<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 1, 2000
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: 1-14557
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 Identification No.)
incorporation or organization)
101 WOOD AVENUE SOUTH
ISELIN, NJ 08830
(Address of principal executive offices)
(732) 767-0700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes |X| No |_|
As of February 3, 2000, U.S. Industries, Inc. had one class of common stock, of
which 85,786,013 shares were outstanding.
<PAGE>
U.S. INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations
for the Three Months Ended December 31, 1999 and 1998.......... 1
Consolidated Condensed Balance Sheets, December 31, 1999
and September 30, 1999......................................... 2
Consolidated Condensed Statements of Cash Flows
for the Three Months Ended December 31, 1999 and 1998.......... 3
Notes to Consolidated Condensed Financial Statements........... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................... 16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk. .................................................. 20
PART II.OTHER INFORMATION
Item 6. Exhibits ...................................................... 21
SIGNATURES .................................................................. 22
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
U.S. INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in millions except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------
1999 1998
----- -----
<S> <C> <C>
Net Sales $ 791 $ 750
Operating costs and expenses:
Cost of products sold 546 526
Selling, general and administrative expenses 192 171
----- -----
Operating income 53 53
Interest expense 23 18
Interest income (1) (1)
Other income, net (1) --
----- -----
Income before income taxes and discontinued operations 32 36
Provision for income taxes 12 14
----- -----
Income from continuing operations 20 22
Income from discontinued operations, net of tax -- 1
----- -----
Net income $ 20 $ 23
===== =====
Earnings per basic share:
Income from continuing operations $0.23 $0.23
Income from discontinued operations -- 0.01
----- -----
Net income $0.23 $0.24
===== =====
Earnings per diluted share:
Income from continuing operations $0.23 $0.22
Income from discontinued operations -- 0.01
----- -----
Net income $0.23 $0.23
===== =====
Cash dividend declared per share $0.05 $0.05
===== =====
</TABLE>
See notes to consolidated condensed financial statements.
1
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------ -------------
(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 42 $ 58
Trade receivables, net 595 667
Inventories 659 631
Deferred income taxes 68 68
Other current assets 65 67
------ ------
Total current assets 1,429 1,491
Property, plant and equipment, net 579 597
Deferred income taxes 6 6
Other assets 196 185
Goodwill, net 736 749
------ ------
$2,946 $3,028
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 34 $ 33
Current maturities of long-term debt 355 15
Trade accounts payable 221 278
Accrued expenses and other liabilities 253 302
Income taxes payable 30 29
------ ------
Total current liabilities 893 657
Long-term debt 916 1,219
Other liabilities 217 232
------ ------
Total liabilities 2,026 2,108
Commitments and contingencies
Stockholders' equity 920 920
------ ------
$2,946 $3,028
====== ======
</TABLE>
See notes to consolidated condensed financial statements.
2
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in millions-unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------
1999 1998
------- ------
<S> <C> <C>
OPERATING ACTIVITIES:
Income from continuing operations $ 20 $ 22
Adjustments to reconcile income from continuing operations to net cash
provided by operating activities of continuing operations:
Depreciation and amortization 29 24
Provision for doubtful accounts 1 1
Gain on sale of excess real estate (3) --
Changes in operating assets and liabilities,
excluding the effects of acquisitions and dispositions (78) 3
------- ------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
OF CONTINUING OPERATIONS (31) 50
------- ------
Income from discontinued operations -- 1
Decrease in net assets held for disposition -- 11
------- ------
NET CASH PROVIDED BY DISCONTINUED OPERATIONS -- 12
------- ------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (31) 62
------- ------
INVESTING ACTIVITIES:
Proceeds from sale of businesses 17 4
Acquisition of companies, net of cash acquired (7) --
Purchases of property, plant and equipment (22) (23)
Proceeds from sale of excess real estate 6 --
Other investing activities (1) --
------- ------
NET CASH USED IN INVESTING ACTIVITIES (7) (19)
------- ------
FINANCING ACTIVITIES:
Proceeds from long-term debt 619 466
Repayment of long-term debt (571) (473)
Repayment of notes payable, net -- (1)
Purchase of treasury stock (15) --
Payment of dividends (4) (5)
Payment to settle interest rate lock agreements -- (22)
------- ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 29 (35)
Effect of exchange rate changes on cash and cash equivalents (7) (1)
------- ------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (16) 7
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 58 44
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 42 $ 51
======= ======
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 1999
NOTE 1-BASIS OF PRESENTATION
U.S. Industries, Inc. ("USI" and, together with its subsidiaries,
the "Company") manufactures and distributes a broad range of building and
home products, consumer products and industrial products through four
operating divisions: USI Bath and Plumbing Products, Lighting Corporation of
America, USI Hardware and Tools and USI Diversified. The accompanying
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information, Article 10 of
Regulation S-X and with the instructions to Form 10-Q. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The interim
financial data for the three months ended December 31, 1999 and 1998 are
unaudited and, in the opinion of management, reflect all necessary
adjustments for a fair presentation of the financial position and results of
operations for the interim periods on a consistent basis. Such adjustments
were of a normal and recurring nature. The results of operations for the
three month periods ended December 31, 1999 are not necessarily indicative of
those for the full fiscal year ending September 30, 2000. For further
information, refer to the Consolidated Financial Statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year
ended September 30, 1999.
The Company's fiscal year ends on the Saturday nearest to September
30. All three month data contained herein reflect results of operations for
the 13-week periods ended on the Saturday closest to December 31, 1999 and
1998, respectively, but are presented as of such date for convenience.
NOTE 2-INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(IN MILLIONS)
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
Finished products $330 $301
Work-in process 114 115
Raw materials 215 215
---- ----
$659 $631
==== ====
</TABLE>
4
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 3-LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(IN MILLIONS)
DECEMBER 31, SEPTEMBER 30,
1999 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
7.125% Senior Notes, net $ 248 $ 248
7.25% Senior Notes, net 123 123
Revolving credit facility, US dollar 326 300
Revolving credit facility, foreign currencies 270 279
Commercial paper 216 167
Other short-term borrowings 36 55
Other long-term debt 52 62
------- -------
1,271 1,234
Less current maturities (355) (15)
------- -------
Long-term debt $ 916 $ 1,219
======= =======
</TABLE>
The 7.25% Notes and the 7.125% Notes (collectively, the "Notes")
[, along with the revolving credit facility,] are joint and several
obligations of USI, USI Global Corp. ("USI Global") and USI American
Holdings, Inc. ("USIAH"), and are guaranteed by USI Atlantic Corp. ("USI
Atlantic") (see Note 11). USI Global and USI Atlantic are wholly-owned
subsidiaries of USI. USIAH is a wholly-owned subsidiary of USI Atlantic. The
Notes are unsecured, but the indentures place restrictions on liens and
subsidiary indebtedness. The Notes are redeemable at the option of the Company.
The Company has a five year revolving line of credit providing for
borrowings of up to an aggregate amount of $650 million (the "Credit
Agreement"). The revolving credit commitment will be permanently reduced by $150
million in December 2000. As of December 31, 1999, the Company had $54 million
available under its revolving line of credit.
During fiscal 1999, the Company commenced a $300 million commercial
paper program, of which $216 million was outstanding at December 31, 1999. The
commercial paper is supported by a $300 million 364 day facility which expires
October 27, 2000.
The Company had approximately $138 million of unused availability
under its committed facilities and $199 million under uncommitted lines of
credit at December 31, 1999. However, the Credit Agreement contains certain
covenant restrictions that limit the amount of indebtedness the Company can
incur. Although the Company had a total of $337 million in unused
availability, it could have only incurred an additional $110 million in
indebtedness at December 31, 1999, before exceeding the specified Credit
Agreement restrictions on its debt to total capital ratio.
NOTE 4-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 47 sites. In addition, the Company has been named as a Potentially
Responsible Party ("PRP") at 20 "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
5
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 4-COMMITMENTS AND CONTINGENCIES (Continued)
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, to
the extent of contamination and the nature of required remedial actions. Such
reserves 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 accrued will be paid out over the
periods of remediation for the applicable sites which range up to 30 years and
that all 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 December 31, 1999, the Company had accrued $17 million for known
environmental related matters. The Company believes that the range of liability
for such matters is between $9 million and $26 million.
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 will not have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
During October 1999, the Company entered into equity instrument
contracts that were utilized to purchase approximately $40 million of the
Company's common stock. At the discretion of the Company, such contracts can
be settled by the Company in cash, shares or a combination of both, at
anytime prior to October 20, 2000.
The purchase price of the Spear & Jackson acquisition that occurred in
December 1997 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 the maximum payout of
(pound sterling)47 million.
NOTE 5-SEGMENT DATA
The following table presents information about the Company by segment:
<TABLE>
<CAPTION>
(IN MILLIONS)
FOR THE THREE MONTHS ENDED DECEMBER 31,
-------------------------------------------------
1999 1998 1999 1998
----------- ----------- ---------- ----------
NET SALES OPERATING INCOME
----------------------- ------------------------
<S> <C> <C> <C> <C>
Business Segments:
Bath and Plumbing Products $ 302 $ 264 $ 25 $ 24
Lighting Corporation of America 196 192 9 11
Hardware and Tools 91 73 4 1
Diversified 202 221 19 22
----------- ----------- ---------- ----------
Totals $ 791 $ 750 57 58
=========== ===========
Corporate expenses (4) (5)
---------- ----------
Total Operating Income 53 53
Interest expense 23 18
Interest income (1) (1)
Other income, net (1) -
---------- ----------
Income before income taxes 32 36
Provision for income taxes 12 14
---------- ----------
Income from continuing operations $ 20 $ 22
========== ==========
</TABLE>
6
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 6-COMPREHENSIVE INCOME
The components of the Company's comprehensive income were as follows:
<TABLE>
<CAPTION>
(IN MILLIONS - UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
Net income $ 20 $ 23
Foreign currency translation adjustment (5) (2)
---- ----
Comprehensive income $ 15 $ 21
==== ====
</TABLE>
NOTE 7-EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share calculation:
<TABLE>
<CAPTION>
(IN MILLIONS EXCEPT PER SHARE DATA) (IN MILLIONS EXCEPT PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
----------- -----------
INCOME FROM INCOME FROM
CONTINUING PER SHARE CONTINUING PER SHARE
OPERATIONS SHARES AMOUNT OPERATIONS SHARES AMOUNT
------------- --------- --------- ----------- --------- ---------
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings per basic share $ 20 85.0 $ 0.23 $ 22 96.6 $ 0.23
Effect of dilutive securities
Stock options 0.5 0.7
Nonvested restricted stock 1.1 0.7
------------- --------- --------- ----------- --------- ---------
Earnings per diluted share $ 20 86.6 $ 0.23 $ 22 98.0 $ 0.22
============= ========= ========= =========== ========= =========
</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
approximately 3.1 million and 1.9 million shares in the three months ended
December 31, 1999 and December 31, 1998, respectively, were not included in the
computation of earnings per share because the options exercise prices were
greater than the average market price of the common shares for those periods.
7
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 8-MERGER, RESTRUCTURING AND OTHER RELATED COSTS
During fiscal 1998, as a result of reviewing its long-term strategy
in conjunction with the Zurn merger, the Company recorded a restructuring charge
in order to improve efficiency and enhance competitiveness. During the third
quarter of fiscal 1999, the Company's footwear operations expanded its 1998
restructuring plan and closed a second domestic manufacturing facility. At
December 31, 1999, $6 million of cash related restructuring charges remained in
accrued liabilities, detailed as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
LEASE AND
CONTRACT SEVERANCE
RELATED AND RELATED TOTAL
COSTS COSTS COSTS
----------- ----------- ------------
<S> <C> <C> <C>
Balance at September 30, 1999 3 5 8
Cash payments (1) (1) (2)
----------- ----------- ------------
Balance at December 31, 1999 $ 2 $ 4 $ 6
=========== =========== ============
</TABLE>
The restructuring at a number of facilities, which began during the
third quarter of fiscal 1998, was substantially completed during the third
quarter of fiscal 1999. In addition, during the third quarter of fiscal 1999,
the Company adjusted certain severance reserves amounting to $1 million,
primarily due to voluntary departures prior to final termination.
The Company expects the remaining cash charges of $6 million to be
paid by the respective lease termination date and over the periods provided by
severance agreements.
NOTE 9-DISPOSITION OF BUSINESSES
During the first quarter of fiscal 2000, the Company disposed of
assets relating to its ladder operations and the infant and children footwear
operation. The total proceeds on these separate transactions was $17 million,
resulting in a loss of approximately $1 million, which is included in other
income, net. The Company has retained certain liabilities of the ladder and
footwear operations.
NOTE 10-SUBSEQUENT EVENTS
On January 18, 2000, the Company announced that is has signed
agreements to sell its Diversified business unit to Vectura Holdings LLC, a
Citicorp Venture Capital portfolio company for gross proceeds of approximately
$600 million.
The transaction is expected to close in March 2000. At closing
the Company will receive approximately $400 million of cash proceeds and $200
million in notes. The cash consideration will be satisfied by $95 million to
be provided by the purchaser and its affiliates and approximately $300
million to be provided from bank borrowings. The purchaser will also assume
approximately $9 million of existing bank debt of the Diversified unit. It is
expected that the Diversified unit will make a high yield offering after the
closing in order to repurchase from the Company the $200 million in notes.
The final purchase price will be subject to working capital adjustments as of
closing.
The Company will retain an equity interest of 18.6% in the
Diversified unit, and an additional 25% direct interest in the Diversified
unit's Rexair vacuum cleaner operation. The Company expects an after-tax gain of
approximately $15 million which will be recorded in the second quarter of fiscal
2000.
In addition, in conjunction with the closing of the transaction,
the Company will guarantee a $200 million five year credit facility of the
Diversified unit's Rexair operation, with Rexair, however, primarily
responsible for the repayment of this debt. This guarantee will be in place
for a five year period from the closing date. The expected after-tax gain on
the Rexair sale of approximately $50 million will be deferred until the
guarantee expires.
8
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 10-SUBSEQUENT EVENTS (Continued)
The Company expects to utilize the proceeds from the sale to reduce
debt, repurchase shares and for general corporate purposes.
Separately, in January 2000, the Company sold its fire protection
businesses which are included in the Bath and Plumbing segment, Cosco Fire
Protection, Inc. and Firetrol Protection Systems, Inc., for approximately $23
million in cash and expects an after-tax gain of approximately $1 million which
will be recorded in the second quarter of fiscal 2000.
In addition, in January 2000 the Company adopted a plan to close the
Bath and Plumbing Corporate office in Dallas, Texas. The Company notified
affected employees during the month of January 2000. In connection with the
decision, the Company expects to record an after-tax charge in the range of $7
million to $9 million relating to severance costs, asset impairment and lease
related costs in the second quarter of fiscal 2000.
NOTE 11-SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The following represents the supplemental consolidating condensed
financial statements of USI, USI Global 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 December 31, 1999 and
September 30, 1999 and for the three months ended December 31, 1999 and 1998.
Separate consolidated financial statements of USI, USI Global, USI Atlantic and
USIAH are not presented, as management has determined that they would not be
material to investors.
