wholly-owned subsidiary, Midas, Inc., an Illinois corporation, and all
references in this Agreement to acts heretofore performed by Midas or to rights
developed, acquired, owned, or possessed by Midas shall be deemed to include a
reference to all such acts heretofore performed by Midas, Inc. and to all such
rights developed, acquired, owned or possessed initially by Midas, Inc.
10.12 CONTROLLING LAW. This Agreement, including all matters relating
to the validity, construction, performance, and enforcement thereof, shall be
governed by the laws of the state in which the shop is located.
10.13 COUNTERPARTS. This Agreement may be executed in any number of
identical counterparts, and each such counterpart shall be deemed a duplicate
original hereof.
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<PAGE>
IN WITNESS WHEREOF, Midas and Franchisee have caused this Agreement to be
executed and entered into as of the day and year first above written.
MIDAS INTERNATIONAL CORPORATION FRANCHISEE:
By: __________________________________ _________________________________
John R. Moore, President
By: __________________________________ _________________________________
Robert H. Sorensen, Secretary
Each of the undersigned, being directly or indirectly beneficially interested
in the business to be conducted by Franchisee pursuant to the foregoing
Agreement, and in order to induce Midas to enter into said Agreement and in
consideration of its doing so, hereby joins in and agrees to be personally
bound by all the terms and provisions of this Agreement, other than those
requiring the payment of money by Franchisee, to the same extent and in the
same manner as Franchisee is bound. Nothing herein shall be deemed to
abrogate or impair any separate instrument of guaranty or subordination which
any of the undersigned may have heretofore executed or may contemporaneously
herewith or hereafter execute.
___________________________________
___________________________________
___________________________________
___________________________________
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SCHEDULE A
PRODUCTS SERVICES
Automobile mufflers and other exhaust Exhaust system services
system replacement units and parts,
including but not limited to exhaust
pipes, tail pipes, and installation Front-end and wheel alignment services
hardware
Shock absorbers and MacPherson struts
Brake shoes and other brake system Brake adjustment and other brake system
replacement parts services
Front-end parts Other: Only as authorized in writing
(Form #6700-02)
Coil and Leaf Springs
Other: Only as authorized in writing (Form #6700-02)
29
<PAGE>
MIDAS GROUP, 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 Midas Group, 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.
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<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.
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<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 [1,000,000] 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
[200,000], 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.
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(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.
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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.
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(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;
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(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
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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
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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.
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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.
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EXHIBIT 10.6
CHANGE IN CONTROL AGREEMENT
This CHANGE IN CONTROL AGREEMENT dated as of December ___, 1997, between
MIDAS GROUP, 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
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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
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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.
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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
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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
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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
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<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
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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;
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(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
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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:
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(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.
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(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,
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"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
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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.
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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,
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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
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nationally recognized express delivery service, and shall be deemed to have
been given when actually received, as follows:
If to the Company:
Midas Group, Inc.
225 North Michigan Avenue
Suite 1100
Chicago, Illinois 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
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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.
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(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.
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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.
MIDAS GROUP, INC.
By
-----------------------------
Name:
Title:
EXECUTIVE
By
-----------------------------
Name:
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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>
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<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>
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<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>
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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.
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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.
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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
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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]
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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.
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HUSSMANN
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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."
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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.
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MIDAS
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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.
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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.
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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."
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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
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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
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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."
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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."
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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.
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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.
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<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
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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
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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.
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<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.
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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,
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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.
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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
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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
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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
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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.
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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
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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
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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.
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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.
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<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.
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<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.
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<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.
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<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.
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<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.
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<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.
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<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.
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<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
