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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 3, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 33-47101
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U.S. INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3568449
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
101 WOOD AVENUE SOUTH
ISELIN, NEW JERSEY 08830
(Address of principal executive offices) (Zip Code)
(732) 767-0700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
---------------------------------------- REGISTERED
---------------------------------
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past ninety days: Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
Aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant at December 8, 1998 (based on the last reported
sale price of such stock on the New York Stock Exchange on such date):
$1,648,249,237
On December 8, 1998, the registrant had outstanding 98,577,747 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934 in connection with the
annual meeting of stockholders of the registrant to be held on February 5, 1999
are incorporated by reference into Part III of this Report.
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TABLE OF CONTENTS
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ITEM PAGE
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Disclosure Concerning Forward-Looking Statements................................................... 1
PART I
1. Business........................................................................................... 1
2. Properties......................................................................................... 7
3. Legal Proceedings.................................................................................. 7
4. Submission of Matters to a Vote of Security Holders................................................ 7
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.............................. 8
6. Selected Financial Data............................................................................ 9
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................................... 9
7a. Qualitative and Quantitative Disclosures About Market Risk......................................... 19
8. Financial Statements and Supplementary Data........................................................ 20
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure....................................................................................... 58
PART III
10. Directors and Executive Officers of the Registrant................................................. 58
11. Executive Compensation............................................................................. 58
12. Security Ownership of Certain Beneficial Owners and Management..................................... 58
13. Certain Relationships and Related Transactions..................................................... 58
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................... 58
Signatures......................................................................................... 61
FINANCIAL STATEMENT SCHEDULE
Valuation and Qualifying Accounts.................................................................. 62
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DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in the
Letter of the Chairman of the Board and Chief Executive Officer and President
included in the Annual Report to Stockholders and in this Form 10-K, including
without limitation the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business", are, or may be
deemed to be, forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 (the "Exchange Act"). Various economic and competitive factors could cause
actual results to differ materially from the expectations reflected in such
forward-looking statements, including factors which are outside the control of
the Company, such as interest rates, foreign currency exchange rates,
instability in domestic and foreign financial markets, consumer spending
patterns, availability of consumer and commercial credit, levels of residential
and commercial construction, levels of automotive production and changes in raw
material costs and Year 2000 issues along with the other factors noted in this
Report and in other documents filed by the Company or its predecessor with the
Securities and Exchange Commission. In addition, the Company's future results
are subject to uncertainties relating to the Company's ability to consummate its
business strategy, including realizing marketing synergies and cost savings from
the integregation of its acquired businesses. All subsequent written and oral
forward-looking statements attributable to the Company are expressly qualified
in their entirety by the foregoing factors.
PART I
ITEM 1. BUSINESS
GENERAL
U.S. Industries, Inc. ("USI" and, together with its subsidiaries, the
"Company") manufactures and distributes a broad range of consumer and industrial
products through four operating divisions: USI Bath and Plumbing Products,
Lighting Corporation of America, USI Hardware and Tools and USI Diversified.
Many of the Company's businesses have leading market share positions, well-known
brand names and established manufacturing, sourcing and distribution
capabilities. The Company's strategy is to focus on basic manufacturing
businesses with long-term growth potential.
In 1995, USI Atlantic, Inc. ("USI Atlantic"), a Company predecessor then
known as U.S. Industries, Inc., was spun-off from Hanson PLC ("Hanson") with 34
diverse businesses, a substantial amount of surplus real estate and other assets
and significant indebtedness (the "Demerger"). The Company immediately commenced
a program to reduce leverage and focus its operations through dispositions of
non-strategic assets. By mid-1996, the Company had significantly reduced its
debt level, enabling it to pursue selective acquisitions to broaden and enhance
its core businesses.
In June 1998, USI Atlantic merged with Zurn Industries, Inc. ("Zurn"),
creating one of the leading bath and plumbing products companies in North
America. To effect this transaction, USI was formed as a new holding company for
USI Atlantic and Zurn. The total consideration for the Zurn merger (the
"Merger") was $784 million, consisting of 20.4 million shares of Common Stock to
the former Zurn shareholders and the assumption by the Company of $220 million
of debt. See "Senior Notes and Credit Facilities". The transaction was accounted
for as a pooling of interests and the Company's historical consolidated
financial information presents the results of USI Atlantic and Zurn as a single
entity.
The Company also made several strategic acquisitions during fiscal 1998. The
assets of Siemens AG's European commercial lighting operations, subsequently
renamed SiTeco Beleuchtungstechnik GmbH ("SiTeco"), were acquired for the
Lighting Corporation of America. The assets of Spear & Jackson plc ("Spear &
Jackson"), a manufacturer and distributor of hand tools, lawn and garden tools,
saws, cutting and industrial tools, and certain metal component assets of
Philips Electronics ("Philips") were acquired for USI Hardware and Tools.
Sundance Spas, a manufacturer of high quality spas, was acquired for USI Bath
and Plumbing Products. The semiconductor leadframe assets of Philips were
purchased for USI Diversified.
The Company received proceeds of $14 million from the sale of surplus real
estate in fiscal 1998.
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During fiscal 1998, the Company terminated its share buyback program. A
total of approximately 8 million shares were repurchased from inception of the
program.
References to a fiscal year are to the applicable fiscal year ended on the
Saturday nearest September 30 and reflect a 52 or 53-week period. This Report
references trademarks of the Company such as JACUZZI, ZURN, ELJER, U.S. BRASS,
AMES, RAINBOW, ERTL AND KELLER, as well as other trade names and product names.
SIEMENS is a registered trademark of Siemens AG, of which the Company is a
licensee.
The Company's principal executive offices are located at 101 Wood Avenue
South, Iselin, New Jersey 08830; its telephone number at that address is (732)
767-0700.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Following the Merger, the Company realigned its businesses into four
segments: USI Bath and Plumbing Products, Lighting Corporation of America, USI
Hardware and Tools and USI Diversified. The results of all operations sold or
classified as discontinued operations are discussed separately in Management's
Discussion and Analysis of Financial Condition and Results of Operations under
"Discontinued Operations and Extraordinary Loss". See Note 4 to the Consolidated
Financial Statements.
USI BATH AND PLUMBING PRODUCTS
USI Bath and Plumbing Products manufactures and distributes a full line of
bath and plumbing products under the brand names JACUZZI, ELJER and ZURN. USI
Bath and Plumbing Products is one of the leading bath and plumbing products
businesses in North America. The Company's objective in combining these
businesses is to realize marketing synergies and cost savings and capitalize on
domestic and international growth opportunities, including product extensions
and expansion into new markets. The division's bath and plumbing products are
sold in North America, through wholesale distributors and home centers and in
certain international markets, including Europe, South America, the Middle East
and Asia.
Jacuzzi is a leading worldwide manufacturer and distributor of whirlpool
bath products, spas, shower systems, non-jetted baths, swimming pool equipment
and water systems products. Sales of Jacuzzi products are seasonal as weather
may affect outdoor installation.
Zurn's plumbing products include drains, flush valves, pressure-reducing and
regulating valves and other behind-the-wall plumbing products. Sales are
seasonal as weather may affect residential construction. Eljer is a leading
North American manufacturer of complementary vitreous china and cast iron
plumbing, faucets and flexible plumbing systems. Zurn, through its Selkirk
operations, is a leading manufacturer and distributor of commercial and
residential heating, ventilation and air conditioning systems.
LIGHTING CORPORATION OF AMERICA
Lighting Corporation of America ("LCA"), through its subsidiaries,
manufacturers and distributes indoor and outdoor lighting fixtures and lighting
controls for markets in North America and Europe. During fiscal 1998, sales of
commercial/industrial and residential products accounted for approximately 80%
and 20%, respectively, of LCA's revenues.
LCA's size, broad range of quality products and strong distribution network
allow it to compete as a full-line supplier in the commercial/industrial market.
Its outdoor lighting products are sold under the KIM, SPAULDING, MOLDCAST,
ARCHITECTURAL AREA LIGHTING, SIEMENS and SITECO brand names. These products
include street, area, parking garage and landscape lighting. Outdoor lighting
products are sold to electrical distributors, national accounts and utility
companies. National customer accounts include service stations, automobile
dealerships and fast food restaurants. Indoor commercial/industrial lighting
products, which are sold under the COLUMBIA, PRESCOLITE, SIEMENS and SITECO
brand names through electrical distributors and national accounts, include
incandescent and compact fluorescent, down light fixtures, emergency and exit
lighting controls, and other fluorescent lighting fixtures.
Management believes that LCA is the largest residential lighting
manufacturer in North America, principally selling under the PROGRESS and
LITEWAY brand names. Progress' products include chandeliers, hall and foyer
sconces, pendants, bath and vanity, ceiling, fluorescent, under-cabinet, track,
outdoor and
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landscape lighting. Residential lighting products are sold to home centers,
lighting showrooms and electrical distributors, who sell to builders, electrical
contractors and consumers.
Sales of lighting products are seasonal to a degree, with weather affecting
construction and outdoor installation.
USI HARDWARE AND TOOLS
USI Hardware and Tools manufactures and distributes tools, ladders and
windows through O. Ames Co. ("Ames"), Spear & Jackson and other subsidiaries.
The Company also manufactures a line of fabricated metal components used in the
production of television picture tubes.
Ames is a leading manufacturer and distributor of non-powered lawn, garden
and industrial hand and striking tools in North America. The Company's Keller
subsidiary manufacturers wood, aluminum and fiberglass ladders for residential
and commercial use. Ames sells its products under the brand names AMES, EAGLE,
WOODINGS-VERONA, and GARANT and, to a lesser extent, under private labels. Ames'
product lines include garden and agricultural tools (shovels, cutting tools);
snow shovels and other winter tools; and wheelbarrows and other wheeled goods.
The Company also manufacturers and distributes windows under the BILTBEST brand
name. Sales are seasonal, with substantial portions made in spring and fall.
Weather may impact results materially.
Spear & Jackson is a leading U.K. manufacturer and distributor of a broad
line of hand tools, lawn and garden tools, industrial saws and industrial
magnets. Products sold under the brand names SPEAR & JACKSON, NEILL TOOLS and
ECLIPSE MAGNETICS include garden and agricultural tools (shovels and spades);
contractor hand tools (pliers, cutting tools and builders' tools); industrial
cutting tools (circular saw blades, carbide tip saws, circular knives); and
industrial magnets (magnetic holding devices, precision measuring tools).
Ames and Spear & Jackson distribute their products primarily through
independent wholesale distributors, home centers, mass merchants and large
buying groups including cooperatives. The sales of Ames products, and, to a
lesser extent, Spear & Jackson products, have become increasingly concentrated
among home centers and other mass merchants, including Home Depot, which, as the
division's largest customer, accounted for approximately 14%, 26% and 24% of the
total revenues of the USI Hardware and Tools division in fiscal 1998, 1997 and
1996, respectively.
USI DIVERSIFIED
USI Diversified manufactures a wide range of consumer and industrial
products. Its principal businesses are described below.
Rexair Inc. ("Rexair") is a leading manufacturer of premium vacuum cleaners.
Its Rainbow vacuum cleaners collect dirt particles by means of a water
filtration and separator system rather than the bag used in traditional vacuum
cleaners. Rexair manufactures its products at its Cadillac, Michigan facility.
Rexair sells the Rainbow and its accessories exclusively to independent
authorized distributors. Rexair's proportion of international unit sales to
total sales was 56% in fiscal 1996, 58% in fiscal 1997 and 52% in fiscal 1998.
In fiscal 1998, Rexair sold its products in over 75 foreign countries and its
principal international markets included Poland, Austria, the Czech Republic,
Japan and Portugal. As discussed under "International Operations" below, export
sales are subject to the usual risks of doing business abroad.
The direct sales vacuum cleaner industry is mature and competition is based
on quality, sales technique, personnel, marketing and distribution approaches.
Rexair does not compete on price. Sales to consumers are made by distributors
and their dealers through in-the-home demonstrations typically set up by
referrals from other consumers. The Company estimates that approximately 66% of
domestic distributors' and subdistributors' sales to consumers are financed by
third parties; thus, Rexair's business could be adversely affected by a
decreased availability of consumer credit or increased consumer finance rates.
The Ertl Company, Inc. ("Ertl") manufactures, markets and distributes
agricultural toys, miniature die-cast toys, collectible die-cast replicas and
plastic model kits. Ertl is headquartered in Dyersville, Iowa. Ertl's products
are sold to toy retailers, mass merchants, independent toy and hobby shops and
hobby distributors. Agricultural toys are also sold to original equipment
manufacturers ("OEM's"), such as John
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Deere and J.I. Case, whose dealers resell them in dealer showrooms. The toy
industry experiences significant seasonal fluctuations due to heavy demand for
toys during the Christmas season. During each of the last three fiscal years,
over 60% of Ertl's net sales and over 70% of its operating income have been
realized during its first and fourth fiscal quarters.
Georgia Boot Inc. manufactures and markets work, hiking, hunting and western
boots under the Georgia Boot, Durango and Northlake brands. Trimfoot Co.
manufactures, imports and markets footwear products for infants and children.
These products are distributed through department stores, mass merchants and
other retail channels. Lehigh Safety Shoe Company ("Lehigh") manufactures and
markets protective safety shoes that are generally purchased by industrial
companies for their employees. Lehigh distributes its products through a network
of company-owned and independent shoe centers, and shoe-mobiles which visit
industrial locations. A portion of Lehigh's sales are derived from direct mail
and telemarketing efforts.
Garden State Tanning, Inc. ("Garden State Tanning") manufactures high
quality leather for installation as automotive seating and trim. Garden State
Tanning produces precision cut "sets" that are shipped to automotive industry
customers' facilities where they are sewn and attached to automobile seats and
other vehicle parts. Hide purchases comprise approximately one-half of Garden
State Tanning's finished leather costs. Over two-thirds of the hides used in the
production of finished leather are purchased from one supplier.
Huron Inc. ("Huron") manufactures precision metal products used in
automobile systems including screw machine parts, tubular assemblies, dowels,
fittings, shafts and air conditioning and fuel manifolds. Huron supplies its
precision metal products to domestic automotive OEMs and foreign automobile
manufacturers with United States assembly plants and their suppliers located in
North America and Europe.
Leon Plastics, Inc. ("Leon Plastics") manufactures molded plastic parts and
assemblies for automotive interiors. Leon Plastics distributes its products
directly to automotive assembly plants and automotive interior trim
manufacturers.
Native Textiles manufactures tricot products which are sold to bra, lingerie
and active sportswear manufacturers primarily in the United States.
Bearing Inspection, Inc. overhauls and reconditions aircraft engine
bearings.
Jade Technologies Singapore Ltd. ("Jade Singapore") manufactures leadframes
for the electronics industry. In January 1997, an initial public offering of 25%
of the shares of Jade Singapore was completed. Its shares are listed on the
Stock Exchange of Singapore Dealing and Automated Quotation System (SESDAQ).
Immediately after the transaction, the Company owned approximately 75% of the
outstanding shares of Jade.
INVESTMENT
The Company has an equity interest in United Pacific Industries Limited
("UPI"), a limited liability company incorporated in Bermuda and listed on the
Stock Exchange of Hong Kong. UPI manufactures voltage converters, other
electronic components and consumer products. The Company's investment of $18
million at September 30, 1998 results in beneficial ownership of approximately
20% of UPI. The Company accounts for this investment using the equity method of
accounting.
COMPETITION
The Company competes in mature and highly competitive industries on the
basis of brand identification, quality, price, marketing and distribution
approaches. In some industries, certain competitors have greater market share or
product breadth in a given market than the Company.
EXPORT AND INTERNATIONAL OPERATIONS
Certain of the Company's domestic businesses generate revenue from export
sales and/or revenue from operations conducted outside the United States. Export
sales amounted to 9%, 12% and 13% of total revenues in fiscal 1998, 1997 and
1996, respectively, principally reflecting sales by Rexair to foreign
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distributors of Rainbow products in numerous countries, and sales by Garden
State Tanning to Japanese automobile manufacturers. Revenue from foreign
operations amounted to 21%, 12% and 10% of total revenues in fiscal 1998, 1997
and 1996, respectively, principally reflecting certain Jacuzzi operations, Spear
& Jackson and SiTeco during fiscal 1998. Identifiable assets of foreign
operations represented approximately 23%, 11% and 9% of total identifiable
assets at September 30, 1998, 1997 and 1996, respectively. Foreign identifiable
assets at September 30, 1998 principally reflect certain assets of Jacuzzi,
SiTeco and Spear & Jackson. Certain businesses obtain a significant amount of
finished goods from unaffiliated suppliers in East Asia.
The Company's export sales and foreign manufacturing and sourcing are
subject to certain risks including currency fluctuation, transportation delays,
political and economic instability, restrictions on the transfer of funds, the
imposition of duties, tariffs and import and export controls and changes in
governmental policies. In particular, if China lost the "Most Favored Nation"
status currently accorded to it by the United States or if the United States
Trade Representative imposed retaliatory trade sanctions on China the cost of
imports from China could increase significantly.
EMPLOYEES
As of September 30, 1998, the Company had approximately 24,000 employees
(excluding employees of companies in which the Company holds equity interests).
Approximately 42% of such employees were represented by unions. The Company
believes that the relations of its operating subsidiaries with employees and
unions are satisfactory.
GOVERNMENTAL REGULATION
The Company's operating units are subject to numerous federal, state and
local laws and regulations concerning such matters as zoning, health and safety
and protection of the environment. The Company believes that its operating units
are currently operating in substantial compliance with, or under approved
variances from, various federal, state and local laws and regulations.
Certain present and former operating sites, or portions thereof, currently
or previously owned and/or leased by current or former operating units of the
Company are the subject of investigations, monitoring or remediation under the
federal Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA" or "superfund"), the federal Resource Conservation and Recovery
Act or comparable state statutes or agreements with third parties. These
proceedings are in various stages ranging from initial investigations to active
settlement negotiations to implementation of the clean-up or remediation of
sites. No information currently available reasonably suggests that projected
expenditures associated with these proceedings, whether for any single site or
for those in the aggregate, will have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
A number of present and former operating units of the Company have been
named as Potentially Responsible Parties ("PRPs") at 19 Superfund sites under
CERCLA or comparable state statutes in a number of federal and state
proceedings. In each of these matters the operating unit of the Company is
working with the governmental agencies involved and other PRPs to address
environmental claims in a responsible and appropriate manner. Under CERCLA and
other similar statutes, any generator of hazardous waste sent to a hazardous
waste disposal site is potentially responsible for the clean-up, remediation and
response costs required for such site in the event the site is not properly
closed by its owner or operator, irrespective of the amount of waste which the
generator sent to the site. No information currently available reasonably
suggests that projected expenditures associated with these proceedings, whether
for any single site or for those in the aggregate, will have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
From time to time, the Company may receive notices of violation or may be
denied its applications for certain licenses or permits on the basis that the
practices of the operating unit are not consistent with regulations or
ordinances. In some cases, the relevant operating unit may seek to meet with the
agency to determine mutually acceptable methods of modifying or eliminating the
practice in question. The Company believes that its operating units will comply
with the applicable regulations and ordinances in a
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manner which will not have a material adverse effect on its financial condition,
results of operations or cash flows.
The Company's subsidiaries have made capital and maintenance expenditures
over time to comply with zoning, water, air and solid and hazardous waste
regulations. While the amount of expenditures in future years will depend on
legal and technological developments which cannot be predicted at this time,
these expenditures may progressively increase if regulations become more
stringent. Future costs for compliance cannot be predicted with precision and
there can be no certainty with respect to any costs the Company may be forced to
incur in connection with historical on-site or off-site waste disposal. No
information currently available reasonably suggests that these expenditures will
have a material adverse effect on the Company's financial condition, results of
operations or cash flows. Laws and regulations protecting the environment may in
certain circumstances impose "strict liability", rendering a person liable for
environmental damage without regard to negligence or fault on the part of such
person.
At September 30, 1998, the Company had accrued approximately $20 million for
various environmental related liabilities of which the Company is aware. The
Company believes that the range of liability which is reasonable for such
matters is between approximately $7 million and $25 million. The Company cannot
predict whether future developments in laws and regulations concerning
environmental protection or unanticipated enforcement actions, particularly with
respect to environmental standards, will require material capital expenditures
or otherwise affect its financial condition, results of operations or cash flows
in a materially adverse manner, or whether its operating units will be
successful in meeting future demands of regulatory agencies in a manner which
will not have a material adverse effect on the Company's financial condition,
results of operations or cash flows.
PATENTS AND TRADEMARKS
The Company's subsidiaries have numerous United States and foreign patents,
patent applications, registered trademarks and trade names, and licenses, that
relate to various businesses. The Company believes that certain of the
trademarks and trade names are of material importance to the businesses to which
they relate and may be of material importance to the Company as a whole.
EXECUTIVE OFFICERS
At September 30, 1998, the executive officers of the Company were as
follows:
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NAME POSITION
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David H. Clarke......................................... Chairman of the Board and Chief Executive Officer
John G. Raos............................................ President, Chief Operating Officer and Director
John F. Bendik.......................................... Executive Vice President
George H. MacLean....................................... Senior Vice President, General Counsel and Secretary
James O'Leary........................................... Senior Vice President and Chief Financial Officer
Dorothy E. Sander....................................... Senior Vice President--Administration
Diana E. Burton......................................... Vice President--Investor Relations
Robert P. Noonan........................................ Corporate Controller
Peter F. Reilly......................................... Treasurer
</TABLE>
David H. Clarke, 57, has served as Chairman of the Board and Chief Executive
Officer of the Company since the Demerger. Mr. Clarke was Vice Chairman of
Hanson from 1993 until the Demerger, Deputy Chairman and Chief Executive Officer
of Hanson Industries, the U.S. arm of Hanson, from 1992 until the Demerger and a
Director of Hanson from 1989 until May 1996. Mr. Clarke is a director of
Fiduciary Trust International, a public company engaged in investment management
and administration of assets for individuals.
John G. Raos, 49, has served as President and Chief Operating Officer and a
Director of the Company since the Demerger. Mr. Raos was President and Chief
Operating Officer of Hanson Industries from 1992
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until the Demerger and a Director of Hanson from 1989 until the Demerger. Mr.
Raos is a Director of TearDrop Golf Company.
John F. Bendik, 47, has served as an Executive Vice President of the Company
since January 1998. Prior to that, Mr. Bendik was a Group Vice President from
June 1997. Mr. Bendik served as Director of Strategic Planning of the Company
since August 1995. For the balance of the previous five years, Mr. Bendik was
President and CEO of Histacount Corporation.
George H. MacLean, 63, has served as Senior Vice President, General Counsel
and Secretary of the Company since the Demerger. For the balance of the previous
five years, Mr. MacLean served as Vice President and Associate General Counsel
of Hanson Industries.
James O'Leary, 35, has served as Senior Vice President and Chief Financial
Officer since June 1998. He served as Corporate Controller of the Company from
the Demerger until June 1998 and was elected as a Vice President in January
1996. Mr. O'Leary served as Group Controller for certain consumer and industrial
products businesses of Hanson Industries from September 1994 until the Demerger.
For the balance of the past five years, he served as Assistant Corporate
Controller for Hanson Industries.
Dorothy E. Sander, 45, has served as Senior Vice President--Administration
since June 1998. Previously she had served as Vice President--Administration of
the Company since the Demerger. Ms. Sander served as Vice
President--Administration and Benefits of Hanson Industries from 1991 until the
Demerger and as an Associate Director of Hanson PLC from 1993 until the
Demerger. She is a member of the Advisory Board of the Bank of New York and the
Board of Editors of "HR-Law and Practice" magazine.
Diana E. Burton, 53, has served as Vice President--Investor Relations of the
Company since the Demerger. From January 1995 through the Demerger, Ms. Burton
served as an investor relations consultant to Hanson Industries. For the balance
of the past five years, she was a Vice President of Marine Harvest
International, Inc. ("Marine Harvest"), with principal responsibility for
administration and investor relations.
Robert P. Noonan, 36, has served as Corporate Controller of the Company
since June 1998. Mr. Noonan served as Assistant Corporate Controller of the
Company from February 1998 to June 1998 and was a Group Controller of the
Company from the Demerger to January 1998. For the balance of the past five
years, he was Corporate Controller of Marine Harvest.
Peter F. Reilly, 34, has served as Treasurer since December 1997. Mr. Reilly
served as Assistant Treasurer from the Demerger until June 1997 and,
subsequently, as a Group Controller. Mr. Reilly was a financial advisor to
Hanson Industries from January 1995 through the Demerger. He was Assistant
Treasurer of Marine Harvest from April 1994 through November 1994. For the
balance of the past five years, he was Corporate Controller for Lynton Group,
Inc.
ITEM 2. PROPERTIES
The Company owns 134 and leases 178 properties, none of which has value that
is significant in relation to the Company's assets as a whole. The Company
develops, manages and disposes of its excess properties through its wholly-owned
subsidiary, USI Properties, Inc.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to legal proceedings that are
considered to be either ordinary, routine litigation incidental to the business
of present and former operations or immaterial to the Company's financial
condition, results of operations or cash flows. For information concerning
environmental proceedings, see "Business--Governmental Regulation."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders
during the fourth quarter of fiscal 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information.
The Company's Common Stock is traded on the NYSE under the symbol USI. The
following table sets forth, for the fiscal periods indicated, the high and low
closing sales price per share of Common Stock as reported by the NYSE.
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FISCAL 1998 FISCAL 1997
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HIGH LOW HIGH LOW
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First Quarter.......................................... $ 30.75 $ 25.13 $ 22.42 $ 17.50
Second Quarter......................................... $ 30.63 $ 26.38 $ 26.17 $ 21.17
Third Quarter.......................................... $ 30.19 $ 17.88 $ 25.50 $ 21.42
Fourth Quarter......................................... $ 20.31 $ 13.56 $ 28.00 $ 23.71
</TABLE>
(b) Holders.
As of December 8, 1998, there were approximately 26,958 record holders of
Common Stock. The closing price per share of Common Stock as reported by the
NYSE on such date was $17.38.
(c) Dividends.
The Board of Directors previously adopted a cash dividend policy under which
USI paid cash dividends of $0.05 per share of Common Stock as listed below. The
payment of dividends is subject to the Board of Directors' discretion and will
depend upon the Company's overall performance, general business conditions,
legal and contractual restrictions and other factors that the Board may deem
relevant.
<TABLE>
<CAPTION>
DIVIDEND RECORD DATE DIVIDEND PAYMENT DATE
- ----------------------------------------------------------------------- ---------------------
<S> <C>
September 30, 1997..................................................... October 14, 1997
December 31, 1997...................................................... January 21, 1998
March 31, 1998......................................................... April 21, 1998
June 30, 1998.......................................................... July 21, 1998
September 30, 1998..................................................... October 21, 1998
</TABLE>
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following tables sets forth the consolidated (combined) historical
selected financial data of the Company.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 (1) 1997 1996 1995 (5) 1994
----------- --------- --------- ----------- ---------
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................................................ $ 3,310 $ 2,716 $ 2,364 $ 2,181 $ 2,080
Operating income..................................................... 149 287 239 105 196
Income (loss) from continuing operations............................. 7 136 104 (42) 53
Net income (loss).................................................... (44) 252 138 (72) 87
Income from continuing operations per share (2)
Basic.............................................................. .07 1.48 1.09 -- --
Diluted............................................................ .07 1.43 1.07 -- --
Net income (loss) per share (2)
Basic.............................................................. (.46) 2.73 1.45 -- --
Diluted............................................................ (.45) 2.64 1.42 -- --
Cash dividend declared per share (4)................................. .20 .05 -- -- --
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents............................................ $ 44 $ 67 $ 57 $ 67 $ 34
Working capital...................................................... 807 651 697 721 1,159
Total assets......................................................... 2,812 2,538 2,502 2,232 2,608
Total debt (3)....................................................... 966 746 930 1,000 997
Stockholders' equity/Invested capital................................ 960 950 758 643 1,022
</TABLE>
- ------------------------------
(1) The fiscal year ended September 30, 1998 included non-recurring and unusual
after-tax charges of $140 million of merger, restructuring and other costs,
$7 million to write-off interest rate protection agreements, $34 million to
discontinue a business, and $5 million associated with the refinancing of
Zurn's outstanding indebtedness, totaling $186 million.
(2) All earnings per share data has been prepared in accordance with SFAS 128,
which was adopted on December 31, 1997. The adoption of SFAS 128 did not
have a material impact on the information previously presented. Prior to
fiscal 1996, earnings per share information is not presented as such
information is not indicative of the Company's continuing capital structure.
(3) Amount in fiscal 1994 primarily represents intercompany notes payable to
Hanson plc.
(4) Cash dividends exclude dividends declared and paid by Zurn prior to the
merger.
(5) USI changed its accounting policy for evaluating goodwill impairment in
fiscal 1995, resulting in a charge of $98 million, which affects
comparability between fiscal 1995 and fiscal 1994. Fiscal 1995 operating
income includes charges of $2 million to close certain underutilized
facilities of the lighting products operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
On June 11, 1998, USI merged with Zurn by exchanging 20.4 million shares of
the Company's common stock for all of the common stock of Zurn. Each share of
Zurn common stock was exchanged for 1.6 shares of the Company's common stock.
Outstanding Zurn employee stock options were converted at the same exchange
ratio into options to purchase 2 million shares of the Company's common stock.
The Merger has been accounted for as a pooling of interest under Accounting
Principles Board Opinion No. 16. All prior period consolidated financial
statements presented have been restated to include the results of operations,
financial position and cash flows of USI and Zurn as a single entity. There were
no transactions between USI and Zurn prior to the combination. Certain
reclassifications were made to the Zurn financial statements to conform to USI's
presentations.
The Company's operations are grouped into four segments: USI Bath and
Plumbing Products, Lighting Corporation of America, USI Hardware and Tools and
USI Diversified. The results of all operations sold or classified as
discontinued are excluded from the table and discussion below. (See Note 4 to
the Consolidated Financial Statements.) Prior to the Merger, Zurn's fiscal year
ended on March 31. In recording the business combination Zurn's results of
operations, financial position and cash flows as of and for the year ended
September 30, 1998 and 1997 have been restated to conform to USI's fiscal year
end.
9
<PAGE>
For the year ended September 30, 1996, USI's results of operations and cash
flows have been combined with the results of operations and cash flows of Zurn
for the year ended March 31, 1997. Zurn's results are included in USI Bath and
Plumbing Products.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
NET SALES
Bath and Plumbing Products............................................. $ 1,105 $ 879 $ 685
Lighting Corporation of America........................................ 766 538 508
Hardware and Tools..................................................... 430 308 238
Diversified............................................................ 1,009 991 933
--------- --------- ---------
TOTAL NET SALES...................................................... $ 3,310 $ 2,716 $ 2,364
--------- --------- ---------
--------- --------- ---------
OPERATING INCOME (LOSS) (1)
Bath and Plumbing Products............................................. $ 93 $ 101 $ 88
Lighting Corporation of America........................................ 52 42 36
Hardware and Tools..................................................... (2) 34 31
Diversified (2)........................................................ 38 137 111
--------- --------- ---------
Operating income before corporate expenses............................. 181 314 266
Corporate expenses..................................................... (32) (27) (27)
--------- --------- ---------
TOTAL OPERATING INCOME............................................... $ 149 $ 287 $ 239
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------------
(1) Operating income (loss) for the year ended September 30, 1998 includes
merger, restructuring and other related costs of $154 million and product
change costs in connection with the restructuring of approximately $11
million. (See Note 5 to the Consolidated Financial Statements.) Operating
income (loss) for the USI Bath and Plumbing Products, Lighting Corporation
of America, USI Hardware and Tools, USI Diversified Operations and Corporate
expenses include merger, restructuring and other charges of $40, $3, $37,
$78 and $7 million, respectively.
(2) Fiscal 1998 and 1997 operating income for the USI Diversified Operations
includes $(3) and $2 million, respectively of equity (loss) earnings from
the Company's investment in UPI. Fiscal 1998 equity (loss) includes a charge
associated with an impairment of a UPI subsidiary of $4 million.
FISCAL 1998 COMPARED TO FISCAL 1997
The Company had sales of $3,310 million in fiscal 1998, an increase of $594
million (21.9%). The operating income for the year was $149 million compared to
$287 million in the prior year. The current year's operating income includes
merger, restructuring and other charges of $165 million which are discussed
below. Excluding these non-recurring and unusual charges, operating income would
have been $314 million, an increase of $27 million (9.4%).
USI Bath and Plumbing Products operations had sales of $1,105 million and
operating income of $93 million, a sales increase of $226 million (25.7%) and a
decrease in operating income of $8 million. Operating income in the current year
includes non-recurring and unusual charges of $40 million incurred in connection
with (i) the Merger, including investment banking, legal, and accounting fees as
well as change in control payments to certain Zurn employees, (ii) the closure
of a manufacturing facility, (iii) the consolidation of several distribution
centers between the Jacuzzi and Zurn operations and (iv) the reduction of
duplicate administrative functions resulting from the Merger. Excluding these
charges, operating income would have been $133 million, an increase of $32
million (31.7%) over the prior year. The increase in sales and operating profit,
excluding non-recurring and unusual charges, is primarily due to the full year
inclusion of Eljer (which was acquired in January 1997), the acquisition of
Sundance Spas in June 1998, continued strength in the European bath operations
and increased market penetration by Zurn Plumbing Products. These gains were
partially offset by shortfalls in South America and Asia attributable to
difficult local economic conditions.
Lighting Corporation of America had sales of $766 million and operating
income of $52 million in fiscal 1998, increases of $228 million (42.4%) and $10
million (23.8%), respectively, over the prior year. Operating income in the
current year includes restructuring charges of $3 million incurred in connection
with plant shutdowns at two facilities. Excluding these charges, operating
income in the current year would
10
<PAGE>
have been $55 million, an increase of $13 million (31.0%) over the prior year.
The increase in sales and operating income, excluding these charges, is due to
the October 1997 acquisition of SiTeco, and strong sales of outdoor and
residential lighting. Sales of commercial indoor florescent fixtures continue to
be adversely affected by price competition.
USI Hardware and Tools operations had sales of $430 million and an operating
loss of $2 million for the current year, a sales increase of $122 million
(39.6%), and a decrease of $36 million from the prior year's operating income of
$34 million. The operating loss in the current year includes charges of $37
million which consists of (i) impairments of goodwill and property, plant and
equipment in the Company's ladder operations, (ii) severance incurred in
connection with the consolidation of certain administrative functions at the
ladder operations with Ames and (iii) the elimination of a product line at
Keller's window operations. Excluding these charges, the operating income would
have been $35 million, an increase of $1 million (2.9%) from the prior year. The
increase in sales is due to the first time inclusion of Spear & Jackson,
acquired in December 1997, and a metal components business acquired from Philips
in May 1998. The increase in operating income, excluding these charges, is due
to these acquisitions, partially offset by the operating losses at the ladder
operations, which lost a major customer in 1997, and reduced operating income at
Ames. Ames operating income was negatively affected by price pressure from the
mass retailers, poor winter and spring tool sales due to a lack of snowfall and
unusually hot summer weather, partially offset by the favorable impact of prior
year acquisitions. The first half of fiscal 1999 operating results for Ames are
expected to be unfavorably affected by high retail inventories carried over from
fiscal 1998.
USI Diversified Operations had sales of $1,009 million and operating income
of $38 million, an increase of $18 million and a decrease of $99 million,
respectively, from the prior year. Operating income in the current year includes
total charges of $78 million consisting of (i) impairments of goodwill at the
automotive leather tanning business, (ii) obsolescence, severance and impairment
charges at the vacuum cleaner operations incurred in connection with management
changes and the changeover to a new model, (iii) severance, impairment and lease
obligation charges in the toy operations as a result of outsourcing certain
manufacturing processes, (iv) severance and impairment charges in the footwear
operations incurred in connection with the closure of a manufacturing facility,
(v) severance and other charges in the Company's plastic automotive business
incurred in connection with the discontinuance of a business line, (vi)
severance, impairment and obsolescence charges incurred in connection with the
elimination of a product line in the Company's textile operations and (vii) the
Company's equity share of an impairment charge recorded by UPI. Excluding these
charges operating income in the current year would have been $116 million, a
decrease of $21 million from the prior year. The decrease in sales and operating
profit, excluding these charges, is primarily due to lower sales of vacuum
cleaners and toys. Operating income in the vacuum cleaner business declined due
to lower sales, particularly in certain foreign markets, which were affected by
the strength of the dollar. Domestic vacuum cleaner sales were adversely
affected by dealers' difficulties in recruiting sales representatives due to low
unemployment rates. The toy business was affected by lower sales and unfavorable
manufacturing variances. Operating profits were also negatively impacted by
lower sales of western footwear and plastic automotive components and increased
price concessions and reduced scrap prices in the automotive leather division.
These unfavorable factors were partially offset by increased sales and operating
income in the refurbished aircraft bearing business, the January 1998
acquisition of the Philips leadframe business, a favorable settlement of certain
environmental obligations in the footwear operations, and a gain of $6 million
on the sale of an investment in a toy supplier.
Corporate expenses include $7 million of charges for severance of certain
executive staff and employment costs in connection with the Company's
realignment of its business units.
MERGER, RESTRUCTURING AND OTHER RELATED COSTS
In connection with the closing of the Merger, the Company reviewed its
long-term strategy for the newly combined entity and reviewed each operating
company's performance and future prospects. As a result, the Company adopted a
plan to improve efficiency and enhance competitiveness. In addition, due to
indications of impairment, the Company evaluated the recoverability of certain
long-lived assets, primarily
11
<PAGE>
goodwill at Garden State Tanning and Keller Ladders. The Company determined an
evaluation of the carrying amount of the long-lived assets, primarily goodwill,
at Garden State Tanning was necessary due to operational issues, particularly
changes in the automotive supplier industry including pricing concessions
demanded by automotive companies and a dramatic decline in scrap leather prices
attributable to the Asian economic crisis. The impairment indicators at Keller
Ladders included the sharp decline in operating profits and sales due to the
loss of a significant customer whose sales volume has not been replaced. In
determining the amount of the impairment, the Company obtained independent
appraisals of the fair values of Garden State Tanning and Keller Ladders.
The restructuring plan includes the closing of certain manufacturing and
warehouse facilities in the bath and plumbing products, toy, shoe and lighting
operations. The production and distribution activities of these facilities will
be either outsourced, relocated off-shore, or consolidated into existing
facilities. The restructuring plan included a reduction in the work force by
approximately 1,200 employees.
The merger, integration and other costs also includes investment banking,
legal and accounting fees and other miscellaneous costs, as well as costs
related to change-in-control payments to certain Zurn employees.
The principal components of the merger, restructuring and other related
costs are:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Impairment of goodwill........................................................... $ 83
Lease obligations and impairment of equipment.................................... 19
Merger, integration and other costs.............................................. 26
Severance and related costs...................................................... 26
-----
Total.......................................................................... $ 154
-----
-----
Cash charges..................................................................... $ 57
Non-cash charges................................................................. 97
-----
Total.......................................................................... $ 154
-----
-----
</TABLE>
$31 million of the cash charges were paid prior to September 30, 1998 and
the remaining cash charges will be paid by September 30, 1999, or through the
respective lease termination date.
In addition to the $154 million of merger, restructuring and other related
costs, the Company has incurred $11 million of product change costs related to
the elimination of product lines and the reduction of manufacturing and
warehouse facilities at its operations which have been restructured.
After an income tax benefit of $25 million, the charges detailed above
impact the results from continuing operations for the period ended September 30,
1998 by $140 million.
OTHER (INCOME) EXPENSE, NET
In anticipation of the offering of senior notes, the Company entered into
certain interest rate protection agreements in March and April 1998. Due to
subsequent market changes, the principal amount and term of the notes sold in
the offering varied from those originally anticipated. The portion of the costs
of the agreements, in the amount of $10 million, related to the notes sold will
be amortized over the term of the notes. The Company recorded a pre-tax charge
of $12 million ($7 million after-tax) to write off the remainder of the costs of
the agreements in other (income) expense, net. This charge was partially offset
by, among other things, gains on sales of real estate and the Company's
airplane.
INTEREST AND TAXES
Interest expense was $69 million for fiscal 1998, a $10 million (16.9%)
increase from the prior fiscal year. The increase reflects higher levels of debt
outstanding, primarily related to acquisitions, partially offset by lower
effective interest rates. Interest income was $8 million for fiscal 1998, a $1
million increase from fiscal 1997.
The provision for income taxes was $78 million on pre-tax income of $85
million (a 91.8% effective rate) for fiscal 1998 compared to $102 million on
pre-tax income of $238 million (42.9% effective rate)
12
<PAGE>
from the prior fiscal year. The current year includes the impact of goodwill
impairment and nondeductible non-recurring charges. Excluding these items the
effective rate would have been approximately 41%.
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
For fiscal 1998, the Company recorded a loss from discontinued operations of
$46 million, net of tax, which primarily consisted of the loss for the Company's
outdoor furniture operations, which was sold in September 1998.
In the prior year, the Company reported income from discontinued operations
of $118 million, net of tax, consisting of net gains on disposals of
discontinued operations of $113 million and income from operations of
discontinued operations of $5 million. The gains on dispositions resulted from
the sales of Tubular Textile Machinery, SCM Metal Products, Inc., the assets of
QPF, Inc. and Odyssey Golf, partially offset by losses on the sales of Lynx
Golf, the Power Transmission Segment and portions of the Power Systems Segment.
The income from operations of discontinued operations consisted of the results
of the above companies, the Armour Golf Operations (Tommy Armour Golf and
Odyssey Golf) and SunLite Casual Furniture.
Management regularly evaluates its exposure to contingencies related to
Zurn's discontinued Power Systems Segment. Management does not expect
discontinued operations to have a material impact on the future operations or
liquidity of the Company.
In conjunction with the repayment of all outstanding indebtedness of Zurn
during the year ended September 30, 1998, a net-of-tax, non-cash, extraordinary
charge of $5 million was incurred to write off unamortized deferred financing
costs and for losses associated with interest rate swaps. In conjunction with
the repayment of all outstanding indebtedness under a prior credit agreement,
during the first quarter of fiscal 1997, a net of tax, non-cash, extraordinary
charge of $2 million was incurred to write off unamortized deferred financing
costs and for losses associated with interest rate swaps.
FISCAL 1997 COMPARED TO FISCAL 1996
The Company had sales of $2,716 million and operating income of $287 million
in fiscal 1997, increases of $352 million (14.9%) and $48 million (20.1%),
respectively, from fiscal 1996.
USI Bath and Plumbing Products operations had sales of $879 million and
operating income of $101 million, increases of $194 million (28.3%) and $13
million (14.8%), respectively. The increase in sales and operating profit is
primarily due to the acquisition of Eljer in January 1997. The Bath and Plumbing
Products operations had strong domestic sales to large do-it-yourself (DIY)
retailers and an increase in sales in the fire protection business due to
construction activity on the West Coast. An increase in operating profits from
domestic bath operations was substantially offset by a decline in operating
income in European bath products operations.
The Lighting Corporation of America had sales of $538 million and operating
income of $42 million, increases of $30 million (5.9%) and $6 million (16.7%),
respectively, from fiscal 1996. Strong results were reported by the Company's
outdoor and residential lighting companies. The outdoor lighting companies
benefited from new product introductions and favorable market conditions in the
high-end architectural and commercial outdoor categories. In the residential
lighting segment, sales and profits increased due to the strong housing market.
In commercial indoor lighting, operating income was flat on slightly increased
sales as competitive pricing conditions continued.
USI Hardware and Tools operations had sales of $308 million and operating
income of $34 million, increases of $70 million (29.4%) and $3 million (9.7%),
respectively. The operating income was negatively impacted due to a difficult
fourth quarter experienced by the Company's ladder operations. Fourth quarter
sales and operating profits declined in the ladder business, due to highly
competitive market conditions in the DIY distribution channels, which also
resulted in a negative profit comparison for the full year. Sales and operating
income from lawn and garden products increased as the Company benefited from new
product introductions in the wheeled goods category. Also adding to results were
contributions from Woodings-Verona Tool Works, Inc., a manufacturer of striking
tools acquired in January 1997, and IXL Manufacturing Company, Inc., a
manufacturer of tool handles acquired in July 1997.
13
<PAGE>
USI Diversified operations had sales of $991 million and operating income of
$137 million, increases of $58 million (6.2%) and $26 million (23.4%),
respectively. The significant increase in operating income was primarily due to
the increases in toy, textile, metal automotive components and bearing
refurbishment businesses, partially offset by declines in vacuum cleaner sales
and footwear operations. Toy profits rose significantly due to lower advertising
costs and the absence of one-time charges in 1996 associated with the exit from
promotional toys, and reduced manufacturing costs. Sales and profits also
increased in the core collectible and agricultural toy categories. Improved
tricot sales, reduced provisions for lace inventories and better manufacturing
performance contributed to the improved textile operations. Domestic and
international vacuum cleaner unit sales were lower due to continued weakness in
the domestic market and weather related problems and weakness in the
international market. Sales and operating profits in the footwear operations
suffered from the absence of promotional programs in child and infant shoe
categories that positively affected fiscal 1996. Sales in the automotive leather
products operations increased significantly, however the market was highly
competitive during the year reducing profitability that was also affected by the
poor quality of hides available in the marketplace.
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
In fiscal 1996, the Company had income from discontinued operations of $59
million, net of tax, consisting of net gains on disposals of discontinued
operations of $58 million and income from operations of discontinued operations
of $1 million. The gains resulted from the sales of Office Group America, Inc.,
Blue Mountain Industries, Farberware, Inc., Spartus Electronics Corporation,
Piedmont Moulding Corporation, Jade Holdings, Inc., Universal Gym Equipment,
Inc. and Franklin Dyed Yarns for total cash consideration of $241 million and
notes of $6 million, which resulted in gains of $68 million, net of tax. This
was offset by a charge of $2 million, net of a tax benefit of $1 million, to
reduce the carrying value of the Company's equity investment in Ground Round to
its estimated realizable value and losses of $8 million, net of a tax benefit of
$1.6 million, on the sale of Lynx Golf, Power Transmission Segments and portions
of the Power Systems Segment for total consideration of $68 million. The income
from operations of discontinued operations consisted of the results of the above
named companies, as well as companies discontinued in subsequent years.
During the first quarter of fiscal 1996, a net of tax, non-cash,
extraordinary charge of $25 million was incurred to write off unamortized
deferred financing costs and previously deferred losses associated with interest
rate swaps.
GAIN ON SALE OF SUBSIDIARY STOCK
In January 1997, an initial public offering of 25% of the shares of Jade
Singapore, a manufacturer of lead frames for the electronics industry, was
completed. Jade sold 8 million shares at approximately $.53 per share,
generating cash proceeds of approximately $4 million. The Company recorded a
gain of approximately $1 million ($700,000 after provision for deferred income
taxes) in connection with the sale. Immediately after the transaction, the
Company owned approximately 75% of the outstanding shares of Jade.
INTEREST AND TAXES
Interest expense was $59 million for fiscal 1997, a $5 million (8%) decrease
from the prior fiscal year. The decrease reflects the impact of lower levels of
debt outstanding and lower borrowing costs in the first half of the year.
Interest income was $7 million for fiscal 1997, a $4 million decrease from
fiscal 1996.
The provision for income taxes for continuing operations totaled $102
million for fiscal 1997 on pre-tax income of $238 million (a 42.9% effective tax
rate) compared to a $82 million provision on pre-tax income of $186 million for
fiscal 1996 (a 44.1% effective rate). The lower tax rate was primarily
attributable to the increased utilization of foreign tax credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources are cash
and cash equivalents, cash provided from operations and available borrowings
under the Company's revolving credit facility.
14
<PAGE>
Net cash provided by operating activities of continuing operations was $125
million and $135 million for the year ended September 30, 1998 and 1997,
respectively. The decrease is due to the $31 million of cash disbursed in
connection with the merger, restructuring and other charges.
Cash used in discontinued operations of $47 million in the year ended
September 30, 1998 is primarily due to the Company's outdoor furniture
operations and tax payments in connection with the sale of discontinued
operations. Net cash used in discontinued operations of $78 million in the year
ended September 30, 1997, primarily relates to the operations of SunLite and the
Power Systems Segment.
Investing activities used net cash of $230 million and provided net cash of
$97 million in fiscal 1998 and 1997, respectively. Fiscal 1998 included net cash
used for acquisitions including SiTeco, Spear & Jackson, Sundance and the
Philips leadframe and metal components operations, funding the U.S. Brass Trust
and capital expenditures, partially offset by the cash proceeds from the sale of
net assets held for disposition and sales of excess real estate. The prior year
included proceeds from the sale of net assets held for disposition, partially
offset by capital expenditures. The prior year also included net cash used for
the acquisitions of Eljer, SunLite, Woodings-Verona, IXL Manufacturing Company,
Inc. and Britains Petite.
Financing activities provided net cash of $130 million and used net cash of
$139 million in fiscal 1998 and 1997, respectively. Fiscal 1998 included
proceeds from long-term debt and notes payable in excess of repayments of $166
million, primarily used to finance acquisitions and capital expenditures, the
purchase of $35 million of the Company's common stock for treasury and dividend
payments of $21 million. The prior year included repayments of long-term debt
and notes payable in excess of proceeds of $75 million and the purchase of $67
million of common stock for treasury.
At September 30, 1998 the Company had current maturities of long-term debt
and short-term notes payable aggregating $19 million. The Company had $235
million of unused availability under uncommitted short-term lines of credit and
$294 million of unused credit available under the Existing Credit facility (as
defined below) at September 30, 1998. During October 1998, the Company
strengthened its sources of liquidity and capital resources by issuing $250
million aggregate principal amount of 7.125% Senior Notes due in 2003 and
obtaining a new $300 million, 364 day revolving credit facility (the "364 Day
Facility"). See SENIOR NOTES AND CREDIT FACILITIES within this section. The
Company believes that cash provided by operations and availability under unused
credit facilities will adequately support cash needs for working capital,
capital expenditures for existing businesses and future principal payments on
outstanding borrowings.
Total stockholders' equity increased by $10 million from September 1997 to
September 1998, principally due to the issuance of $118 million in the Company's
Common Stock in conjunction with the acquisition of Spear & Jackson and the
exercise of employee stock options partially offset by the net loss of $44
million for fiscal 1998, the purchases of $35 million of the Company's Common
Stock for treasury and dividends declared of $20 million. See the Consolidated
Statement of Changes in Stockholders' Equity and Note 3 to the Consolidated
Financial Statements.
SENIOR NOTES AND CREDIT FACILITIES
In fiscal 1997, USI American Holdings, Inc. ("USIAH"), a wholly owned
subsidiary of USI Atlantic, issued $125 million aggregate principal amount of
Senior Notes due December 1, 2006, which bear interest at 7.25%, payable
semiannually (the "7.25% Notes"). The net cash proceeds were $123 million after
transaction fees and discounts. In connection with the Merger, a supplemental
indenture was executed adding USI as a co-obligor with USIAH under the Notes.
The Notes remain fully and unconditionally guaranteed by USI Atlantic Corp. See
Note 17 to the Consolidated Financial Statements.
In October 1998, USI and USIAH jointly issued $250 million aggregate
principal amount of Senior Notes due October 15, 2003, which bear interest at
7.125%, payable semiannually (the "7.125% Notes"). The net cash proceeds were
$247 million after transaction fees and discounts. As discussed below, $200
million of the proceeds were used to repay a short-term note and the remainder
was used to repay borrowings under uncommitted bank credit lines. The Company
has agreed to exchange the 7.125% Notes, which are not registered under the
Securities Act of 1933, for registered notes having substantially the
15
<PAGE>
same terms. If the Company fails to comply with this requirement, then the
interest rate on the 7.125% Notes will increase 0.5% per annum until such time
as they are registered.
The 7.25% Notes and the 7.125% Notes (collectively, the "Notes") are
guaranteed by USI Atlantic. The Notes are redeemable at the option of the
Company, in whole or in part, at a redemption price equal to the greater of (i)
100% of the principal amount to be redeemed, or (ii) the sum of the present
values of the remaining scheduled payments of principal and interest on the
Notes to be redeemed, discounted at a rate based on the yield to maturity of the
comparable U.S. Government securities plus a spread (10 basis points for the
7.25% Notes and 50 basis points for the 7.125% Notes) plus, in each case,
accrued interest to the date of redemption. The Notes are unsecured but the
indentures place restrictions on, among other things, liens and subsidiary
indebtedness. Certain restrictions on dividends and the purchase of common stock
for treasury were eliminated pursuant to the indenture for the 7.25% Notes in
August 1998 when Moody's Investors Services, Inc. raised its rating on the notes
to Baa2, the 7.125% Notes were issued without such restrictions.
The Company has a five year revolving line of credit providing for
borrowings of up to an aggregate amount of $750 million (the "Credit
Agreement"). The revolving credit commitment will be permanently reduced by $100
million on December 12, 1999 and by an additional $150 million on December 12,
2000, and terminates on December 12, 2001. The Credit Agreement includes
committed advances and uncommitted bid option advances. The committed advances
bear interest based on, at the option of the Company, (i) specified spreads over
London Interbank Offer Rate ("LIBOR") or (ii) the higher of the agent bank's
reference rate or 50 basis points above federal funds rate in effect on such
date. The spreads on the LIBOR-based borrowings range between 15 and 62.5 basis
points, based on the Company's senior unsecured debt rating for the relevant
period. At September 30, 1998 three-month LIBOR was 5.3125% per annum and the
spread over LIBOR was 22.5 basis points. A facility fee, regardless of the
amount utilized, is payable on a quarterly basis in arrears on the full amount
of the Credit Agreement. The facility fee ranges between 7.5 and 25 basis points
per annum, based upon the Company's senior unsecured debt ratings for the
relevant period. At September 30, 1998, the facility fee was 10.0 basis points
per annum. The Credit Agreement places restrictions on, among other things,
liens, mergers, consolidations and additional indebtedness. Its financial
covenants require USI to comply with maximum ratio of total funded debt to
capital and a consolidated leverage ratio. The maximum ratios are .60:1.00 and
3.5:1.0, respectively.
During fiscal 1998, the Company amended the Credit Agreement to allow a
portion of the available facility to be used for borrowings in currencies other
than the U.S. dollar, to eliminate the previous restriction limiting certain
unsecured indebtedness to $200 million, to permit the Merger and to add USI as a
co-obligor. USIAH is the other co-obligor, and USI Atlantic is the guarantor of
the Credit Agreement.
Zurn, prior to the Merger, was an obligor under a $250 million secured
credit facility. As a result of the Merger, the facility became due and was
repaid by the Company on June 11, 1998. The Company used $200 million of the
proceeds from a short-term note, advanced by one of its lenders, to repay the
borrowings under the facility. The note bore interest at a rate of approximately
6.1% per annum. The Company repaid this obligation in October 1998 using a
portion of the proceeds from the 7.125% Notes, and accordingly it has been
classified as long-term.
On October 30, 1998, the Company entered into a 364 day revolving line of
credit providing for borrowings of up to an aggregate amount of $300 million.
Borrowings under the agreement bear interest at either the agent bank's base
rate or the London Interbank Offer Rate ("LIBOR"), plus a margin. The facility
contains restrictive covenants consistent with the Credit Agreement.
RISK MANAGEMENT
In anticipation of an offering of debt securities, the Company entered into
certain interest rate protection agreements in March and April 1998. Due to
subsequent market changes, the principal amount and term of the 7.125% Notes
that were ultimately sold in the offering varied from those originally
anticipated. These interest rate protection agreements were terminated in
September 1998 and settled with payments in October 1998 aggregating $22
million. The portion of the cost of the agreements deemed related to the 7.125%
Notes of $10 million will be amortized over the term of the 7.125% Notes
bringing the reported interest rate to 8.4%. The Company recorded a
non-recurring net of tax charge of $7 million
16
<PAGE>
to write-off the remainder of the cost of the agreements in the fourth quarter
of fiscal 1998, which is included in other (income) expense, net.
Prior to the Merger, Zurn had entered into certain interest rate protection
agreements. These agreements were settled via cash payment of $6 million, in
connection with the repayment of the Zurn Facility as discussed above. To manage
its interest rate exposure, the Company entered into interest rate swaps to
receive a floating rate based on three-month LIBOR and pay a weighted average
fixed rate. The fixed interest rates under the interest rate swaps currently
outstanding range from 5.43% to 6.78% per annum. Net payments under the
agreements amounted to approximately $3 million, $5 million and $7 million for
fiscal 1998, 1997 and 1996, respectively. The swaps are of notional amounts and
maturities that relate to specific portions of outstanding debt, and
accordingly, are accounted for as hedge transactions. The aggregate notional
amounts and periods covered by such agreements are as follows:
<TABLE>
<S> <C>
October 1, 1998 through September 30, 1999..................... $300 million
October 1, 1999 through September 30, 2001..................... $200 million
</TABLE>
To protect the U.S. dollar value of its anticipated profits denominated in
foreign currencies, the Company may purchase foreign currency put option
contracts. The contracts are purchased and settled in U.S. dollars. The Company
had no exposure with respect to these foreign currency options contracts other
than the cost of such options. The cost of such foreign currency options was not
material. There are no such options outstanding at September 30, 1998. The
Company has also entered into foreign exchange forward contracts to manage
expected cash flows at foreign operations. Such contracts have not been
significant.
The interest rate protection agreements, foreign exchange options and
foreign exchange forward contracts described above were the only derivative
instruments held or entered into by the Company at year end or during fiscal
1998 and 1997. See Note 2 to the Consolidated Financial Statements.
MARKET RISK EXPOSURES
The Company, in the normal course of doing business, is exposed to the risks
associated with changes in interest rates and currency exchange rates. To limit
the risks from such fluctuations, the Company enters into various hedging
transactions that have been authorized pursuant to the Company's policies and
procedures. See Note 2 to the Consolidated Financial Statements. The Company
does not engage in such transactions for trading purposes.
To manage exposure to interest rate movements the Company uses interest rate
protection agreements. Based on the Company's overall exposure to interest rate
changes, a hypothetical change of 100 basis points across all maturities of the
Company's floating rate debt obligations, after considering interest rate
protection agreements, would be immaterial to the Company's pre-tax earnings in
fiscal 1999.
The Company utilizes foreign currency-denominated borrowings to selectively
hedge its net investments in subsidiaries in foreign countries. Such borrowings
at September 30, 1998 are denominated in German marks, British pounds, Dutch
guilders and Hong Kong dollars. A 10% change in the relevant currency exchange
rates is estimated to have an impact of $20 million on the fair value of such
borrowings. This quantification of the Company's exposure to the market risk of
foreign exchange sensitive financial instruments is necessarily limited, as it
does not take into account the offsetting impact of the Company's underlying
investment exposures.
The Company is also exposed to foreign currency exchange risk related to its
international operations as well as its U.S. businesses, which import or export
goods. The company has made limited use of financial instruments to manage this
risk.
FOREIGN CURRENCY MATTERS
The functional currency of each of the Company's foreign operations at
September 30, 1998 is the local currency. The operations in Brazil operated in a
hyperinflationary economy until on or about October 1, 1997, when Brazil was no
longer considered hyperinflationary. During the hyperinflationary period, the
functional currency of the Company's operation in Brazil was the U.S. Dollar.
Assets and liabilities of foreign subsidiaries are translated at the exchange
rates in effect at the balance sheet dates,
17
<PAGE>
while revenue, expenses and cash flows are translated at average exchange rates
for the period. Except for companies operating in hyperinflationary economies,
translation gains and losses are reported as a component of Stockholders'
Equity. Losses resulting from the translation of the financial statements of the
Company's operations in Brazil of $1 million are included in other (income)
expense, net, in each of fiscal years 1997 and 1996.
EFFECT OF INFLATION
Because of the relatively low level of inflation experienced in the
Company's principal markets, inflation did not have a material impact on its
results of operations in fiscal 1998, 1997 or 1996.
YEAR 2000 READINESS DISCLOSURE
Many computer systems and other equipment with embedded technology use only
two digits to define the applicable year and may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in failures or
miscalculations causing disruptions of normal business activities and operations
(the "Year 2000 issue").
The Company is actively addressing the Year 2000 issue. The compliance
program is led by information technology staff at each operating company, with
assistance from manufacturing staff and outside technology consultants where
necessary. Progress is being monitored by each operating company president and
reported to USI management. The Company uses outside technology consultants to
provide independent reviews of Year 2000 readiness.
The Company's Year 2000 efforts focus on three areas: information technology
("IT") related systems and processes, such as operating systems, applications
and programs; embedded logic ("non-IT") systems and processes, such as
manufacturing machinery, telecommunications equipment and security devices; and
compliance efforts of third parties (such as customers, suppliers and service
providers). Within each of the IT and non-IT areas, the project spans four
phases: assessment of programs and devices to identify those that are affected
by the Year 2000 issue; development of remediation strategies; testing such
strategies; and implementing the solutions. The third party aspect of the
project involves contacting significant third parties to obtain information
about their Year 2000 compliance in order to determine and mitigate the risk to
the Company for third parties' failures.
The Company has completed an assessment of its critical IT systems and, as a
result, the operating companies have decided to modify, upgrade or replace
portions of their systems. The remediation efforts achieved significant progress
in fiscal 1997 and 1998, and remain underway. The Company expects that the
remediation, testing and implementation of all critical IT systems will be
completed at dates ranging from January to September 1999. The Company is
continuing the process of assessing and remediating critical non-IT systems, as
well, and expects that the assessment, remediation, testing and implementation
of such systems will be completed by the fourth quarter of calendar year 1999.
Year 2000 costs for computer equipment, software and outside consultants
incurred through September 30, 1998 are approximately $14 million, of which $3
million was expensed and $11 million was capitalized. Estimated future costs to
complete the Year 2000 program are $23 million, of which $5 million are expected
to be expensed as incurred and the remaining $18 million are expected to be
capitalized. These costs have been, and will continue to be, funded from
operating cash flow and available credit facilities. Most of the costs are for
new systems and improved functionality. These costs exclude internal costs,
principally related to payroll costs for its employees who are involved in the
Year 2000 program, which are not separately tracked by the Company.
The Company is developing contingency plans to address the possibility of
failure by the Company or third parties to complete their Year 2000 initiatives
on a timely basis. The Company expects that preliminary plans will be in place
by March 1999, with further refinements anticipated through the end of 1999
based on the Company's ongoing evaluation of its readiness as well as the status
of compliance of third parties. Such contingency plans may include using
alternative processes, such as manual procedures to substitute for non-compliant
systems; arranging for alternate suppliers and service providers; increasing
inventory levels; and developing procedures internally and in conjunction with
significant third parties to address compliance issues as they arise.
18
<PAGE>
No amount of preparation and testing can guarantee Year 2000 compliance.
However, the Company believes it is taking appropriate preventive measures and
will be successful in avoiding any material adverse effect on the Company's
operations or financial condition. Nevertheless, the Company recognizes that
failing to resolve its Year 2000 issues on a timely basis would, in a worst case
scenario, significantly limit its ability to manufacture and distribute its
products and process its daily business transactions for a period of time,
especially if such failure is coupled with third party or infrastructure
failures. Similarly, the Company could be significantly affected by the failure
of one or more significant suppliers, customers or components of the
infrastructure to conduct their respective operations without interruption after
1999. Because of the difficulty of assessing the Year 2000 compliance of such
third parties, the Company considers the potential disruptions caused by such
parties to present the most reasonably likely worst-case scenarios. Adverse
effects on the Company could include business disruption, increased costs, loss
of sales and other similar ramifications.
The costs of the Company's Year 2000 initiatives, the dates on which the
Company believes that it will complete such activities and the Company's
evaluation of third-party effects are estimates and subject to change. Actual
results could differ from those currently anticipated. Factors that could cause
such differences include, but are not limited to, the availability of key Year
2000 personnel, the Company's ability to respond to unforeseen Year 2000
complications, the readiness of third parties, the accuracy of third party
assurances regarding Year 2000 compliance and similar uncertainties.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to establish fixed conversion rates between their sovereign
currencies (the "legacy currencies") and a single European currency (the
"euro"). During a transition period from January 1, 1999 through December 31,
2001, legacy currencies will continue in use; however, the value of such
currencies will be set at fixed and irrevocable conversion rates to the euro.
Beginning in January 2002, new euro-denominated bills and coins will be issued
and the legacy currencies will be withdrawn from circulation. The Company is
addressing issues raised by the conversion to the euro, such as assessing
whether cross-border price transparency will limit the Company's flexibility to
charge different prices for similar products and adapting its information
technology systems. The Company's efforts to adapt its systems differ at its
various European operations. Some operations are expected to be able to
accommodate euro-denominated invoicing and purchasing transactions by January 1,
1999. The Company's significant European operations have formulated plans to
accommodate all euro-denominated transactions and conversion conventions by
January 1, 2002. The Company anticipates that its costs in connection with the
euro conversion will not be material. The Company does not anticipate that the
conversion from the legacy currencies to the euro would have a material adverse
impact on its financial condition or results of operations.