9
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 11-SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
(IN MILLIONS - UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
------------------------------------------------------------------------------------
USI USI NONGUARANTOR
USI GLOBAL ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ - $ - $ - $ - $ 791 $ - $ 791
Operating costs and expenses:
Cost of products sold - - - - 546 - 546
Selling, general and administrative expenses 4 - - - 188 - 192
----------- ----------- -------- ----------- ---------- ---------- ----------
Operating income (loss) (4) - - - 57 - 53
Interest expense 10 11 - - 2 - 23
Interest income - - - - (1) - (1)
Intercompany interest, net (3) (17) - - 20 - -
Other (income) expense, net - - - - (1) - (1)
Other intercompany credits (charges) - 15 - (15) - - -
Equity in earnings of investees, net (27) (13) (9) - - 49 -
----------- ----------- -------- ----------- ---------- ---------- ----------
Income before income taxes and
discontinued operations 16 4 9 15 37 (49) 32
Provision (benefit) for income taxes (4) (4) - 6 14 - 12
----------- ----------- -------- ----------- ---------- ---------- ----------
Income from continuing operations 20 8 9 9 23 (49) 20
Income from discontinued operations, net of tax - - - - - - -
----------- ----------- -------- ----------- ---------- ---------- ----------
Net income (loss) $ 20 $ 8 $ 9 $ 9 $ 23 $ (49) $ 20
=========== =========== ======== =========== ========== ========== ==========
</TABLE>
10
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 11-SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
(IN MILLIONS - UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------
USI NONGUARANTOR
USI ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ - $ - $ - $ 750 $ - $ 750
Operating costs and expenses:
Cost of products sold - - - 526 - 526
Selling, general and administrative expenses 5 - - 166 - 171
---------- ---------- ---------- ---------- ----------- -----------
Operating income (loss) (5) - - 58 - 53
Interest expense 6 - 9 3 - 18
Interest income - - - (1) - (1)
Intercompany interest, net (3) - (13) 16 - -
Other (income) expense, net - - - - - -
Other intercompany credits (charges) - - - - - -
Equity in earnings of investees, net (28) (20) (17) - 65 -
---------- ---------- ---------- ---------- ----------- -----------
Income before income taxes and
discontinued operations 20 20 21 40 (65) 36
Provision (benefit) for income taxes (3) - 1 16 - 14
---------- ---------- ---------- ---------- ----------- -----------
Income from continuing operations 23 20 20 24 (65) 22
Income from discontinued operations, net of tax - - - 1 - 1
---------- ---------- ---------- ---------- ----------- -----------
Net income (loss) $ 23 $ 20 $ 20 $ 25 $ (65) $ 23
========== ========== ========== ========== =========== ===========
</TABLE>
11
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 11-SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
(IN MILLIONS -UNAUDITED)
AT DECEMBER 31, 1999
-----------------------------------------------------------------------------------------
USI USI NONGUARANTOR
USI GLOBAL ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ----------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ - $ - $ - $ 42 $ - $ 42
Trade receivables, net - - - - 595 - 595
Inventories - - - - 659 - 659
Deferred income taxes 31 - - - 37 - 68
Other current assets 4 3 - - 58 - 65
---------- ------------ ----------- ---------- ----------- ------------- -----------
Total current assets 35 3 - - 1,391 - 1,429
Property, plant and equipment, net - 1 - - 578 - 579
Deferred income taxes (2) - - - 8 - 6
Other assets 8 7 - 908 181 (908) 196
Goodwill, net - - - - 736 - 736
Investments in subsidiaries 1,414 1,348 932 - - (3,694) -
Intercompany receivable (payable), net 41 441 33 24 (539) - -
---------- ------------ ----------- ---------- ----------- ------------- -----------
Total assets $ 1,496 $ 1,800 $ 965 $ 932 $ 2,355 $ (4,602) $ 2,946
========== ============ =========== ========== =========== ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ - $ - $ - $ - $ 34 $ - $ 34
Current maturities of long-term debt 237 111 - - 7 - 355
Trade accounts payable 1 - - - 220 - 221
Accrued expenses and other liabilities 12 41 - - 200 - 253
Income taxes payable 30 - - - - - 30
---------- ------------ ----------- ---------- ----------- ------------- -----------
Total current liabilities 280 152 - - 461 - 893
Long-term debt 296 576 - - 44 - 916
Other liabilities - 51 - - 166 - 217
---------- ------------ ----------- ---------- ----------- ------------- -----------
Total liabilities 576 779 - - 671 - 2,026
Commitments and contingencies
Stockholders' equity 920 1,021 965 932 1,684 (4,602) 920
---------- ------------ ----------- ---------- ----------- ------------- -----------
Total liabilities and stockholders' equity $ 1,496 $ 1,800 $ 965 $ 932 $ 2,355 $ (4,602) $ 2,946
========== ============ =========== ========== =========== ============= ===========
</TABLE>
12
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 11-SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
(IN MILLIONS)
AT SEPTEMBER 30, 1999
---------------------------------------------------------------------------------------
USI USI NONGUARANTOR
USI GLOBAL ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ --------- --------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ - $ - $ - $ 58 $ - $ 58
Trade receivables, net - - - - 667 - 667
Inventories - - - - 631 - 631
Deferred income taxes 31 - - - 37 - 68
Other current assets 6 - - - 61 - 67
------------ ------------ --------- --------- ------------ ------------ -----------
Total current assets 37 - - - 1,454 - 1,491
Property, plant and equipment, net - 1 - - 596 - 597
Deferred income taxes (2) - - - 8 - 6
Other assets 7 6 - 908 172 (908) 185
Goodwill, net - - - - 749 - 749
Investments in subsidiaries 1,372 1,341 923 - - (3,636) -
Intercompany receivable (payable), net 24 444 33 15 (516) - -
------------ ------------ --------- --------- ------------ ------------ -----------
Total assets $ 1,438 $ 1,792 $ 956 $ 923 $ 2,463 $ (4,544) $ 3,028
============ ============ ========= ========= ============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ - $ - $ - $ - $ 33 $ - $ 33
Current maturities of long-term debt - - - - 15 - 15
Trade accounts payable 2 - - - 276 - 278
Accrued expenses and other liabilities 10 38 - - 254 - 302
Income taxes payable 29 - - - - - 29
------------ ------------ --------- --------- ------------ ------------ -----------
Total current liabilities 41 38 - - 578 - 657
Long-term debt 477 695 - - 47 - 1,219
Other liabilities - 51 - - 181 - 232
------------ ------------ --------- --------- ------------ ------------ -----------
Total liabilities 518 784 - - 806 - 2,108
Commitments and contingencies
Stockholders' equity 920 1,008 956 923 1,657 (4,544) 920
------------ ------------ --------- --------- ------------ ------------ -----------
Total liabilities and stockholders' equity $ 1,438 $ 1,792 $ 956 $ 923 $ 2,463 $ (4,544) $ 3,028
============ ============ ========= ========= ============ ============ ===========
</TABLE>
13
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 11-SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
(IN MILLIONS - UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
---------------------------------------------------------------------------------
USI USI NONGUARANTOR
USI GLOBAL ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $ (2) $ (6) $ - $ - $ (23) $ - $ (31)
INVESTING ACTIVITIES:
Proceeds from sale of businesses - - - - 17 - 17
Acquisition of companies, net of cash acquired - - - - (7) - (7)
Purchases of property, plant and equipment - - - - (22) - (22)
Proceeds from sale of excess real estate - - - - 6 - 6
Net transfers with subsidiaries (36) (30) - - - 66 -
Other investing activities - - - - (1) - (1)
--------- ---------- ---------- --------- --------- ---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (36) (30) - - (7) 66 (7)
FINANCING ACTIVITIES:
Proceeds from long-term debt 619 - - - - - 619
Repayment of long-term debt (562) - - - (9) - (571)
Repayment of notes payable, net - - - - - - -
Payment of dividends (4) - - - - - (4)
Payment to settle interest rate lock agreements - - - - - - -
Purchase of treasury stock (15) - - - - - (15)
Net transfers with parent - 36 - - 30 (66) -
--------- ---------- ---------- --------- --------- ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 38 36 - - 21 (66) 29
Effect of exchange rate changes on cash and
cash equivalents - - - - (7) - (7)
--------- ---------- ---------- --------- --------- ---------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS - - - - (16) - (16)
Cash and cash equivalents at beginning of period - - - - 58 - 58
--------- ---------- ---------- --------- --------- ---------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ - $ - $ - $ - $ 42 $ - $ 42
========= ========== ========== ========= ========= ========== ===========
</TABLE>
14
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 11-SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
(IN MILLIONS - UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
---------------------------------------------------------------------
USI NONGUARANTOR
USI ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 10 $ (8) $ 7 $ 53 $ - 62
INVESTING ACTIVITIES:
Proceeds from the sale of businesses - - - 4 - 4
Acquisition of companies, net of cash acquired - - - - - -
Purchases of property, plant and equipment - - - (23) - (23)
Proceeds from sale of excess real estate - - - - - -
Net transfers with subsidiaries (27) - 28 - (1) -
Other investing activities - - - - - -
----------- --------- ---------- ---------- ---------- -----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (27) - 28 (19) (1) (19)
FINANCING ACTIVITIES:
Proceeds from long-term debt 430 - 36 - - 466
Repayment of long-term debt (386) - (87) - - (473)
Repayment of notes payable, net - - - (1) - (1)
Payment of dividends (5) - - - - (5)
Payment to settle interest rate lock agreements (22) - - - - (22)
Purchase of treasury stock - - - - - -
Net transfers with parent - 8 19 (28) 1 -
----------- --------- ---------- ---------- ---------- -----------
NET CASH (USED IN) PROVIDED BY 17 8 (32) (29) 1 (35)
FINANCING ACTIVITIES
Effect of exchange rate changes on cash and cash equivalents - - (3) 2 - (1)
----------- --------- ---------- ---------- ---------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS - - - 7 - 7
Cash and cash equivalents at beginning of period - - - 44 - 44
----------- --------- ---------- ---------- ---------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ - $ - $ - $ 51 $ - $ 51
=========== ========= ========== ========== ========== ===========
</TABLE>
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 classified as discontinued, are
excluded from the table below for all periods presented and are discussed
separately under Discontinued Operations.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(IN MILLIONS)
THREE MONTHS ENDED
DECEMBER 31,
-------------------
1999 1998
----- -----
<S> <C> <C>
NET SALES
Bath and Plumbing Products ..................... $ 302 $ 264
Lighting Corporation of America ................ 196 192
Hardware and Tools ............................. 91 73
Diversified .................................... 202 221
----- -----
TOTAL NET SALES ............................... $ 791 $ 750
===== =====
OPERATING INCOME
Bath and Plumbing Products ..................... $ 25 $ 24
Lighting Corporation of America ................ 9 11
Hardware and Tools ............................. 4 1
Diversified .................................... 19 22
----- -----
57 58
Corporate expenses ............................... (4) (5)
----- -----
TOTAL OPERATING INCOME ........................ $ 53 $ 53
===== =====
</TABLE>
DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in
the following Management's Discussion or elsewhere in this Quarterly Report 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. Such forward-looking statements include, without limitation, the
statements set forth in Outlook below. 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, 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 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 market synergies and cost savings from the
integration 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.
THREE MONTHS ENDED DECEMBER 31, 1999
COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1998
INTRODUCTION
The Company had sales of $791 and operating income of $53 million for
the quarter ended December 31, 1999, compared to sales of $750 million and an
operating income of $53 million for the same period in the prior year. Sales
increased $41 million (5%) while operating income remained unchanged compared to
the first quarter of fiscal 1999.
16
<PAGE>
The Bath and Plumbing Products Operations had sales of $302 million and
operating income of $25 million for the first quarter December 31, 1999,
increases of $38 million (14%) and $1 million (4%), respectively, from the first
quarter of fiscal 1999. The increase in sales was primarily attributable to the
first time inclusion of Spring Ram, acquired July 1999, and Gatsby Spas,
acquired June 1999 as well as continued strength in the U.S. bath and spa
operations and in the Home Center market, partially offset by the absence of
sales of the water resource business which was sold in September 1999 and
unfavorable exchange rate impact at foreign bath and spa operations. The
increase in operating income was due to the first time inclusion of the Spring
Ram business as well as continued strength in the U.S. bath and spa operations,
partially offset by weakness at U.S. Brass and the HVAC businesses. In addition,
unfavorable exchange rates negatively impacted the operating income at several
foreign bath and spa operations.
The Lighting Products Operations had sales of $196 million and
operating income of $9 million for the first quarter December 31, 1999, an
increase of $4 million (2%) and a decrease of $2 million (18%), respectively,
from the first quarter of fiscal 1999. The increase in sales is primarily due to
the inclusion of the Dual-Lite business, acquired in March 1999, partially
offset by lower fluorescent and recessed lighting sales and a decline in the
European lighting business. The sales decline in the European lighting business
was largely driven by unfavorable currency translation. The decrease in
operating income was primarily attributable to losses incurred in eliminating
certain low margin products, unfavorable exchange rate and pricing pressures at
the European lighting business.
The Hardware and Tools Operations had sales of $91 million and
operating income of $4 million for the first quarter December 31, 1999,
increases of $18 million (25%) and $3 million, respectively, compared to the
first quarter of fiscal 1999. The increase in sales is primarily due to the
inclusion and integration of the True Temper business acquired in March 1999,
partially offset by the absence of sales of the ladder business sold in October
1999. The increase in operating income is primarily attributable to the first
time inclusion and integration synergies of True Temper and the elimination of
losses at the ladder business, partially offset by lowers profits at Ames as the
implementation of new systems caused delays in December shipments.
The Diversified Operations had sales of $202 million and operating
income of $19 million for the first quarter December 31, 1999, decreases of $19
million (9%) and $3 million (14%) compared to the first quarter of fiscal 1999.
The decrease in sales and operating income are mainly the result of decreases at
the automotive leather and shadow mask operations, and to a lesser extent the
textile and footwear operations. The automotive leather operation sales and
operating income suffered from unfavorable commodity prices while the shadow
mask operation had lower sales and operating income. The vacuum cleaner business
reported a modest increase in operating income despite lower sales. The
automotive plastic operations reported higher sales and operating income, while
the automotive metal components and the aircraft overhaul operations reported
both flat sales and operating income from the prior year.
OTHER INCOME, NET
Included in Other income, net in fiscal 2000 were gains on real estate
transactions of approximately $3 million partially offset by the loss on sale
associated with the separate sales of the ladder operations and the infant and
children footwear operation of $1 million and other miscellaneous costs.
INTEREST AND TAXES
Interest expense was $23 million for the quarter ended December 31, 1999, a
$5 million (28%) increase from the comparable period of fiscal 1999. The
increase was due to higher borrowing as a result of funding acquisitions and the
Company's share repurchase program coupled with slightly higher average interest
rates. Interest income was $1 million for both years.
The provision for income taxes on continuing operations was $12 million for
the quarter ended December 31, 1999, on pre-tax income of $32 million (an
effective tax rate of approximately 38%) compared to a $14 million provision on
pre-tax income of $36 million (an effective tax rate of approximately 39%) in
the comparable period of fiscal 1999. The decrease in the effective tax rate, as
adjusted, is attributable to continued tax planning.
DISCONTINUED OPERATIONS
In fiscal 1999, discontinued operations consisted of income from
operations of Ertl, which was subsequently disposed in the second quarter of
fiscal 1999.
17
<PAGE>
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, commercial paper
program, and uncommitted short-term lines of credit.
Net cash used in operating activities of $31 million for the three
months ended December 31, 1999 compared to net cash provided of $62 million for
the comparable period of prior year. In the current period, continuing
operations used $31 million compared to providing $50 million in the comparable
period of the prior year. This change relates primarily to working capital
investments at recently acquired businesses, settlements of certain obligations
at the Bath and Plumbing division, increased tax and interest payments, as well
as timing and seasonal cash requirements at certain of the Company's operations.
Net cash provided by discontinued operations of $12 million at
December 31, 1998, was the result of seasonal working capital requirements at
The Ertl Company, which was sold in April 1999.
Net cash used in investing activities of $7 million for the three
months ended December 31, 1999, which primarily consisted of net cash of $7
million used for acquisitions and $22 million for capital expenditures, offset
by the net proceeds of $17 million from the separate sales of the Company's
ladder operations and the infant and children footwear operation and $6 million
from the sale of excess real estate. In the three months ended December 31,
1998, the Company used net cash of $19 million, which primarily consisted of $23
million used for capital expenditures, offset by $4 million in partial proceeds
from the sale of the Power Systems Segment.
Net cash provided by financing activities was $29 million for the
three months ended December 31, 1999. This included proceeds from long-term debt
in excess of repayments of $48 million, partially offset by dividend payments of
$4 million, and the purchase of $15 million of the Company's common stock for
treasury. In the corresponding period of the prior year financing activities
used net cash of $35 million, which included repayments of long-term debt in
excess of borrowings and repayment of notes payable of $8 million, the payment
to settle interest rate lock agreements of $22 million and dividend payments of
$5 million.
The Company expected to utilize the proceeds for the sale of the
Diversified business to reduce debt, repurchase shares and general corporate
purposes. The Company ended the December 31, 1999 quarter with current
maturities of long-tem debt of $355 million. The Company expects to use the
proceeds from the sale of the Diversified business to pay current maturities.
The Company has a five year revolving line of credit providing for
borrowings of up to an aggregate amount of $650 million (the "Credit
Agreement"). The revolving credit commitment will be permanently reduced by $150
million in December 2000. As of December 31, 1999, the Company had $54 million
available under its revolving line of credit.
The Company believes that cash provided by operations and availability
under unused credit facilities and commercial paper program will adequately
support cash needs for working capital, capital expenditures for existing
businesses and future principal payments on outstanding borrowings.
Total stockholders' equity remain unchanged from September 30, 1999,
principally due to Company's repurchase of Common Stock for treasury which
amounted to $15 million and dividends declared of $4 million, offset by net
income of $20 million.
During the three months ended December 31, 1999, the Company paid
approximately $2 million related to its restructuring plans announced in fiscal
1998 and 1999. There have been no material changes in the nature or costs of the
restructuring.
As of February 2000, after giving effect to the anticipated sale of
the Diversified business, the Company's existing senior debt ratings were
Baa2 with Moody's Investors Service, BBB- with Standard & Poor's Ratings
Group, and BBB with Duff & Phelps Credit Rating Co.
During fiscal 1999, the Board of Directors authorized share
repurchase programs aggregating $300 million. As of December 31, 1999, the
Company has purchased $204 million of its common stock in accordance with the
total authorized share repurchase program of $300 million. Accordingly, as of
December 31, 1999, the Company has authorization to purchase up to $96
million of its common stock. Subsequent to December 31, 1999, the Company has
purchased an additional $17 million of its common stock for treasury. During
October 1999, the Company entered into equity instrument contracts that were
utilized to purchase approximately $40 million of the Company's common stock.
At the discretion of the Company, such contracts can be settled by the
Company in cash, shares or a combination of both, at anytime prior to October
20, 2000. Share repurchases are made at prices deemed acceptable to
management. The
18
<PAGE>
funding for the repurchase program will be from cash provided from operations
and available borrowings under the Company's existing credit facilities.
In August 1999, the Company's shelf registration statement on Form S-3
filed with the Commission in order to register $600 million in debt securities
became effective. The Company expects to issue debt securities covered by this
registration statement in the future subject to market conditions.
SALE OF DIVERSIFIED BUSINESS
On January 18, 2000 the Board of Directors of the Company abandoned the
previously announced spin-off of its Diversified businesses and approved the
sale of the Diversified business unit to Vectura Holdings LLC, a Citicorp
Venture Capital portfolio company for gross proceeds of approximately $600
million. These businesses include Rexair, Inc. ("Rainbow" brand vacuum
cleaners); Garden State Tanning, Inc. and Leon Plastics, Inc. (automotive
interiors); EJ Footwear Corp. (including Georgia Boot Inc., and Lehigh Safety
Shoe Company (industrial protective footwear)); Huron Inc. and Bearing
Inspection, Inc. (precision engineering products); Bilt Best Products, Inc.;
Native Textiles Inc. and Jade Technologies Singapore Ltd. These entities had
combined three month December 31, 1999 and fiscal year 1999 revenues of $202
million and $859 million, respectively, and operating income for those periods
of $19 million and $8 million, respectively, (including unusual and other
related charges of $7 million, in fiscal 1999). Excluding USI Diversified and
corporate expenses of $4 million, the Company had revenues of $589 million and
operating income of $38 million for the three months ended December 31, 1999.
Excluding USI Diversified and corporate expenses of $18 million, the Company had
revenues of $2,570 million and operating income of $233 million (including
nonrecurring and unusual charges of $8 million) for fiscal year 1999.
The transaction is expected to close in March 2000. At closing the
Company will receive approximately $400 million of cash proceeds and $200
million in notes. The cash consideration will be satisfied by $95 million to
be provided by the purchaser and its affiliates and approximately $300
million to be provided from bank borrowings. The purchaser will also assume
approximately $9 million of existing bank debt of the Diversified unit. It is
expected that the Diversified unit will make a high yield offering after the
closing in order to repurchase from the Company the $200 million in notes.
The final purchase price will be subject to working capital adjustments as of
closing.
The Company will retain an equity interest of 18.6% in the Diversified
unit, and an additional 25% direct interest in the Diversified unit's Rexair
vacuum cleaner operation. The Company expects an after-tax gain of approximately
$15 million which will be recorded in the second quarter of fiscal 2000.
In addition, in conjunction with the closing of the transaction, the
Company will guarantee a $200 million five year credit facility of the
Diversified unit's Rexair operation, with Rexair, however, primarily
responsible for the repayment of this debt. This guarantee will be in place
for a five year period from the closing date. The expected after-tax gain on
the Rexair sale of approximately $50 million will be deferred until the
guarantee expires.
The Company expects to utilize the proceeds from the sale to reduce
debt, repurchase shares and for general corporate purposes.
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 has addressed the Year 2000 issue, through a compliance
program led by information technology staff at each operating company, with
assistance from the finance and manufacturing staffs and outside technology
consultants where necessary.
The Company's Year 2000 efforts focused 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 spanned
four phases for both critical and non-critical systems: 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. Critical systems are those systems (both IT and non-IT) that
would have a severe impact on the Company's business and revenue if not made
Year 2000 ready. As of December 31, 1999, the Company achieved 100% completion
of all four phases of the Year 2000 project for critical IT and non-IT systems.
19
<PAGE>
The Company evaluated each of its critical and principal customers,
supplier, service providers and other business associates to determine each of
such party's Year 2000-readiness status. These critical and principal third
parties have either material system interfaces or other material relationships
that an operating company is dependent upon. The evaluation of each third party
included a request for a Year 2000 readiness certification. Then, depending upon
each party's response, evaluation procedures were expanded to include obtaining
Year 2000 disclosures contained in SEC filings of those third parties, where
available; testing interfaced systems; holding face-to-face discussions with
third parties; and developing and refining contingency plans to address the
possibility of a third party failure to complete their year 2000 initiatives on
a timely basis.
Year 2000 costs for computer equipment, software and outside
consultants incurred through December 31, 1999 were approximately $42 million,
of which $8 million was expensed and $34 million was capitalized. These costs
have been funded from operating cash flow and available credit facilities. Most
of the costs were for new systems and improved functionality. These costs
include approximately $7 million of internal payroll costs for employees who
were involved in the Year 2000 program.
As of the date of this filing, the Company has not experienced any
material adverse effects on the operations or financial condition of the Company
relating to Year 2000 issues associated with its systems or those of third
parties with whom it has material business relationships. There can be no
assurance, however, that all potential Year 2000 related issues have been
discovered. The Company's Year 2000 project team will continue to monitor
and test systems as necessary.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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 and 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 decrease the Company's pre-tax earnings in fiscal
2000 by approximately $8 million.