OUTLOOK
The Company believes that, based on initial forecasts for fiscal 1999 and
subject to the factors described above under "Disclosures Concerning
Forward-Looking Statements", it should achieve earnings per share from
continuing operations in the range of $1.65 to $1.70. Management expects that
earnings for fiscal 1999 will be more heavily weighted towards the third and
fourth fiscal quarters than it was in fiscal 1997 and 1998. The re-distribution
reflects the increased share of the Company's sales and profits derived from its
plumbing and lighting businesses, which record higher activity in the spring and
summer due to the seasonal nature of the construction industry. Also, weaker
comparisons during the first and second fiscal quarters at USI Diversified and
USI Hardware and Tools will impact the overall distribution of earnings during
fiscal 1999.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7, Managements Discussion and Analysis of Financial Condition and
Results of Operations.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
U.S. Industries, Inc.
We have audited the consolidated balance sheets of U.S. Industries, Inc.
(the "Company") as of September 30, 1998 and 1997 and the related consolidated
statements of operations, cash flows, and changes in stockholders' equity for
each of the three years in the period ended September 30, 1998. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These financial statements and schedule are the responsibility of the management
of the Company. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits. We did not audit the financial
statements of certain subsidiary companies (U.S. Industries' Automotive Group
and Jacuzzi Companies in 1997 and 1996) which statements reflect 22% of
consolidated total assets as of September 30, 1997 and 1996, and 27% and 26% of
consolidated revenues for the years ended September 30, 1997 and 1996,
respectively. Those statements and Schedule II information were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for these companies in 1997 and 1996, is based solely
on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors for 1997 and 1996
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors for
1997 and 1996, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company at
September 30, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
1998, in conformity with generally accepted accounting principles. Also, in our
opinion, based on our audits and the reports of other auditors for 1997 and
1996, the financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Ernst & Young LLP
New York, New York
November 12, 1998
20
<PAGE>
REPORT OF PRICEWATERHOUSECOOPERS LLP
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
U.S. Industries, Inc.
We have audited the accompanying combined balance sheets of the U.S.
Industries Automotive Group and Jacuzzi Companies as of September 30, 1997 and
1996, and the related combined statements of operations and cash flows for the
years then ended (not presented separately herein). Our audits also included
Financial Statement Schedule II of the U.S. Industries Automotive Group and
Jacuzzi Companies for the years ended September 30, 1997 and 1996 (not presented
separately herein). These financial statements and schedules are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements and schedules 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements audited by us present
fairly, in all material respects, the combined financial position of the U.S.
Industries Automotive Group and Jacuzzi Companies at September 30, 1997 and
1996, and the results of their operations and cash flows for the years then
ended in conformity with generally accepted accounting principles. Also, the
financial statement schedules referred to above, when considered in relation to
the basic combined financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
November 14, 1997
21
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS EXCEPT PER SHARE)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Net sales............................................................................ $ 3,310 $ 2,716 $ 2,364
Operating costs and expenses:
Cost of products sold.............................................................. 2,307 1,857 1,613
Selling, general and administrative expenses....................................... 700 572 512
Goodwill impairment and non-recurring and unusual charges.......................... 154 -- --
--------- --------- ---------
Operating income............................................................... 149 287 239
Interest expense..................................................................... 69 59 64
Interest income...................................................................... (8) (7) (11)
Gain on sale of subsidiary shares.................................................... -- (1) --
Other (income) expense, net.......................................................... 3 (2) --
--------- --------- ---------
Income before income taxes, discontinued operations and extraordinary loss........... 85 238 186
Provision for income taxes........................................................... 78 102 82
--------- --------- ---------
Income from continuing operations.............................................. 7 136 104
--------- --------- ---------
Discontinued operations:
Income (loss) from operations (net of income taxes of ($5), $3 and $3)............. (8) 5 1
Gain (loss) on disposals (net of income taxes of ($11), $68 and $8)................ (38) 113 58
--------- --------- ---------
Income (loss) from discontinued operations......................................... (46) 118 59
--------- --------- ---------
Income (loss) before extraordinary loss.............................................. (39) 254 163
Extraordinary loss from early extinguishment of debt (net of income tax benefits of
$3, $1 and $16).................................................................... (5) (2) (25)
--------- --------- ---------
Net income (loss).................................................................... $ (44) $ 252 $ 138
--------- --------- ---------
--------- --------- ---------
Earnings per basic share:
Income from continuing operations.................................................. $ .07 $ 1.48 $ 1.09
Income (loss) from discontinued operations......................................... (.48) 1.27 0.62
Extraordinary loss................................................................. (.05) (0.02) (0.26)
--------- --------- ---------
Net income (loss).................................................................. $ (.46) $ 2.73 $ 1.45
--------- --------- ---------
--------- --------- ---------
Earnings per diluted share:
Income from continuing operations.................................................. $ .07 $ 1.43 $ 1.07
Income (loss) from discontinued operations......................................... (.47) 1.23 0.61
Extraordinary loss................................................................. (.05) (0.02) (0.26)
--------- --------- ---------
Net income (loss).................................................................. $ (.45) $ 2.64 $ 1.42
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents.................................................................... $ 44 $ 67
Trade receivables, net....................................................................... 652 502
Inventories.................................................................................. 589 501
Deferred income taxes........................................................................ 81 107
Other current assets......................................................................... 77 55
Net assets held for disposition.............................................................. -- 69
--------- ---------
Total current assets..................................................................... 1,443 1,301
Property, plant and equipment, net............................................................. 538 422
Deferred income taxes.......................................................................... 14 3
Other assets................................................................................... 222 212
Goodwill, net.................................................................................. 595 600
--------- ---------
$ 2,812 $ 2,538
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable................................................................................ $ 15 $ 4
Current maturities of long-term debt......................................................... 4 41
Trade accounts payable....................................................................... 264 189
Accrued expenses and other liabilities....................................................... 313 344
Income taxes payable......................................................................... 40 72
--------- ---------
Total current liabilities................................................................ 636 650
Long-term debt................................................................................. 947 701
Other liabilities.............................................................................. 269 237
--------- ---------
Total liabilities........................................................................ 1,852 1,588
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock (par value $.01) per share, authorized 300,000,000 shares; issued 105,005,316
and 101,109,040, respectively; outstanding 98,409,878 and 94,496,490, respectively)........ 1 1
Paid in capital.............................................................................. 724 612
Retained earnings............................................................................ 406 470
Unearned restricted stock.................................................................... (17) (16)
Other equity................................................................................. (24) (6)
Treasury stock (6,595,438 and 6,612,550 shares, respectively) at cost........................ (130) (111)
--------- ---------
Total stockholders' equity............................................................... 960 950
--------- ---------
$ 2,812 $ 2,538
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
OPERATING ACTIVITIES:
Income from continuing operations........................................................ $ 7 $ 136 $ 104
Adjustments to reconcile income from continuing operations to net cash provided by
operating activities of continuing operations:
Depreciation and amortization.......................................................... 97 75 64
Provision for deferred income taxes.................................................... 17 24 14
Provision for doubtful accounts........................................................ 8 2 5
Gain on sale of excess real estate..................................................... (4) (3) (5)
Gain on sale of marketable securities.................................................. (6) -- --
Gain on sale of subsidiary stock....................................................... -- (1) --
Gain on sale of property, plant and equipment.......................................... (5) -- --
Goodwill impairment & non-recurring charges............................................ 97 -- --
Changes in operating assets and liabilities, excluding the effects of acquisitions and
dispositions:
Increase in trade receivables.......................................................... (84) (22) (15)
Increase in inventories................................................................ (17) (12) (18)
Decrease in other current assets....................................................... 3 8 30
Increase in other non-current assets................................................... (12) (53) (11)
Increase (Decrease) in trade accounts payable.......................................... 35 (14) 15
Increase (Decrease) in income taxes payable............................................ 11 (21) 1
(Decrease) Increase in accrued expenses and other liabilities.......................... (13) 15 (15)
(Decrease) Increase in other non-current liabilities................................... (5) 3 (7)
Other, net............................................................................. (4) (2) 1
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS..................... 125 135 163
--------- --------- ---------
Income (loss) from discontinued operations............................................... (46) 118 59
Adjustments to reconcile income (loss) from discontinued operations to net cash used in
discontinued operations:
Loss (Gain) on disposal of discontinued operations..................................... 38 (113) (58)
Increase in net assets held for disposition............................................ (39) (83) (21)
--------- --------- ---------
NET CASH USED IN DISCONTINUED OPERATIONS............................................... (47) (78) (20)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............................................. 78 57 143
--------- --------- ---------
INVESTING ACTIVITIES:
Proceeds from sale of net assets held for disposition.................................... 11 390 314
Proceeds from sale of excess real estate................................................. 14 28 31
Proceeds from sale of subsidiary stock................................................... -- 4 --
Proceeds from collection of notes receivable............................................. 5 -- 7
Acquisition of companies, net of cash acquired........................................... (173) (269) (239)
Purchase of investment................................................................... (7) (1) (12)
Proceeds from sale of marketable securities.............................................. 6 24 6
Purchases of property, plant and equipment............................................... (108) (76) (51)
Proceeds from sale of property, plant and equipment...................................... 35 2 4
Other net................................................................................ (13) (5) 2
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES.................................... (230) 97 62
FINANCING ACTIVITIES:
Proceeds from long-term debt............................................................. 1,406 1,626 1,135
Repayment of long-term debt.............................................................. (1,245) (1,705) (1,296)
Proceeds from (repayment of) notes payable............................................... 5 4 (3)
Payment of dividends..................................................................... (21) (4) (5)
Purchase of treasury stock............................................................... (35) (67) (46)
Proceeds from exercise of stock options.................................................. 20 7 --
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.................................... 130 (139) (215)
Effect of exchange rate changes on cash.................................................... (1) (5) --
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................................... (23) 10 (10)
Cash and cash equivalents at beginning of year............................................. 67 57 67
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................................... $ 44 $ 67 $ 57
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNEARNED
COMMON PAID IN RETAINED RESTRICTED OTHER
STOCK CAPITAL EARNINGS STOCK EQUITY
------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995.......................... $ 1 $ 584 $ 93 $ (24) $ (6)
Net income............................................. 138
Cash dividend declared ($0.25 per share) Zurn.......... (5)
Amortization of unearned restricted stock.............. 7
Purchase of 3,581,386 shares of common stock...........
Common stock issued (58,707 shares) upon exercise of
options.............................................. -- --
Common stock issued (35,993 shares) to employee and
directors............................................ -- --
Treasury stock issued (93,000 shares) to employees and
directors............................................ 1 (2)
Forfeiture of 25,460 shares of unearned restricted
stock................................................ -- --
Deferred tax benefit--Note 10.......................... 20
Translation adjustment................................. (1)
Minimum pension liability adjustment................... 2
--
----- ----- --- ---
Balance at September 30, 1996.......................... 1 605 226 (19) (5)
--
----- ----- --- ---
Net Income............................................. 252
Less net income for Zurn for the six months ended March
31, 1997............................................. (2)
Cash dividend declared ($0.05 per share)............... (4)
Cash dividend declared ($0.12 per share) Zurn.......... (2)
Amortization of unearned restricted stock.............. 7
Purchase of 3,134,343 shares of common stock...........
Common stock issued to employees and directors (11,360
shares).............................................. -- --
Common stock issued (336,714 shares) upon exercise of
options.............................................. -- 3
Common stock issued (46,576 shares) to Zurn pension
plans................................................ -- 1
Treasury stock issued (550,307 shares) to employees and
directors............................................ 1 (5)
Forfeiture of 166,065 shares of unearned restricted
stock................................................ (1) 1
Income tax benefit relating to stock plans............. 3
Translation adjustment................................. (2)
Minimum pension liability adjustment................... 1
--
----- ----- --- ---
Balance at September 30, 1997.......................... 1 612 470 (16) (6)
--
----- ----- --- ---
Net loss............................................... (44)
Cash dividends declared ($0.20 per share).............. (20)
Amortization of unearned restricted stock.............. 6
Purchase of 1,260,900 shares of common stock...........
Retirement of 348,603 shares of treasury stock......... (5)
Forfeiture of 373,709 shares of restricted stock....... 2
Treasury stock issued (1,303,118 shares) to employees,
directors and upon exercise of options............... 4 (9)
Common stock issued (559,359 shares) upon exercise of
options and to Zurn pension plans.................... -- 12
Common stock issued (3,685,520 shares) for
acquisition.......................................... -- 96
Income tax benefit relating to stock plans............. 5
Translation adjustment................................. (9)
Minimum pension liability adjustment................... (9)
--
----- ----- --- ---
Balance at September 30, 1998.......................... $ 1 $ 724 $ 406 $ (17) $ (24)
--
--
----- ----- --- ---
----- ----- --- ---
<CAPTION>
TREASURY
STOCK TOTAL
----------- -----
<S> <C> <C>
Balance at September 30, 1995.......................... $ (5) $ 643
Net income............................................. 138
Cash dividend declared ($0.25 per share) Zurn.......... (5)
Amortization of unearned restricted stock.............. 7
Purchase of 3,581,386 shares of common stock........... (46) (46)
Common stock issued (58,707 shares) upon exercise of
options.............................................. --
Common stock issued (35,993 shares) to employee and
directors............................................ --
Treasury stock issued (93,000 shares) to employees and
directors............................................ 1 --
Forfeiture of 25,460 shares of unearned restricted
stock................................................ --
Deferred tax benefit--Note 10.......................... 20
Translation adjustment................................. (1)
Minimum pension liability adjustment................... 2
----- -----
Balance at September 30, 1996.......................... (50) 758
----- -----
Net Income............................................. 252
Less net income for Zurn for the six months ended March
31, 1997............................................. (2)
Cash dividend declared ($0.05 per share)............... (4)
Cash dividend declared ($0.12 per share) Zurn.......... (2)
Amortization of unearned restricted stock.............. 7
Purchase of 3,134,343 shares of common stock........... (67) (67)
Common stock issued to employees and directors (11,360
shares).............................................. --
Common stock issued (336,714 shares) upon exercise of
options.............................................. 3
Common stock issued (46,576 shares) to Zurn pension
plans................................................ 1
Treasury stock issued (550,307 shares) to employees and
directors............................................ 6 2
Forfeiture of 166,065 shares of unearned restricted
stock................................................ --
Income tax benefit relating to stock plans............. 3
Translation adjustment................................. (2)
Minimum pension liability adjustment................... 1
----- -----
Balance at September 30, 1997.......................... (111) 950
----- -----
Net loss............................................... (44)
Cash dividends declared ($0.20 per share).............. (20)
Amortization of unearned restricted stock.............. 6
Purchase of 1,260,900 shares of common stock........... (35) (35)
Retirement of 348,603 shares of treasury stock......... 5 --
Forfeiture of 373,709 shares of restricted stock....... (4) (2)
Treasury stock issued (1,303,118 shares) to employees,
directors and upon exercise of options............... 15 10
Common stock issued (559,359 shares) upon exercise of
options and to Zurn pension plans.................... 12
Common stock issued (3,685,520 shares) for
acquisition.......................................... 96
Income tax benefit relating to stock plans............. 5
Translation adjustment................................. (9)
Minimum pension liability adjustment................... (9)
----- -----
Balance at September 30, 1998.......................... $ (130) $ 960
----- -----
----- -----
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The Company manufactures and distributes a broad range of consumer and
industrial products grouped into four segments: USI Bath and Plumbing Products,
Lighting Corporation of America, USI Hardware and Tools and USI Diversified.
On June 11, 1998, U.S. Industries, Inc. ("USI") merged with Zurn Industries,
Inc. ("Zurn") (the "Merger"), hereafter collectively referred to as the Company,
by exchanging 20.4 million shares of its common stock for all of the common
stock of Zurn. Each share of Zurn common stock was exchanged for 1.6 shares of
USI common stock. Outstanding Zurn employee stock options were converted at the
same exchange ratio into options to purchase 2 million shares of USI common
stock.
The consolidated financial statements give retroactive effect to the Merger
in a transaction accounted for as a pooling of interests. The pooling of
interests method of accounting requires the restatement of all periods presented
as if USI and Zurn had always been combined. The consolidated statement of
changes in stockholders' equity reflects the accounts of the Company as if the
common stock to complete the Merger had been issued prior to the periods
presented.
Prior to the Merger, Zurn's financial year ended on March 31. In recording
the business combination, Zurn's results of operations, financial position and
cash flows have been restated to conform to USI's fiscal year ended September
30, 1998 and 1997. For the year ended September 30, 1996, USI's results of
operations and cash flows have been combined with the results of operations and
cash flows of Zurn for the year ended March 31, 1997. As a result, the Company's
results of operations and cash flows for the years ended September 30, 1997 and
1996 both include Zurn's results of operations and cash flows for the six months
ended March 31, 1997. Zurn's net sales, operating income and net income for the
six months then ended were $190 million, $16 million and $2 million,
respectively. In addition, the cash flows during the same six month period
includes $52 million of proceeds provided by the sale of net assets held for
disposition and $176 million of cash used in the acquisition of companies.
There were no transactions between USI and Zurn prior to the combination.
Certain reclassifications have been made to the Zurn financial statements to
conform to USI's presentations.
The results of operations for the separate companies and the combined
amounts presented in the consolidated financial statements follow. For the year
ended September 30, 1998, the results of Zurn's operations are presented
separately through June 10, 1998. Thereafter, the Zurn results are included with
USI.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
--------------------------------
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
NET SALES
USI......................................................... $ 2,848 $ 2,204 $ 2,011
Zurn........................................................ 462 512 353
--------- ---------- ---------
COMBINED.................................................. $ 3,310 $ 2,716 $ 2,364
--------- ---------- ---------
--------- ---------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
USI......................................................... $ (14) $ 112 $ 82
Zurn........................................................ 21 24 22
--------- ---------- ---------
COMBINED.................................................. $ 7 $ 136 $ 104
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
26
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--BASIS OF PRESENTATION (CONTINUED)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
--------------------------------
1998 1997 1996
--------- ---------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
NET INCOME (LOSS)
USI......................................................... $ (61) $ 236 $ 133
Zurn........................................................ 17 16 5
--------- ---------- ---------
COMBINED.................................................. $ (44) $ 252 $ 138
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
In January 1997, an initial public offering of 25% of the shares of the
Company's wholly-owned subsidiary Jade Technologies Singapore Ltd ("Jade"), a
manufacturer of leadframes for the electronics industry, was completed. Jade
sold 8 million shares at approximately $0.53 per share, generating cash proceeds
of approximately $4 million. The Company recorded a gain of $1 million ($700,000
after provision for deferred income taxes) in connection with the sale. After
the transaction, the Company owned 75% of the outstanding shares of Jade.
NOTE 2--ACCOUNTING POLICIES
FISCAL YEAR: USI's fiscal year ends on the Saturday nearest to September
30. All USI fiscal year data contained herein reflect results of operations for
the 53, 52 and 52 week periods ended on the Saturday nearest to September 30,
1998, 1997 and 1996, respectively, but are presented as of such date for
convenience.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its subsidiaries. Intercompany accounts and
transactions are eliminated. Companies which are 20% to 50% owned are accounted
for using the equity method.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS: Cash equivalents represent short-term investments which
have maturities of ninety days or less when purchased.
DEPRECIATION AND AMORTIZATION:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
(IN MILLIONS)
Depreciation....................................................... $ 71 $ 52 $ 44
Amortization of goodwill........................................... 21 17 13
Amortization of deferred financing costs........................... 1 1 2
Amortization of unearned restricted stock.......................... 6 7 7
Amortization of deferred income.................................... (2) (2) (2)
--- --- ---
$ 97 $ 75 $ 64
--- --- ---
--- --- ---
</TABLE>
27
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACCOUNTING POLICIES (CONTINUED)
TRADE RECEIVABLES AND CONCENTRATIONS OF CREDIT RISK:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
(IN MILLIONS)
Trade receivables........................................................ $ 697 $ 544
Allowance for doubtful accounts.......................................... (45) (42)
----- -----
$ 652 $ 502
----- -----
----- -----
</TABLE>
The Company operates in the United States and, to a lesser extent, in
Europe, South America, Canada and Asia. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Credit losses have been within management's expectations.
INVENTORIES:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
(IN MILLIONS)
Finished products........................................................ $ 295 $ 260
In-process products...................................................... 111 106
Raw materials............................................................ 183 135
----- -----
$ 589 $ 501
----- -----
----- -----
</TABLE>
Inventories are valued at the lower of cost, determined under both the
first-in, first-out and last-in, first-out methods, or market. The percentage of
inventory under each method follows:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
(IN MILLIONS)
First-in, first-out (FIFO) method........................................ 84% 79%
Last-in, first-out (LIFO) method......................................... 16% 21%
</TABLE>
The increase in the carrying value of the inventory if only the FIFO method,
which approximates replacement costs, had been used, would be $4 million and $7
million at September 30, 1998 and 1997, respectively.
PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
(IN MILLIONS)
Land and buildings....................................................... $ 283 $ 237
Machinery, equipment and furniture....................................... 760 650
Accumulated depreciation................................................. (505) (465)
----- -----
$ 538 $ 422
----- -----
----- -----
</TABLE>
Property, plant and equipment is stated on the basis of cost less
accumulated depreciation provided under the straight-line method.
28
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACCOUNTING POLICIES (CONTINUED)
In March 1998, the AICPA issued SOP 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED FOR OR OBTAINED FOR INTERNAL USE. The Company plans
to adopt the SOP on October 1, 1998. The SOP will require the capitalization of
certain costs incurred after the date of adoption in connection with developing
or obtaining software for internal use. The Company does not expect the impact
of adopting this SOP to be material.
OTHER ASSETS: Excess properties held for sale primarily consist of land and
buildings no longer used in operations which are included in other assets and
carried at the lower of cost or fair value less costs to sell. The carrying
value of such properties was $43 million and $44 million as of September 30,
1998 and 1997, respectively. The income (loss), net, from excess properties of
$3 million, $1 million and ($1) million in fiscal 1998, 1997 and 1996,
respectively, is included in other (income) expense, net and includes net gains
on the sale of these properties, adjustments to net realizable value and the
carrying costs incurred in the period.
GOODWILL: Goodwill represents the excess of the purchase price over the
fair value of net assets acquired. The Company reviews operating results and
other relevant facts every fiscal quarter for each of its businesses to
determine if there are indications that the carrying value of an enterprise may
be impaired. The fair value methodology is used by the Company to ascertain the
recoverability of the carrying value of an enterprise, when there are
indications of impairment. In the event that such fair value is below the
carrying value of an enterprise, for those companies with goodwill, the Company
first reduces goodwill and then other long-lived assets to the extent such
differential exists.
The fair value methodology is applied to determine the recoverable value for
each business on a stand alone basis using ranges of fair values obtained from
independent appraisers. In developing these ranges, the independent appraisers
consider (a) publicly available information, (b) financial projections of each
business, (c) the future prospects of each business as discussed with senior
operating and financial management, (d) publicly available information regarding
comparable publicly traded companies in each industry, (e) market prices,
capitalizations and trading multiples of comparable public companies and (f)
other information deemed relevant. In reviewing these valuations and considering
the need to record a charge for impairment of enterprise value and goodwill to
the extent it is part of the enterprise value, the Company also evaluates
solicited and unsolicited bids for the businesses of the Company.
Goodwill is amortized straight-line over periods not exceeding forty years.
Accumulated amortization aggregated $291 million and $294 million, at September
30, 1998 and 1997, respectively. Amortization and adjustments to the carrying
value of goodwill amounted to $104 million, $17 million and $13 million for
fiscal 1998, 1997 and 1996, respectively.
FOREIGN CURRENCY TRANSLATION: The functional currency of each of the
Company's foreign operations at September 30, 1998 is the local currency. The
operations in Brazil operated in a hyperinflationary economy until on or about
October 1, 1997, when Brazil was no longer considered hyperinflationary. During
the hyperinflationary period, the functional currency of the Company's operation
in Brazil was the U.S. Dollar. Assets and liabilities of foreign subsidiaries
are translated at the exchange rates in effect at the balance sheet dates, while
revenue, expenses and cash flows are translated at average exchange rates for
the period. Except for companies operating in hyperinflationary economies,
translation gains and losses are reported as a component of Stockholders'
Equity. Losses resulting from the translation of the Company's operations in
Brazil of $1 million are included in other (income) expense, net, in fiscal 1997
and 1996.
29
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES: Deferred tax assets and liabilities are computed based on the
difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws. Deferred income tax expense or
benefit is based on the changes in the asset or liability from period to period.
REVENUE RECOGNITION: Revenue is recognized upon shipment of product to the
customer. Provisions are made for warranty and return costs at the time of sale.
Such provisions have not been material.
ADVERTISING COSTS: Advertising costs are expensed as incurred. Such amounts
totaled $56 million, $45 million and $54 million for fiscal 1998, 1997, and
1996, respectively.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed
as incurred. Such amounts totaled $21 million, $16 million and $15 million for
fiscal 1998, 1997 and 1996, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of all short-term
financial instruments approximate their carrying value due to their short
maturity. The Company's 7.25% Senior Notes are currently traded at a price which
approximates par value based on market prices for such securities. At September
30, 1998, the Company had several interest rate swap agreements covering various
periods. The notional amount of these agreements do not exceed $300 million for
any future period. The Company would have been required to pay approximately $10
million and $3 million to settle all outstanding agreements based upon their
fair value as of September 30, 1998 and 1997, respectively. These fair values
are based upon estimates received from financial institutions.
The fair value of all other long-term financial instruments approximated
carrying value as they were based on terms that continue to be available to the
Company.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company uses interest rate swap
agreements and treasury lock agreements to manage exposure to fluctuating
interest rates and foreign exchange option and forward contracts to manage
exposure to fluctuating foreign currencies.
Interest rate differentials to be paid or received as a result of interest
rate swap agreements are accrued and recognized as an adjustment of interest
expense related to the designated debt. The fair values of interest rate swap
agreements are not recognized in the financial statements as they qualify as
hedge transactions. The value of treasury lock agreements are not recorded in
the financial statements until such time as the agreements are terminated or the
related anticipated transaction is no longer expected to occur. The foreign
currency options and forward contracts are marked to market at the end of each
period and any resulting gain or loss is recognized immediately in income.
Realized and unrealized gains or losses at the time of maturity,
termination, sale or repayment of a derivative contract are recorded in a manner
consistent with the original designation of the derivative in view of the nature
of the termination, sale or repayment transaction. Amounts arising at the
settlement of interest rate swaps and treasury locks are deferred and amortized
as an adjustment to interest expense over the period of interest rate exposure,
provided the designated liability continues to exist or is probable of
occurring. Realized and unrealized changes in fair value of derivatives
designated with items that no longer exist or are no longer probable of
occurring are recorded as a component of the gain or loss arising from the
disposition of the designated item.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is
required to be adopted beginning in fiscal 2000. The statement will require the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against
30
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACCOUNTING POLICIES (CONTINUED)
the change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. Management does not anticipate that the adoption
of the new Statement will have a significant effect on earnings or the financial
position of the Company.
STOCK BASED COMPENSATION: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation", which establishes a
fair value method of accounting for stock-based compensation plans. SFAS 123
encourages, but does not require, adoption of a fair value method; it allows for
a company to continue to report under Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees". The Company continues to
account for its stock-based compensation under APB 25. (See Note 11).
EARNINGS PER SHARE: In February 1997, the Financial Accounting Standards
Board issued Statement No. 128 ("SFAS 128"), "Earnings Per Share" which was
adopted on December 31, 1997. The Company has restated all prior periods. The
adoption of SFAS 128 did not have a material impact on the earnings per share
information previously presented.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share calculation:
<TABLE>
<CAPTION>
(FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1998)
-----------------------------------------
INCOME FROM
CONTINUING PER SHARE
OPERATIONS SHARES AMOUNT
--------------- ----------- -----------
<S> <C> <C> <C>
(IN MILLIONS EXCEPT PER SHARE)
Earnings per basic share.................................... $ 7 95.4 $ .07
Effect of dilutive securities
Stock options............................................. 1.5
Nonvested stock........................................... 1.3
----- --- -----
Earnings per diluted share.................................. $ 7 98.2 $ .07
----- --- -----
----- --- -----
<CAPTION>
(FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1997)
-----------------------------------------
INCOME FROM
CONTINUING PER SHARE
OPERATIONS SHARES AMOUNT
--------------- ----------- -----------
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C> <C>
Earnings per basic share.................................... $ 136 92.5 $ 1.48
Effect of dilutive securities
Stock options............................................. 1.5
Nonvested stock........................................... 1.5
----- --- -----
Earnings per diluted share.................................. $ 136 95.5 $ 1.43
----- --- -----
----- --- -----
</TABLE>
31
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
(FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1996)
-----------------------------------------
INCOME FROM
CONTINUING PER SHARE
OPERATIONS SHARES AMOUNT
--------------- ----------- -----------
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C> <C>
Earnings per basic share.................................... $ 104 95.2 $ 1.09
Effect of dilutive securities
Stock options............................................. 0.9
Nonvested stock........................................... 1.0
----- --- -----
Earnings per diluted share.................................. $ 104 97.1 $ 1.07
----- --- -----
----- --- -----
</TABLE>
Diluted common shares include shares that would be outstanding assuming the
fulfillment of conditions that would remove the restriction on nonvested shares
and the exercise of stock options. Options to purchase 0.3 million, 1.6 million
and 0.9 million shares in the years ended September 30, 1998, 1997 and 1996,
respectively, were not included in the computation of earnings per share because
the option's exercise price was greater than the average market price of the
common shares.
NOTE 3--ACQUISITIONS
In January 1997, the Company purchased the stock of Eljer Industries, Inc.
("Eljer") for $176 million in cash plus the assumption of debt. Eljer
manufactures and distributes china and cast iron plumbing fixtures, flexible
plumbing systems, and heating, ventilation and air conditioning products. The
transaction has been accounted for as a purchase, resulting in goodwill of $193
million. The results of Eljer are included in the USI Bath and Plumbing Products
operations.
Presented below are the unaudited pro forma results of the Company giving
effect to the acquisition of Eljer as if it had occurred as of the beginning of
the fiscal year ended September 30, 1996.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
------------------------------
1997 1996
------------- ---------------
<S> <C> <C>
(IN MILLIONS EXCEPT PER SHARE)
Net Sales.................................................. $ 2,836 $ 2,677
Income from continuing operations.......................... 134 106
Income before extraordinary loss........................... 252 165
Net income................................................. 250 140
Basic earnings per share
Income from continuing operations........................ 1.45 1.11
Income before extraordinary loss......................... 2.72 1.74
Net income............................................... 2.70 1.47
Diluted earnings per share
Income from continuing operations........................ 1.40 1.09
Income before extraordinary loss......................... 2.64 1.70
Net income............................................... 2.62 1.44
</TABLE>
32
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--ACQUISITIONS (CONTINUED)
The following is a summary of the fair value of the assets and liabilities
assumed after allocation of the purchase price:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Current assets................................................................... $ 201
Property, plant and equipment.................................................... 70
Goodwill......................................................................... 193
Other assets..................................................................... 15
Current liabilities.............................................................. (190)
Long-term liabilities............................................................ (113)
-----
$ 176
-----
-----
</TABLE>
The proforma effect of the acquisitions and the aggregate assets acquired
and liabilities assumed detailed below is not material. These acquisitions have
been accounted for as purchases and their results of operations have been
included in the financial statements from the date of acquisition.
In June 1998, the Company acquired Sundance Spas for approximately $32
million in cash, resulting in goodwill of $20 million. Sundance Spas, based in
Chino, California, is a manufacturer of high quality self-contained spas. The
results of Sundance Spas are included in the USI Bath and Plumbing Products
operations.
In May 1998, the Company purchased certain metal components assets from
Philips Components B.V. ("Philips") for $31 million, resulting in goodwill of
$12 million. The Company and Philips have entered into a multi-year supply
agreement. The acquired operations are located in the Netherlands. The results
of Philips are included in USI Hardware and Tools operations.
In January 1998, the Company acquired certain semiconductor leadframe assets
from Philips Electronics for $16 million in cash. The acquired operations
facilities are located in the Netherlands. The results of Philips Electronics
are included in the USI Diversified operations.
In December 1997, the Company purchased Spear & Jackson plc ("Spear &
Jackson") for $11 million in cash and $96 million in the Company's Common Stock,
resulting in goodwill of approximately $63 million. Spear & Jackson,
manufactures and distributes hand tools, lawn and garden tools, saws, cutting
and industrial tools. The purchase price is subject to a cash contingency,
payable on or before June 2000. The cash contingency is based upon certain
performance criteria and the market value of the Company's stock and, at
present, approximates L44 million. The maximum payout is limited to
approximately L47 million. The results of Spear & Jackson are included in the
USI Hardware and Tools operations.
In October 1997, the Company purchased the assets of Siemens AG's European
commercial lighting operations, for $67 million. The acquired business is a
leading European manufacturer and marketer of standard and customized indoor and
outdoor lighting products for commercial and industrial use. The business,
renamed SiTeco, operates manufacturing facilities in Germany, Austria and
Slovenia. The results of SiTeco are included in the Lighting Corporation of
America operations.
In July 1997, the Company purchased IXL Manufacturing Company, Inc. ("IXL")
for $12 million and the assumption of $1.3 million of debt, resulting in
goodwill of approximately $6 million. IXL manufactures fiberglass and wood
handles for striking tools and lawn and garden tools. The results of IXL are
included in the USI Hardware and Tools operations.
33
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--ACQUISITIONS (CONTINUED)
In May 1997, the Company purchased Britains Petite Limited ("Britains") for
$9 million in cash, resulting in goodwill of approximately $5 million. Britains,
located in Nottingham, England, is a manufacturer of military soldier
collectibles, metal and plastic models of agricultural vehicles, figures,
animals, buildings and accessories and preschool plastic toys. The results of
Britains are included in the USI Diversified operations.
In April 1997, the Company purchased certain assets of the outdoor furniture
division of Sunbeam Corporation for $60 million in cash, resulting in goodwill
of approximately $14 million. The acquired business, renamed SunLite Casual
Furniture, Inc. ("SunLite"), manufactured casual outdoor furniture. SunLite has
since been sold (see Note 4).
In January 1997, the Company purchased the assets of Woodings-Verona Tool
Works, Inc. ("Woodings-Verona") for $5 million in cash plus the assumption of $1
million of debt. Woodings-Verona manufactures hot-forged heavy striking tools
including sledge hammers, axes, bars, picks and railroad tools. The results of
Woodings-Verona are included in the USI Hardware and Tools operations.
In July 1996, the Company purchased the assets of Keller Industries, Inc.
("Keller"), for $37 million in cash plus the assumption of certain liabilities,
resulting in goodwill of approximately $30 million. Keller is a leading
manufacturer and marketer of ladders in the United States. The results of Keller
are included in the USI Hardware and Tools operations.
In July 1996, the Company acquired an equity interest in United Pacific
Industries Limited ("UPI"), a limited liability company incorporated in Bermuda
and listed on the Stock Exchange of Hong Kong. UPI manufactures voltage
converters, other electronic components and consumer products. The Company's
investment of $18 million at September 30, 1998 results in beneficial ownership
of 20% of UPI. The results of UPI are accounted for under the equity method and
are included in the USI Diversified operations.
In April 1996, the Company purchased the assets of a Canadian manufacturer
of above-ground swimming pools and equipment for $12 million and the assumption
of $12 million in debt, resulting in goodwill of approximately $9 million. The
results of the acquired business, now known as Atlantic Pools, Inc., are
included in the USI Bath and Plumbing Products operations.
NOTE 4--DISPOSITIONS AND DISCONTINUED OPERATIONS
In fiscal 1998, the Company sold the assets of Tommy Armour Golf for $10
million cash, certain convertible preferred stock of the purchaser, and one
million shares of common stock of the purchaser. In addition, the Company sold
SunLite at a loss of $33 million.
In fiscal 1997, the Company, in separate transactions, sold Tube-Tex, SCM
Metals, certain assets of QPF, Inc., Odyssey, SunLite resin furniture business,
Lynx Golf, Zurn's Power Transmissions segment and portions of the Power Systems
segment and the equity interest in Ground Round for an aggregate of $390 million
in cash and notes of $3 million and recorded gains of $113 million, net of tax.
The Company has commitments to certain projects not yet disposed. The carrying
value of these projects of approximately $20 million at September 30, 1998 is
included in other assets. Management continues to evaluate its commitments and
exposure to contingencies related to these projects. Management believes that
the resolution of the discontinued operations are not expected to have a
material impact on the future operations and liquidity of the Company.
In fiscal 1996, the Company, in separate transactions, sold the Office
Furniture Group and Blue Mountain Industries, Farberware, Spartus, Piedmont,
Jade, Universal and Franklin for an aggregate of $241 million in cash and notes
of $6 million and recorded gains of $68 million, net of tax. The Company
34
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--DISPOSITIONS AND DISCONTINUED OPERATIONS (CONTINUED)
also entered into a non-compete agreement with the purchaser of the Office
Furniture Group for five years for $11 million. Also during fiscal 1996, the
Company recorded a charge of $2 million, net of a tax benefit of $1 million, to
reduce the carrying value of its equity investment in Ground Round to its
estimated realizable value.
Net assets held for disposition at September 30, 1997 consists of the
following (in millions):
<TABLE>
<S> <C>
Net current assets.................................................... $ 28
Property, plant and equipment......................................... 25
Other non-current assets and liabilities, net......................... 16
---
Net assets held for disposition....................................... $ 69
---
---
</TABLE>
The following summarizes the operating results of the businesses classified
as discontinued operations:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
Net sales.............................................................. $ 52 $ 197 $ 544
Pre-tax income......................................................... (13) 8 4
</TABLE>
NOTE 5--MERGER, RESTRUCTURING AND OTHER RELATED COSTS
In connection with the closing of the Merger, the Company reviewed its
long-term strategy for the newly combined entity and reviewed each operating
Company's performance and future prospects. As a result, the Company adopted a
plan to improve efficiency and enhance competitiveness. In addition, due to
indications of impairment, the Company evaluated the recoverability of certain
long-lived assets, primarily goodwill at Garden State Tanning and Keller
Ladders. The Company determined an evaluation of the carrying amount of the
long-lived assets, primarily goodwill, at Garden State Tanning was necessary due
to operational issues, particularly changes in the automotive supplier industry
including pricing concessions demanded by automotive companies and a dramatic
decline in scrap leather prices attributable to the Asian economic crisis. The
impairment indicators at Keller Ladders included the sharp decline in operating
profits and sales due to the loss of a significant customer whose sales volume
has not been replaced. In determining the amount of the impairment, the Company
obtained independent appraisals of the fair values of Garden State Tanning and
Keller Ladders.
The restructuring plan includes the closing of certain manufacturing and
warehouse facilities in the bath and plumbing products, toy, shoe and lighting
operations. The production and distribution activities of these facilities will
be either outsourced, relocated off-shore, or consolidated into existing
facilities. The restructuring plan included a reduction in the work force by
approximately 1,200 employees.
The merger, integration and other costs also includes investment banking,
legal and accounting fees and other miscellaneous costs, as well as costs
related to change-in-control payments to certain Zurn employees.
35
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--MERGER, RESTRUCTURING AND OTHER RELATED COSTS (CONTINUED)
The principal components of the merger, restructuring and other related
costs are:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Impairment of goodwill........................................................... $ 83
Lease obligations and impairment of equipment.................................... 19
Merger, integration and other costs.............................................. 26
Severance and related costs...................................................... 26
-----
Total.......................................................................... $ 154
-----
-----
Cash charges..................................................................... $ 57
Non-cash charges................................................................. 97
-----
Total.......................................................................... $ 154
-----
-----
</TABLE>
$31 million of the cash charges were paid prior to September 30, 1998 and
the remaining cash charges will be paid by September 30, 1999, or through the
respective lease termination date.
In addition to the $154 million of merger, restructuring and other related
costs, the Company has incurred $11 million of product change costs related to
the elimination of product lines and the reduction of manufacturing and
warehouse facilities at its operations which have been restructured.
After an income tax benefit of $25 million, the charges detailed above
impact income from continuing operations for the period ended September 30, 1998
by $140 million.
NOTE 6--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS)
7.25% Senior Notes, net.................................................... $ 123 $ 123
Revolving Credit Facility--U.S. dollar..................................... 300 350
Revolving Credit Facility--foreign currencies.............................. 156 --
Short-term committed note.................................................. 200 --
Other long-term debt....................................................... 172 79
Zurn debt.................................................................. -- 190
--------- ---------
951 742
Less current maturities.................................................... (4) (41)
--------- ---------
Long-term debt............................................................. $ 947 $ 701
--------- ---------
--------- ---------
</TABLE>
Principal payments on long-term debt, after giving effect to the issuance of
new borrowings in October 1998 discussed below, for the next five years ended
September 30 are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
1999............................................................................. $ 4
2000............................................................................. $ 5
2001............................................................................. $ 26
2002............................................................................. $ 578
2003............................................................................. $ 7
</TABLE>
36
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--LONG-TERM DEBT (CONTINUED)
In fiscal 1997, USI American Holdings, Inc. ("USIAH"), a wholly owned
subsidiary of USI Atlantic Corp. ("USI Atlantic"), issued $125 million of Senior
Notes due December 1, 2006, which bear interest at 7.25%, payable semiannually
(the "7.25% Notes"). The net cash proceeds were $123 million after transaction
fees and discounts. USI, which was formed in conjunction with the Merger, is a
co-obligor with USIAH under the Notes. The Notes are fully and unconditionally
guaranteed by USI Atlantic, which at the time of issuance was known as U.S.
Industries, Inc. and is now a wholly-owned subsidiary of USI. See Note 17 to the
Consolidated Financial Statements.
In October 1998, USI and USIAH jointly issued $250 million of Senior Notes
due October 15, 2003, which bear interest at 7.125%, payable semiannually (the
"7.125% Notes"). The net proceeds were $247 million after transaction fees and
discounts. $200 million of the proceeds were used to repay a short-term note and
the remainder was used to repay borrowings under uncommitted bank credit lines.
The Company will exchange the 7.125% Notes, which are not registered under the
Securities Act of 1933, for registered notes having substantially the same
terms. If the Company fails to comply with this requirement, then the interest
rate on the 7.125% Notes will increase 0.5% per annum until such time as they
are registered.
The 7.25% Notes and the 7.125% Notes (collectively, the "Notes") are
guaranteed by USI Atlantic and redeemable at the option of the Company, in whole
or in part, at a redemption price equal to the greater of (i) 100% of the
principal amount to be redeemed, or (ii) the sum of the present values of the
remaining scheduled payments of principal and interest on the Notes to be
redeemed, discounted at a rate based on the yield to maturity of the comparable
U.S. Government securities plus a spread (10 basis points for the 7.25% Notes
and 50 basis points for the 7.125% Notes) plus, in each case, accrued interest
to the date of redemption. The Notes place restrictions on liens and subsidiary
indebtedness. Certain restrictions on dividends and the purchase of common stock
for treasury were eliminated pursuant to the indenture for the 7.25% Notes in
August 1998 when Moody's Investors Services, Inc. raised its rating on the notes
to Baa2.
The Company has a five year revolving line of credit for $750 million (the
"Credit Agreement"). The revolving credit commitment will be permanently reduced
by $100 million on December 12, 1999, an additional $150 million on December 12,
2000, and terminates on December 12, 2001. The Credit Agreement includes
committed advances and uncommitted bid option advances. The committed advances
bear interest based on, at the option of the Company, (i) specified spreads over
London Interbank Offer Rate ("LIBOR") or (ii) the higher of the agent bank's
reference rate or 50 basis points above the federal funds rate in effect on such
date. The spreads on the LIBOR-based borrowings range between 15 and 62.5 basis
points, based on the Company's senior unsecured debt rating for the relevant
period. At September 30, 1998 three-month LIBOR was 5.3125% per annum and the
spread over LIBOR was 22.5 basis points. A facility fee, regardless of the
amount utilized, is payable on a quarterly basis in arrears on the full amount
of the Credit Agreement. The facility fee ranges between 7.5 and 25 basis points
per annum, based upon the Company's senior unsecured debt ratings for the
relevant period. At September 30, 1998, the facility fee was 10.0 basis points
per annum. The Credit Agreement places restrictions on, among other things,
liens, mergers, consolidations and additional indebtedness. Its financial
covenants require USI to comply with maximum ratio of total funded debt to
capital and a consolidated leverage ratio. The maximum ratios are .60:1.00 and
3.5:1.0, respectively.
During fiscal 1998, the Company amended the Credit Agreement to allow a
portion of the available facility to be used for borrowings in currencies other
than the U.S. dollar, to eliminate the previous restriction limiting certain
unsecured indebtedness to $200 million, to permit the Merger and to add USI as a
co-obligor. USIAH is the co-obligor, and USI Atlantic is the guarantor of the
Credit Agreement.
37
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--LONG-TERM DEBT (CONTINUED)
Zurn, prior to the Merger, was an obligor under a $250 million secured
credit facility. Upon the Merger, the facility became due and was repaid on June
11, 1998. The Company used $200 million of the proceeds from a short-term note,
advanced by one of its lenders, to repay the borrowings under the facility. The
note bore interest at a rate of approximately 6.1% per annum. The Company repaid
this obligation in October 1998 using a portion of the proceeds from the 7.125%
Notes, and accordingly it has been classified as long-term.
At September 30, 1998, the Company had long-term indebtedness of $71
million, $51 million, $48 million and $18 million denominated in German marks,
British pounds, Dutch guilders and Hong Kong dollars, respectively. These
borrowings hedge the Company's net investments in several operating companies
and an equity investment. $156 million was borrowed through the Company's credit
agreement and $32 million through other long-term debt.
Interest paid during fiscal 1998, 1997 and 1996, including amounts under
swap agreements of $3 million, $5 million and $7 million, was $71 million, $63
million, and $67 million, respectively.
Other long-term debt at September 30, 1998 includes $120 million of notes
payable, which bear interest at a weighted average interest rate of 5.7%, with
maturities due within one year which the Company has repaid using proceeds from
the New Notes or expects to repay using borrowings under the Credit Agreement.
All of this amount was borrowed under uncommitted short-term lines of credit.
Uncommitted short-term lines of credit at September 30, 1998, used and unused,
total $355 million.
In connection with the fiscal 1998 repayment of borrowings under the Zurn
Facility, the Company recorded a net-of-tax extraordinary charge of $5 million
to write-off unamortized deferred financing costs and to settle outstanding
interest rate swaps for $6 million in cash. In conjunction with the fiscal 1997
repayment of outstanding indebtedness under a previous credit agreement, a
net-of-tax, non-cash, extraordinary charge of $2 million was incurred to
write-off unamortized deferred financing costs and previously deferred losses
associated with interest rate swaps. In fiscal 1996, in connection with entering
into a previous credit agreement, the Company recorded a net-of-tax, non-cash
extraordinary charge of $25 million to write-off unamortized deferred financing
costs and previously deferred losses associated with interest rate swaps.
In anticipation of an offering of debt securities, the Company entered into
certain interest rate protection agreements in March and April 1998. Due to
subsequent market changes, the principal amount and term of the 7.125% Notes
that were ultimately sold varied from those originally anticipated. These
interest rate protection agreements were settled in September 1998 for $22
million. The portion of the costs of the agreements deemed related to the 7.125%
Notes of $10 million will be amortized over the term of the 7.125% Notes
bringing the effective interest rate to approximately 8.4%. The Company has
recorded a non-recurring, net-of-tax charge of $7 million, to write-off the
remainder of the costs of the agreements in the fourth quarter of fiscal 1998,
which is included in other (income) expense, net.
On December 12, 1996 the Company paid $2 million to settle treasury lock
agreements associated with the 7.25% Notes. This amount is being amortized over
the life of the 7.25% Notes.
The Company entered into interest rate protection agreements to receive a
floating rate based on three-month LIBOR and pay a weighted average fixed rate.
The fixed interest rates under the interest rate swaps currently outstanding
range from 5.43% to 6.78% per annum. All interest rate swaps are of notional
amounts and maturities that hedge specific portions of outstanding debt, and
accordingly, are accounted
38
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--LONG-TERM DEBT (CONTINUED)
for as hedge transactions. The aggregate notional amounts and periods covered by
such agreements are as follows:
<TABLE>
<S> <C>
October 1, 1998 through September 30, 1999..................... $300 million
October 1, 1999 through September 30, 2001..................... $200 million
</TABLE>
The Company had issued standby letters of credit aggregating $33 million at
September 30, 1998.
NOTE 7--PENSION PLANS
DOMESTIC BENEFIT ARRANGEMENTS
The Company and its subsidiaries have noncontributory defined benefit
pension plans covering substantially all of its United States employees. The
benefits under these plans are based primarily on years of credited service and
compensation as defined under the respective plan provisions. The Company's
funding policy is to contribute amounts to the plans sufficient to meet the
minimum funding requirements set forth in the Employee Retirement Income
Security Act of 1974, plus such additional amounts as the Company may determine
to be appropriate from time to time.
The Company and certain of its subsidiaries also sponsor defined
contribution plans and also participate in multi-employer plans, which provide
defined benefits to union employees of the Company's subsidiaries. Contributions
relating to defined contribution plans are made based upon the respective plans'
provisions. Contributions relating to multi-employer plans are based on
negotiated collective bargaining agreements.
Net periodic pension cost for the Company's defined benefit plans covering
employees in the United States and the total contributions charged to pension
expense for defined contribution and multi-employer plans covering employees in
the United States are:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
Defined benefit plans:
Service cost--benefits earned during the period.................... $ 15 $ 12 $ 13
Interest cost on projected benefit obligation...................... 30 26 27
Actual return on plan assets....................................... (17) (119) (66)
Net amortization and deferral...................................... (34) 78 26
--- --------- ---
Net periodic pension income for defined benefit plans............ (6) (3) --
Defined contribution plans......................................... 7 4 7
Multi-employer plans............................................... 2 2 2
--- --------- ---
Net pension expense.............................................. $ 3 $ 3 $ 9
--- --------- ---
--- --------- ---
</TABLE>
Assumptions used in the accounting for the defined benefit plans were as
follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
------------------------------------------------------
1998 1997 1996
------------------ ---------------- ----------------
<S> <C> <C> <C>
Weighted average discount
rates............................... 6.75% 7.00 to 7.50% 7.50 to 7.75%
Rates of increase in compensation
levels.............................. 4.50% to 5.75% 4.10 to 4.50% 4.50 to 7.75%
Expected long-term rate of return on
assets.............................. 9.0 to 11.0% 9.0% 9.0%
</TABLE>
39
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--PENSION PLANS (CONTINUED)
The change in the weighted average discount rate from 7.5% for fiscal 1997
to 6.75% for fiscal 1998 and other actuarial assumptions caused the projected
benefit obligation at September 30, 1998 to increase by approximately $58
million.
The funded status and amounts recognized in the consolidated balance sheets
at September 30, 1998 and 1997 for the Company's defined benefit pension plans
are:
<TABLE>
<CAPTION>
1998 1997
-------------------------------- ----------------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS BENEFITS ASSETS
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
(IN MILLIONS)
Actuarial present value of benefit obligations:
Vested benefit obligation.............................. $ (338) $ (87) $ (308) $ (48)
Nonvested benefit obligation........................... (10) (11) (12) (4)
----- ----- ----- ---
Accumulated benefit obligation........................... $ (348) $ (98) $ (320) $ (52)
----- ----- ----- ---
----- ----- ----- ---
Projected benefit obligation............................. $ (381) $ (103) $ (351) $ (56)
Plan assets at fair value................................ 539 70 606 32
----- ----- ----- ---
Projected benefit obligation less than (or in excess of)
plan assets............................................ 158 (33) 255 (24)
Add (deduct):
Unrecognized prior service cost........................ 4 10 7 5
Unrecognized net (gain) loss........................... (55) 19 (163) 7
Unrecognized net asset at date of adoption, net of
amortization......................................... (5) -- (7) --
Adjustment required to recognize minimum liability..... -- (24) -- (8)
----- ----- ----- ---
Prepaid (accrued) pension costs.......................... $ 102 $ (28) $ 92 $ (20)
----- ----- ----- ---
----- ----- ----- ---
</TABLE>
The Company's plan assets are included in a master trust which principally
invests in listed stocks and bonds, including common stock of the Company. The
Company's Common Stock included in plan assets was 783,100 and 383,100 shares at
September 30, 1998 and 1997, respectively, representing $12 million and $11
million of the master trust's assets for the same respective periods.
FOREIGN BENEFIT ARRANGEMENTS
Fiscal 1998 periodic pension cost for the Company's foreign defined benefit
plans primarily covering SiTeco's (see Note 3) employees in Germany and Austria
was $3 million, including $1 million of service costs and $2 million of interest
cost. The weighted average discount rate used in the accounting for the defined
benefit plans was 6% and the rates of increase in compensation levels ranged
from 2.5% to 4.5%.
40
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--PENSION PLANS (CONTINUED)
The following table sets forth the plans' unfunded status and amounts
recognized in the consolidated balance sheets at September 30, 1998.
<TABLE>
<CAPTION>
PLANS WHOSE
ACCUMULATED
BENEFITS EXCEED
ASSETS
-----------------
<S> <C>
(IN MILLIONS)
Actuarial present value of benefit obligations:
Vested benefit obligation................................................... $ (15)
Nonvested benefit obligation................................................ (4)
---
Accumulated benefit obligation................................................ $ (19)
---
---
Projected benefit obligation and accrued pension costs........................ $ (24)
---
---
</TABLE>
NOTE 8--POSTRETIREMENT PLANS
The Company provides health care and life insurance benefits to certain
groups of retirees.
The following table presents the plans' unfunded status reconciled with
amounts recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS)
Accumulated postretirement benefit obligation:
Retirees.................................................................. $ (44) $ (48)
Fully eligible active plan participants................................... (5) (6)
Other active plan participants............................................ (10) (10)
--- ---
(59) (64)
Unrecognized prior service cost........................................... (2) --
Unrecognized gain......................................................... (5) (8)
--- ---
$ (66) $ (72)
--- ---
--- ---
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER
30,
-------------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
(IN MILLIONS)
Service cost.......................................................... $ 1 $ 1 $ 1
Interest cost......................................................... 4 4 3
-- -- --
Net periodic postretirement benefit cost.............................. $ 5 $ 5 $ 4
-- -- --
-- -- --
</TABLE>
The weighted average annual assumed rate of increase in the health care cost
trend rate ranged from 8.5% to 10.0% for fiscal 1998 and is assumed to decrease
0.5% a year to 5.0% to 5.5%. The effect of increasing the assumed health care
cost trend rate by 1% in each year would increase the accumulated postretirement
benefit obligation as of September 30, 1998 by $5 million and the aggregate of
service and interest components of net periodic post retirement benefit for 1998
by less than $1 million.
The weighted average discount rate used was 6.75% and 7.50% at September 30,
1998 and 1997, respectively.
41
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--LEASES
Rental expense for operating leases is:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER
30,
-------------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
(IN MILLIONS)
Minimum rentals....................................................... $ 31 $ 24 $ 24
Contingent rentals.................................................... 3 1 $ 2
--- --- ---
$ 34 $ 25 $ 26
--- --- ---
--- --- ---
</TABLE>
Future minimum rental commitments under noncancellable operating leases as
of September 30, 1998 are:
<TABLE>
<CAPTION>
(IN MILLIONS)
---------------
<S> <C>
1999............................................................................. $ 29
2000............................................................................. 21
2001............................................................................. 14
2002............................................................................. 10
2003............................................................................. 7
Thereafter....................................................................... 18
</TABLE>
NOTE 10--INCOME TAXES
Income before income taxes, discontinued operations and extraordinary loss
consists of:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
---------------------------------
1998 1997 1996
----- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
United States....................................................... $ 11 $ 187 $ 131
Foreign............................................................. 74 51 55
--- --------- ---------
$ 85 $ 238 $ 186
--- --------- ---------
--- --------- ---------
</TABLE>
The provisions for federal, foreign, and state income taxes attributable to
income from continuing operations consist of:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
---------------------------------
1998 1997 1996
----- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
Current:
Federal........................................................... $ 34 $ 52 $ 39
Foreign........................................................... 23 18 23
State............................................................. 4 8 6
--- --------- ---------
61 78 68
Deferred.......................................................... 17 24 14
--- --------- ---------
$ 78 $ 102 $ 82
--- --------- ---------
--- --------- ---------
</TABLE>
42
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)
The Company's effective income tax provision attributable to continuing
operations differs from the statutory federal income tax provision as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-----------------------------------
1998 1997 1996
----- --------- -----
<S> <C> <C> <C>
(IN MILLIONS)
Statutory federal income tax provision............................... $ 30 $ 84 $ 65
Foreign income tax differential...................................... 2 2 4
State income taxes (net of federal benefit).......................... 3 6 5
Goodwill amortization................................................ 7 6 4
Goodwill impairment.................................................. 29 -- --
Non-deductible non-recurring and unusual charges..................... 8 -- --
Miscellaneous........................................................ (1) 4 4
--- --------- ---
$ 78 $ 102 $ 82
--- --------- ---
--- --------- ---
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
(IN MILLIONS)
Deferred tax liabilities:
Property, plant and equipment............................................ $ 31 $ 28
Inventory................................................................ 1 3
Net pension assets....................................................... 14 17
Other.................................................................... 3 4
----- -----
Total deferred tax liabilities........................................... 49 52
----- -----
Deferred tax assets:
Accruals and allowances.................................................. 103 115
Postretirement benefits.................................................. 20 26
Deductible goodwill...................................................... 21 21
----- -----
Total deferred tax assets................................................ 144 162
----- -----
Net deferred tax asset................................................... $ 95 $ 110
----- -----
----- -----
</TABLE>
The classification of the deferred tax balances is:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
(IN MILLIONS)
Current asset............................................................ $ 82 $ 111
Current liability........................................................ (1) (4)
--- -----
81 107
--- -----
Noncurrent asset......................................................... 62 51
Noncurrent liability..................................................... (48) (48)
--- -----
14 3
--- -----
Net deferred tax asset................................................... $ 95 $ 110
--- -----
--- -----
</TABLE>
As a result of certain tax elections, the tax basis of assets received and
liabilities assumed, from the Company's former parent ("Hanson"), have changed.
The final determination of the full extent of the tax benefit related to these
changes was finalized in fiscal 1996 and has been credited to paid in capital in
that year.
43
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)
The Company entered into a tax sharing and indemnification agreement in
which Hanson generally agreed to indemnify the Company for all federal and state
income tax liabilities in respect to periods prior to May 31, 1995.
Income taxes paid during fiscal 1998, 1997 and 1996 were $72 million, $93
million, and $63 million, respectively.
NOTE 11--STOCK COMPENSATION PLANS
The Company's stock-based compensation plans consist of USI's and Zurn's
respective plans that were in effect prior to the merger, as amended and as
adjusted to give effect to the exchange ratio in the merger.
USI maintains stock incentive plans (the "Stock Plans") that provides for
awards of restricted stock and options to purchase common stock to key employees
at prices equal to the fair market value of the shares at the date of grant, and
for formula grants of Common Stock to non-employee directors of USI.
In fiscal 1995, 2,764,995 restricted shares of Common Stock were awarded to
certain key employees and a total of 9,000 shares of common stock were issued to
non-employee directors. As holders of restricted stock have all the rights of
other stockholders, subject to certain restrictions and forfeiture provisions,
such restricted stock is considered to be issued and outstanding. Restrictions
on the shares will expire and are amortized over seven years. Unearned
restricted stock of $26 million was recorded at June 8, 1995 based on the market
value of the shares on the date of issuance and is included as a separate
component of stockholders' equity.
In fiscal 1996, 108,260 incentive shares were awarded to certain key
employees and 20,733 shares of common stock were issued to non-employee
directors. The incentive shares are substantially identical in terms of issuance
and restrictions to restricted stock. Based on the market value of the shares on
the dates of issuance, $2 million of unearned restricted stock was recorded
during fiscal 1996.
In fiscal 1998 and 1997, 345,602 and 195,750 restricted shares of Common
Stock, respectively, were awarded to certain key employees. The restrictions on
the shares will expire after seven years. The expiration of the restrictions can
be accelerated under certain circumstances. Based on the market value of the
shares on the various dates of issuance, $9 million and $5 million of additional
unearned restricted stock was recorded during fiscal 1998 and 1997,
respectively. Additionally, 373,709, 166,065 and 25,460 restricted shares were
forfeited in fiscal 1998, 1997 and 1996, respectively.
Zurn's 1996 Employee Stock Plan provided for awarding no more than 800,000
shares of common stock (382,800 and 776,000 available at September 30, 1998 and
1997, respectively), with maximum award limits for each participant during any
twelve-month period, in the form of nonqualified and incentive stock options to
purchase common stock at its market value on the award date (200,000 share
limit); stock equivalent units based on common stock fair market values with
settlement in common stock or cash on the achievement of established performance
goals (24,000 share limit); performance units denominated in cash with
settlement in common stock or cash not exceeding $300,000 per participant per
year on the achievement of specific business objectives; and annual incentive
stock awards (48,000 share limit) to insiders, as defined, in settlement of
incentive compensation plan awards. Under Zurn's previous stock option plans,
nonqualified stock options were granted to key employees to purchase shares of
common stock at its market value on the grant date.
Under the Company's stock compensation plans, the independent directors,
officers and employees may be granted options to purchase the Company's stock at
no less than the fair market value of the date
44
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--STOCK COMPENSATION PLANS (CONTINUED)
of the option grant. The Company has adopted the disclosure-only provisions of
SFAS 123. Accordingly, no compensation cost has been recognized for the stock
option plans. Had compensation cost for the Company's stock option plan been
determined based on the fair market value at the grant date for awards in fiscal
1998, 1997 and 1996, consistent with the provision of SFAS 123, the Company's
net income and income per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE)
Net income (loss)--as reported..................................... $ (44) $ 252 $ 138
Net income (loss)--pro forma....................................... (46) 250 137
Net income (loss) per share--as reported basic..................... $ (0.46) $ 2.73 $ 1.45
--as reported diluted............. (0.45) 2.64 1.42
Net income (loss) per share--pro forma basic....................... (0.48) 2.70 1.44
--pro forma diluted............... (0.47) 2.61 1.41
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years. The fair
value for these options was estimated at the date of grant using the Black-
Scholes model with the following assumptions:
<TABLE>
<CAPTION>
USI PLANS ZURN PLAN
----------- -----------
<S> <C> <C>
Expected dividend yield at date of grant:
1998........................................................... 1% 1%
1997 and 1996.................................................. 0% 2%
Expected stock price volatility:
1998........................................................... 40% 26%
1997 and 1996.................................................. 36% 26%
Risk-free interest rate:
1998........................................................... 5.42% 5.80%
1997........................................................... 5.85% 6.84%
1996........................................................... 5.89% 6.60%
Expected life of options........................................... 4 years 7 years
</TABLE>
The weighted-average fair value of options, calculated using the
Black-Scholes option pricing model, granted during 1998, 1997 and 1996 is $9.14,
$6.87 and $4.61, respectively.
A summary of the Company's stock option activity and related information for
the years ended September 30 follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year.............. 6,377,677 $ 13.45 6,419,176 $ 11.94 5,890,495 $ 11.95
Granted.................................... 280,353 25.02 1,019,312 18.82 837,573 13.02
Exercised.................................. (1,401,231) 13.19 (681,523) 9.76 (69,907) 9.52
Non-exercised.............................. (419,902) 14.95 (379,288) 11.48 (238,985) 12.33
----------- ----------- ---------- ----------- ---------- -----------
Outstanding-end of year.................... 4,836,897 14.07 6,377,677 13.45 6,419,176 11.94
----------- ----------- ---------- ----------- ---------- -----------
----------- ----------- ---------- ----------- ---------- -----------
Exercisable-end of year.................... 3,488,907 $ 13.73 2,713,998 $ 14.70 2,046,295 $ 15.12
----------- ----------- ---------- ----------- ---------- -----------
----------- ----------- ---------- ----------- ---------- -----------
</TABLE>
45
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--STOCK COMPENSATION PLANS (CONTINUED)
The following table summarizes the status of the stock options outstanding
and exercisable at September 30, 1998:
<TABLE>
<CAPTION>
STOCK OPTIONS
STOCK OPTIONS OUTSTANDING EXERCISABLE
------------------------------------ -----------------------
WEIGHTED WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
RANGE OF EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- ------------------------------------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$8.75 to $12.97...................... 3,033,613 6.73 years $ 10.31 2,291,286 $ 10.67
$13.20 to $19.41..................... 677,287 7.90 years $ 15.85 575,901 $ 15.77
$20.47 to $28.88..................... 1,125,997 6.19 years $ 23.14 621,720 $ 23.13
---------- ----------- ----------- ---------- -----------
Total................................ 4,836,897 6.76 years $ 14.07 3,488,907 $ 13.73
---------- ----------- ----------- ---------- -----------
---------- ----------- ----------- ---------- -----------
</TABLE>
Options granted under the Stock Option Plan vest annually in four equal
installments from the date of grant. The Company had authorization under the
Stock Option Plan to grant 1,306,417 and 455,309 additional options at September
30, 1998 and 1997, respectively.
NOTE 12--COMMITMENTS AND CONTINGENCIES
The Company is subject to a wide range of environmental protection laws. The
Company has remedial and investigatory activities underway at approximately 35
sites. In addition, the Company has been named as a Potentially Responsible
Party ("PRP") at 19 "superfund" sites pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or comparable
statutes.