The Company utilized foreign currency-denominated borrowings to
selectively hedge its net investments in subsidiaries in foreign countries. Such
borrowings at December 31, 1999 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 $31 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.
20
<PAGE>
PART II. OTHER INFORMATION.
ITEM 6. EXHIBITS
(a) Exhibits
10.1 Stock Purchase Agreement by and among U.S. Industries, Inc.,
JUSI Holdings, Inc., Strategic Industries, LLC and Automotive
Interior Products, LLC dated as of January 15, 2000.*
10.2 Subscription Agreement by and among U.S. Industries, Inc.,
JUSI Holdings, Inc., Strategic Industries, LLC, Strategic
Industries, Inc., and Automotive Interior Products, LLC dated
as of January 15, 2000.*
27 Financial Data Schedule.*
* Filed herewith
- --------------------
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. INDUSTRIES, INC.
Date: February 15, 2000
/s/ John W. Dean III
-------------------------------------
John W. Dean III
Vice President and
Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Robert P. Noonan
-------------------------------------
Robert P. Noonan
Corporate Controller
(Principal Accounting Officer)
22
<PAGE>
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
Dated as of January 15, 2000
The parties to this Securities Purchase Agreement (this "Agreement")
are U.S. Industries, Inc., a Delaware corporation ("USI"), JUSI Holdings, Inc.,
a Delaware corporation that is an indirect wholly-owned subsidiary of USI
("JUSI" and, collectively with USI, the "Seller"), Strategic Industries, LLC, a
Delaware limited liability company (the "Company"), and Automotive Interior
Products, LLC, a Delaware limited liability company (the "Buyer"). Capitalized
terms used in this Agreement without definition have the meanings ascribed to
them in Section 9.14.
In consideration of the mutual agreements set forth below, and
intending to be legally bound hereby, the parties to this Agreement agree as
follows:
ARTICLE I
CORPORATE REORGANIZATION, REPAYMENT OF INTERCOMPANY DEBT,
REDEMPTION OF SHARES, SALE OF UNITS AND RELATED MATTERS
1.01. CORPORATE REORGANIZATION. Prior to the Closing (as defined
below), USI shall cause the actions described in paragraphs (a) through (f)
below to occur, which actions shall result in a reorganization of certain assets
and entities owned directly or indirectly by USI (the "Corporate
Reorganization").
(a) USI shall cause the outstanding capital stock of Atech Turbine
Components, Inc. to be transferred to JUSI.
(b) USI shall cause the Company to adopt the limited liability company
operating agreement substantially in the form attached as ANNEX I hereto (the
"Company Operating Agreement"). The Company Operating Agreement shall provide
for the following classes of membership interests having the terms set forth
therein: (i) Class A Common membership interests (the "Class A Common Units");
(ii) Class B Common membership interests (the "Class B Common Units"); and (iii)
Series A Junior Preferred membership interests (the "Junior Preferred Units").
JUSI initially shall be the sole member of the Company, owning 100% of the Class
A Common Units (318,786 shares valued at $318,786), 100% of the Class B Common
Units (448,614 shares valued at $448,614) and 100% of the Junior Preferred Units
(692,326 shares valued at $69,232,600) issued in exchange for the capital stock
referred to in paragraph (e).
(c) USI shall cause EJ Footwear Corp. ("EJ") to be merged into a newly
formed limited liability company of which JUSI shall be the sole member ("New
EJ"). USI shall also cause each of EJ's direct and indirect subsidiaries to be
merged into a newly formed limited liability company which has as its sole
member, respectively, the limited liability company into which its own direct
parent has been merged.
<PAGE>
(d) USI shall cause all of the assets used in the businesses of but
not already owned by (i) Atech Turbine Components, Inc., (ii) Bearing Inspection
Holdings, Inc., (iii) BiltBest Products, Inc., (iv) Carisbrook Industries, Inc.,
(v) New EJ (other than the proceeds of the sale of its subsidiary, Trimfoot
Company), (vi) Garden State Tanning, Inc., (vii) Huron, Inc., (viii) Jade
Holdings Pte Ltd., (ix) SCF Industries, Inc. and (x) Leon Plastics, Inc. ((i)
through (x) collectively referred to as the "Operating Companies") and each of
the subsidiaries of the Operating Companies that are owned, leased or controlled
by USI and its subsidiaries (other than the Operating Companies and their
subsidiaries), including but not limited to the assets reflected on the Balance
Sheet (as defined in Section 3.06), to be transferred to the appropriate
Operating Company or subsidiary thereof; provided, however, that Seller may
retain any assets or reserves related to a USI Specified Liability (as defined
in the Indemnification Agreement) for which Seller has agreed to indemnify Buyer
pursuant thereto.
(e) USI shall cause all of the capital stock (or, in the case of New
EJ, membership interests) of each of the Operating Companies (other than certain
shares or membership interests retained by JUSI substantially as set forth on
ANNEX II, hereinafter referred to as the "Retained Shares") to be owned directly
by the Company.
(f) USI shall cause Strategic Finance Company, a newly organized
Delaware corporation (the "Finance Company"), to be owned directly by the
Company.
1.02. BANK BORROWING; ISSUANCE OF NOTES; REPAYMENT OF INTERCOMPANY
DEBT AND REDEMPTION OF RETAINED SHARES.
(a) At the Closing, certain of the Operating Companies shall repay or
cause to be repaid by their subsidiaries (the "Repayment") to JUSI and USI
Global Corp., a Delaware corporation ("Global"), an aggregate of approximately
$241 million principal amount of intercompany debt (the "Intercompany Debt") and
shall redeem from JUSI (the "Redemption") the Retained Shares for an aggregate
of approximately $92 million (the "Redemption Consideration"). Prior to the
Closing, the parties shall agree in good faith on the amount, if any, of
Intercompany Debt to be repaid and the number, if any, of Retained Shares to be
redeemed in respect of each Operating Company. The Operating Companies shall
obtain the consideration for the Repayment and the Redemption from the bank
borrowing and issuance of Notes described in paragraphs (b) and (c) below. The
Redemption Consideration shall be subject to adjustment as provided in Section
1.04.
(b) At the Closing, the Operating Companies (and one or more of their
subsidiaries) shall borrow senior secured bank debt on the terms and conditions
set forth in the commitment letter attached as ANNEX III (the "Bank Commitment
Letter"). The amount borrowed shall equal the total amount available on the
Closing Date pursuant to the credit facility contemplated by the Bank Commitment
Letter (the "Credit Facility") (the "Initial Bank Drawdown"). The Operating
Companies shall use the Initial Bank Drawdown to the extent necessary and
available, first, to repay all indebtedness of Jade Holdings Pte. Ltd. to Bank
of America (the "Jade Holdings Pay-off"); second, to pay the Designated Expenses
(as defined below); third, to pay the Redemption Consideration (adjusted by the
Estimated Adjustment Amount); and, fourth, to effect the Repayment.
<PAGE>
(c) At the Closing, the Finance Company, as borrowing agent for the
Operating Companies, shall issue senior unsecured notes having terms
substantially as set forth in ANNEX IV subject to the introductory note thereto
(the "Notes") as follows:
(i) The Finance Company shall issue to Citicorp Mezzanine Fund
$25 million principal amount of Notes (the "CMF Note") in consideration for $25
million in cash.
(ii) The Finance Company shall issue to JUSI and Global an
aggregate principal amount of Notes (collectively, the "Seller Note") equal to
the excess of $325 million over the Initial Bank Drawdown, in repayment of
Intercompany Debt and/or redemption of the Retained Shares.
(d) At the Closing, all Intercompany Debt not repaid pursuant to the
Repayment shall be capitalized.
1.03. SALE AND PURCHASE OF PURCHASED UNITS. The sale and purchase of
the securities set forth in this Section 1.03 shall be consummated at the
Closing, but after those transactions set forth in Section 1.02, and each
transaction in this Section 1.03 shall be conditioned upon the occurrence of
those transactions set forth in Section 1.02.
(a) JUSI shall sell, assign, transfer and deliver to Buyer, and Buyer
shall purchase from JUSI, (i) 35.70% of the outstanding Class A Common Units,
(ii) 100% of the outstanding Class B Common Units and (iii) 62.56% of the
outstanding Junior Preferred Units (hereinafter collectively referred to as the
"Purchased Units" and, together with the CMF Note, the "Purchased Securities").
Buyer shall pay an aggregate of $50 million in cash to JUSI in consideration for
the Purchased Units, consisting of 132,786 shares valued at $132,786 for the
Class A Common Units, 448,614 shares valued at $448,614 for the Class B Common
Units and 494,186 shares valued at $49,418,600 for the Junior Preferred Units
(b) The Purchased Securities shall be free and clear of all claims,
liens, encumbrances, security interests, pledges, mortgages, title defects of
any kind, options, voting trusts, proxies, voting agreements, rights of first
refusal or first offer, preemptive rights, covenants, charges or restrictions on
transfer of any nature whatsoever (each, an "Encumbrance"), except those created
in favor of Buyer or Citicorp Mezzanine Fund under this Agreement or any other
agreements entered into at the Closing.
1.04. ADJUSTMENT OF REDEMPTION CONSIDERATION.
(a) The Redemption Consideration shall be subject to adjustment at the
Closing (in the same manner as is specified in paragraph (f) below for payment
of the Final Adjustment Amount (as defined below)) as follows: Redemption
Consideration less (x) Estimated Debt plus (y) the amount, if any, by which
Estimated Working Capital exceeds the Reference Amount, minus (z) the amount, if
any, by which the Reference Amount exceeds Estimated Working Capital (the
aggregate adjustments in clauses (x), (y) and (z) being the "Estimated
Adjustment Amount"). The Reference Amount has been, and the Estimated Working
Capital and Final Working Capital will be, calculated in accordance with Section
1.04(e) of the Disclosure Schedule.
<PAGE>
(b) No less than five (5) Business Days (as defined) prior to the
Closing Date, the Seller shall have delivered to Buyer a good faith estimate of
(x) Debt as of the close of business on the Closing Date ("Estimated Debt") and
(y) Working Capital as of the close of business on the Closing Date ("Estimated
Working Capital") together with (i) a statement of the calculation of Estimated
Debt and Estimated Working Capital and (ii) a certificate signed by an officer
of the Seller to the effect that Estimated Debt and Estimated Working Capital
were determined in good faith in accordance the provisions of this Section 1.04,
which calculation shall be subject to Buyer's approval not to be unreasonably
withheld.
(c) Within ninety (90) days after the Closing Date, Seller shall cause
to be prepared and shall deliver to Buyer a statement (the "Closing Statement")
setting forth in reasonable detail (A) Debt as of the close of business on the
Closing Date ("Closing Date Debt") and (B) Working Capital as of the close of
business on the Closing Date ("Closing Working Capital"). Each of the Company,
the Seller and Buyer agrees that it will, and it will use reasonable efforts to
cause its respective agents and representatives to, cooperate and assist in the
preparation of the Closing Statement and the calculation of the Closing Date
Debt and Closing Working Capital and in the conduct of the reviews and dispute
resolution process referred to in this Section 1.04.
(d) During the 30-day period following Buyer's receipt of the Closing
Statement, Buyer and the Company's independent accountants shall at Buyer's
expense be permitted to review the working papers of the Company and Seller
relating to the Closing Statement. The Closing Statement shall become final and
binding upon the parties on the Business Day following the thirtieth (30th) day
following delivery thereof, unless Buyer gives written notice of its
disagreement with the Closing Statement ("Notice of Disagreement") to the Seller
prior to such date, which notice shall comply with this Section 1.04 and Section
1.04 of the Disclosure Schedule. Any Notice of Disagreement shall (i) specify in
reasonable detail the nature of any disagreement so asserted, and include all
supporting schedules, analyses, working papers and other documentation, and (ii)
only include disagreements based on mathematical errors or based on Closing Date
Debt or Closing Working Capital not being calculated in accordance with this
Section 1.04. Buyer shall be deemed to have agreed with all items and amounts
included in the calculation of the Closing Date Debt and Closing Working Capital
delivered pursuant to this Section 1.04 except such items that are specifically
disputed in the Notice of Disagreement.
During the 30-day period following the delivery of a Notice of
Disagreement that complies with the preceding paragraph or such longer period as
the Seller and Buyer shall mutually agree, Seller and Buyer shall seek in good
faith to resolve in writing any differences that they may have with respect to
the matters specified in the Notice of Disagreement. If, at the end of such
30-day period (or such longer period as mutually agreed among Seller and Buyer),
Seller and Buyer have not so resolved such differences, Seller and Buyer shall
submit the dispute for resolution to an independent accounting firm (the
"Arbiter") for review and resolution of any and all matters which remain in
dispute and which were properly included in the Notice of Disagreement in
accordance with this Section 1.04. The Arbiter shall be a mutually acceptable
internationally recognized independent public accounting firm agreed upon by
Seller and Buyer in writing; PROVIDED, that in the event the parties are not
able to mutually agree on an accounting firm, the Arbiter shall be Arthur
Andersen. Seller and Buyer shall use reasonable efforts to cause the Arbiter to
render a decision resolving the matters in dispute within thirty (30) days
following the submission of
<PAGE>
such matters to the Arbiter, or such longer period as the Seller and Buyer shall
mutually agree. Seller and Buyer agree that the determination of the Arbiter
shall be final and binding upon the parties and that judgment may be entered
upon the determination of the Arbiter in any court having jurisdiction over the
party against which such determination is to be enforced; PROVIDED, that the
scope of the disputes to be resolved by the Arbiter is limited to only such
items included in the Closing Statement that Seller has disputed in the Notice
of Disagreement, based upon mathematical errors in the Closing Statement or
based upon Closing Date Debt or Closing Working Capital not having been
calculated in accordance with this Section 1.04. The Arbiter shall determine,
based solely on presentations by the Buyer and the Seller and their respective
representatives, and not by independent review, only those issues in dispute
specifically set forth on the Notice of Disagreement and shall render a written
report as to the dispute and the resulting calculation of Closing Date Debt and
Closing Working Capital which shall be conclusive and binding upon the parties.
In resolving any disputed item, the Arbiter: (x) shall be bound by the
principles set forth in this Section 1.04 and (y) shall not assign a value to
any item greater than the greatest value for such item claimed by either party
or less than the smallest value for such item claimed by either party. The fees,
costs, and expenses of the Arbiter (i) shall be borne by the Company in the
proportion that the aggregate dollar amount of such disputed items so submitted
that are unsuccessfully disputed by the Company (as finally determined by the
Arbiter) bears to the aggregate dollar amount of such items so submitted and
(ii) shall be borne by Seller in the proportion that the aggregate dollar amount
of such disputed items so submitted that are successfully disputed by Seller (as
finally determined by the Arbiter) bears to the aggregate dollar amount of such
items so submitted. Whether any dispute is resolved by agreement among the
parties or by the Arbiter, changes to the Closing Statement shall be made
hereunder only for items as to which Buyer has taken exception in the Notice of
Disagreement. The fees and expenses of the Company's independent accountants
incurred in connection with the review of any Notice of Disagreement shall be
borne by the Company, and the fees and expenses of the Seller's independent
accountants incurred in connection with their review of the Closing Statement
shall be borne by the Seller.
(e) Upon determination of the Final Working Capital, the aggregate
Redemption Consideration shall be adjusted as follows:
(i) The aggregate Redemption Consideration shall be increased
dollar for dollar by the amount by which the Final Working Capital exceeds the
Estimated Working Capital;
(ii) The aggregate Redemption Consideration shall be reduced
dollar for dollar by the amount by which the Estimated Working Capital exceeds
the Final Working Capital;
(iii) The aggregate Redemption Consideration shall be increased
dollar for dollar by the amount by which Estimated Debt exceeds the Final Debt;
and
(iv) The aggregate Redemption Consideration shall be reduced
dollar for dollar by the amount by which the Final Debt exceeds the Estimated
Debt.
(f) The cumulative net adjustment to the Redemption Consideration
pursuant to paragraph (e) above, whether positive or negative, together with
interest thereon from the
<PAGE>
Closing Date to the date of actual payment at a variable rate equal to the prime
rate (as reported in The Wall Street Journal "Money Rates") from and including
the Closing Date to, but not including, the date of payment, is the "Final
Adjustment Amount." The Final Adjustment Amount shall be paid by the Company (on
behalf of the Operating Companies) or the Seller, as the case may be, within ten
(10) Business Days after the Closing Statement becomes final and binding upon
the parties. If the Redemption Consideration is increased pursuant to paragraph
(e)(i) above, the Company (on behalf of the Operating Companies) shall first use
any cash then available under the Credit Facility (so long as the Company has
availability of $35 million at such time) up to the Final Adjustment Amount to
make payment to the Seller and then, to the extent of any shortfall, the Company
(on behalf of the Operating Companies) shall cause the Finance Company to issue
an additional Note to Seller having a principal amount equal to the Final
Adjustment Amount less the cash payment, if any, made (an "Adjustment Note"). If
the Redemption Consideration is decreased pursuant to paragraph (e)(ii) above,
the Seller shall deliver the Final Adjustment Amount to the Company (on behalf
of the Operating Companies) as follows: first, if an Adjustment Note was issued
at the Closing to pay all or part of the Estimated Adjustment Amount, by
redelivering the Adjustment Note to the Company (and, if the principal amount
thereof exceeds the Final Adjustment Amount, receiving a new Adjustment Note for
the balance thereof), and then by making a cash payment in the amount of any
shortfall. Any cash payment shall be made by wire transfer of immediately
available funds.
1.05. COMPANY RIGHT TO REQUIRE REPURCHASE OF STOCK OF UPI.
(a) During the period beginning on the Closing Date and ending on a
date two hundred and seventy (270) days following the Closing Date, the Company
shall have the right, upon written notice to the Seller (the "Repurchase
Notice"), to require the Seller to repurchase from the Company all common shares
(the "Repurchase Shares") of United Pacific Industries Limited, a company listed
on the Stock Exchange of Hong Kong, owned directly or indirectly by the Company
on the Closing Date for the price and in the manner set forth below.
(b) The purchase price for the Repurchase Shares (the "Repurchase
Price") shall be $5 million.
(c) Within thirty (30) days of the date the Repurchase Notice is
received by the Seller, (i) the Company shall deliver to the Seller stock
certificates representing the Repurchase Shares accompanied by stock powers duly
endorsed in blank or duly executed instruments of transfer (together with any
additional common shares resulting from stock splits, stock dividends or similar
transactions and any non-cash distributions thereon occurring after the Closing
Date) at the principal office of the Seller and (ii) Seller shall pay the
Repurchase Price to the Company by wire transfer to an account in a bank located
in the United States designated by the Company for such purpose.
<PAGE>
ARTICLE II
THE CLOSING
2.01. TIME AND PLACE OF CLOSING. The closing of the transactions
contemplated by this Agreement (the "Closing") will take place at the offices of
Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153 at 9:30
A.M. (local time) on the first Business Day following the date on which all of
the conditions to each party's obligations hereunder have been satisfied or
waived, or at such other place or time or both as the parties may agree. The
date on which the Closing actually occurs and the transactions contemplated
hereby become effective is referred to herein as the "Closing Date."