It is often difficult to estimate the future impact of environmental
matters, including potential liabilities. The Company accrues for losses
associated with environmental remediation obligations when such losses are
probable and reasonably estimable. This practice is followed whether the claims
are asserted or unasserted. Reserves for estimated losses from environmental
remediation are, depending on the site, based primarily upon internal or third
party environmental studies, and estimates as to the number, participation level
and financial viability of any other PRP's, the extent of contamination and the
nature of required remedial actions. Such accruals are adjusted as further
information develops or circumstances change. Costs of future expenditures for
environmental remediation obligations are not discounted to their present fair
value. Recoveries of environmental remediation costs from other parties are
recognized as assets when their receipt is deemed probable. Management expects
that the amount reserved will be paid out over the periods of remediation for
the applicable sites which range up to 30 years and that such reserves are
adequate based on all current data. Each of the sites in question is at various
stages of investigation or remediation; however, no information currently
available reasonably suggests that projected expenditures associated with
remedial action or compliance with environmental laws for any single site or for
all sites in the aggregate, will have a material adverse affect on the Company's
financial condition, results of operations or cash flows.
At September 30, 1998, the Company had accrued approximately $20 million ($5
million accrued as current liabilities; $15 million as non-current liabilities)
for various environmental related liabilities of which the Company is aware. The
Company believes that the range of liability for such matters is between
approximately $7 million and $25 million.
U.S. Brass Corporation, an Eljer indirect wholly-owned subsidiary ("US
Brass"), filed in 1994 a voluntary petition for reorganization under Chapter 11
of the United States Bankruptcy Code for the purpose of systemically resolving
issues resulting from sales of polybutylene plumbing systems and related
litigation. On January 29, 1998, the United States Bankruptcy Court for the
Eastern District of Texas
46
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--COMMITMENTS AND CONTINGENCIES (CONTINUED)
confirmed the Chapter 11 Bankruptcy Plan of Reorganization filed by US Brass. On
March 19, 1998 the plan became effective and the US Brass Trust was funded with
approximately $50 million in cash and a $20 million noninterest bearing note,
payable over ten years to pay claims resulting from US Brass polybutylene
plumbing systems. As a result, US Brass emerged from bankruptcy and future US
Brass polybutylene plumbing systems claims were enjoined and will be channeled
to the Trust and a national class action settlement fund.
Also, certain of the Company's subsidiaries are defendants or plaintiffs in
lawsuits that have arisen in the normal course of business. While certain of
these matters involve substantial amounts, it is management's opinion, based on
the advice of counsel, that the ultimate resolution of such litigation and
environmental matters will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
NOTE 13--SEGMENT DATA
The Company's operations are classified into four business segments: Bath
and Plumbing Products, Lighting Corporation of America, Hardware and Tools and
Diversified. These operations are conducted primarily in the United States, and
to a lesser extent, in other regions of the world. Export sales represented 9%,
12% and 13% of the Company's total net sales for fiscal years 1998, 1997 and
1996, respectively. Principal international markets served include Europe, South
America, Canada and Asia.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
NET SALES
Bath and Plumbing Products..................................... $ 1,105 $ 879 $ 685
Lighting Corporation of America................................ 766 538 508
Hardware and Tools............................................. 430 308 238
Diversified.................................................... 1,009 991 933
--------- --------- ---------
TOTAL NET SALES.................................................. $ 3,310 $ 2,716 $ 2,364
--------- --------- ---------
--------- --------- ---------
OPERATING INCOME (LOSS) (1)
Bath and Plumbing Products..................................... $ 93 $ 101 $ 88
Lighting Corporation of America................................ 52 42 36
Hardware and Tools............................................. (2) 34 31
Diversified (2)................................................ 38 137 111
--------- --------- ---------
Operating Income before corporate expenses..................... 181 314 266
Corporate expenses............................................. (32) (27) (27)
--------- --------- ---------
TOTAL OPERATING INCOME........................................... $ 149 $ 287 $ 239
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Operating income (loss) for the year ended September 30, 1998 include
merger, restructuring and other related costs of $154 million and product
change costs in connection with the restructuring of approximately $11
million. Operating income (loss) for the Bath and Plumbing Products,
Lighting Corporation of America, Hardware and Tools, Diversified Operations
and Corporate expenses include charges of $40, $3, $37, $78 and $7 million,
respectively.
(2) Fiscal 1998 and 1997 operating income for the Diversified Operations
includes $(3) and $2 million, respectively of equity (loss) earnings from
the Company's investment in UPI. Fiscal 1998 equity (loss) includes a charge
associated with an impairment of a UPI subsidiary of $4 million. Fiscal 1998
47
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SEGMENT DATA (CONTINUED)
operating income for the Diversified Operations also includes a gain of $6
million from the sale of an investment in a supplier of the Company's toy
business.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
IDENTIFIABLE ASSETS
Bath and Plumbing Products..................................... $ 1,092 $ 1,064 $ 1,057
Lighting Corporation of America................................ 463 282 281
Hardware and Tools............................................. 406 233 191
Diversified.................................................... 751 764 727
--------- --------- ---------
2,712 2,343 2,256
Corporate...................................................... 100 126 111
--------- --------- ---------
Total for continuing operations................................ 2,812 2,469 2,367
Net assets held for disposition................................ -- 69 135
--------- --------- ---------
TOTAL IDENTIFIABLE ASSETS........................................ $ 2,812 $ 2,538 $ 2,502
--------- --------- ---------
--------- --------- ---------
DEPRECIATION AND GOODWILL AMORTIZATION
Bath and Plumbing Products..................................... $ 28 $ 22 $ 15
Lighting Corporation of America................................ 18 10 9
Hardware and Tools............................................. 13 7 4
Diversified.................................................... 33 30 29
--------- --------- ---------
TOTAL DEPRECIATION AND GOODWILL AMORTIZATION..................... $ 92 $ 69 $ 57
--------- --------- ---------
--------- --------- ---------
CAPITAL EXPENDITURES
Bath and Plumbing Products..................................... $ 35 $ 18 $ 14
Lighting Corporation of America................................ 19 13 10
Hardware and Tools............................................. 18 9 8
Diversified.................................................... 36 25 19
--------- --------- ---------
108 65 51
Corporate...................................................... -- 11 --
--------- --------- ---------
TOTAL CAPITAL EXPENDITURES....................................... $ 108 $ 76 $ 51
--------- --------- ---------
--------- --------- ---------
</TABLE>
48
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--GEOGRAPHIC AREAS--FINANCIAL DATA
The following table presents certain data by geographic areas:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
NET SALES
United States........................................................................ $ 2,631 $ $2,400 $ 2,135
Foreign.............................................................................. 679 316 229
OPERATING EARNINGS (1)
United States........................................................................ $ 76 $ 237 $ 185
Foreign.............................................................................. 73 50 54
IDENTIFIABLE ASSETS
United States........................................................................ $ 2,167 $ 2,254 $ 2,287
Foreign.............................................................................. 645 284 215
</TABLE>
- ------------------------
(1) Operating earnings for the year ended September 30, 1998 included merger,
restructuring and other related costs of $154 million and product change
costs in connection with the restructuring of approximately $11 million;
$155 million and $10 million of these costs and charges relate to operating
earnings of the United States and foreign locations, respectively.
NOTE 15--QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial information for the fiscal years ended
September 30, 1998 and 1997 is as follows (in millions, except per share):
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------- ------------------------
QUARTER ENDED DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
- -------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................... $ 744 $ 826 $ 856 $ 884 $ 578 $ 664
Gross profit................................ 233 249 256 265 185 207
Income (loss) from continuing operations.... 32 40 (88) 23 26 29
Income (loss) before extraordinary loss..... 31 33 (125) 22 30 103
Net income (loss)........................... 31 33 (130) 22 28 103
Basic per share:
Income (loss) from continuing
operations.............................. $ 0.34 $ 0.42 ($ 0.92) $ 0.24 $ 0.28 $ 0.31
Income (loss) before extraordinary loss... $ 0.33 $ 0.35 ($ 1.30) $ 0.23 $ 0.32 $ 1.11
Net income (loss)......................... $ 0.33 $ 0.35 ($ 1.35) $ 0.23 $ 0.30 $ 1.11
Diluted per share:
Income (loss) from continuing
operations.............................. $ 0.33 $ 0.41 ($ 0.92) $ 0.23 $ 0.27 $ 0.30
Income (loss) before extraordinary loss... $ 0.32 $ 0.34 ($ 1.30) $ 0.22 $ 0.31 $ 1.07
Net income (loss)......................... $ 0.32 $ 0.34 ($ 1.35) $ 0.22 $ 0.29 $ 1.07
<CAPTION>
QUARTER ENDED JUNE 30 SEPT. 30
- -------------------------------------------- ----------- -----------
<S> <C> <C>
Net sales................................... $ 735 $ 739
Gross profit................................ 232 235
Income (loss) from continuing operations.... 38 43
Income (loss) before extraordinary loss..... 41 80
Net income (loss)........................... 41 80
Basic per share:
Income (loss) from continuing
operations.............................. $ 0.41 $ 0.47
Income (loss) before extraordinary loss... $ 0.44 $ 0.87
Net income (loss)......................... $ 0.44 $ 0.87
Diluted per share:
Income (loss) from continuing
operations.............................. $ 0.40 $ 0.46
Income (loss) before extraordinary loss... $ 0.43 $ 0.85
Net income (loss)......................... $ 0.43 $ 0.85
</TABLE>
The results for the quarters ended June 30 and September 30, 1998 include
$136 million and $18 million of merger, restructuring and other related costs,
respectively, and product change costs of $2 million and $9 million,
respectively.
49
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--SUBSEQUENT EVENTS
On October 15, 1998, the Company adopted a Stockholder Rights Plan (the
"Plan") and declared a dividend of one Right on each outstanding share of Common
Stock held by stockholders of record on October 29, 1998. The Company had
approximately 98 million shares outstanding on October 29, 1998. The Plan was
designed to protect the Company's stockholders during a time when the Company's
share price has been under pressure due to the external factors.
Initially, the Rights will trade with the common stock of the Company and
will not be exercisable. The Rights will separate from the common stock and
become exercisable upon the occurrence of events typical for stockholder rights
plans. In general, such separation will occur when any person or group of
affiliated persons acquires or makes an offer to acquire 15% or more of the
Company's Common Stock. Thereafter, separate Right certificates will be
distributed and each Right will entitle its holder to purchase one one-hundredth
of a share of the Company's Series A Junior preferred Stock for an exercise
price of $65.00. Each one one-hundredth of a share of Preferred Stock has
economic and voting terms equivalent to those of one share of the Company's
Common Stock.
If not redeemed earlier, the Rights will expire on October 15, 2008, or at
the close of business on the 90th day following the date any person or group of
affiliated persons acquires or makes an offer to acquire 15% or more of the
Company's Common Stock.
NOTE 17--SUPPLEMENTAL FINANCIAL INFORMATION
The following represents the supplemental consolidating condensed financial
statements of USI and USIAH, which are the jointly obligated issuers of the
Notes, and USI Atlantic, which is the guarantor of the Notes, and their
non-guarantor subsidiaries, as of September 30, 1998 and 1997 and for each of
the three years in the period ended September 30, 1998.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------------
USI NONGUARANTOR
USI ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS
--------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
Net Sales........................................... $ -- $ -- $ -- $ 3,310 $
Operating costs and expenses:
Cost of products sold............................. -- -- -- 2,307
Selling, general and administrative expenses...... 4 4 17 675
Goodwill impairment and non-recurring and unusual
charges......................................... -- -- 7 147
--------- ----- ----- ------ ------
Operating income................................ (4) (4) (24) 181 --
Interest expense.................................... -- 6 44 19
Interest income..................................... -- -- -- (8)
Management fee (income) expense..................... -- (27) (28) 55
Intercompany interest, net.......................... -- (4) (63) 67
Gain on the sale of subsidiary shares............... -- -- -- --
Other (income) expense, net......................... -- 12 (3) (6)
Equity in (earnings) loss of investees, net......... 41 42 58 -- (141)
--------- ----- ----- ------ ------
Income before income taxes, discontinued operations
and extraordinary loss............................ (45) (33) (32) 54 141
Provision for income taxes.......................... (1) 4 10 65
--------- ----- ----- ------ ------
Income (loss) from continuing operations.......... (44) (37) (42) (11) 141
Income (loss) from discontinued operations, net of
tax............................................... -- -- -- (46) --
--------- ----- ----- ------ ------
Income before extraordinary loss.................... (44) (37) (42) (57) 141
Extraordinary loss, net of tax...................... -- -- -- (5)
--------- ----- ----- ------ ------
Net income (loss)................................... $ (44) $ (37) $ (42) $ (62) $ 141
--------- ----- ----- ------ ------
--------- ----- ----- ------ ------
<CAPTION>
CONSOLIDATED
-------------
<S> <C>
Net Sales........................................... $ 3,310
Operating costs and expenses:
Cost of products sold............................. 2,307
Selling, general and administrative expenses...... 700
Goodwill impairment and non-recurring and unusual
charges......................................... 154
------
Operating income................................ 149
Interest expense.................................... 69
Interest income..................................... (8)
Management fee (income) expense..................... --
Intercompany interest, net.......................... --
Gain on the sale of subsidiary shares............... --
Other (income) expense, net......................... 3
Equity in (earnings) loss of investees, net......... --
------
Income before income taxes, discontinued operations
and extraordinary loss............................ 85
Provision for income taxes.......................... 78
------
Income (loss) from continuing operations.......... 7
Income (loss) from discontinued operations, net of
tax............................................... (46)
------
Income before extraordinary loss.................... (39)
Extraordinary loss, net of tax...................... (5)
------
Net income (loss)................................... $ (44)
------
------
</TABLE>
50
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1997
---------------------------------------------------------------------
USI NONGUARANTOR
ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
Net Sales.................................................. $ -- $ -- $ 2,716 $ -- $ 2,716
Operating costs and expenses:
Cost of products sold.................................... -- -- 1,857 1,857
Selling, general and administrative expenses............. 6 25 541 572
Goodwill impairment and non-recurring and unusual
charges................................................ -- -- -- --
----- ----- ------ ----- ------
Operating income....................................... (6) (25) 318 -- 287
Interest expense........................................... -- 35 24 59
Interest income............................................ -- -- (7) (7)
Management fee (income) expense............................ (1) (15) 16 --
Intercompany interest, net................................. -- (68) 68 --
Gain on the sale of subsidiary shares...................... -- -- (1) (1)
Other (income) expense, net................................ -- 1 (3) (2)
Equity in (earnings) loss of investees, net................ (255) (227) -- 482 --
----- ----- ------ ----- ------
Income before income taxes, discontinued operations and
extraordinary loss....................................... 250 249 221 (482) 238
Provision for income taxes................................. (2) 9 95 102
----- ----- ------ ----- ------
Income (loss) from continuing operations................. 252 240 126 (482) 136
Income (loss) from discontinued operations, net of tax..... -- -- 118 -- 118
----- ----- ------ ----- ------
Income before extraordinary loss........................... 252 240 244 (482) 254
Extraordinary loss, net of tax............................. -- (1) (1) (2)
----- ----- ------ ----- ------
Net income (loss).......................................... $ 252 $ 239 $ 243 $ (482) $ 252
----- ----- ------ ----- ------
----- ----- ------ ----- ------
</TABLE>
51
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------------
USI NONGUARANTOR
ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
Net Sales.................................................. $ -- $ -- $ 2,364 $ -- $ 2,364
Operating costs and expenses:
Cost of products sold.................................... -- -- 1,613 1,613
Selling, general and administrative expenses............. 6 22 484 512
Goodwill impairment and non-recurring and unusual
charges................................................ -- -- -- --
----- ----- ------ ----- ------
Operating income....................................... (6) (22) 267 -- 239
Interest expense........................................... -- 51 13 64
Interest income............................................ -- (1) (10) (11)
Management fee (income) expense............................ (1) (15) 16 --
Intercompany interest, net................................. -- (86) 86 --
Gain on the sale of subsidiary shares...................... -- -- -- --
Other (income) expense, net................................ -- 1 (1) --
Equity in (earnings) loss of investees, net................ (141) (137) -- 278 --
----- ----- ------ ----- ------
Income before income taxes, discontinued operations and
extraordinary loss....................................... 136 165 163 (278) 186
Provision for income taxes................................. (2) 11 73 82
----- ----- ------ ----- ------
Income (loss) from continuing operations................. 138 154 90 (278) 104
Income (loss) from discontinued operations, net of tax..... -- -- 59 -- 59
----- ----- ------ ----- ------
Income before extraordinary loss........................... 138 154 149 (278) 163
Extraordinary loss, net of tax............................. -- (18) (7) (25)
----- ----- ------ ----- ------
Net income (loss).......................................... $ 138 $ 136 $ 142 $ (278) $ 138
----- ----- ------ ----- ------
----- ----- ------ ----- ------
</TABLE>
52
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
---------------------------------------------------------------------------
USI NONGUARANTOR
USI ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents......................... $ -- $ -- $ -- $ 44 $ -- $ 44
Trade receivables, net............................ -- -- -- 652 652
Inventories....................................... -- -- -- 589 589
Deferred income taxes............................. 45 -- -- 36 81
Other current assets.............................. -- -- 11 66 77
Net assets held for disposition................... -- -- -- -- --
--------- --------- --------- ------ ------------ ------
Total current assets............................ 45 -- 11 1,387 -- 1,443
Property, plant and equipment, net................ -- -- -- 538 538
Deferred income taxes............................. 8 -- -- 6 14
Other assets...................................... -- -- 7 215 222
Goodwill, net..................................... -- -- -- 595 595
Investments in subsidiaries....................... 996 745 1,221 -- (2,962) --
Intercompany receivable (payable)................. (51) 277 245 (471) --
--------- --------- --------- ------ ------------ ------
Total assets.................................... $ 998 $ 1,022 $ 1,484 $ 2,270 $ (2,962) $ 2,812
--------- --------- --------- ------ ------------ ------
--------- --------- --------- ------ ------------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable..................................... $ -- $ -- $ -- $ 15 $ -- $ 15
Current maturities of long-term debt.............. -- -- -- 4 4
Trade accounts payable............................ -- 2 -- 262 264
Accrued expenses and other liabilities............ 5 6 43 259 313
Income taxes payable.............................. 33 -- -- 7 40
--------- --------- --------- ------ ------------ ------
Total current liabilities....................... 38 8 43 547 -- 636
Long-term debt.................................... -- 270 629 48 947
Other liabilities................................. -- -- 67 202 269
--------- --------- --------- ------ ------------ ------
Total liabilities............................... 38 278 739 797 -- 1,852
Stockholders' equity.............................. 960 744 745 1,473 (2,962) 960
--------- --------- --------- ------ ------------ ------
Total liabilities and stockholders' equity...... $ 998 $ 1,022 $ 1,484 $ 2,270 $ (2,962) $ 2,812
--------- --------- --------- ------ ------------ ------
--------- --------- --------- ------ ------------ ------
</TABLE>
53
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
----------------------------------------------------------------
USI NONGUARANTOR
ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents............................... $ -- $ 35 $ 32 $ -- $ 67
Trade receivables, net.................................. -- -- 502 502
Inventories............................................. -- -- 501 501
Deferred income taxes................................... 46 -- 61 107
Other current assets.................................... -- -- 55 55
Net assets held for disposition......................... -- -- 69 69
--------- --------- ------ ------------ ------
Total current assets.................................. 46 35 1,220 -- 1,301
Property, plant and equipment, net...................... -- 20 402 422
Deferred income taxes................................... 3 -- -- 3
Other assets............................................ -- 8 204 212
Goodwill, net........................................... -- -- 600 600
Investments in subsidiaries............................. 1,043 478 -- (1,521) --
Intercompany receivable (payable)....................... (66) 887 (821) -- --
--------- --------- ------ ------------ ------
Total assets.......................................... $ 1,026 $ 1,428 $ 1,605 $ (1,521) $ 2,538
--------- --------- ------ ------------ ------
--------- --------- ------ ------------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable........................................... $ -- $ -- $ 4 $ -- $ 4
Current maturities of long-term debt.................... -- -- 41 41
Trade accounts payable.................................. -- 6 183 189
Accrued expenses and other liabilities.................. 4 27 313 344
Income taxes payable.................................... $ 72 $ -- $ -- $ $ 72
--------- --------- ------ ------------ ------
Total current liabilities............................. 76 33 541 -- 650
Long-term debt.......................................... -- 532 169 701
Other liabilities....................................... -- 65 172 237
--------- --------- ------ ------------ ------
Total liabilities..................................... 76 630 882 -- 1,588
Stockholders' equity.................................... 950 798 723 (1,521) 950
--------- --------- ------ ------------ ------
Total liabilities and stockholders' equity............ $ 1,026 $ 1,428 $ 1,605 $ (1,521) $ 2,538
--------- --------- ------ ------------ ------
--------- --------- ------ ------------ ------
</TABLE>
54
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1998
-------------------------------------------------------------------------------
USI NONGUARANTOR
USI ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- --------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... $ (33) $ 12 $ 19 $ 80 $ -- $ 78
INVESTING ACTIVITIES:
Proceeds from sale of net assets held for
disposition...................................... -- -- -- 11 11
Proceeds from sale of excess real estate........... -- -- -- 14 14
Proceeds from sale of subsidiary stock............. -- -- -- -- --
Proceeds from collection of notes receivable....... -- -- -- 5 5
Acquisition of companies, net of cash acquired..... -- -- -- (173) (173)
Capital contributions to subsidiaries.............. (10) -- (73) -- 83 --
Dividends from subsidiaries........................ 2 -- -- -- (2) --
Net transfers with subsidiaries.................... 77 (205) (303) -- 431 --
Purchase of investment............................. -- -- -- (7) (7)
Proceeds from sale of investments.................. -- -- -- -- --
Proceeds from sale of marketable securities........ -- -- -- 6 6
Purchases of property, plant and equipment......... -- -- -- (108) (108)
Proceeds from sale of property, plant and
equipment........................................ -- -- 20 15 35
Other net.......................................... -- -- -- (13) (13)
--------- ----- --------- ----- ----- ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES.......... 69 (205) (356) (250) 512 (230)
FINANCING ACTIVITIES:
Proceeds from long-term debt....................... -- 270 1,075 61 1,406
Repayment of long-term debt........................ -- -- (978) (267) (1,245)
Proceeds from (repayment of) notes payable......... -- -- -- 5 5
Payment of dividends............................... (21) -- -- (2) 2 (21)
Purchase of treasury stock......................... (35) -- -- -- (35)
Proceeds from exercise of stock options............ 20 -- -- -- 20
Capital contributions from parent.................. -- -- -- 83 (83) --
Net transfers with parent.......................... -- (77) 205 303 (431) --
--------- ----- --------- ----- ----- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... (36) 193 302 183 (512) 130
Effect of exchange rate changes on cash............ -- -- -- (1) (1)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... -- -- (35) 12 -- (23)
Cash and cash equivalents at beginning of year..... -- -- 35 32 67
--------- ----- --------- ----- ----- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR........... $ -- $ -- $ -- $ 44 $ -- $ 44
--------- ----- --------- ----- ----- ------------
--------- ----- --------- ----- ----- ------------
</TABLE>
55
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1997
--------------------------------------------------------------------
USI NONGUARANTOR
ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
NET CASH PROVIDED BY OPERATING ACTIVITIES............... $ (4) $ -- $ 61 $ -- $ 57
INVESTING ACTIVITIES:
Proceeds from sale of net assets held for disposition... -- -- 390 390
Proceeds from sale of excess real estate................ -- -- 28 28
Proceeds from sale of subsidiary stock.................. -- -- 4 4
Proceeds from collection of notes receivable............ -- -- -- --
Acquisition of companies, net of cash acquired.......... -- -- (269) (269)
Capital contributions to subsidiaries................... (2) (5) -- 7 --
Dividends from subsidiaries............................. 4 32 -- (36) --
Net transfers with subsidiaries......................... 66 248 -- (314) --
Purchase of investment.................................. -- -- (1) (1)
Proceeds from sale of investments....................... -- -- -- --
Proceeds from sale of marketable securities............. -- -- 24 24
Purchases of property, plant and equipment.............. -- (11) (65) (76)
Proceeds from sale of property, plant and equipment..... -- -- 2 2
Other net............................................... -- -- (5) (5)
----- --------- ----- ----- ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES............... 68 264 108 (343) 97
FINANCING ACTIVITIES:
Proceeds from long-term debt............................ -- 1,460 166 1,626
Repayment of long-term debt............................. -- (1,623) (82) (1,705)
Proceeds from (repayment of) notes payable.............. -- -- 4 4
Payment of dividends.................................... (4) -- (36) 36 (4)
Purchase of treasury stock.............................. (67) -- -- (67)
Proceeds from exercise of stock options................. 7 -- -- 7
Capital contributions from parent....................... -- -- 7 (7) --
Net transfers with parent............................... -- (66) (248) 314 --
----- --------- ----- ----- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... (64) (229) (189) 343 (139)
Effect of exchange rate changes on cash................. -- -- (5) (5)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ -- 35 (25) -- 10
Cash and cash equivalents at beginning of year.......... -- -- 57 57
----- --------- ----- ----- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR................ $ -- $ 35 $ 32 $ -- $ 67
----- --------- ----- ----- ------------
----- --------- ----- ----- ------------
</TABLE>
56
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1996
--------------------------------------------------------------------
USI NONGUARANTOR
ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
NET CASH PROVIDED BY OPERATING ACTIVITIES......... $ (31) $ 25 $ 149 $ -- $ 143
INVESTING ACTIVITIES:
Proceeds from sale of net assets held for
disposition..................................... -- -- 314 314
Proceeds from sale of excess real estate.......... -- -- 31 31
Proceeds from sale of subsidiary stock............ -- -- -- --
Proceeds from collection of notes receivable...... -- -- 7 7
Acquisition of companies, net of cash acquired.... -- -- (239) (239)
Capital contribution to subsidiaries.............. -- -- -- --
Dividends from subsidiaries....................... 16 11 -- (27) --
Net transfers with subsidiaries................... 66 401 -- (467) --
Purchase of investment............................ -- -- (12) (12)
Proceeds from sale of investments................. -- -- 2 2
Proceeds from sale of marketable securities....... -- -- 6 6
Purchases of property, plant and equipment........ -- -- (51) (51)
Proceeds from sale of property, plant and
equipment....................................... -- 1 3 4
Other net......................................... -- -- -- --
----- --------- ----- ----- ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES......... 82 413 61 (494) 62
FINANCING ACTIVITIES:
Proceeds from long-term debt...................... -- 650 485 1,135
Repayment of long-term debt....................... -- (1,013) (283) (1,296)
Proceeds from (repayment of) notes payable........ -- -- (3) (3)
Payment of dividends.............................. (5) (11) (16) 27 (5)
Purchase of treasury stock........................ (46) -- -- (46)
Proceeds from exercise of stock options........... -- -- -- --
Capital contributions from parent................. -- -- -- --
Net transfers with parent......................... -- (66) (401) 467 --
----- --------- ----- ----- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... (51) (440) (218) 494 (215)
Effect of exchange rate changes on cash........... -- -- -- --
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... -- (2) (8) -- (10)
Cash and cash equivalents at beginning of year.... -- 2 65 67
----- --------- ----- ----- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......... $ -- $ -- $ 57 $ -- $ 57
----- --------- ----- ----- ------------
----- --------- ----- ----- ------------
</TABLE>
57
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the caption "Executive Officers" in Item 1 of
this Annual Report on Form 10-K is incorporated herein by reference.
The information to be included under the caption "Election of Directors" in
the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A of the 1934 Act in connection with the annual meeting
of the Company's stockholders to be held on February 5, 1999 (the "Proxy
Statement") is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information to be included under the caption "Execution Compensation" in
the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information to be included under the caption "Ownership of Common Stock"
in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) Listing of Documents
(1) FINANCIAL STATEMENTS. The Company's Consolidated Financial Statements
included in Item 8 hereof, as required at September 30, 1998, 1997 and 1996, and
for the years ended September 30, 1998, 1997 and 1996, consist of the following:
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders' Equity
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULE. Financial Statement Schedule of the
Company appended hereto, as required for the years ended September 30, 1998,
1997 and 1996, consists of the following:
II. Valuation and Qualifying Accounts
(3) MANAGEMENT CONTRACTS AND COMPENSATORY PLANS AND ARRANGEMENTS.
<TABLE>
<S> <C>
-- Employment Agreement, dated February 22, 1995, of David H. Clarke (filed as
Exhibit 10.9 to the Company's Registration Statement on Form 10, dated April
21, 1995 (the "Form 10")).*
</TABLE>
58
<PAGE>
<TABLE>
<S> <C>
-- First Amendment, dated June 12, 1995, to the Employment Agreement, dated
February 22, 1995, of David H. Clarke (filed as Exhibit 10.19(b) to the
Company's Report on Form 10-K for the fiscal year ended September 30, 1995 (the
"1995 10-K")).*
-- Employment Agreement, dated February 22, 1995, of John G. Raos (filed as
Exhibit 10.10 to the Form 10).*
-- First Amendment, dated June 12, 1995, to the Employment Agreement, dated
February 22, 1995, of John G. Raos (filed as Exhibit 10.20(b) to the 1995
10-K).*
-- Employment Agreement, dated June 1, 1997, of John F. Bendik (filed herewith).
-- Employment Agreement, dated February 22, 1995, of George H. MacLean (filed as
Exhibit 10.8(a) to the Company's Report on Form 10-K for the fiscal year ended
September 27, 1997 (the "1997 10-K").*
-- First Amendment, dated June 12, 1995, to the Employment Agreement dated
February 22, 1995, of George H. MacLean (filed as Exhibit 10.8(b) to the 1997
10-K).*
-- Restated Employment Agreement, dated June 17, 1998, of Dorothy E. Sander (filed
herewith).
-- Amended U. S. Industries, Inc. Stock Option Plan, as restated June 11, 1998
(filed herewith).
-- U. S. Industries, Inc. Restricted Stock Plan, as restated June 11, 1998 (filed
herewith).
-- U. S. Industries, Inc. Supplemental Retirement Plan (filed as Exhibit 10.14 to
the Form 10).*
-- U. S. Industries, Inc. Long-Term Incentive Plan (filed as Exhibit 10.15 to the
Form 10).*
</TABLE>
(B) Reports on Form 8-K.
The Company filed a current report on Form 8-K dated August 10, 1998,
responsive to Item 5 of such Form, with respect to the Company's consolidated
(combined) financial statements, reflecting the Merger as a pooling of
interests. Financial statements were filed with respect to fiscal years ended
September 1995, 1996 and 1997, three month periods ended December 1996 and 1997,
and periods ended March 1997 and 1998.
The Company filed a current report on Form 8-K dated October 15, 1998,
responsive to Item 5 of such Form, related to the Company's Preferred Stock
Purchase Rights. No financial statements were filed.
(C) Exhibits.
<TABLE>
<C> <S> <C>
3.1 -- Form of Amended and Restated Certificate of Incorporation (filed as part of the
Company's Registration Statement No. 333-47101 on Form S-4 (the "1998 S-4"), as
Appendix B-1 to the Joint Proxy Statement/Prospectus (the "Merger Proxy")
included therein).*
-- Form of Certificate of Designations of Series A Junior Preferred Stock (filed as
Exhibit (c) within the Rights Agreement filed as Exhibit (4) to the Company's
Report on Form 8-K dated October 15, 1998.*
3.2 -- Amended and Restated By-laws of the Company (filed as part of the 1998 S-4, as
Appendix B-2 to the Merger Proxy).*
4.1 -- Specimen form of certificate representing shares of Common Stock of USI (filed as
Exhibit 4.1 to the Form 10).*
4.2 -- Indenture, dated as of December 12, 1996, among USI American Holdings, Inc.
("USIAH"), USI Atlantic (then known as U.S. Industries, Inc.) and PNC Bank
National Association, as Trustee ("PNC") (filed as Exhibit 4.1 to the Company's
Registration Statement No. 333-2083 on Form S-4 (the "1997 S-4")).*
4.3 -- First Supplemental Indenture, dated as of June 11, 1998, among USI, USIAH, USI
Atlantic and PNC (filed herewith).
4.4 -- Indenture, dated as of October 27, 1998, among USI, USIAH, USI Atlantic and the
First National Bank of Chicago, as Trustee (filed herewith).
10.1 -- Subscription Agreement, dated May 31, 1995, between Hanson PLC and USI Atlantic
(filed as Exhibit 10.10 to the 1995 10-K).*
</TABLE>
59
<PAGE>
<TABLE>
<C> <S> <C>
10.2 -- Tax Sharing and Indemnification Agreement, dated May 30, 1995, among HM Anglo-
American Ltd., HM Holdings, Inc., Endicott Johnson Corporation, Kidde Industries,
Inc., HMB Holdings Inc., Kaiser Cement Corporation, Spartus Corporation, USI
Atlantic and USIAH (Filed as Exhibit 10.14 to the 1995 10-K).*
10.3 -- Tax Sharing and Indemnification Agreement, dated May 30, 1995, among HM Anglo-
American Ltd., Quantum Chemical Corporation, Endicott Johnson Corporation,
Spartus Corporation, USI Atlantic and USIAH (Filed as Exhibit 10.15 to the 1995
10-K).*
10.4(a) -- Employment Agreement, dated February 22, 1995, of David H. Clarke (filed as
Exhibit 10.9 to the Form 10).*+
(b) -- First Amendment, dated June 12, 1995, to the Employment Agreement, dated February
22, 1995, of David H. Clarke (Filed as Exhibit 10.19(b) to the 1995 10-K).*+
10.5(a) -- Employment Agreement, dated February 22, 1995, of John G. Raos (filed as Exhibit
10.10 to the Form 10).*+
(b) -- First Amendment, dated June 12, 1995, to the Employment Agreement, dated February
22, 1995 of John G. Raos (filed as Exhibit 10.20(b) to the 1995 10-K).*+
10.6 -- Employment Agreement, dated June 1, 1997, of John F. Bendik (filed herewith).+
10.7(a) -- Employment Agreement, dated February 22, 1995, of George H. MacLean (filed as
Exhibit 10.8(a) to the 1997 10-K).*+
(b) -- First Amendment, dated June 12, 1995, to the Employment Agreement, dated February
22, 1995, of George H. MacLean.(filed as Exhibit 10.8(b) to the 1997 10-K).*+
10.8 -- Restated Employment Agreement, dated June 17, 1998, of Dorothy E. Sander (filed
herewith).+
10.9 -- Amended U.S. Industries, Inc. Stock Option Plan, as restated June 11, 1998 (filed
herewith).+
10.10 -- U.S. Industries, Inc. Supplemental Retirement Plan (filed as Exhibit 10.14 to the
Form 10).*+
10.11 -- U. S. Industries, Inc. Restricted Stock Plan, as restated June 11, 1998 (filed
herewith).+
10.12 -- U.S. Industries, Inc. Long-Term Incentive Plan (filed as Exhibit 10.15 to the
Form 10).*+
10.13 -- Credit Agreement, dated December 12, 1996, as amended through June 11, 1998 (the
"Credit Agreement"), among USIAH, USI Atlantic, USI and Bank of America National
Trust and Savings Association, as Agent, and BA Securities, Inc., as Arranger
(filed as Exhibit 10.2 to the Report on Form 8-K filed on June 12, 1998).*
10.14 -- Agreement and Plan of Merger, dated February 16, 1998, among USI, USI Atlantic,
Zurn Industries, Inc. and certain other parties named therein (filed as Exhibit
A-1 to the Merger Proxy).*
10.15 -- Rights Agreement dated as of October 15, 1998 between the Company and the Chase
Manhattan Bank, as Rights Agent (filed as Exhibit (4) to the Company's Report on
Form 8-K dated October 15, 1998).*
21.1 -- Subsidiaries
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Price Waterhouse Coopers LLP
27.1 -- Financial Data Schedule
</TABLE>
(D) Financial Statement Schedule
- ------------------------
* Incorporated by reference
+ Denotes a management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 14 (c) of this Report.
60
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this amendment to be signed on its behalf
by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
U.S. INDUSTRIES, INC.
By: /s/ DAVID H. CLARKE
-----------------------------------------
David H. Clarke
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
December 14, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, and on the date set forth above.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<C> <S>
Chairman of the Board and
/s/ DAVID H. CLARKE Chief Executive Officer
- ------------------------------ (Principal Executive
David H. Clarke Officer)
/s/ JOHN G. RAOS
- ------------------------------ Director, President and
John G. Raos Chief Operating Officer
/s/ BRIAN C. BEAZER
- ------------------------------ Director
Brian C. Beazer
/s/ WILLIAM E. BUTLER
- ------------------------------ Director
William E. Butler
/s/ JOHN J. MCATEE, JR.
- ------------------------------ Director
John J. McAtee, Jr.
/s/ THE HON. CHARLES H. PRICE
II
- ------------------------------ Director
The Hon. Charles H. Price II
/s/ SIR HARRY SOLOMON
- ------------------------------ Director
Sir Harry Solomon
/s/ ROYALL VICTOR III
- ------------------------------ Director
Royall Victor III
/s/ MARK VORDER BRUEGGE
- ------------------------------ Director
Mark Vorder Bruegge
/s/ ROBERT R. WOMACK
- ------------------------------ Director
Robert R. Womack
Senior Vice President and
/s/ JAMES O'LEARY Chief Financial Officer
- ------------------------------ (Principal Financial
James O'Leary Officer)
/s/ ROBERT P. NOONAN Corporate Controller
- ------------------------------ (Principal Accounting
Robert P. Noonan Officer)
</TABLE>
61
<PAGE>
SCHEDULE II
U.S. INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
<S> <C> <C> <C> <C>
ADDITIONS
----------------------------
<CAPTION>
CHARGED
BALANCE AT TO COSTS CHARGED
BEGINNING AND TO OTHER
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS
- -------------------------------------------------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Year ended September 30, 1996
Deducted from asset accounts:
Allowance for doubtful accounts....................... $ 35 $ 5 $ 4(1)
Year ended September 30, 1997
Deducted from asset accounts:
Allowance for doubtful accounts....................... $ 44 $ 2 $ (4)
Year ended September 30, 1998
Deducted from asset accounts:
Allowance for doubtful accounts....................... $ 42 $ 8 $ (5)(2)
<CAPTION>
COLUMN A COLUMN E
<S> <C>
BALANCE AT
END OF
DESCRIPTION PERIOD
- -------------------------------------------------------- -------------
<S> <C>
Year ended September 30, 1996
Deducted from asset accounts:
Allowance for doubtful accounts....................... $ 44
Year ended September 30, 1997
Deducted from asset accounts:
Allowance for doubtful accounts....................... $ 42
Year ended September 30, 1998
Deducted from asset accounts:
Allowance for doubtful accounts....................... $ 45
</TABLE>
- ------------------------
(1) Amount in connection with acquisition.
(2) Uncollectible accounts written off, net of recoveries
62
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
<TABLE>
<C> <S> <C>
3.1 -- Form of Amended and Restated Certificate of Incorporation (filed as part of the
Company's Registration Statement No. 333-47101 on Form S-4 (the "1998 S-4"), as
Appendix B-1 to the Joint Proxy Statement/Prospectus (the "Merger Proxy")
included therein).*
-- Form of Certificate of Designations of Series A Junior Preferred Stock (filed as
Exhibit (c) within the Rights Agreement filed as Exhibit (4) to the Company's
Report on Form 8-K dated October 15, 1998.*
3.2 -- Amended and Restated By-laws of the Company (filed as part of the 1998 S-4, as
Appendix B-2 to the Merger Proxy).*
4.1 -- Specimen form of certificate representing shares of Common Stock of USI (filed as
Exhibit 4.1 to the Form 10).*
4.2 -- Indenture, dated as of December 12, 1996, among USI American Holdings, Inc.
("USIAH"), USI Atlantic (then known as U.S. Industries, Inc.) and PNC Bank
National Association, as Trustee ("PNC") (filed as Exhibit 4.1 to the Company's
Registration Statement No. 333-2083 on Form S-4 (the "1997 S-4")).*
4.3 -- First Supplemental Indenture, dated as of June 11, 1998, among USI, USIAH, USI
Atlantic and PNC (filed herewith).
4.4 -- Indenture, dated as of October 27, 1998, among USI, USIAH, USI Atlantic and the
First National Bank of Chicago, as Trustee (filed herewith).
10.1 -- Subscription Agreement, dated May 31, 1995, between Hanson PLC and USI Atlantic
(filed as Exhibit 10.10 to the 1995 10-K).*
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10.2 -- Tax Sharing and Indemnification Agreement, dated May 30, 1995, among HM Anglo-
American Ltd., HM Holdings, Inc., Endicott Johnson Corporation, Kidde Industries,
Inc., HMB Holdings Inc., Kaiser Cement Corporation, Spartus Corporation, USI
Atlantic and USIAH (Filed as Exhibit 10.14 to the 1995 10-K).*
10.3 -- Tax Sharing and Indemnification Agreement, dated May 30, 1995, among HM Anglo-
American Ltd., Quantum Chemical Corporation, Endicott Johnson Corporation,
Spartus Corporation, USI Atlantic and USIAH (Filed as Exhibit 10.15 to the 1995
10-K).*
10.4(a) -- Employment Agreement, dated February 22, 1995, of David H. Clarke (filed as
Exhibit 10.9 to the Form 10).*+
(b) -- First Amendment, dated June 12, 1995, to the Employment Agreement, dated February
22, 1995, of David H. Clarke (Filed as Exhibit 10.19(b) to the 1995 10-K).*+
10.5(a) -- Employment Agreement, dated February 22, 1995, of John G. Raos (filed as Exhibit
10.10 to the Form 10).*+
(b) -- First Amendment, dated June 12, 1995, to the Employment Agreement, dated February
22, 1995 of John G. Raos (filed as Exhibit 10.20(b) to the 1995 10-K).*+
10.6 -- Employment Agreement, dated June 1, 1997, of John F. Bendik (filed herewith).+
10.7(a) -- Employment Agreement, dated February 22, 1995, of George H. MacLean (filed as
Exhibit 10.8(a) to the 1997 10-K).*+
(b) -- First Amendment, dated June 12, 1995, to the Employment Agreement, dated February
22, 1995, of George H. MacLean.(filed as Exhibit 10.8(b) to the 1997 10-K).*+
10.8 -- Restated Employment Agreement, dated June 17, 1998, of Dorothy E. Sander (filed
herewith).+
10.9 -- Amended U.S. Industries, Inc. Stock Option Plan, as restated June 11, 1998 (filed
herewith).+
10.10 -- U.S. Industries, Inc. Supplemental Retirement Plan (filed as Exhibit 10.14 to the
Form 10).*+
10.11 -- U. S. Industries, Inc. Restricted Stock Plan, as restated June 11, 1998 (filed
herewith).+
10.12 -- U.S. Industries, Inc. Long-Term Incentive Plan (filed as Exhibit 10.15 to the
Form 10).*+
10.13 -- Credit Agreement, dated December 12, 1996, as amended through June 11, 1998 (the
"Credit Agreement"), among USIAH, USI Atlantic, USI and Bank of America National
Trust and Savings Association, as Agent, and BA Securities, Inc., as Arranger
(filed as Exhibit 10.2 to the Report on Form 8-K filed on June 12, 1998).*
10.14 -- Agreement and Plan of Merger, dated February 16, 1998, among USI, USI Atlantic,
Zurn Industries, Inc. and certain other parties named therein (filed as Exhibit
A-1 to the Merger Proxy).*
10.15 -- Rights Agreement dated as of October 15, 1998 between the Company and the Chase
Manhattan Bank, as Rights Agent (filed as Exhibit (4) to the Company's Report on
Form 8-K dated October 15, 1998).*
21.1 -- Subsidiaries
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Price Waterhouse Coopers LLP
27.1 -- Financial Data Schedule
</TABLE>
(D) Financial Statement Schedule
- ------------------------
* Incorporated by reference
+ Denotes a management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 14 (c) of this Report.
Exhibit 4.3
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE, dated as of June 11, 1998 (this "First
Supplemental Indenture"), among U.S. Industries, Inc. (f/k/a USI, Inc.), a
Delaware corporation ("New USI"), and USI American Holdings, Inc., a Delaware
corporation ("USIAH"), as Issuers, USI Atlantic Corp. (f/k/a U.S. Industries,
Inc.), a Delaware corporation, as Guarantor (the "Guarantor"), and PNC Bank,
National Association, as Trustee (the "Trustee"). Capitalized terms used herein
without definition have the meanings assigned to such terms in the Indenture (as
defined below).
W I T N E S S E T H:
WHEREAS, on the date hereof, pursuant to an Agreement and Plan of
Merger, dated as of February 16, 1998, as amended, among the Guarantor, New USI,
Zurn Industries, Inc. ("Zurn") and certain subsidiaries of New USI, each of the
Guarantor and Zurn became a direct wholly-owned subsidiary of New USI and USIAH
remained a direct wholly-owned subsidiary of the Guarantor;
WHEREAS, USIAH, the Guarantor and the Trustee executed and delivered
an Indenture, dated as of December 12, 1996 (the "Indenture"), to provide for
the issuance of the 7 1/4% Senior Notes due December 1, 2006 of USIAH (the
"Securities");
WHEREAS, Section 901 of the Indenture permits USIAH and the
Guarantor, when authorized by a Board Resolution, and the Trustee, at any time
and from time to time, to enter into one or more indentures supplemental to the
Indenture, in form and substance satisfactory to the Trustee, to make provisions
with respect to matters or questions arising under the Indenture which do not
materially adversely affect the interests of the Holders of the Securities;
WHEREAS, New USI desires to assume, jointly and severally, with
USIAH, all obligations of the Issuer under the Indenture, including, without
limitation, the due and punctual payment of the principal of, premium, if any,
and interest on, and the Tax Redemption Price and Additional Amounts, if any,
with respect to the Securities when due;
WHEREAS, such assumption of obligations by New USI will not in any
manner release USIAH or the Guarantor from their respective obligations under
the Indenture; and
NYFS11...:\95\78595\0012\1860\SUP5228N.10A
<PAGE>
WHEREAS, USIAH and the Guarantor have requested that the Trustee
execute and deliver this First Supplemental Indenture pursuant to Section 901 of
the Indenture, and all requirements necessary to make this First Supplemental
Indenture a valid instrument in accordance with its terms have been performed
and the execution and delivery of this First Supplemental Indenture have been
duly authorized in all respects by each of New USI, USIAH and the Guarantor.
NOW, THEREFORE, New USI, USIAH and the Guarantor covenant and agree
with the Trustee as follows:
ARTICLE I
ASSUMPTION AND AMENDMENTS
SECTION 1.01. Assumption. New USI hereby fully, irrevocably and
unconditionally assumes, jointly and severally with USIAH, all obligations of
the Issuer under the Indenture and the Securities, including, without
limitation, the due and punctual payment of the principal of, premium, if any,
and interest on, and the Tax Redemption Price and Additional Amounts, if any,
with respect to the Securities in accordance with the terms of the Securities
and the Indenture.
SECTION 1.02. Ranking. The obligations of New USI under Section 1.01
hereto will be unsecured senior obligations of, and will rank pari passu with
all other existing and future unsecured and unsubordinated indebtedness and
senior in right of payment to all subordinated indebtedness of, New USI.
SECTION 1.03. Provision of Financial Statements. All references to
the "Issuer" in Section 1011 of the Indenture shall refer to New USI (but not
USIAH) and the last sentence of such Section 1011 shall be deleted in its
entirety and replaced with the following sentence:
"If the Parent Guarantor or USI American Holdings, Inc. is required
to make filings with the Commission pursuant to Section 13(a) or
15(d) of the Exchange Act (or any successor provision thereto), the
Parent Guarantor or USI American Holdings, Inc., as applicable, will
make such filings in the manner required under the Exchange Act and
the rules and regulations of the Commission."
2
<PAGE>
SECTION 1.04. Limitation and Restricted Payments. All references to
the "Issuer" in Section 1010 of the Indenture shall refer to USIAH (but not New
USI) and all references to a "Restricted Subsidiary" in such Section 1010 shall
refer to Restricted Subsidiaries of USIAH.
SECTION 1.05. Definitions.
(a) Section 101 of the Indenture is hereby amended as follows:
(i) the definition of "Consolidated Net Tangible Assets" is hereby
amended to delete "the Parent Guarantor" and to substitute
"U.S. Industries, Inc. (f/k/a USI, Inc.)" therefor; and
(ii) clause (ii) of the definition of "Unrestricted Subsidiary" is
hereby amended to delete "the Parent Guarantor" and to
substitute "U.S. Industries, Inc. (f/k/a USI, Inc.)" therefor
(b) Except as otherwise provided in this Supplemental Indenture, all
references to the "Issuer" in the Indenture and the Securities shall apply to
each of New USI and USIAH, jointly and severally.
(c) For the avoidance of doubt, except as otherwise provided in this
Supplemental Indenture, all references to "U.S. Industries, Inc." in the
Indenture and the Securities shall refer to "USI Atlantic Corp. (f/k/a U.S.
Industries, Inc.)."
ARTICLE II
MISCELLANEOUS
SECTION 2.02. Confirmation of Indenture. The Indenture, as
supplemented and amended by this First Supplemental Indenture, is in all
respects ratified and confirmed, and the Indenture, this First Supplemental
Indenture and all indentures supplemental thereto shall be read, taken and
construed as one and the same instrument.
SECTION 2.03. Concerning the Trustee. The Trustee assumes no duties,
responsibilities or liabilities by reason of this First Supplemental Indenture
other than as set forth in the Indenture.
3
<PAGE>
SECTION 2.04. Governing Law. THIS FIRST SUPPLEMENTAL
INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES
THEREOF.
SECTION 2.05. Separability. In case any provision contained in this
First Supplemental Indenture shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 2.06. Counterparts. This First Supplemental Indenture may be
executed in any number of counterparts, each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.
[SIGNATURES BEGIN ON THE NEXT PAGE]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, as of the day and year first above written.
U.S. INDUSTRIES, INC. (F/K/A USI, INC.)
By: /s/ George H. MacLean
------------------------------------------------
Name: George H. MacLean
Title: Senior Vice President
USI AMERICAN HOLDINGS, INC.
By: /s/ George H. MacLean
------------------------------------------------
Name: George H. MacLean
Title: Senior Vice President
USI ATLANTIC CORP. (F/K/A U.S. INDUSTRIES, INC.)
By: /s/ George H. MacLean
------------------------------------------------
Name: George H. MacLean
Title: Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Robert Frier
------------------------------------------------
Name: Robert Frier
Title: Vice President
5
Exhibit 4.4
U.S. INDUSTRIES, INC.
and
USI AMERICAN HOLDINGS, INC.
as
Issuers
and
USI ATLANTIC CORP.
as
Guarantor
and
THE FIRST NATIONAL BANK OF CHICAGO,
as
Trustee
------------------
Indenture
Dated as of October 27, 1998
------------------
<PAGE>
U.S. INDUSTRIES, INC.
USI AMERICAN HOLDINGS, INC.
Reconciliation and tie between Trust Indenture Act of 1939 and
Indenture, dated as of October 27, 1998.
Trust Indenture Indenture
Act Section Section
ss. 310(a)(1) ........................................ 607
(a)(2) .......................................... 607
(b) .......................................... 608
ss. 312(c) ........................................ 701
ss. 314(a) ........................................ 703
(a)(4) .......................................... 1004
(c)(1) .......................................... 102
(c)(2) .......................................... 102
(e) .......................................... 102
ss. 315(b) ........................................ 601
ss. 316(a)(last
sentence) .......................................... 101
("Outstanding")
(a)(1)(A) .......................................... 502, 512
(a)(1)(B) .......................................... 513
(b) .......................................... 508
(c) .......................................... 104(e)
ss. 317(a)(1) ........................................ 503
(a)(2) .......................................... 504
(b) .......................................... 1003
ss. 318(a) ........................................ 111
<PAGE>
TABLE OF CONTENTS
Page
PARTIES.................................................................... 1
RECITALS OF THE COMPANIES.................................................. 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions..............................................2
Act .................................................................3
Additional Amounts.....................................................3
Affiliate..............................................................3
Agent Members..........................................................3
Attributable Debt......................................................3
Authenticating Agent...................................................3
Board of Directors.....................................................3
Board Resolution.......................................................4
Business Day...........................................................4
Capital Stock..........................................................4
Commission.............................................................4
Companies..............................................................4
Company................................................................4
Company Request or Company Order.......................................4
Consolidated Net Tangible Assets.......................................4
Consolidation..........................................................5
Conversion Event.......................................................5
Corporate Trust Office.................................................5
corporation............................................................5
covenant defeasance....................................................5
Credit Facility........................................................5
Currency...............................................................5
Debt .................................................................5
- --------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
<PAGE>
ii
Page
Debt Basket............................................................5
Default................................................................6
Defaulted Interest.....................................................6
defeasance.............................................................6
Depositary.............................................................6
Dollar or $............................................................6
ECU .................................................................6
European Communities...................................................6
European Monetary System...............................................6
Event of Default.......................................................6
Exchange Notes.........................................................6
Exchange Offer.........................................................6
Exchange Offer Registration Statement..................................6
Exchange Rate Agent....................................................6
Exchange Rate Officer's Certificate....................................7
Existing Funded Debt...................................................7
Fair Market Value......................................................7
Federal Bankruptcy Code................................................7
Foreign Currency.......................................................7
Funded Debt............................................................7
GAAP .................................................................7
Global Notes...........................................................7
Government Obligations.................................................7
Guarantee..............................................................8
Guarantor..............................................................8
Holder.................................................................8
Incur .................................................................8
Indenture..............................................................8
Indexed Security.......................................................8
Initial Notes..........................................................8
interest...............................................................8
Interest Payment Date..................................................9
Lien .................................................................9
Lien Basket............................................................9
Maturity...............................................................9
Moody's................................................................9
Officers' Certificate..................................................9
Opinion of Counsel.....................................................9
Original Issue Discount Security.......................................9
<PAGE>
iii
Page
Other Jurisdiction.....................................................9
Outstanding............................................................9
Paying Agent..........................................................11
Permitted Liens.......................................................11
Person................................................................11
Physical Notes........................................................11
Predecessor Security..................................................11
Principal Property....................................................11
Private Placement Legend..............................................11
QIB ................................................................11
Redemption Date.......................................................11
Redemption Price......................................................12
Registration Rights Agreement.........................................12
Repayment Date........................................................12
Repayment Price.......................................................12
Responsible Officer...................................................12
Restricted Security...................................................12
Restricted Subsidiary.................................................12
Rule 144A Certificate.................................................12
S&P ................................................................12
Sale and Leaseback Transaction........................................12
Securities............................................................12
Security Register and Security Registrar..............................12
Shelf Registration Statement..........................................12
Special Purpose Funding Subsidiary....................................13
Special Record Date...................................................13
Stated Maturity.......................................................13
Subsidiary............................................................13
Surviving Entity......................................................13
Tax Redemption Price..................................................13
Trust Indenture Act or TIA............................................13
Trustee...............................................................13
USI ................................................................13
USIAH ................................................................13
United States.........................................................13
United States person..................................................13
Unrestricted Subsidiary...............................................14
Vice President........................................................14
Voting Stock..........................................................14
<PAGE>
iv
Page
Wholly-Owned Subsidiary...............................................14
Yield to Maturity.....................................................14
SECTION 102. Compliance Certificates and Opinions....................14
SECTION 103. Form of Documents Delivered to Trustee..................15
SECTION 104. Acts of Holders.........................................16
SECTION 105. Notices, Etc., to Trustee, the Companies and
the Guarantor.........................................17
SECTION 106. Notice to Holders; Waiver...............................18
SECTION 107. Effect of Headings and Table of Contents................18
SECTION 108. Successors and Assigns..................................18
SECTION 109. Separability Clause.....................................19
SECTION 110. Benefits of Indenture...................................19
SECTION 111. Governing Law...........................................19
SECTION 112. Legal Holidays..........................................19
SECTION 113. Schedules, Exhibits and Annexes.........................19
SECTION 114. Counterparts............................................19
SECTION 115. No Personal Liability of Directors, Officers,
Incorporators, Employees and Stockholders............20
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.........................................20
SECTION 202. Form of Trustee's Certificate of Authentication.........21
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount; Issuance........................................22
SECTION 302. Denominations...........................................26
SECTION 303. Execution, Authentication, Delivery and Dating..........26
SECTION 305. Registration, Registration of Transfer and Exchange.....29
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities........31
SECTION 307. Payment of Interest; Interest Rights Preserved..........31
SECTION 308. Optional Extension of Stated Maturity...................34
SECTION 309. Persons Deemed Owners...................................35
SECTION 310. Cancellation............................................35
SECTION 311. Computation of Interest.................................36
<PAGE>
v
Page
SECTION 312. Currency and Manner of Payments in Respect
of Securities........................................36
SECTION 313. Appointment and Resignation of Successor
Exchange Rate Agent..................................40
SECTION 314. Book-Entry Provisions for Global Notes..................40
SECTION 315. Transfer Provisions.....................................42
SECTION 316. CUSIP Numbers...........................................44
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.................45
SECTION 402. Application of Trust Money..............................46
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.......................................47
SECTION 502. Acceleration of Maturity; Rescission and Annulment......49
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee..............................50
SECTION 504. Trustee May File Proofs of Claim........................51
SECTION 505. Trustee May Enforce Claims Without Possession
of Securities......................................52
SECTION 506. Application of Money Collected..........................52
SECTION 507. Limitation on Suits.....................................52
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest...............................53
SECTION 509. Restoration of Rights and Remedies......................54
SECTION 510. Rights and Remedies Cumulative..........................54
SECTION 511. Delay or Omission Not Waiver............................54
SECTION 512. Control by Holders......................................54
SECTION 513. Waiver of Past Defaults.................................55
SECTION 514. Undertaking for Costs...................................55
SECTION 515. Waiver of Stay or Extension Laws........................56
SECTION 516. Remedies Subject to Applicable Law......................56
<PAGE>
vi
Page
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults......................................56
SECTION 602. Certain Rights of Trustee...............................57
SECTION 603. Trustee Not Responsible for Recitals or
Issuance of Securities...............................58
SECTION 604. May Hold Securities.....................................58
SECTION 605. Money Held in Trust.....................................59
SECTION 606. Compensation and Reimbursement..........................59
SECTION 607. Corporate Trustee Required; Eligibility.................60
SECTION 608. Resignation and Removal; Appointment of Successor.......60
SECTION 609. Acceptance of Appointment by Successor..................62
SECTION 610. Merger, Conversion, Consolidation or Succession
to Business.........................................63
SECTION 611. Appointment of Authenticating Agent.....................63
SECTION 612. Preferential Collection of Claims Against Companies.....65
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE
SECTION 701. Disclosure of Names and Addresses of Holders............65
SECTION 702. Reports by Trustee......................................66
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Companies and Guarantor May Consolidate, Etc.,
Only on Certain Terms................................66
SECTION 802. Successor Substituted...................................68
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders......68
SECTION 902. Supplemental Indentures with Consent of Holders.........69
SECTION 903. Execution of Supplemental Indentures....................71
<PAGE>
vii
Page
SECTION 904. Effect of Supplemental Indentures.......................71
SECTION 905. Conformity with Trust Indenture Act.....................71
SECTION 906. Reference in Securities to Supplemental Indentures......71
SECTION 907. Notice of Supplemental Indentures.......................72
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, If Any, and Interest....72
SECTION 1002. Overdue Interest.......................................72
SECTION 1003. Maintenance of Office or Agency........................72
SECTION 1004. Money for Securities Payments to Be Held in Trust......73
SECTION 1005. Statement as to Compliance.............................75
SECTION 1006. Payment of Taxes and Other Claims......................75
SECTION 1007. Maintenance of Properties..............................75
SECTION 1008. Corporate Existence....................................76
SECTION 1009. Limitation on Liens....................................76
SECTION 1010. Limitation on Sale and Leaseback Transactions..........79
SECTION 1011. Limitation on Restricted Subsidiary Funded Debt........80
SECTION 1012. Waiver of Certain Covenants............................82
SECTION 1013. Payment of Additional Amounts..........................82
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Optional Redemption....................................84
SECTION 1102. Redemption in Circumstances Involving Taxation.........85
SECTION 1103. Applicability of Article...............................86
SECTION 1104. Election to Redeem; Notice to Trustee..................86
SECTION 1105. Selection by Trustee of Securities to Be Redeemed......86
SECTION 1106. Notice of Redemption...................................87
SECTION 1107. Deposit of Redemption Price............................88
SECTION 1108. Securities Payable on Redemption Date..................88
SECTION 1109. Securities Redeemed in Part............................89
<PAGE>
viii
Page
ARTICLE TWELVE
GUARANTEE
SECTION 1201. Guarantee..............................................89
SECTION 1202. Execution of Guarantee; Form of Guarantee..............90
SECTION 1203. Severability...........................................92
SECTION 1204. Seniority of Guarantee.................................92
SECTION 1205. Limitation of the Guarantor's Liability................92
SECTION 1206. Release of USI Atlantic as Guarantor and USIAH
as Co-Issuer........................................92
SECTION 1207. Benefits Acknowledged..................................93
ARTICLE THIRTEEN
[Reserved.]
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. Companies' Option to Effect Defeasance or Covenant
Defeasance............................................94
SECTION 1402. Defeasance and Discharge...............................94
SECTION 1403. Covenant Defeasance....................................95
SECTION 1404. Conditions to Defeasance or Covenant Defeasance........95
SECTION 1405. Deposited Money and Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions.......97
SECTION 1406. Reinstatement..........................................98
TESTIMONIUM.................................................................99
SIGNATURES AND SEALS........................................................99
FORM OF SECURITY.....................................................EXHIBIT A
<PAGE>
INDENTURE, dated as of October 27, 1998, between U.S. INDUSTRIES,
INC., a Delaware corporation ("USI"), having its principal office at 101 Wood
Avenue South, Iselin, New Jersey 08830-0169, USI AMERICAN HOLDINGS, INC., a
Delaware corporation and a wholly owned subsidiary of USI, having its principal
office at 101 Wood Avenue South, Iselin, New Jersey 08830-0169 ("USIAH", and
together with USI, the "Companies"), USI Atlantic Corp., a Delaware corporation
and a wholly owned subsidiary of USI ("USI Atlantic") having its principal
office at 101 Wood Avenue South, Iselin, New Jersey 08830-0169, as Guarantor
(the "Guarantor") and The First National Bank of Chicago, a national banking
association, as Trustee (the "Trustee").
RECITALS OF THE COMPANIES
Each of the Companies has duly authorized the execution and delivery
of this Indenture to provide for the issuance from time to time of their
unsecured debentures, notes or other evidences of indebtedness (herein called
the "Securities"), which may be convertible into or exchangeable for any
securities of any person (including any of the Companies), to be issued in one
or more series as in this Indenture provided.
It is contemplated that this Indenture shall provide for the
issuance of the Securities as to which each of the Companies shall be obligated
on a joint and several basis, all of which shall be guaranteed by the Guarantor
to the extent permitted by law.
The Guarantor has duly authorized its guarantee of the Securities,
and to provide therefor it has duly authorized the execution and delivery of
this Indenture.
This Indenture may be used in connection with the issuance of
Securities exempt from the registration requirements under the Securities Act of
1933, as amended, Securities registered under such Act and/or Securities
registered under the Securities Exchange Act of 1934, as amended, issued in
exchange for any Securities theretofore issued pursuant to an exemption from the
registration requirements under the Securities Act of 1933, as amended.
Upon the issuance of any Exchange Notes, this Indenture will be
subject to and governed by the provisions of the Trust Indenture Act of 1939, as
amended, that are required to be part of or deemed to be part of and to govern
the indentures qualified thereunder.
All things necessary have been done to make this Indenture a valid
agreement of the Companies and the Guarantor, each in accordance with their
respective terms.
<PAGE>
2
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities or of series
thereof, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under the
Trust Indenture Act;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP, and, except as
otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or
permitted hereunder shall mean GAAP at the date of such computation;
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(5) Certain terms, used principally in Article Three, are defined in
that Article;
(6) Any provision hereof which refers to the Companies shall apply,
in the context of any Securities issued by such Company, only to the
respective Company, or
<PAGE>
3
in the case of Securities as to which either or both of the Companies
shall be obligated, to either or both of the Companies as the context
may require; and
(7) The following terms shall have the meanings set forth below:
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Additional Amounts" shall have the meaning set forth in Section
1013.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Members" has the meaning specified in Section 311.
"Attributable Debt" means, as to any particular lease under which
either of the Companies or any Restricted Subsidiary is at the time liable for a
term of more than 12 months, at any date as of which the amount thereof is to be
determined, the total net amount of rent required to be paid by either the
Companies or any Restricted Subsidiary under such lease during the remaining
term thereof (excluding any subsequent renewal or other extension options held
by the lessee), discounted from the respective due dates thereof to such date at
the rate per annum equivalent to the interest rate inherent in such lease. The
net amount of rent required to be paid under any such lease for any such period
shall be the aggregate amount of the rent payable by the lessee with respect to
such period after excluding amounts required to be paid on account of
maintenance and repairs, services, insurance, taxes, assessments, water rates
and similar charges and contingent rents (such as those based on sales). In the
case of any lease which is terminable by the lessee upon the payment of a
penalty, such net amount of rent shall include the lesser of (i) the total
discounted net amount of rent required to be paid from the later of the first
date upon which such lease may be so terminated or the date of the determination
of such net amount of rent, as the case may be, and (ii) the amount of such
penalty (in which event no rent shall be considered as required to be paid under
such lease subsequent to the first date upon which it may be so terminated).