2.02. DELIVERIES BY THE SELLER. At the Closing, Seller will deliver or
cause to be delivered the following to Buyer:
(a) Certificates representing the Purchased Units, in each case
accompanied by unit powers or unit transfer forms duly endorsed in blank or
accompanied by duly executed instruments of transfer;
(b) The resignations of all members of the Board of Directors of the
Company and each Company Subsidiary (as defined) other than as indicated by
Buyer in writing prior to the Closing;
(c) The stock books, stock ledgers, minute books and corporate seals
of the Company and each Company Subsidiary;
(d) The certificates contemplated by Section 7.04 hereof;
(e) An executed counterpart of the Tax Sharing and Indemnification
Agreement substantially in the form of ANNEX V hereto (the "Tax Sharing
Agreement");
(f) An executed counterpart of the Indemnification Agreement
substantially in the form of ANNEX VI hereto (the "Indemnification Agreement");
(g) An executed counterpart of the Registration Rights Agreement
substantially in the form of ANNEX VII hereto (the "Registration Rights
Agreement");
(h) An executed counterpart of the Securities Purchase and Holders
Agreement substantially in the form of ANNEX VIII hereto (the "Stockholders
Agreement");
(i) An executed counterpart of the Registration Rights and Remarketing
Agreement substantially in the form of ANNEX IX hereto (the "Remarketing
Agreement");
(j) An executed counterpart of the Transition Services Agreement
substantially in the form of ANNEX X hereto (the "Transition Services
Agreement");
(k) A legal opinion of Weil, Gotshal and Manges LLP, counsel to
Seller, as to customary matters in a form reasonably acceptable to Buyer; and
<PAGE>
(l) An executed counterpart of a mutual release substantially in the
form of ANNEX XI.
2.03. DELIVERIES BY BUYER. At the Closing, Buyer or its assignee will
deliver or cause to be delivered the following:
(a) The Unit Consideration in immediately available funds to an
account designated in writing by JUSI at least two (2) Business Days prior to
the Closing;
(b) The certificates contemplated by Section 6.04 hereof;
(c) An executed counterpart of the Stockholders Agreement; and
(d) A legal opinion of Dechert Price & Rhoads, counsel to Buyer, as to
customary matters in a form reasonably acceptable to Seller.
2.04. DELIVERY BY CITICORP MEZZANINE FUND. At the Closing, Citicorp
Mezzanine Fund will deliver $25 million in immediately available funds to an
account designated in writing by the Finance Company at least (2) Business Days
prior to the Closing.
2.05. DELIVERIES BY THE COMPANY. At the Closing, the Company will
deliver or cause to be delivered the following:
(a) The Seller Notes to JUSI and Global;
(b) The CMF Note to Citicorp Mezzanine Fund;
(c) The Redemption Consideration to JUSI;
(d) An executed counterpart of the Tax Sharing Agreement;
(e) An executed counterpart of the Indemnification Agreement;
(f) An executed counterpart of the Registration Rights Agreement;
(g) An executed counterpart of the Stockholders Agreement;
(h) An executed counterpart of the Remarketing Agreement;
(i) A letter from Bank of America confirming the Jade Holdings
Pay-off; and
(j) An executed counterpart of a mutual release substantially in the
form of Annex A.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
The Seller hereby jointly and severally represents and
warrants to Buyer (it being understood that, for purposes of all such
representations and warranties, the Corporate Reorganization shall be deemed to
have been completed):
3.01. CORPORATE ORGANIZATION; ETC. The Company is a limited liability
company duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation and has all requisite limited liability
company power and authority to conduct its business as it is now being conducted
and to own, lease and operate its property and assets. Each of the Subsidiaries
of the Company (each a "Company Subsidiary" and collectively, the "Company
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to conduct its business as it is now
being conducted and to own, lease and operate its property and assets except
where the failure to have such power or authority is not, in the aggregate,
reasonably likely to have a Company Material Adverse Effect. Each of the Company
and the Company Subsidiaries is qualified or otherwise authorized to transact
business as a foreign corporation and, in the case of the Company, as a foreign
limited liability company and is in good standing in each jurisdiction set forth
in Section 3.01 of the Disclosure Schedule, which jurisdictions are the only
jurisdictions in which the location of its properties or the conduct of its
business requires such qualification or authorization and in which the failure
so to qualify would either individually or in the aggregate have a Company
Material Adverse Effect (as defined).
3.02. CAPITALIZATION OF THE COMPANY. Immediately prior to the Closing,
the authorized membership interests of the Company shall consist of 1,000,000 of
the Company Class A Common Units, 1,000,000 of the Company Class B Common Units
and 1,000,000 of the Company Junior Preferred Units, of which 318,786 of the
Company Class A Common Units, 448,614 of the Company Class B Common Units and
692,326 of the Company Junior Preferred Units shall be issued and outstanding.
Immediately prior to the Closing, JUSI shall be the record and beneficial owner
of all of the Purchased Units and shall have good and valid title to the
Purchased Units, free and clear of all Encumbrances. All the Purchased Units
shall be duly authorized, validly issued, fully paid and nonassessable, shall
not be issued in violation of any agreement or other understanding binding upon
the Seller or the Company or any preemptive rights, and shall be issued in
compliance with all applicable federal and state securities or "blue sky" laws
and regulations. Except as listed in Section 3.02 of the Disclosure Schedule
hereto and as contemplated by this Agreement, there are no outstanding (a)
securities convertible into or exchangeable for membership interests of the
Company, (b) options, warrants or other rights (including, without, limitation,
preemptive rights) to purchase or subscribe for securities of the Company or (c)
contracts, commitments, agreements, understandings or arrangements of any kind
relating to the issuance of any capital stock or other equity securities or any
such convertible or exchangeable securities or any such options, warrants or
rights, pursuant to which, in any of the foregoing cases, the Company or any
Company Subsidiary is subject or bound. The consummation of the transactions
contemplated hereby will convey to Buyer good title to the Purchased Units free
<PAGE>
and clear of all proxies, voting agreements and other Encumbrances, except for
those created in favor of Buyer under this Agreement or the Stockholders
Agreement.
3.03. COMPANY SUBSIDIARIES. All of the Company Subsidiaries are listed
in Section 3.03(a) of the Disclosure Schedule together with their jurisdiction
of incorporation or organization and the percentage interest held directly or
indirectly by the Company. Except as listed in Section 3.03(b) of the Disclosure
Schedule, all issued and outstanding capital stock of each Company Subsidiary is
validly issued, fully paid and nonassessable, was not issued in violation of any
agreement or other understanding binding upon the Seller, the Company or the
Company Subsidiaries or any preemptive rights, and was issued in compliance with
all applicable federal and state securities or "blue sky" laws and regulations,
and is owned, directly or indirectly, by the Company, free and clear of all
Encumbrances. Except as listed in Section 3.03(b) of the Disclosure Schedule,
there are no outstanding (a) securities convertible into or exchangeable for the
equity securities of any of the Company Subsidiaries, (b) options, warrants or
other rights (including without limitation preemptive rights) to purchase or
subscribe for securities of any of the Company Subsidiaries or (c) contracts,
commitments, agreements, understandings or arrangements of any kind relating to
the issuance of any equity securities of any of the Company Subsidiaries, any
such convertible or exchangeable securities or any such options, warrants or
rights pursuant to which, in any of the foregoing cases, the Company or any
Company Subsidiary is subject or bound.
3.04. THE SELLER'S AND THE COMPANY'S AUTHORITY RELATIVE TO THIS
AGREEMENT. The Seller is a corporation duly organized and validly existing under
the laws of Delaware. The Seller has all requisite corporate authority and power
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The Company has all requisite limited liability company
authority and power to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
and the other agreements and instruments to be executed in connection herewith
and the consummation of the transactions contemplated hereby by the Seller and
the Company have been duly and validly authorized by all required action on the
part of the Seller and the Company and no other proceedings on the part of the
Seller or the Company are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Seller and the Company and, assuming this
Agreement has been duly authorized, executed and delivered by Buyer, constitutes
a valid and binding agreement of the Seller and the Company, enforceable against
the Seller and the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith, and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity). As of the Closing,
the other agreements and instruments contemplated hereby will have been duly and
validly executed and delivered by the Seller and the Company and, assuming due
authorization, execution and delivery by Buyer, will constitute valid and
binding agreements of the Seller and the Company, enforceable against the Seller
and the Company in accordance with their terms.
3.05. CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth in
Section 3.05 of the Disclosure Schedule, neither the execution and delivery of
this
<PAGE>
Agreement or the other agreements and instruments to be executed by Seller in
connection herewith, nor the consummation of the transactions contemplated
hereby or thereby will (a) violate any provision of the Certificate of
Incorporation or By-Laws (or other comparable governing documents) of the
Company, the Company Subsidiaries or the Seller, (b) require any consent,
waiver, approval, authorization or permit (a "Consent") of, or filing with or
notification to, any governmental or regulatory authority, arbitrator, agency or
commission, including courts of competent jurisdiction, domestic or foreign (a
"Governmental Entity"), except where the failure to obtain such Consent or make
such filing or notification is not reasonably likely to have a Company Material
Adverse Effect, (c) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default, or give rise to any
right of termination, cancellation or acceleration or any obligation to repay
under, any of the terms, conditions or provisions of any indenture, mortgage,
note, bond, encumbrance, license, government registration, contract, lease,
agreement or other instrument or obligation (each, an "Obligation") to which the
Company, any Company Subsidiary or the Seller is a party or by which the
Company, any Company Subsidiary or the Seller or any of their respective
property or assets may be bound, except such violations, breaches and defaults
which, in the aggregate, are not reasonably likely to have a Company Material
Adverse Effect or would not impair, hinder or adversely affect the ability of
the Seller to perform any of its obligations under this Agreement or to
consummate the transactions contemplated hereby (a "Seller Material Adverse
Effect") or those as to which requisite waivers or Consents have been obtained
or (d) violate any order, writ, settlement, judgment, injunction, decree,
statute, ordinance, rule, law, code, regulation or other requirement (each, an
"Order") of any Governmental Entity applicable to the Company, any Company
Subsidiary or the Seller, except such violations which, in the aggregate, are
not reasonably likely to have a Company Material Adverse Effect or a Seller
Material Adverse Effect.
3.06. FINANCIAL STATEMENTS. Attached hereto as Section 3.06 of the
Disclosure Schedule are copies of the audited combined balance sheets of the
Company as of September 30, 1999 and 1998 and the related audited combined
statements of operations, cash flows and changes in invested capital (deficit)
for each of the three years ended September 30, 1999 (the balance sheet as of
September 30, 1999, being hereinafter referred to as the "Balance Sheet" and all
such financial statements being hereinafter collectively referred to as the
"Financial Statements"). The Financial Statements (i) were compiled from the
books and records of the Company, and (ii) fairly present the combined financial
position, the combined results of operations and the combined cash flows of the
Company as of the dates or for the periods presented in conformity with United
States generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved except as otherwise noted therein.
3.07. FORM 10; ABSENCE OF CERTAIN CHANGES. As of the date on which it
was filed, the information contained in the Form 10 did not contain any untrue
statement of a material fact nor omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except as set forth in
the Form 10 or Section 3.07 of the Disclosure Schedule, since the date of the
Balance Sheet, none of the Company or any Company Subsidiary has:
(a) suffered any adverse change in its business, operations or
financial position, except such changes which, in the aggregate, are not
reasonably likely to have a Company Material Adverse Effect;
<PAGE>
(b) conducted its business outside the ordinary and usual course
consistent with past practice, except in connection with the transactions
contemplated hereby or by the Form 10;
(c) made any election for Tax (as defined below) purposes or for
purposes of a Return (as defined below) (or had any such election made on its
behalf), (including any election pursuant to Treasury Regulationss. 301.7701) or
entered into any agreement, arrangement or settlement with respect to material
Taxes with any Governmental Entity or other Person;
(d) other than as required by collective bargaining agreements,
granted any increase in the salaries or other compensation payable or to become
payable to, or any advance (excluding advances for ordinary business expenses)
or loan to, any officer, employee or shareholder of the Company or any Company
Subsidiary (other than normal merit increases for employees previously budgeted
made in the ordinary course of business and consistent with past practice), or
any increase in, or any addition to, other benefits (including any bonus,
profit-sharing, pension, retirement or other plan) to which any of the officers
and employees may be entitled;
(e) made any contributions or payments to any pension, retirement, or
under any profit-sharing, bonus or similar plan except payments in the ordinary
course of business and consistent with past practice made pursuant to the
Benefit Plans described in Section 3.12 of the Disclosure Schedule, or any other
payment of any kind to or on behalf of any officer or employee other than
payment of base compensation and reimbursement for reasonable expenses in the
ordinary course of business;
(f) suffered any change in or, to the knowledge of the Seller,
received any written notice of any loss of any of the suppliers, clients,
distributors, customers or employees that are material to the business of the
Company or any Company Subsidiary, including any loss or change which may result
from the transactions contemplated by this Agreement, except any losses or
changes which, in the aggregate, are not reasonably likely to have a Company
Material Adverse Effect;
(g) been involved in any disposition of or has failed to keep in
effect any rights in, to or for the use of any franchise, right, license, permit
or certificate material to the business of the Company or any Company
Subsidiary, except any failures to keep in effect any right which, in the
aggregate, are not reasonably likely to have a Company Material Adverse Effect;
(h) changed any method of keeping of its books of account or
accounting practices other than pursuant to the Corporate Reorganization;
(i) disposed of or failed to keep in effect any rights in, to or for
the use of any of the intellectual property material to the business of the
Company or any Company Subsidiary, except any such dispositions or failures
which, in the aggregate, are not reasonably likely to have a Company Material
Adverse Effect;
<PAGE>
(j) sold, transferred or otherwise disposed of any material assets,
properties or rights of any of the businesses of the Company or any Company
Subsidiary, except inventory sold in the ordinary course of business consistent
with past practice;
(k) made nor authorized any single capital expenditure in excess of
$100,000 or capital expenditures in excess of $500,000 in the aggregate (other
than emergency expenditures; it being understood that Seller shall use its
reasonable efforts under the circumstances to contact Buyer prior to making any
material emergency expenditure outside of these baskets);
(l) except as set forth in Section 3.07(l) of the Disclosure Schedule,
changed or modified in any manner the Company's or any Company Subsidiary's
existing credit, collection and payment policies, procedures and practices with
respect to accounts receivable and accounts payable, respectively, including
without limitation, acceleration of collections of receivables, failure to make
or delay in making collections of receivables (whether or not past due),
acceleration of payment of payables or failure to pay or delay in payment of
payables;
(m) incurred any damage, destruction or loss, whether covered by
insurance or not, materially affecting the financial condition or business of
the Company or any Company Subsidiary;
(n) waived or released any material right or claim of the Company or
any Company Subsidiary; or
(o) permitted or suffered any Encumbrances on any assets (tangible or
intangible) or properties of the Company or any Company Subsidiary other than
Encumbrances incurred in the ordinary course of business consistent with past
practice and except those Encumbrances which, in the aggregate, are not
reasonably likely to have a Company Material Adverse Effect.
3.08. COMPLIANCE WITH LAW. Except as set forth in Section 3.08(a) of
the Disclosure Schedule, the Company and the Company Subsidiaries have complied
and are in compliance with all, and have not received any written notice of any
violation of any, applicable Orders of any Governmental Entity, except such
non-compliances which, in the aggregate, are not reasonably likely to have a
Company Material Adverse Effect. Except as set forth in Section 3.08(b) of the
Disclosure Schedule, the Company and the Company Subsidiaries have all domestic
and foreign governmental licenses, permits and other authorizations to conduct
their businesses as currently conducted and all such permits, licenses and
authorizations are in full force and effect, except where the failure to have
such licenses and permits or to have such licenses and permits in full force and
effect, in the aggregate, is not reasonably likely to have a Company Material
Adverse Effect.
3.09. CONTRACTS. Section 3.09 of the Disclosure Schedule sets forth a
complete list of all written and oral material contracts of the Company and the
Company Subsidiaries as follows:
<PAGE>
(a) employment, severance and consulting agreements that provide for
severance or termination payments in excess of $100,000 to which the Company or
any of the Company Subsidiaries is presently a party (the "Benefit
Arrangements");
(b) collective bargaining agreements;
(c) agreements that were required to be filed as an exhibit to the
Form 10, other than such agreements which would become effective only upon the
consummation of the proposed Spin-off (as defined in the Form 10); and
(d) indentures, mortgages and notes or other debt instruments
evidencing indebtedness, other than any such instrument in a principal amount of
less than $100,000.
Each material contract to which the Company or the Company
Subsidiaries is a party or is bound is valid, binding and enforceable against
the Company or any Company Subsidiary, as the case may be, and to the knowledge
of Seller, the other parties thereto, in accordance with its terms and is in
full force and effect, except those the absence of which would not, individually
or in the aggregate, have a Company Material Adverse Effect. Except as set forth
in Section 3.09 of the Disclosure Schedule, the Company and the Company
Subsidiaries are not in default under any of the material contracts, and no
event has occurred which, with notice or lapse of time, or both, would
constitute such a default, except for any defaults which, in the aggregate, are
not reasonably likely to have a Company Material Adverse Effect.
Neither the Company nor any Company Subsidiary has received
any written claim from any other party to any material contract that the Company
or any Company Subsidiary has breached any obligations to be performed by it
thereunder, or is otherwise in default or delinquent in performance thereunder,
except any of the foregoing which, in the aggregate, are not reasonably likely
to have a Company Material Adverse Effect.
3.10. LITIGATION. Except as set forth in the Form 10 or Section
3.10(a) of the Disclosure Schedule, there is no action, suit, investigation or
proceeding pending or threatened against the Company or any Company Subsidiary
before any Governmental Entity which is reasonably likely to have a Company
Material Adverse Effect. Except as set forth in Section 3.10(b) of the
Disclosure Schedule, none of the Company or any Company Subsidiary has received
notice that it is subject to any outstanding Order of any Governmental Entity
which is reasonably likely to have a Company Material Adverse Effect.
3.11. TAXES.
(a) Except as set forth in Section 3.11(a) of the Disclosure Schedule,
each of the Company and each Company Subsidiary has duly and timely filed all
material returns, declarations, reports, estimates, information returns and
statements ("RETURNS") required to be filed with respect to it in respect of any
Taxes, and each of the Company and each Company Subsidiary has timely paid all
Taxes that are shown to be due and payable on such Returns. Except as set forth
in Section 3.11(a) of the Disclosure Schedule, no material deficiencies for any
Taxes have been asserted in writing or assessed against the Company or any
Company Subsidiary, which remain unpaid or for which adequate provision, net of
any reserves provided for matters set forth in Sections 3.11(a) and 3.11(c) of
the Disclosure Schedule, has
<PAGE>
not been made in the Financial Statements. Except as set forth in Section
3.11(a) of the Disclosure Schedule, none of the Company or any Company
Subsidiary (a) has, with respect to any assets or property held, filed a consent
to the application of Section 341(f) of the Internal Revenue Code of 1986, as
amended (the "CODE"), (b) has made any payments, is obligated to make any
payments, or is a party to any agreement, including this Agreement, that could
obligate it to make any payments that will not be deductible under Code ss.
280G, (c) is required to make any adjustment under Code ss. 481 (or any
comparable provision of state, local or foreign law) by reason of a change in
accounting method, or (d) is a partner in any entity considered to be a
partnership for federal income tax purposes. For purposes of this Agreement,
"TAXES" shall mean all income taxes (including any tax on or based upon net
income, or gross income, or income as specially defined, or earnings, or
profits, or selected items of income, earnings, or profits) and all gross
receipts, estimated, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, or windfall profit taxes, environment, alternative, or add-on minimum
taxes, custom duties or other taxes, fees, assessments, or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any federal, state, local or foreign taxing or
other authority.
(b) Neither the Company nor any Company Subsidiary is a "U.S. Real
Property Holding Corporation" within the meaning of Section 897 of the Code.
(c) Except as set forth in Section 3.11(c) of the Disclosure Schedule,
neither the Company nor any Company Subsidiary is a party to or bound by any Tax
allocation or Tax sharing agreement or has any current or potential contractual
obligation or liability as a transferee or successor to indemnify any other
person with respect to Taxes.
(d) Except as set forth in Section 3.11(d) of the Disclosure Schedule,
no Governmental Entity currently is auditing any of the Company or Company
Subsidiaries' Returns, nor has any of the Company or Company Subsidiaries
received written notice of any proposed material audits of such Returns. Except
as set forth in Section 3.11(d) of the Disclosure Schedule, with respect to each
of the Company and Company Subsidiaries, no written claim for Taxes (or written
request for Returns) has ever been made by a Governmental Entity in a
jurisdiction where the Company or Company Subsidiary, as the case may be, does
not file Returns. Except as set forth in Section 3.11(d) of the Disclosure
Schedule, none of the Company or Company Subsidiaries has outstanding any waiver
of any statute of limitations in respect of Taxes or any outstanding agreement
regarding any extension of time with respect to a Tax assessment or deficiency.
Except as set forth in Section 3.11(d) of the Disclosure Schedule, since the
beginning of fiscal 1996, none of the Company or Company Subsidiaries is a party
to a closing agreement, or the subject of a private ruling, concerning Taxes
with any Governmental Entity which would have a material effect continuing after
Closing.
(e) Except as set forth in Section 3.11(e) of the Disclosure Schedule,
each of the Company and Company Subsidiaries has withheld and paid, in all
material respects, all Taxes required to be withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder or third party.
<PAGE>
3.12. EMPLOYEE BENEFIT PLANS; ERISA.
(a) All material written "employee benefit plans", as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and all other pension, profit sharing, retirement, supplemental
retirement, stock, stock option, change of control, basic and supplemental
accidental death and dismemberment, basic and supplemental life and health
insurance, post-retirement medical or life, welfare, dental, vision, savings,
bonus, deferred compensation, incentive compensation, business travel and
accident, severance pay, salary continuation, short-term and long-term
disability, termination or other compensation plan, arrangement or agreement or
other material employee fringe benefit plans maintained by the Company or any of
the Company Subsidiaries or any other employer (an "ERISA Affiliate") that is,
or at any relevant time was, together with the Company or any of the Company
Subsidiaries, treated as a "single employer" under Section 414(b), 414(c),
414(m) or 414(o) of the Code, or to which the Company or any of the Company
Subsidiaries or any ERISA Affiliate contributes or is obligated to contribute
thereunder for current or former employees of the Company or any of the Company
Subsidiaries (the "Employee Benefit Plans") other than any Employee Benefit Plan
which is a multiemployer plan, as defined in Section 3(37) of ERISA
("Multiemployer Plan"), are, in all material respects, maintained in accordance
with their terms and with all applicable provisions of the Code and ERISA
(including rules and regulations thereunder) and other applicable federal and
state laws and regulations, including the timely filing of all material reports,
returns and similar documents with the appropriate government agency or
distribution to Employee Benefit Plan participants, as applicable, except where
the failure to so maintain them would not be reasonably likely to result in a
Company Material Adverse Effect. True and complete copies of each such Employee
Benefit Plan, and where applicable, a copy of the most recent determination
letter received from the Internal Revenue Service (the "IRS"), and the most
recent IRS Form 5500 filed, with respect to each such Employee Benefit Plan,
have been furnished to Buyer.
(b) Except as indicated in Section 3.12(b) of the Disclosure Schedule,
the Employee Benefit Plans (other than the Multiemployer Plans) intended to
qualify under Section 401 of the Code are, and at all times since their
inception have been, so qualified and the trusts maintained pursuant thereto are
exempt from federal income taxation under Section 501 of the Code, and nothing
has occurred with respect to the operation of such plans which would be
reasonably likely to result in the loss of such qualification or exemption or
the imposition of any material liability, penalty or tax under ERISA or the
Code. Except as set forth in Section 3.12(b) of the Disclosure Schedule, each
such Employee Benefit Plan intended to qualify under Section 401 of the Code has
received a determination letter from the IRS to the effect that each such plan
is qualified and all related trusts are exempt from federal income taxes on a
determination letter request is pending with the IRS to such effect, and no
determination letter with respect to any such plan has been revoked nor, is
there any reason for such revocation, nor has any such plan been amended, or
failed to be amended, since the date of its most recent determination letter in
any respect which would adversely affect its qualification.
(c) All contributions (including all employer contributions and
employee salary reduction contributions) and payments required to have been made
under any of the Employee Benefit Plans or by law (without regard to any waivers
granted under Section 412 of the Code) or in connection therewith have been made
by the due date thereof (including
<PAGE>
any valid extension, except where the failure to make such contribution would
not be reasonably likely to result in a Company Material Adverse Effect). Except
as indicated in Section 3.12(c) of the Disclosure Schedule, no asset of the
Company or any Company Subsidiary is subject to any lien under Sections
401(a)(29) or 412(n) of the Code or Section 4068 of ERISA or arising out of any
action filed under Section 4301(b) of ERISA.
(d) Except as set forth in Section 3.12(d) of the Disclosure Schedule,
neither the Employee Benefit Plans, the Company, the Company Subsidiaries, any
ERISA Affiliate, nor any employee of the foregoing, nor any trusts created
thereunder, has engaged in a "prohibited transaction" within the meaning of
Section 4975 of the Code or Section 406 of ERISA, nor has any such person
breached any duty imposed by Title I of ERISA, with respect to any Employee
Benefit Plan.
(e) Neither the Company, the Company Subsidiaries nor any ERISA
Affiliate has incurred any material liability to the Pension Benefit Guaranty
Corporation (the "PBGC") with respect to any Employee Benefit Plan subject to
Title IV of ERISA, other than for the payment of premiums, all of which have
been paid when due. No Employee Benefit Plan has applied for or received a
waiver of the minimum funding standards imposed by Section 412 of the Code. The
Company has furnished to Buyer the most recent actuarial report with respect to
each Employee Benefit Plan that is a defined benefit pension plan, as defined in
Section 3(35) of ERISA. To the knowledge of the Seller, the information supplied
to the actuary by the Company, the Company Subsidiaries and any ERISA Affiliate
for use in preparing those reports was complete and accurate. No event has
occurred since the date of any such actuarial report that had, or is likely to
have, a materially adverse effect on the ratio of plan assets to the actuarial
present value of plan obligations for accumulated benefits shown in such report.
(f) At no time since May 31, 1995 has the Company, the Company
Subsidiaries or any ERISA Affiliate incurred any liability which could subject
Buyer to any material liability under Section 4062, 4063, 4064 or 4069 of ERISA.
(g) Except as indicated in Section 3.12(g) of the Disclosure Schedule,
at no time since May 31, 1995, have the Company, the Company Subsidiaries or any
ERISA Affiliate, been required to contribute to, or incurred any withdrawal
liability, within the meaning of Section 4201 of ERISA to any multiemployer
pension plan, within the meaning of Section 3(37) of ERISA nor does the Company,
the Company Subsidiaries or any ERISA Affiliate to the knowledge of the Seller
have any potential withdrawal liability arising from a transaction described in
Section 4204 of ERISA. All required contributions, withdrawal liability payments
or other payments of any type that the Company, the Company Subsidiaries or any
ERISA Affiliate have been obligated to make to any multiemployer plan have been
duly and timely made. Any withdrawal liability incurred with respect to any
multiemployer plan has been fully paid as of the date hereof. Neither the
Company, the Company Subsidiaries nor any ERISA Affiliate has undertaken any
course of action that could reasonably be expected to lead to a complete or
partial withdrawal from any multiemployer plan.
(h) Except as indicated in Section 3.12(h) of the Disclosure Schedule,
no payment which is or may be made by from or with respect to any Employee
Benefit Plan, to any employee, former employee, director or agent of the
Company, the Company
<PAGE>
Subsidiaries, either alone or in conjunction with any other payment, will or
could properly be characterized as an excess parachute payment under section
280G of the Code.
3.13. TITLE TO PROPERTIES. Each of the Company and the Company
Subsidiaries has good, valid and, in the case of real property, marketable title
to all of the material assets and properties which it owns, including but not
limited to those reflected on the Balance Sheet or acquired by the Company and
any Company Subsidiary since the date of the Balance Sheet (except for assets
and properties sold, consumed or otherwise disposed of by the Company or any
Company Subsidiary in the ordinary course of business consistent with the past
practice since the date of the Balance Sheet), and such material assets and
properties are owned free and clear of all Encumbrances, except for (a)
Encumbrances disclosed in the Form 10 or listed in Section 3.13 of the
Disclosure Schedule, (b) liens for current Taxes not yet due and payable or for
Taxes the validity of which is being contested in good faith by appropriate
proceedings and for which adequate reserves have been established on the Balance
Sheet, (c) Encumbrances to secure indebtedness reflected on the Balance Sheet or
indebtedness incurred in the ordinary course of business and consistent with
past practice after the date thereof, (d) mechanic's, materialmen's and similar
Encumbrances which have arisen in the ordinary course of business and (e) any of
the foregoing Encumbrances which, in the aggregate, are not reasonably likely to
have a Company Material Adverse Effect or materially adversely interfere with
the use of such assets and properties as they are presently being used.
3.14. PATENTS, TRADEMARKS, ETC. Except as set forth in Section 3.14 of
the Disclosure Schedule:
(a) the Company and the Company Subsidiaries own or possess adequate
licenses or other valid rights to use all United States and foreign patents,
trademarks, trade names, service marks, copyrights and applications, including
foreign applications therefor, which are material to the conduct of the business
of the Company and the Company Subsidiaries taken as a whole (the "Patent and
Trademark Rights"),
(b) the validity of the Patent and Trademark Rights and the title
thereto of the Company or any Company Subsidiary are not being questioned in any
litigation to which the Company or any Company Subsidiary is a party, nor is any
such litigation overtly threatened, and
(c) the conduct of the business of the Company and the Company
Subsidiaries as now conducted does not infringe or otherwise conflict with any
valid patents, trademarks, trade names, service marks or copyrights of others in
any way which is reasonably likely to have a Company Material Adverse Effect.
3.15. ENVIRONMENTAL MATTERS.
(a) Except as set forth in the Form 10 or Section 3.15 of the
Disclosure Schedule, the Company and the Company Subsidiaries hold, and are in
compliance with, all material permits, licenses and government authorizations
required for the Company and the Company Subsidiaries to conduct their
respective businesses under any U.S. federal and state or foreign statutes and
regulations relating to pollution or protection of human health or the
environment, including the Comprehensive Environmental Response, Compensation,
and
<PAGE>
Liability Act, the Resource Conservation and Recovery Act, the Clean Air Act,
the Clean Water Act, and similar state laws ("Environmental Laws"), and the
Company and the Company Subsidiaries are otherwise in compliance with all
applicable Environmental Laws, except where the failure to be in compliance
would not be reasonably likely to have a Company Material Adverse Effect.
(b) Except as set forth in the Form 10 or Section 3.15 of the
Disclosure Schedule, none of the Company or any Company Subsidiary has been
notified that it is a potentially responsible party under the Comprehensive
Environmental Response, Compensation, and Liability Act or any similar state or
foreign law with respect to any on-site or off-site location for which liability
is currently being asserted which is reasonably likely to have a Company
Material Adverse Effect.
(c) Except as set forth in the Form 10 or Section 3.15 of the
Disclosure Schedule, none of the Company or any Company Subsidiary is subject to
any Order relating to compliance with any Environmental Law or to investigation
or cleanup of substances regulated under any Environmental Law as hazardous
which is reasonably likely to have a Company Material Adverse Effect.
(d) Except as set forth in the Form 10 or Section 3.15 of the
Disclosure Schedule, no substances regulated under Environmental Laws have been
released, spilled, leaked, discharged, disposed of, pumped, poured emitted,
emptied, injected, leached, dumped or allowed to escape at any property now or
formerly owned, operated or leased by the Company or the Company Subsidiaries or
any former Company subsidiaries which is reasonably likely to have a Company
Material Adverse Effect.
(e) Seller has provided Buyer copies of all material environmental
inspections, investigations, studies, audits, tests, reviews or other analyses
in Seller's possession or control conducted in relation to any property now or
previously owned, operated or leased by the Company or the Company Subsidiaries
or any former Company subsidiaries.
3.16. BROKERS AND FINDERS. None of the Seller, the Company or any
Company Subsidiary or any of their respective officers, directors or employees
has incurred any liability for any investment banking fees, brokerage fees,
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement except for such liability as shall
be borne by the Seller.
3.17. UNDISCLOSED LIABILITIES. Neither the Company nor any Company
Subsidiary has any liabilities or obligations of any nature whatsoever, whether
due or to become due, accrued, absolute, contingent or otherwise, other than (i)
liabilities and obligations that are fully reflected, accrued or reserved for in
the Balance Sheet, (ii) liabilities and obligations incurred in the ordinary
course of business and consistent with past practice since the date of the
Balance Sheet, (iii) liabilities and obligations set forth in Section 3.17 of
the Disclosure Schedule to the extent readily apparent on its face, and (iv)
other liabilities and obligations that individually or in the aggregate are not
reasonably likely to result in a Company Material Adverse Effect.
<PAGE>
3.18. RELATED PARTY TRANSACTIONS. Except as described in Section 3.18
of the Disclosure Schedule or in connection with the Corporate Reorganization,
since October 1, 1998, neither the Seller nor any Affiliate of the Seller (other
than the Company or any Company Subsidiary) (i) has had any interest in any
assets or property (whether real or personal, tangible or intangible), used by
the Company or any Company Subsidiary in the conduct of its business, or (ii)
has engaged in any other transaction with the Company or any Company Subsidiary.
Neither the Seller nor any Affiliate of the Seller (other than the Company or
any Company Subsidiary) has made any agreement or arrangement to make any
payments to any officer or employee of the Company or any Company Subsidiary
conditioned upon the execution of this Agreement or the consummation of the
transactions contemplated hereby for which the Company or any Company Subsidiary
will be liable.
3.19. ADEQUACY OF ASSETS. Except for (i) cash management services
currently provided by USI and (ii) as contemplated by the Transition Services
Agreement, the Company owns directly or through the Company Subsidiaries all
assets necessary for the Company Subsidiaries to conduct their businesses as
currently operated.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Seller as follows:
4.01. ORGANIZATION; ETC. Buyer is a limited liability company duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite power and authority to
conduct its business as it is now being conducted and to own, lease and operate
its property and assets, except where the failure to have such power or
authority is not, in the aggregate, reasonably likely to have a Buyer Material
Adverse Effect (as defined).
4.02. AUTHORITY RELATIVE TO THIS AGREEMENT. Buyer has all requisite
limited liability company authority and power to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the other agreements and instruments to be
executed by Buyer in connection herewith and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
required limited liability company action on the part of Buyer and no other
limited liability company proceedings on the part of Buyer are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Buyer and,
assuming this Agreement has been duly authorized, executed and delivered by the
Seller, constitutes a valid and binding agreement of Buyer, enforceable against
Buyer in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
<PAGE>
4.03. CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the execution and
delivery of this Agreement or the other agreements and instruments to be
executed by Buyer in connection herewith, nor the consummation of the
transactions contemplated hereby or thereby by Buyer will (a) violate any
provision of its Certificate of Formation or Limited Liability Company Operating
Agreement, true and correct copies of which have been furnished to Seller, (b)
require any Consent of, or filing with or notification to, any Governmental
Entity, except where the failure to obtain such Consent or make such filing or
notification is not reasonably likely to have a Buyer Material Adverse Effect,
(c) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration or any obligation to repay) under, any
of the terms, conditions or provisions of any Obligation to which Buyer is a
party or by which Buyer or any of its properties or assets may be bound, except
such violations, breaches and defaults which, in the aggregate, are not
reasonably likely to have a Buyer Material Adverse Effect or those as to which
requisite waiver or Consents have been obtained or (d) violate any Order of any
Governmental Entity applicable to Buyer, except such violations which, in the
aggregate, are not reasonably likely to have a Buyer Material Adverse Effect.
4.04. ACQUISITION OF PURCHASED SECURITIES FOR INVESTMENT. Buyer is
acquiring the Purchased Securities for investment and not with a view toward, or
for sale in connection with, any distribution thereof, nor with any present
intention of distributing or selling such Purchased Securities. Buyer agrees
that the Purchased Securities may not be sold, transferred, offered for sale,
pledged, hypothecated or otherwise disposed of without registration under the
Securities Act of 1933, as amended (the "Securities Act"), except pursuant to an
exemption from such registration under the Securities Act.
4.05. FINANCIAL CAPABILITY. Buyer has obtained a commitment letter
(the "Commitment Letter") providing an aggregate of $70 million of financing for
this transaction and the transactions contemplated by the Subscription Agreement
(as defined) and naming Seller as a third-party beneficiary, a true and correct
copy of which letter is contained in Section 4.05 of the Disclosure Schedule.
4.06. BROKERS AND FINDERS. Neither Buyer nor any of its officers,
directors or employees has employed any investment banker, broker or finder or
incurred any liability for any investment banking fees, brokerage fees,
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement.
4.07. BUYER'S SOPHISTICATION. Buyer is an informed and sophisticated
purchaser, and has engaged expert advisors, experienced in the evaluation and
purchase of securities such as the Purchased Securities. Buyer has undertaken
such investigation as it has deemed necessary to enable it to make an informed
and intelligent decision with respect to this Agreement and the transactions
contemplated hereby. Buyer acknowledges that none of the Seller or the Company
(or their agents or representatives) has made any representation or warranty as
to the Company, any Company Subsidiary, or their prospects (financial or
otherwise), except as expressly set forth in this Agreement. Except as otherwise
set forth in this Agreement, the Indemnification Agreement or the Tax Sharing
Agreement, it is therefore expressly understood and agreed that Buyer accepts
the condition of the properties of the Company and the Company Subsidiaries "AS
IS, WHERE IS" without any representation,
<PAGE>
warranty or guarantee, express or implied, as to merchantability, fitness for a
particular purpose or otherwise as to the condition, size, extent, quantity,
type or value of such property.