"Authenticating Agent" means any Person appointed by the Trustee to
act on behalf of the Trustee pursuant to Section 611 to authenticate Securities.
<PAGE>
4
"Board of Directors" means either the board of directors of each of
the Companies or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of each of the Companies to have been duly
adopted by the Board of Directors and to be in full force and effect on the date
of such certification, and delivered to the Trustee.
"Business Day", when used with respect to any Place of Payment or
any other particular location referred to in this Indenture or in the
Securities, means each Monday, Tuesday, Wednesday, Thursday and Friday which is
not a day on which banking institutions in that Place of Payment or other
location are authorized or obligated by law or executive order to close.
"Capital Stock" means with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether outstanding on
the date hereof or issued thereafter, including, without limitation, all common
stock and preferred stock.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Companies" means USI and USIAH.
"Company" means either of the Persons named as the "Companies" in
the first paragraph of this Indenture until a successor Person shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or
order signed in the name of either of the Companies by its respective Chairman,
its President, any Vice President, its Treasurer or an Assistant Treasurer, and
delivered to the Trustee.
"Consolidated Net Tangible Assets" means the total amount of assets
appearing on the most recent Consolidated balance sheet of the Company and its
Subsidiaries prepared in accordance with GAAP after deducting therefrom (i) all
current liabilities (excluding any current liabilities which are by their terms
extendible or renewable at the option of the obligor thereon to a time more than
12 months after the time as of which the amount thereof is being
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5
computed) and (ii) all goodwill, trade names, trademarks, patents, unamortized
debt discount less unamortized premium and expense and other like intangibles.
"Consolidation" means, with respect to any Person, the consolidation
of the accounts of such Person and each of its Subsidiaries if and to the extent
the accounts of such Person and each of its Subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
"Conversion Event" means the cessation of use of (i) a Foreign
Currency both by the government of the country which issued such Currency and by
a central bank or other public institution of or within the international
banking community for the settlement of transactions, (ii) the ECU both within
the European Monetary System and for the settlement of transactions by public
institutions of or within the European Communities or (iii) any currency unit
(or composite currency) other than the ECU for the purposes for which it was
established.
"Corporate Trust Office" means the corporate trust office of the
Trustee, at which at any particular time its corporate trust business shall be
administered, which office on the date of execution of this Indenture is located
at 153 West 51st Street, 5th Floor, New York, New York 10019, except that with
respect to presentation of Securities for payment or for registration of
transfer or exchange, such term shall mean the office or agency of the Trustee
at which, at any particular time, its corporate agency business shall be
conducted.
"corporation" includes corporations, associations, companies and
business trusts.
"covenant defeasance" has the meaning specified in Section 1403.
"Credit Facility" means the Credit Agreement, dated as of December
12, 1996, among USI American Holdings, Inc, USI Funding, Inc., as borrowers,
U.S. Industries, Inc. as guarantor, Bank of America Illinois, as Issuing Bank
and Swingline Bank, the additional financial institutions set forth therein, as
lenders, Bank of America National Trust and Savings Association, as Agent, and
BA Securities, Inc., as Arranger, as such agreement may be amended from time to
time (or any one or more renewals, extension, refinancings, or refundings
thereof).
"Currency" means any currency or currencies, composite currency or
currency unit or currency units, including, without limitation, the ECU, issued
by the government of one or more countries or by any recognized confederation or
association of such governments.
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6
"Debt" means (without duplication) indebtedness for borrowed money
evidenced by notes, bonds, debentures or other similar instruments, and any
contingent or other obligations arising under any guarantee or similar
instrument with respect thereto.
"Debt Basket" has the meaning specified in Section 1010.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"defeasance" has the meaning specified in Section 1402.
"Depositary" means The Depository Trust Company, its nominees, and
their respective successors.
"Dollar" or "$" means a dollar or other equivalent unit in such coin
or currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts.
"ECU" means the European Currency Unit as defined and revised from
time to time by the Council of the European Communities.
"European Communities" means the European Economic Community, the
European Coal and Steel Community and the European Atomic Energy Community.
"European Monetary System" means the European Monetary System
established by the Resolution of December 5, 1978 of the Council of the European
Communities.
"Event of Default" has the meaning specified in Section 501.
"Exchange Notes" refers to any series of Notes containing terms
substantially identical to any series of Securities (except that (i) such
Exchange Notes shall not contain terms with respect to transfer restrictions and
shall be registered under the Securities Act, and (ii) certain provisions
relating to an increase in the stated rate of interest thereon shall be
eliminated) that are issued in exchange for such series of Securities in
accordance with an Exchange Offer.
"Exchange Offer" means an offer by the Company to the Holders to
exchange a series of Securities for Exchange Notes, as provided for in a
Registration Rights Agreement.
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7
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in a Registration Rights Agreement.
"Exchange Rate Agent" shall have the meaning set forth in Section
313.
"Exchange Rate Officer's Certificate" means a tested telex,
confirmed facsimile or a certificate setting forth (i) the applicable Market
Exchange Rate and (ii) the Dollar or Foreign Currency amounts of principal (and
premium, if any) and interest, if any (on an aggregate basis and on the basis of
a Security having the lowest denomination principal amount determined in
accordance with Section 302 in the relevant Currency), payable with respect to a
Security on the basis of such Market Exchange Rate, sent (in the case of a
telex) or signed (in the case of a certificate) by the Treasurer, any Vice
President or any Assistant Treasurer of either of the Companies.
"Existing Funded Debt" means all Funded Debt (other than Funded Debt
outstanding pursuant to the Credit Facility) existing on the date of this
Indenture.
"Fair Market Value" means, with respect to any asset or property,
the sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of
the United States Code, as amended from time to time.
"Foreign Currency" means any Currency other than Currency of the
United States.
"Funded Debt" means Debt that by its terms (i) matures more than one
year from the date of original issuance or creation or (ii) matures within one
year from such date but is renewable or extendible at the option of any obligor
to a date more than one year from such date.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States, from time to time.
"Global Notes" has the meaning specified in Section 201.
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8
"Government Obligations" means securities which are (i) direct
obligations of the government which issued the Currency in which the Securities
are payable or (ii) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the government which issued the
Currency in which the Securities are payable, the payment of which is
unconditionally guaranteed by such government, which, in either case, are full
faith and credit obligations of such government payable in such Currency and are
not callable or redeemable at the option of the issuer thereof and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt; provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest or principal of the Government Obligation evidenced by such depository
receipt.
"Guarantee" means the unconditional guarantee by the Guarantor,
pursuant to Article Twelve, which is subject to release under certain
circumstances as described therein.
"Guarantor" means USI Atlantic Corp.
"Holder" means the Person in whose name a Security is registered in
the Security Register.
"Incur" means, with respect to any Debt of any Person, to create,
issue, incur (by conversion, exchange or otherwise), assume, guarantee or
otherwise become, directly or indirectly, liable in respect of such Debt or the
recording, as required pursuant to GAAP or otherwise, of any such Debt on the
balance sheet of such Person (and "Incurrence", "Incurred", "Incurrable" and
"Incurring" shall have meanings correlative to the foregoing); provided,
however, that a change in GAAP that results in an obligation of such Person that
exists at such time becoming Debt shall not be deemed an Incurrence of such
Debt.
"Indenture" means this instrument as originally executed and as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Indexed Security" means a Security the terms of which provide that
the principal amount thereof payable at Stated Maturity may be more or less than
the principal face amount thereof at original issuance.
"Initial Notes" means the 7 1/8% Senior Notes due 2003 issued as of
the date hereof in an aggregate principal amount of $250,000,000.
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9
"interest", when used with respect to an Original Issue Discount
Security which by its terms bears interest only after Maturity, means interest
payable after Maturity at the rate prescribed in such Original Issue Discount
Security.
"Interest Payment Date", when used with respect to any Security,
means the Stated Maturity of an installment of interest on such Security.
"Lien" means any pledge, mortgage, lien, charge, encumbrance or
security interest.
"Lien Basket" shall have the meaning set forth in Section 1009.
"Maturity", when used with respect to any Security, means the date
on which the principal of such Security or an installment of principal becomes
due and payable as therein or herein provided, whether at the Stated Maturity or
by declaration of acceleration, notice of redemption, notice of option to elect
repayment or otherwise.
"Moody's" means Moody's Investors Service, Inc.
"Officers' Certificate" means a certificate signed by the Chairman,
the President, Vice President, Treasurer, an Assistant Treasurer, the Secretary
or an Assistant Secretary of either of the Companies or of the Guarantor, or any
other officer of either of the Companies or of the Guarantor having
substantially the same authority and responsibility and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel or counsels,
who may be counsel or counsels for either of the Companies, including an
employee or employees of either of the Companies, and who shall be acceptable to
the Trustee.
"Original Issue Discount Security" means any Security which provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration of the Maturity thereof pursuant to Section 502.
"Other Jurisdiction" shall have the meaning set forth in Section
1013.
"Outstanding", when used with respect to Securities, means, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation;
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10
(ii) Securities, or portions thereof, for whose payment or
redemption or repayment at the option of the Holder money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than either of the Companies) in trust or set aside and segregated
in trust by the Companies (if each of the Companies shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made;
(iii) Securities, except to the extent provided in Sections 1402 and
1403, with respect to which the Companies have effected defeasance and/or
covenant defeasance as provided in Article Fourteen; and
(iv) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities
in respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Companies;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or are present at
a meeting of Holders for quorum purposes, and for the purpose of making the
calculations required by TIA Section 313, (i) the principal amount of an
Original Issue Discount Security that may be counted in making such
determination or calculation and that shall be deemed to be Outstanding for such
purpose shall be equal to the amount of principal thereof that would be (or
shall have been declared to be) due and payable, at the time of such
determination, upon a declaration of acceleration of the maturity thereof
pursuant to Section 502, (ii) the principal amount of any Security denominated
in a Foreign Currency that may be counted in making such determination or
calculation and that shall be deemed Outstanding for such purpose shall be equal
to the Dollar equivalent, determined as of the date such Security is originally
issued by either of the Companies as set forth in an Exchange Rate Officer's
Certificate delivered to the Trustee, of the principal amount (or, in the case
of an Original Issue Discount Security, the Dollar equivalent as of such date of
original issuance of the amount determined as provided in clause (i) above) of
such Security, (iii) the principal amount of any Indexed Security that may be
counted in making such determination or calculation and that shall be deemed
outstanding for such purpose shall be equal to the principal face amount of such
Indexed Security at original issuance, and (iv) Securities owned by either of
the Companies or any other obligor upon the Securities or any Affiliate of
either of the Companies or of such other obligor shall be disregarded and deemed
not to be Outstanding, except that, in determining whether the Trustee shall be
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11
protected in making such calculation or in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Securities
which the Trustee knows to be so owned shall be so disregarded. Securities so
owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Securities and that the pledgee is not either of
the Companies or any other obligor upon the Securities or any Affiliate of
either of the Companies or such other obligor.
"Paying Agent" means any Person (including either of the Companies
acting as Paying Agent) authorized by the respective Company to pay the
principal of (or premium, if any) or interest, if any, on any Securities on
behalf of such Company.
"Permitted Liens" has the meaning specified in Section 1009.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Physical Notes" has the meaning specified in Section 201.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Principal Property" means any manufacturing plant or warehouse,
together with the land upon which it is erected and fixtures comprising a part
thereof, owned by either of the Companies or any Restricted Subsidiary and
located in the United States, the gross book value (without deduction of any
reserve for depreciation) of which on the date as of which the determination is
being made is an amount which exceeds 1% of Consolidated Net Tangible Assets,
other than any such manufacturing plant or warehouse or any portion thereof
(together with the land upon which it is erected and fixtures comprising a part
thereof) which, in the opinion of the Board of Directors, is not of material
importance to the total business conducted by the Companies and their
Subsidiaries, taken as a whole.
"Private Placement Legend" has the meaning specified in Section 203.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
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12
"Redemption Date", when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement dated October 22, 1998, among the Companies and the Initial Purchasers
or any other comparable agreement entered into in connection with the issuance
of Securities under this Indenture.
"Repayment Date" means, when used with respect to any Security to be
repaid at the option of the Holder, the date fixed for such repayment pursuant
to this Indenture.
"Repayment Price" means, when used with respect to any Security to
be repaid at the option of the Holder, the price at which it is to be repaid
pursuant to this Indenture.
"Responsible Officer", when used with respect to the Trustee, means
any officer of the Trustee assigned to administer corporate trust matters, and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Security" means a Security required to bear the
restricted securities legend set forth in Section 203.
"Restricted Subsidiary" means each Subsidiary other than
Unrestricted Subsidiaries.
"Rule 144A Certificate" has the meaning specified in Section 312.
"S&P" means Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc.
"Sale and Leaseback Transaction" has the meaning specified in
Section 1010.
"Securities" has the meaning stated in the first recital of this
Indenture.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"7 1/4% Notes" means the Companies' 7 1/4% Senior Notes due 2006.
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13
"Shelf Registration Statement" shall have the meaning set forth in
the Registration Rights Agreement.
"Special Purpose Funding Subsidiary" means a direct Wholly-Owned
Subsidiary of either of the Companies (i) that serves as a cash management
company for either of the Companies and its respective Subsidiaries and has no
other material operations or business, (ii) that for every transfer of funds to
it, records a corresponding liability on its books and records to the transferor
thereof, and (iii) whose assets do not materially exceed its liabilities.
"Special Record Date" for the payment of any Defaulted Interest on
the Securities means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable, as such date may
be extended pursuant to the provisions of Section 308.
"Subsidiary" means any corporation of which at the time of
determination either of the Companies, directly and/or indirectly through one or
more Subsidiaries, owns more than 50% of the shares of Voting Stock.
"Surviving Entity" has the meaning specified in Section 801.
"Tax Redemption Price" shall have the meaning set forth in Section
1102.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean or include each Person who is then a Trustee hereunder.
"USI" means U.S. Industries, Inc.
"USIAH" means USI American Holdings, Inc.
"United States" means the United States of America (including the
states and the District of Columbia), its territories, its possessions and other
areas subject to its jurisdiction.
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14
"United States person" means an individual who is a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or an estate or
trust the income of which is subject to United States federal income taxation
regardless of its source.
"Unrestricted Subsidiary" means any Subsidiary of either of the
Companies that (i) is organized under the laws of a jurisdiction other than a
jurisdiction in the United States of America, (ii) does not constitute a
"significant subsidiary" of the Company within the meaning of Rule 1-02(w) of
Regulation S-X promulgated under the Exchange Act or any successor provision
thereto or (iii) in the case of USI Atlantic and USIAH, is (but only for so long
as and only to the extent it is) acting as a co-issuer or guarantor of any
indebtedness of USI that is pari passu in right of payment with the indebtedness
under the Securities.
"Vice President", when used with respect to either of the Companies
or the Trustee, means any vice president, whether or not designated by a number
or a word or words added before or after the title "vice president".
"Voting Stock" of any Person means Capital Stock of such Person
which ordinarily has voting power for the election of directors (or persons
performing similar functions of such Person) whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Wholly-Owned Subsidiary" of any Person means a Subsidiary of such
Person all the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly-Owned Subsidiaries of such Person or by such
Person and one or more Wholly-Owned Subsidiaries of such Person.
"Yield to Maturity" means the yield to maturity, computed at the
time of issuance of a Security (or, if applicable, at the most recent
redetermination of interest on such Security) and as set forth in such Security
in accordance with generally accepted United States bond yield computation
principles.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by either of the Companies and/or
the Guarantor to the Trustee to take any action under any provision of this
Indenture, each of the Companies, as applicable, and the Guarantor shall furnish
to the Trustee an Officers' Certificate stating that all conditions precedent,
if any, provided for in this Indenture (including any covenant compliance which
constitutes a condition precedent) relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
<PAGE>
15
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
covenant or condition provided for in this Indenture (other than pursuant to
Section 1004) shall include:
(1) a statement that each individual signing such certificate or
individual or firm signing such opinion has read such covenant or
condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual or such
firm, he or it has made such examination or investigation as is necessary
to enable him or it to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual or such firm, such covenant or condition has been complied
with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of either of the Companies
and/or the Guarantor may be based, insofar as it relates to legal matters, upon
a certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Opinions of counsel required to
be delivered to the Trustee may have qualifications customary for opinions of
the type required and counsel delivering such opinions may rely on certificates
of the Companies or government or other officials customary for opinions of the
type required, including certificates certifying
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16
as to matters of fact, including that covenants have been complied with, unless
such counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders of the Outstanding Securities of all series or one or more series, as
the case may be, may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing. Except as herein otherwise expressly provided, such action
shall become effective when such instrument or instruments or record or both are
delivered to the Trustee and, where it is hereby expressly required, to the
Companies. Such instrument or instruments and any such record (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders signing such instrument or instruments or so voting at any
such meeting. Proof of execution of any such instrument or of a writing
appointing any such agent, or of the holding by any Person of a Security, shall
be sufficient for any purpose of this Indenture and conclusive in favor of the
Trustee, the Companies and the Guarantor, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The principal amount and serial numbers of Securities held by
any Person, and the date of holding the same, shall be proved by the Security
Register.
(d) If the Companies or the Guarantor shall solicit from the Holders
any request, demand, authorization, direction, notice, consent, waiver or other
Act, the Companies or the Guarantor, as the case may be, may, at their option,
by or pursuant to a Board Resolution, fix in advance a record date for the
determination of Holders entitled to give such
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17
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Companies or the Guarantor, as the case may be, shall have no obligation
to do so. Notwithstanding TIA Section 316(c), such record date shall be the
record date specified in or pursuant to such Board Resolution, which shall be a
date not earlier than the date 30 days prior to the first solicitation of
Holders generally in connection therewith and not later than the date such
solicitation is completed. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close of
business on such record date shall be deemed to be Holders for the purposes of
determining whether Holders of the requisite proportion of Outstanding
Securities have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for that
purpose the Outstanding Securities shall be computed as of such record date;
provided that no such authorization, agreement or consent by the Holders on such
record date shall be deemed effective unless it shall become effective pursuant
to the provisions of this Indenture not later than eleven months after the
record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Companies and/or the Guarantor in reliance thereon, whether or not notation of
such action is made upon such Security.
SECTION 105. Notices, Etc., to Trustee, the Companies and the
Guarantor.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(1) the Trustee by any Holder, the Companies or the Guarantor shall
be sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Services Division, or
(2) either of the Companies by the Trustee, any Holder or the
Guarantor shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to the Companies addressed to them at the addresses of
their respective principal offices specified in the first paragraph of
this Indenture or either at any other address previously furnished in
writing to the Trustee by either of the Companies, or
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18
(3) the Guarantor by any Holder, the Trustee or either of the
Companies shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to the Guarantor addressed to it at 101 Wood Avenue
South, Iselin, New Jersey 08830-0169, Attention: George H. MacLean, Esq.,
or at any other address previously furnished in writing to the Trustee or
the Companies, as the case may be, by the Guarantor.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders by
the Companies or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each such Holder affected by such event, at his address as
it appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice.
In case, by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impractical to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be sufficient giving of
such notice for every purpose hereunder.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
SECTION 107. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
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19
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture by the Companies and
the Guarantor shall bind their respective successors and assigns, whether so
expressed or not.
SECTION 109. Separability Clause.
In case any provision in this Indenture or in any Security shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto, any Authenticating
Agent, any Paying Agent, any Securities Registrar and their successors hereunder
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 111. Governing Law.
This Indenture and the Securities shall be governed by and construed
in accordance with the law of the State of New York. This Indenture is subject
to the provisions of the Trust Indenture Act that are required to be part of
this Indenture and shall, to the extent applicable, be governed by such
provisions.
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or
Stated Maturity or Maturity of any Security shall not be a Business Day at any
Place of Payment, then (notwithstanding any other provision of this Indenture or
the Securities which specifically states that such provision shall apply in lieu
of this Section), payment of principal (or premium, if any) or interest, if any,
need not be made at such Place of Payment on such date, but may be made on the
next succeeding Business Day at such Place of Payment with the same force and
effect as if made on the Interest Payment Date or Redemption Date or at the
Stated Maturity or Maturity; provided that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date, Stated
Maturity or Maturity, as the case may be.
SECTION 113. Schedules, Exhibits and Annexes.
All schedules, exhibits and annexes attached hereto are by this
reference made a part hereof with the same effect as if herein set forth in
full.
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SECTION 114. Counterparts.
This Indenture may be executed with counterpart signature pages or
in any number of counterparts, each of which counterparts shall be an original;
but such counterparts shall together constitute but one and the same instrument.
SECTION 115. No Personal Liability of Directors, Officers,
Incorporators, Employees and Stockholders.
No recourse under or upon any obligation, covenant or agreement of
this Indenture or any indenture supplemental hereto or of any Security or
Guarantee, or for any claim based thereon or otherwise in respect thereof, shall
be had against any incorporator, stockholder, officer, director or employee, as
such, past, present or future, of the Companies or the Guarantor or any of their
respective Affiliates or of any successor corporation thereof, either directly
or through the Companies, the Guarantor or any of their respective Affiliates or
any such successor corporation, whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or otherwise;
it being expressly understood that this Indenture and the obligations issued
hereunder are solely corporate obligations, and that no such personal liability
whatever shall attach to, or is or shall be incurred by, the incorporators,
stockholders, officers, directors or employees, as such, of the Companies or the
Guarantor or any of their respective Affiliates or of any successor corporation
thereof, or any of them, because of the creation of the Debt hereby authorized,
or under or by reason of the obligations, covenants or agreements contained in
this Indenture or in any of the Securities or the Guarantee or implied
therefrom; and that any and all such personal liability of every name and
nature, either at common law or in equity or by constitution or statute, of, any
and all such rights and claims against, every such incorporator, stockholder,
officer, director or employee, as such, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any of the Securities
or the Guarantee or implied therefrom, are hereby expressly waived and released
as a condition of, and as a consideration for, the execution of this Indenture
and the issue of such Securities and the Guarantee.
<PAGE>
21
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities of each series shall be in substantially the form set
forth in Exhibit A or as shall be established by or pursuant to a Board
Resolution or in one or more indentures supplemental hereto, in each case with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture, and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with the rules of any securities exchange or as
may, consistently herewith, be determined by the officers executing such
Securities, as evidenced by their execution of the Securities. If the forms of
Securities of any series are established by action taken pursuant to a Board
Resolution, a copy of an appropriate record of such action shall be certified by
the Secretary or an Assistant Secretary each of the Companies and delivered to
the Trustee at or prior to the delivery of both the Company Order contemplated
by Section 303 for the authentication and delivery of such Securities. Any
portion of the text of any Security may be set forth on the reverse thereof,
with an appropriate reference thereto on the face of the Security.
The Trustee's certificate of authentication on all Securities shall
be in substantially the form set forth in this Article.
The definitive Securities shall be printed, lithographed or engraved
on steel-engraved borders or may be produced in any other manner, all as
determined by the respective officers of the Companies executing such
Securities, as evidenced by their execution of such Securities.
The terms and provisions contained in the form of the Security
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Indenture. Each of the Companies and the Trustee, by its execution
and delivery of this Indenture, expressly agrees to the terms and provisions of
the Security applicable to it and to be bound thereby.
Unless otherwise provided pursuant to Section 301, the Securities of
each series shall initially be issued in the form of one or more permanent
global Notes in registered form, substantially in the form as set forth in
Exhibit A (the "Global Notes"), deposited with the Trustee, as custodian for the
Depositary, duly executed by the Companies and authenticated by the Trustee as
hereinafter provided.
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22
Securities issued pursuant to Section 305 in exchange for or upon
transfer of beneficial interests in the Global Notes shall be in the form of
permanent certificated Notes in registered form substantially in the form and
with the changes as described and set forth in Exhibit A (the "Physical Notes").
SECTION 202. Form of Trustee's Certificate of Authentication.
Subject to Section 611, the Trustee's certificate of authentication
shall be in substantially the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: ____________________
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
The First National Bank of Chicago,
as Trustee
By
Authorized Officer
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount; Issuance.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in one or more Board Resolutions or pursuant to authority granted by
one or more Board Resolutions and, subject to Section 303, set forth in, or
determined in the manner provided in, an Officers' Certificate, or established
in one or more indentures supplemental hereto, prior to the issuance of
Securities of any series, any or all of the following, as applicable (each of
which (except for the matters set forth in clauses (1), (2) and (18) below), if
so provided, may
<PAGE>
23
be determined from time to time by the Companies with respect to unissued
Securities of the series and set forth in such Securities of the series when
issued from time to time):
(1) the title of the Securities of the series (which shall
distinguish the Securities of the series from all other series of
Securities);
(2) whether one or both of the Companies (and, if only one, which
Company) is to act as issuer of the Securities of the series and whether
the Guarantee will apply to Securities of such series;
(3) any limit upon the aggregate principal amount of the Securities
of the series that may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 305, 306, 906, 1107 or 1405);
(4) the date or dates, or the method by which such date or dates
will be determined or extended, on which the principal of the Securities
of the series is payable;
(5) the rate or rates at which the Securities of the series shall
bear interest, if any, or the method by which such rate or rates shall be
determined, the date or dates from which such interest shall accrue, or
the method by which such date or dates shall be determined, the Interest
Payment Dates on which such interest shall be payable and the Regular
Record Date, if any, for the interest payable on any Registered Security
on any Interest Payment Date, or the method by which such date or dates
shall be determined, and the basis upon which interest shall be calculated
if other than on the basis of a 360-day year of twelve 30-day months;
(6) the place or places, if any, other than or in addition to the
Borough of Manhattan, The City of New York, where the principal of (and
premium, if any) and interest, if any, on Securities of the series shall
be payable, where any Registered Securities of the series may be
surrendered for registration of transfer, where Securities of the series
may be surrendered for exchange, where Securities of the series that are
convertible or exchangeable may be surrendered for conversion or exchange,
as applicable and, if different than the location specified in Section
106, the place or places where notices or demands to or upon the Companies
in respect of the Securities of the series and this Indenture may be
served;
(7) the period or periods within which, the price or prices at
which, the Currency in which, and other terms and conditions upon which
Securities of the series
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24
may be redeemed, in whole or in part, at the option of the Companies, if
the Companies is to have that option;
(8) the obligation, if any, of the Companies to redeem, repay or
purchase Securities of the series pursuant to any sinking fund or
analogous provision or at the option of a Holder thereof, and the period
or periods within which, the price or prices at which, the Currency in
which, and other terms and conditions upon which Securities of the series
shall be redeemed, repaid or purchased, in whole or in part, pursuant to
such obligation;
(9) if other than denominations of $1,000 and any integral multiple
thereof, the denomination or denominations in which any Securities of the
series shall be issuable;
(10) if other than the Trustee, the identity of each Security
Registrar and/or Paying Agent;
(11) if other than the principal amount thereof, the portion of the
principal amount of Securities of the series that shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section
502 or the method by which such portion shall be determined;
(12) if other than Dollars, the Currency in which payment of the
principal of (or premium, if any) or interest, if any, on the Securities
of the series shall be payable or in which the Securities of the series
shall be denominated and the particular provisions applicable thereto in
accordance with, in addition to or in lieu of any of the provisions of
Section 312;
(13) whether the amount of payments of principal of (or premium, if
any) or interest, if any, on the Securities of the series may be
determined with reference to an index, formula or other method (which
index, formula or method may be based, without limitation, on one or more
Currencies, commodities, equity indices or other indices), and the manner
in which such amounts shall be determined;
(14) whether the principal of (or premium, if any) or interest, if
any, on the Securities of the series are to be payable, at the election of
the Companies or a Holder thereof, in a Currency other than that in which
such Securities are denominated or stated to be payable, the period or
periods within which (including the Election Date), and the terms and
conditions upon which, such election may be made, and the time and manner
of determining the exchange rate between the Currency in which such
Securities are denominated or stated to be payable and the Currency in
which such
<PAGE>
25
Securities are to be so payable, in each case in accordance with, in
addition to or in lieu of any of the provisions of Section 312;
(15) the designation of the initial Exchange Rate Agent, if any;
(16) the applicability, if any, of Sections 307(b), 308, 1301, 1402
and/or 1403 to the Securities of the series and any provisions in
modification of, in addition to or in lieu of any of the provisions of
Article Fourteen that shall be applicable to the Securities of the series;
(17) provisions, if any, granting special rights to the Holders of
Securities of the series upon the occurrence of such events as may be
specified;
(18) any deletions from, modifications of or additions to the Events
of Default or covenants (including any deletions from, modifications of or
additions to Section 1011) of the Companies with respect to Securities of
the series, whether or not such Events of Default or covenants are
consistent with the Events of Default or covenants set forth herein;
(19) the Person to whom any interest on any Security of the series
shall be payable, if other than the Person in whose name that Security (or
one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest;
(20) if Securities of the series are to be issuable in definitive
form only upon receipt of certain certificates or other documents or
satisfaction of other conditions, the form and/or terms of such
certificates, documents or conditions;
(21) if the Securities of the series are to be issued upon the
exercise of warrants, the time, manner and place for such Securities to be
authenticated and delivered;
(22) if the Securities of the series are to be convertible into or
exchangeable for any securities of any Person (including the Companies),
the terms and conditions upon which such Securities will be so convertible
or exchangeable; and
(23) any other terms, conditions, rights and preferences (or
limitations on such rights and preferences) relating to the series (which
terms shall not be inconsistent with the requirements of the Trust
Indenture Act).
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26
All Securities of any one series shall be substantially identical
except as to denomination and except as may otherwise be provided in or pursuant
to such Board Resolution (subject to Section 303) and set forth in such
Officers' Certificate or in any such indenture supplemental hereto. Not all
Securities of any one series need be issued at the same time, and, unless
otherwise provided, a series may be reopened for issuances of additional
Securities of such series.
Subsequent to the issuance of the Initial Notes on the date hereof,
no Securities shall be issued under this Indenture that are senior in right of
payment to the Initial Notes.
If any of the terms of the series are established by action taken
pursuant to one or more Board Resolutions, such Board Resolutions shall be
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
SECTION 302. Denominations.
The Securities of each series shall be issuable in such
denominations as shall be specified as contemplated by Section 301. With respect
to Securities of any series denominated in Dollars, in the absence of any such
provisions, the Securities of such series shall be issuable in denominations of
$1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of each of the Companies
by its respective Chairman, its President, any Vice President or its Treasurer,
under its corporate seal reproduced thereon attested by its Secretary or an
Assistant Secretary. The signature of any of these officers on the Securities
may be the manual or facsimile signatures of the present or any future such
authorized officer and may be imprinted or otherwise reproduced on the
Securities.
Securities bearing the manual or facsimile signatures of individuals
who were at the time of such signature the proper officers of the Companies
shall bind the Companies, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the authentication and delivery of
such Securities or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery
of this Indenture, the Companies may deliver Securities of any series, executed
by the Companies to the Trustee for authentication, together with a Company
Order for the authentication and delivery of such Securities, and the Trustee in
accordance with such Company Order shall authenticate and deliver such
Securities. If not all the Securities of any series are to be issued
<PAGE>
27
at one time and if the Board Resolution or supplemental indenture establishing
such series shall so permit, such Company Order may set forth procedures
acceptable to the Trustee for the issuance of such Securities and determining
terms of particular Securities of such series such as interest rate, stated
maturity, date of issuance and date from which interest shall accrue.
In authenticating such Securities, and accepting the additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, and (subject to TIA Sections 315(a)
through 315(d)) shall be fully protected in relying upon, an Opinion of Counsel
stating:
(a) that the form or forms of such Securities have been established
in conformity with the provisions of this Indenture;
(b) that the terms of such Securities have been established in
conformity with the provisions of this Indenture;
(c) that such Securities, when completed by appropriate insertions
and executed and delivered by the Companies to the Trustee for
authentication in accordance with this Indenture, authenticated and
delivered by the Trustee in accordance with this Indenture and issued by
the Companies in the manner and subject to any conditions specified in
such Opinion of Counsel, will constitute the legal, valid and binding
obligations of the Companies, enforceable in accordance with their terms,
subject to applicable bankruptcy, insolvency, reorganization and other
similar laws of general applicability relating to or affecting the
enforcement of creditors' rights, to general equitable principles and to
such other qualifications as such counsel shall conclude do not materially
affect the rights of Holders of such Securities;
(d) that all laws and requirements in respect of the execution and
delivery by the Companies of such Securities and of the supplemental
indentures, if any, have been complied with and that authentication and
delivery of such Securities and the execution and delivery of the
supplemental indenture, if any, by the Trustee will not violate the terms
of the Indenture;
(e) that the Companies have the corporate power to issue such
Securities and has duly taken all necessary corporate action with respect
to such issuance; and
(f) that the issuance of such Securities will not contravene the
articles of incorporation or by-laws of each of the Companies or result in
any violation of any of the terms or provisions of any law or regulation
or of any indenture, mortgage or other agreement known to such Counsel by
which each of the Companies is bound.
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28
Notwithstanding the provisions of Section 301 and of the preceding
two paragraphs, if not all the Securities of any series are to be issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 301 or the Company Order and Opinion of Counsel
otherwise required pursuant to the preceding two paragraphs prior to or at the
time of issuance of each Security, but such documents shall be delivered prior
to or at the time of issuance of the first Security of such series.
The Trustee shall not be required to authenticate and deliver any
such Securities if the issue of such Securities pursuant to this Indenture will
affect the Trustee's own rights, duties or immunities under the Securities and
this Indenture or otherwise in a manner which is not reasonably acceptable to
the Trustee.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the Companies, and the Companies shall deliver such
Security to the Trustee for cancellation as provided in Section 309 together
with a written statement (which need not comply with Section 102 and need not be
accompanied by an Opinion of Counsel) stating that such Security has never been
issued and sold by the Companies, for all purposes of this Indenture such
Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.
In case either of the Companies, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which either of the Companies
shall have been merged, or the Person which shall have received a conveyance,
transfer, lease or other disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Trustee pursuant to Article Nine, any of
the Securities authenticated or delivered prior to such consolidation, merger,
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Securities executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such
<PAGE>
29
request for the purpose of such exchange. If Securities shall at any time be
authenticated and delivered in any new name of a successor Person pursuant to
this Section 303 in exchange or substitution for or upon registration of
transfer of any Securities, such successor Person, at the option of the Holders
but without expense to them, shall provide for the exchange of all Securities at
the time Outstanding for Securities authenticated and delivered in such new
name.
The Securities represented by the Global Note are exchangeable for
Physical Notes in definitive form of like tenor as such Notes in denominations
of U.S.$1,000 and integral multiples thereof if: (i) the Depositary notifies the
Companies that it is unwilling or unable to continue as Depositary for the
Global Note or the Depositary ceases to be a "Clearing Agency" registered under
the Exchange Act and a successor depositary is not appointed by the Company
within 90 days, (ii) the Companies in their discretion at any time determines
not to have all of the Notes represented by the Global Note or (iii) an Event of
Default has occurred and Holders of more than 25% in aggregate principal amount
of the Securities at the time outstanding represented by the Global Notes advise
the Trustee through the Depositary in writing that the continuation of a
book-entry system through the Depositary with respect to the Global Notes is no
longer required. Any Security that is exchangeable pursuant to the preceding
sentence is exchangeable for certificated Securities issuable in authorized
denominations and registered in such names as the Depository shall direct.
Subject to the foregoing, the Global Note is not exchangeable, except for a
Global Note of the same aggregate denomination to be registered in the name of
the Depository or its nominee. In addition, such certificates will bear the
Private Placement Legend (unless the Companies determine otherwise in accordance
with applicable law) subject, with respect to such Securities, to the provisions
of such legend.
SECTION 304. [Reserved.]
SECTION 305. Registration, Registration of Transfer and Exchange.
The Companies shall cause to be kept at the Corporate Trust Office
of the Trustee a register for each series of Securities (the registers
maintained in the Corporate Trust Office of the Trustee and in any other office
or agency of any of the Companies in a Place of Payment being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Companies shall provide for the
registration of the Securities and of transfers of the Securities. The Security
Register shall be in written form or any other form capable of being converted
into written form within a reasonable time. At all reasonable times, the
Security Register shall be open to inspection by the Trustee. The Trustee is
hereby initially appointed as security registrar (the "Security Registrar") for
the purpose of registering the Securities and transfers of the Securities as
herein provided.
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30
Upon surrender for registration of transfer of any Security of any
series at the office or agency in a Place of Payment for that series, the
Companies shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee, one or more new Securities of the same
series, of any authorized denominations and of a like aggregate principal amount
and tenor.
At the option of the Holder, Securities of any series may be
exchanged for other Securities of the same series, of any authorized
denomination and of a like aggregate principal amount, upon surrender of the
Securities to be exchanged at such office or agency. Whenever any Securities are
so surrendered for exchange, the Companies shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive.
All Securities issued upon any registration of transfer or exchange
of Securities shall be the valid obligations of the Companies, evidencing the
same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Companies or the Security
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer, in form satisfactory to the Companies and the Security Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Companies may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 906, 1107 or 1305 not involving any transfer.
The Companies shall not be required (i) to issue, register the
transfer of or exchange Securities of any series during a period beginning at
the opening of business 15 days before the day of the selection for redemption
of Securities of that series under Section 1104 and ending at the close of
business on the day of the mailing of the relevant notice of redemption, or (ii)
to register the transfer of or exchange of any Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part, or (iii) to issue, register the transfer of or exchange
any Security which has been surrendered for repayment at the option of the
Holder, except the portion, if any, of such Security not to be so repaid.
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31
A Holder of Securities (other than certain specified holders) who
wishes to exchange such Securities for Exchange Notes in the Registered Exchange
Offer will be required to represent that any Exchange Notes to be received by it
will be acquired in the ordinary course of its business and that at the time of
the commencement of the Registered Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and that it is not an
"affiliate" of either of the Companies, as defined in Rule 405 of the Securities
Act or, if it is an affiliate, that it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If (i) any mutilated Security is surrendered to the Trustee, or (ii)
the Companies and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Companies and the Trustee such security or indemnity as may be required by them
to save each of them harmless, then, in the absence of notice to the Companies
or the Trustee that such Security has been acquired by a bona fide purchaser,
the Companies shall execute and upon Company Order the Trustee shall
authenticate and deliver, in exchange for any such mutilated Security or in lieu
of any such destroyed, lost or stolen Security, a new Security of like tenor and
principal amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Companies may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in
lieu of any mutilated, destroyed, lost or stolen Security shall constitute an
original additional contractual obligation of the Companies, whether or not the
mutilated, destroyed, lost or stolen Security shall be at any time enforceable
by anyone, and shall be entitled to all the benefits of this Indenture equally
and proportionately with any and all other Securities of that series duly issued
hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
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32
SECTION 307. Payment of Interest; Interest Rights Preserved.
(a) Unless otherwise provided as contemplated by Section 301 with
respect to any series of Securities, interest, if any, on any Security (and any
Additional Amounts payable in respect thereof) which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid
to the Person in whose name such Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest at the office or agency of either of the Companies maintained
for such purpose pursuant to Section 1002; provided, however, that each
installment of interest on any Security may at the Companies' option be paid by
(i) mailing a check for such interest, payable to or upon the written order of
the Person entitled thereto pursuant to Section 309, to the address of such
Person as it appears on the Security Register or (ii) transfer to an account
maintained by the payee located in the United States.
Any interest on any Security of any series (and any Additional
Amounts payable in respect thereof) which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the relevant Regular Record Date by virtue of having
been such Holder, and such defaulted interest and, if applicable, interest on
such defaulted interest (to the extent lawful) at the rate specified in the
Securities of such series (such defaulted interest and, if applicable, interest
thereon herein collectively called "Defaulted Interest") may be paid by the
Companies, at their election in each case, as provided in clause (1) or (2)
below:
(1) The Companies may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Companies
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security of such series and the date of the
proposed payment, and at the same time the Companies shall deposit with
the Trustee an amount of money in the Currency in which the Securities of
such series are payable (except as otherwise specified pursuant to Section
301 for the Securities of such series and except, if applicable, as
provided in Sections 312(b), 312(d) and 312(e)) equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest or shall
make arrangements satisfactory to the Trustee for such deposit on or prior
to the date of the proposed payment, such money when deposited to be held
in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days prior to the date of
the proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall promptly
notify the Companies of
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33
such Special Record Date and, in the name and at the expense of the
Companies, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be given in the manner
provided in Section 106, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor having been so given, such Defaulted
Interest shall be paid to the Persons in whose name the Securities of such
series (or their respective Predecessor Securities) are registered at the
close of business on such Special Record Date and shall no longer be
payable pursuant to the following clause (2).
(2) The Companies may make payment of any Defaulted Interest on the
Securities of any series in any other lawful manner not inconsistent with
the requirements of any securities exchange on which such Securities may
be listed, and upon such notice as may be required by such exchange, if,
after notice given by the Companies to the Trustee of the proposed payment
pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
(b) The provisions of this Section 307(b) may be made applicable to
any series of Securities pursuant to Section 301 (with such modifications,
additions or substitutions as may be specified pursuant to such Section 301).
The interest rate (or the spread or spread multiplier used to calculate such
interest rate, if applicable) on any Security of such series may be reset by the
Companies on the date or dates specified on the face of such Security (each an
"Optional Reset Date"). The Companies may exercise such option with respect to
such Security by notifying the Trustee of such exercise at least 50 but not more
than 60 days prior to an Optional Reset Date for such Note. Not later than 40
days prior to each Optional Reset Date, the Trustee shall transmit, in the
manner provided for in Section 106, to the Holder of any such Security a notice
(the "Reset Notice") indicating whether the Companies have elected to reset the
interest rate (or the spread or spread multiplier used to calculate such
interest rate, if applicable), and if so (i) such new interest rate (or such new
spread or spread multiplier, if applicable) and (ii) the provisions, if any, for
redemption during the period from such Optional Reset Date to the next Optional
Reset Date or if there is no such next Optional Reset Date, to the Stated
Maturity Date of such Security (each such period a "Subsequent Interest
Period"), including the date or dates on which or the period or periods during
which and the price or prices at which such redemption may occur during the
Subsequent Interest Period.
Notwithstanding the foregoing, not later than 20 days prior to the
Optional Reset Date, the Companies may, at their option, revoke the interest
rate (or the spread or spread multiplier used to calculate such interest rate,
if applicable) provided for in the Reset Notice and establish an interest rate
(or a spread or spread multiplier used to calculate such interest rate, if
applicable) that is higher than the interest rate (or the spread or spread
multiplier, if applicable) provided for in the Reset Notice, for the Subsequent
Interest Period
<PAGE>
34
by causing the Trustee to transmit, in the manner provided for in Section 106,
notice of such higher interest rate (or such higher spread or spread multiplier,
if applicable) to the Holder of such Security. Such notice shall be irrevocable.
All Securities with respect to which the interest rate (or the spread or spread
multiplier used to calculate such interest rate, if applicable) is reset on an
Optional Reset Date, and with respect to which the Holders of such Securities
have not tendered such Securities for repayment (or have validly revoked any
such tender) pursuant to the next succeeding paragraph, will bear such higher
interest rate (or such higher spread or spread multiplier, if applicable).
The Holder of any such Security will have the option to elect
repayment by the Companies of the principal of such Security on each Optional
Reset Date at a price equal to the principal amount thereof plus interest
accrued to such Optional Reset Date. In order to obtain repayment on an Optional
Reset Date, the Holder must follow the procedures set forth in Article Thirteen
for repayment at the option of Holders except that the period for delivery or
notification to the Trustee shall be at least 25 but not more than 35 days prior
to such Optional Reset Date and except that, if the Holder has tendered any
Security for repayment pursuant to the Reset Notice, the Holder may, by written
notice to the Trustee, revoke such tender or repayment until the close of
business on the tenth day before such Optional Reset Date.
Subject to the foregoing provisions of this Section and Section 305,
each Security delivered under this Indenture upon registration of transfer of or
in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
SECTION 308. Optional Extension of Stated Maturity.
The provisions of this Section 308 may be made applicable to any
series of Securities pursuant to Section 301 (with such modifications, additions
or substitutions as may be specified pursuant to such Section 301). The Stated
Maturity of any Security of such series may be extended at the option of the
Companies for the period or periods specified on the face of such Security (each
an "Extension Period") up to but not beyond the date (the "Final Maturity") set
forth on the face of such Security. The Companies may exercise such option with
respect to any Security by notifying the Trustee of such exercise at least 50
but not more than 60 days prior to the Stated Maturity of such Security in
effect prior to the exercise of such option (the "Original Stated Maturity"). If
the Companies exercise such option, the Trustee shall transmit, in the manner
provided for in Section 106, to the Holder of such Security not later than 40
days prior to the Original Stated Maturity a notice (the "Extension Notice")
indicating (i) the election of the Companies to extend the Stated Maturity, (ii)
the new Stated Maturity, (iii) the interest rate, if any, applicable to the
Extension Period and (iv) the provisions, if any, for redemption during such
Extension Period. Upon the Trustee's transmittal of the Extension Notice, the
Stated Maturity of such Security shall be extended
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35
automatically and, except as modified by the Extension Notice and as described
in the next paragraph, such Security will have the same terms as prior to the
transmittal of such Extension Notice.
Notwithstanding the foregoing, not later than 20 days before the
Original Stated Maturity of such Security, the Companies may, at their option,
revoke the interest rate provided for in the Extension Notice and establish a
higher interest rate for the Extension Period by causing the Trustee to
transmit, in the manner provided for in Section 106, notice of such higher
interest rate to the Holder of such Security. Such notice shall be irrevocable.
All Securities with respect to which the Stated Maturity is extended will bear
such higher interest rate.
If the Companies extend the Maturity of any Security, the Holder
will have the option to elect repayment of such Security by the Companies on the
Original Stated Maturity at a price equal to the principal amount thereof, plus
interest accrued to such date. In order to obtain repayment on the Original
Stated Maturity once the Companies have extended the Maturity thereof, the
Holder must follow the procedures set forth in Article Thirteen for repayment at
the option of Holders, except that the period for delivery or notification to
the Trustee shall be at least 25 but not more than 35 days prior to the Original
Stated Maturity and except that, if the Holder has tendered any Security for
repayment pursuant to an Extension Notice, the Holder may by written notice to
the Trustee revoke such tender for repayment until the close of business on the
tenth day before the Original Stated Maturity.
SECTION 309. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer,
the Companies, the Trustee and any agent of the Companies or the Trustee may
treat the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of (and premium, if
any) and (subject to Sections 305 and 307) interest, if any, on such Security
and for all other purposes whatsoever, whether or not such Security be overdue,
and none of the Companies, the Trustee or any agent of the Companies or the
Trustee shall be affected by notice to the contrary.
SECTION 310. Cancellation.
All Securities surrendered for payment, redemption, repayment at the
option of the Holder, registration of transfer or exchange shall, if surrendered
to any Person other than the Trustee, be delivered to the Trustee. All
Securities so delivered to the Trustee shall be promptly cancelled by it. The
Companies may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Companies may have
acquired in any manner whatsoever, and may deliver to the Trustee (or
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36
to any other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Companies have not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Companies shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Companies unless
by Company Order the Companies shall direct that cancelled Securities be
returned to them.
SECTION 311. Computation of Interest.
Except as otherwise specified as contemplated by Section 301 with
respect to any Securities, interest, if any, on the Securities of each series
shall be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 312. Currency and Manner of Payments in Respect of
Securities.
(a) With respect to Securities of any series not permitting the
election provided for in paragraph (b) below or the Holders of which have not
made the election provided for in paragraph (b) below, payment of the principal
of (and premium, if any) and interest, if any, on any Security of such series
will be made in the Currency in which such Security is payable. The provisions
of this Section 312 may be modified or superseded with respect to any Securities
pursuant to Section 301.
(b) It may be provided pursuant to Section 301 with respect to
Securities of any series that Holders shall have the option, subject to
paragraphs (d) and (e) below, to receive payments of principal of (or premium,
if any) or interest, if any, on such Securities in any of the Currencies which
may be designated for such election by delivering to the Trustee a written
election with signature guarantees and in the applicable form established
pursuant to Section 301, not later than the close of business on the Election
Date immediately preceding the applicable payment date. If a Holder so elects to
receive such payments in any such Currency, such election will remain in effect
for such Holder or any transferee of such Holder until changed by such Holder or
such transferee by written notice to the Trustee (but any such change must be
made not later than the close of business on the Election Date immediately
preceding the next payment date to be effective for the payment to be made on
such payment date and no such change of election may be made with respect to
payments to be made on any Security of such series with respect to which an
Event of Default has occurred or with respect to which the Companies have
deposited funds pursuant to Article Four or Fourteen or with
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37
respect to which a notice of redemption has been given by the Companies or a
notice of option to elect repayment has been sent by such Holder or such
transferee). Any Holder of any such Security who shall not have delivered any
such election to the Trustee not later than the close of business on the
applicable Election Date will be paid the amount due on the applicable payment
date in the relevant Currency as provided in Section 312(a). The Trustee shall
notify the Exchange Rate Agent as soon as practicable after the Election Date of
the aggregate principal amount of Securities for which Holders have made such
written election.
(c) Unless otherwise specified pursuant to Section 301, if the
election referred to in paragraph (b) above has been provided for pursuant to
Section 301, then, unless otherwise specified pursuant to Section 301, not later
than the fourth Business Day after the Election Date for each payment date for
Securities of any series, the Exchange Rate Agent will deliver to the Companies
a written notice specifying, in the Currency in which Securities of such series
are payable, the respective aggregate amounts of principal of (and premium, if
any) and interest, if any, on the Securities to be paid on such payment date,
specifying the amounts in such Currency so payable in respect of the Securities
as to which the Holders of Securities of such series shall have elected to be
paid in another Currency as provided in paragraph (b) above. If the election
referred to in paragraph (b) above has been provided for pursuant to Section 301
and if at least one Holder has made such election, then, unless otherwise
specified pursuant to Section 301, on the second Business Day preceding such
payment date the Companies will deliver to the Trustee for such series of
Securities an Exchange Rate Officer's Certificate in respect of the Dollar or
Foreign Currency payments to be made on such payment date. Unless otherwise
specified pursuant to Section 301, the Dollar or Foreign Currency amount
receivable by Holders of Securities who have elected payment in a Currency as
provided in paragraph (b) above shall be determined by the Companies on the
basis of the applicable Market Exchange Rate in effect on the third Business Day
(the "Valuation Date") immediately preceding each payment date, and such
determination shall be conclusive and binding for all purposes, absent manifest
error.
(d) If a Conversion Event occurs with respect to a Foreign Currency
in which any of the Securities are denominated or payable other than pursuant to
an election provided for pursuant to paragraph (b) above, then with respect to
each date for the payment of principal of (and premium, if any) and interest, if
any, on the applicable Securities denominated or payable in such Foreign
Currency occurring after the last date on which such Foreign Currency was used
(the "Conversion Date"), the Dollar shall be the Currency of payment for use on
each such payment date. Unless otherwise specified pursuant to Section 301, the
Dollar amount to be paid by the Companies to the Trustee and by the Trustee or
any Paying Agent to the Holders of such Securities with respect to such payment
date shall be, in the case of a Foreign Currency other than a currency unit, the
Dollar Equivalent of the Foreign Currency or, in the case of a currency unit,
the Dollar Equivalent of the Currency
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38
Unit, in each case as determined by the Exchange Rate Agent in the manner
provided in paragraph (f) or (g) below.
(e) Unless otherwise specified pursuant to Section 301, if the
Holder of a Security denominated in any Currency shall have elected to be paid
in another Currency as provided in paragraph (b) above, and a Conversion Event
occurs with respect to such elected Currency, such Holder shall receive payment
in the Currency in which payment would have been made in the absence of such
election; and if a Conversion Event occurs with respect to the Currency in which
payment would have been made in the absence of such election, such Holder shall
receive payment in Dollars as provided in paragraph (d) above.
(f) The "Dollar Equivalent of the Foreign Currency" shall be
determined by the Exchange Rate Agent and shall be obtained for each subsequent
payment date by converting the specified Foreign Currency into Dollars at the
Market Exchange Rate on the Conversion Date.
(g) The "Dollar Equivalent of the Currency Unit" shall be determined
by the Exchange Rate Agent and subject to the provisions of paragraph (h) below
shall be the sum of each amount obtained by converting the Specified Amount of
each Component Currency into Dollars at the Market Exchange Rate for such
Component Currency on the Valuation Date with respect to each payment.
(h) For purposes of this Section 312 the following terms shall have
the following meanings:
A "Component Currency" shall mean any Currency which, on the
Conversion Date, was a component currency of the relevant currency unit,
including, but not limited to, the ECU.
A "Specified Amount" of a Component Currency shall mean the number
of units of such Component Currency or fractions thereof which were
represented in the relevant currency unit, including, but not limited to,
the ECU, on the Conversion Date. If after the Conversion Date the official
unit of any Component Currency is altered by way of combination or
subdivision, the Specified Amount of such Component Currency shall be
divided or multiplied in the same proportion. If after the Conversion Date
two or more Component Currencies are consolidated into a single currency,
the respective Specified Amounts of such Component Currencies shall be
replaced by an amount in such single Currency equal to the sum of the
respective Specified Amounts of such consolidated Component Currencies
expressed in such single Currency, and such amount shall thereafter be a
Specified Amount and such single Currency shall thereafter be a Component
Currency. If after the Conversion Date any Component Currency
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39
shall be divided into two or more currencies, the Specified Amount of such
Component Currency shall be replaced by amounts of such two or more
currencies, having an aggregate Dollar Equivalent value at the Market
Exchange Rate on the date of such replacement equal to the Dollar
Equivalent value of the Specified Amount of such former Component Currency
at the Market Exchange Rate immediately before such division and such
amounts shall thereafter be Specified Amounts and such currencies shall
thereafter be Component Currencies. If, after the Conversion Date of the
relevant currency unit, including, but not limited to, the ECU, a
Conversion Event (other than any event referred to above in this
definition of "Specified Amount") occurs with respect to any Component
Currency of such currency unit and is continuing on the applicable
Valuation Date, the Specified Amount of such Component Currency shall, for
purposes of calculating the Dollar Equivalent of the Currency Unit, be
converted into Dollars at the Market Exchange Rate in effect on the
Conversion Date of such Component Currency.
"Election Date" shall mean the date for any series of Securities as
specified pursuant to clause (13) of Section 301 by which the written
election referred to in paragraph (b) above may be made.
All decisions and determinations of the Exchange Rate Agent
regarding the Dollar Equivalent of the Foreign Currency, the Dollar Equivalent
of the Currency Unit, the Market Exchange Rate and changes in the Specified
Amounts as specified above shall be in its sole discretion and shall, in the
absence of manifest error, be conclusive for all purposes and irrevocably
binding upon the Companies, the Trustee and all Holders of such Securities
denominated or payable in the relevant Currency. The Exchange Rate Agent shall
promptly give written notice to the Companies and the Trustee of any such
decision or determination.
In the event that the Companies determine in good faith that a
Conversion Event has occurred with respect to a Foreign Currency, the Companies
will immediately give written notice thereof to the Trustee and to the Exchange
Rate Agent (and the Trustee will promptly thereafter give notice in the manner
provided for in Section 106 to the affected Holders) specifying the Conversion
Date. In the event the Companies so determine that a Conversion Event has
occurred with respect to the ECU or any other currency unit in which Securities
are denominated or payable, the Companies will immediately give written notice
thereof to the Trustee and to the Exchange Rate Agent (and the Trustee will
promptly thereafter give notice in the manner provided for in Section 106 to the
affected Holders) specifying the Conversion Date and the Specified Amount of
each Component Currency on the Conversion Date. In the event the Companies
determine in good faith that any subsequent change in any Component Currency as
set forth in the definition of Specified Amount above has occurred, the
Companies will similarly give written notice to the Trustee and the Exchange
Rate Agent.
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40
The Trustee shall be fully justified and protected in relying and
acting upon information received by it from the Companies and the Exchange Rate
Agent and shall not otherwise have any duty or obligation to determine the
accuracy or validity of such information independent of the Companies or the
Exchange Rate Agent.
SECTION 313. Appointment and Resignation of Successor Exchange Rate
Agent.
(a) Unless otherwise specified pursuant to Section 301, if and so
long as the Securities of any series (i) are denominated in a Currency other
than Dollars or (ii) may be payable in a Currency other than Dollars, or so long
as it is required under any other provision of this Indenture, then the
Companies will maintain with respect to each such series of Securities, or as so
required, at least one Exchange Rate Agent. The Companies will cause the
Exchange Rate Agent to make the necessary foreign exchange determinations at the
time and in the manner specified pursuant to Section 301 for the purpose of
determining the applicable rate of exchange and, if applicable, for the purpose
of converting the issued Currency into the applicable payment Currency for the
payment of principal (and premium, if any) and interest, if any, pursuant to
Section 312.
(b) No resignation of the Exchange Rate Agent and no appointment of
a successor Exchange Rate Agent pursuant to this Section shall become effective
until the acceptance of appointment by the successor Exchange Rate Agent as
evidenced by a written instrument delivered to the Companies and the Trustee.
(c) If the Exchange Rate Agent shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the Exchange
Rate Agent for any cause with respect to the Securities of one or more series,
the Companies, by or pursuant to a Board Resolution, shall promptly appoint a
successor Exchange Rate Agent or Exchange Rate Agents with respect to the
Securities of that or those series (it being understood that any such successor
Exchange Rate Agent may be appointed with respect to the Securities of one or
more or all of such series and that, unless otherwise specified pursuant to
Section 301, at any time there shall only be one Exchange Rate Agent with
respect to the Securities of any particular series that are originally issued by
the Companies on the same date and that are initially denominated and/or payable
in the same Currency).
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41
SECTION 314. Book-Entry Provisions for Global Notes.
(a) Unless otherwise provided pursuant to Section 301, the
Securities of each series initially will be issued in the form of one or more
Global Notes. The Global Notes initially shall (i) be registered in the name of
the Depositary for the Global Notes or the nominee of such Depositary, (ii) be
delivered to the Trustee as custodian for such Depositary and (iii) bear Private
Placement Legends.
The Depository or its nominee, upon receipt of any payment of
principal of or interest on a Global Note, will credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Note as shown on the records of the
Depository or its nominee.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to the Global Notes held
on their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Notes, and the Depositary may be treated by the Companies, the Trustee
and any agent of either of the Companies or the Trustee as the absolute owner of
the Global Notes for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Companies, the Trustee or any agent of the
Companies or the Trustee from giving effect to any written certification, proxy
or other authorization furnished by the Depositary or impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a beneficial owner of any Security.
Securities that are issued as described in subsection (b) below will
be issued in definitive form. Upon the transfer of a Security in definitive
form, such Security will, unless the applicable Global Note has previously been
exchanged for Securities in definitive form, be exchanged for an interest in the
Global Note representing the principal amount of Securities being transferred.
Upon the issuance of each Global Note, the Depository will credit,
on its book-entry registration and transfer system, the principal amount of the
Securities represented by such Global Note to the accounts of Holders. The
accounts to be credited shall be designated by the Initial Purchaser. Ownership
of beneficial interests in such Global Note will be limited to Holders or
persons that may hold interests through Holders. Ownership of beneficial
interests in a Global Note will be shown on, and the transfer of those ownership
interests will be effected only through, records maintained by the Depositary
(with respect to Holders' interests) and such Holders (with respect to the
owners of beneficial interests in such Global Note other than Holders).
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42
(b) Transfers of any Global Note shall be limited to transfers of
such Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees and, in part, the circumstances described in paragraph
(d) hereof. Interests of beneficial owners in any Global Note may be transferred
in accordance with the applicable rules and procedures of the Depositary and the
provisions of Section 305. Beneficial owners may obtain certificated Physical
Notes (which shall bear the Private Placement Legend if required by Section 203)
in exchange for their beneficial interests in a Global Note upon request in
accordance with the Depositary's and the Security Registrar's procedures if: (i)
the Depositary notifies the Companies that it is unwilling or unable to continue
as Depositary for the relevant Global Note or the Depositary ceases to be a
"Clearing Agency" registered under the Exchange Act and a successor depositary
is not appointed by the Companies within 90 days, (ii) the Companies in their
discretion at any time determine not to have all of the Securities represented
by Global Notes or (iii) an Event of Default has occurred and Holders of more
than 25% in aggregate principal amount of the Securities at the time outstanding
represented by the Global Notes advise the Trustee through the Depositary in
writing that the continuation of a book-entry system through the Depositary with
respect to the Global Notes is no longer required.
(c) In connection with the transfer of aGlobal Note to beneficial
owners pursuant to paragraph (b) of this Section, such Global Note shall be
deemed to be surrendered to the Trustee for cancellation, and the Companies
shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in such Global Note, an equal aggregate principal amount at maturity of
Physical Notes of authorized denominations.
(d) In connection with the execution, authentication and delivery of
Physical Notes in exchange for beneficial interests in a Global Note pursuant to
Section 315(b), the Security Registrar shall reflect on its books and records a
decrease in the principal amount at maturity of the relevant Global Note equal
to the principal amount at maturity of such Physical Notes and the Companies
shall execute and the Trustee shall authenticate and deliver one or more
Physical Notes having an equal aggregate principal amount at maturity.
(e) Any Physical Note delivered in exchange for an interest in a
Global Note bearing the Private Placement legend pursuant to paragraph (b) of
this Section shall bear the Private Placement legend, except as otherwise
provided in Section 315(d).
(f) The registered holder of a Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which the Holder is
entitled to take under this Indenture or the Securities.
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43
SECTION 315. Transfer Provisions.
(a) Certain Definitions. As used in this Section 315 only,
"delivery" of a certificate by a transferee or transferor means the delivery to
the Security Registrar by such transferee or transferor of the applicable
certificate duly completed; "holding" includes both possession of a Physical
Note and ownership of a beneficial interest in a Global Note, as the context
requires; "transferring" a "Security" means transferring a Physical Note or that
portion of the principal amount of the transferor's beneficial interest in a
Global Note that the transferor has notified the Security Registrar that it has
agreed to transfer.
(b) General. Unless and until (i) a Security is sold under an
effective Registration Statement, or (ii) a Security is exchanged for an
Exchange Note in connection with an effective Registration Statement, in each
case pursuant to the Registration Rights Agreement, the provisions described
below shall apply.
The Securities shall be issued in registered form and shall be
transferable only upon the surrender of a Security for registration of transfer.
When a Security is presented to the Security Registrar or a co-registrar with a
request to register a transfer, the Security Registrar shall register the
transfer as requested if the requirements of Section 8-401(1) of the Uniform
Commercial Code are met. When Securities are presented to the Security Registrar
or a co-registrar with a request to exchange them for an equal principal amount
of Securities of other denominations, the Security Registrar shall make the
exchange as requested if the same requirements are met. To permit registration
of transfers and exchanges, the Company shall execute and the Trustee shall
authenticate Securities at the Security Registrar's or co-registrar's request.
The Companies may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with any transfer or
exchange pursuant to this Section. The Companies shall not be required to make
and the Security Registrar need not register transfers or exchanges of
Securities selected for redemption (except, in the case of Securities to be
redeemed in part, the portion thereof not to be redeemed) or any Securities for
a period of 15 days before a selection of Securities to be redeemed or 15 days
before an interest payment date.
All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture will evidence the same debt and will be entitled to the
same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Companies or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Companies and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
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No service charge shall be made for any registration of transfer or
exchange of Securities, but the Companies may require payment of a sum
sufficient to cover any tax, assessment or other governmental charge payable in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 303, 305, 306 or 906 not involving any
transfer.
(c) Execution, Authentication and Delivery of Physical Notes. In any
case in which the Security Registrar is required to deliver a Physical Note to a
transferee, the Companies shall execute, and the Trustee shall authenticate and
deliver, such Physical Note.
(d) Certain Additional Terms Applicable to Physical Notes. Any
transferee entitled to receive a Physical Note may request that the principal
amount thereof be evidenced by one or more Physical Notes in any authorized
denomination or denominations and the Security Registrar shall comply with such
request if all other transfer restrictions are satisfied.
(e) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Security
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Security Registrar shall deliver only Securities
that bear the Private Placement Legend unless either (i) the Private Placement
Legend is no longer required by Section 203 or (ii) there is delivered to the
Security Registrar an Opinion of Counsel reasonably satisfactory to the
Companies to the effect that neither such legend nor the related restriction on
transfer are required in order to maintain compliance with the provisions of the
Securities Act.
(f) Acceptance of Restrictions on Transfer. By its acceptance of any
Security bearing the Private Placement Legend, each Holder of such Security
acknowledges the restrictions on transfer of such Security set forth in this
Indenture and in the Private Placement Legend and agrees that it will transfer
such Security only as provided in this Indenture. The Security Registrar shall
not register a transfer of any Security unless such transfer complies with the
restrictions with respect thereto set forth in this Indenture. The Security
Registrar shall not be required to determine (but may rely upon a determination
made by the Companies) the sufficiency of any such certifications, legal
opinions or other information.
The Trustee shall have no obligation or duty to monitor, determine
or inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security other than to require delivery of such certificates and other
documentation or evidence as are expressly required by, and to do so if and when
expressly required by the terms of, this Indenture, and to examine the same to
determine substantial compliance as to form with the express requirements
hereof.
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SECTION 316. CUSIP Numbers.
The Companies in issuing the Securities may use "CUSIP" numbers (if
then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to Holders; provided that any such notice
may state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Companies will promptly notify
the Trustee of any change in the CUSIP numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further
effect with respect to any series of Securities specified in such Company
Request (except as to any surviving rights of registration of transfer or
exchange of Securities of such series expressly provided for herein or pursuant
hereto) and the Trustee, at the expense of the Companies, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture as to
such series when
(1) either
(A) all Securities of such series theretofore authenticated
and delivered (other than (i) Securities which have been destroyed,
lost or stolen and which have been replaced or paid as provided in
Section 306, and (ii) Securities for whose payment money has
theretofore been deposited in trust with the Trustee or any Paying
Agent or segregated and held in trust by the Companies and
thereafter repaid to the Companies, as provided in Section 1003)
have been delivered to the Trustee for cancellation; or
(B) all Securities of such series not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
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(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) if redeemable at the option of the Companies, are
to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of
the Companies,
and the Companies, in the case of (i), (ii) or (iii) above, have
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount in the Currency in
which the Securities of such series are payable, sufficient to pay
and discharge the entire indebtedness on such Securities not
theretofore delivered to the Trustee for cancellation, for principal
(and premium, if any) and interest, if any, to the date of such
deposit (in the case of Securities which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case
may be;
(2) the Companies have paid or caused to be paid all other sums
payable hereunder by the Companies; and
(3) the Companies have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture as to such series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Companies to the Trustee under Section 606 and, if money
shall have been deposited with the Trustee pursuant to subclause (B) of clause
(1) of this Section, the obligations of the Trustee under Section 402 and the
last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Companies acting as their own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest, if any, for whose payment such money has been deposited with
the Trustee; but such money need not be segregated from other funds except to
the extent required by law.
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ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein with respect to Securities
of any series, means any one of the following events (whatever the reason for
such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(1) default in the payment of any interest on any Security of that
series, or any related coupon, when such interest or coupon becomes due
and payable, and continuance of such default for a period of 30 days;
(2) default in the payment of the principal of (or premium, if any,
on) any Security of that series at its Maturity and continuance of such
default for a period of five Business Days;
(3) default in the performance, or breach, of any covenant or
agreement of either of the Companies or the Guarantor in this Indenture
which affects or is applicable to the Securities of that series (other
than a default in the performance, or breach of a covenant or agreement
which is specifically dealt with elsewhere in this Section), and
continuance of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Companies or the
Guarantor, as the case may be, by the Trustee or to the Companies or the
Guarantor and the Trustee for such series of Securities by the Holders of
at least 25% in principal amount of all Outstanding Securities of that
series a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default"
hereunder;
(4) an event of default shall have occurred under any mortgage,
bond, indenture, loan agreement or other document evidencing any Debt of
either of the Companies or any Restricted Subsidiary of either of the
Companies, which Debt is outstanding in a principal amount in excess of
$25,000,000 in the aggregate, and such default shall result in such Debt
becoming, whether by declaration or otherwise, due and payable prior to
the date on which it would otherwise become due and payable or (b) a
default in any payment when due at final maturity of any such Debt;
(5) any Person entitled to take the actions described in this
Section, after the occurrence of any event of default under any agreement
or instrument evidencing any
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Debt in excess of $25,000,000 in the aggregate of either the Companies or
any Restricted Subsidiary of the Companies, shall commence judicial
proceedings to foreclose upon assets of the Companies or any of their
Subsidiaries having an aggregate value in excess of $25,000,000, or shall
have exercised any right under applicable law or applicable security
documents to take ownership of such assets in lieu of foreclosure;
(6) final judgments or orders rendered against either of the
Companies or any Restricted Subsidiary which require the payment in money,
either individually or in an aggregate amount, that is more than
$25,000,000 and either (a) an enforcement proceeding shall have been
commenced by any creditor upon such judgment or order or (b) there shall
have been a period of 60 days during which a stay of enforcement of such
judgment or order, by reason of pending appeal or otherwise, was not in
effect;
(7) the entry of a decree or order by a court having jurisdiction in
the premises adjudging either of the Companies or the Guarantor as
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
either of the Companies or the Guarantor under the Federal Bankruptcy Code
or any other applicable federal or state law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
either of the Companies or the Guarantor or of any substantial part of
their respective property, or ordering the winding up or liquidation of
their affairs, and the continuance of any such decree or order unstayed
and in effect for a period of 90 consecutive days;
(8) the institution by any of the Companies or the Guarantor of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by
either of them to the institution of bankruptcy or insolvency proceedings
against them, or the filing by any of them of a petition or answer or
consent seeking reorganization or relief under the Federal Bankruptcy Code
or any other applicable federal or state law, or the consent by any of
them to the filing of any such petition or the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
any of the Companies or the Guarantor or of any substantial part of their
respective property, or the making by any of them of an assignment for the
benefit of creditors, or the admission by it in writing of their inability
to pay their debts generally as they become due; and
(9) the Guarantee ceases to be in full force and effect or is
declared null and void or the Guarantor denies that it has any further
liability under the Guarantee, or gives notice to such effect (other than
by reason of the termination of this Indenture or the release of the
Guarantee in accordance with this Indenture).
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SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default described in clause (1), (2), (3), (4) (5),
(6) or (9) of Section 501 with respect to Securities of any series at the time
Outstanding occurs and is continuing, then either the Trustee or the Holders of
at least 25% in principal amount of the Outstanding Securities of that series
may declare the principal amount (or, if the Securities of that series are
Original Issue Discount Securities or Indexed Securities, such portion of the
principal amount as may be specified in the terms of that series) of all of the
Securities of that series to be due and payable immediately. If an Event of
Default described in clause (7) or (8) of Section 501 occurs and is continuing,
then the principal amount (or, if any such Securities are Original Issue
Discount Securities or Indexed Securities, such portion of the principal amount
as may be specified in the terms of that series) of all of the Outstanding
Securities shall be due and payable immediately without any declaration or other
act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration with respect to
Securities of any series (or of all series, as the case may be) has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter provided in this Article, the Holders of a
majority in principal amount of the Outstanding Securities of that series (or of
all series, as the case may be), by written notice to the Companies and the
Trustee, may rescind and annul such declaration and its consequences if:
(1) the Companies have paid or deposited with the Trustee a sum
sufficient to pay in the Currency in which the Securities of such series
are payable (except as otherwise specified pursuant to Section 301 for the
Securities of such series and except, if applicable, as provided in
Sections 315(b), 315(d) and 315(e)),
(A) all overdue interest, if any, on all Outstanding
Securities of that series (or of all series, as the case may be),
(B) all unpaid principal of (and premium, if any) any
Outstanding Securities of that series (or of all series, as the case
may be) which has become due otherwise than by such declaration of
acceleration, and interest on such unpaid principal at the rate or
rates prescribed therefor in such Securities,
(C) to the extent that payment of such interest is lawful,
interest on overdue interest, if any, at the rate or rates
prescribed therefor in such Securities, and
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(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default with respect to Securities of that series
(or of all series, as the case may be), other than the non-payment of
amounts of principal of (or premium, if any, on) or interest on Securities
of that series (or of all series, as the case may be) which have become
due solely by such declaration of acceleration, have been cured or waived
as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
Each of the Companies and the Guarantor covenants that if:
(1) default is made in the payment of any installment of interest on
any Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium,
if any, on) any Security at the Maturity thereof,
then each of the Companies and the Guarantor will, upon demand of the Trustee,
pay to the Trustee for the benefit of the Holders of such Securities, the whole
amount then due and payable on such Securities for principal (and premium, if
any) and interest, if any, and interest on any overdue principal (and premium,
if any) and on any overdue interest, at the rate or rates prescribed therefor in
such Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If any of the Companies or the Guarantor, as the case may be, fails
to pay such amounts forthwith upon such demand, the Trustee, in its own name as
trustee of an express trust, may institute a judicial proceeding for the
collection of the sums so due and unpaid, may prosecute such proceeding to
judgment or final decree and may enforce the same against any of the Companies
or the Guarantor or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of any of the Companies or the Guarantor or any other obligor upon
such Securities, wherever situated.
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If an Event of Default with respect to the Securities of any series
(or of all series, as the case may be) occurs and is continuing, the Trustee may
in its discretion proceed to protect and enforce its rights and the rights of
the Holders of Securities of such series (or of all series, as the case may be)
by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Companies or any other obligor upon
the Securities (including the Guarantor) or the property of the Companies or of
such other obligor or their creditors, the Trustee (irrespective of whether the
principal of the Securities shall then be due and payable as therein expressed
or by declaration or otherwise and irrespective of whether the Trustee shall
have made any demand on the Companies for the payment of overdue principal,
premium, if any, or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of principal (and
premium, if any), or such potion of the principal amount of any series of
Original Issue Discount Securities or Indexed Securities as may be
specified in the terms of such series, and interest, if any, owing and
unpaid in respect of the Securities and to file such other papers or
documents as may be necessary or advisable in order to have the claims of
the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder
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thereof or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, if any, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
First: To the payment of all amounts due the Trustee under Section
606;
Second: To the payment of the amounts then due and unpaid for
principal of (and premium, if any), interest, if any, Tax Redemption
Price, if any, and Additional Amounts, if any, on all Securities issued
hereunder having the same ranking or priority hereunder in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due
and payable on such Securities; and
Third: The balance, if any, to the Person or Persons entitled
thereto, including the Companies and the Guarantor.
SECTION 507. Limitation on Suits.
No Holder of any Security of any series shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default with respect to the Securities of that
series;
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(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series (in the case of an Event of Default
other than of the type described in Section 501(7) and (8)) or the Holders
of not less than 25% in principal amount of all Outstanding Securities (in
the case of an Event of Default of the type described in Section 501(7)
and (8)) shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Securities of that
series, in the case of any Event of Default described in Section 501, by
the Holders of a majority or more in principal amount of all Outstanding
Securities;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Securities of the same series, in the case of any Event of Default
described in clause (1), (2) or (3) of Section 501, or of Holders of all
Securities in the case of any Event of Default described in clause (4) or (5) of
Section 501, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all Holders
of Securities of the same series, in the case of any Event of Default described
in clause (1), (2) or (3) of Section 501, or of Holders of all Securities in the
case of any Event of Default described in clause (4) or (5) of Section 501.
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article Thirteen)
and in such Security, of the principal of (and premium, if any) and (subject to
Section 307) interest, if any, on, such Security on the respective Stated
Maturities expressed in such Security (or, in the case of
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redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Companies, the Guarantor, the Trustee and
the Holders of Securities shall be restored severally and respectively to their
former positions hereunder and thereafter all rights and remedies of the Trustee
and the Holders shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders of Securities is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 512. Control by Holders.
With respect to the securities of any series, the Holders of not
less than a majority in principal amount of the Outstanding Securities of such
series shall have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee, relating to or arising under clause (1), (2),
(3), (4), (5), (7), (8) or (9) of Section 501, and, with respect to all
Securities, the Holders of not less than a majority in principal amount of all
Outstanding Securities shall
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55
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee, not relating to or arising under clause (1), (2), (3)
or (6) of Section 501; provided that in each case:
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders of Securities
of such series not consenting.
SECTION 513. Waiver of Past Defaults.
Subject to Section 502, the Holders of a majority in principal
amount of the Outstanding Securities of any series (in the case of an Event of
Default specified in (1), (2), (3) or (6) of Section 501) or of all the
Securities then Outstanding (in the case of an Event of Default specified in (4)
or (5) of Section 501) may, on behalf of all such Holders, waive any past
default under the Indenture with respect to such Securities except a default in
the payment of the principal of (or premium, if any) or any interest on the
Securities and except a default in respect of a covenant or provision the
modification or amendment of which would require the consent of the Holder of
each Outstanding Security affected thereby.
Upon any such waiver, any such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
it discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any
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56
suit instituted by any of the Companies, to any suit instituted by the Trustee,
to any suit instituted by any Holder, or group of Holders, holding in the
aggregate more than 10% in principal amount of the Outstanding Securities of any
series, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of (or premium, if any) or interest on any Security on
or after the Stated Maturity or Maturities expressed in such Security (or, in
the case of redemption, on or after the Redemption Date).
SECTION 515. Waiver of Stay or Extension Laws.
The Companies and the Guarantor covenant (to the extent that each
may lawfully do so) that they will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Companies and
the Guarantor (to the extent that it may lawfully do so) hereby expressly waive
all benefit or advantage of any such law and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 516. Remedies Subject to Applicable Law.
All rights, remedies and powers provided by this Article Five may be
exercised only to the extent that the exercise thereof does to violate any
applicable provision of law in the premises, and all the provisions of this
Indenture are intended to be subject to all applicable mandatory provisions of
law which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Indenture invalid, unenforceable or
not entitled to be recorded, registered or filed under the provisions of any
applicable law.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
Within 90 days after the occurrence of any Default hereunder with
respect to the Securities of any series, the Trustee shall transmit in the
manner and to the extent provided in TIA Section 313(c), notice of such Default
hereunder known to a Responsible Officer of the Trustee, unless such Default
shall have been cured or waived; provided, however, that, except in the case of
a Default in the payment of the principal of (or premium, if any) or interest,
if any, on, or the payment of any sinking fund installment in respect of, any
Security of such
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series, the Trustee shall be protected in withholding such notice if and so long
as the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determine
that the withholding of such notice is in the interest of the Holders of
Securities of such series.
SECTION 602. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(2) any request or direction of the Companies mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders of Securities of any series pursuant to
this Indenture, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request
or direction;
(6) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if
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the Trustee shall determine to make such further inquiry or investigation,
it shall be entitled to examine the books, records and premises of the
Companies, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(8) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Indenture.
The Trustee shall not be required 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 any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 603. Trustee Not Responsible for Recitals or Issuance of
Securities.
The recitals contained herein and in the Securities, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Companies, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities, except that
the Trustee represents that it is duly authorized to execute and deliver this
Indenture, authenticate the Securities and perform its obligations hereunder and
that the statements made by it in a Statement of Eligibility on Form T-1
supplied to the Companies are true and accurate, subject to the qualifications
set forth therein. Neither the Trustee nor any Authenticating Agent shall be
accountable for the use or application by the Companies of Securities or the
proceeds thereof.
SECTION 604. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any
Security Registrar or any other agent of the Companies or of the Trustee, in its
individual or any other capacity, may become the owner or pledgee of Securities
and, subject to TIA Sections 310(b) and 311, may otherwise deal with the
Companies with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Security Registrar or such other agent.
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SECTION 605. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. Except for funds or
securities deposited with the Trustee pursuant to Article Fourteen, the Trustee
shall be required to invest all moneys received by the Trustee, until used or
applied as herein provided, in Cash Equivalents upon receipt of, and in
accordance with, specific written instructions of the Companies.
SECTION 606. Compensation and Reimbursement.
The Companies agree:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs and
expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties hereunder.
The obligations of the Companies under this Section to compensate
the Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such obligations
of the Companies, the Trustee shall have a claim prior to the Securities upon
all property and funds held or collected by the Trustee as such, except funds
held in trust for the payment of principal of (or premium, if any) or interest,
if any, on particular Securities.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(7) or (8), the expenses
(including reasonable charges and expense of its counsel) of and the
compensation for such services are intended to constitute
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expenses of administration under any applicable Federal or State bankruptcy,
insolvency or other similar law.
The provisions of this Section shall survive the resignation or
removal of the Trustee and the termination of this Indenture.
SECTION 607. Corporate Trustee Required; Eligibility.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $500,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of Federal, State, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time with respect to the
Securities of one or more series by giving written notice thereof to the
Companies. If the instrument of acceptance by a successor Trustee required by
Section 609 shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee with
respect to the Securities of such series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of not less than a majority in
principal amount of the Outstanding Securities of such series, delivered to the
Trustee and to the Companies.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Companies or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
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(2) the Trustee shall cease to be eligible under Section 607(a) and
shall fail to resign after written request therefor by the Companies or by
any Holder who has been a bona fide Holder of a Security for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Companies, by a Board Resolution, may remove the
Trustee with respect to all Securities, or (ii) subject to TIA Section 315(e),
any Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, with
respect to the Securities of one or more series, the Companies, by a Board
Resolution, shall promptly appoint a successor Trustee or Trustees with respect
to the Securities of that or those series (it being understood that any such
successor Trustee may be appointed with respect to the Securities of one or more
or all of such series and that at any time there shall be only one Trustee with
respect to the Securities of any particular series). If, within one year after
such resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee with respect to the Securities of any series shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series delivered to the Companies and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee with respect to the
Securities of such series and to that extent supersede the successor Trustee
appointed by the Companies. If no successor Trustee with respect to the
Securities of any series shall have been so appointed by the Companies or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security of such series for at least six
months may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the appointment of a successor Trustee with
respect to the Securities of such series.
(f) The Companies shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any series
to the Holders of Securities of such series in the manner provided for in
Section 106. Each notice shall include the name of the successor Trustee with
respect to the Securities of such series and the address of its Corporate Trust
Office.
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SECTION 609. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Companies and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Companies or the successor Trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Companies,
the retiring Trustee and each successor Trustee with respect to the Securities
of one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but, on request of the Companies or any successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates. Whenever there is a successor Trustee with
respect to one or more (but less than all) series of securities issued pursuant
to this Indenture, the terms "Indenture" and "Securities"
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shall have the meanings specified in the provisos to the respective definitions
of those terms in Section 101 which contemplate such situation.
(c) Upon request of any such successor Trustee, the Companies shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all rights, powers and trusts referred to
in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities. In case
any of the Securities shall not have been authenticated by such predecessor
Trustee, any successor Trustee may authenticate such Securities either in the
name of any predecessor hereunder or in the name of the successor Trustee. In
all such cases such certificates shall have the full force and effect which this
Indenture provides for the certificate of authentication of the Trustee;
provided, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Securities in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
SECTION 611. Appointment of Authenticating Agent.
At any time when any of the Securities remain Outstanding, the
Trustee may appoint an Authenticating Agent or Agents with respect to one or
more series of Securities which shall be authorized to act on behalf of the
Trustee to authenticate Securities of such series and the Trustee shall give
written notice of such appointment to all Holders of Securities of the series
with respect to which such Authenticating Agent will serve, in the manner
provided for in Section 104. Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Any such appointment
shall be evidenced by an instrument in writing signed by a
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Responsible Officer of the Trustee, and a copy of such instrument shall be
promptly furnished to the Companies. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Companies and shall at all times be a corporation organized
and doing business under the laws of the United States of America, any state
thereof or the District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
$500,000,000 and subject to supervision or examination by federal or state
authority. If such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time an Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section, it shall resign immediately in the manner and
with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Companies. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Companies. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Companies and shall give written notice
of such appointment to Holders of Securities of the series with respect to which
such Authenticating Agent will serve, in the manner provided for in Section 104.
Any successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Companies agree to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section.
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If an appointment with respect to one or more series is made
pursuant to this Section, the Securities of such series may have endorsed
thereon, in addition to the Trustee's certificate of authentication, an
alternate certificate of authentication in the following form:
Dated: ____________________
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
[NAME OF TRUSTEE],
as Trustee
By
as Authenticating Agent
By
Authorized Officer
SECTION 612. Preferential Collection of Claims Against Companies.
If and when the Trustee shall be or become a creditor of either
Company (or other obligor under the Securities), the Trustee shall be subject to
the provisions of the Trust Indenture Act regarding the collection of claims
against such Issuer (or any such other obligor). A Trustee who has resigned or
been removed shall be subject to the Trust Indenture Act Section 311(a) to the
extent indicated therein.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Securities, by receiving and holding the same,
agrees with the Companies and the Trustee that none of the Companies or the
Trustee or any agent of either of them shall be held accountable by reason of
the disclosure of any such information as to the names and addresses of the
Holders in accordance with TIA Section 312, regardless of the source from which
such information was derived, and that the Trustee shall not be held accountable
by reason of mailing any material pursuant to a request made under TIA Section
312(b).
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SECTION 702. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the first
May 15 after the first issuance of Securities pursuant to this Indenture, the
Trustee shall transmit to the Holders of Securities, in the manner and to the
extent provided in TIA Section 313(c), a brief report dated as of such May 15 if
required by TIA Section 313(a).
The Trustee shall also transmit by mail to all Holders, in the
manner and to the extent provided in Trust Indenture Act Section 313(c), a brief
report in accordance with and with respect to the matters required by Trust
Indenture Act Section 313(b)(2).
A copy of each report transmitted to Holders pursuant to this
Section 702 shall, at the time of such transmission, be mailed to the Companies
and the Guarantor and filed with each stock exchange, if any, upon which the
Securities are listed and also with the Commission. The Companies will notify
the Trustee promptly if the Securities are listed on any stock exchange.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Companies and Guarantor May Consolidate, Etc., Only on
Certain Terms.
(1) Each of the Companies shall not, in a single transaction or
series of related transactions, consolidate or merge with or into (whether or
not such Company is the surviving corporation), or directly and/or indirectly
through its Subsidiaries, sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets (determined on a
consolidated basis for such Company and its Subsidiaries taken as a whole) in
one or more related transactions to, another corporation, Person or entity
except:
(i) any Subsidiary of the Companies may be merged or consolidated
with or into either of the Companies (provided that the respective
Companies shall be the continuing or surviving corporation) or with or
into any one or more Wholly-Owned Subsidiaries of such Company (provided
that the Wholly-Owned Subsidiary or Subsidiaries shall be the continuing
or surviving corporation (the "Surviving Entity");
(ii) the Companies or any Wholly-Owned Subsidiary of the Companies
may sell, lease, transfer or otherwise dispose of any or all of their
assets (upon voluntary
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liquidation or otherwise) to either of the Companies or any other
Wholly-Owned Subsidiary of the Companies or may sell, lease, transfer or
otherwise dispose of any or all of their assets (upon voluntary
liquidation or otherwise) to any non-Wholly-Owned Subsidiary of the
Companies for fair market value;
(iii) any non-Wholly-Owned Subsidiary of the Companies may sell,
lease, transfer or otherwise dispose of any or all of its assets (upon
voluntary liquidation or otherwise) to the Companies or any Wholly-Owned
Subsidiary of the Companies for fair market value or may sell, lease,
transfer or otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to any other non-Wholly-Owned Subsidiary of the
Companies; and
(iv) the Companies or any Subsidiary thereof may be merged or
consolidated with or into another Person; provided that no Default or
Event of Default shall have occurred and be continuing or would occur as a
result thereof; and provided further that if the Companies shall not be
the continuing or surviving corporation, such continuing or surviving
corporation shall succeed to the Indenture.
(2) The Guarantor shall not consolidate with or merge with or into
any other Person or convey, sell, assign, transfer, lease or otherwise dispose
of its properties and assets substantially as an entirety to any other Person
(other than any of the Companies) unless:
(i) subject to the provisions of Clause (3) of this Section, the
Person formed by or surviving such consolidation or merger (if other than
the Guarantor) or to which such properties and assets are transferred
assumes all of the obligations of the Guarantor under this Indenture and
the Guarantee, pursuant to a supplemental indenture in form and substance
satisfactory to the Trustee;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default has occurred and is continuing; and
(iii) the Guarantor delivers, or causes to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction complies with the requirements of this Indenture.
(3) For purposes of this Section, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries, the Capital Stock of which constitutes all or
substantially all of the properties and assets of any of the Companies, shall be
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deemed to be the transfer of all or substantially all of the properties and
assets of such Company.
SECTION 802. Successor Substituted.
In the event of any transaction described in and complying with the
conditions listed in Section 801(1) in which any of the Companies is not the
continuing obligor under this Indenture, the Surviving Entity will succeed to,
and be substituted for, and may exercise every right and power of, such Company
under this Indenture, and thereafter such Company will, except in the case of a
lease, be discharged from all its obligations and covenants under this Indenture
and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Companies and the Guarantor,
when authorized by or pursuant to a Board Resolution, and the Trustee, at any
time and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to either of the
Companies or the Guarantor and the assumption by any such successor of the
covenants of either of the Companies or the Guarantor contained herein and
in the Securities; or
(2) to add to the covenants of the Companies or the Guarantor for
the benefit of the Holders of all or any series of Securities (and, if
such covenants are to be for the benefit or less than all series of
Securities, stating that such covenants are being included solely for the
benefit of such series) or to surrender any right or power herein
conferred upon the Companies or the Guarantor; or
(3) to add any additional Events of Default (and, if such Events of
Default are to be for the benefit or less than all series of Securities,
stating that such Events of Default are being included solely for the
benefit of such series); or
(4) to change or eliminate any of the provisions of this Indenture;
provided that any such change or elimination shall become effective only
when there is no
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Security Outstanding of any series created prior to the execution of such
supplemental indenture which is entitled to the benefit of such provision;
or
(5) to secure the Securities pursuant to the requirements of Section
1009 or otherwise; or
(6) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301; or
(7) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more series and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, pursuant
to the requirements of Section 609(b); or
(8) To effect the release of USI Atlantic under the Guarantee or the
release of USIAH from its obligations under the Securities pursuant to
Section 1206.
(9) to close this Indenture with respect to the authentication and
delivery of additional series of Securities, to cure any ambiguity, to
correct or supplement any provision herein which may be inconsistent with
any other provision herein, or to make any other provisions with respect
to matters or questions arising under this Indenture; provided such action
shall not materially adversely affect the interests of the Holders of
Securities of any series;
(10) to supplement any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the defeasance and
discharge of any series of Securities pursuant to Sections 401, 1402 and
1403; provided that any such action shall not materially adversely affect
the interests of the Holders of Securities of such series or any other
series of Securities; or
(11) to comply with any requirement of the Commission in connection
with the qualification of the Indenture under the TIA.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of all Outstanding Securities of any series, by Act of said
Holders delivered to the Companies, the Guarantor, and the Trustee, the
Companies and the Guarantor, each when authorized by or pursuant to a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of
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the Holders of Securities of such series under this Indenture; provided,
however, that no such supplemental indenture shall, without the consent of the
Holder of each Outstanding Security of such series,
(1) change the Stated Maturity of the principal of (or premium, if
any) or any installment of interest on any Security, or reduce the
principal amount thereof (or premium, if any) or the rate of interest, if
any, thereon, or change any obligation of the Companies to pay Additional
Amounts contemplated by Section 1013 hereof (except as contemplated by
Section 801(1) and permitted by Section 901(1), or reduce the amount of
the principal of an Original Issue Discount Security that would be due and
payable upon a declaration of acceleration of the Maturity thereof
pursuant to Section 502 of this Indenture or the amount thereof provable
in bankruptcy pursuant to Section 504 of this Indenture, or adversely
affect any right of repayment at the option of any Holder of any Security
of such series, or change any Place of Payment where, or the Currency in
which, any Security of such series or any premium or interest thereon is
payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in the case of
redemption or repayment at the option of the Holder, on or after the
Redemption Date or Repayment Date, as the case may be), or adversely
affect any right to convert or exchange any Security as may be provided
pursuant to Section 301 of this Indenture;
(2) reduce the percentage in principal amount of the Outstanding
Securities, the Consent of whose Holders is required for any such
supplemental indenture, for any waiver of compliance with certain
provisions of this Indenture or certain defaults applicable to such series
hereunder and their consequences provided for in this Indenture, or reduce
the requirements of Section 104 for quorum or voting with respect to
Securities of such series;
(3) modify any of the provisions of this Section, Section 902, 513
or 1011, except to increase any such percentage or to provide that certain
other provisions of this Indenture which affect the Securities cannot be
modified or waived without the consent of the Holder of each Outstanding
Security of such series;
(4) modify the ranking or priority of the Securities or the
Guarantee; or
(5) release the Guarantor from any of its obligations under the
Guarantee or this Indenture other than in accordance with the terms of
this Indenture.
A supplemental indenture which changes or eliminates any covenant or
other provision of this Indenture which has expressly been included solely for
the benefit of one or more particular series of Securities, or which modifies
the rights of the Holders of Securities of
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such series with respect to such covenant or other provision, shall be deemed
not to affect the rights under this Indenture of the Holders of Securities of
any other series. Any such supplemental indenture adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture,
or modifying in any manner the rights of the Holders of Securities of such
series, shall not affect the rights under this Indenture of the Holders of
Securities of any other series.
It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article may, and shall
if required by the Trustee, bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. If the Companies
shall so determine, new Securities of any series so modified as to conform, in
the opinion of the Trustee and the Companies, to any such supplemental indenture
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may be prepared and executed by the Companies and the Guarantor and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities of such series.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Companies, the Guarantor and the
Trustee of any supplemental indenture pursuant to the provisions of Section 902,
the Companies shall give notice thereof to the Holders of each Outstanding
Security affected, in the manner provided for in Section 106, setting forth in
general terms the substance of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, If Any, and Interest.
Each of the Companies covenants and agrees for the benefit of the
Holders of each series of Securities that it will duly and punctually pay the
principal of (and premium, if any), interest, if any, Tax Redemption Price, if
any, and Additional Amounts, if any, on the Securities of that series in
accordance with the terms of the Securities and this Indenture.
SECTION 1002. Overdue Interest.
Unless the Board Resolution otherwise provides, the Companies shall
pay interest on overdue principal of a Security of a series at the rate borne by
the series; it shall pay interest on overdue installments of interest at the
same rate or Yield to Maturity to the extent lawful.
SECTION 1003. Maintenance of Office or Agency.
The Companies will maintain in each Place of Payment for any series
of Securities an office or agency where Securities of that series may be
presented or surrendered for payment, where Securities of that series may be
surrendered for registration of transfer or exchange, where Securities of that
series that are convertible or exchangeable may be surrendered for conversion or
exchange, as applicable, and where notices and demands to or upon the Companies
in respect of the Securities of that series and this Indenture may be served.
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The Companies will give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Companies shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Companies hereby appoint the same as their agent
to receive such respective presentations, surrenders, notices and demands.
The Companies may also from time to time designate one or more other
offices or agencies where the Securities of one or more series may be presented
or surrendered for any or all such purposes and may from time to time rescind
any such designation; provided, however, that no such designation or rescission
shall in any manner relieve the Companies of their obligation to maintain an
office or agency in accordance with the requirements set forth above for
Securities of any series for such purposes. The Companies will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency. Unless otherwise
specified with respect to any Securities as contemplated by Section 301 with
respect to a series of Securities, the Companies hereby designate as a Place of
Payment for each series of Securities the office or agency of the Companies in
the Borough of Manhattan, The City of New York, and initially appoint the
Trustee at its Corporate Trust Office as Paying Agent in such city and as their
agent to receive all such presentations, surrenders, notices and demands.
Unless otherwise specified with respect to any Securities pursuant
to Section 301, if and so long as the Securities of any series (i) are
denominated in a Currency other than Dollars or (ii) may be payable in a
Currency other than Dollars, or so long as it is required under any other
provision of the Indenture, then the Companies will maintain with respect to
each such series of Securities, or as so required, at least one Exchange Rate
Agent.
SECTION 1004. Money for Securities Payments to Be Held in Trust.
If the Companies shall at any time act as their own Paying Agents
with respect to any series of Securities, they will, on or before each due date
of the principal of (or premium, if any) or interest, if any, on any of the
Securities of that series, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum in the Currency in which the Securities of such
series are payable (except as otherwise specified pursuant to Section 301 for
the Securities of such series and except, if applicable, as provided in Sections
315(b), 315(d) and 315(e)) sufficient to pay the principal of (or premium, if
any) or interest, if any, on Securities of such series so becoming due until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee of its action or failure so to
act.
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Whenever the Companies shall have one or more Paying Agents for any
series of Securities, they will, prior to or on each due date of the principal
of (or premium, if any) or interest, if any, on any Securities of that series,
deposit with a Paying Agent a sum (in the Currency described in the preceding
paragraph) sufficient to pay the principal (or premium, if any) or interest, if
any, so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such Paying
Agent is the Trustee) the Companies will promptly notify the Trustee of their
action or failure so to act.
The Companies will cause each Paying Agent (other than the Trustee
or the Companies) for any series of Securities to execute and deliver to the
Trustee an instrument in which such Paying Agent shall agree with the Trustee,
subject to the provisions of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of
(and premium, if any) and interest, if any, on Securities of such series
in trust for the benefit of the Persons entitled thereto until such sums
shall be paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by either of the
Companies (or any other obligor upon the Securities of such series) in the
making of any payment of principal of (or premium, if any) or interest, if
any, on the Securities of such series;
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent; and
(4) acknowledge, accept and agree to comply in all aspects with the
provisions of this Indenture relating to the duties, rights and
disabilities of such Paying Agent.
The Companies may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Companies or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which sums were held by the Companies or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
sums.
Except as provided in the Securities of any series, any money
deposited with the Trustee or any Paying Agent, or then held by the Companies,
in trust for the payment of the principal of (or premium, if any) or interest,
if any, on any Security of any series, and
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remaining unclaimed for two years after such principal, premium or interest has
become due and payable shall be paid to the Companies on Company Request, or (if
then held by the Companies) shall be discharged from such trust; and the Holder
of such Security shall thereafter, as an unsecured general creditor, look only
to the Companies for payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the
Companies as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Companies cause to be published once, in an Authorized
Newspaper, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Companies.
SECTION 1005. Statement as to Compliance.
Each of the Companies and the Guarantor will deliver to the Trustee,
within 120 days after the end of each fiscal year, a brief certificate from the
principal executive officer, principal financial officer, Treasurer or principal
accounting officer as to his or her knowledge of such Company's or Guarantor's
(as the case may be) compliance with all conditions and covenants under this
Indenture. For purposes of this Section 1005, such compliance shall be
determined without regard to any period of grace or requirement of notice under
this Indenture.
SECTION 1006. Payment of Taxes and Other Claims.
The Companies will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (1) all material taxes,
assessments and governmental charges levied or imposed upon the Companies or any
Restricted Subsidiary or upon the income, profits or property of the Companies
or any Restricted Subsidiary, and (2) all material lawful claims for labor,
materials and supplies which, if unpaid, might by law become a Lien upon any
Principal Property of the Companies or any Restricted Subsidiary; provided,
however, that the Companies shall not be required to pay or discharge or cause
to be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 1007. Maintenance of Properties.
The Companies and the Guarantor shall cause all material properties
owned by the Companies, the Guarantor or any of the Companies' Subsidiaries or
used or held for use in the conduct of their respective business to be
maintained and kept in good condition, repair and working order (ordinary wear
and tear excepted) and supplied with all necessary equipment and will cause to
be made all necessary repairs, renewals, replacements, betterments and
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improvements thereof, all as in the reasonable judgment of the Companies and the
Guarantor may be consistent with sound business practice and necessary so that
the business carried on in connection therewith may be properly conducted at all
times; provided, however, that nothing in this Section shall prevent the
Companies and the Guarantor from discontinuing the maintenance of any of such
properties if such discontinuance is, in the reasonable judgment of the
Companies and the Guarantor, desirable in the conduct of the business of the
Companies, the Guarantor and the Companies' Subsidiaries, taken as a whole, and
not reasonably expected to have a material adverse effect on the ability of any
of the Companies or the Guarantor to perform its obligations hereunder; provided
further, that the foregoing shall not prohibit a sale, transfer, or conveyance
of a Subsidiary or any properties or assets in compliance with the terms of this
Indenture.
SECTION 1008. Corporate Existence.
Subject to Article Eight, the Companies will do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence and the rights (charter and statutory) and franchises of the Companies
and any Restricted Subsidiary; provided, however, that the Companies shall not
be required to preserve any such right or franchise if the Companies shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Companies and their Subsidiaries as a whole.
SECTION 1009. Limitation on Liens.
Each of the Companies will not itself, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien upon any of their respective property, assets or
revenues, whether now owned or hereafter acquired, to secure any Debt without
making, or causing such Restricted Subsidiary to make, effective provision for
securing the Securities (and, if the Companies shall so determine, any other
Debt of either or both of the Companies which is not subordinate in right of
payment to the Securities) (a) equally and ratably with (or prior to) such Debt
as to such property or assets for so long as such debt shall be so secured, or
(b) in the event such Debt is subordinate in right of payment to the Securities,
prior to such Debt as to such property or assets for so long as such Debt shall
be so secured. The foregoing restrictions will not apply to the following Liens
("Permitted Liens"):
(a) Liens securing only the Securities or the Guarantee;
(b) Liens in favor of only the Companies, the Guarantor or a
Restricted Subsidiary;
(c) Liens existing on the date of this Indenture;
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(d) Liens on property of a Person existing at the time such Person
is merged into or consolidated with either Company or a Restricted
Subsidiary or becomes a Restricted Subsidiary of either Company (and not
in anticipation of or in connection with such event), provided that the
Debt secured by such Lien is otherwise permitted to be Incurred under this
Indenture;
(e) Liens on property existing immediately prior to the time of
acquisition thereof from a non-Affiliate (and not Incurred in anticipation
of or in connection with the financing of such acquisition), provided that
the Debt secured by such Lien is otherwise permitted to be Incurred under
this Indenture;
(f) Liens to secure Debt Incurred for the purpose of financing all
or any part of the purchase price or the cost of construction or
improvement of the property subject to such Liens (including carrying
charges) and, in the case of a Restricted Subsidiary all or substantially
all of whose assets consist of such property, any Lien on ownership
interests or investments in such Restricted Subsidiary Incurred in
connection with the acquisition or construction of such property, and the
Incurrence of such Debt is otherwise permitted under this Indenture and
such Debt is Incurred prior to, at the time of, or within 180 days after,
the acquisition of such property, the completion of such construction or
the making of such improvements;
(g) Liens on property of the Companies or any of their Restricted
Subsidiaries in favor of the United States of America or any state
thereof, or any instrumentality of either, to secure certain payments
pursuant to any contract or statute;
(h) Liens for taxes or assessments or other governmental charges or
levies which are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted or for which a reserve or
other appropriate provision, if any, as shall be required in accordance
with GAAP shall have been made;
(i) Liens to secure obligations under workmen's compensation,
temporary disability, social security, retiree health or similar laws or
under unemployment insurance;
(j) Liens Incurred to secure the performance of statutory
obligations, bids, tenders, leases, contracts (other than contracts for
the repayment of Debt), surety or appeal bonds, performance or
return-of-money bonds or other obligations of a like nature Incurred in
the ordinary course of business;
(k) Judgment and attachment Liens not giving rise to a Default or
Event of Default;
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(l) Any Lien arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods in the ordinary
course of business in accordance with industry practice;
(m) Liens securing documentary letters of credit; provided such
Liens attach only to the property or goods to which such letter of credit
relates;
(n) Liens arising from filing financing statements under the Uniform
Commercial Code for precautionary purposes in connection with true leases
of personal property that are otherwise permitted under this Indenture and
under which the Companies or any Restricted Subsidiary is a lessee; or
(o) Liens to secure Debt Incurred to extend, renew, refinance or
refund (or successive extensions, renewals, refinancings or refundings),
in whole or in part, Debt secured by any Lien referred to in the foregoing
clauses (a) through (n) inclusive, so long as such Lien does not extend to
any additional property (other than property attributable to improvements,
alterations and repairs) and the principal amount of the Debt secured
pursuant to this Section 1009(o) shall not exceed the principal amount of
Debt so extended, renewed, refinanced or refunded (assuming all available
amounts were borrowed) plus the aggregate amount of premiums, other
payments, costs and expenses required to be paid or incurred in connection
with such extension, renewal, refinancing or refunding at the time of such
extension, renewal, refinancing or refunding.
In addition to the foregoing, the Companies and their Restricted
Subsidiaries may incur a Lien to secure any Debt, without securing the
Securities, if, after giving effect thereto, the sum, without duplication, of
(i) the aggregate principal amount of all outstanding Debt secured by Liens
Incurred by the Companies and their Restricted Subsidiaries (with the exception
of secured Debt which is excluded pursuant to clauses (a) through (o) inclusive,
described above) and (ii) the aggregate amount of all Attributable Debt of all
sale and leaseback transactions involving Principal Properties (with the
exception of Attributable Debt excluded pursuant to clauses (a), (b) and (c)
described below under "Limitation on Sale and Leaseback Transactions") does not
exceed 15% of Consolidated Net Tangible Assets (the "Lien Basket"); provided,
however, that the Lien Basket shall be reduced, without duplication, by the
amount of outstanding Funded Debt Incurred from time to time pursuant to the
Debt Basket (as defined below).
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SECTION 1010. Limitation on Sale and Leaseback Transactions.
Each of the Companies will not itself, and will not permit any
Restricted Subsidiary to, enter into any arrangement after the date of the first
issuance by the Companies of Securities issued pursuant to this Indenture with
any bank, insurance company or other lender or investor (other than either of
the Companies or another Restricted Subsidiary) providing for the leasing by
either of the Companies or any such Restricted Subsidiary of any Principal
Property (except a lease for a temporary period not to exceed three years by the
end of which it is intended that the use of such Principal Property by the
lessee will be discontinued), which was or is owned or leased by either of the
Companies or a Restricted Subsidiary and which has been or is to be sold or
transferred, more than 180 days after the completion of construction and
commencement of full operation thereof by such Company or such Restricted
Subsidiary, to such lender or investor or to any Person to whom funds have been
or are to be advanced by such lender or investor on the security of such
Principal Property (herein referred to as a "sale and leaseback transaction")
unless, either:
(a) the Attributable Debt of the Companies and their Restricted
Subsidiaries in respect of such sale and leaseback transaction and all
other sale and leaseback transactions entered into after the date of the
first issuance by the Companies of Securities issued pursuant to this
Indenture (other than such sale and leaseback transactions as are
permitted by paragraph (b) or (c) below), plus the aggregate principal
amount of Funded Debt secured by Liens on Principal Properties and
Restricted Securities then outstanding (excluding any such Funded Debt
secured by Permitted Liens) without equally and ratably securing the
Securities, would not exceed 15% of Consolidated Net Tangible Assets;
(b) the Companies, within 180 days after the sale or transfer, apply
or cause a Restricted Subsidiary to apply an amount equal to the greater
of the net proceeds of such sale or transfer or fair market value of the
Principal Property so sold and leased back at the time of entering into
such sale and leaseback transaction (in either case as determined by any
two of the following: the Chairman, the President, any Vice President, the
Treasurer or the Controller of each of the Companies) to the retirement of
Debt of the Companies (other than Debt subordinated to the Securities) or
Debt of a Restricted Subsidiary, having a stated maturity more than 12
months from the date of such application or which is extendible at the
option of the obligor thereon to a date more than 12 months from the date
of such application (and, unless otherwise expressly provided with respect
to any one or more series of Securities, any redemption of Securities
pursuant to this provision shall not be deemed to constitute a refunding
operation or anticipated refunding operation for the purposes of any
provision limiting the Companies' right to redeem Securities of any one or
more such series when such redemption involves a refunding operation or
anticipated refunding operation); provided
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that the amount to be so applied shall be reduced by (i) the principal
amount of Securities delivered within 120 days after such sale or transfer
to the Trustee for retirement and cancellation, and (ii) the principal
amount of any such Debt of the Companies or a Restricted Subsidiary, other
than Securities, voluntarily retired by the Companies or a Restricted
Subsidiary within 120 days after such sale or transfer. Notwithstanding
the foregoing, no retirement referred to in this paragraph (b) may be
effected by payment at maturity or pursuant to any mandatory sinking fund
payment or any mandatory prepayment provision; or
(c) the Companies, within 180 days prior or subsequent to such sale
or transfer, apply or cause a Restricted Subsidiary to apply an amount
equal to the net proceeds of such sale or transfer to an investment in
another Principal Property; provided, however, that this exception shall
apply only if such proceeds invested in such other Principal Property
shall not exceed the total acquisition, alteration, repair and
construction cost of the Companies or any Restricted Subsidiary in such
other Principal Property less amounts secured by any purchase money or
construction mortgage on such other Principal Property.
SECTION 1011. Limitation on Restricted Subsidiary Funded Debt.
The Companies shall not permit any Restricted Subsidiary (including
the Guarantor) of any of the Companies or the Guarantor to Incur any Funded
Debt. Notwithstanding the foregoing, any Restricted Subsidiary may Incur the
following Funded Debt:
(1) Funded Debt of any Restricted Subsidiary constituting Existing
Funded Debt;
(2) Funded Debt Incurred by a Special Purpose Funding Subsidiary,
provided that such Restricted Subsidiary remains at all times a Special
Purpose Funding Subsidiary;
(3) Funded Debt owed by a Restricted Subsidiary to the Guarantor,
any of the Companies or a Wholly-Owned Subsidiary of any of the Companies
(provided that such Funded Debt is at all times held by the Guarantor, any
of the Companies or a Person which is a Wholly-Owned Subsidiary of any of
the Companies); provided, however, that upon either (a) that transfer or
other disposition by the Guarantor, any of the Companies or such
Wholly-Owned Subsidiary of any Funded Debt so permitted to a Person other
than the Guarantor, any of the Companies or another Wholly-Owned
Subsidiary of any of the Companies, or (b) the issuance (other than
directors' qualifying shares), sale, lease, transfer or other disposition
of shares of Capital Stock (including
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by consolidation or merger) of such Wholly-Owned Subsidiary to a Person
other than the Guarantor, any of the Companies or another such
Wholly-Owned Subsidiary, the provisions of this clause (3) shall no longer
be applicable to such Funded Debt and such Funded Debt shall be deemed to
have been Incurred at the time of such transfer or other disposition;
(4) Funded Debt Incurred by a Person before such Person became a
Restricted Subsidiary in an acquisition by any of or both of the Companies
from a non-Affiliate (whether through a stock acquisition, merger,
consolidation or otherwise) after the date of this Indenture (provided
such Funded Debt was not Incurred in anticipation of or in connection with
and was outstanding prior to such acquisition);
(5) Funded Debt Incurred in connection with the acquisition,
purchase, improvement or development of property or assets used or held by
any Subsidiary of any of the Companies prior to, or within 180 days after,
the time of such acquisition, purchase, improvement or development;
(6) Funded Debt Incurred to extend, renew, refinance or refund (or
successive extensions, renewals, refinancings or refundings) in whole or
in part, of any Funded Debt referred to in the foregoing clauses (1), (4)
and (5), provided that the principal amount of the Funded Debt Incurred
pursuant to this clause (6) shall not exceed the principal amount of
Funded Debt so extended, renewed, refinanced or refunded plus the
aggregate amount of premiums, other payments, costs and expenses required
to be paid or incurred in connection with such extension, renewal,
refinancing or refunding at the time of such extension, renewal,
refinancing or refunding; and
(7) Funded Debt (not otherwise permitted under the foregoing
exceptions) in an aggregate principal amount of which, when aggregated
with all other Funded Debt (without duplication) of all Restricted
Subsidiaries of the Companies then outstanding (other than Funded Debt
permitted by clauses (1) through (6) of this Section 1011) does not exceed
15% of Consolidated Net Tangible Assets (the "Debt Basket"); provided,
however, that the Debt Basket shall be reduced, without duplication, by
the amount of Debt secured by the Lien Basket and by the amount of
Attributable Debt Incurred pursuant to the Leaseback Basket, in each case
to the extent such secured Debt and such Attributable Debt may from time
to time be outstanding.
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SECTION 1012. Waiver of Certain Covenants.
The Companies may, with respect to any series of Securities, omit in
any particular instance to comply with any term, provision or condition which
affects such series set forth in Section 803 or Sections 1006 to 1011,
inclusive, of this Indenture or, as specified pursuant to Section 301(15) of
this Indenture for Securities of such series, in any covenants of the Companies
added to Article Ten pursuant to Section 301(14) or Section 301 (15) in
connection with Securities of such series, if before the time for such
compliance the Holders of at least a majority in principal amount of all
Outstanding Securities of any series affected by such term, provision or
condition, by Act of such Holders, waive such compliance in such instance with
such term, provision or condition, but no such waiver shall extend to or affect
such term, provision or condition except to the extent so expressly waived, and,
until such waiver shall become effective, the obligations of the Companies and
the duties of the Trustee to Holders of Securities of such series in respect of
any such term, provision or condition shall remain in full force and effect. The
Holders of a majority in principal amount of the outstanding Securities of any
series (in the case of an Event of Default specified in (1), (2), (3) or (6) of
Section 501) or of all the Securities then Outstanding (in the case of an Event
of Default specified in (4) or (5) of Section 501) may, on behalf of all such
Holders, waive any past default under the Indenture with respect to such
Securities except a default in the payment of the principal of (or premium, if
any) or any interest on the Securities and except a default in respect of a
covenant or provision the modification or amendment of which would require the
consent of the Holder of each outstanding Security affected thereby.
SECTION 1013. Payment of Additional Amounts.
Any amounts paid, or caused to be paid, by the Companies or their
assignee (or any successor to either Company or such assignee as permitted under
this Indenture) under the Guarantee, or paid by any successor to the Companies
under this Indenture, will be paid without deduction or withholding for any and
all present and future taxes, levies, imposts or other governmental charges
whatsoever imposed, assessed, levied or collected by or for the account of the
United Kingdom (including any political subdivision or taxing authority thereof)
or the jurisdiction of incorporation or residence (other than the United States
or any political subdivision thereof) of any assignee of the Companies or any
successor to either Company or the Guarantor, or any political subdivision or
taxing authority thereof (an "Other Jurisdiction"), or, if deduction or
withholding of any taxes, levies, imposts or other governmental charges shall at
any time be required by the United Kingdom or an Other Jurisdiction, the
Companies, their assignee or any relevant successor will (subject to timely
compliance by the Holders or beneficial owners of the relevant Securities with
any relevant administrative requirements) pay or cause to be paid such
additional amounts ("Additional Amounts") in respect of principal, premium, if
any, or interest as may be necessary in order that the net amounts paid to the
Holders of the Securities or the Trustee under this Indenture,
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as the case may be, pursuant to this Indenture or the Guarantee, after such
deduction or withholding, shall equal the respective amounts of principal,
premium, if any, or interest as specified in the Securities to which such
Holders or the Trustee are entitled; provided, however, that the foregoing shall
not apply to:
(1) any present or future taxes, levies, imposts or other
governmental charges which would not have been so imposed, assessed,
levied or collected but for the fact that the Holder or beneficial owner
of the relevant Security is or has been a domiciliary, national or
resident of, engages or has been engaged in business, maintains or has
maintained a permanent establishment, or is or has been physically present
in, the United Kingdom or the Other Jurisdiction, or otherwise has or has
had some connection with the United Kingdom or the Other Jurisdiction
(other than the holding or ownership of a Security, or the collection of
principal of, premium, if any, and interest on, or the enforcement of, a
Security or the Guarantee),
(2) any present or future taxes, levies, imposts or other
governmental charges which would not have been so imposed, assessed,
levied or collected but for the fact that, where presentation is required,
the relevant Security was presented more than thirty days after the date
such payment became due or was provided for, whichever is later,
(3) any present or future taxes, levies, imposts or other
governmental charges which are payable otherwise than by deduction or
withholding on or in respect of the relevant Security or guarantee,
(4) any present or future taxes, levies, imposts or other
governmental charges which would not have been so imposed, assessed,
levied or collected but for the Holders' failure to comply, on a
sufficiently timely basis, with any certification, identification or other
reporting requirements concerning the nationality, residence, identity or
connection with the United Kingdom or the Other Jurisdiction or any other
relevant jurisdiction of the Holder or beneficial owner of the relevant
Security, if such compliance is required by a statute or regulation of the
United Kingdom or the Other Jurisdiction, or by a relevant treaty, as a
condition to relief or exemption from such taxes, levies, imposts or other
governmental charges,
(5) any present or future taxes, levies imposts or other government
charges (A) which would not have been so imposed, assessed, levied or
collected if the beneficial owner of the relevant Note had been the Holder
of such Note, or (B) which, if the beneficial owner of such Note had held
the Note as the Holder of such Note, would have been excluded pursuant to
clauses (1) through (4) above, or
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(6) any estate, inheritance, gift, sale, transfer, personal property
or other governmental charge.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Optional Redemption. Unless otherwise provided with
respect to any series of Securities in a supplemental indenture hereto or in the
applicable form of security, the Securities are subject to redemption, in whole
or in part, at any time or from time to time, at the option of the Companies,
acting jointly, on at least 30 days' prior notice by mail, at a Redemption Price
equal to the greater of (i) 100% of the principal amount of the Notes to be
redeemed, or (ii) the sum of the present values of the remaining scheduled
payments of principal and interest thereon discounted to the date of redemption
on a semiannual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Treasury Rate plus 50 basis points, plus, in each case, accrued
but unpaid interest to the date of redemption. On and after the redemption date,
interest will cease to accrue on the Securities or portions of Securities called
for redemption on such date.
For this purpose, the following terms shall have the meaning set
forth below:
"Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Bank which would be
utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Notes.
"Comparable Treasury Price" means, with respect to any redemption
date, (i) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal
amount) on the third business day preceding such redemption date, as set
forth in the daily statistical release (or any successor release)
published by the Federal Reserve Bank of New York and designated
"Composite 3:30 p.m. Quotations for U.S. Government Securities," or (ii)
if such release (or any successor release) is not published or does not
contain such prices on such business day (A) the average of the Reference
Treasury Dealer Quotations for such redemption date, after excluding the
highest and lowest such Reference Treasury Dealer Quotations, or (B) if
the Trustee obtains fewer than three such Reference Treasury Dealer
Quotations, the average of all such Quotations.
"Independent Investment Bank" means one of the Reference Treasury
Dealers appointed by the Trustee after consultation with the Companies.
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"Reference Treasury Dealer" means Credit Suisse First Boston
Corporation and its successors and/or such other primary U.S. Government
securities dealers in New York City (a "Primary Treasury Dealer") as shall
be designated by the Companies from time to time, in each case provided
that such entity continues to be a Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as
determined by the Trustee, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal
amount) quoted in writing to the Trustee by such Reference Treasury Dealer
at 5:00 p.m. EST on the third business day preceding such redemption date.
"Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity of the
comparable Treasury Issue, assuming a price for such Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such redemption date.
Any notice to the Holders of such a redemption need not set forth
the redemption price but need only set forth the method of calculation thereof
as described in the first paragraph of this Section 1101. The redemption price,
calculated as aforesaid, shall be set forth in an Officers' Certificate to the
Trustee no later than two business days prior to the redemption.
SECTION 1102. Redemption in Circumstances Involving Taxation.
If, as the result of any change in or any amendment to the laws,
including any applicable double taxation treaty or convention, of the United
Kingdom or any Other Jurisdiction, or of any political subdivision or taxing
authority thereof, affecting taxation, or any change in the application or
interpretation of such laws, double taxation treaty or convention, which change
or amendment becomes effective on or after the original issuance date of the
Securities (or, in certain circumstances, such later date on which any assignee
of the Companies, the Guarantor or a successor corporation to either of the
Companies or the Guarantor becomes such as permitted under the Indenture), it is
determined, by the Companies, acting jointly, the Guarantor or such assignee
(which terms, for purposes of the remainder of this paragraph, include any
successor thereto) that (i) the Companies, the Guarantor or their respective
assignees would be required to make additional payments in respect of principal,
premium, if any, or interest on the next succeeding date for the payment
thereof, or (ii) based upon an opinion of independent counsel to the Companies,
the Guarantor or their respective assignees, as a result of any action taken by
any taxing authority of, or any action brought in a court of competent
jurisdiction in, the United Kingdom (or the Other
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Jurisdiction), or any political subdivision or taxing authority thereof or
therein (whether or not such action was taken or brought with respect to the
Companies, the Guarantor or their respective assignees), which action is taken
or brought on or after the original issuance date of the Securities (or, in
certain circumstances, such later date on which a corporation becomes a
successor or an assignee), the circumstances described in clause (i) would
exist, the Companies may, acting jointly, at their option, redeem any series of
Securities in whole at any time at a redemption price equal to 100% of the
principal amount thereof plus accrued but unpaid interest to the date fixed for
redemption (the "Tax Redemption Price").
SECTION 1103. Applicability of Article.
Securities of any series which are redeemable before their Stated
Maturity shall be redeemable in accordance with the terms of such Securities and
(except as otherwise specified as contemplated by Section 301 for Securities of
any series) in accordance with this Article.
SECTION 1104. Election to Redeem; Notice to Trustee.
The election of the Companies to redeem any Securities shall be
evidenced by or pursuant to a Board Resolution. In case of any redemption at the
election of the Companies, the Companies shall, at least 60 days prior to the
Redemption Date fixed by the Companies (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities of such series to be redeemed and shall
deliver to the Trustee such documentation and records as shall enable the
Trustee to select the Securities to be redeemed pursuant to Section 1103. In the
case of any redemption of Securities prior to the expiration of any restriction
on such redemption provided in the terms of such Securities or elsewhere in this
Indenture, the Companies shall furnish the Trustee with an Officers' Certificate
evidencing compliance with such restriction.
SECTION 1105. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities of any series are to be redeemed,
the particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions of the principal of Securities of such series; provided,
however, that no such partial redemption shall reduce the portion of the
principal amount of a Security not redeemed to less than the minimum authorized
denomination for Securities of such series established pursuant to Section 301.
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The Trustee shall promptly notify the Companies in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Security redeemed or to be redeemed only in part, to the
portion of the principal amount of such Security which has been or is to be
redeemed.
SECTION 1106. Notice of Redemption.
Except as otherwise specified as contemplated by Section 301, notice
of redemption shall be given in the manner provided for in Section 106 not less
than 30 nor more than 60 days prior to the Redemption Date, to each Holder of
Securities to be redeemed.
All notices of redemption shall identify the Securities (including
CUSIP number) to be redeemed and shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1106, if any,
(3) if less than all the Outstanding Securities of any series are to
be redeemed, the identification (and, in the case of partial redemption,
the principal amounts) of the particular Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the
Redemption Date, upon surrender of such Security, the holder will receive,
without charge, a new Security or Securities of authorized denominations
for the principal amount thereof remaining unredeemed,
(5) that on the Redemption Date, the Redemption Price (together with
accrued interest, if any, to the Redemption Date payable as provided in
Section 1106) will become due and payable upon each such Security, or the
portion thereof, to be redeemed and, if applicable, that interest thereon
will cease to accrue on and after said date, and
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(6) the Place or Places of Payment where such Securities, maturing
after the Redemption Date, are to be surrendered for payment of the
Redemption Price and accrued interest, if any.
Notice of redemption of Securities to be redeemed at the election of
the Companies shall be given by the Companies or, at the Companies' request, by
the Trustee in the name and at the expense of the Companies.
SECTION 1107. Deposit of Redemption Price.
Prior to any Redemption Date, the Companies shall deposit with the
Trustee or with a Paying Agent (or, if the Companies is acting as their own
Paying Agents, segregate and hold in trust as provided in Section 1003) an
amount of money in the Currency in which the Securities of such series are
payable (except as otherwise specified pursuant to Section 301 for the
Securities of such series and except, if applicable, as provided in Sections
315(b), 315(d) and 315(e)) sufficient to pay the Redemption Price of, and
accrued interest, if any, on, all the Securities which are to be redeemed on
that date.
SECTION 1108. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities
so to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified in the Currency in which the Securities of
such series are payable (except as otherwise specified pursuant to Section 301
for the Securities of such series and except, if applicable, as provided in
Sections 315(b), 315(d) and 315(e)) (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless any of the Companies
shall default in the payment of the Redemption Price and accrued interest, if
any) such Securities shall, if the same were interest-bearing, cease to bear
interest. Upon surrender of any such Security for redemption in accordance with
said notice, such Security shall be paid by the Companies at the Redemption
Price, together with accrued interest, if any, to the Redemption Date; provided,
however, that installments of interest on Securities whose Stated Maturity is on
or prior to the Redemption Date shall be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Record Dates according to their terms and the
provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate of interest or
Yield to Maturity (in the case of Original Issue Discount Securities) set forth
in such Security.
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SECTION 1109. Securities Redeemed in Part.
Any Security which is to be redeemed only in part (pursuant to the
provisions of this Article or of Article Twelve) shall be surrendered at a Place
of Payment therefor (with, if the Companies or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Companies and the Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing), and the Companies shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities of the same series, of any
authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered.
ARTICLE TWELVE
GUARANTEE
SECTION 1201. Guarantee.
The Guarantor hereby irrevocably and unconditionally guarantees to
each Holder of a Security authenticated and delivered by the Trustee, and to the
Trustee, the performance under, and punctual payment of the principal of,
premium, if any, and interest on (and, if applicable, the Tax Redemption Price
and Additional Amounts in respect of) such Security, when and as the same shall
become due and payable, whether upon maturity, acceleration, call for redemption
or otherwise in accordance with the terms of such Security and of this
Indenture.
The Guarantor hereby agrees that its obligations hereunder shall be
absolute and unconditional and as if it were principal debtor and not merely
surety, irrespective of, and shall be unaffected by, any invalidity,
irregularity or unenforceability of any such Security or this Indenture, any
failure to enforce the provisions of any such Security or this Indenture, any
waiver, modification, or indulgence granted to the Companies with respect
thereto, by the Holder of such Security or the Trustee, or any other
circumstances which may otherwise constitute a legal or equitable discharge of a
surety or guarantor; provided, however, that, notwithstanding the foregoing, no
such waiver, modification, indulgence or circumstance shall, without the consent
of the Guarantor, increase the principal amount of a Security, the premium, if
any, or the interest rate thereon (and, if applicable, the Tax Redemption Price
or Additional Amounts in respect thereof) except as provided in such Security.
The Guarantor hereby agrees that this Guarantee shall be enforceable without any
demand, suit or proceeding first against the Companies. The Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of merger or bankruptcy of any of the
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Companies, any right to require a proceeding first against the Companies,
protest or notice with respect to any such Security or the indebtedness
evidenced thereby and all demands whatsoever, and covenants that the Guarantee
will not be discharged as to any such Security except by payment in full of the
principal of, premium, if any, and interest on such Security or as set forth
below.
The Guarantee set forth in this Section 1201 shall not be valid or
become obligatory for any purpose with respect to a Security until the
certificate of authentication on such Security shall have been manually signed
by the Trustee.
SECTION 1202. Execution of Guarantee; Form of Guarantee.
The Guarantor hereby agrees to execute the Guarantee in
substantially the form set forth in this Section to be endorsed on each Security
authenticated and delivered by the Trustee. The Guarantee shall be executed and
the corporate seal of the Guarantor shall be affixed, prior to the
authentication of the Security on which it is endorsed, and the delivery of such
Security by the Trustee, after the authentication thereof hereunder, shall
constitute due delivery of the Guarantee on behalf of the Guarantor. Such
signature may be a manual or facsimile signature and may be imprinted or
otherwise reproduced on the Guarantee, and for that purpose the Guarantor may
adopt and use the facsimile signature of any such officer, and in case any such
officer who shall have signed the Guarantee shall cease to be a duly authorized
officer of the Guarantor before the Security on which the Guarantee is endorsed
shall have been authenticated and delivered by the Trustee or disposed of by the
Companies, such Security nevertheless may be authenticated and delivered or
disposed of as though the officer who signed the Guarantee had not ceased to be
a duly authorized director or attorney of the Guarantor.
The Guarantee to be endorsed on the Securities shall be in
substantially the form set forth below:
[FORM OF GUARANTEE]
GUARANTY OF USI ATLANTIC CORP.
For value received, USI Atlantic Corp., a Delaware corporation (the
"Guarantor"), hereby irrevocably and unconditionally guarantees to the Holder of
the Security upon which this Guaranty is endorsed, the performance of the
Issuers under such Security and the due and punctual payment of the principal
of, premium, if any, and interest on (and, if applicable, the Tax Redemption
Price and Additional Amounts in respect of) such Security, when and as the same
shall become due and payable, whether upon maturity, acceleration, call for
redemption or otherwise in accordance with the terms of such Security and of the
Indenture referred to therein.
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The Guarantor hereby agrees that its obligations hereunder shall be
absolute and unconditional and as if it were principal debtor and not merely
surety, irrespective of, and shall be unaffected by, any invalidity,
irregularity or unenforceability of such Security or said Indenture, any failure
to enforce the provisions of such Security or said Indenture, any waiver,
modification or indulgence granted to the Issuers with respect thereto by the
Holder of such Security or the Trustee, or any other circumstances which may
otherwise constitute a legal or equitable discharge of a surety or guarantor;
provided, however, that, notwithstanding the foregoing, no such waiver,
modification, indulgence or circumstance shall, without the consent of the
Guarantor, increase the principal amount of such Security, the premium, if any,
or the interest rate thereon (and, if applicable, the Tax Redemption Price or
Additional Amounts in respect thereof) except as provided in such Security. The
Guarantor hereby agrees that this Guaranty shall be enforceable without any
demand, suit or proceeding first against the Issuers. The Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of merger or bankruptcy of the Issuers, any right to require a
proceeding first against the Issuers, protest or notice with respect to such
Security or the indebtedness evidenced thereby and all demands whatsoever, and
covenants that this Guaranty will not be discharged except by payment in full of
the principal of, premium, if any, and interest on such Security or pursuant to
the provisions of the Indenture providing for release of this Guaranty under the
conditions provided for therein.
This Guaranty shall not be valid or become obligatory for any
purpose with respect to a Security until the certificate of authentication on
such Security shall have been signed manually by the Trustee under the Indenture
referred to in such Security. Terms used herein which are defined in such
Indenture shall have the respective meanings assigned thereto in the Indenture.
THIS GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Guarantor has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers
and its corporate seal to be affixed or reproduced hereon.
Dated: USI ATLANTIC CORP.
By:
Name:
Title:
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SECTION 1203. Severability.
In case any provision of any Guarantee shall be invalid, illegal or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 1204. Seniority of Guarantee.