ARTICLE V
COVENANTS OF THE PARTIES
5.01. CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by
this Agreement, the Corporate Reorganization or Section 5.01 of the Disclosure
Schedule or with the prior written consent of Buyer (which consent shall not be
unreasonably withheld) during the period from the date of this Agreement to the
Closing Date, Seller will cause the Company and each Company Subsidiary to (a)
conduct its business and operations in the ordinary course of business
consistent with past practice except for the Corporate Reorganization and (b)
use all commercially reasonable efforts consistent therewith to preserve intact
its properties, assets and business organizations, to keep available the
services of its officers and employees and to maintain satisfactory
relationships with customers, suppliers, distributors and others having
commercially beneficial business relationships with it, to maintain its books of
account and records, in each case, in the ordinary course of business consistent
with past practice. Without limiting the generality of the foregoing, and except
as otherwise provided in this Agreement or as contemplated hereby or by the
Corporate Reorganization or as set forth in Section 5.01 of the Disclosure
Schedule, Seller will cause the Company and each Company Subsidiary not to,
prior to the Closing Date, without the prior written consent of Buyer (which
consent shall not be unreasonably withheld):
(a) issue, sell or pledge, or authorize or propose the issuance, sale
or pledge of (i) additional shares of capital stock or membership interests of
the Company or any Company Subsidiary, as the case may be, or securities
convertible into any such shares or membership interests, or any rights,
warrants or options to acquire any such shares or membership interests or other
convertible securities or (ii) any other securities in respect of, in lieu of,
or in substitution for, the shares of capital stock or membership interests of
the Company or any Company Subsidiary, as the case may be, outstanding on the
date hereof;
(b) declare or pay any dividend or distribution on any units of
Company Common Membership Interests or Company Preferred Membership Interests or
shares of capital stock of any Company Subsidiary;
(c) redeem, purchase or otherwise acquire any outstanding units of
Company Common Membership Interests or Company Preferred Membership Interests or
any outstanding shares of capital stock of any Company Subsidiary (or any
warrants, rights or options to acquire Company Common Membership Interests or
Company Preferred Membership Interests or any outstanding shares of capital
stock of any Company Subsidiary);
(d) amend its Certificate of Incorporation, By-Laws or Operating
Agreement (or other comparable governing documents);
(e) incur any long-term indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse the obligations of any other
Person;
<PAGE>
(f) (i) increase the rate or terms of compensation of any of its
directors, officers or employees, except such increases for employees as are
granted in the ordinary course of business consistent with past practice
previously budgeted (a copy of which budget has been delivered to Buyer prior to
the date hereof), or (ii) pay or agree to pay any pension, retirement allowance
or other employee benefit not required or permitted by any existing Employee
Benefit Plan or other agreement or arrangement to any such director, officer or
employee, whether past or present;
(g) sell, transfer, lease or otherwise dispose of any of its property
or assets (other than inventory in the ordinary course of business) or mortgage
or encumber any of its material property or assets;
(h) make any loan to, or enter into or effect any other transaction
with, any of its directors or officers, or the Seller or any Affiliate of the
Seller (excluding the Company and the Company Subsidiaries);
(i) enter into other material agreements, commitments or contracts,
except agreements, commitments or contracts made in the ordinary course of
business consistent with past practice;
(j) make any election for Tax purposes or for purposes of a Return (or
have any such election made on its behalf), including any election pursuant to
Treasury Regulationss. 301.7701, or enter into any agreement, arrangement or
settlement with respect to material Taxes with a Governmental Entity or other
Person;
(k) change any method of accounting;
(l) merge or consolidate with, or purchase substantially all of the
assets of, or otherwise acquire any business of any Person, except pursuant to
the Corporate Reorganization;
(m) take any action or omit to take any action which will result in a
material violation of any applicable law or Order or cause a material breach of
any agreements, contracts or commitments by it which is material to its business
(including, without limitation, the material contracts disclosed in Section 3.09
of the Disclosure Schedule); or
(n) agree or commit to take any of the foregoing actions.
5.02. FINANCIAL CAPABILITY.
(a) Buyer shall maintain the Commitment Letters in full force and
effect until the Closing Date.
(b) At the Closing, upon delivery of the CMF Note to the Citicorp
Mezzanine Fund, the Buyer will cause the Citicorp Mezzanine Fund to deliver $25
million in immediately available funds to an account designated in writing by
the Finance Company at least two (2) Business Days prior to the Closing.
<PAGE>
5.03. ADDITIONAL INFORMATION.
(a) From the date of this Agreement until the Closing Date, Seller
will cause the Company and the Company Subsidiaries to provide Buyer and its
officers, consultants, employees, counsel, agents, lenders and other
representatives with reasonable access during normal business hours to the
properties, books, contracts, and records of the Company and the Company
Subsidiaries. All such information shall be subject to the terms and conditions
of the letter agreement dated August 17, 1999 (the "Confidentiality Agreement"),
between Citicorp Venture Capital Ltd. and USI.
(b) After the Closing, upon reasonable written notice, Buyer will give
or cause to be given to Seller and its authorized representatives, reasonable
access to such information relating to the Company and the Company Subsidiaries
as is reasonably necessary for the preparation or filing of any Tax return,
financial statement or report, or is otherwise reasonably requested; PROVIDED,
HOWEVER, that any such access shall be conducted at a reasonable time and in
such a manner as not to interfere unreasonably with the operations of the
business of the Company and the Company Subsidiaries. Buyer agrees to cause each
of the Company and the Company Subsidiaries to preserve its records for a period
of seven (7) years from the Closing Date and, if it wishes to destroy any such
records after the retention period, it shall first give sixty (60) days' prior
written notice to Seller, which shall then have the right to take possession of
such records, at its expense, within sixty (60) days after the delivery of such
notice.
(c) CERTAIN POST-CLOSING ASSISTANCE BY THE BUYER. So long as it does
not unreasonably interfere with the business operations of the Company or any
Company Subsidiary, Buyer agrees to cause the appropriate personnel at the
Company and the Company Subsidiaries, at no cost or expense to the Seller, to
prepare, during normal business hours and with reasonable advance notice, all
customary accounting and related reports with respect to the Company and the
Company Subsidiaries for periods since September 30, 1999, up to the Closing
Date which are reasonably requested by the Seller in connection with the
Seller's preparation and/or filing of various financial and accounting reports.
(d) CASH MANAGEMENT. Seller shall continue to cause the funding by the
Company and the Company Subsidiaries of the Company and Company Subsidiary
checks, in accordance with past practices, which are presented for payment
through the day prior to the Closing Date. Seller shall have no obligation to
fund checks which are presented for payment on and after the Closing Date.
Amounts received in the lockbox and depository accounts of Seller through the
Closing Date shall continue to be paid to Seller in accordance with past
practices, provided that such collections are appropriately reflected on the
Balance Sheet. The bank accounts of the Company and the Company Subsidiaries
will continue to be owned by the Company and the Company Subsidiaries after the
Closing Date.
5.04. COVENANT TO SATISFY CONDITIONS. The Seller will use all
reasonable efforts to ensure that the conditions set forth in Article VII hereof
are satisfied. Buyer will use all reasonable efforts to ensure that the
conditions set forth in Article VI hereof are satisfied.
5.05. EMPLOYEE MATTERS.
<PAGE>
(a) Except as may otherwise be required by a collective bargaining
agreement or contract, the Company and the Company Subsidiaries shall maintain
after the Closing Date the Employee Benefit Plans or substitute for such Plans
other plans and policies which shall provide benefits and coverage to current
and retired employees of the Company and the Company Subsidiaries that are in
the aggregate substantially similar to the benefits and coverage afforded by the
Employee Benefit Plans. Prior to the Closing, the Seller and the Company will
take any and all such actions necessary or appropriate to establish, adopt,
enter into and implement such plans, policies, administrative systems and
contracts, including, without limitation, establishing as necessary plans and
related trust agreements that are substantially identical to the pension benefit
plans included within the Employee Benefit Plans, continuing such benefits and
coverage in accordance with this Section 5.05(a). Nothing in this Agreement
shall preclude the Company from amending or terminating any Employee Benefit
Plan or any other Company benefit plan.
(b) As soon as practicable, but no more than sixty (60) days following
the Closing Date, the Seller shall cause the assets related to the accounts
maintained for the benefit of current and former employees of the Company and
the Company Subsidiaries pursuant to the 401(k) plans set forth on Section
5.05(b) of the Disclosure Schedule (the "Company 401(k) Plans") held in the
applicable Master Trusts (the "Master 401(k) Trusts") to be transferred to a
successor trust established by the Company or one of its Affiliates (the "New
401(k) Trust"). The amount of assets transferred from the Master 401(k) Trusts
to the New 401(k) Trust shall be equal to the fair market value of the assets
held in the Master 401(k) Trusts for such employee and former employees'
accounts.
(c) As soon as practicable following the Closing Date, but in no event
later than (i) 60 days after the Closing Date and (ii) 30 days after the
finalization of the necessary data required for determination of assets and
liabilities, the Seller shall spin off assets and liabilities from the Seller's
USI Group Pension Plan and U.S. Industries, Inc. Pension Plan (the "Spinoff
Plans") for benefits accrued as of the Closing Date with respect to the active
employees of the Company and active and terminated vested and retired former
employees of the Company Subsidiaries participating in the Spinoff Plans as
detailed in Section 5.05(c) of the Disclosure Schedule. The amount of assets
transferred shall be calculated in accordance with section 1.414(1)-1(n)(1) of
the Treasury Regulations applying the following PBGC assumptions used for plans
terminating as of the Closing Date:
- PBGC interest rate used to value annuities specified in
Table I of Appendix B of Part 4044 of the PBGC regulations
promulgated under ERISA
- 1983 Group Annuity Mortality Table
- Expense load in accordance with Appendix C of Part 4044 of the
PBGC regulations promulgated under ERISA
- Expected retirement ages as specified in Appendix D of Part
4044 of the PBGC regulations promulgated under ERISA
- No other demographic assumption shall be used.
<PAGE>
The amount of assets to be transferred shall be calculated as of the Closing
Date based on employee data as of 12/31/99, aged to the Closing Date and
credited with actual trust earnings from the Closing Date to the actual transfer
date, adjusted for applicable benefit payments and plan expenses in accordance
with past practices.
(d) As soon as practicable following the Closing Date, but no more
than sixty (60) days following the Closing Date, the Seller shall cause all of
the assets related to the pension plans set forth on Section 5.05(d) of the
Disclosure Schedule (the "Company Subsidiary Pension Plans") held in the Master
Trust to be transferred to the New Pension Trusts. The "Spinoff Plans" and the
"Company Subsidiary Pension Plans" together are "USI Pension Plans."
(e) All contributions that are, or will be, required to be made to any
USI Pension Plan, or a successor to such plan, by Section 302 of ERISA or
section 412 of the Code with respect to the plan year of any such USI pension
plan, or successor plan, beginning or ending in 1999, to the extent not paid by
the Seller prior to the Closing Date, will be paid subsequent to the Closing
Date by the Seller in accordance with Section 302 of ERISA and section 412 of
the Code.
5.06. FURTHER ASSURANCES. Each of the parties hereto agrees to use its
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations or otherwise to consummate and make effective the
transactions contemplated by this Agreement including the Corporate
Reorganization, the sale, assignment, transfer and conveyance of the Purchased
Securities and the underlying assets and properties used in the conduct of the
business of any Company Subsidiary or the benefits thereof. If at any time after
the Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement including the Corporate Reorganization and the sale,
assignment, transfer and conveyance of the Purchased Securities and the
underlying assets and properties used in the conduct of the business of any
Company Subsidiary or the benefits thereof, the parties hereto shall take or
cause to be taken all such necessary action, including, without limitation, the
execution and delivery of such further instruments and documents as may be
reasonably requested by any party for such purposes or otherwise to consummate
and make effective the transactions contemplated hereby.
5.07. BINDING ON SUCCESSORS. In the event Buyer, the Company or any of
their respective successors or assigns or Seller or any of its respective
successors or assigns (a) consolidates with or merges into any other Person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (b) transfers all or substantially all of its
properties and assets to any Person, then and in each such case, proper
provision shall be made so that the successors and assigns of Buyer or the
Company or the Seller, as applicable (or their successors and assigns), shall
assume any obligations set forth in this Article V that survive the Closing
Date.
5.08. NON-COMPETE AND NON-SOLICITATION.
(a) So that Buyer may enjoy the full benefits of the aircraft bearing
inspection and repair business, Seller agrees with the Buyer that for a period
of three (3) years after the Closing, neither the Seller nor any of its
Affiliates shall engage, directly or
<PAGE>
indirectly, in lines of businesses competitive to the business of the Company's
subsidiary, Bearing Inspection Holdings, Inc. or its Subsidiaries (collectively,
"Bearing") anywhere in the world, PROVIDED, HOWEVER, should the Seller or any of
its Affiliates purchase a business, a division or subsidiary which engages in a
line of business which is competitive with the business of Bearing as it exists
on the Closing Date, the Seller or its Affiliate, as applicable, shall have a
period of twelve (12) months following the date of such purchase to dispose of
such competing business. Seller agrees that the foregoing covenant is intended
to prohibit Seller from engaging in such activities, as the case may be, as
owner, creditor (except as a trade creditor in the ordinary course of business),
partner, stockholder or lender (except as a holder of equity or debt securities
in the Company or a corporation which has a class of securities that are
publicly traded on a stock exchange or the recognized over-the-counter market,
and then only to the extent of owning not more than five percent (5%) of the
issued and outstanding debt or equity securities of such corporation),
contractor or agent for any person, firm or corporation.
(b) In consideration of the Unit Consideration and the Seller Note and
in order that the Buyer may enjoy the full benefits of the business, Seller
covenants and agrees that, for three (3) years after the Closing Date, neither
Seller nor any of its Affiliates shall solicit, employ, retain as a consultant,
interfere with or attempt to entice away from the Company or any Company
Subsidiary or any successor to any of the foregoing any individual who is, has
agreed to be or within one year of such solicitation, employment, retention,
interference or enticement has been, employed or retained by the Company, the
Company Subsidiary or any successor to any of the foregoing.
(c) Seller acknowledges and agrees that the remedy at law for any
breach, or threatened breach, of any of the provisions of this Section 5.08 will
be inadequate and, accordingly, Seller covenants and agrees that the Buyer
shall, in addition to any other rights and remedies which the Buyer may have, be
entitled to equitable relief, including injunctive relief, and to the remedy of
specific performance with respect to any breach or threatened breach of such
covenant, as may be available from any court of competent jurisdiction. Such
right to obtain equitable relief may be exercised, at the option of the Buyer,
concurrently with, prior to, after, or in lieu of, the exercise of any other
rights or remedies that the Buyer may have as a result of any such breach or
threatened breach.
(d) In the event that the provisions of this Section 5.08 shall be
determined by a court of competent jurisdiction to be unenforceable under
applicable law as to that jurisdiction (the parties agreeing that such decision
shall not be binding, RES JUDICATA or collateral estoppel in any other
jurisdiction) for any reason whatsoever, then any such provision or provisions
shall not be deemed void, but the parties hereto agree that said limits may be
modified by the court and that said covenant contained in this Section 5.08
shall be amended in accordance with said modifications, it being specifically
agreed by Seller and the Buyer that it is their continuing desire that this
covenant be enforced to the full extent of its terms and conditions or if a
court finds the scope of the covenant unenforceable, the court should redefine
the covenant so as to comply with applicable law.
5.09. CONFIDENTIALITY. Seller shall, and shall cause its Affiliates
and representatives to, keep confidential and not disclose to any other Person
or use for its own benefit or the benefit of any other Person any confidential
proprietary information, technology, know-how, trade secrets (including, without
limitation, all results of research and
<PAGE>
development), product formulas, industrial designs, franchises, inventions or
other industrial and intellectual property in its, his, her or their possession
or control regarding the Company, any Company Subsidiary or their business and
operation. The obligations of the Seller under this Section 5.09 shall not apply
to information which (i) is or becomes generally available to the public without
breach of the commitment provided for in this Section; or (ii) is required to be
disclosed by law, order or regulation of a court or tribunal or governmental
authority; PROVIDED, HOWEVER, that, in any such case, the Seller subject to such
requirement shall notify the Buyer and the Company as early as reasonably
practicable prior to disclosure to allow the Buyer and the Company to take
appropriate measures to preserve the confidentiality of such information.
5.10. CHANGE IN CONTROL PAYMENTS. Seller shall pay or shall cause to
be paid all amounts (to the extent not reflected in the Closing Statement) which
shall become due and payable by the Company or any Company Subsidiaries as a
result of a trigger of a change in control or similar provision in any agreement
as a result of consummation of the transactions contemplated herein.
5.11. JADE HOLDINGS. Prior to the Closing, Jade Holdings shall not,
and Seller shall cause Jade Holdings not to, make any dividend or distribution
to Seller or its respective subsidiaries.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller to effect the transactions
contemplated hereby shall be subject to its receipt of the deliveries
contemplated by Section 2.03 hereof and to the fulfillment, or written waiver by
Seller, at or prior to the Closing of each of the following conditions:
6.01. REPRESENTATIONS AND WARRANTIES TRUE.
(a) Each of the representations and warranties of Buyer contained in
Sections 4.01, 4.02 and 4.06 of this Agreement shall be true and correct at and
as of the Closing Date, with the same force and effect as though made at and as
of the Closing Date (except to the extent that any representation or warranty is
made as of a specific date, in which case such representation or warranty shall
be true and correct as of such date).
(b) The representations and warranties of Buyer in this Agreement
(other than those referred to in Section 6.01(a)) shall be true and correct at
and as of the Closing Date with the same force and effect as though made at and
as of the Closing Date (except to the extent that any representation or warranty
is made as of a specific date, in which case such representation or warranty
shall be true and correct as of such date). The determination of whether the
condition set forth in this Section 6.01(b) shall be satisfied shall be made on
a cumulative basis by adding the effect of all breaches of representations and
warranties (determined without regard to any materiality or Buyer Material
Adverse Effect or similar qualifiers). If the effect of the aggregation of such
breaches of representations or warranties
<PAGE>
does not result in a Buyer Material Adverse Effect, then this condition shall be
deemed satisfied.
6.02. PERFORMANCE. Buyer shall have performed and complied in all
material respects with all agreements, obligations, covenants and conditions
required by this Agreement to be performed or complied with by it on or prior to
the Closing, including without limitation Buyer's obligation in Section 5.02(b).
6.03. NO INJUNCTION OR PROCEEDING. No Order shall have been enacted,
entered, promulgated or enforced by any Governmental Entity which prohibits or
restricts the consummation of the transactions contemplated hereby. No action or
proceeding by any Governmental Entity shall be pending or threatened in writing
against Buyer, the Seller, the Company or any of their respective Affiliates,
associates, officers or directors seeking to prevent or delay the transactions
contemplated hereby or challenging any of the terms or provisions of this
Agreement or seeking material damages in connection therewith.
6.04. CERTIFICATES. Buyer shall have furnished JUSI with such
certificates of its officers and others to evidence its compliance with the
conditions set forth in this Article VI as may be reasonably requested by JUSI.
6.05. CREDIT FACILITY. There shall be availability to the Operating
Companies under the Credit Facility of not less than $35 million (after giving
effect to the Jade Holdings Pay-off and payment of the Designated Expenses).
6.06. REXAIR TRANSACTION. The transaction contemplated by the Rexair
Subscription Agreement dated as of the date hereof by and among the Seller, the
Company and Strategic Industries, Inc., a Delaware corporation, shall have been
consummated.
6.07. MATERIAL ADVERSE EFFECT. No Buyer Material Adverse Effect shall
have occurred nor shall any event or circumstance which could reasonably be
expected to produce a Buyer Material Adverse Effect have occurred.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYER
The obligation of Buyer to effect the transactions contemplated hereby
shall be subject to its receipt of the deliveries contemplated by Section 2.02
hereof and to the fulfillment, or written waiver by Buyer, at or prior to the
Closing of each of the following conditions:
7.01. REPRESENTATIONS AND WARRANTIES TRUE.
(a) Each of the representations and warranties of Seller contained in
Sections 3.01, 3.02, 3.03, 3.04 and 3.16 of this Agreement shall be true and
correct at and as of the Closing Date, with the same force and effect as though
made at and as of the Closing Date (except to the extent that any representation
or warranty is made as of a specific date, in which case such representation or
warranty shall be true and correct as of such date).