The obligations of the Guarantor to the Holders and to the Trustee
pursuant to the Guarantor's Guarantee and this Indenture are unsecured senior
subordinated obligations of the Guarantor ranking pari passu in right of payment
with all existing and future senior subordinated obligations of the Guarantor.
SECTION 1205. Limitation of the Guarantor's Liability.
The Guarantor and by its acceptance hereof each Holder confirms that
it is the intention of all such parties that the guarantee by the Guarantor
pursuant to this Guarantee not constitute a fraudulent transfer or conveyance
for purposes of the Federal Bankruptcy Code, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar federal or state law or
the provisions of its local law relating to fraudulent transfer or conveyance.
To effectuate the foregoing intention, the Holders and the Guarantor hereby
irrevocably agree that the obligations of the Guarantor under the Guarantee
shall be limited to the maximum amount that will not, after giving effect to all
other contingent and fixed liabilities of the Guarantor and after giving effect
to any collections from or payments made by or on behalf of Guarantor in respect
of the obligations of the Guarantor under the Guarantee or pursuant to Section
1306 hereof, result in the obligations of the Guarantor under this Guarantee
constituting such fraudulent transfer or conveyance.
SECTION 1206. Release of USI Atlantic as Guarantor and USIAH as
Co-Issuer.
(a) USI Atlantic will be released from its obligations under the
Guarantee, and the Guarantee will terminate, if (i) the obligations of the
Companies under this Indenture are assumed by an acquiring or successor Person
(other than a Subsidiary of either of the Companies) pursuant to Article 8
hereof, (ii) USI Atlantic is sold or disposed of in a transaction that results
in USI Atlantic no longer being a Subsidiary or all or substantially all the
assets of USI Atlantic are sold or disposed of other than to the Companies or a
Subsidiary of either of the Companies, in each case as permitted hereby, or
(iii) upon repayment of all amounts outstanding or the voluntary release of USI
Atlantic under (x) the 7 1/4% Notes, (y) the Credit Facility and (z) any Debt of
a Company or any Subsidiary of a Company incurred to extend, renew, refinance or
refund (or successive extensions, renewals, refinancings or
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refundings), in whole or in part, the 7 1/4% Notes and the Credit Facility,
provided, in the case of (i), (ii) and (iii), that immediately after such
release the Company would be in compliance with the limitation on Indebtedness
of Restricted Subsidiaries and the other covenants herein. Furthermore, as a
condition to a release pursuant to clause (iii), such Company must certify to
the Trustee that immediately following the release of USI Atlantic as Guarantor,
USI Atlantic will not immediately thereafter be a guarantor of any Restricted
Subsidiary Funded Debt in excess of the amount of the Debt Basket (as defined
herein).
(b) USIAH will be released from its obligations under the Securities
if (i) the obligations of the Companies under this Indenture are assumed by an
acquiring or successor Person (other than a Subsidiary of either of the
Companies) pursuant to Article 8 hereof, (ii) USIAH is sold or disposed of in
USIAH no longer being a Subsidiary of USI, or all or substantially all the
assets of USIAH are sold or disposed of other than to USI or a Subsidiary of
USI, in each case as permitted hereby, or (iii) upon repayment of all amounts
outstanding under (x) the 7 1/4% Notes, (y) the Credit Facility and (z) any Debt
of a Company or any Subsidiary of a Company incurred to extend, renew, refinance
or refund (or successive extensions, renewals, refinancings or refundings), in
whole or in part, the 7 1/4% Notes and the Credit Facility, provided, in the
case of (i), (ii) and (iii), that immediately after such release the Company
would be in compliance with the limitation on Indebtedness of Restricted
Subsidiaries and the other covenants herein. Furthermore, as a condition to a
release of USIAH as co-obligor of the Securities under clause (iii), USI must
certify to the Trustee that immediately following the release of USIAH from its
obligations under the Securities, USIAH will not immediately thereafter be an
obligor under any Restricted Subsidiary Funded Debt in excess of the amount of
the Debt Basket (as defined herein).
SECTION 1207. Benefits Acknowledged.
The Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by this Indenture and that
its guarantee and waivers pursuant to this Guarantee are knowingly made in
contemplation of such benefits.
ARTICLE THIRTEEN
[Reserved.]
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ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. Companies' Option to Effect Defeasance or Covenant
Defeasance.
Except as otherwise specified as contemplated by Section 301 for
Securities of any series, the provisions of this Article Fourteen shall apply to
each series of securities, and the Companies may, at their option, effect
defeasance of the Securities of or within a series under Section 1402, or
covenant defeasance of or within a series under Section 1403 in accordance with
the terms of such Securities and in accordance with this Article.
SECTION 1402. Defeasance and Discharge.
Upon the Companies' exercise of the above option applicable to this
Section with respect to any Securities of or within a series, the Companies and
the Guarantor shall be deemed to have been discharged from its obligations with
respect to such Outstanding Securities on the date the conditions set forth in
Section 1404 are satisfied (hereinafter, "defeasance"). For this purpose, such
defeasance means that the Companies shall be deemed to have paid and discharged
the entire indebtedness represented by such Outstanding Securities and the
Guarantee, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 1405 and the other Sections of this Indenture referred to in
(A) and (B) below, and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Companies, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of such
Outstanding Securities to receive, solely from the trust fund described in
Section 1404 and as more fully set forth in such Section, payments in respect of
the principal of (and premium, if any) and interest, if any, on such Securities
when such payments are due, (B) the Companies' obligations with respect to such
Securities under Sections 305, 306, 1002 and 1003, (C) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and (D) this Article
Fourteen. Subject to compliance with this Article Fourteen, the Companies may
exercise their option under this Section 1402 notwithstanding the prior exercise
of its option under Section 1403 with respect to such Securities.
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SECTION 1403. Covenant Defeasance.
Upon the Companies' exercise of the above option applicable to this
Section with respect to any Securities of or within a series, the Companies and
the Guarantor shall be released from their obligations under Sections 801 and
802 and Sections 1006 through 1011, and, if specified pursuant to Section 301,
its obligations under any other covenant, with respect to such Outstanding
Securities on and after the date the conditions set forth in Section 1404 are
satisfied (hereinafter, "covenant defeasance"), and such Securities shall
thereafter be deemed not to be "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such covenant
defeasance means that, with respect to such Outstanding Securities, the
Companies and the Guarantor may omit to comply with and shall have no liability
in respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 501(3) or Section
501(9) or otherwise, as the case may be, but, except as specified above, the
remainder of this Indenture and such Securities shall be unaffected thereby.
SECTION 1404. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 1402 or Section 1403 to any Outstanding Securities of or within a
series:
(1) The Companies shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Article Fourteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for,
and dedicated solely to, the benefit of the Holders of such Securities,
(A) an amount (in such Currency in which such Securities are then
specified as payable at Stated Maturity), or (B) Government Obligations
applicable to such Securities (determined on the basis of the Currency in
which such Securities are then specified as payable at Stated Maturity)
which through the scheduled payment of principal and interest in respect
thereof in accordance with their terms will provide, not later than one
day before the due date of any payment of principal of and premium, if
any, and interest, if any, under such Securities, money in an amount, or
(C) a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge, and
which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge, the principal of (and premium, if any) and
<PAGE>
96
interest, if any, on such Outstanding Securities on the Stated Maturity
(or Redemption Date, if applicable) of such principal (and premium, if
any) or installment of interest, if any; provided that the Trustee shall
have been irrevocably instructed to apply such money or the proceeds of
such Government Obligations to said payments with respect to such
Securities. Before such a deposit, the Companies may give to the Trustee,
in accordance with Section 1102 hereof, a notice of their election to
redeem all or any portion of such Outstanding Securities at a future date
in accordance with the terms of the Securities of such series and Article
Eleven hereof, which notice shall be irrevocable. Such irrevocable
redemption notice, if given, shall be given effect in applying the
foregoing.
(2) No Default or Event of Default with respect to such Securities
shall have occurred and be continuing on the date of such deposit or,
insofar as paragraphs (5) and (6) of Section 501 are concerned, at any
time during the period ending on the 91st day after the date of such
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which either of the
Companies or the Guarantor is a party or by which it is bound.
(4) In the case of an election under Section 1402, each of the
Companies shall have delivered to the Trustee an Opinion of Counsel
stating that (x) each of the Companies has received from, or there has
been published by, the Internal Revenue Service a ruling, or (y) since the
date of execution of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion shall confirm that, the Holders of such
Outstanding Securities will not recognize income, gain or loss for federal
income tax purposes as a result of such defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred.
(5) In the case of an election under Section 1403, each of the
Companies shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of such Outstanding Securities will not recognize
income, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred.
<PAGE>
97
(6) Notwithstanding any other provisions of this Section, such
defeasance or covenant defeasance shall be effected in compliance with any
additional or substitute terms, conditions or limitations in connection
therewith pursuant to Section 301.
(7) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section
1402 or the covenant defeasance under Section 1403 (as the case may be)
have been complied with.
SECTION 1405. Deposited Money and Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all
money and Government Obligations (or other property as may be provided to
Section 301) (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 1405, the
"Trustee") pursuant to Section 1404 in respect of such Outstanding Securities
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including either of the Companies acting
as its own Paying Agent) as the Trustee may determine, to the Holders of such
Securities of all sums due and to become due thereon in respect of principal
(and premium, if any) and interest, if any, but such money need not be
segregated from other funds except to the extent required by law.
Unless otherwise specified with respect to any Security pursuant to
Section 301, if, after a deposit referred to in Section 1404(1) has been made,
(a) the Holder of a Security in respect of which such deposit was made is
entitled to, and does, elect pursuant to Section 312(b) or the terms of such
Security to receive payment in a Currency other than that in which the deposit
pursuant to Section 1404(1) has been made in respect of such Security, or (b) a
Conversion Event occurs as contemplated in Section 315(d) or 315(e) or by the
terms of any Security in respect of which the deposit pursuant to Section
1404(1) has been made, the indebtedness represented by such Security shall be
deemed to have been, and will be, fully discharged and satisfied through the
payment of the principal of (and premium, if any) and interest, if any, on such
Security as they become due out of the proceeds yielded by converting (from time
to time as specified below in the case of any such election) the amount or other
property deposited in respect of such Security into the Currency in which such
Security becomes payable as a result of such election or Conversion Event based
on the applicable Market Exchange Rate for such Currency in effect on the third
Business Day prior to each payment date, except, with respect to a Conversion
Event, for such Currency in effect (as nearly as feasible) at the time of the
Conversion Event.
<PAGE>
98
The Companies shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the Government Obligations
deposited pursuant to Section 1404 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of such Outstanding Securities.
Anything in this Article Fourteen to the contrary notwithstanding,
the Trustee shall deliver or pay to the Companies from time to time upon a
Company Request any money or Government Obligations (or other property and any
proceeds therefrom) held by it as provided in Section 1404 which, in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount thereof which would then be required to be deposited to effect an
equivalent defeasance or covenant defeasance, as applicable, in accordance with
this Article.
SECTION 1406. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1405 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Companies' obligations under this Indenture and such
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1402 or 1403, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1405; provided, however, that if the Companies make any payment of
principal of (or premium, if any) or interest, if any, on any such Security
following the reinstatement of its obligations, the Companies shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or Paying Agent.
This Indenture may be executed in any number of counterparts, each
of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Indenture.
<PAGE>
99
IN WITNESS WHEREOF, the parties hereto have caused this Indenture 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.
U.S. INDUSTRIES, INC.,
as Joint & Several Obligor
By: /s/ Peter F. Reilly
----------------------------------
Name: Peter F. Reilly
Title: Treasurer
USI AMERICAN HOLDINGS, INC.,
as Joint & Several Obligor
By: /s/ Peter F. Reilly
----------------------------------
Name: Peter F. Reilly
Title: Treasurer
USI ATLANTIC CORP., as Guarantor
By: /s/ Peter F. Reilly
----------------------------------
Name: Peter F. Reilly
Title: Treasurer
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
By: /s/ Michael Pinzon
----------------------------------
Name: Michael Pinzon
Title: Trust Officer
<PAGE>
EXHIBIT A
[FORM OF SECURITY]
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE U.S. SECURITIES ACT
OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY
IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (i) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (a)(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (3) OUTSIDE THE U.S. TO
A NON-U.S. PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER
THE SECURITIES ACT OR (4) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (b) TO THE COMPANIES OR (c) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE U.S. OR ANY OTHER APPLICABLE
JURISDICTION AND (ii) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (i) ABOVE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
A-1
<PAGE>
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO DTC OR NOMINEES OF DTC OR TO A SUCCESSOR OF DTC OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTIONS 305 AND 306 OF THE INDENTURE.
U.S. INDUSTRIES, INC.
USI AMERICAN HOLDINGS, INC.
_____% Senior Note due 200_
U.S. $__________
No. CUSIP No.
U.S. INDUSTRIES, INC. and USI AMERICAN HOLDINGS, INC., both Delaware
corporations (herein called the "Companies", which term includes any successor
Person under the Indenture hereinafter referred to), for value received, hereby
jointly and severally promise to pay to ______________ or registered assigns,
the principal sum of ____________________ Dollars on __________, 200_ at the
office or agency of the Companies referred to below, and to pay interest thereon
on __________, 1999 and semi-annually thereafter, on __________ and __________
in each year, from __________, 1999, or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, at the rate of ____%
per annum, until the principal hereof is paid or duly provided for, and (to the
extent lawful) to pay on demand interest on any overdue interest at the rate
borne by the Notes from the date on which such overdue interest becomes payable
to the date payment of such interest has been made or duly provided for. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in said Indenture, be paid to the Person in whose
name this Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest, which shall be the
__________ or __________ (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for shall forthwith cease to be payable to the Holder on
such Regular Record Date, and such defaulted interest, and (to the extent
lawful) interest on such defaulted interest at the rate borne by the Notes, may
be paid to the Person in whose name this Note (or one or more Predecessor Notes)
is registered at the close of business on a Special Record Date for the payment
of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to
A-2
<PAGE>
Holders of Notes not less than 10 days prior to such Special Record Date, or may
be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Notes may be listed, and
upon such notice as may be required by such exchange, all as more fully provided
in said Indenture.
[The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of __________, ____ (the "Registration
Rights Agreement"), among the Companies and the Initial Purchasers named
therein. In the event that either (a) an Exchange Offer Registration Statement
(as such term is defined in the Registration Rights Agreement) is not filed with
the Commission on or prior to the 90th day following the date of the Indenture,
(b) such Exchange Offer Registration Statement has not been declared effective
on or prior to the 180th day following the date of the Indenture, (c) the
Exchange Offer (as such term is defined in the Registration Rights Agreement) is
not consummated or, if required, a Shelf Registration Statement (as such term is
defined in the Registration Rights Agreement) with respect to the Notes is not
declared effective on or prior to the 210th day following the date of the
Indenture or (d) the Exchange Offer Registration Statement is declared effective
but thereafter ceases to be effective or usable (each such event referred to in
clauses (a) through (d) above, a "Registration Default") then the per annum
interest rate borne by this Note shall be increased by one-quarter of one
percent per annum for the first 90-day period following the Registration
Default. The per annum interest rate borne by this Note will increase by an
additional one quarter of one percent per annum for each subsequent 90-day
period following such Registration Default to a maximum of one percent per annum
until such Registration Default has been cured. Upon (w) the filing of the
Exchange Offer Registration Statement after the 90-day period described in
clause (a) above, (x) the effectiveness of the Exchange Offer Registration
Statement after the 180-day period described in clause (b) above or (y) the
consummation of the Exchange Offer or the effectiveness of a Shelf Registration
Statement, as the case may be, after the 210-day period described in clause (c)
above, or (z) the cure of any Registration Default described in clause (d)
above, the interest rate borne by the Note from the date of such filing,
effectiveness or consummation, as the case may be, will be reduced to the
original interest rate set forth above if the Companies are otherwise in
compliance with this paragraph; provided, however, that, if after such reduction
in interest rate, a different event specified in clause (a), (b), (c) or (d)
above occurs, the interest rate may again be increased and thereafter reduced
pursuant to the foregoing provisions.]
Payment of the principal of (and premium, if any, on) and interest
on this Note will be made at the office or agency of the Companies maintained
for that purpose in The City of New York, or at such other office or agency of
the Companies as may be maintained for such purpose, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts; provided, however, that payment of interest
may be made at the option of the Companies (i) by check mailed to the address of
the Person entitled thereto as such address shall appear on the Note Register or
(ii) by wire transfer to an account maintained by the payee located in the
United States
A-3
<PAGE>
provided that appropriate written wire instructions have been provided prior to
the relevant record date.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee or the Authenticating Agent referred to on the reverse
hereof by manual signature, this Note shall not be entitled to any benefit under
the Indenture, or be valid or obligatory for any purpose.
A-4
<PAGE>
IN WITNESS WHEREOF, the Companies have caused this instrument to be
duly executed under its corporate seal.
U.S. INDUSTRIES, INC.
By
Name:
Title:
USI AMERICAN HOLDINGS, INC.
By
Name:
Title:
[Seal]
Attest:
- -----------------
Authorized Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
The First National Bank of Chicago,
as Trustee
By:
Authorized Signatory
Dated: __________
A-5
<PAGE>
[Reverse of Note]
This Note is one of a duly authorized issue of securities of the
Companies designated as its ___% Senior Notes due 200_ (the "Notes"), limited
(except as otherwise provided in the Indenture referred to below) in aggregate
principal amount to $___________, which may be issued under an indenture (the
"Indenture") dated as of October 27, 1998 among the Companies, USI Atlantic
Corp., as Guarantor (the "Guarantor"), and The First National Bank of Chicago,
as trustee (the "Trustee", which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights,
duties, obligations and immunities thereunder of the Companies, the Guarantor,
the Trustee and the Holders of the Notes, and of the terms upon which the Notes
are, and are to be, authenticated and delivered.
On or before each payment date, the Companies shall deliver or cause
to be delivered to the Trustee or the Paying Agent an amount in dollars
sufficient to pay the amount due on such payment date.
At any time or from time to time, the Companies may redeem the
Notes, in whole or in part, on at least 30 days' prior notice by mail, at a
redemption price (the "Redemption Price") equal to the greater of (i) 100% of
the principal amount of the Notes to be redeemed, or (ii) the sum of the present
values of the remaining scheduled payments of principal and interest thereon
discounted to the date of redemption on a semiannual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Treasury Rate plus [ ] basis
points, plus, in each case, accrued but unpaid interest to the date of
redemption. On and after the redemption date, interest will cease to accrue on
the Notes or portions of Notes called for redemption on such date. Notes may be
redeemed only in integral multiples of $1,000.
For this purpose, the following terms shall have the meaning set
forth below:
"Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker which would be utilized,
at the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the Notes. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Trustee after consultation with the
Companies.
"Comparable Treasury Price" means, with respect to any redemption
date, (i) the average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on the
third business day preceding such redemption date, as set forth in the daily
statistical release (or any
A-6
<PAGE>
successor release) published by the Federal Reserve Bank of New York and
designated "Composite 3:30 p.m. Quotations for U.S. Government Securities," or
(ii) if such release (or any successor release) is not published or does not
contain such prices on such business day (A) the average of the Reference
Treasury Dealer Quotations for such redemption date, after excluding the highest
and lowest such Reference Treasury Dealer Quotations, or (B) of the Trustee
obtains fewer than three such Reference Dealer Quotations, the average of all
such Quotations.
"Reference Treasury Dealer" means _____________ and its successors
and/or such other primary U.S. Government securities dealers in New York City (a
"Primary Treasury Dealer") as shall be designated by the Companies from time to
time, in each case provided that such entity continues to be a Primary Treasury
Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quote in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date.
"Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for such Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury Price
for such redemption date.
Any notice to the Holders or such a redemption need not set forth
the redemption price but need only set forth the method of calculation thereof
as described above. The redemption price, calculated as aforesaid, shall be set
forth in an Officers' Certificate to the Trustee no later than two business days
prior to the redemption.
In the event of redemption or repurchase of this Note in part only,
a new Note or Notes for the unredeemed portion hereof shall be issued in the
name of the Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
of all the Notes may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of the Companies on this Note and (b) certain
restrictive covenants and the related Defaults and Events of Default, upon
compliance by the Companies with certain conditions set forth therein, which
provisions apply to this Note.
A-7
<PAGE>
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Companies and the rights of the Holders under the Indenture and the Note at any
time by the Companies and the Trustee with the consent of the Holders of a
specified percentage in aggregate principal amount of the Notes at the time
Outstanding. Additionally, the Indenture permits, without notice to or consent
of any Holder, the amendment thereof (a) to evidence the succession of another
person to the Companies as obligor under the Indenture and the Notes, (b) to add
to the covenants of the Companies for the benefit of the Holders of Notes or to
surrender any right or power conferred upon the Companies by the Indenture, (c)
to add Events of Default for the benefit of the Holders of Notes, (d) to secure
the Notes pursuant to the provisions described in Section 1012 or 801 of the
Indenture or otherwise, (e) to provide for the acceptance of appointment by a
successor Trustee, (f) to cure any ambiguity, defect or inconsistency in the
Indenture, to correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to clarify any other provision
with respect to matters or questions arising under this Indenture, provided such
action does not adversely affect the interests of Holders of Notes in any
material respect, or (g) to supplement any of the provisions of the Indenture to
the extent necessary to permit or facilitate defeasance and discharge of the
Notes, provided that such action shall not adversely affect the interests of the
Holders of Notes in any material respect.
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Companies, any
Guarantor or any other obligor on the Notes (in the event such Guarantor or
other obligor is obligated to make payments in respect of the Notes), which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed, subject to the subordination provisions of the
Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registerable on the Securities
Register of the Companies, upon surrender of this Note for registration of
transfer at the office or agency of the Companies maintained for such purpose in
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Companies and the Securities Registrar
duly executed by, the Holder hereof or his attorney duly authorized in writing,
and thereupon one or more new Notes, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like
A-8
<PAGE>
aggregate principal amount of Notes of a different authorized denomination, as
requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Companies may require payment of a sum
sufficient to pay all documentary, stamp or similar issue or transfer taxes or
other governmental charges payable in connection therewith.
Prior to the time of due presentment of this Note for registration
of transfer, the Companies, the Trustee and any agent of the Companies or the
Trustee may treat the Person in whose name this Note is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and neither the
Companies, the Trustee nor any agent shall be affected by notice to the
contrary.
THIS NOTE AND THE INDENTURE SHALL BE GOVERNED BY THE LAW OF THE
STATE OF NEW YORK EXCLUDING (TO THE GREATEST EXTENT PERMISSIBLE BY LAW) ANY RULE
OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER
THAN THE STATE OF NEW YORK.
Interest on this Note shall be computed on the basis of a 360-day
year of twelve 30-day months.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
A-9
<PAGE>
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
please print or typewrite name and address including zip code of assignee
- --------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
- --------------------------------------------------------------------------------
attorney to transfer said Note on the books of the Companies with full power of
substitution in the premises.
In connection with any transfer of this Note occurring prior to the
Resale Restriction Termination Date, the undersigned confirms that without
utilizing any general solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as
amended, provided by Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with
(a) above and documents are being furnished that comply with the
conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 312 of the Indenture shall have
been satisfied.
A-10
<PAGE>
Date: NOTICE:
------------- -----------------------------------------
The signature must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or any
change whatsoever.
Signature Guarantee:
-----------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Companies as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated: NOTICE:
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To be executed by an executive officer.
A-11
Exhibit 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of June 1, 1997, by and between, U.S.
Industries, Inc., a Delaware corporation, with its principal United States
office at 101 Wood Avenue South, Iselin, New Jersey 08830 (the "Company"), and
John Bendik, residing at 4 Field Lane, Miller Place, New York 11764
("Executive").
W I T N E S S E T H:
WHEREAS, Executive is currently employed by the Company and prior to
the date hereof (the "Effective Date") Executive has been employed by the
Company in various executive positions;
WHEREAS, Executive is willing to continue to be employed by the
Company;
WHEREAS, as of the Effective Date, the Company desires to employ the
Executive as a Group Vice President;
WHEREAS, the Company and Executive desire to enter into an agreement
(the "Agreement") as to the terms of his employment by the Company.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
1. Term of Employment. Except for earlier termination as provided in
Section 7 hereof, Executive's employment under this Agreement shall be for a
two-year term
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(the "Employment Term") commencing on the Effective Date and ending two years
thereafter. Subject to Section 7 hereof, the Employment Term shall be
automatically extended for additional terms of successive two (2) year periods
unless the Company or the Executive gives written notice to the other at least
ninety (90) days prior to the expiration of the then current Employment Term of
the termination of Executive's employment hereunder at the end of such current
Employment Term.
2. Positions. (a) As of the Effective Date, Executive shall serve as
Group Vice President of the Company. If requested by the Board of Directors of
the Company (the "Board") or the Chairman and so elected by the stockholders of
the Company, Executive shall also serve on the Board of Directors of the Company
without additional compensation. Executive shall also serve, if requested by the
Board of Directors of the Company or the Chairman, as an executive officer and
director of subsidiaries and a director of associated companies of the Company
and shall comply with the policy of the Compensation Committee of the Company's
Board of Directors (the "Compensation Committee") with regard to retention or
forfeiture of the director's fees.
(b) Executive shall report to any more senior officer of the Company
as designated by the Chairman or the President and, shall have such duties and
authority, consistent with his position as a Group Vice President of the Company
as shall be assigned to him from time to time by the Board, the Chairman, the
President or such other more senior officer(s) of the Company.
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(c) During the Employment Term, Executive shall devote substantially
all of his business time and efforts to the performance of his duties hereunder;
provided, however, that Executive shall be allowed, to the extent that such
activities do not materially interfere with the performance of his duties and
responsibilities hereunder, to manage his passive personal investments and to
serve on corporate, civic, or charitable boards or committees. Notwithstanding
the foregoing, the Executive shall not serve on any corporate board of directors
if such service would be inconsistent with his fiduciary responsibilities to the
Company.
3. Base Salary. During the Employment Term, the Company shall pay
Executive a base salary at the annual rate of not less than $220,000. Base
salary shall be payable in accordance with the usual payroll practices of the
Company. Executive's Base Salary shall be subject to annual review by the Board
after the conclusion of each fiscal year during the Employment Term and may be
increased, but not decreased, from time to time upon recommendation of the
Compensation Committee, except, prior to a Change in Control, as defined in
Section 10 hereof, it may be decreased proportionately in connection with an
across the board decrease applying to all senior executives of the Company. The
base salary as determined as aforesaid from time to time shall constitute "Base
Salary" for purposes of this Agreement.
4. Incentive Compensation. (a) Bonus. The Company shall recommend to
the Compensation Committee at its next meeting that Executive be eligible to
receive a discretionary cash bonus for the 1997 fiscal year outside the U.S.
Industries, Inc. Annual Performance Incentive Plan but conditioned on the
performance criteria under such Plan being
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achieved by the Company and with a target bonus potential equal to at least 65%
of his Base Salary; subject to such potential discretionary bonus being reduced
by the amount paid to Executive under the USI American Holdings, Inc. Plan for
the 1997 fiscal year. Furthermore, for each fiscal year during the Employment
Term beginning with the first fiscal year commencing after the Effective Date,
Executive shall be eligible to participate in an annual incentive pay plan of
the Company that provides an annualized cash bonus opportunity with a target
bonus potential equal to at least 65% of Base Salary.
(b) Restricted Stock. The Company shall recommend to the
Compensation Committee at its next meeting that Executive be granted 15,000
restricted shares (the "1997 Restricted Stock") of common stock of the Company
(the "Common Stock") in accordance with the terms of the U.S. Industries, Inc.
1997 Restricted Stock Plan and subject to the terms and conditions of a
Restricted Stock Agreement entered into by the Company and the Executive in the
form of Exhibit 1 hereto.
(c) Options. The Company shall recommend to the Compensation
Committee at its next meeting that the Executive be granted nonqualified options
(the "Options") to purchase five thousand (5,000) shares of Common Stock in
accordance with the terms of the Amended U.S. Industries, Inc. Stock Option Plan
(the "Stock Option Plan") and subject to the terms and condition of an Option
Agreement entered into by the Company and the Executive in the form of Exhibit 2
hereto.
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(d) Other Compensation. The Company may, upon recommendation of the
Compensation Committee, award to the Executive such other bonuses and
compensation as it deems appropriate and reasonable.
5. Employee Benefits and Vacation. (a) During the Employment Term,
Executive shall be entitled to participate in all pension, retirement, savings,
welfare and other employee benefit plans and arrangements and fringe benefits
and perquisites generally maintained by the Company from time to time for the
benefit of the senior executives of the Company of a materially comparable level
in accordance with their respective terms as in effect from time to time (other
than any special arrangement entered into by contract with an executive). The
Executive shall be initially provided with a leased automobile or an automobile
allowance by the Company, in such manner and at such level as determined by the
Company; however, the Company reserves the right, upon recommendation of the
Compensation Committee, to modify the arrangement or change the level of
allowances in the future. To the extent permitted under applicable law, the
Company shall not treat as compensation to Executive fringes and perquisites
provided to Executive or the items under Section 6 below. Notwithstanding the
foregoing, after a Change of Control, during the Employment Term, Executive
shall be entitled to (i) coverage and benefits at least equal in the aggregate
to the benefits provided under the benefit plans and programs, including,
without limitation, any life insurance, medical insurance, disability, pension,
savings, incentive, retirement and other plans and programs, of the Company
applicable to Executive immediately prior to such Change of Control and any (ii)
fringe benefits and perquisites of at least equal value to those provided by the
Company to the Executive immediately prior to the Change of Control.
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(b) During the Employment Term, Executive shall be entitled to
vacation each year in accordance with the Company's policies in effect from time
to time, but in no event less than four (4) weeks paid vacation per calendar
year. The Executive shall also be entitled to such periods of sick leave
customarily provided by the Company for its senior executive employees.
6. Business Expenses. The Company shall reimburse Executive for the
travel, entertainment and other business expenses incurred by Executive in the
performance of his duties hereunder, in accordance with the Company's policies
as in effect from time to time.
7. Termination. (a) The employment of Executive under this Agreement
shall terminate upon the occurrence of any of the following events:
(i) the death of the Executive;
(ii) the termination of the Executive's employment by the
Company due to the Executive's Disability pursuant to Section 7(b)
hereof;
(iii) the termination of the Executive's employment by the
Executive for Good Reason pursuant to Section 7(c) hereof;
(iv) the termination of the Executive's employment by the
Company without Cause;
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(v) the termination of employment by the Executive without
Good Reason upon sixty (60) days prior written notice;
(vi) the termination of employment by the Executive with or
without Good Reason during the thirty (30) day period commencing one
(1) year after the Change in Control (such thirty (30) day period
being referred to herein as the "Change in Control Protection
Period"), provided that the Executive shall have a right to
terminate employment pursuant to this Section 7(a)(vi) and receive
the amounts under Section 8(c)(A)(i) and (ii) unless simultaneous
with the Change in Control, the Company or the person or entity
triggering the Change in Control delivers to the Executive an
irrevocable direct pay letter of credit with regard to the amounts
under Section 8(c)(A)(i) and (ii) and satisfying the requirements of
Section 7(g) hereof (and further provided that the foregoing shall
in no way affect full vesting of 1997 Restricted Stock and Options,
as well as other restricted stock and options, if any, upon a Change
in Control in accordance with Section 4 hereof);
(vii) the termination of the Executive's employment by the
Company for Cause pursuant to Section 7(e);
(viii)The retirement of the Executive by the Company at or
after his sixty-fifth birthday to the extent such termination is
specifically permitted as a stated exception from applicable federal
and state age discrimination laws based on position and retirement
benefits.
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(b) Disability. If, by reason of the same or related physical or
mental reasons, Executive is unable to carry out his material duties pursuant to
this Agreement for more than six (6) months in any twelve (12) consecutive month
period, the Company may terminate Executive's employment for Disability upon
thirty (30) days prior written notice, by a Notice of Disability Termination, at
any time thereafter during such twelve (12) month period in which Executive is
unable to carry out his duties as a result of the same or related physical or
mental illness. Such termination shall not be effective if Executive returns to
the full time performance of his material duties within such thirty (30) day
notice period.
(c) Termination for Good Reason. A Termination for Good Reason means
a termination by Executive by written notice given within ninety (90) days after
the occurrence of the Good Reason event. For purposes of this Agreement, "Good
Reason" shall mean the occurrence or failure to cause the occurrence, as the
case may be, without Executive's express written consent, of any of the
following circumstances, unless such circumstances are fully corrected prior to
the date of termination specified in the Notice of Termination for Good Reason
(as defined in Section 7(d) hereof): (i) any material diminution of Executive's
positions, duties or responsibilities hereunder (except in each case in
connection with the termination of Executive's employment for Cause or
Disability or as a result of Executive's death, or temporarily as a result of
Executive's illness or other absence), or, after a Change in Control, the
assignment to Executive of duties or responsibilities that are inconsistent with
Executive's position as Group Vice President; (ii) Removal of, or the
nonreelection of, the Executive from the officer positions, if any, with the
Company specified herein without election to a materially comparable or higher
position; (iii) A relocation of the Company's
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principal United States executive offices to a location more than both
thirty-five (35) miles from Iselin, New Jersey and thirty-five (35) miles from
his residence at the time of relocation; (iv) After a Change of Control, a
failure by the Company (A) to continue any bonus plan, program or arrangement in
which Executive is entitled to participate immediately prior to the Change of
Control (the "Bonus Plans"), provided that any such Bonus Plans may be modified
at the Company's discretion from time to time but shall be deemed terminated if
(x) any such plan does not remain substantially in the form in effect prior to
such modification and (y) if plans providing Executive with substantially
similar benefits are not substituted therefor ("Substitute Plans"), or (B) to
continue Executive as a participant in the Bonus Plans and Substitute Plans on
at least the same basis as to potential amount of the bonus and substantially
the same level of criteria for achievability thereof as Executive participated
in immediately prior to any change in such plans or awards, in accordance with
the Bonus Plans and the Substitute Plans; (v) Any material breach by the Company
of any provision of this Agreement, including without limitation Section 11
hereof; (vi) if on the Board at the time of a Change in Control, Executive's
removal from or failure to be reelected to the Board thereafter; or (vii)
failure of any successor to assume in a writing delivered to Executive upon the
assignee becoming such, the obligations of the Company hereunder.
(d) Notice of Termination for Good Reason. A Notice of Termination
for Good Reason shall mean a notice that shall indicate the specific termination
provision in Section 7(c) relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for Termination for Good
Reason. The failure by Executive to set forth in the Notice of Termination for
Good Reason any facts or circumstances which
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<PAGE>
contribute to the showing of Good Reason shall not waive any right of Executive
hereunder or preclude Executive from asserting such fact or circumstance in
enforcing his rights hereunder. The Notice of Termination for Good Reason shall
provide for a date of termination not less than ten (10) nor more than sixty
(60) days after the date such Notice of Termination for Good Reason is given,
provided that in the case of the events set forth in Section 7(c)(ii) or (iii)
the date may be two (2) days after the giving of such notice.
(e) Cause. Subject to the notification provisions of Section 7(f)
below, Executive's employment hereunder may be terminated by the Company for
Cause. For purposes of this Agreement, the term "Cause" shall be limited to (i)
willful misconduct by Executive with regard to the Company or its business; (ii)
the refusal of Executive to follow the proper written direction of the Board or
a more senior officer of the Company, provided that the foregoing refusal shall
not be "Cause" if Executive in good faith believes that such direction is
illegal, unethical or immoral and promptly so notifies the Board or the more
senior officer (whichever is applicable); (iii) substantial and continuing
willful refusal by the Executive to attempt to perform the duties required of
him hereunder (other than any such failure resulting from incapacity due to
physical or mental illness) after a written demand for substantial performance
is delivered to the Executive by the Board or a more senior officer of the
Company which specifically identifies the manner in which it is believed that
the Executive has substantially and continually refused to attempt to perform
his duties hereunder; (iv) the Executive being convicted of a felony (other than
a felony involving a motor vehicle); (v) the breach by Executive of any material
fiduciary duty owed by Executive to the Company; or
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<PAGE>
(vi) Executive's dishonesty, misappropriation or fraud with regard to the
Company (other than good faith expense account disputes).
(f) Notice of Termination for Cause. A Notice of Termination for
Cause shall mean a notice that shall indicate the specific termination provision
in Section 7(e) relied upon and shall set forth in reasonable detail the facts
and circumstances which provide for a basis for Termination for Cause. Further,
a Notification for Cause shall be required to include a copy of a resolution
duly adopted by at least two-thirds of the entire membership of the Board at a
meeting of the Board which was called for the purpose of considering such
termination and which Executive and his representative had the right to attend
and address the Board, finding that, in the good faith opinion of the Board,
Executive engaged in conduct set forth in the definition of Cause herein and
specifying the particulars thereof in reasonable detail. The date of termination
for a Termination for Cause shall be the date indicated in the Notice of
Termination. Any purported Termination for Cause which is held by a court not to
have been based on the grounds set forth in this Agreement or not to have
followed the procedures set forth in this Agreement shall be deemed a
Termination by the Company without Cause.
(g) The irrevocable direct pay letter of credit required to be
delivered pursuant to Section 7(a)(vi) hereof shall be in amount equal to the
amount the Executive would be entitled to under Section 8(c)(A)(i) and (ii)
hereof if he was terminated without Cause upon the Change in Control (the
"Occurrence") and have an expiration date of no less than two (2) years after
the Occurrence. The Executive shall be entitled to draw on the letter of credit
upon presentation to the issuing bank of a demand for payment signed by the
Executive that states
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that (i) (A) a Good Reason event has occurred and the Executive would be
entitled to payment under Section 8(c) of his Employment Agreement if he elected
to terminate employment for Good Reason or (B) one (1) year and not more than
one (1) year and thirty (30) days has expired since the Occurrence or (C) the
Executive is entitled to payment under Section 8(c) of the Agreement and (ii)
assuming the event set forth in (i) entitled him to payment under Section 8(c)
of his Employment Agreement, the amount the Company would be indebted to him at
the time of presentation under Section 8(c)(A)(i) and (ii) if he then was
eligible to receive payments under Section 8(c). There shall be no other
requirements (including no requirement that the Executive first makes demand
upon the Company or that the Executive actually terminates employment) with
regard to payment of the letter of credit. To the extent the letter of credit is
not adequate to cover the amount owed to the Executive by the Company under the
Employment Agreement, is not submitted by the Executive or is not paid by the
issuing bank, the Company shall remain liable to the Executive for the remainder
owed the Executive pursuant to the terms of this Agreement. To the extent any
amount is paid under the letter of credit it shall be a credit against any
amounts the Company then or thereafter would owe to the Executive under Section
8(c) of the Agreement. The letter of credit shall be issued by a national money
center bank with a rating of at least A by Standard and Poors. The Company shall
bear the cost of the letter of credit.
8. Consequences of Termination of Employment. (a) Death. If
Executive's employment is terminated during the Employment Term by reason of
Executive's death, the employment period under this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement except for: (i) any compensation
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earned but not yet paid, including and without limitation, any declared but
unpaid bonus, any amount of Base Salary or deferred compensation accrued or
earned but unpaid, any accrued vacation pay payable pursuant to the Company's
policies and any unreimbursed business expenses payable pursuant to Section 6
which amounts shall be promptly paid in a lump sum to Executive's estate; (ii)
the product of (x) the target annual bonus for the fiscal year of the
Executive's death, multiplied by (y) a fraction, the numerator of which is the
number of days of the current fiscal year during which the Executive was
employed by the Company, and the denominator of which is 365, which bonus shall
be paid when bonuses for such period are paid to the other executives; (iii)
full accelerated vesting under any non-equity based long term incentive plans
with pro rata payment based on actual coverage under such plans at the time
payment normally would be made under such plans; (iv) subject to Section 9
hereof, any other amounts or benefits owing to Executive under the then
applicable employee benefit or equity plans or policies of the Company, which
shall be paid in accordance with such plans or policies; (v) payment on a
monthly basis of six (6) months of Base Salary, which shall be paid to
Executive's spouse, or if he is not married or if she shall predecease him, then
to the Executive's estate; and (vi) payment of the spouse's and dependent's
COBRA coverage premiums to the extent, and so long as, they remain eligible for
COBRA coverage, but in no event more than three (3) years. Section 11 hereof
shall also continue to apply.
(b) Disability. If Executive's employment is terminated by reason of
Executive's Disability, Executive shall be entitled to receive the payments and
benefits to which his representatives would be entitled in the event of a
termination of employment by reason of his death, provided that the payment of
Base Salary shall be reduced by the projected
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amount he would receive under any long-term disability policy or program
maintained by the Company during the six (6) month period during which Base
Salary is being paid. Section 11 hereof shall also continue to apply.
(c) Termination by Executive for Good Reason or for any Reason
During the Change in Control Protection Period or Termination by the Company
without Cause or Nonextension of the Term by the Company. If (i) outside of the
Change in Control Protection Period, Executive terminates his employment
hereunder for Good Reason during the Employment Term, (ii) if a Change in
Control occurs and during the Change in Control Protection Period Executive
terminates his employment for any reason, (iii) if Executive's employment with
the Company is terminated by the Company without Cause or (iv) Executive's
employment with the Company terminates as a result of the Company giving notice
of nonextension of the Employment Term pursuant to Section 1 hereof, Executive
shall be entitled to receive (A) subject to the second and third from last
sentences of this Section 8(c), in a lump sum within five (5) days after such
termination (i) two (2) times Base Salary, (ii) two (2) times the highest annual
bonus paid or payable to Executive for any of the previous three completed
fiscal years by the Company, (iii) any unreimbursed business expenses payable
pursuant to Section 6, and (iv) any Base Salary, Bonus, vacation pay or other
deferred compensation accrued or earned but not yet paid at the date of
termination; (B) subject to Section 9 hereof, any other amounts or benefits due
Executive under the then applicable employee benefit, long term incentive or
equity plans of the Company as shall be determined and paid in accordance with
such plans, policies and practices; (C) two (2) years of additional service and
compensation credit (at his then compensation level) for pension purposes under
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any defined benefit type qualified or nonqualified pension plan or arrangement
of the Company, which payments shall be made through and in accordance with the
terms of the nonqualified defined benefit pension arrangement if any then
exists, or, if not, in an actuarially equivalent lump sum (using the actuarial
factors then applying in the Company's defined benefit plan covering Executive);
(D) two (2) years of the maximum Company contribution (assuming Executive
deferred the maximum amount and continued to earn his then current salary) under
any type of qualified or nonqualified 401(k) plan (payable at the end of each
such year); and (E) payment by the Company of the premiums for the Executive and
his dependents' health coverage for two (2) years under the Company's health
plans which cover the senior executives of the Company or materially similar
benefits. Payments under (E) above may at the discretion of the Company be made
by continuing participation of Executive in the plan as a terminee, by paying
the applicable COBRA premium for Executive and his dependents, or by covering
Executive and his dependents under substitute arrangements. In the event that
the termination entitling Executive to payments under this Section 8(c) occurs
on or after the sixth (6th) anniversary of the Effective Date, but prior to a
Change in Control, the amounts payable under subparts (A)(i) and (ii) of this
Section 8(c) beyond one times the amounts specified shall not be paid in a lump
sum, but shall be paid, subject to Section 9 hereof, in twelve (12) equal
monthly installments commencing one (1) year after such termination. If there is
a Change in Control thereafter, the amounts, if any, remaining to be paid
pursuant to the preceding sentence (and in accordance with Section 9 hereof)
shall be paid in a lump sum within five (5) days thereafter. In the
circumstances of (i) through (iv) above, Section 11 hereof shall also continue
to apply.
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(d) Termination with Cause or Voluntary Resignation without Good
Reason or Retirement. If Executive's employment hereunder is terminated (i) by
the Company for Cause, (ii) by Executive without Good Reason outside of the
Change in Control Protection Period, or (iii) by the Company pursuant to Section
7(a)(viii) hereof, the Executive shall be entitled to receive only his Base
Salary through the date of termination, any earned but unpaid bonus, and any
unreimbursed business expenses payable pursuant to Section 6. All other benefits
(including without limitation restricted stock and options) due Executive
following such termination of employment shall be determined in accordance with
the plans, policies and practices of the Company.
9. No Mitigation; Set-Off. In the event of any termination of
employment under Section 8, Executive shall be under no obligation to seek other
employment and prior to the sixth (6th) anniversary of the Effective Date or
after a Change in Control, there shall be no offset against any amounts due
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that Executive may obtain. In the event of any
termination of employment entitling the Executive to payments under Section 8(c)
hereof on or after the sixth (6th) anniversary of the Effective Date and before
a Change in Control, there shall be no offset against any amounts due Executive
under this Agreement on account of any remuneration that Executive receives
during the one (1) year after the Executive's employment terminates (the
"One-Year Period"); but if, at any time after the One-Year Period, but prior to
a Change in Control, the Executive is employed on a substantially full time
basis either as an employee or independent contractor (other than self employed
as an independent contractor doing special projects for unrelated entities or
unrelated consulting
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firms with no project scheduled to extend, or extending, on a substantially
full-time basis for more than sixty (60) days after the end of the One-Year
Period) the amounts payable to him under Section 8(c)(A)(i) and (ii) hereof
shall cease. Any amounts due under Section 8 are in the nature of severance
payments, or liquidated damages, or both, and are not in the nature of a
penalty. Such amounts are inclusive, and in lieu of any amounts payable under
any other salary continuation or cash severance arrangement of the Company and
to the extent paid or provided under any other such arrangement shall be offset
from the amount due hereunder.
10. Change of Control. For purposes of this Agreement, the term
"Change in Control" shall mean (i) any "person" as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 ("Act") (other than the
Company, any trustee or other fiduciary holding securities under any employee
benefit plan of the Company, or any company owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of Common Stock of the Company), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Act), directly or indirectly, of securities
of the Company representing twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding securities; (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii), or (iv) of this paragraph)
whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the
two-year period or whose election or
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nomination for election was previously so approved, cease for any reason to
constitute at least a majority of the Board of Directors; (iii) the stockholders
of the Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation;
provided, however, that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than twenty-five percent (25%) of the combined voting power of the
Company's then outstanding securities shall not constitute a Change in Control
of the Company; or (iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets other than
the sale of all or substantially all of the assets of the Company to a person or
persons who beneficially own, directly or indirectly, at least fifty percent
(50%) or more of the combined voting power of the outstanding voting securities
of the Company at the time of the sale.
11. Indemnification. (a) The Company agrees that if Executive is
made a party to or threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director, employee or
officer of the Company and/or any affiliate of the Company, or is or was serving
at the request of any of such companies as a director, officer, member,
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employee, fiduciary or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including, without limitation, service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is alleged action in an official capacity as a director, officer, member,
employee, fiduciary or agent while serving as a director, officer, member,
employee, fiduciary or agent, he shall be indemnified and held harmless by the
applicable company to the fullest extent authorized by Delaware law (or, if
other than the Company, the law applicable to such company), as the same exists
or may hereafter be amended, against all Expenses incurred or suffered by
Executive in connection therewith, and such indemnification shall continue as to
Executive even if Executive has ceased to be an officer, director, member,
fiduciary or agent, or is no longer employed by the company, and shall inure to
the benefit of his heirs, executors and administrators.
(b) As used in this Agreement, the term "Expenses" shall include,
without limitation, damages, losses, judgments, liabilities, fines, penalties,
excise taxes, settlements and costs, attorneys' fees, accountants' fees, and
disbursements and costs of attachment or similar bonds, investigations, and any
expenses of establishing a right to indemnification under this Agreement.
(c) Expenses incurred by Executive in connection with any Proceeding
shall be paid by the company in advance upon request of Executive and the giving
by the Executive of any undertakings required by applicable law.
(d) Executive shall give the company notice of any claim made
against him for which indemnity will or could be sought under this Agreement. In
addition, Executive
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shall give the company such information and cooperation as it may reasonably
require and as shall be within Executive's power and at such times and places as
are reasonably convenient for Executive.
(e) With respect to any Proceeding as to which Executive notifies
the company of the commencement thereof:
(i) The company will be entitled to participate therein at
its own expense; and
(ii) Except as otherwise provided below, to the extent that it
may wish, the company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Executive. Executive also shall have the right
to employ his own counsel in such action, suit or proceeding and the fees
and expenses of such counsel shall be at the expense of the company.
(f) The company shall not be liable to indemnify Executive under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The company shall not settle any action or
claim in any manner which would impose any penalty or limitation on Executive
without Executive's written consent. Neither the company nor Executive will
unreasonably withhold or delay their consent to any proposed settlement.
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(g) The right to indemnification and the payment of expenses
incurred in defending a Proceeding in advance of its final disposition conferred
in this Section 11 shall not be exclusive of any other right which Executive may
have or hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the company, agreement, vote of stockholders or
disinterested directors or otherwise.
(h) The Company agrees to obtain Officer and Director liability
insurance policies covering Executive and shall maintain at all times during the
Employment Term coverage under such policies in the aggregate with regard to all
officers and directors, including Executive, of an amount not less than $20
million. The Company shall maintain for a six (6) year period commencing on the
date the Executive ceases to be an employee of such entity, Officer and Director
liability insurance coverage for events occurring during the period the
Executive was an employee or director of such entity in the same aggregate
amount and under the same terms as are maintained for its active officers and
directors. The phrase "in the same aggregate amount and under the same terms"
shall include the same level of self-insurance by the entity as shall be
maintained for active officers and directors. Notwithstanding the foregoing, if
Executive at no time served in connection with such entity or related entities
in a capacity of a type standardly covered by such Officer and Director
liability insurance, the obligations under this paragraph (h) shall not apply to
such entity.
12. Special Tax Provision. (a) Anything in this Agreement to the
contrary notwithstanding, in the event that any amount or benefit paid, payable,
or to be paid, or distributed, distributable, or to be distributed to or with
respect to Executive by the Company (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement
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with the Company, any person whose actions result in a change of ownership
covered by Internal Revenue Code (the "Code") Section 280G(b)(2) or any person
affiliated with the Company or such person) as a result of a change in ownership
of the Company or a direct or indirect parent thereof covered by Code Section
280G(b)(2) (collectively, the "Covered Payments") is or becomes subject to the
excise tax imposed by or under Section 4999 of the Code (or any similar tax that
may hereafter be imposed), and/or any interest or penalties with respect to such
excise tax (such excise tax, together with such interest and penalties, is
hereinafter collectively referred to as the "Excise Tax"), the Company shall pay
to Executive an additional amount (the "Tax Reimbursement Payment") such that
after payment by Executive of all taxes (including, without limitation, any
interest or penalties and any Excise Tax imposed on or attributable to the Tax
Reimbursement Payment itself), Executive retains an amount of the Tax
Reimbursement Payment equal to the sum of (i) the amount of the Excise Tax
imposed upon the Covered Payments, and (ii) without duplication, an amount equal
to the product of (A) any deductions disallowed for federal, state or local
income tax purposes because of the inclusion of the Tax Reimbursement Payment in
Executive's adjusted gross income, and (B) the highest applicable marginal rate
of federal, state or local income taxation, respectively, for the calendar year
in which the Tax Reimbursement Payment is made or is to be made. The intent of
this Section 12 is that (a) the Executive, after paying his Federal, state and
local income tax and any payroll taxes on Executive, will be in the same
position as if he was not subject to the Excise Tax under Section 4999 of the
Code and did not receive the extra payments pursuant to this Section 12 and (b)
that Executive should never be "out-of-pocket" with respect to any tax or other
amount subject to this Section 12, whether payable to any
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taxing authority or repayable to the Company, and this Section 12 shall be
interpreted accordingly.
(b) Except as otherwise provided in Section 12(a), for purposes of
determining whether any of the Covered Payments will be subject to the Excise
Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as "parachute
payments" (within the meaning of Section 280G(b)(2) of the Code) and such
payments in excess of the Code Section 280G(b)(3) "base amount" shall be
treated as subject to the Excise Tax, unless, and except to the extent
that, the Company's independent certified public accountants appointed
prior to the change in ownership covered by Code Section 280G(b)(2) or
legal counsel (reasonably acceptable to Executive) appointed by such
public accountants (or, if the public accountants decline such appointment
and decline appointing such legal counsel, such independent certified
public accountants as promptly mutually agreed on in good faith by the
Company and the Executive) (the "Accountant"), deliver a written opinion
to Executive, reasonably satisfactory to Executive's legal counsel, that
Executive has a reasonable basis to claim that the Covered Payments (in
whole or in part) (A) do not constitute "parachute payments", (B)
represent reasonable compensation for services actually rendered (within
the meaning of Section 280G(b)(4) of the Code) in excess of the "base
amount" allocable to such reasonable compensation, or (C) such "parachute
payments" are otherwise not subject to such Excise Tax (with appropriate
legal authority, detailed analysis and explanation provided therein by the
Accountants); and
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(ii) the value of any Covered Payments which are non-cash
benefits or deferred payments or benefits shall be determined by the
Accountant in accordance with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Tax Reimbursement
Payment, Executive shall be deemed:
(i) to pay federal, state and/or local income taxes at the
highest applicable marginal rate of income taxation for the calendar
year in which the Tax Reimbursement Payment is made or is to be
made, and
(ii) to have otherwise allowable deductions for federal, state
and local income tax purposes at least equal to those disallowed due
to the inclusion of the Tax Reimbursement Payment in Executive's
adjusted gross income.
(d) (i) (A) In the event that prior to the time the Executive has
filed any of his tax returns for the calendar year in which the change in
ownership event covered by Code Section 280G(b)(2) occurred, the Accountant
determines, for any reason whatever, the correct amount of the Tax Reimbursement
Payment to be less than the amount determined at the time the Tax Reimbursement
Payment was made, the Executive shall repay to the Company, at the time that the
amount of such reduction in Tax Reimbursement Payment is determined by the
Accountant, the portion of the prior Tax Reimbursement Payment attributable to
such reduction (including the portion of the Tax Reimbursement Payment
attributable to the Excise Tax and federal, state and local income tax imposed
on the portion of the Tax Reimbursement Payment being repaid by the Executive,
using the assumptions and
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methodology utilized to calculate the Tax Reimbursement Payment (unless
manifestly erroneous)), plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code.
(B) In the event that the determination set forth in (A)
above is made by the Accountant after the filing by the Executive of any of his
tax returns for the calendar year in which the change in ownership event covered
by Code Section 280G(b)(2) occurred but prior to one (1) year after the
occurrence of such change in ownership, the Executive shall file at the request
of the Company an amended tax return in accordance with the Accountant's
determination, but no portion of the Tax Reimbursement Payment shall be required
to be refunded to the Company until actual refund or credit of such portion has
been made to the Executive, and interest payable to the Company shall not exceed
the interest received or credited to the Executive by such tax authority for the
period it held such portion (less any tax the Executive must pay on such
interest and which he is unable to deduct as a result of payment of the refund).
(C) In the event the Executive receives a refund
pursuant to (B) above and repays such amount to the Company, the Executive shall
thereafter file for refunds or credits by reason of the repayments to the
Company.
(D) The Executive and the Company shall mutually agree
upon the course of action, if any, to be pursued (which shall be at the expense
of the Company) if the Executive's claim for refund or credit is denied.
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(ii) In the event that the Excise Tax is later determined by
the Accountants or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Tax Reimbursement Payment is made (including
by reason of any payment the existence or amount of which cannot be determined
at the time of the Tax Reimbursement Payment), the Company shall make an
additional Tax Reimbursement Payment in respect of such excess (plus any
interest or penalties payable with respect to such excess) once the amount of
such excess is finally determined.
(iii) In the event of any controversy with the Internal
Revenue Service (or other taxing authority) under this Section 12, subject to
subpart (i)(D) above, the Executive shall permit the Company to control issues
related to this Section 12 (at its expense), provided that such issues do not
potentially materially adversely affect the Executive, but the Executive shall
control any other issues. In the event the issues are interrelated, the
Executive and the Company shall in good faith cooperate so as not to jeopardize
resolution of either issue, but if the parties cannot agree Executive shall make
the final determination with regard to the issues. In the event of any
conference with any taxing authority as to the Excise Tax or associated income
taxes, the Executive shall permit the representative of the Company to accompany
him and the Executive and his representative shall cooperate with the Company
and its representative.
(iv) With regard to any initial filing for a refund or any
other action required pursuant to this Section 12 (other than by mutual
agreement) or, if not required, agreed to by the Company and the Executive, the
Executive shall cooperate fully with the
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Company, provided that the foregoing shall not apply to actions that are
provided herein to be at the sole discretion of the Executive.
(e) The Tax Reimbursement Payment, or any portion thereof, payable
by the Company shall be paid not later than the fifth (5th) day following the
determination by the Accountant and any payment made after such fifth (5th) day
shall bear interest at the rate provided in Code Section 1274(b)(2)(B). The
Company shall use its best efforts to cause the Accountant, to promptly deliver
the initial determination required hereunder and, if not delivered, within
ninety (90) days after the change in ownership event covered by Section
280G(b)(2) of the Code, the Company shall pay the Executive the Tax
Reimbursement Payment set forth in an opinion from counsel recognized as
knowledgeable in the relevant areas selected by the Executive, and reasonably
acceptable to the Company, within five (5) days after delivery of such opinion.
The amount of such payment shall be subject to later adjustment in accordance
with the determination of the Accountant as provided herein.
(f) The Company shall be responsible for all charges of the
Accountant and if (e) is applicable the reasonable charges for the opinion given
by Executive's counsel.
(g) The Company and the Executive shall mutually agree on and
promulgate further guidelines in accordance with this Section 12 to the extent,
if any, necessary to effect the reversal of excessive or shortfall Tax
Reimbursement Payments. The foregoing shall not in any way be inconsistent with
Section 12(d)(i)(D) hereof.
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13. Legal and Other Fees and Expenses. In the event that a claim for
payment or benefits under this Agreement is disputed, the Company shall pay all
reasonable attorney, accountant and other professional fees and reasonable
expenses incurred by Executive in pursuing such claim, provided the Executive is
successful with regard to a material portion of his claim.
14. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey without reference to
principles of conflict of laws.
(b) Entire Agreement/Amendments. This Agreement and the instruments
contemplated herein, contain the entire understanding of the parties with
respect to the employment of Executive by the Company from and after the
Effective Date and supersedes any prior agreements between the Company and
Executive. There are no restrictions, agreements, promises, warranties,
covenants or undertakings between the parties with respect to the subject matter
herein other than those expressly set forth herein and therein. This Agreement
may not be altered, modified, or amended except by written instrument signed by
the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter to
insist upon strict adherence to that term or any
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other term of this Agreement. Any such waiver must be in writing and signed by
Executive or an authorized officer of the Company, as the case may be.
(d) Assignment. This Agreement shall not be assignable by Executive.
This Agreement shall be assignable by the Company only to an acquiror of all or
substantially all of the assets of the Company, provided such acquiror promptly
assumes all of the obligations hereunder of the Company in a writing delivered
to the Executive and otherwise complies with the provisions hereof with regard
to such assumption.
(e) Successors; Binding Agreement; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees legatees and permitted assignees of the parties hereto.
(f) Communications. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given (i) when faxed or delivered, or (ii) two
business days after being mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to the respective addresses
set forth on the initial page of this Agreement, provided that all notices to
the Company shall be directed to the attention of the Senior Vice President,
General Counsel and Secretary of the Company, or to such other address as any
party may have furnished to the other in writing in accordance herewith. Notice
of change of address shall be effective only upon receipt.
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(g) Withholding Taxes. The Company may withhold from any and all
amounts payable under this Agreement such Federal, state and local taxes as may
be required to be withheld pursuant to any applicable law or regulation.
(h) Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of Executive's employment to the
extent necessary to the agreed preservation of such rights and obligations.
(i) Counterparts. This Agreement may be signed in counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
(j) Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
(k) Executive's Representation. The Executive represents and
warrants to the Company that there is no legal impediment to him performing his
obligations under this Agreement and neither entering into this Agreement nor
performing his contemplated service hereunder will violate any agreement to
which he is a party or any other legal restriction.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
U.S. INDUSTRIES, INC.
By: /s/ George H. MacLean
-------------------------------
Name: George H. MacLean
Title: Senior Vice President
/s/ John F. Bendik
-----------------------------------
John F. Bendik
31
Exhibit 10.8
RESTATED EMPLOYMENT AGREEMENT
RESTATED EMPLOYMENT AGREEMENT, dated as of June 17, 1998, by
and between U.S. Industries, Inc., a Delaware corporation, with its principal
office at 101 Wood Avenue South, Iselin, New Jersey 08830 ("USI"), and Dorothy
E. Sander, residing at 61 Jane Street, New York, New York 10014 ("Executive").
W I T N E S S E T H:
WHEREAS, Executive and USI have previously entered into an
employment agreement (the "Employment Agreement");
WHEREAS, Executive is currently employed as Vice President -
Administration of USI;
WHEREAS, USI may relocate its principal executive offices to
Florida; and WHEREAS, USI and Executive desire to amend and restate the
Employment Agreement (the "Restated Employment Agreement").
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
<PAGE>
1. Term of Employment. Executive's employment under this Restated
Employment Agreement commenced on February 22, 1995 (the "Commencement Date")
and will currently expire on February 21, 1999 (the "Employment Term"). Subject
to earlier termination pursuant to Section 7 hereof, the Employment Term shall
be automatically extended for additional terms of successive two (2) year
periods unless USI or Executive gives written notice to the other at least
ninety (90) days prior to the expiration of the then current Employment Term of
the termination of Executive's employment hereunder at the end of such current
Employment Term.
2. Positions. Executive shall serve as the Senior Vice
President-Administration of USI. If requested by the Board of Directors of USI
(the "Board") or the Chairman and so elected by the stockholders of USI,
Executive shall also serve on the Board without additional compensation.
Executive shall also serve, if requested by the Board or the Chairman, as an
executive officer and director of subsidiaries and a director of associated
companies of USI and shall comply with the policy of the Compensation Committee
of the Board (the "Compensation Committee") with regard to retention or
forfeiture of the director's fees.
(a) Executive shall report to any more senior officer of USI as
designated by the Chairman or the President and shall have such duties and
authority, consistent with her position as shall be assigned to her from time to
time by the Board, the Chairman, the President or such other more senior
officers of USI.
2
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(b) During the Employment Term, Executive shall devote substantially
all of her business time and efforts to the performance of her duties hereunder;
provided, however, that Executive shall be allowed, to the extent that such
activities do not materially interfere with the performance of her duties and
responsibilities hereunder, to manage her passive personal investments and to
serve on corporate, civic, or charitable boards or committees. Notwithstanding
the foregoing, Executive shall not serve on any corporate board of directors if
such service would be inconsistent with her fiduciary responsibilities to USI.
3. Base Salary. During the Employment Term after the date hereof,
USI shall pay Executive a base salary at the annual rate of not less than
$233,500. Base salary shall be payable in each case in accordance with the usual
payroll practices of USI. Executive's Base Salary shall be subject to annual
review by the Board in December of each year and may be increased, but not
decreased, from time to time upon recommendation of the Compensation Committee,
except, prior to a Change in Control, as defined in Section 10 hereof, it may be
decreased proportionately in connection with an across the board decrease
applying to all senior executives of USI. The base salary as determined as
aforesaid from time to time shall constitute "Base Salary" for purposes of this
Restated Employment Agreement.
4. Incentive Compensation. (a) Bonus. For each fiscal year or
portion thereof during the Employment Term which commences after the date
hereof, Executive shall be eligible to participate in an incentive pay plan of
USI established upon recommendation of the Compensation Committee that provides
an annualized cash bonus opportunity with a target bonus potential equal to at
least 70% of Base Salary. For USI's 1998 fiscal year, the target
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<PAGE>
bonus potential under the annual incentive pay plan is equal to 60% of Base
Salary, and Executive shall, in the Compensation Committee's discretion, be
entitled to an additional bonus equal to 10% of Base Salary outside of such plan
if the plan targets are achieved.
(b) Restricted Stock. Any restricted stock plan and/or grants shall
provide that the restricted stock granted in 1995 (the "Restricted Stock") and
any other restricted stock that may thereafter be granted to Executive, shall
fully vest on a Change in Control. Furthermore, such plan and/or the grants
shall provide that if Executive retires (voluntarily or involuntarily other than
for Cause) at or after her sixty-second (62nd) birthday with ten (10) or more
years of service with USI or its predecessors (including without limitation HM
Anglo-American Ltd. ("HM")) and, in the case of voluntary retirement, Executive
gives USI at least six (6) months prior written notice of such retirement, an
additional portion of the Restricted Stock and any other restricted stock that
may thereafter be granted to Executive shall become nonforfeitable upon such
retirement. To determine such additional portion of each grant, Executive's
years and partial years of employment with USI during the applicable vesting
period shall be multiplied by two (2) and applied to the applicable vesting
schedule. The additional portion of a grant that shall become nonforfeitable
upon such retirement shall be equal to the amount calculated as aforesaid, less
the portion of the applicable grant which previously became nonforfeitable.
Notwithstanding the foregoing, the Compensation Committee may, in accordance
with terms of the restricted stock plan, vest a larger portion of such
restricted stock upon retirement.
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(c) Options. The options granted to Executive in 1995 (the
"Options") and all options that have or may hereafter be granted to Executive
shall fully vest upon a Change in Control. In addition, any option plan and/or
the grants thereunder shall provide that if Executive retires (voluntarily or
involuntarily other than for Cause) at or after her sixty-second (62nd) birthday
with ten (10) or more years of service with USI or its predecessors (including
without limitation HM) and, in the case of voluntary retirement, Executive gives
USI at least six (6) months prior written notice of such retirement, all options
granted to Executive shall fully vest on the date of such retirement.
(d) Other Compensation. USI may, upon recommendation of the
Compensation Committee, award to Executive such other bonuses and compensation
as it deems appropriate and reasonable.
5. Employee Benefits and Vacation. (a) During the Employment Term,
Executive shall be entitled to participate in all pension, retirement, savings,
welfare and other employee benefit plans and arrangements and fringe benefits
and perquisites generally maintained by USI from time to time for the benefit of
the senior executives of USI of a materially comparable level, in accordance
with their respective terms as in effect from time to time (other than any
special arrangement entered into by contract with an executive). Notwithstanding
the foregoing, after a Change in Control, during the Employment Term, Executive
shall be entitled to (i) coverage and benefits at least equal in the aggregate
to the benefits provided under the benefit plans and programs, including,
without limitation, any life insurance, medical insurance, disability, pension,
savings, incentive, retirement and other
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plans and programs, of USI applicable to Executive immediately prior to such
Change in Control, and (ii) any fringe benefits and prerequisites of at least
equal value to those provided by USI to Executive immediately prior to the
Change in Control. If Executive is currently provided with a leased automobile
or an automobile allowance, USI shall, as of the date hereof, continue the same
arrangement that currently exists, but reserves the right, upon recommendation
of the Compensation Committee, to modify the arrangement or change the level of
allowances in the future. To the extent permitted under applicable law, USI
shall not treat as compensation to Executive fringes and prerequisites provided
to Executive or the items under Section 6 below.
(b) During the Employment Term, Executive shall be entitled to
vacation each year in accordance with USI's policies in effect from time to
time, but in no event less than four (4) weeks paid vacation per calendar year.
Executive shall also be entitled to such periods of sick leave as is customarily
provided by USI for its senior executive employees.
6. Business Expenses. USI shall reimburse Executive for the travel,
entertainment and other business expenses incurred by Executive in the
performance of her duties hereunder, in accordance with USI's policies as in
effect from time to time.
7. Termination. (a) The employment of Executive under this Restated
Employment Agreement shall terminate upon the occurrence of any of the following
events:
(i) the death of Executive;
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(ii) the termination of Executive's employment by USI due to
Executive's Disability pursuant to Section 7(b) hereof;
(iii) the termination of Executive's employment by Executive
for Good Reason pursuant to Section 7(c) hereof;
(iv) the termination of Executive's employment by USI without
Cause;
(v) the termination of employment by Executive without Good
Reason upon sixty (60) days prior written notice;
(vi) the termination of employment by Executive, with or
without Good Reason during the thirty (30) day period commencing one
(1) year after the Change in Control (such thirty (30) day period
being referred to herein as the "Change in Control Protection
Period"), provided that Executive shall have a right to terminate
employment pursuant to this Section 7(a)(vi) and receive the amounts
under Section 8(c)(A)(i) and (ii) unless, simultaneous with the
Change in Control, USI or the person or entity triggering the Change
in Control delivers to Executive an irrevocable direct pay letter of
credit with regard to the amounts under Section 8(c)(A)(i) and (ii)
and satisfying the requirements of Section 7(g) hereof (and further
provided that the foregoing shall in no way affect full vesting of
Restricted Stock and Options, as well as other restricted stock and
options, if any, upon a Change in Control in accordance with Section
4 hereof);
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(vii) the termination of Executive's employment by USI for
Cause pursuant to Section 7(e);
(viii) The retirement of Executive by USI at or after her
sixty-fifth birthday to the extent such termination is
specifically permitted as a stated exception from applicable
federal and state age discrimination laws based on position and
retirement benefits.
(b) Disability. If, by reason of the same or related physical or
mental reasons, Executive is unable to carry out her material duties pursuant to
this Restated Employment Agreement for more than six (6) months in any twelve
(12) consecutive month period, USI may terminate Executive's employment for
Disability upon thirty (30) days prior written notice, by a Notice of Disability
Termination, at any time thereafter during such twelve (12) month period in
which Executive is unable to carry out her duties as a result of the same or
related physical or mental illness. Such termination shall not be effective if
Executive returns to the full time performance of her material duties within
such thirty (30) day notice period.
(c) Termination for Good Reason. A Termination for Good Reason means
a termination by Executive by written notice given within ninety (90) days after
the occurrence of the Good Reason event. For purposes of this Restated
Employment Agreement, "Good Reason" shall mean the occurrence or failure to
cause the occurrence, as the case may be, without Executive's express written
consent, of any of the following circumstances, unless such circumstances are
fully corrected prior to the date of termination specified in the Notice
8
<PAGE>
of Termination for Good Reason (as defined in Section 7(d) hereof): (i) Any
material diminution of Executive's positions, duties or responsibilities
hereunder (except in each case in connection with the termination of Executive's
employment for Cause or Disability or as a result of Executive's death, or
temporarily as a result of Executive's illness or other absence) or, after a
Change in Control, the assignment to Executive of duties or responsibilities
that are inconsistent with Executive's position; (ii) Removal of, or the
nonreelection of, Executive from the officer positions with USI specified herein
without election to a materially comparable or higher position; (iii) A
relocation of USI's principal executive offices to a location more than both
thirty-five (35) miles from Iselin, New Jersey (or, after USI has relocated its
principal executive offices to Florida to which Executive hereby consents and
waives any right to assert the occurrence of a Good Reason event as a result
thereof, the then location of such principal executive offices) and thirty-five
(35) miles from her residence at the time of the relocation, or a relocation of
Executive to a location more than thirty-five (35) miles from USI's then
principal executive offices; (iv) After a Change in Control, a failure by USI
(A) to continue any bonus plan, program or arrangement in which Executive is
entitled to participate immediately prior to the Change in Control (the "Bonus
Plans"), provided that any such Bonus Plans may be modified at USI's discretion
from time to time but shall be deemed terminated if (x) any such plan does not
remain substantially in the form in effect prior to such modification and (y) if
plans providing Executive with substantially similar benefits are not
substituted therefor ("Substitute Plans"), or (B) to continue Executive as a
participant in the Bonus Plans and Substitute Plans on at least the same basis
as to potential amount of the bonus and substantially the same level of criteria
for achievability thereof as Executive participated in
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immediately prior to any change in such plans or awards, in accordance with the
Bonus Plans and the Substitute Plans; (v) Any material breach by USI of any
provision of this Restated Employment Agreement, including without limitation
Section 11 hereof; (vi) If on the Board at the time of a Change in Control,
Executive's removal from or failure to be reelected to the Board thereafter; or
(vii) Failure of any successor to assume in a writing delivered to Executive
upon the assignee becoming such, the obligations of USI hereunder.
(d) Notice of Termination for Good Reason. A Notice of Termination
for Good Reason shall mean a notice that shall indicate the specific termination
provision in Section 7(c) relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for Termination for Good
Reason. The failure by Executive to set forth in the Notice of Termination for
Good Reason any facts or circumstances which contribute to the showing of Good
Reason shall not waive any right of Executive hereunder or preclude Executive
from asserting such fact or circumstance in enforcing her rights hereunder. The
Notice of Termination for Good Reason shall provide for a date of termination
not less than ten (10) nor more than sixty (60) days after the date such Notice
of Termination for Good Reason is given, provided that in the case of the events
set forth in Section 7(c)(ii) or (iii) the date may be two (2) days after the
giving of such notice.
(e) Cause. Subject to the notification provisions of Section 7(f)
below, Executive's employment hereunder may be terminated by USI for Cause. For
purposes of this Restated Employment Agreement, the term "Cause" shall be
limited to (i) willful misconduct by Executive with regard to USI or its
business; (ii) the refusal of Executive to follow the
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proper written direction of the Board, or a more senior officer of USI, provided
that the foregoing refusal shall not be "Cause" if Executive in good faith
believes that such direction is illegal, unethical or immoral and promptly so
notifies the Board or the more senior officer (whichever is applicable); (iii)
substantial and continuing willful refusal by Executive to attempt to perform
the duties required of her hereunder (other than any such failure resulting from
incapacity due to physical or mental illness) after a written demand for
substantial performance is delivered to Executive by the Board or a more senior
officer of USI which specifically identifies the manner in which it is believed
that Executive has substantially and continually refused to attempt to perform
her duties hereunder; (iv) Executive being convicted of a felony (other than a
felony involving a motor vehicle); (v) the breach by Executive of any material
fiduciary duty owed by Executive to USI; or (vi) Executive's dishonesty,
misappropriation or fraud with regard to USI (other than good faith expense
account disputes).
(f) Notice of Termination for Cause. A Notice of Termination for
Cause shall mean a notice that shall indicate the specific termination provision
in Section 7(e) relied upon and shall set forth in reasonable detail the facts
and circumstances which provide for a basis for Termination for Cause. Further,
a Notification for Cause shall be required to include a copy of a resolution
duly adopted by at least two-thirds of the entire membership of the Board at a
meeting of the Board which was called for the purpose of considering such
termination and which Executive and his representative had the right to attend
and address the Board, finding that, in the good faith opinion of the Board,
Executive engaged in conduct set forth in the definition of Cause herein and
specifying the particulars thereof in reasonable detail. The date of termination
for a Termination for Cause shall be the date indicated in the
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Notice of Termination. Any purported Termination for Cause which is held by a
court not to have been based on the grounds set forth in this Restated
Employment Agreement or not to have followed the procedures set forth in this
Restated Employment Agreement shall be deemed a Termination by USI without
Cause.
(g) The irrevocable direct pay letter of credit required to be
delivered pursuant to Section 7(a)(vi) shall be in amount equal to the amount
Executive would be entitled to under Section 8(c)(A)(i) and (ii) hereof if she
was terminated without Cause upon the Change in Control (the "Occurrence") and
have an expiration date of no less than two (2) years after the Occurrence.
Executive shall be entitled to draw on the letter of credit upon presentation to
the issuing bank of a demand for payment signed by Executive that states that
(i) (A) a Good Reason event has occurred and Executive would be entitled to
payment under Section 8(c) of this Restated Employment Agreement if she elected
to terminate employment for Good Reason or (B) one (1) year and not more than
one (1) year and thirty (30) days has expired since the Occurrence or (C)
Executive is entitled to payment under Section 8(c) of this Restated Employment
Agreement and (ii) assuming the event set forth in (i) entitled her to payment
under Section 8(c) of this Restated Employment Agreement, the amount USI would
be indebted to her at the time of presentation under Section 8(c)(A)(i) and (ii)
if she then was eligible to receive payments under Section 8(c). There shall be
no other requirements (including no requirement that Executive first makes
demand upon USI or that Executive actually terminates employment) with regard to
payment of the letter of credit. To the extent the letter of credit is not
adequate to cover the amount owed to Executive by USI under this Restated
Employment Agreement, is not submitted by Executive or is not paid by the
issuing
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bank, USI shall remain liable to Executive for the remainder owed Executive
pursuant to the terms of this Restated Employment Agreement. To the extent any
amount is paid under the letter of credit it shall be a credit against any
amounts USI then or thereafter would owe to Executive under Section 8(c) of this
Restated Employment Agreement. The letter of credit shall be issued by a
national money center bank with a rating of at least A by Standard and Poors.
USI shall bear the cost of the letter of credit.
8. Consequences of Termination of Employment. (a) Death. If
Executive's employment is terminated during the Employment Term by reason of
Executive's death, the employment period under this Restated Employment
Agreement shall terminate without further obligations to Executive's legal
representatives under this Restated Employment Agreement except for: (i) any
compensation earned but not yet paid, including and without limitation, any
declared but unpaid bonus, any amount of Base Salary or deferred compensation
accrued or earned but unpaid, any accrued vacation pay payable pursuant to USI's
policies and any unreimbursed business expenses payable pursuant to Section 6
which amounts shall be promptly paid in a lump sum to Executive's estate; (ii)
the product of (x) the target annual bonus for the fiscal year of Executive's
death, multiplied by (y) a fraction, the numerator of which is the number of
days of the current fiscal year during which Executive was employed by USI, and
the denominator of which is 365, which bonus shall be paid when bonuses for such
period are paid to the other executives; (iii) subject to Sections 4(b) and (c)
hereof, full accelerated vesting under all outstanding equity-based and
long-term incentive plans (with options remaining outstanding as provided under
the applicable stock option plan and a pro rata payment under any long term
incentive plans based on actual coverage under
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such plans at the time payments normally would be made under such plans); (iv)
subject to Section 9 hereof, any other amounts or benefits owing to Executive
under the then applicable employee benefit plans or policies of USI, which shall
be paid in accordance with such plans or policies; (v) payment on a monthly
basis of six (6) months of Base Salary, which shall be paid to Executive's
spouse, or if she is not married or if he shall predecease her, then to
Executive's estate; and (vi) payment of the spouse's and dependent's COBRA
coverage premiums to the extent, and so long as, they remain eligible for COBRA
coverage, but in no event more than three (3) years. Section 11 hereof shall
also continue to apply.
(b) Disability. If Executive's employment is terminated by reason of
Executive's Disability, Executive shall be entitled to receive the payments and
benefits to which her representatives would be entitled in the event of a
termination of employment by reason of her death, provided that the payment of
Base Salary shall be reduced by the projected amount she would receive under any
long-term disability policy or program maintained by USI during the six (6)
month period during which Base Salary is being paid. Section 11 hereof shall
also continue to apply.
(c) Termination by Executive for Good Reason or for any Reason
During the Change in Control Protection Period or Termination by USI without
Cause or Nonextension of the Term by USI. If (i) outside of the Change in
Control Protection Period, Executive terminates her employment hereunder for
Good Reason during the Employment Term, (ii) a Change in Control occurs and
during the Change in Control Protection Period Executive terminates her
employment for any reason, (iii) Executive's employment with USI is
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terminated by USI without Cause, or (iv) Executive's employment with USI
terminates as a result of USI giving notice of nonextension of the Employment
Term pursuant to Section 1 hereof, Executive shall be entitled to receive (A)
subject to the second and third from last sentences of this Section 8(c), in a
lump sum within five (5) days after such termination (i) two (2) times Base
Salary, (ii) two (2) times the highest annual bonus paid or payable to Executive
for any of the previous two (2) completed fiscal years by USI and its
predecessors, (iii) any unreimbursed business expenses payable pursuant to
Section 6, and (iv) any Base Salary, Bonus, vacation pay or other deferred
compensation accrued or earned but not yet paid at the date of termination; (B)
subject to Sections 4(b) and (c) hereof, (i) vesting of the number of restricted
shares of each grant awarded to Executive equal to (I) the product of (x) the
number of restricted shares awarded to Executive in the grant, multiplied by (y)
a fraction, the numerator of which is the number of months Executive is employed
by USI during the applicable vesting period, and the denominator of which is the
total number of months in the applicable vesting period, less (II) the number of
restricted shares previously vested with regard to such grant, provided that,
however, if Executive's employment is terminated by the Company without Cause
(but for no other reason) Executive shall be vested in the greater of the
foregoing number of restricted shares and the number of restricted shares that
would otherwise be vested on the next vesting date following Executive's
termination of employment and notwithstanding the foregoing, the Compensation
Committee may, at any time and in accordance with the terms of the restricted
stock plan, vest a larger portion of the restricted shares granted to Executive,
(ii) all other equity-based compensation, including Options, that has vested as
of the date of termination in accordance with the applicable vesting schedule
and
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(iii) all benefits payable under the long term incentive plans as determined in
accordance with the terms of such plans; (C) subject to Section 9 hereof, any
other amounts or benefits due Executive under the then applicable employee
benefit plans of USI as shall be determined and paid in accordance with such
plans, policies and practices; (D) two (2) years of additional service and
compensation credit (at her then compensation level) for pension purposes under
any defined benefit type qualified or nonqualified pension plan or arrangement
of USI, which payments shall be made through and in accordance with the terms of
the nonqualified defined benefit pension arrangement if any then exists, or, if
not, in an actuarially equivalent lump sum (using the actuarial factors then
applying in USI's defined benefit plan covering Executive); (E) two (2) years of
the maximum Company contribution (assuming Executive deferred the maximum amount
and continued to earn her then current salary) under any type of qualified or
nonqualified 401(k) plan (payable at the end of each such year); and (F) payment
by USI of the premiums for Executive and her dependents' health coverage for two
(2) years under USI's health plans which cover the senior executives of USI or
materially similar benefits. Payments under (F) above may at the discretion of
USI be made by continuing participation of Executive in the plan as a terminee,
by paying the applicable COBRA premium for Executive and her dependents, or by
covering Executive and her dependents under substitute arrangements. In the
event that the termination entitling Executive to payments under this Section
8(c) occurs on or after February 22, 2001, but prior to a Change in Control, the
amounts payable under subparts (A)(i) and (ii) of this Section 8(c) beyond one
times the amounts specified shall not be paid in a lump sum, but shall be paid,
subject to Section 9 hereof, in twelve (12) equal monthly installments
commencing one (1) year after such termination. If there is a Change in Control
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thereafter, the amounts, if any, remaining to be paid pursuant to the preceding
sentence (and in accordance with Section 9 hereof) shall be paid in a lump sum
within five (5) days thereafter. In the circumstances of (i) through (iv) above,
Section 11 hereof shall also continue to apply.
(d) Termination with Cause or Voluntary Resignation without Good
Reason or Retirement. If Executive's employment hereunder is terminated (i) by
USI for Cause, (ii) by Executive without Good Reason outside of the Change in
Control Protection Period, or (iii) by USI pursuant to Section 7(a)(viii)
hereof, Executive shall be entitled to receive only her Base Salary through the
date of termination, any earned but unpaid bonus, and any unreimbursed business
expenses payable pursuant to Section 6. Subject to Section 4 hereof, all other
benefits (including without limitation restricted stock and options) due
Executive following such termination of employment shall be determined in
accordance with the plans, policies and practices of USI.
9. No Mitigation; Set-Off. In the event of any termination of
employment under Section 8, Executive shall be under no obligation to seek other
employment and prior to February 22, 2001 or after a Change in Control, there
shall be no offset against any amounts due Executive under this Restated
Employment Agreement on account of any remuneration attributable to any
subsequent employment that Executive may obtain. In the event of any termination
of employment entitling Executive to payments under Section 8(c) hereof on or
after February 22, 2001, and before a Change in Control, there shall be no
offset against any amounts due Executive under this Restated Employment
Agreement on account of any remuneration that Executive receives during the one
(1) year after Executive's employment
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terminates (the "One-Year Period"); but if, at any time after the One-Year
Period, but prior to a Change in Control, Executive is employed on a
substantially full time basis either as an employee or independent contractor
(other than self employed as an independent contractor doing special projects
for unrelated entities or unrelated consulting firms with no project scheduled
to extend, or extending on a substantially full-time basis for more than sixty
(60) days after the end of the One-Year Period) the amounts payable to her under
Section 8(c)(A)(i) and (ii) hereof shall cease. Any amounts due under Section 8
are in the nature of severance payments, or liquidated damages, or both, and are
not in the nature of a penalty. Such amounts are inclusive, and in lieu of any
amounts payable under any other salary continuation or cash severance
arrangement of USI and to the extent paid or provided under any other such
arrangement shall be offset from the amount due hereunder.
10. Change in Control. For purposes of this Restated Employment
Agreement, the term "Change in Control" shall mean (i) any "person" as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934
("Act") (other than USI, any trustee or other fiduciary holding securities under
any employee benefit plan of USI, or any company owned, directly or indirectly,
by the stockholders of USI in substantially the same proportions as their
ownership of Common Stock of USI), becoming the "beneficial owner" (as defined
in Rule 13d-3 under the Act), directly or indirectly, of securities of USI
representing twenty-five percent (25%) or more of the combined voting power of
USI's then outstanding securities; (ii) during any period of two (2) consecutive
years individuals who at the beginning of such period constitute the Board, and
any new director (other than a director designated by a person who has entered
into an agreement with USI to effect a transaction described in clause
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(i), (iii), or (iv) of this paragraph) or a director whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Act)
or other actual or threatened solicitation of proxies or consents by or on
behalf of a person other than the Board) whose election by the Board or
nomination for election by USI's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the two-year period or whose election or nomination for
election was previously so approved, cease for any reason to constitute at least
a majority of the Board; (iii) the stockholders of USI approve a merger or
consolidation of USI with any other corporation, other than a merger or
consolidation which would result in the voting securities of USI outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than fifty percent (50%) of the combined voting power of the voting
securities of USI or such surviving entity outstanding immediately after such
merger or consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of USI (or similar transaction) in
which no person acquires more than twenty-five percent (25%) of the combined
voting power of USI's then outstanding securities shall not constitute a Change
in Control of USI; or (iv) the stockholders of USI approve a plan of complete
liquidation of USI or an agreement for the sale or disposition by USI of all or
substantially all of USI's assets other than the sale or disposition of all or
substantially all of the assets of USI to a person or persons who beneficially
own, directly or indirectly, at least fifty percent (50%) or more of the
combined voting power of the outstanding voting securities of USI at the time of
the sale, including but not limited to, any
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entity which is, directly or indirectly, owned (based on normal issue voting
interests or capital interests) after completion of the transaction at least
fifty percent (50%) by the ultimate shareholders of the Company.
11. Indemnification. (a) USI and any other entity that becomes USI
agree that if Executive is made a party to or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that she is or was a
director or officer of USI, such other company and/or any other affiliate of any
of such companies, or is or was serving at the request of any of such companies
as a director, officer, member, employee, fiduciary or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including, without limitation, service with respect to employee benefit plans,
whether or not the basis of such Proceeding is alleged action in an official
capacity as a director, officer, member, employee, fiduciary or agent while
serving as a director, officer, member, employee, fiduciary or agent, she shall
be indemnified and held harmless by the applicable company to the fullest extent
authorized by Delaware law (or, if other than USI, the law applicable to such
company), as the same exists or may hereafter be amended, against all Expenses
incurred or suffered by Executive in connection therewith, and such
indemnification shall continue as to Executive even if Executive has ceased to
be an officer, director, member, fiduciary or agent, or is no longer employed by
USI, and shall inure to the benefit of her heirs, executors and administrators.
This amendment and restatement shall not release Hanson PLC ("PLC"), HM or any
of their affiliates from any indemnity or other obligation under Sections 11 of
the Employment Agreement prior to this amendment and restatement.
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(b) As used in this Restated Employment Agreement, the term
"Expenses" shall include, without limitation, damages, losses, judgments,
liabilities, fines, penalties, excise taxes, settlements and costs, attorneys'
fees, accountants' fees, and disbursements and costs of attachment or similar
bonds, investigations, and any expenses of establishing a right to
indemnification under this Restated Employment Agreement.
(c) Expenses incurred by Executive in connection with any Proceeding
shall be paid by USI in advance upon request of Executive and the giving by
Executive of any undertakings required by applicable law.
(d) Executive shall give USI notice of any claim made against her
for which indemnity will or could be sought under this Restated Employment
Agreement. In addition, Executive shall give USI such information and
cooperation as it may reasonably require and as shall be within Executive's
power and at such times and places as are reasonably convenient for Executive.
(e) With respect to any Proceeding as to which Executive notifies
USI of the commencement thereof:
(i) USI will be entitled to participate therein at its own
expense; and
(ii) Except as otherwise provided below, to the extent that it may
wish, USI jointly with any other indemnifying party similarly notified will be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
Executive.
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Executive also shall have the right to employ her own counsel in such action,
suit or proceeding and the fees and expenses of such counsel shall be at the
expense of USI.
(f) USI shall not be liable to indemnify Executive under this
Restated Employment Agreement for any amounts paid in settlement of any action
or claim effected without its written consent. USI shall not settle any action
or claim in any manner which would impose any penalty or limitation on Executive
without Executive's written consent. Neither USI nor Executive will unreasonably
withhold or delay their consent to any proposed settlement.
(g) The right to indemnification and the payment of expenses
incurred in defending a Proceeding in advance of its final disposition conferred
in this Section 11 shall not be exclusive of any other right which Executive may
have or hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of USI, agreement, vote of stockholders or
disinterested directors or otherwise.
(h) Each entity which is or becomes USI hereunder agrees to obtain
Officer and Director liability insurance policies covering Executive and shall
maintain at all times following the Commencement Date and during the Employment
Term coverage under such policies in the aggregate with regard to all officers
and directors, including Executive, of an amount not less than $20 million. USI
and each other entity which becomes USI shall maintain for a six (6) year period
commencing on the date Executive ceases to be an employee of such entity,
Officer and Director liability insurance coverage for events occurring during
the period Executive was an employee or director of such entity in the same
aggregate amount and under
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the same terms as are maintained for its active officers and directors. The
phrase "in the same aggregate amount and under the same terms" shall include the
same level of self-insurance by PLC or USI as shall be maintained for active
officers and directors.
12. Special Tax Provision. (a) Anything in this Restated Employment
Agreement to the contrary notwithstanding, in the event that any amount or
benefit paid, payable, or to be paid, or distributed, distributable, or to be
distributed to or with respect to Executive by USI (whether pursuant to the
terms of this Restated Employment Agreement or any other plan, arrangement or
agreement with USI, any person whose actions result in a change of ownership
covered by Internal Revenue Code (the "Code") Section 280G(b)(2) or any person
affiliated with USI or such person) as a result of a change in ownership of USI
or a direct or indirect parent thereof (other than in all instances PLC, Hanson
Industries ("HI") or HM) covered by Code Section 280G(b)(2) (collectively, the
"Covered Payments") is or becomes subject to the excise tax imposed by or under
Section 4999 of the Code (or any similar tax that may hereafter be imposed),
and/or any interest or penalties with respect to such excise tax (such excise
tax, together with such interest and penalties, is hereinafter collectively
referred to as the "Excise Tax"), USI shall pay to Executive an additional
amount (the "Tax Reimbursement Payment") such that after payment by Executive of
all taxes (including, without limitation, any interest or penalties and any
Excise Tax imposed on or attributable to the Tax Reimbursement Payment itself),
Executive retains an amount of the Tax Reimbursement Payment equal to the sum of
(i) the amount of the Excise Tax imposed upon the Covered Payments, and (ii)
without duplication, an amount equal to the product of (A) any deductions
disallowed for federal, state or local income tax purposes because of the
inclusion
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of the Tax Reimbursement Payment in Executive's adjusted gross income, and (B)
the highest applicable marginal rate of federal, state or local income taxation,
respectively, for the calendar year in which the Tax Reimbursement Payment is
made or is to be made. The intent of this Section 12 is that (a) Executive,
after paying her federal, state and local income tax and any payroll taxes on
Executive, will be in the same position as if she was not subject to the Excise
Tax under Section 4999 of the Code and did not receive the extra payments
pursuant to this Section 12 and (b) that Executive should never be
"out-of-pocket" with respect to any tax or other amount subject to this Section
12, whether payable to any taxing authority or repayable to USI, and this
Section 12 shall be interpreted accordingly. For the avoidance of doubt, none of
PLC, HI nor HM shall in any event be liable for any payments due as a result of
a change in ownership (within the meaning of Code Section 280G(b)(2)) of USI
after the Spinoff.
(b) Except as otherwise provided in Section 12(a), for purposes of
determining whether any of the Covered Payments will be subject to the Excise
Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as "parachute
payments" (within the meaning of Section 280G(b)(2) of the Code) and such
payments in excess of the Code Section 280G(b)(3) "base amount" shall be
treated as subject to the Excise Tax, unless, and except to the extent
that, USI's independent certified public accountants appointed prior to
the change in ownership covered by Code Section 280G(b)(2) or legal
counsel (reasonably acceptable to Executive) appointed by such
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public accountants (or, if the public accountants decline such appointment
and decline appointing such legal counsel, such independent certified
public accountants as promptly mutually agreed on in good faith by USI and
Executive) (the "Accountant"), deliver a written opinion to Executive,
reasonably satisfactory to Executive's legal counsel, that Executive has a
reasonable basis to claim that the Covered Payments (in whole or in part)
(A) do not constitute "parachute payments", (B) represent reasonable
compensation for services actually rendered (within the meaning of Section
280G(b)(4) of the Code) in excess of the "base amount" allocable to such
reasonable compensation, or (C) such "parachute payments" are otherwise
not subject to such Excise Tax (with appropriate legal authority, detailed
analysis and explanation provided therein by the Accountants); and
(ii) the value of any Covered Payments which are non-cash
benefits or deferred payments or benefits shall be determined by the
Accountant in accordance with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Tax Reimbursement
Payment, Executive shall be deemed:
(i) to pay federal, state and/or local income taxes at the
highest applicable marginal rate of income taxation for the calendar
year in which the Tax Reimbursement Payment is made or is to be
made, and
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(ii) to have otherwise allowable deductions for federal, state
and local income tax purposes at least equal to those disallowed due
to the inclusion of the Tax Reimbursement Payment in Executive's
adjusted gross income.
(d) (i) (A) In the event that prior to the time Executive has filed
any of her tax returns for the calendar year in which the change in ownership
event covered by Code Section 280G(b)(2) occurred, the Accountant determines,
for any reason whatever, the correct amount of the Tax Reimbursement Payment to
be less than the amount determined at the time the Tax Reimbursement Payment was
made, Executive shall repay to USI, at the time that the amount of such
reduction in Tax Reimbursement Payment is determined by the Accountant, the
portion of the prior Tax Reimbursement Payment attributable to such reduction
(including the portion of the Tax Reimbursement Payment attributable to the
Excise Tax and federal, state and local income tax imposed on the portion of the
Tax Reimbursement Payment being repaid by Executive, using the assumptions and
methodology utilized to calculate the Tax Reimbursement Payment (unless
manifestly erroneous)), plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code.
(B) In the event that the determination set forth in (A)
above is made by the Accountant after the filing by Executive of any of her tax
returns for the calendar year in which the change in ownership event covered by
Code Section 280G(b)(2) occurred but prior to one (1) year after the occurrence
of such change in ownership, Executive shall file at the request of USI an
amended tax return in accordance with the Accountant's determination, but no
portion of the Tax Reimbursement Payment shall be required to be refunded to USI
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until actual refund or credit of such portion has been made to Executive, and
interest payable to USI shall not exceed the interest received or credited to
Executive by such tax authority for the period it held such portion (less any
tax Executive must pay on such interest and which she is unable to deduct as a
result of payment of the refund).
(C) In the event Executive receives a refund pursuant to
(B) above and repays such amount to USI, Executive shall thereafter file for
refunds or credits by reason of the repayments to USI.
(D) Executive and USI shall mutually agree upon the
course of action, if any, to be pursued (which shall be at the expense of USI)
if Executive's claim for refund or credit is denied.
(ii) In the event that the Excise Tax is later determined by
the Accountants or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Tax Reimbursement Payment is made (including
by reason of any payment the existence or amount of which cannot be determined
at the time of the Tax Reimbursement Payment), USI shall make an additional Tax
Reimbursement Payment in respect of such excess (plus any interest or penalties
payable with respect to such excess) once the amount of such excess is finally
determined.
(iii) In the event of any controversy with the Internal
Revenue Service (or other taxing authority) under this Section 12, subject to
subpart (i)(D) above, Executive shall permit USI to control issues related to
this Section 12 (at its expense), provided that such
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issues do not potentially materially adversely affect Executive, but Executive
shall control any other issues. In the event the issues are interrelated,
Executive and USI shall in good faith cooperate so as not to jeopardize
resolution of either issue, but if the parties cannot agree Executive shall make
the final determination with regard to the issues. In the event of any
conference with any taxing authority as to the Excise Tax or associated income
taxes, Executive shall permit the representative of USI to accompany her and
Executive and her representative shall cooperate with USI and its
representative.
(iv) With regard to any initial filing for a refund or any
other action required pursuant to this Section 12 (other than by mutual
agreement) or, if not required, agreed to by USI and Executive, Executive shall
cooperate fully with USI, provided that the foregoing shall not apply to actions
that are provided herein to be at the sole discretion of Executive.
(e) The Tax Reimbursement Payment, or any portion thereof, payable
by USI shall be paid not later than the fifth (5th) day following the
determination by the Accountant, and any payment made after such fifth (5th) day
shall bear interest at the rate provided in Code Section 1274(b)(2)(B). USI
shall use its best efforts to cause the Accountant to promptly deliver the
initial determination required hereunder and, if not delivered, within ninety
(90) days after the change in ownership event covered by Section 280G(b)(2) of
the Code, USI shall pay Executive the Tax Reimbursement Payment set forth in an
opinion from counsel recognized as knowledgeable in the relevant areas selected
by Executive, and reasonably acceptable to USI, within five (5) days after
delivery of such opinion. The amount
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of such payment shall be subject to later adjustment in accordance with the
determination of the Accountant as provided herein.
(f) USI shall be responsible for all charges of the Accountant and
if (e) is applicable the reasonable charges for the opinion given by Executive's
counsel.
(g) USI and Executive shall mutually agree on and promulgate further
guidelines in accordance with this Section 12 to the extent, if any, necessary
to effect the reversal of excessive or shortfall Tax Reimbursement Payments. The
foregoing shall not in any way be inconsistent with Section 12(d)(i)(D) hereof.
13. Legal and Other Fees and Expenses. In the event that a claim for
payment or benefits under this Restated Employment Agreement is disputed, the
Company shall pay all reasonable attorney, accountant and other professional
fees and reasonable expenses incurred by Executive in pursuing such claim,
provided Executive is successful with regard to a material portion of her claim.
14. Miscellaneous.
(a) Governing Law. This Restated Employment Agreement shall be
governed by and construed in accordance with the laws of the State of New Jersey
without reference to principles of conflict of laws.
(b) Entire Agreement/Amendments. This Restated Employment Agreement,
as amended and restated herein, and the instruments contemplated herein, contain
the entire understanding of the parties with respect to the employment of
Executive by USI from and
29
<PAGE>
after the date hereof and supersedes any prior agreements between USI and
Executive (but not the terms of, or rights under, any equity or benefits plans
or grants existing on the date hereof nor the obligations of PLC, HM or their
affiliates under Section 11 of this Restated Employment Agreement prior to this
amendment and restatement). There are no restrictions, agreements, promises,
warranties, covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein and therein.
This Restated Employment Agreement may not be altered, modified, or amended
except by written instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Restated Employment Agreement on any occasion
shall not be considered a waiver of such party's rights or deprive such party of
the right thereafter to insist upon strict adherence to that term or any other
term of this Restated Employment Agreement. Any such waiver must be in writing
and signed by Executive or an authorized officer of USI, as the case may be.
(d) Assignment. This Restated Employment Agreement shall not be
assignable by Executive. This Restated Employment Agreement shall be assignable
by USI only to an acquiror of all or substantially all of the assets of USI,
provided such acquiror promptly assumes all of the obligations hereunder of USI
in a writing delivered to Executive and otherwise complies with the provisions
hereof with regard to such assumption.
(e) Successors; Binding Agreement; Third Party Beneficiaries. This
Restated Employment Agreement shall inure to the benefit of and be binding upon
the personal
30
<PAGE>
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees legatees and permitted assignees of the parties hereto.
(f) Communications. For the purpose of this Restated Employment
Agreement, notices and all other communications provided for in this Restated
Employment Agreement shall be in writing and shall be deemed to have been duly
given (i) when faxed or delivered, or (ii) two business days after being mailed
by United States registered or certified mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth on the initial page of
this Restated Employment Agreement, provided that all notices to USI shall be
directed to the attention of the Senior Vice President, General Counsel and
Secretary of USI, or to such other address as any party may have furnished to
the other in writing in accordance herewith. Notice of change of address shall
be effective only upon receipt.
(g) Withholding Taxes. USI may withhold from any and all amounts
payable under this Restated Employment Agreement such Federal, state and local
taxes as may be required to be withheld pursuant to any applicable law or
regulation.
(h) Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of Executive's employment to the
extent necessary to the agreed preservation of such rights and obligations.
(i) Counterparts. This Restated Employment Agreement may be signed
in counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
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(j) Headings. The headings of the sections contained in this
Restated Employment Agreement are for convenience only and shall not be deemed
to control or affect the meaning or construction of any provision of this
Restated Employment Agreement.
(k) Executive's Representation. Executive represents and warrants to
the USI that there is no legal impediment to her performing her obligations
under this Restated Employment Agreement and neither entering into this Restated
Employment Agreement nor performing her contemplated service hereunder will
violate any agreement to which she is a party or any other legal restriction.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Restated Employment Agreement as of the day and year first above written.
U.S. INDUSTRIES, INC.
By: /s/ George H. MacLean
-------------------------------
Name: George H. MacLean
Title: Senior Vice President
/s/ Dorothy E. Sander
------------------------------
Dorothy E. Sander
32
Exhibit 10.9
AMENDED
U.S. INDUSTRIES, INC.
STOCK OPTION PLAN
Initially Effective February 8, 1996
(Incorporating Amendments Effective on or before June 11, 1998)
<PAGE>
TABLE OF CONTENTS
-----------------
Page
ARTICLE I. PURPOSE...................................................1
ARTICLE II. DEFINITIONS...............................................1
ARTICLE III. ADMINISTRATION............................................5
ARTICLE IV. SHARE AND OTHER LIMITATIONS...............................7
ARTICLE V. ELIGIBILITY..............................................11
ARTICLE VI. EMPLOYEE STOCK OPTION GRANTS.............................11
ARTICLE VII. RESTRICTED STOCK AWARDS..................................14
ARTICLE VIII. NON-EMPLOYEE DIRECTOR STOCK AWARDS AND STOCK
OPTION GRANTS............................................16
ARTICLE IX. NON-TRANSFERABILITY......................................21
ARTICLE X. CHANGE IN CONTROL PROVISIONS.............................22
ARTICLE XI. TERMINATION OR AMENDMENT OF THE PLAN.....................24
ARTICLE XII. UNFUNDED PLAN............................................25
ARTICLE XIII. GENERAL PROVISIONS.......................................25
ARTICLE XIV. AMENDED EFFECTIVE DATE OF PLAN...........................28
ARTICLE XV. TERM OF PLAN.............................................28
ARTICLE XVI. NAME OF PLAN.............................................28
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Amended U.S. Industries, Inc.
Stock Option Plan
ARTICLE I.
PURPOSE
The purpose of this Amended U.S. Industries, Inc. Stock Option Plan (the
"Plan") is to enhance the profitability and value of U.S. Industries, Inc. for
the benefit of its stockholders by enabling the Company (1) to offer key
employees of the Company and Designated Subsidiaries, Stock Options and, during
the Company's 1995 Fiscal Year, Restricted Stock in the Company, thereby
creating a means to raise the level of stock ownership by key employees in order
to attract, retain and reward such key employees and strengthen the mutuality of
interests between key employees and the Company's stockholders and (2) to pay
non-employee directors of the Company their current annual retainer fee in the
form of shares of Common Stock, and to make awards and grants of Common Stock
and Stock Options to non-employee directors thereby attracting, retaining and
rewarding such non-employee directors, and strengthening the mutuality of
interests between non-employee directors and the Company's stockholders. The
Plan is effective as of the date set forth in Article XIV and is an amendment
and restatement of the U.S. Industries, Inc. Stock Option Plan (the "Initial
Plan"), which was initially effective April 13, 1995.
ARTICLE II.
DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
2.1 "Amended Effective Date" shall mean the effective date of the
Plan as defined in Article XIV.
2.2 "Award" shall mean any award under this Plan of any Stock
Option, Restricted Stock or, solely as provided in Article VIII, Common
Stock. All Awards, other than Common Stock awarded pursuant to Article
VIII, shall be confirmed by, and subject to the terms of, a written
agreement executed by the Company and the Participant.
2.3 "Board" shall mean the Board of Directors of the Company.
2.4 "Cause" shall mean, with respect to a Participant's Termination
of Employment, (1) in the case where there is no employment agreement
<PAGE>
between the Company or a Designated Subsidiary and the Participant in
effect at the time of the relevant grant or where there is an employment
agreement in effect at such time, but such agreement does not define cause
(or words of like import), termination due to a Participant's dishonesty,
fraud, insubordination, willful misconduct, refusal to perform services
(for any reason other than illness or incapacity) or materially
unsatisfactory performance of his or her duties for the Company or a
Designated Subsidiary; or (2) in the case where there is an employment
agreement between the Company or a Designated Subsidiary and the
Participant in effect at the time of grant that defines cause (or words of
like import), termination that is or would be deemed to be for cause (or
words of like import) as defined under such employment agreement at the
time of grant. With respect to a Participant's Termination of
Directorship, Cause shall mean an act or a failure to act that constitutes
"cause" for removal of a director under applicable Delaware law.
2.5 "Change in Control" shall have the meaning set forth in Article
X.
2.6 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.7 "Committee" shall mean a committee of the Board appointed from
time to time by the Board, which committee shall be intended to consist of
two or more non-employee directors, each of whom shall be, to the extent
required by Rule 16b-3 promulgated under Section 16(b) of the Exchange Act
as then in effect or any successor provisions ("Rule 16b-3") and for the
exceptions for performance based compensation under Section 162(m) of the
Code and any regulations thereunder ("Section 162(m) of the Code"), a
"non-employee director" as defined in Rule 16b-3 and an "outside director"
as defined under Section 162(m) of the Code, except that, if and to the
extent that no Committee exists which has the authority to administer the
Plan, the functions of the Committee shall be exercised by the Board. If
for any reason the appointed Committee does not meet the requirements of
Rule 16b-3 or Section 162(m) of the Code, such noncompliance with the
requirements of Rule 16b-3 or Section 162(m) of the Code shall not affect
the validity of the awards, grants, interpretations or other actions of
the Committee.
2.8 "Common Stock" means the Common Stock, $.01 par value per share,
of the Company.
2.9 "Company" shall mean U.S. Industries, Inc. and any successor
by merger, consolidation or otherwise.
2.10 "Designated Subsidiary" shall mean a subsidiary as defined in
Section 424(f) of the Code, of the Company which has been designated from
time to time by the Board to participate in the Plan.
2
<PAGE>
2.11 "Disability" shall mean (1) in the case where there is no
employment agreement between the Company or a Designated Subsidiary and
the Participant in effect at the time of the relevant grant, or where
there is an employment agreement in effect at such time, but such
agreement does not define disability, total and permanent disability, as
defined in Section 22(e)(3) of the Code; or (2) in the case where there is
an employment agreement between the Company or a Designated Subsidiary and
the Participant at the time of the relevant grant that defines disability,
disability as defined under such employment agreement at the time of
grant.
2.12 "Eligible Employees" shall mean the employees of the Company
and the Designated Subsidiaries who are eligible pursuant to Section 5.1
to be granted Awards under this Plan.
2.13 "Exchange Act" shall mean the Securities Exchange Act of 1934.
2.14 "Fair Market Value" for purposes of this Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, shall mean, as of any date, the last sales price reported for
the Common Stock on the applicable date, (i) as reported by the principal
national securities exchange in the United States on which it is then
traded, or (ii) if not traded on any such national securities exchange, as
quoted on an automated quotation system sponsored by the National
Association of Securities Dealers, or if the Common Stock shall not have
been reported or quoted on such date, on the first day prior thereto on
which the Common Stock was reported or quoted. If the Common Stock is not
readily tradable on a national securities exchange or any system sponsored
by the National Association of Securities Dealers, its Fair Market Value
shall be set in good faith by the Committee on the advice of a registered
investment adviser (as defined under the Investment Advisers Act of 1940).
2.15 "Good Reason" shall mean, with respect to a Participant's
Termination of Employment, (1) in the case where there is no employment
agreement between the Company or a Designated Subsidiary and the
Participant in effect at the time of the relevant grant, or where there is
an employment agreement in effect at such time, but such agreement does
not define good reason (or words of like import), a voluntary termination
due to good reason, as the Committee, in its sole discretion, decides to
treat as a Good Reason termination; or (2) in the case where there is an
employment agreement between the Company or a Designated Subsidiary and
the Participant in effect at the time of the relevant grant that defines
good reason (or words of like import), a termination due to good reason
(or words of like import), as defined in such employment agreement at the
time of grant.
2.16 "1995 Fiscal Year" shall mean the Company's fiscal year ending
September 30, 1995.
3
<PAGE>
2.17 "Participant" shall mean the following persons to whom an Award
has been made pursuant to this Plan: Eligible Employees of the Company and
Designated Subsidiaries and non-employee directors of the Company;
provided, however, that non-employee directors shall be Participants for
purposes of the Plan solely with respect to awards of shares of Common
Stock and Stock Options pursuant to Article VIII.
2.18 "Restricted Stock" shall mean an award of shares of Common
Stock under the Plan that is subject to restrictions under Article VII.
2.19 "Restriction Period" shall have the meaning set forth in
Subsection 7.3(a) with respect to Restricted Stock for Eligible Employees.
2.20 "Retirement" shall mean Termination of Employment without Cause
from the Company and/or a Designated Subsidiary by a Participant who has
attained (1) at least age sixty-five (65); (2) at least age sixty-two (62)
and performed ten (10) or more years of service with the Company (or its
predecessors) and/or a Designated Subsidiary; or (3) such earlier date
after age fifty-five (55) as approved by the Committee with regard to such
Participant.
2.21 "Stock Option" or "Option" shall mean any Option to purchase
shares of Common Stock granted to Eligible Employees pursuant to Article
VI and non-employee directors pursuant to Article VIII.
2.22 "Termination of Directorship" shall mean, with respect to a
non-employee director, that the non-employee director has ceased to be a
director of the Company.
2.23 "Termination of Employment" shall mean (1) a termination of
service (for reasons other than a military or personal leave of absence
granted by the Company) of a Participant from the Company and its
subsidiaries, as defined under Section 424(f) of the Code; or (2) when an
entity which is employing a Participant ceases to be a subsidiary, as
defined under Section 424(f) of the Code, unless the Participant thereupon
becomes employed by the Company or another subsidiary.
2.24 "Transfer" or "Transferred" shall mean anticipate, alienate,
attach, sell, assign, pledge, encumber, charge or otherwise transfer.
2.25 "Withholding Election" shall have the meaning set forth in
Section 13.4.
4
<PAGE>
ARTICLE III.
ADMINISTRATION
3.1 The Committee. The Plan shall be administered and interpreted by the
Committee.
3.2 Awards. The Committee shall have full authority to grant, pursuant to
the terms of this Plan, Stock Options and Restricted Stock to Eligible
Employees. Common Stock and Stock Options shall be granted to non-employee
directors pursuant to Article VIII. In particular, the Committee shall have the
authority:
(a) to select the Eligible Employees to whom Stock Options and
Restricted Stock may from time to time be granted hereunder;
(b) to determine whether and to what extent Stock Options and
Restricted Stock, or any combination thereof, are to be granted hereunder
to one or more Eligible Employees;
(c) to determine the number of shares of Common Stock to be covered
by each Award to an Eligible Employee granted hereunder;
(d) to determine the terms and conditions, not inconsistent with the
terms of this Plan, of any Award granted hereunder to an Eligible Employee
(including, but not limited to, the share price, any restriction or
limitation, any vesting schedule or acceleration thereof, or any
forfeiture restrictions or waiver thereof, regarding any Stock Option or
Restricted Stock, and the shares of Common Stock relating thereto, based
on such factors, if any, as the Committee shall determine, in its sole
discretion);
(e) to determine whether and under what circumstances a Stock Option
may be settled in cash, Common Stock and/or Restricted Stock under
Subsection 6.2(d);
(f) to determine whether, to what extent and under what
circumstances to provide loans (which shall be on a recourse basis and
shall bear a reasonable rate of interest) to Eligible Employees in order
to purchase shares of Common Stock under the Plan; and
(g) to determine whether to require an Eligible Employee, as a
condition of the granting of an Award, to not sell or otherwise dispose of
shares acquired pursuant to the exercise of an Option or as an Award for a
period of time as determined by the Committee, in its sole discretion,
following the date of the acquisition of such Option or Award.
5
<PAGE>
3.3 Guidelines. Subject to Article XI hereof, the Committee shall have the
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing this Plan and perform all acts, including the delegation of
its administrative responsibilities, as it shall, from time to time, deem
advisable; to construe and interpret the terms and provisions of this Plan and
any Award issued under this Plan (and any agreements relating thereto); and to
otherwise supervise the administration of this Plan. The Committee may correct
any defect, supply any omission or reconcile any inconsistency in this Plan or
in any agreement relating thereto in the manner and to the extent it shall deem
necessary to carry this Plan into effect but only to the extent any such action
would be permitted under the applicable provisions of both Rule 16b-3 and
Section 162(m) of the Code. The Committee may adopt special guidelines and
provisions for persons who are residing in, or subject to, the taxes of,
countries other than the United States to comply with applicable tax and
securities laws. To the extent applicable, this Plan is intended to comply with
Section 162(m) of the Code and the applicable requirements of Rule 16b-3 and
shall be limited, construed and interpreted in a manner so as to comply
therewith.
3.4 Decisions Final. Any decision, interpretation or other action made or
taken in good faith by or at the direction of the Company, the Board, or the
Committee (or any of its members) arising out of or in connection with the Plan
shall be within the absolute discretion of all and each of them, as the case may
be, and shall be final, binding and conclusive on the Company and all employees
and Participants and their respective heirs, executors, administrators,
successors and assigns.
3.5 Reliance on Counsel. The Company, the Board or the Committee may
consult with legal counsel, who may be counsel for the Company or other counsel,
with respect to its obligations or duties hereunder, or with respect to any
action or proceeding or any question of law, and shall not be liable with
respect to any action taken or omitted by it in good faith pursuant to the
advice of such counsel.
3.6 Procedures. If the Committee is appointed, the Board of Directors
shall designate one of the members of the Committee as chairman and the
Committee shall hold meetings, subject to the By-Laws of the Company, at such
times and places as it shall deem advisable. A majority of the Committee members
shall constitute a quorum. All determinations of the Committee shall be made by
a majority of its members. Any decision or determination reduced to writing and
signed by all the Committee members in accordance with the By-Laws of the
Company, shall be fully as effective as if it had been made by a vote at a
meeting duly called and held. The Committee shall keep minutes of its meetings
and shall make such rules and regulations for the conduct of its business as it
shall deem advisable.
6
<PAGE>
3.7 Designation of Consultants/Liability.
(a) The Committee may designate employees of the Company and
professional advisors to assist the Committee in the administration of the
Plan and may grant authority to employees to execute agreements or other
documents on behalf of the Committee.
(b) The Committee may employ such legal counsel, consultants and
agents as it may deem desirable for the administration of the Plan and may
rely upon any opinion received from any such counsel or consultant and any
computation received from any such consultant or agent. Expenses incurred
by the Committee or Board in the engagement of any such counsel,
consultant or agent shall be paid by the Company. The Committee, its
members and any person designated pursuant to paragraph (a) above shall
not be liable for any action or determination made in good faith with
respect to the Plan. To the maximum extent permitted by applicable law, no
officer of the Company or member or former member of the Committee or of
the Board shall be liable for any action or determination made in good
faith with respect to the Plan or any Award granted under it. To the
maximum extent permitted by applicable law or the Certificate of
Incorporation or By-Laws of the Company and to the extent not covered by
insurance, each officer and member or former member of the Committee or of
the Board shall be indemnified and held harmless by the Company against
any cost or expense (including reasonable fees of counsel reasonably
acceptable to the Company) or liability (including any sum paid in
settlement of a claim with the approval of the Company), and advanced
amounts necessary to pay the foregoing at the earliest time and to the
fullest extent permitted, arising out of any act or omission to act in
connection with the Plan, except to the extent arising out of such
officer's, member's or former member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
officers, directors or members or former officers, directors or members
may have under applicable law or under the Certificate of Incorporation or
By-Laws of the Company or Designated Subsidiary. Notwithstanding anything
else herein, this indemnification will not apply to the actions or
determinations made by an individual with regard to Awards granted to him
or her under this Plan.
ARTICLE IV.
SHARE AND OTHER LIMITATIONS
4.1 Shares.
(a) General Limitation. The aggregate number of shares of Common
Stock which may be issued under this Plan or with respect to which other
Awards may be granted shall not exceed 8.025 million shares (subject to
any increase or decrease pursuant to Section 4.2) which may be either
authorized and unissued Common Stock
7
<PAGE>
or Common Stock held in or acquired for the treasury of the Company or
both. If, before or after the Amended Effective Date, any Option granted
under this Plan shall expire, terminate or be cancelled for any reason
without having been exercised in full or if, before or after the Amended
Effective Date, the Company repurchases any Option pursuant to Section
6.2(e) or shares of Common Stock issued upon exercise of an Option, the
number of unpurchased shares of Common Stock and the repurchased shares of
Common Stock shall again be available for the purposes of Awards under the
Plan. If any shares of Restricted Stock awarded under this Plan to a
Participant are forfeited or repurchased by the Company for any reason,
whether before or after the Amended Effective Date, the number of
forfeited or repurchased shares of Restricted Stock shall again be
available for the purposes of Awards under the Plan.
(b) Individual Participant Limitations. The maximum number of shares
of Common Stock subject to any Option which may be granted under this Plan
to each Participant shall not exceed 225,000 shares (subject to any
increase or decrease pursuant to Section 4.2) during each fiscal year of
the Company during the entire term of the Plan other than the Company's
1995 Fiscal Year. With respect to the Company's 1995 Fiscal Year, the
maximum number of shares of Common Stock subject to any Option which may
be granted under this Plan during such fiscal year to each Participant
shall not exceed 1.2 million shares (subject to any increase or decrease
pursuant to Section 4.2). The maximum number of shares of Restricted Stock
which may be granted under this Plan to each Participant shall not exceed
510,000 shares (subject to any increase or decrease pursuant to Section
4.2) for the Company's 1995 Fiscal Year. No awards of Restricted Stock may
be granted under this Plan after the Company's 1995 Fiscal Year. To the
extent that shares of Common Stock for which Options are permitted to be
granted to a Participant pursuant to Section 4.1(b) during a fiscal year
are not covered by a grant of an Option to a Participant issued in such
fiscal year (other than with respect to the 1995 Fiscal Year) such shares
of Common Stock shall automatically increase the number of shares
available for grant of Options to such Participant in the subsequent
fiscal years during the term of the Plan. To the extent that shares of
Common Stock for which Options are permitted to be granted to a
Participant pursuant to Section 4.1(b) during the 1995 Fiscal Year are not
covered by a grant of an Option issued in the 1995 Fiscal Year, such
shares of Common Stock shall not be available for grant or issuance to the
Participant in any subsequent fiscal year during the term of the Plan for
a grant of Options.
(c) Additional Limitation. Notwithstanding the foregoing, no Awards
may be granted hereunder if such grant would cause the number of shares of
Common Stock which are (i) granted under this Plan and subject to a
Restriction Period, (ii) granted under the U.S. Industries, Inc.
Restricted Stock Plan and subject to a Vesting Period (as defined in the
U.S. Industries, Inc. Restricted Stock Plan) or, (iii) in the case of an
Option granted under this Plan, may be acquired pursuant to an exercise of
such Option, to exceed 9.9 percent of the total number of shares of Common
Stock issued and outstanding (assuming full dilution for all other
outstanding Awards and other
8
<PAGE>
equity convertible into Common Stock, including, without limitation
warrants), determined as of the close of the most recent fiscal quarter of
the Company, in accordance with generally accepted accounting principles.
4.2 Changes.
(a) The existence of the Plan and the Awards granted hereunder shall
not affect in any way the right or power of the Board or the stockholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company or Designated
Subsidiaries, any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting Common Stock, the dissolution or
liquidation of the Company or Designated Subsidiaries, any sale or
transfer of all or part of its assets or business or any other corporate
act or proceeding.
(b) In the event of any such change in the capital structure or
business of the Company by reason of any stock dividend or distribution,
stock split or reverse stock split, recapitalization, reorganization,
merger, consolidation, split-up, combination or exchange of shares,
distribution with respect to its outstanding Common Stock of capital stock
other than Common Stock, reclassification of its capital stock, issuance
of warrants or options to purchase any Common Stock or securities
convertible into Common Stock, or any similar change affecting the
Company's capital structure or business, then the aggregate number and
kind of shares which thereafter may be issued under this Plan, the number
and kind of shares or other property (including cash) to be issued upon
exercise of an outstanding Option granted under this Plan and the purchase
price thereof, the number and kind of shares subject to awards of
Restricted Stock granted under this Plan and the number of shares of
Common Stock to be awarded pursuant to Article VIII hereof shall be
appropriately adjusted consistent with such change in such manner as the
Committee may deem equitable to prevent substantial dilution or
enlargement of the rights granted to, or available for, Participants under
this Plan, and any such adjustment determined by the Committee in good
faith shall be binding and conclusive on the Company and all Participants
and employees and their respective heirs, executors, administrators,
successors and assigns.
(c) Fractional shares of Common Stock resulting from any adjustment
in Options pursuant to Section 4.2(a) or (b) shall be aggregated until,
and eliminated at, the time of exercise by rounding-down for fractions
less than one-half (1/2) and rounding-up for fractions equal to or greater
than one-half (1/2). No cash settlements shall be made with respect to
fractional shares eliminated by rounding. Notice of any adjustment shall
be given by the Committee to each Participant whose Option has been
adjusted and such adjustment (whether or not such notice is given) shall
be effective and binding for all purposes of the Plan. In the case of
other Awards, fractional shares resulting from adjustment pursuant to
Sections 4.2(a) or (b) shall be awarded under the Plan pursuant to the
terms of the Plan.
9
<PAGE>
(d) In the event of a merger or consolidation in which the Company
is not the surviving entity or in the event of any transaction that
results in the acquisition of substantially all of the Company's
outstanding Common Stock by a single person or entity or by a group of
persons and/or entities acting in concert, or in the event of the sale or
transfer of all or substantially all of the Company's assets (all of the
foregoing being referred to as "Acquisition Events"), then the Committee
may, in its sole discretion, terminate all outstanding Options of Eligible
Employees, effective as of the date of the Acquisition Event, by
delivering notice of termination to each such Participant at least twenty
(20) days prior to the date of consummation of the Acquisition Event;
provided, that during the period from the date on which such notice of
termination is delivered to the consummation of the Acquisition Event,
each such Participant shall have the right to exercise in full all of his
or her Options that are then outstanding (without regard to any
limitations on exercisability otherwise contained in the Option) but
contingent on occurrence of the Acquisition Event, and, provided that, if
the Acquisition Event does not take place within a specified period after
giving such notice for any reason whatsoever, the notice and exercise
shall be null and void.
Notwithstanding the foregoing, at the discretion of the Committee,
the provisions contained in this subsection shall be adjusted as they
apply to Options granted to Eligible Employees within six (6) months
before the occurrence of an Acquisition Event if the holder of such Award
is subject to the reporting requirements of Section 16(a) of the Exchange
Act in such manner as determined by the Committee, including without
limitation, terminating Options at specific dates after the Acquisition
Event, in order to give the holder the benefit of the Option. If an
Acquisition Event occurs, to the extent the Committee does not terminate
the outstanding Options pursuant to this Section 4.2(d), then the
provisions of Section 4.2(b) shall apply.
(e) Upon consummation of the mergers (the "Mergers") contemplated by
the Agreement and Plan of Merger dated February 16, 1998, as amended,
among U.S. Industries, Inc., USI, Inc., Blue Merger Corp., Zoro Merger
Corp., and Zurn Industries, Inc. (the "Merger Agreement") the Plan shall
be assumed by USI, Inc. ("New USI") and upon the assumption of this Plan
by New USI: (i) Common Stock as used in this Plan shall mean the Common
Stock, $.01 par value per share, of New USI, (ii) the Board shall mean the
Board of New USI, and (iii) each share of Company Common Stock awarded
pursuant to this Plan shall automatically be converted into shares of New
USI Common Stock in accordance with Section 2.8 of the Merger Agreement.
4.3 Purchase Price. Notwithstanding any provision of this Plan to the
contrary, if authorized but previously unissued shares of Common Stock are
issued under this Plan, such shares shall not be issued for a consideration
which is less than par value.
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ARTICLE V.
ELIGIBILITY
5.1 Senior officers, senior management and key employees of the Company
and its Designated Subsidiaries are eligible to be granted Options and
Restricted Stock under this Plan.
Eligibility under this Plan shall be determined by the Committee.
5.2 Non-employee directors are eligible to receive an award of shares of
Common Stock and a grant of Stock Options in accordance with Article VIII of the
Plan.
ARTICLE VI.
EMPLOYEE STOCK OPTION GRANTS
6.1 Options. Stock Options granted hereunder shall be non-qualified
Options and are not intended to be Incentive Stock Options that satisfy the
requirements of Section 422 of the Code. The terms of this Article VI shall
apply only to Options granted to Eligible Employees.
6.2 Terms of Options. Options granted under this Plan shall be subject to
the following terms and conditions, and, shall be in such form and contain such
additional terms and conditions, not inconsistent with the terms of this Plan,
as the Committee shall deem desirable:
(a) Option Price. The purchase price of shares subject to a
non-qualified Stock Option shall be determined by the Committee but shall
not be less than the par value of the shares of Common Stock.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten (10)
years after the date the Option is granted.
(c) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined
by the Committee at grant. If the Committee provides, in its discretion,
that any Stock Option is exercisable subject to certain limitations
(including, without limitation, that it is exercisable only in
installments or within certain time periods), the Committee may waive such
limitations on the exercisability at any time at or after grant in whole
or in part (including, without limitation, the Committee may waive the
installment exercise provisions or accelerate the time at which Options
may be exercised), based on such factors, if any, as the Committee shall
determine, in its sole discretion.
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(d) Method of Exercise. Subject to whatever installment exercise and
waiting period provisions apply under subsection (c) above, Stock Options
may be exercised in whole or in part at any time during the Option term,
by giving written notice of exercise to the Company specifying the number
of shares to be purchased. Such notice shall be accompanied by payment in
full of the purchase price in such form, or such other arrangement for the
satisfaction of the purchase price, as the Committee may accept. If and to
the extent determined by the Committee in its sole discretion at or after
grant, payment in full or in part may also be made in the form of Common
Stock owned by the Participant (and for which the Participant has good
title free and clear of any liens and encumbrances) or Restricted Stock
based in each case on the Fair Market Value of the Stock on the payment
date as determined by the Committee (without regard to any forfeiture
restrictions applicable to such Restricted Stock). No shares of Common
Stock shall be issued until payment, as provided herein, therefor has been
made or provided for. If payment in full or in part has been made in the
form of Restricted Stock an equivalent number of shares of Common Stock
issued on exercise of the Option shall be subject to the same restrictions
and conditions, during the remainder of the Restriction Period applicable
to the Restricted Stock surrendered therefor.
(e) Buy Out and Settlement Provisions. The Committee may at any time
on behalf of the Company offer to buy out an Option previously granted,
based on such terms and conditions as the Committee shall establish and
communicate to the Participant at the time that such offer is made.
(f) Form, Modification, Extension and Renewal of Options. Subject to
the terms and conditions and within the limitations of the Plan, an Option
shall be evidenced by such form of agreement as is approved by the
Committee, and the Committee may modify, extend or renew outstanding
Options granted under the Plan, or accept the surrender of outstanding
Options (up to the extent not theretofore exercised) and authorize the
granting of new Options in substitution therefor (to the extent not
theretofore exercised). Notwithstanding the foregoing, on or after
September 1, 1995, an outstanding Option may not be modified to reduce the
exercise price thereof nor may a new Option at a lower price be
substituted for a surrendered Option, provided that the foregoing shall
not apply to adjustments or substitutions in accordance with Section 4.2
of the Plan.
(g) Other Terms and Conditions. Options may contain such other
provisions, which shall not be inconsistent with any of the foregoing
terms of the Plan, as the Committee shall deem appropriate including,
without limitation, permitting "reloads" such that the same number of
Options are granted as the number of Options exercised, shares used to pay
for the exercise price of Options or shares used to pay withholding taxes
("Reloads"). With respect to Reloads, the exercise price of the new Stock
Option shall be the Fair Market Value on the date of the "reload" and the
term of the Stock
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Option shall be the same as the remaining term of the Options that are
exercised, if applicable, or such other exercise price and term as
determined by the Committee.
6.3 Termination of Employment. The following rules apply with regard to
Options upon the Termination of Employment of a Participant:
(a) Termination by Reason of Death. If a Participant's Termination
of Employment is by reason of death, any Stock Option held by such
Participant, unless otherwise determined by the Committee at grant or, if
no rights of the Participant's estate are reduced, thereafter, may be
exercised, to the extent exercisable at the Participant's death, by the
legal representative of the estate, at any time within a period of one (1)
year from the date of such death, but in no event beyond the expiration of
the stated term of such Stock Option.
(b) Termination by Reason of Disability. If a Participant's
Termination of Employment is by reason of Disability, any Stock Option
held by such Participant, unless otherwise determined by the Committee at
grant or, if no rights of the Participant are reduced, thereafter, may be
exercised, to the extent exercisable at the Participant's termination, by
the Participant (or the legal representative of the Participant's estate
if the Participant dies after termination) at any time within a period of
one (1) year from the date of such termination, but in no event beyond the
expiration of the stated term of such Stock Option.
(c) Termination by Reason of Retirement. If a Participant's
Termination of Employment is by reason of Retirement, any Stock Option
held by such Participant, unless otherwise determined by the Committee at
grant, or, if no rights of the Participant are reduced, thereafter, shall
be fully vested and may thereafter be exercised by the Participant at any
time within a period of one (1) year from the date of such termination,
but in no event beyond the expiration of the stated term of such Stock
Option; provided, however, that, if the Participant dies within such
exercise period, any unexercised Stock Option held by such Participant
shall thereafter be exercisable, to the extent to which it was exercisable
at the time of death, for a period of twelve (12) months (or such other
period as the Committee may specify at grant or, if no rights of the
Participant's estate are reduced, thereafter) from the date of such death,
but in no event beyond the expiration of the stated term of such Stock
Option.