<PAGE>
(b) The representations and warranties of Seller in this Agreement
(other than those referred to in Section 7.01(a)) shall be true and correct at
and as of the Closing Date with the same force and effect as though made at and
as of the Closing Date (except to the extent that any representation or warranty
is made as of a specific date, in which case such representation or warranty
shall be true and correct as of such date). The determination of whether the
condition set forth in this Section 7.01(b) shall be satisfied shall be made on
a cumulative basis by adding the effect of all breaches of representations and
warranties (determined without regard to any materiality or Company Material
Adverse Effect or similar qualifiers). If the effect of the aggregation of such
breaches of representations or warranties does not result in a Company Material
Adverse Effect, then this condition shall be deemed satisfied.
7.02. PERFORMANCE. The Seller shall have performed and complied in all
material respects with all agreements, obligations, covenants and conditions
required by this Agreement to be performed or complied with by it on or prior to
the Closing.
7.03. NO INJUNCTION OR PROCEEDING. No Order shall have been enacted,
entered, promulgated or enforced by any Governmental Entity which prohibits or
restricts the consummation of the transactions contemplated hereby. No action or
proceeding by any Governmental Entity shall be pending or threatened in writing
against Buyer, the Seller, the Company or any of their respective Affiliates,
associates, officers or directors seeking to prevent or delay the transactions
contemplated hereby, challenging any of the terms or provisions of this
Agreement or seeking material damages in connection therewith.
7.04. CERTIFICATES. The Seller shall have furnished Buyer with such
certificates of its officers or other representatives and others to evidence
compliance by the Seller with the conditions set forth in this Article VII as
may be reasonably requested by Buyer.
7.05. CREDIT FACILITY. There shall be availability to the Operating
Companies under the Credit Facility of not less than $35 million (after giving
effect to the Jade Holdings Pay-off and payment of the Designated Expenses).
7.06. CONSENTS. The Seller, the Company or the appropriate Company
Subsidiary shall have received all consents from third parties (including any
Governmental Entity), the absence of which could reasonably be expected to have
a Company Material Adverse Effect, including the consents described in Section
3.05 of the Disclosure Schedule, in form and substance reasonably acceptable to
Buyer.
7.07. MATERIAL ADVERSE EFFECT. No Company Material Adverse Effect
shall have occurred nor shall any event or circumstance which could reasonably
be expected to produce a Company Material Adverse Effect have occurred.
<PAGE>
ARTICLE VIII
TERMINATION AND ABANDONMENT
8.01. TERMINATION. This Agreement may be terminated at any time prior
to the Closing Date:
(a) by written mutual consent of the Seller and Buyer;
(b) by either the Seller or Buyer by written notice given to the other
at any time after March 31, 2000 if, through no fault of the party seeking
termination, the Closing shall not have occurred;
(c) by Buyer by written notice given to the Seller, if there has been
a material violation or breach by the Seller of any agreement, representation or
warranty contained in this Agreement and such violation or breach has not been
cured within 30 days following notice thereof; or
(d) by the Seller by written notice given to the Buyer, if there has
been a material violation or breach by Buyer of any agreement, representation or
warranty contained in this Agreement and such violation or breach has not been
cured within 30 days following notice thereof.
8.02. PROCEDURE AND EFFECT OF TERMINATION. In the event of termination
of this Agreement and abandonment of the transactions contemplated hereby by any
or all of the parties pursuant to Section 8.01 hereof, written notice thereof
shall forthwith be given to the other party or parties hereto and this Agreement
shall terminate and the transactions contemplated hereby shall be abandoned,
without further action by any of the parties hereto. If this Agreement is
terminated as provided herein:
(a) upon request therefor, each party will redeliver all documents,
work papers and other material of any other party or of the Company or any
Company Subsidiary relating to the transactions contemplated hereby, whether
obtained before or after the execution hereof, to the party furnishing or
causing to be furnished the same;
(b) all information received by Buyer with respect to the business of
the Company or any Company Subsidiary shall be held subject to and in accordance
with the terms of the Confidentiality Agreement, which agreement shall continue
notwithstanding the termination of this Agreement; and
(c) any termination pursuant to Section 8.01(c) or (d) shall not be
deemed a waiver of any rights or remedies otherwise available under this
Agreement, by operation of law or otherwise, to the party who so terminates and
shall not relieve the breaching party (whether or not it is the terminating
party) from any liability to the other party hereto arising from or related to
such breach.
<PAGE>
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.01. AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented at any time by the parties hereto only by an instrument
in writing duly signed by the parties hereto.
9.02. EXTENSION; WAIVER. At any time prior to the Closing Date, the
parties entitled to the benefits of the respective term or provision may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein any document, certificate or writing delivered
pursuant hereto or (c) waive compliance with any obligation, covenant, agreement
or condition contained herein. Any agreement on the part of any party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of the parties entitled to the benefits of such
extended or waived term or provision.
No waiver of any of the provisions of this Agreement shall be deemed
to or shall constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of any party in exercising any right, power, or
privilege hereunder shall operate as a waiver thereof.
9.03. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as
otherwise provided for in the Indemnification Agreement and the Tax Sharing
Agreement, the representations and warranties made in this Agreement shall not
survive beyond the Closing.
9.04. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement together with the
Indemnification Agreement, the Tax Sharing Agreement, the Remarketing Agreement
and the underlying documentation to effect the Corporate Reorganization (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof (other than the Confidentiality Agreement) and (b) shall not be
assigned by operation of law or otherwise by the Seller without the prior
written consent of the Company, which shall not be unreasonably withheld. This
Agreement may be assigned by the Company or Buyer to any Affiliate (but no such
assignment shall release Company or buyer of its obligations hereunder) (ii) one
or more of its lenders if required by same or (iii) to any purchaser of (I) the
outstanding stock or all on substantially all of the assets of any Company
Subsidiary without the prior written consent of Seller.
9.05. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, each of which shall remain in full force and
effect.
9.06. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or by facsimile transmission or telexed or three days after
being mailed by registered or certified mail (return receipt requested), postage
prepaid, and one Business Day after deposited with an overnight courier service
if delivered by overnight courier, to the
<PAGE>
parties at the following addresses (or at such other address for a party as
shall be specified by like notice; PROVIDED, that notices of a change of address
shall be effective only upon receipt thereof):
(a) if to the Seller, to:
c/o U.S. Industries, Inc.
101 Wood Avenue South
Iselin, New Jersey 08830
Telephone: (732) 767-0700
Telecopy: (732) 767-2208
Attention: General Counsel
(b) if to Buyer, to:
Automotive Interior Products, LLC
c/o Citicorp Venture Capital Ltd.
399 Park Avenue, Sixth Floor
New York, New York 10043
Telephone: (212) 559-1127
Telecopy: (212) 888-2940
Attention: Michael T. Bradley
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Telephone: (215) 994-4000
Telecopy: (215) 994-2222
Attention: G. Daniel O'Donnell
9.07. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
9.08. SPECIFIC PERFORMANCE. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity.
9.09. PUBLIC DISCLOSURE. Notwithstanding anything herein to the
contrary, each of the parties to this Agreement hereby agrees with the other
party or parties hereto that, except as may be required to comply with the
requirements of any applicable laws and the rules and regulations of any stock
exchange upon which the securities of one of the parties (or its Affiliate) is
listed, in which case the party making the release or announcement shall provide
a copy of such release or announcement 48 hours in advance to the other parties,
no
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press release or announcement with respect to the transactions contemplated by
this Agreement shall be issued by any party to this Agreement prior to the
Closing without the advance consent of the other parties.
9.10. DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning interpretation of this Agreement.
9.11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.12. FEES AND EXPENSES. Whether or not the transactions contemplated
by this Agreement are consummated, Seller shall pay all of the out-of-pocket
expenses incurred by the Seller, the Company and any Company Subsidiary in
connection with the negotiation and preparation of this Agreement and the
consummation of the transactions contemplated hereby, including, without
limitation, all legal, accounting, financial advisory and other costs and
expenses; provided, however, that any out-of-pocket expenses incurred in
connection with the Bank Commitment Letter and the Credit Facility (including
without limitation reimbursement of the $500,000 advance made by Seller under
the commitment letter) shall be paid out of the Initial Bank Drawdown. If the
transactions contemplated by this Agreement are consummated, the Company shall
pay out of the Initial Bank Drawdown the Citicorp Mezzanine Fund commitment fee
of $700,000 and up to $1.3 million of reasonable and invoiced out-of-pocket
legal, accounting and environmental consulting expenses incurred by the Buyer in
connection with the negotiation and preparation of this Agreement and the
consummation of the transactions contemplated hereby and Buyer shall pay any
other out-of-pocket expenses incurred by it in connection therewith. If the
transactions contemplated by this Agreement are not consummated, Buyer shall be
responsible for all its own out-of-pocket expenses. All expenses payable out of
the Initial Bank Drawdown as provided above shall be referred to as the
"Designated Expenses".
9.13. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of the parties hereto and nothing in this Agreement,
express or implied, is intended by or shall confer upon any other Person or
Persons any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
9.14. DEFINITIONS. As used in this Agreement:
"Affiliate" shall have the meaning set forth in Rule 12b-2 of
the regulations promulgated under the Securities and Exchange Act of 1934, as
amended.
"Applied GAAP" means GAAP (A) subject to the same exceptions
as specifically set forth in the notes to the Balance Sheet and otherwise using
the same accounting methods, policies, practices, and procedures, with
consistent classification, judgments, and estimation methodology, as were used
in preparing the Balance Sheet (as hereinafter defined), (B) not taking into
account any changes in circumstances or events occurring after the opening of
business on the Closing Date and (C) in no event including any receivables or
payables owed by or owed to Seller or any Affiliates thereof.
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"Business Day" shall mean any day in which banks are open for
business in New York City.
"Buyer Material Adverse Effect" shall mean a material adverse
effect (or series of related changes or effects) on the business, financial
condition or results of operations of the Buyer; PROVIDED that, for purposes of
this Agreement, changes or effects (i) attributable to worldwide, national or
local economic conditions or (ii) generally affecting the industries in which
the Buyer operates shall, in each case, not be deemed to constitute a Buyer
Material Adverse Effect.
"Company Material Adverse Effect" shall mean a material
adverse effect (or series of related changes or effects) on the business,
financial condition or results of operations of the Company and the Company
Subsidiaries taken as a whole; PROVIDED that, for purposes of this Agreement,
changes or effects (i) attributable to worldwide, national or local economic
conditions or (ii) generally affecting the industries in which the Company or
any Company Subsidiary operates shall, in each case, not be deemed to constitute
a Company Material Adverse Effect.
"Debt" means (a) all indebtedness of the Company and the
Company Subsidiaries for borrowed money, (b) all obligations of the Company and
the Company Subsidiaries for the deferred purchase price of property or services
(other than trade accounts payable in the ordinary course of business and
consistent with past practice), (c) all obligations of the Company and the
Company Subsidiaries evidenced by notes, bonds, debentures or other similar
instruments, (d) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by the
Company or the Company Subsidiaries (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all obligations of the Company and
the Company Subsidiaries as lessee or lessees under leases that have been or
should be, in accordance with generally accepted accounting principles, recorded
as capital leases, (f) all obligations, contingent or otherwise, of the Company
and the Company Subsidiaries under acceptance, letter of credit or similar
facilities, (g) all Debt of the type referred to in clauses (a) through (f)
above guaranteed directly or indirectly in any manner by the Company or the
Company Subsidiaries, or in effect guaranteed directly or indirectly by the
Company or the Company Subsidiaries through an agreement, (h) all Debt of the
type referred to in clauses (a) through (f) above secured by (or for which the
holder of such Debt has an existing right, contingent or otherwise, to be
secured by) any lien on property (including, without limitation, accounts and
contract rights) owned by the Company or any of the Company Subsidiaries, even
though such person has not assumed or become liable for the payment of such
Debt, and (i) all accrued but unpaid interest (or interest equivalent) to the
date of determination, and all prepayment premiums or penalties, related to any
items of Debt of the type referred to in clauses (a) through (h) above; PROVIDED
HOWEVER, intercompany debt among any of the Company Subsidiaries or between any
of the Company Subsidiaries and JUSI or Global, which shall be canceled or prior
to the Closing Date shall not be deemed to be Debt. For the avoidance of doubt,
if any Debt is added to the Closing Statement and should have been used to
calculate the Reference Amount, the Reference Amount should be adjusted
accordingly.
"Final Working Capital" shall mean Closing Date Working
Capital (x) as shown in the Closing Statement if no Notice of Disagreement with
respect thereto is duly and
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timely delivered pursuant to Section 1.04 or (y) if such a Notice of
Disagreement is so delivered, as agreed by Seller and Buyer pursuant to Section
1.04 or (z) if such Notice of Disagreement is so delivered and in the absence of
such agreement, as shown in the Arbiter's calculation delivered pursuant to
Section 1.04.
"Form 10" shall mean the following sections of Amendment No. 2 to the
Form 10 filed with the Securities and Exchange Commission on November 4, 1999,
solely as it relates to the Company Subsidiaries: "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
"Person" shall mean any individual, corporation, partnership,
association, limited liability company, trust, unincorporated organization,
other entity or group (as group is defined in Section 13(d)(3) of the Exchange
Act).
"Reference Amount" shall mean $177,200,000.
"Subscription Agreement" shall mean the Subscription Agreement of even
date herewith among Seller, the Company, Strategic Industries, Inc. and Buyer.
"Subsidiary" shall mean any Person of which more than 50% of the total
voting power of stock or other equity interests having ordinary voting power for
the election of directors or managers of such Person is at the time owned or
controlled, directly or indirectly, by another Person.
"Working Capital" shall mean the amount equal to (x) the book value of
the current assets of the Company and the Company Subsidiaries minus (y) the
book value of the current liabilities of the Company and the Company
Subsidiaries in each case as such "current assets" and "current liabilities" are
properly, or should be, accrued and reflected on the combined financial
statements of the Company and the Company Subsidiaries in accordance with
Applied GAAP, except that (i) all current Debt and (ii) Taxes based on income
will be excluded from "current liabilities." For the avoidance of doubt, such
amount shall be calculated in accordance with Section 1.04(e) of the Disclosure
Schedule and the accrual for Taxes shall not include any provision or reserve
for audit adjustments or contested liabilities.
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IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be signed by its duly authorized officers as of the date first
above written.
U.S. INDUSTRIES INC.
By:
------------------------------------
Name:
Title:
JUSI HOLDINGS, INC.
By:
---------------------------------
Name:
Title:
STRATEGIC INDUSTRIES LLC
By:
--------------------------------
Name:
Title:
AUTOMOTIVE INTERIOR PRODUCTS, LLC
By:
----------------------------------
Name:
Title:
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SECURITIES PURCHASE AGREEMENT
BY AND AMONG
U.S. INDUSTRIES, INC.,
JUSI HOLDINGS, INC.,
STRATEGIC INDUSTRIES, LLC
AND
AUTOMOTIVE INTERIOR PRODUCTS, LLC
Dated as of January 15, 2000
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ARTICLE I CORPORATE REORGANIZATION, REPAYMENT OF INTERCOMPANY DEBT,
REDEMPTION OF SHARES, SALE OF UNITS AND RELATED MATTERS............................1
1.01. Corporate Reorganization......................................................1
1.02. Bank Borrowing; Issuance of Notes; Repayment of Intercompany Debt
and Redemption of Retained Shares.............................................2
1.03. Sale and Purchase of Purchased Units..........................................3
1.04. Adjustment of Redemption Consideration........................................3
1.05. Company Right to Require Repurchase of Stock of UPI...........................6
ARTICLE II THE CLOSING........................................................................7
2.01. Time and Place of Closing.....................................................7
2.02. Deliveries by the Seller......................................................7
2.03. Deliveries by Buyer...........................................................8
2.04. Delivery by Citicorp Mezzanine Fund...........................................8
2.05. Deliveries by the Company.....................................................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER.......................................9
3.01. Corporate Organization; Etc...................................................9
3.02. Capitalization of the Company.................................................9
3.03. Company Subsidiaries.........................................................10
3.04. The Seller's and the Company's Authority Relative to this Agreement..........10
3.05. Consents and Approvals; No Violations........................................10
3.06. Financial Statements.........................................................11
3.07. Form 10; Absence of Certain Changes..........................................11
3.08. Compliance with Law..........................................................13
3.09. Contracts....................................................................13
3.10. Litigation...................................................................14
3.11. Taxes........................................................................14
3.12. Employee Benefit Plans; ERISA................................................16
3.13. Title to Properties..........................................................18
3.14. Patents, Trademarks, Etc.....................................................18
3.15. Environmental Matters........................................................18
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3.16. Brokers and Finders..........................................................19
3.17. Undisclosed Liabilities......................................................19
3.18. Related Party Transactions...................................................20
3.19. Adequacy of Assets...........................................................20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER...........................................20
4.01. Organization; Etc............................................................20
4.02. Authority Relative to this Agreement.........................................20
4.03. Consents and Approvals; No Violations........................................21
4.04. Acquisition of Purchased Securities for Investment...........................21
4.05. Financial Capability.........................................................21
4.06. Brokers and Finders..........................................................21
4.07. Buyer's Sophistication.......................................................21
ARTICLE V COVENANTS OF THE PARTIES..........................................................22
5.01. Conduct of Business of the Company...........................................22
5.02. Financial Capability.........................................................23
5.03. Additional Information.......................................................24
5.04. Covenant to Satisfy Conditions...............................................24
5.05. Employee Matters.............................................................24
5.06. Further Assurances...........................................................26
5.07. Binding on Successors........................................................26
5.08. Non-Compete and Non-Solicitation.............................................26
5.09. Confidentiality..............................................................27
5.10. Change in Control Payments...................................................28
5.11. Jade Holdings................................................................28
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF SELLER...........................................28
6.01. Representations and Warranties True..........................................28
6.02. Performance..................................................................29
6.03. No Injunction or Proceeding..................................................29
6.04. Certificates.................................................................29
6.05. Credit Facility..............................................................29
6.06. Rexair Transaction...........................................................29
6.07. Material Adverse Effect......................................................29
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ARTICLE VII CONDITIONS TO OBLIGATIONS OF BUYER................................................29
7.01. Representations and Warranties True..........................................29
7.02. Performance..................................................................30
7.03. No Injunction or Proceeding..................................................30
7.04. Certificates.................................................................30
7.05. Credit Facility..............................................................30
7.06. Consents.....................................................................30
7.07. Material Adverse Effect......................................................30
ARTICLE VIII TERMINATION AND ABANDONMENT.......................................................31
8.01. Termination..................................................................31
8.02. Procedure and Effect of Termination..........................................31
ARTICLE IX MISCELLANEOUS PROVISIONS..........................................................32
9.01. Amendment and Modification...................................................32
9.02. Extension; Waiver............................................................32
9.03. Non-Survival of Representations and Warranties...............................32
9.04. Entire Agreement; Assignment.................................................32
9.05. Validity.....................................................................32
9.06. Notices......................................................................32
9.07. Governing Law................................................................33
9.08. Specific Performance.........................................................33
9.09. Public Disclosure............................................................33
9.10. Descriptive Headings.........................................................34
9.11. Counterparts.................................................................34
9.12. Fees and Expenses............................................................34
9.13. Parties in Interest..........................................................34
9.14. Definitions..................................................................34
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ANNEXES
I Company Operating Agreement
II Intercompany Debt and Retained Shares
III Bank Commitment Letter
IV Description of Notes
V Tax Sharing Agreement
VI Indemnification Agreement
VII Registration Rights Agreement
VIII Stockholders Agreement
IX Remarketing Agreement
X Transition Services Agreement
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Exhibit 10.2
SUBSCRIPTION AGREEMENT
Dated as of January 15, 2000
The parties to this Subscription Agreement (this "Agreement")
are U.S. Industries, Inc., a Delaware corporation ("USI"), JUSI Holdings, Inc.,
a Delaware corporation that is an indirect wholly-owned subsidiary of USI
("JUSI" and, collectively with USI, the "Parent"), Strategic Industries, LLC, a
Delaware limited liability company ("SILLC"), Strategic Industries, Inc., a
Delaware corporation formerly known as Rexair Holdings, Inc. that is a
wholly-owned subsidiary of JUSI (the "Company"), and Automotive Interior
Products, LLC, a Delaware limited liability company (the "Buyer"). Capitalized
terms used in this Agreement without definition have the meanings ascribed to
them in Section 9.14.