(d) Involuntary Termination Without Cause or Termination for Good
Reason. If a Participant's Termination of Employment is by involuntary
termination without Cause or for Good Reason, any Stock Option held by
such Participant, unless otherwise determined by the Committee at grant
or, if no rights of the Participant are reduced, thereafter, may be
exercised, to the extent exercisable at termination, by the Participant at
any time within a period of ninety (90) days from the date of such
termination, but in no event beyond the expiration of the stated term of
such Stock Option.
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(e) Termination Without Good Reason. If a Participant's Termination
of Employment is voluntary but without Good Reason and occurs prior to, or
more than ninety (90) days after, the occurrence of an event which would
be grounds for Termination of Employment by the Company for Cause (without
regard to any notice or cure period requirements), any Stock Option held
by such Participant, unless otherwise determined by the Committee at grant
or, if no rights of the Participant are reduced, thereafter, may be
exercised, to the extent exercisable at termination, by the Participant at
any time within a period of thirty (30) days from the date of such
termination, but in no event beyond the expiration of the stated term of
such Stock Option.
(f) Other Termination. Unless otherwise determined by the Committee
at grant or, if no rights of the Participant are reduced, thereafter, if a
Participant's Termination of Employment is for any reason other than
death, Disability, Retirement, Good Reason, involuntary termination
without Cause or voluntary termination as provided in subsection (e)
above, any Stock Option held by such Participant shall thereupon terminate
and expire as of the date of termination, provided that (unless the
Committee determines a different period upon grant or, if, no rights of
the Participant are reduced, thereafter) in the event the termination is
for Cause or is a voluntary termination without Good Reason within ninety
(90) days after occurrence of an event which would be grounds for
Termination of Employment by the Company for Cause (without regard to any
notice or cure period requirement), any Stock Option held by the
Participant at the time of occurrence of the event which would be grounds
for Termination of Employment by the Company for Cause shall be deemed to
have terminated and expired upon occurrence of the event which would be
grounds for Termination of Employment by the Company for Cause.
ARTICLE VII.
RESTRICTED STOCK AWARDS
7.1 Awards of Restricted Stock. Shares of Restricted Stock may be issued
to Eligible Employees either alone or in addition to other Awards granted under
the Plan. The Committee shall determine the eligible persons to whom, and the
time or times at which, grants of Restricted Stock will be made, the number of
shares to be awarded, the price (if any) to be paid by the recipient (subject to
Section 7.2), the time or times within which such Awards may be subject to
forfeiture, the vesting schedule and rights to acceleration thereof, and all
other terms and conditions of the Awards. The Committee may condition the grant
of Restricted Stock upon the attainment of specified performance goals or such
other factors as the Committee may determine, in its sole discretion.
Notwithstanding anything herein to the contrary, no awards of Restricted Stock
may be granted under the Plan after the Company's 1995 Fiscal Year.
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7.2 Awards and Certificates. The prospective Participant selected to
receive a Restricted Stock Award shall not have any rights with respect to such
Award, unless and until such Participant has delivered a fully executed copy of
the Restricted Stock Award agreement evidencing the Award to the Company and has
otherwise complied with the applicable terms and conditions of such Award.
Further, such Award shall be subject to the following conditions:
(a) Purchase Price. The purchase price of Restricted Stock shall be
fixed by the Committee. Subject to Section 4.3, the purchase price for
shares of Restricted Stock may be zero to the extent permitted by
applicable law, and, to the extent not so permitted, such purchase price
may not be less than par value.
(b) Acceptance. Awards of Restricted Stock must be accepted within a
period of sixty (60) days (or such shorter period as the Committee may
specify at grant) after the Award date, by executing a Restricted Stock
Award agreement and by paying whatever price (if any) the Committee has
designated thereunder.
(c) Legend. Each Participant receiving a Restricted Stock Award
shall be issued a stock certificate in respect of such shares of
Restricted Stock, unless the Committee elects to use another system, such
as book entries by the transfer agent, as evidencing ownership of a
Restricted Stock Award. Such certificate shall be registered in the name
of such Participant, and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Award,
substantially in the following form:
"The anticipation, alienation, attachment, sale, transfer,
assignment, pledge, encumbrance or charge of the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the U.S. Industries, Inc. (the "Company") Stock Option Plan
and an Agreement entered into between the registered owner and the Company
dated . Copies of such Plan and Agreement are on file at the principal
office of the Company."
(d) Custody. If stock certificates are issued in respect of shares
of Restricted Stock, the Committee may require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock Award, the Participant shall have delivered a duly signed
stock power, endorsed in blank, relating to the Common Stock covered by
such Award.
7.3 Restrictions and Conditions on Restricted Stock Awards. The shares of
Restricted Stock awarded pursuant to this Plan shall be subject to Article IX
and the following restrictions and conditions:
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(a) Restriction Period; Vesting and Acceleration of Vesting. The
Restricted Stock awarded under this Plan shall be subject to forfeiture
(or, if a purchase price had been paid pursuant to Section 7.2(a) above,
repurchase for the purchase price) during a period set by the Committee
commencing with the date of such Award (the "Restriction Period") as set
forth in the Restricted Stock Award agreement and such agreement shall set
forth a vesting schedule and any events which would accelerate vesting of
the shares of Restricted Stock. Within these limits, based on service,
performance and/or such other factors or criteria as the Committee may
determine in its sole discretion, the Committee may provide for the lapse
of such restrictions in installments in whole or in part, or may
accelerate the vesting of all or any part of any Restricted Stock Award
and/or waive the deferral limitations for all or any part of such Award.
(b) Rights as a Stockholder. Except as provided in this subsection
(b) and subsection (a) above, the Participant shall have, with respect to
the shares of Restricted Stock, all of the rights of a holder of shares of
Common Stock of the Company including, without limitation, the right to
receive any dividends and the right to vote or tender such shares. The
Committee, in its sole discretion, as determined at the time of Award, may
permit or require the payment of dividends to be deferred.
(c) Lapse of Restrictions. If and when the Restriction Period
expires without a prior forfeiture of the Restricted Stock subject to such
Restriction Period, the certificates for such shares shall be delivered to
the Participant. All legends shall be removed from said certificates at
the time of delivery to the Participant, except as otherwise required by
applicable law.
7.4 Termination of Employment for Restricted Stock. Subject to the
applicable provisions of the Restricted Stock Award agreement and this Plan,
upon a Participant's Termination of Employment for any reason during the
relevant Restriction Period, all Restricted Stock still subject to restriction
will vest or be forfeited in accordance with the terms and conditions
established by the Committee at grant or thereafter.
ARTICLE VIII.
NON-EMPLOYEE DIRECTOR STOCK AWARDS AND STOCK OPTION GRANTS
8.1 Common Stock Award for Non-Employee Directors. An award of shares of
Common Stock shall be made under this Plan to each non-employee director of the
Company. Except with respect to such award of shares of Common Stock and Stock
Options granted pursuant to this Article VIII, no other Award under the Plan
shall be made available to or granted to non-employee directors of the Company.
Notwithstanding anything contained
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herein to the contrary, the following provisions shall apply to the award of
shares of Common Stock to non-employee directors of the Company:
(a) Initial Award. A non-employee director of the Company shall
receive an award of 1,500 shares of Common Stock upon the later of (i) the
date the non-employee director begins service as a non-employee director
on the Board (even if previously an employee director); or (ii) five (5)
business days after the Common Stock opens for regular trading on a
national securities exchange.
(b) Annual Awards. On the first business day of each calendar
quarter in each fiscal year of the Company commencing with the first
calendar quarter after the Amended Effective Date of the Plan, each
non-employee director who is a director of the Company on such date shall
receive an award of Common Stock pursuant to the Plan calculated by
dividing $6,250 by the Fair Market Value of the Common Stock on the first
business day of the fiscal year. In the event that such quotient is other
than a whole number of Common Stock, the value of the fractional Common
Stock shall be paid to the non-employee director in cash.
(c) Special Back Annual Award. On the Amended Effective Date of the
Plan, each non-employee director shall receive an award of Common Stock
pursuant to the Plan, calculated by dividing $8,334 by the Fair Market
Value of the Common Stock on September 29, 1995 plus an award of Common
Stock pursuant to the Plan calculated by dividing $12,500 by the Fair
Market Value of the Common Stock on October 2, 1995.
(d) Purchase Price. Subject to Section 4.3, the purchase price of a
share of Common Stock shall be zero to the extent permitted by applicable
law and, to the extent not so permitted, such purchase price shall be par
value.
(e) Legend. Each non-employee director receiving shares of Common
Stock under this Article VIII shall be issued a stock certificate in
respect of such shares of Common Stock. Such certificate shall be
registered in the name of such non-employee director, and shall bear an
appropriate legend, to the extent required by applicable law as the
Company may determine upon advice of counsel, referring to the legal
restrictions applicable to such shares. An award of shares of Common Stock
shall be subject to the requirements of Section 13.1.
8.2 Stock Options. The terms of this Section 8.2 shall apply only to
Options granted to non-employee directors.
(a) Without further action by the Board or the stockholders of the
Company, each non-employee director shall:
(i) subject to the terms of the Plan, be granted Options to
purchase 7,500 shares of Common Stock upon the later of (1) the date
the non-employee
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director begins service as a director on the Board (even if
previously an employee director); or (2) the Amended Effective Date
of the Plan as defined in Article XIV hereof; provided that if such
date in any year is a date on which the New York Stock Exchange is
not open for trading, the grant shall be made on the first day
thereafter on which the New York Stock Exchange is open for trading;
(ii) subject to the terms of the Plan, on each Annual Date of
Grant (as hereinafter defined) be automatically granted Options to
purchase 3,750 shares of Common Stock (provided that the annual
grant to be made on June 1, 1996 and June 1, 1997 shall each be for
1000 shares of Common Stock);
(iii) subject to the terms of the Plan, on December 3, 1996 be
automatically granted Options to purchase 1,250 shares of Common
Stock;
(iv) subject to the terms of the Plan, on June 1, 1997 be
automatically granted Options to purchase an additional 250 shares
of Common Stock; and
(v) notwithstanding the foregoing provisions of Sections
8.2(a)(i) through (a)(iv), no such Option shall be granted if on the
date of grant the Company has liquidated, dissolved or merged or
consolidated with another entity in such a manner that it is not the
surviving entity (unless the Plan has been assumed by such surviving
entity with regard to future grants).
(b) Annual Date of Grant. Annual grants shall be made initially on
June 1, 1996 (the "Initial Grant Date") and on June 1, 1997. Thereafter,
annual grants shall be made on October 1, 1997 and each anniversary
thereof (the Initial Grant Date, June 1, 1997, October 1, 1997 and each
anniversary of October 1, 1997 being referred to as an "Annual Date of
Grant"); provided that if such date in any year is a date on which the New
York Stock Exchange is not open for trading, the grant shall be made on
the first day thereafter on which the New York Stock Exchange is open for
trading and, further provided that if the grants would violate the
limitation set forth in Section 4.1(c), such grants shall be
proportionately reduced to an amount that would not violate such
limitation and, subject to the next sentence, an additional make-up grant
shall be made on the first day of the first month commencing at least
twenty (20) days after such limitation is no longer exceeded. Such make-up
grant shall be made only to each non-employee director who is still a
director of the Company and shall be made only in the amount of the prior
reduction. The date of the make-up grant shall be considered an Annual
Grant Date for all purposes other than the amount of Options to be issued.
Notwithstanding the foregoing, in the event no Fair Market Value can be
determined pursuant to the provisions hereof (without regard to the last
sentence of Section 2.13), no annual grant shall be made for such fiscal
year.
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(c) Option Agreement. Stock Options granted under this Section 8.2
shall be non-qualified Options. Such Options shall be evidenced by Option
agreements in substantially the form annexed hereto as Exhibit A.
(d) Terms of Options:
(i) Option Price. The purchase price per share ("Purchase
Price") deliverable upon the exercise of an Option shall be 100% of
the Fair Market Value of such Common Stock at the time of the grant
of the Option, or the par value of the Common Stock, whichever is
greater.
(ii) Exercisability. Except as otherwise provided herein, each
Option granted under this Plan shall be exercisable on or after six
(6) months and one (1) day after the date of grant.
(iii) Method for Exercise. A non-employee director electing to
exercise one or more Options shall give written notice to the
Company of such election and of the number of Options he or she has
elected to exercise. Common Stock purchased pursuant to the exercise
of Options shall be paid for at the time of exercise in cash or by
delivery of unencumbered Common Stock owned by the non-employee
director for at least six (6) months (or such longer period as
required by applicable accounting standards to avoid a charge to
earnings) or a combination thereof.
(e) Expiration. Except as otherwise provided herein, if not
previously exercised each Option shall expire upon the tenth anniversary
of the date of the grant thereof.
(f) The following rules apply with regard to Options upon a
Termination of Directorship:
(i) Death, Disability or Otherwise Ceasing to be a Director
Other than for Cause. Except as otherwise provided herein, upon the
Termination of Directorship, on account of Disability, death,
resignation, failure to stand for reelection or failure to be
reelected or otherwise other than as set forth in (ii) below, all
outstanding Options then exercisable and not exercised by the
Participant prior to such Termination of Directorship shall remain
exercisable, to the extent exercisable at the Termination of
Directorship, by the Participant or, in the case of death, by the
Participant's estate or by the person given authority to exercise
such Options by his or her will or by operation of law, for a three
(3) year period commencing on the date of the Termination of
Directorship, provided that such three (3) year period shall not
extend beyond the stated term of such Options.
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(ii) Cause. Upon removal, failure to stand for reelection or
failure to be renominated for Cause, or if the Company obtains or
discovers information after Termination of Directorship that such
Participant had engaged in conduct that would have justified a
removal for Cause during such directorship, all outstanding Options
of such Participant shall immediately terminate and shall be null
and void.
(iii) Acceleration of Exercisability Upon Death. All Options
granted and not previously exercisable shall become fully
exercisable immediately upon a Termination of Directorship due to
death.
(iv) Cancellation of Options. Except as otherwise provided
herein, no Options that were not exercisable during the period such
person serves as a director shall thereafter become exercisable upon
a Termination of Directorship for any reason or no reason
whatsoever, and such Options shall terminate and become null and
void upon a Termination of Directorship.
8.3 Changes. (i) The Awards to a non-employee director shall be subject to
Sections 4.2(a), (b) and (c) of the Plan and this Section 8.3, but shall not be
subject to Section 4.2(d).
(ii) If the Company shall not be the surviving corporation in
any merger or consolidation, or if the Company is to be dissolved or
liquidated, then, unless the surviving corporation assumes the
Options or substitutes new Options which are determined by the Board
in its sole discretion to be substantially similar in nature and
equivalent in terms and value for Options then outstanding, upon the
effective date of such merger, consolidation, liquidation or
dissolution, any unexercised Options shall expire without additional
compensation to the holder thereof; provided, that, the Committee
shall deliver notice to each non-employee director at least twenty
(20) days prior to the date of consummation of such merger,
consolidation, dissolution or liquidation which would result in the
expiration of the Options and during the period from the date on
which such notice of termination is delivered to the consummation of
the merger, consolidation, dissolution or liquidation, such
Participant shall have the right to exercise in full effective as of
such consummation all the Options that are then outstanding (without
regard to limitations on exercise otherwise contained in the Options
other than the requirements of Article XIV) but contingent on
occurrence of the merger, consolidation, dissolution or liquidation,
and, provided that, if the contemplated transaction does not take
place within a ninety (90) day period after giving such notice for
any reason whatsoever, the notice, accelerated vesting and exercise
shall be null and void and, if and when appropriate, new notice
shall be given as aforesaid. Notwithstanding the foregoing, the
Options held by persons subject to Section 16(b) of the Exchange Act
that would not have vested under the Plan except pursuant to Section
10.1(a)
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prior to the effective date of such merger, consolidation,
liquidation or dissolution shall not expire on such date if vesting
or exercise on such date would result in the loss of Rule 16b-3
protection with regard to such Option; but shall expire thirty (30)
days after they would have otherwise vested under the Plan and shall
after the effective date of such merger, consolidation, liquidation
or dissolution represent only the right to receive the number and
kind of shares of capital stock or other property to which the
Participant would have been entitled if immediately prior to the
effective date of such merger, consolidation, liquidation or
dissolution the Participant had been the holder of record of the
number of shares as to which such Option was then exercisable.
8.4 Non-Employee Director Status. Notwithstanding anything contained
herein to the contrary, neither the Board, the Committee nor any person
designated to assist the Board or the Committee in the administration of the
Plan may take any action which would cause any non-employee director of the
Company to cease to be a "non-employee director" for purposes of Rule 16b-3 with
regard to this Plan or any other stock option or other equity plan of the
Company. In particular, to the extent required as aforesaid, neither the Board
nor the Committee shall have any discretion as to:
(i) the selection of non-employee directors who are eligible
to receive awards of Common Stock or Stock Options; or
(ii) the number of shares of Common Stock or Stock Options
awarded to any non-employee director.
ARTICLE IX.
NON-TRANSFERABILITY
No Stock Option shall be Transferable by the Participant otherwise than by
will or by the laws of descent and distribution. All Stock Options shall be
exercisable, during the Participant's lifetime, only by the Participant. Shares
of Restricted Stock under Article VII may not be Transferred prior to the date
on which shares are issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses. Notwithstanding the
foregoing, the Committee may determine at the time of grant or thereafter that
an Award that is otherwise not Transferable pursuant to this Article IX is
Transferable in whole or in part and in such circumstances, and under such
conditions, as specified by the Committee.
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ARTICLE X.
CHANGE IN CONTROL PROVISIONS
10.1 Benefits. In the event of a Change in Control of the Company (as
defined below), except as otherwise provided by the Committee upon the grant of
an Award, the Participant shall be entitled to the following benefits:
(a) Subject to paragraph (c) below with regard to Options granted to
Eligible Employees, all outstanding Stock Options of such Participant
(whether an Eligible Employee or non-employee director) granted prior to
the Change in Control shall be fully vested and immediately exercisable in
their entirety. The Committee, in its sole discretion, may, subject to
Section 8.4, provide for the purchase of any such Stock Options by the
Company or Designated Subsidiary for an amount of cash equal to the excess
of the Change in Control price (as defined below) of the shares of Common
Stock covered by such Stock Options, over the aggregate exercise price of
such Stock Options. For purposes of this Section 10.1, Change in Control
price shall mean the higher of (i) the highest price per share of Common
Stock paid in any transaction related to a Change in Control of the
Company, or (ii) the highest Fair Market Value per share of Common Stock
at any time during the sixty (60) day period preceding a Change in
Control.
(b) The restrictions to which any shares of Restricted Stock of such
Participant granted prior to the Change in Control are subject shall lapse
as if the applicable Restriction Period had ended upon such Change in
Control.
(c) Notwithstanding anything to the contrary herein, unless the
Committee provides otherwise, at the time an Option is granted to an
Eligible Employee hereunder, no acceleration of exercisability shall occur
with respect to such Option if the Committee reasonably determines in good
faith, prior to the occurrence of the Change in Control, that the Options
shall be honored or assumed, or new rights substituted therefor (each such
honored, assumed or substituted option hereinafter called an "Alternative
Option"), by a Participant's employer (or the parent or a subsidiary of
such employer) immediately following the Change in Control, provided that
any such Alternative Option must meet the following criteria:
(i) the Alternative Option must be based on stock which is traded on
an established securities market, or which will be so traded within thirty
(30) days of the Change in Control;
(ii) the Alternative Option must provide such Participant with
rights and entitlements substantially equivalent to or better than the
rights, terms and conditions applicable under such Option, including, but
not limited to, an identical or better exercise schedule; and
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(iii) the Alternative Option must have economic value substantially
equivalent to the value of such Option (determined at the time of the
Change in Control).
10.2 Change in Control. A "Change in Control" shall be deemed to have
occurred upon:
(a) any "person" as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under any employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of Common Stock
of the Company), is or becomes the owner (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the combined voting
power of the Company's then outstanding securities;
(b) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors, and any
new director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in
paragraph (a), (c), or (d) of this section) whose election by the Board of
Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the two-year period
or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the Board of
Directors;
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent (50%) of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; provided, however, that a merger or consolidation effected
to implement a recapitalization of the Company (or similar transaction) in
which no person acquires more than twenty-five percent (25%) of the
combined voting power of the Company's then outstanding securities shall
not constitute a Change in Control of the Company; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets other than
the sale or disposition of all or substantially all of the assets of the
Company to a person or persons who beneficially own, directly or
indirectly, at least fifty percent (50%) or more of the combined voting
power of the outstanding voting securities of the Company at the time of
the sale, including, but not limited to any entity which is, directly or
indirectly, owned (based on
23
<PAGE>
normal issue voting interests or capital interests) after completion of
the transaction at least fifty percent (50%) by the ultimate shareholders
of the Company.
ARTICLE XI.
TERMINATION OR AMENDMENT OF THE PLAN
11.1 Termination or Amendment. Notwithstanding any other provision of this
Plan, the Board may at any time, and from time to time, amend, in whole or in
part, any or all of the provisions of the Plan (including any amendment deemed
necessary to ensure that the Company may comply with any regulatory requirement
referred to in Article XIII), or suspend or terminate it entirely, retroactively
or otherwise; provided, however, that, unless otherwise required by law or
specifically provided herein, the rights of a Participant with respect to Awards
granted prior to such amendment, suspension or termination, may not be impaired
without the consent of such Participant and, provided further, without the
approval of the stockholders of the Company in accordance with the laws of the
state of Delaware, to the extent required by the applicable provisions of
Section 162(m) of the Code no amendment may be made which would (i) increase the
maximum individual Participant limitations under Section 4.1(b); (ii) change the
classification of employees eligible to receive Awards under this Plan; (iii)
extend the maximum option period under Section 6.2; or (iv) require stockholder
approval in order for the Plan to continue to comply with the applicable
provisions of Section 162(m) of the Code. In no event may the Plan be amended
without the approval of the stockholders of the Company in accordance with the
applicable laws of the State of Delaware to increase the aggregate number of
shares of Common Stock that may be issued under the Plan or to make any other
amendment that would require stockholder approval under the rules of any
exchange or system on which the Company's securities are listed or traded at the
request of the Company.
Except with respect to the award of Common Stock and Options to
non-employee directors under Article VIII, the Committee may amend the terms of
any Award theretofore granted, prospectively or retroactively, but, subject to
Article IV above or as otherwise specifically provided herein, no such amendment
or other action by the Committee shall impair the rights of any holder without
the holder's consent.
With respect to the award of shares of Common Stock and Options to
non-employee directors under Article VIII hereof, the Board may at any time or
from time to time, subject to Section 8.4 and this Section 11.1, amend the Plan
to effect any amendment deemed appropriate.
24
<PAGE>
ARTICLE XII.
UNFUNDED PLAN
12.1 Unfunded Status of Plan. This Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments as to which a Participant has a fixed and vested interest but which are
not yet made to a Participant by the Company, nothing contained herein shall
give any such Participant any rights that are greater than those of a general
creditor of the Company.
ARTICLE XIII.
GENERAL PROVISIONS
13.1 Legend. The Committee may require each person receiving shares
pursuant to an Award under the Plan to represent to and agree with the Company
in writing that the Participant is acquiring the shares without a view to
distribution thereof. In addition to any legend required by this Plan, the
certificates for such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on Transfer.
All certificates for shares of Common Stock delivered under the Plan shall
be subject to such stock transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed or any national securities association system upon whose system the
Stock is then quoted, any applicable Federal or state securities law, and any
applicable corporate law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.
13.2 Other Plans. Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
13.3 No Right to Employment/Directorship. Neither this Plan nor the grant
of any Award hereunder shall give any Participant or other employee any right
with respect to continuance of employment by the Company or any subsidiary, nor
shall they be a limitation in any way on the right of the Company or any
subsidiary by which an employee is employed to terminate his employment at any
time. Neither this Plan nor the grant of any Award hereunder shall impose any
obligations on the Company to retain any Participant as a director nor shall it
impose on the part of any Participant to remain as a director of the Company.
13.4 Withholding of Taxes. The Company shall have the right to deduct from
any payment to be made to a Participant, or to otherwise require, prior to the
issuance or delivery
25
<PAGE>
of any shares of Common Stock or the payment of any cash hereunder, payment by
the Participant of, any Federal, state or local taxes required by law to be
withheld. Upon the vesting of Restricted Stock or upon making an election under
Code Section 83(b), a Participant shall pay all required withholding to the
Company.
The Committee may permit any such statutory withholding obligation with
regard to any Eligible Employee to be satisfied by reducing the number of shares
of Common Stock otherwise deliverable or by delivering shares of Common Stock
already owned.
13.5 Listing and Other Conditions.
(a) As long as the Common Stock is listed on a national securities
exchange or system sponsored by a national securities association, the
issue of any shares of Common Stock pursuant to an Award shall be
conditioned upon such shares being listed on such exchange or system. The
Company shall have no obligation to issue such shares unless and until
such shares are so listed, and the right to exercise any Option with
respect to such shares shall be suspended until such listing has been
effected.
(b) If at any time counsel to the Company shall be of the opinion
that any sale or delivery of shares of Common Stock pursuant to an Award
is or may in the circumstances be unlawful or result in the imposition of
excise taxes on the Company under the statutes, rules or regulations of
any applicable jurisdiction, the Company shall have no obligation to make
such sale or delivery, or to make any application or to effect or to
maintain any qualification or registration under the Securities Act of
1933, as amended, or otherwise with respect to shares of Common Stock or
Awards, and the right to exercise any Option shall be suspended until, in
the opinion of said counsel, such sale or delivery shall be lawful or will
not result in the imposition of excise taxes on the Company.
(c) Upon termination of any period of suspension under this Section
13.5, any Award affected by such suspension which shall not then have
expired or terminated shall be reinstated as to all shares available
before such suspension and as to shares which would otherwise have become
available during the period of such suspension, but no such suspension
shall extend the term of any Option.
13.6 Governing Law. This Plan shall be governed and construed in
accordance with the laws of the State of Delaware (regardless of the law that
might otherwise govern under applicable Delaware principles of conflict of
laws).
13.7 Construction. Wherever any words are used in this Plan in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
26
<PAGE>
13.8 Other Benefits. No Award payment under this Plan shall be deemed
compensation for purposes of computing benefits under any retirement plan of the
Company or its subsidiaries nor affect any benefits under any other benefit plan
now or subsequently in effect under which the availability or amount of benefits
is related to the level of compensation.
13.9 Costs. The Company shall bear all expenses included in administering
this Plan, including expenses of issuing Common Stock pursuant to any Awards
hereunder.
13.10 No Right to Same Benefits. The provisions of Awards need not be the
same with respect to each Participant, and such Awards to individual
Participants need not be the same in subsequent years.
13.11 Death/Disability. The Committee may in its discretion require the
transferee of a Participant to supply it with written notice of the
Participant's death or Disability and to supply it with a copy of the will (in
the case of the Participant's death) or such other evidence as the Committee
deems necessary to establish the validity of the transfer of an Option. The
Committee may also require that the agreement of the transferee to be bound by
all of the terms and conditions of the Plan.
13.12 Section 16(b) of the Exchange Act. All elections and transactions
under the Plan by persons subject to Section 16 of the Exchange Act involving
shares of Common Stock are intended to comply with all exemptive conditions
under Rule 16b-3. The Committee may establish and adopt written administrative
guidelines, designed to facilitate compliance with Section 16(b) of the Exchange
Act, as it may deem necessary or proper for the administration and operation of
the Plan and the transaction of business thereunder.
13.13 Severability of Provisions. If any provision of the Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Plan shall be construed and enforced
as if such provisions had not been included.
13.14 Headings and Captions. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.
27
<PAGE>
ARTICLE XIV.
AMENDED EFFECTIVE DATE OF PLAN
The U.S. Industries, Inc. Stock Option Plan initially became effective on
April 13, 1995 and the Plan initially became effective on February 8, 1996. The
Plan was restated effective December 3, 1996 and February 3, 1997. This
restatement incorporates amendments effective on or before June 11, 1998 which
reflect, among other things, the consummation of the Mergers and the 3 for 2
stock split of the Company's Common Stock in the form of a 50% stock dividend
which was paid on September 23, 1997 and certain other amendments made as part
of this restatement.
ARTICLE XV.
TERM OF PLAN
No Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the earlier of the date the Initial Plan is adopted or the date
of stockholder approval, but Awards granted prior to such tenth anniversary may
extend beyond that date.
ARTICLE XVI.
NAME OF PLAN
This Plan shall be known as the "Amended U.S. Industries, Inc. Stock
Option Plan."
28
Exhibit 10.11
U.S. INDUSTRIES, INC.
RESTRICTED STOCK PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I. PURPOSE....................................................1
ARTICLE II. DEFINITIONS................................................1
ARTICLE III. ADMINISTRATION.............................................3
ARTICLE IV. SHARE AND OTHER LIMITATIONS................................5
ARTICLE V. ELIGIBILITY................................................7
ARTICLE VI. AWARDS OF RESTRICTED STOCK.................................7
ARTICLE VII. NON-TRANSFERABILITY........................................10
ARTICLE VIII. CHANGE IN CONTROL PROVISIONS...............................10
ARTICLE IX. TERMINATION OR AMENDMENT OF THE PLAN.......................11
ARTICLE X. UNFUNDED PLAN..............................................12
ARTICLE XI. GENERAL PROVISIONS.........................................12
ARTICLE XII. EFFECTIVE DATES OF PLAN....................................14
ARTICLE XIII. TERM OF PLAN...............................................15
ARTICLE XIV. NAME OF PLAN...............................................15
<PAGE>
U.S. Industries, Inc.
Restricted Stock Plan
ARTICLE I.
PURPOSE
The purpose of this U.S. Industries, Inc. Restricted Stock Plan (the
"Plan") is to enhance the profitability and value of U.S. Industries, Inc. for
the benefit of its stockholders by enabling the Company to offer Restricted
Stock to key employees of the Company and its Subsidiaries (as defined herein),
thereby creating a means to raise and maintain the level of stock ownership by
key employees in order to attract, retain and reward such key employees and
strengthen the mutuality of interests between key employees and the Company's
stockholders. Awards of Restricted Stock will be made to key employees for
outstanding achievement and whose continued performance will likely enhance the
future value of the Company. Awards may also be made to key employees in special
situations such as promotions, new hiring or in connection with acquisitions.
The Plan is effective as of the date set forth in Article XII and is an
amendment and restatement of the U.S. Industries, Inc. 1997 Restricted Stock
Plan (the "Initial Plan"), which was initially effective December 3, 1996
ARTICLE II.
DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
2.1 "Board" shall mean the Board of Directors of the Company.
2.2 "Change in Control" shall have the meaning set forth in Article
VIII.
2.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.4 "Company" shall mean U.S. Industries, Inc. and any successor
by merger, consolidation or otherwise.
2.5 "Committee" shall mean a committee of the Board appointed from
time to time by the Board, which committee shall be intended to consist of
two or more non-employee directors, each of whom shall be, to the extent
required by Rule 16b-3 promulgated under Section 16(b) of the Exchange Act
as then in effect or any successor provisions ("Rule 16b-3"), a
"non-employee director" as defined in Rule 16b-3, except
<PAGE>
that, if and to the extent that no Committee exists which has the
authority to administer the Plan, the functions of the Committee shall be
exercised by the Board. If for any reason the appointed Committee does not
meet the requirements of Rule 16b-3, such noncompliance with the
requirements of Rule 16b-3 shall not affect the validity of the awards,
grants, interpretations or other actions of the Committee.
2.6 "Common Stock" means, subject to Section 4.2 herein, the Common
Stock, $.01 par value per share, of the Company.
2.7 "Subsidiary" shall mean any subsidiary of the Company as defined
in Section 424(f) of the Code.
2.8 "Effective Dates of the Plan" shall have the meaning set forth
in Article XII herein.
2.9 "Eligible Employees" shall mean the employees of the Company and
its Subsidiaries who are eligible pursuant to Article V for awards of
Restricted Stock under this Plan.
2.10 "Exchange Act" shall mean the Securities Exchange Act of 1934.
2.11 "Participant" shall mean an Eligible Employee to whom an award
of Restricted Stock has been made pursuant to this Plan.
2.12 "Restricted Stock" shall mean an award of shares of Common
Stock under the Plan that is subject to restrictions under Article VI.
2.13 "Vesting Period" shall have the meaning set forth in Subsection
6.3(a).
2.14 "Termination of Employment" shall mean (1) a termination of
service (for reasons other than a military or personal leave of absence
granted by the Company or a Subsidiary, as applicable) of a Participant
from the Company and its Subsidiaries; or (2) when an entity which is
employing a Participant ceases to be a Subsidiary, unless the Participant
thereupon becomes employed by the Company or another Subsidiary.
2.15 "Transfer" or "Transferred" shall mean anticipate, alienate,
attach, sell, assign, pledge, encumber, charge or otherwise transfer.
2
<PAGE>
ARTICLE III.
ADMINISTRATION
3.1 The Committee. The Plan shall be administered and interpreted by the
Committee.
3.2 Awards of Restricted Stock. The Committee shall have full authority to
grant, pursuant to the terms of this Plan, awards of Restricted Stock to
Eligible Employees. In particular, the Committee shall have the authority:
(a) to select the Eligible Employees to whom awards of Restricted
Stock may from time to time be granted hereunder;
(b) to determine whether and to what extent awards of Restricted
Stock are to be granted hereunder to one or more Eligible Employees;
(c) to determine the number of shares of Restricted Stock to be
covered by each award of Restricted Stock to an Eligible Employee granted
hereunder; and
(d) to determine the terms and conditions, not inconsistent with the
terms of this Plan, of any award of Restricted Stock granted hereunder to
an Eligible Employee (including, but not limited to any restriction or
limitation, any vesting schedule or acceleration thereof, or any
forfeiture restrictions or waiver thereof, based on such factors, if any,
as the Committee shall determine, in its sole discretion).
3.3 Guidelines. Subject to Article IX hereof, the Committee shall have the
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing this Plan and perform all acts, including the delegation of
its administrative responsibilities, as it shall, from time to time, deem
advisable; to construe and interpret the terms and provisions of this Plan and
any award of Restricted Stock issued under this Plan (and any agreements
relating thereto); and to otherwise supervise the administration of this Plan.
The Committee may correct any defect, supply any omission or reconcile any
inconsistency in this Plan or in any agreement relating thereto in the manner
and to the extent it shall deem necessary to carry this Plan into effect but
only to the extent any such action would be permitted under the applicable
provisions of Rule 16b-3. The Committee may adopt special guidelines and
provisions for persons who are residing in, or subject to, the taxes of,
countries other than the United States to comply with applicable tax and
securities laws. To the extent applicable, this Plan is intended to comply with
the applicable requirements of Rule 16b-3 and shall be limited, construed and
interpreted in a manner so as to comply therewith.
3.4 Decisions Final. Any decision, interpretation or other action made or
taken in good faith by or at the direction of the Company, the Board, or the
Committee (or any of its members) arising out of or in connection with the Plan
shall be within the absolute discretion
3
<PAGE>
of all and each of them, as the case may be, and shall be final, binding and
conclusive on the Company and all employees and Participants and their
respective heirs, executors, administrators, successors and assigns.
3.5 Reliance on Counsel. The Company, the Board or the Committee may
consult with legal counsel, who may be counsel for the Company or other counsel,
with respect to its obligations or duties hereunder, or with respect to any
action or proceeding or any question of law, and shall not be liable with
respect to any action taken or omitted by it in good faith pursuant to the
advice of such counsel.
3.6 Procedures. If the Committee is appointed, the Board of Directors
shall designate one of the members of the Committee as chairman and the
Committee shall hold meetings, subject to the By-Laws of the Company, at such
times and places as it shall deem advisable. A majority of the Committee members
shall constitute a quorum. All determinations of the Committee shall be made by
a majority of its members. Any decision or determination reduced to writing and
signed by all the Committee members in accordance with the By-Laws of the
Company, shall be fully as effective as if it had been made by a vote at a
meeting duly called and held. The Committee shall keep minutes of its meetings
and shall make such rules and regulations for the conduct of its business as it
shall deem advisable.
3.7 Designation of Consultants/Liability.
(a) The Committee may designate employees of the Company and
professional advisors to assist the Committee in the administration of the
Plan and may grant authority to employees to execute agreements or other
documents on behalf of the Committee.
(b) The Committee may employ such legal counsel, consultants and
agents as it may deem desirable for the administration of the Plan and may
rely upon any opinion received from any such counsel or consultant and any
computation received from any such consultant or agent. Expenses incurred
by the Committee or Board in the engagement of any such counsel,
consultant or agent shall be paid by the Company. The Committee, its
members and any person designated pursuant to paragraph (a) above shall
not be liable for any action or determination made in good faith with
respect to the Plan. To the maximum extent permitted by applicable law, no
officer of the Company or member or former member of the Committee or of
the Board shall be liable for any action or determination made in good
faith with respect to the Plan or any award of Restricted Stock granted
under it. To the maximum extent permitted by applicable law and the
Certificate of Incorporation and By-Laws of the Company and to the extent
not covered by insurance, each officer and member or former member of the
Committee or of the Board shall be indemnified and held harmless by the
Company against any cost or expense (including reasonable fees of counsel
reasonably acceptable to the Company) or liability (including any sum paid
in settlement of a claim with the approval of the Company), and advanced
amounts necessary to pay the foregoing at the
4
<PAGE>
earliest time and to the fullest extent permitted, arising out of any act
or omission to act in connection with the Plan, except to the extent
arising out of such officer's, member's or former member's own fraud or
bad faith. Such indemnification shall be in addition to any rights of
indemnification the officers, directors or members or former officers,
directors or members may have under applicable law or under the
Certificate of Incorporation or By-Laws of the Company or Subsidiary.
Notwithstanding anything else herein, this indemnification will not apply
to the actions or determinations made by an individual with regard to
awards of Restricted Stock granted to him or her under this Plan.
ARTICLE IV.
SHARE AND OTHER LIMITATIONS
4.1 Shares.
(a) Subject to subsection (b) below, the aggregate number of shares
of Common Stock which may be issued under this Plan with respect to any
award of Restricted Stock shall not exceed 875,000 shares (subject to any
increase or decrease pursuant to Section 4.2) which may be either
authorized and unissued Common Stock or Common Stock held in or acquired
for the treasury of the Company or both.
(b) Notwithstanding the foregoing, no award of Restricted Stock may
be granted hereunder if such grant would cause the number of shares of
Common Stock (i) granted under this Plan and which are subject to a
Vesting Period, (ii) granted under the Amended U.S. Industries, Inc. Stock
Option Plan (the "Stock Option Plan") and which are subject to a
Restriction Period (as defined in the Stock Option Plan) or, (iii) in the
case of an option granted under the Stock Option Plan, may be acquired
pursuant to exercise of such option, to exceed 9.9 percent of the total
number of shares of Common Stock issued and outstanding (assuming full
dilution for all other outstanding equity based awards granted under the
Stock Option Plan and equity convertible into Common Stock, including,
without limitation warrants), determined as of the close of the most
recent fiscal quarter of the Company, in accordance with generally
accepted accounting principles.
(c) If any shares of Restricted Stock awarded under this Plan to a
Participant are forfeited for any reason, the number of forfeited shares
of Restricted Stock shall again be available for purposes of granting
awards of Restricted Stock under the Plan.
5
<PAGE>
4.2 Changes.
(a) The existence of the Plan and the award of Restricted Stock
granted hereunder shall not affect in any way the right or power of the
Board or the stockholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business, any merger or consolidation
of the Company or Subsidiaries, any issue of bonds, debentures, preferred
or prior preference stock ahead of or affecting Common Stock, the
dissolution or liquidation of the Company or Subsidiaries, any sale or
transfer of all or part of its assets or business or any other corporate
act or proceeding.
(b) In the event of any change in the capital structure or business
of the Company by reason of any recapitalization, reorganization, merger,
consolidation, split-up, combination, exchange of shares or any similar
change affecting the Company's capital structure or business then the
aggregate number and kind of shares which thereafter may be issued under
this Plan shall be appropriately adjusted consistent with such change in
such manner as the Committee may deem equitable to prevent substantial
dilution or enlargement of the rights granted to, or available for,
Participants under this Plan, and any such adjustment determined by the
Committee in good faith shall be binding and conclusive on the Company and
all Participants and employees and their respective heirs, executors,
administrators, successors and assigns.
(c) Fractional shares resulting from adjustment pursuant to Sections
4.2(a) or (b) shall be eliminated by rounding down for fractions less than
one-half (1/2) and rounding up for fractions equal to or greater than
one-half (1/2).
(d) Upon consummation of the mergers contemplated by the Agreement
and Plan of Merger dated February 16, 1998, as amended, among U.S.
Industries, Inc., USI, Inc., Blue Merger Corp., Zoro Merger Corp., and
Zurn Industries, Inc. (the "Merger Agreement") the Plan shall be assumed
by USI, Inc. ("New USI") and upon the assumption of this Plan by New USI:
(i) Common Stock as used in this Plan shall mean the Common Stock, $.01
par value per share, of New USI, (ii) the Board shall mean the Board of
New USI, and (iii) each share of Company Common Stock awarded pursuant to
this Plan shall automatically be converted into shares of New USI Common
Stock in accordance with Section 2.9 of the Merger Agreement.
4.3 Purchase Price. Notwithstanding any provision of this Plan to the
contrary, if authorized but previously unissued shares of Common Stock are
issued under this Plan, such shares shall not be issued for a consideration
which is less than par value except as otherwise permitted pursuant to
applicable law.
6
<PAGE>
ARTICLE V.
ELIGIBILITY
Senior officers, senior management and other key employees of the Company
and its Subsidiaries are eligible to be granted awards of Restricted Stock under
this Plan. Eligibility under this Plan shall be determined by the Committee.
ARTICLE VI.
AWARDS OF RESTRICTED STOCK
6.1 Awards of Restricted Stock. Subject to Section 4.1 and this Article
VI, shares of Restricted Stock may be issued to Eligible Employees under the
Plan. The Committee shall determine the eligible persons to whom, and the time
or times at which, grants of Restricted Stock will be made, the number of shares
to be awarded, the price (if any) to be paid by the recipient (subject to
Section 6.2), the time or times within which such award of Restricted Stock may
be subject to forfeiture and the rights to acceleration thereof (subject to
Section 6.3), and all other terms and conditions of the award of Restricted
Stock.
6.2 Awards of Restricted Stock and Certificates. The prospective
Participant selected to receive a Restricted Stock Award shall not have any
rights with respect to such award of Restricted Stock, unless and until such
Participant has delivered a fully executed copy of the Restricted Stock Award
agreement evidencing the award of Restricted Stock to the Company and has
otherwise complied with the applicable terms and conditions of such award of
Restricted Stock. Further, such award of Restricted Stock shall be subject to
the following conditions:
(a) Purchase Price. The purchase price of Restricted Stock shall be
fixed by the Committee. Subject to Section 4.3, the purchase price for
shares of Restricted Stock may be zero to the extent permitted by
applicable law, and, to the extent not so permitted, such purchase price
may not be less than par value.
(b) Acceptance. Awards of Restricted Stock must be accepted within a
period of sixty (60) days (or such shorter period as the Committee may
specify at grant) after the date of grant of the award of Restricted
Stock, by executing a Restricted Stock Award agreement and by paying
whatever price (if any) the Committee has designated thereunder.
(c) Legend. Each Participant receiving an award of Restricted Stock
shall be issued a stock certificate in respect of such shares of
Restricted Stock, unless the Committee elects to use another system, such
as book entries by the transfer agent, as evidencing ownership of an award
of Restricted Stock. Such
7
<PAGE>
certificate shall be registered in the name of such Participant, and shall
bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award of Restricted Stock, substantially
in the following form:
"The anticipation, alienation, attachment, sale, transfer,
assignment, pledge, encumbrance or charge of the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the U.S. Industries, Inc. (the "Company") Restricted Stock
Plan and an Agreement entered into between the registered owner and the
Company dated __________. Copies of such Plan and Agreement are on file at
the principal office of the Company."
(d) Custody. If stock certificates are issued in respect of shares
of Restricted Stock, the Committee shall require that any stock
certificates evidencing such shares be held in custody by the Company
until the restrictions thereon shall have lapsed, and that, as a condition
of any award of Restricted Stock, the Participant shall have delivered a
duly signed stock power, endorsed in blank, relating to the Common Stock
covered by such award of Restricted Stock.
6.3 Restrictions and Conditions on Awards of Restricted Stock. The shares
of Restricted Stock awarded pursuant to this Plan shall be subject to Article
VII and the following restrictions and conditions:
(a) Vesting Period and Acceleration of Vesting. (i) The Restricted
Stock awarded under this Plan shall be subject to forfeiture (or, if a
purchase price had been paid pursuant to Section 6.2(a) above, repurchase
for the purchase price) during a vesting period set by the Committee (the
"Vesting Period") commencing with the date of such award of Restricted
Stock. Except as otherwise provided in Section 8.1 hereof or as provided
by the Committee, in its sole discretion, in the Restricted Stock Award
agreement at the time of grant, the Vesting Period for Restricted Stock
shall be (as determined by the Committee) either:
(x) seven years provided that one seventh of a Participant's
grant of Restricted Stock shall vest on an annual basis upon the
attainment of objective performance goals established by the
Committee pursuant to Section 6.3(a)(ii) below, except that in the
grant the Committee may include terms that provide Committee
discretion not to vest Restricted Stock upon attainment of the
performance goals; or
(y) (i) three years from the date of the grant with respect to
one-third of the grant, (ii) five years from the date of grant with
respect to one-third of the grant, and (iii) seven years from
8
<PAGE>
the date of grant with respect to one-third of the grant, with any
fractional share resulting from the foregoing vesting schedule to be
eliminated by adding a whole share to the first vesting date;
provided that the restrictions to which the shares of Restricted
Stock to be vested pursuant to the foregoing subsections (ii) and
(iii) are subject shall lapse upon a Participant's voluntary or
involuntary (other than cause) Termination of Employment if on the
date of termination the Participant has attained the age of
sixty-two (62) and such Termination of Employment has not occurred
prior to the third anniversary of the grant.
After the grant of a Restricted Stock Award the Committee may
accelerate the vesting of all or any part of such award in connection with
the occurrence of a Termination of Employment or such other extraordinary
events as determined by the Committee in its sole discretion, but in no
other instance.
(ii) Objective Performance Goals, Formulae or Standards (the
"Performance Goals"). The Committee shall establish the objective
Performance Goals applicable to each Participant or class of Participants
in writing prior to the beginning of the applicable performance period or
at such later date as otherwise determined by the Committee and while the
outcome of the Performance Goals are substantially uncertain. Such
Performance Goals may incorporate provisions for disregarding (or
adjusting for) changes in accounting methods, corporate transactions
(including, without limitation, dispositions and acquisitions) and other
similar type events or circumstances.
(b) Rights as Stockholder. Except as provided in this subsection (b)
and subsection (a) above and as otherwise determined by the Committee, the
Participant shall have, with respect to the shares of Restricted Stock,
all of the rights of a holder of shares of Common Stock of the Company
including, without limitation, the right to receive any dividends, the
right to vote such shares and, subject to and conditioned upon the vesting
of shares of Restricted Stock, the right to tender such shares.
(c) Lapse of Restrictions. If and when the Vesting Period expires
without a prior forfeiture of the Restricted Stock subject to such Vesting
Period, the certificates for such shares shall be delivered to the
Participant. All legends shall be removed from said certificates at the
time of delivery to the Participant, except as otherwise required by
applicable law.
6.4 Termination of Employment for Restricted Stock. Unless otherwise
determined by the Committee at grant or thereafter, upon a Participant's
Termination of Employment for any reason during the relevant Vesting Period, all
Restricted Stock still subject to restriction will be forfeited.
9
<PAGE>
ARTICLE VII.
NON-TRANSFERABILITY
Shares of Restricted Stock may not be Transferred prior to the date on
which the applicable Vesting Period lapses, except to the extent, if at all,
that the Committee may, in accordance with the terms and provisions of the Plan,
determine at the time of grant or thereafter that an award of Restricted Stock
that is otherwise not Transferable pursuant to this Article VII is Transferable
in whole or in part and in such circumstances, and under such conditions, as
specified by the Committee. Except as otherwise specifically provided by law or
herein, no share of Restricted Stock shall be Transferable in any manner prior
to the date on which the applicable Vesting Period lapses, and any attempt to
transfer any share prior to the date on which the applicable Vesting Period
lapses shall be void, and no award of Restricted Stock shall in any manner be
liable for or subject to the debts, contracts, liabilities, engagements or torts
of any person who shall be entitled to such award, nor shall it be subject to
attachment or legal process for or against such person.
ARTICLE VIII.
CHANGE IN CONTROL PROVISIONS
8.1 Benefits. In the event of a Change in Control of the Company (as
defined below), except as otherwise provided by the Committee upon the grant of
an award of Restricted Stock, the restrictions to which any shares of Restricted
Stock granted to a Participant prior to the Change in Control are subject shall
lapse as if the applicable Vesting Period had ended upon such Change in Control.
8.2 Change in Control. A "Change in Control" shall be deemed to have
occurred upon:
(a) any "person" as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under any employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of Common Stock
of the Company), becoming the owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the combined voting
power of the Company's then outstanding securities;
(b) during any period of two consecutive years individuals who at
the beginning of such period constitute the Board of Directors, and any
new director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in
paragraph (a), (c), or (d) of this section)
10
<PAGE>
whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of
the directors then still in office who either were directors at the
beginning of the two-year period or whose election or nomination for
election was previously so approved, cease for any reason to constitute at
least a majority of the Board of Directors;
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent (50%) of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; provided, however, that a merger or consolidation effected
to implement a recapitalization of the Company (or similar transaction) in
which no person acquires more than twenty-five percent (25%) of the
combined voting power of the Company's then outstanding securities shall
not constitute a Change in Control of the Company; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets other than
the sale or disposition of all or substantially all of the assets of the
Company to a person or persons who beneficially own, directly or
indirectly, at least fifty percent (50%) or more of the combined voting
power of the outstanding voting securities of the Company at the time of
the sale, including, but not limited to any entity which is, directly or
indirectly, owned (based on normal issue voting interests or capital
interests) after completion of the transaction at least fifty percent
(50%) by the ultimate shareholders of the Company.
ARTICLE IX.
TERMINATION OR AMENDMENT OF THE PLAN
9.1 Termination or Amendment. Notwithstanding any other provision of this
Plan, the Board may at any time, and from time to time, amend, in whole or in
part, any or all of the provisions of the Plan (including any amendment deemed
necessary to ensure that the Company may comply with any regulatory requirement
referred to in Article XI), or suspend or terminate it entirely, retroactively
or otherwise; provided, however, that, unless otherwise required by law or
specifically provided herein, the rights of a Participant with respect to an
award of Restricted Stock granted prior to such amendment, suspension or
termination, may not be impaired without the consent of such Participant. In no
event may the Plan be amended without the approval of the stockholders of the
Company in accordance with the applicable laws of the State of Delaware to
increase the aggregate number of shares of Common Stock that may be issued under
the Plan or to make any other amendment that would require
11
<PAGE>
stockholder approval under the rules of any exchange or system on which the
Company's securities are listed or traded at the request of the Company.
The Committee may amend the terms of any award of Restricted Stock
theretofore granted, prospectively or retroactively, but, subject to Article IV
above or as otherwise specifically provided herein, no such amendment or other
action by the Committee shall impair the rights of any holder without the
holder's consent.
ARTICLE X.
UNFUNDED PLAN
10.1 Unfunded Status of Plan. This Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments as to which a Participant has a fixed and vested interest but which are
not yet made to a Participant by the Company, nothing contained herein shall
give any such Participant any rights that are greater than those of a general
creditor of the Company.
ARTICLE XI.
GENERAL PROVISIONS
11.1 Legend. The Committee may require each person receiving shares
pursuant to an award of Restricted Stock under the Plan to represent to and
agree with the Company in writing that the Participant is acquiring the shares
without a view to distribution thereof. In addition to any legend required by
this Plan, the certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on Transfer.
All certificates for shares of Common Stock delivered under the Plan shall
be subject to such stock transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed or any national securities association system upon whose
system the Common Stock is then quoted, any applicable Federal or state
securities law, and any applicable corporate law, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
11.2 Other Plans. Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required and such arrangements may be
either generally applicable or applicable only in specific cases.
12
<PAGE>
11.3 No Right to Employment. Neither this Plan nor the grant of any award
of Restricted Stock hereunder shall give any Participant or other employee any
right with respect to continuance of employment by the Company or any
subsidiary, nor shall they be a limitation in any way on the right of the
Company or any subsidiary by which an employee is employed to terminate his
employment at any time.
11.4 Withholding of Taxes. The Company shall have the right to deduct from
any payment to be made to a Participant, or to otherwise require, prior to the
issuance or delivery of any shares of Common Stock or the payment of any cash
hereunder, payment by the Participant of, any federal, state or local taxes
required by law to be withheld. Upon the vesting of Restricted Stock, or upon
making an election under Code Section 83(b), a Participant shall pay all
required withholding to the Company.
The Committee may permit any such statutory withholding obligation with
regard to any Eligible Employee to be satisfied by reducing the number of shares
of Common Stock otherwise deliverable or by delivering shares of Common Stock
already owned.
11.5 Listing and Other Conditions.
(a) As long as the Common Stock is listed on a national securities
exchange or system sponsored by a national securities association, the
issue of any shares of Common Stock pursuant to an award of Restricted
Stock shall be conditioned upon such shares being listed on such exchange
or system. The Company shall have no obligation to issue such shares
unless and until such shares are so listed.
(b) If at any time counsel to the Company shall be of the opinion
that any sale or delivery of shares of Common Stock pursuant to an award
of Restricted Stock is or may in the circumstances be unlawful or result
in the imposition of excise taxes on the Company under the statutes, rules
or regulations of any applicable jurisdiction, the Company shall have no
obligation to make such sale or delivery, or to make any application or to
effect or to maintain any qualification or registration under the
Securities Act of 1933, as amended, or otherwise with respect to shares of
Common Stock or awards of Restricted Stock.
(c) Upon termination of any period of suspension under this Section
11.5, any award of Restricted Stock affected by such suspension which
shall not then have expired or terminated shall be reinstated as to all
shares available before such suspension and as to shares which would
otherwise have become available during the period of such suspension.
11.6 Governing Law. This Plan shall be governed and construed in
accordance with the laws of the State of Delaware (regardless of the law that
might otherwise govern under applicable Delaware principles of conflict of
laws).
13
<PAGE>
11.7 Construction. Wherever any words are used in this Plan in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
11.8 Other Benefits. No award of Restricted Stock payment under this Plan
shall be deemed compensation for purposes of computing benefits under any
retirement plan of the Company or its subsidiaries nor affect any benefits under
any other benefit plan now or subsequently in effect under which the
availability or amount of benefits is related to the level of compensation.
11.9 Costs. The Company shall bear all expenses included in administering
this Plan, including expenses of issuing Common Stock pursuant to any award of
Restricted Stock hereunder.
11.10 No Right to Same Benefits. The provisions of an award of Restricted
Stock need not be the same with respect to each Participant, and such awards of
Restricted Stock to individual Participants need not be the same in subsequent
years.
11.11 Section 16(b) of the Exchange Act. All elections and transactions
under the Plan by persons subject to Section 16 of the Exchange Act involving
shares of Common Stock are intended to comply with all exemptive conditions
under Rule 16b-3. The Committee may establish and adopt written administrative
guidelines, designed to facilitate compliance with Section 16(b) of the Exchange
Act, as it may deem necessary or proper for the administration and operation of
the Plan and the transaction of business thereunder.
11.12 Severability of Provisions. If any provision of the Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Plan shall be construed and enforced
as if such provisions had not been included.
11.13 Headings and Captions. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.
ARTICLE XII.
EFFECTIVE DATES OF PLAN
The U.S. Industries, Inc. 1997 Restricted Stock Plan initially became
effective on December 3, 1996. This restatement incorporating Amendment Number
One to the Plan and certain other changes made at the time of this restatement
is effective on June 11, 1998.
14
<PAGE>
ARTICLE XIII.
TERM OF PLAN
No award of Restricted Stock shall be granted pursuant to the Plan on or
after the tenth anniversary of the earlier of the effective date of the Initial
Plan or the date of stockholder approval, but awards of Restricted Stock granted
prior to such tenth anniversary may extend beyond that date.
ARTICLE XIV.
NAME OF PLAN
This Plan shall be known as the "U.S. Industries, Inc. Restricted Stock
Plan."
15
Exhibit 21.1
As of 12/09/98
U.S. Industries, Inc.
---------------------
Subsidiaries Place of Incorporation
- ------------ ----------------------
AMV S.A. France
Architectural Area Lighting Inc. Delaware
Arrow Consolidated Corporation Pennsylvania
Asteria Company California
Atlantic Pools, Inc. Ontario
BB Investments United Kingdom
Bearing Inspection Holdings Inc. Delaware
Bearing Inspection, Inc. California
BiltBest of California, Inc. Delaware
BiltBest Products, Inc. Delaware
Britains Petite Limited United Kingdom
Carisbrook Industries Inc. Delaware
Columbia Lighting - LCA, Inc. Delaware
Columbia Lighting Properties, Inc. Michigan
Columbia Lighting, Inc. Delaware
Cosco Fire Protection Systems California
Devco-Cubatao, Inc. Delaware
Durango Boot Company, Inc. Delaware
Eclipse Magnetics Limited United Kingdom
EJ Footwear Corp. New York
Elektrokovina Svetilke d.o.o. Slovenia
Elektrokovina Technica d.o.o. Slovenia
Elgin Handles, Limited Ontario
Eljer Industries, Inc. Delaware
Eljer Industries, LTD United Kingdom
Eljer Manufacturing Canada, Inc. Canada
Eljer Plumbingware, Inc. Delaware
Environmental Energy Company California
Ertl de Mexico S.A. de C.V. Mexico
Ertl Italia S.r.L. Italy
Ertl (Europe) Limited United Kingdom
Ertl (Hong Kong) Limited Hong Kong
EZ Holdings, inc. Delaware
Firetol Protection Systems, Inc. Utah
FSM Europe B.V. Netherlands
Garden State Tanning de Mexico,
S.A. De C.V. Mexico
Garden State Tanning Inc. Delaware
Garden State Tanning (Michigan) Inc. Michigan
Georgia Boot Inc. Delaware
NYFS11...:\95\78595\0001\2041\EXHD148S.440
<PAGE>
Georgia Boot Properties, Inc. Michigan
Hartwell Brothers Limited Canada
HL Capital Corp. California
HM Lehigh Safety Shoe Co., Inc. Pennsylvania
Huron Inc. Delaware
Hypertechnic Engineering Sdn. Bhd. Malaysia
Industrias Eljer de Mexico S.A. de C.V. Mexico
Irondale Holdings, Inc. Alabama
Irondale Manufacturing Company, Inc. Alabama
IXL Manufacturing, Inc. Missouri
Jacuzzi Asia Pacific Pty Ltd Australia
Jacuzzi do Brazil Industria e
Commercio Ltda. Brazil
Jacuzzi Inc. Delaware
Jacuzzi Investments Ltd. United Kingdom
Jacuzzi Singapore Pte Ltd Singapore
Jacuzzi Spain S.R.L. Spain
Jacuzzi Sweden, AB Sweden
Jacuzzi Universal S.A. Mexico
Jacuzzi Whirlpool Bath, Inc. California
Jacuzzi Whirlpool GmbH Germany
Jacuzzi (Chile) S.A. Chile
Jacuzzi (Europe) S.p.A. Italy
Jacuzzi (Ireland) Ltd. Ireland
Jacuzzi (U.K.) Limited United Kingdom
Jade Holdings Pte Ltd Singapore
Jade Technologies Europe B.V. Netherlands
Jade Technologies Singapore Ltd. Singapore
James Neill Canada Inc. Toronto
James Neill Holdings Limited Cardiff
James Neill U.S.A. Inc. Illinois
James Neill (New Zealand) Limited New Zealand
JNU International (Australia) Pty Ltd Australia
JUSI Holdings, Inc. Delaware
Keller Ladders, Inc. Delaware
Kim Lighting Inc. Delaware
Knoblich-Licht Ges. mbH Austria
Lehigh Safety Shoe Co. Delaware
Lehigh Safety Shoe Properties, Inc. Michigan
Leon Plastics Inc. Delaware
Lighting Corporation of America Delaware
Lighting Corporation of the Americas
S.A. de C.V. Mexican Republic
Lokelani Development Corporation Delaware
Maili Kai Land Development Corporation Delaware
Markbalance plc Cardiff
Monet Products, Inc. California
Native Textiles Inc. Delaware
2
<PAGE>
Neill Tools Limited United Kingdom
Nepco of Australia, Inc. Washington
Nepco of Canada, Inc. Delaware
New Bathcraft, Inc. Georgia
Northlake Boot Company Inc. Delaware
Offertower plc Cardiff
O. Ames Co. Delaware
O. Ames Properties, Inc. Michigan
PH Property Development Company Delaware
Prescolite-Moldcast Lighting Company Delaware
Progress Lighting Inc. Delaware
Progress Lighting Properties, Inc. Michigan
Redmont, Inc. Delaware
Rexair Holdings Inc. Delaware
Rexair, Inc. Delaware
Sanitary Dash Manufacturing, Inc. Connecticut
SAWS International Inc. Illinois
SCF Industries, Inc. Alabama
Selkirk Canada U.S.A., Inc. Delaware
Selkirk Europe U.S.A., Inc. Delaware
Selkirk Manufacturing France S.A.R.L. France
Selkirk Manufacturing Limited United Kingdom
Selkirk Schomsteintechnik GMRM Germany
Selkirk, Inc. Delaware
Selkirk S.R.L. Italy
SF Springs Properties, Inc. Delaware
Siteco Beleuchtungstechnik GmbH Germany
Siteco Holdings GmbH Germany
Societe Neill France S.A. France
Societe Rectilor S.A. France
Spaulding Lighting, Inc. Delaware
Spear and Jackson International Limited United Kingdom
Spear and Jackson Garden Products Limited United Kingdom
Spear & Jackson Holdings Limited United Kingdom
Spear & Jackson plc United Kingdom
Spear & Jackson, Inc. Oregon
Sundance Spas, Inc. Califoria
The Ertl Company, Inc. Delaware
Trimfoot Co. Delaware
United States Brass Corporation Delaware
USI American Holdings, Inc. Delaware
USI Atlantic Corp. Delaware
USI Canada Inc. Ontario
USI Capital, Inc. Delaware
USI Export Inc. Barbados
USI Funding, Inc. Delaware
USI G-Kapital GbR Germany
USI Mayfair Limited United Kingdom
3
<PAGE>
USI Overseas Holdings Limited United Kingdom
USI Properties, Inc. Delaware
USI Realty Corp. Delaware
Val Industria e Commercio Ltda Brazil
Zurco, Inc. Delaware
Zurn Asia Holdings Limited Cayman Islands
Zurn Asia Limited Cayman Islands
Zurn Constructors, Inc. California
Zurn Development Company, Ltd. Ontario
Zurn EPC Services, Inc. Washington
Zurn Export, Inc. Virgin Islands
Zurn Industries Asia Holdings Limited Cayman Islands
Zurn Industries Asia Limited Cayman Islands
Zurn Industries Limited Canada
Zurn Industries, Inc. Pennsylvania
Zurn (Cayman Islands), Inc. Delaware
4
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements on
Form S-8 Nos. 333-47101, 333-56615 and 333-56675 of U.S. Industries, Inc., of
our report dated November 12, 1998 with respect to the consolidated financial
statements and schedule of U.S Industries, Inc. and subsidiaries included in its
Annual Report on Form 10-K for the year ended September 30, 1998, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
December 14, 1998
NYFS11...:\95\78595\0001\2041\EXHD148P.360
Exhibit 23.2
Consent of PricewaterhouseCoopers LLP
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-47101, 333-56615, 333-56675) of U.S.
Industries, Inc. of our report dated November 14, 1997 appearing on page 24 of
the U.S Industries, Inc. Annual Report on Form 10-K for the year ended September
30, 1998
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Florham Park, New Jersey
December 11, 1998
NYFS11...:\95\78595\0001\2041\EXHD148S.320
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-END> OCT-03-1998
<CASH> 44
<SECURITIES> 0
<RECEIVABLES> 697
<ALLOWANCES> (45)
<INVENTORY> 589
<CURRENT-ASSETS> 1,443
<PP&E> 1,043
<DEPRECIATION> (505)
<TOTAL-ASSETS> 2,812
<CURRENT-LIABILITIES> 636
<BONDS> 947
0
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<COMMON> 1
<OTHER-SE> 959
<TOTAL-LIABILITY-AND-EQUITY> 2,812
<SALES> 3,310
<TOTAL-REVENUES> 3,310
<CGS> 2,307
<TOTAL-COSTS> 2,307
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<LOSS-PROVISION> 8
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<DISCONTINUED> (46)
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<CHANGES> 0
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