Buyer desires to subscribe for common and preferred units and
a note of SILLC. SILLC desires to issue and sell such notes and units to Buyer,
and to use the proceeds therefrom to purchase from the Company a number of
shares (the "Company Shares") of common stock, par value $.01 per share, of the
Company ("Company Common Stock") equal to 75% of the issued and outstanding
shares of Company Common Stock after giving effect to such issuance. The Company
desires to use the proceeds from the issuance and sale of the Company Shares to
SILLC, and the proceeds of new bank financing, to repay intercompany debt owed
by it to JUSI.
In consideration of the mutual agreements set forth below, and
intending to be legally bound hereby, the parties to this Agreement agree as
follows:
ARTICLE I
SUBSCRIPTION FOR SECURITIES
1.01. SUBSCRIPTION FOR NOTE AND UNITS OF SILLC.
(a) At the Closing (as defined in Section 2.01), immediately
prior to the issuance and sale of the Company Shares contemplated by Section
1.02 of this Agreement:
(i) SILLC shall issue and sell to Buyer a junior
subordinated note of SILLC (the "Junior Subordinated Note") in the principal
amount of $10 million substantially in the form of ANNEX A and Buyer shall pay
to SILLC $10 million for such note; and
(ii) SILLC shall issue and sell to Buyer 53,114 Class A
Common Units, 179,486 Class B Common Units and 97,674 Junior Preferred Units
(collectively, the "Purchased Units") and Buyer shall pay to SILLC an aggregate
of $10 million for such units, consisting of $53,114 for the Class A Common
Units, $179,486 for the Class B Common Units and $9,767,400 for the Junior
Preferred Units.
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(b) SILLC shall use the proceeds of such issuances and sales
to purchase the Company Shares pursuant to Section 1.02 of this Agreement.
(c) The Purchased Units, when issued and sold to Buyer, shall
be free and clear of all claims, liens, encumbrances, security interests,
pledges, mortgages, title defects of any kind, options, voting trusts, proxies,
voting agreements, rights of first refusal or first offer, preemptive rights,
covenants, charges or restrictions on transfer of any nature whatsoever (each,
an "Encumbrance"), except those created in favor of Buyer pursuant to this
Agreement and the SILLC Stockholders Agreement.
1.02. SUBSCRIPTION FOR THE COMPANY SHARES.
(a) At the Closing, SILLC shall purchase from the Company, and
the Company shall issue and sell to SILLC, the Company Shares, and SILLC shall
pay to the Company $20 million for such shares.
(b) The Company shall use the $20 million of proceeds to repay
intercompany debt pursuant to Section 1.04 of this Agreement
(c) The Company Shares, when issued and sold to SILLC, shall
be free and clear of all Encumbrances, except those created in favor of SILLC
under this Agreement and the Stockholders Agreement (as defined below).
1.03. INCURRENCE OF COMPANY DEBT. At the Closing, the Company
or a Company Subsidiary shall borrow an aggregate of $178 million (the "Company
Bank Indebtedness") under credit facilities (the "Company Credit Facility") on
the terms of the Bank Commitment Letter (as defined in Section 4.05). USI shall
fully and unconditionally guarantee the Company Bank Indebtedness. The Company
shall use the proceeds of borrowings under the Company Credit Facility to pay
financing expenses as contemplated by Section 9.12 of this Agreement and to
repay intercompany debt pursuant to Section 1.04 of this Agreement.
1.04. REPAYMENT OF INTERCOMPANY DEBT. At the Closing, the
Company shall repay an aggregate principal amount of $195 million of
intercompany debt owed by the Company to USI Global Corp., a Delaware
corporation and a wholly owned subsidiary of USI. All remaining intercompany
debt owned by the Company to USI Global Corp. shall be capitalized.
ARTICLE II
THE CLOSING
2.01. TIME AND PLACE OF CLOSING. The closing of the
transactions contemplated by this Agreement (the "Closing") will take place at
the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York
10153 at 9:30 A.M. (local time) on the first Business Day following the date on
which all of the conditions to each party's obligations hereunder have been
satisfied or waived, or at such other place or time or both as the parties may
agree. The date on which the Closing actually occurs and the
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transactions contemplated hereby become effective is referred to herein as the
"Closing Date."
2.02. DELIVERIES BY SILLC. At the Closing, SILLC will deliver
or cause to be delivered the following to Buyer:
(a) The Junior Subordinated Note and certificates evidencing
the Class A Common Units, the Class B Common Units and the Junior Preferred
Units, in each case accompanied by stock or note powers duly endorsed in blank;
(b) The certificates contemplated by Section 7.04 hereof;
(c) An executed counterpart of the Indemnification Agreement
substantially in the form of ANNEX B hereto (the "Indemnification Agreement");
(d) An executed counterpart of the Registration Rights
Agreement substantially in the form of ANNEX C hereto (the "Registration Rights
Agreement");
(e) An executed counterpart of the Securities Purchase and
Holders Agreement substantially in the form of ANNEX D hereto (the "Stockholders
Agreement");
(f) An executed counterpart of the Management Agreement (as
defined in Section 5.10);
(g) A legal opinion of Weil, Gotshal and Manges LLP, counsel
to Parent, as to customary matters in a form reasonably acceptable to Buyer; and
(h) An executed counterpart of the Escrow Agreement (as
defined in Section 5.12).
2.03. DELIVERIES BY BUYER. At the Closing, Buyer will deliver
or cause to be delivered the following to Parent and SILLC:
(a) $20 million in immediately available funds to an account
designated in writing by SILLC at least two (2) Business Days prior to the
Closing;
(b) The certificates contemplated by Section 6.04 hereof;
(c) An executed counterpart of the Registration Rights
Agreement;
(d) An executed counterpart of the Stockholders Agreement;
(e) A legal opinion of Dechert Price & Rhoads, counsel to
Buyer, as to customary matters in a form reasonably acceptable to Parent; and
(f) An executed counterpart of the Escrow Agreement.
2.04. DELIVERIES BY THE COMPANY. At the Closing, the Company
will deliver or cause to be delivered the following to Buyer, Parent and/or
SILLC:
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(a) Certificates representing the Company Shares registered in
the name of SILLC;
(b) The resignations of all members of the Board of Directors
of the Company (other than as indicated by Buyer in writing prior to the
Closing);
(c) An executed counterpart of the Indemnification Agreement;
(d) An executed counterpart of the Registration Rights
Agreement; and
(e) An executed copy of the Management Agreement; and
(f) An executed counterpart of the Stockholders Agreement.
2.05. DELIVERIES BY PARENT. At the Closing, Parent will
deliver or cause to be delivered the following to Buyer:
(a) The stock books, stock ledgers, minute books and corporate
seals of the Company and the Company Subsidiaries;
(b) An executed counterpart of the Indemnification Agreement;
(c) An executed counterpart of the Stockholders Agreement;
(d) An executed counterpart of the Registration Rights
Agreement; and
(e) A release in a form reasonably acceptable to Buyer and
Parent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PARENT
Each Parent hereby jointly and severally represents and
warrants to Buyer (it being understood that, for purposes of all such
representations and warranties, the Corporate Reorganization shall be deemed to
have been completed):
3.01. CORPORATE ORGANIZATION; ETC. The Company and each of the
Subsidiaries of the Company (each a "Company Subsidiary" and collectively, the
"Company Subsidiaries") is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to conduct its business as it is now
being conducted and to own, lease and operate its property and assets except
where the failure to have such power or authority is not, in the aggregate,
reasonably likely to have a Company Material Adverse Effect. SILLC is a limited
liability company duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite limited
liability company power and authority to conduct its business as it is now being
conducted and to own, lease and operate its property and assets. Each of the
Company, the Company Subsidiaries and SILLC is qualified or otherwise authorized
to transact business as a foreign corporation and, in the case
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of SILLC, as a foreign limited liability company, and is in good standing in
each jurisdiction set forth in Section 3.01 of the Disclosure Schedule, which
jurisdictions are the only jurisdictions in which the location of its properties
or the conduct of its business requires such qualification or authorization and
in which the failure so to qualify would either individually or in the aggregate
have a Company Material Adverse Effect (as defined in Section 9.14) or a SILLC
Material Adverse Effect (as defined in Section 9.14).
3.02. CAPITALIZATION OF THE COMPANY AND SILLC.
(a) The authorized capital stock of the Company consists of
1,000 shares of Company Common Stock. JUSI is the record and beneficial owner of
1,000 shares of Company Common Stock and has good and valid title to the Company
Common Stock, free and clear of all Encumbrances. All of the Company Shares,
when issued, will be duly authorized, validly issued, fully paid and
nonassessable, not issued in violation of any agreement or other understanding
binding upon Parent or the Company or any preemptive rights, and issued in
compliance with all applicable federal and state securities or "blue sky" laws
and regulations. Except as listed in Section 3.02 of the Disclosure Schedule
hereto and as contemplated by this Agreement, there are no outstanding (a)
securities convertible into or exchangeable for capital stock of the Company,
(b) options, warrants or other rights (including, without, limitation,
preemptive rights) to purchase or subscribe for securities of the Company or (c)
contracts, commitments, agreements, understandings or arrangements of any kind
relating to the issuance of any capital stock or other equity securities or any
such convertible or exchangeable securities or any such options, warrants or
rights, pursuant to which, in any of the foregoing cases, the Company or any
Company Subsidiary is subject or bound. The consummation of the transactions
contemplated hereby will convey to SILLC good title to the Company Shares free
and clear of all proxies, voting agreements and other Encumbrances, except for
those created in favor of SILLC under this Agreement or the Stockholders
Agreement.
(b) Immediately prior to the Closing, the authorized
membership interests of SILLC shall consist of 1,000,000 Class A Common Units,
1,000,000 Class B Common Units and 1,000,000 Junior Preferred Units, of which
318,786 Class A Common Units, 448,614 Class B Common Units and 692,326 Junior
Preferred Units shall be issued and outstanding. All the Purchased Units will be
duly authorized, validly issued, fully paid and nonassessable, will not be
issued in violation of any agreement or other understanding binding upon Parent
or SILLC or any preemptive rights, and will be issued in compliance with all
applicable federal and state securities or "blue sky" laws and regulations.
Except as listed in Section 3.02 of the Disclosure Schedule hereto and as
contemplated by this Agreement, there are no outstanding (a) securities
convertible into or exchangeable for membership interests of SILLC, (b) options,
warrants or other rights (including, without, limitation, preemptive rights) to
purchase or subscribe for securities of SILLC or (c) contracts, commitments,
agreements, understandings or arrangements of any kind relating to the issuance
of any capital stock or other equity securities or any such convertible or
exchangeable securities or any such options, warrants or rights, pursuant to
which, in any of the foregoing cases, SILLC is subject or bound. The
consummation of the transactions contemplated hereby will convey to Buyer good
title to the Purchased Units and the Junior Subordinated Note free and clear of
all proxies, voting agreements and other Encumbrances, except for those created
in favor of Buyer under this Agreement or the Stockholders Agreement.
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3.03. COMPANY SUBSIDIARIES. All of the Company Subsidiaries
are listed in Section 3.03(a) of the Disclosure Schedule together with their
jurisdiction of incorporation or organization and the percentage interest held
directly or indirectly by the Company. Except as listed in Section 3.03(b) of
the Disclosure Schedule, all issued and outstanding capital stock of each
Company Subsidiary is validly issued, fully paid and nonassessable, was not
issued in violation of any agreement or other understanding binding upon Parent,
the Company or the Company Subsidiaries or any preemptive rights, and was issued
in compliance with all applicable federal and state securities or "blue sky"
laws and regulations, and is owned, directly or indirectly, by the Company, free
and clear of all Encumbrances. Except as listed in Section 3.03(b) of the
Disclosure Schedule, there are no outstanding (a) securities convertible into or
exchangeable for the equity securities of any of the Company Subsidiaries, (b)
options, warrants or other rights (including without limitation preemptive
rights) to purchase or subscribe for securities of any of the Company
Subsidiaries or (c) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance of any equity securities of
any of the Company Subsidiaries, any such convertible or exchangeable securities
or any such options, warrants or rights pursuant to which, in any of the
foregoing cases, the Company or any Company Subsidiary is subject or bound.
3.04. EACH PARENT'S, SILLC'S AND THE COMPANY'S AUTHORITY
RELATIVE TO THIS AGREEMENT. Each Parent and the Company is a corporation duly
organized and validly existing under the laws of Delaware. Each Parent and the
Company has all requisite corporate authority and power to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. SILLC has
all requisite limited liability company authority and power to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement, and the other agreements and
instruments to be executed in connection herewith and the consummation of the
transactions contemplated hereby by Parent, SILLC and the Company have been duly
and validly authorized by all required action on the part of Parent, SILLC and
the Company and no other proceedings on the part of Parent, SILLC or the Company
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Parent, SILLC and the Company and, assuming this Agreement has been
duly authorized, executed and delivered by Buyer, constitutes a valid and
binding agreement of Parent, SILLC and the Company, enforceable against Parent,
SILLC and the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith, and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity). As of the Closing,
the other agreements and instruments contemplated hereby will have been duly and
validly executed and delivered by Parent, SILLC and the Company, as applicable,
and assuming due authorization, execution and delivery by Buyer, will constitute
valid and binding agreements of Seller and the Company, enforceable against the
Seller and the Company in accordance with their terms.
3.05. CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set
forth in Section 3.05 of the Disclosure Schedule, neither the execution and
delivery of this Agreement or the other agreements and instruments to be
executed by Parent, SILLC and the Company in connection herewith, nor the
consummation of the transactions contemplated
<PAGE>
hereby or thereby will (a) violate any provision of the Certificate of
Incorporation or By-Laws (or other comparable governing documents) of the
Company, the Company Subsidiaries, Parent or SILLC, (b) require any consent,
waiver, approval, authorization or permit (a "Consent") of, or filing with or
notification to, any governmental or regulatory authority, arbitrator, agency or
commission, including courts of competent jurisdiction, domestic or foreign (a
"Governmental Entity"), except where the failure to obtain such Consent or make
such filing or notification is not reasonably likely to have a SILLC Material
Adverse Effect or a Company Material Adverse Effect, (c) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default, or give rise to any right of termination, cancellation or
acceleration or any obligation to repay under, any of the terms, conditions or
provisions of any indenture, mortgage, note, bond, encumbrance, license,
government registration, contract, lease, agreement or other instrument or
obligation (each, an "Obligation") to which the Company, any Company Subsidiary,
Parent or SILLC is a party or by which the Company, any Company Subsidiary,
Parent or SILLC, or any of their respective property or assets may be bound,
except such violations, breaches and defaults which, in the aggregate, are not
reasonably likely to have a SILLC Material Adverse Effect, a Company Material
Adverse Effect or would not impair, hinder or adversely affect the ability of
Parent to perform any of its obligations under this Agreement or to consummate
the transactions contemplated hereby (a "Parent Material Adverse Effect") or
those as to which requisite waivers or Consents have been obtained or (d)
violate any order, writ, settlement, judgment, injunction, decree, statute,
ordinance, rule, law, code, regulation or other requirement (each, an "Order")
of any Governmental Entity applicable to the Company, any Company Subsidiary,
Parent or SILLC, except such violations which, in the aggregate, are not
reasonably likely to have a SILLC Material Adverse Effect, a Company Material
Adverse Effect or a Parent Material Adverse Effect.
3.06. FINANCIAL STATEMENTS. Attached hereto as Schedule 3.06
are copies of the audited combined balance sheets of the Company as of September
30, 1999 and 1998 and the related audited combined statements of operations,
cash flows and changes in invested capital (deficit) for each of the three years
ended September 30, 1999 (the balance sheet as of September 30, 1999, being
hereinafter referred to as the "Balance Sheet" and all such financial statements
being hereinafter collectively referred to as the "Financial Statements"). The
Financial Statements (i) were compiled from the books and records of the
Company, and (ii) fairly present the combined financial position, the combined
results of operations and the combined cash flows of the Company as of the dates
or for the periods presented in conformity with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved except as otherwise noted therein.
3.07. FORM 10; ABSENCE OF CERTAIN CHANGES. As of the date on
which it was filed, the information contained in the Form 10 did not contain any
untrue statement of a material fact nor omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. Except as set
forth in the Form 10 or Section 3.07 of the Disclosure Schedule, since the date
of the Balance Sheet, none of the Company or any Company Subsidiary has:
(a) suffered any adverse change in its business, operations or
financial position, except such changes which, in the aggregate, are not
reasonably likely to have a Company Material Adverse Effect;
<PAGE>
(b) conducted its business outside the ordinary and usual
course consistent with past practice, except in connection with the transactions
contemplated hereby or by the Form 10;
(c) made any election for Tax (as defined below) purposes or
for purposes of a Return (as defined below) (or had any such election made on
its behalf), (including any election pursuant to Treasury Regulation section
301.7701) or entered into any agreement, arrangement or settlement with respect
to material Taxes with any Governmental Entity or other Person;
(d) other than as required by collective bargaining
agreements, granted any increase in the salaries or other compensation payable
or to become payable to, or any advance (excluding advances for ordinary
business expenses) or loan to, any officer, employee or shareholder of the
Company or any Company Subsidiary (other than normal merit increases for
employees previously budgeted made in the ordinary course of business and
consistent with past practice), or any increase in, or any addition to, other
benefits (including any bonus, profit-sharing, pension, retirement or other
plan) to which any of the officers and employees may be entitled;
(e) made any contributions or payments to any pension or
retirement plan or under any profit-sharing, bonus or similar plan except
payments in the ordinary course of business and consistent with past practice
made pursuant to the Benefit Plans described in Section 3.12 of the Disclosure
Schedule hereto, or any other payment of any kind to or on behalf of any officer
or employee other than payment of base compensation and reimbursement for
reasonable expenses in the ordinary course of business;
(f) suffered any change in or, to the knowledge of Parent,
received any written notice of any loss of any of the suppliers, clients,
distributors, customers or employees that are material to the business of the
Company or any Company Subsidiary, including any loss or change which may result
from the transactions contemplated by this Agreement, except any losses or
changes which, in the aggregate, are not reasonably likely to have a Company
Material Adverse Effect;
(g) been involved in any disposition of or has failed to keep
in effect any rights in, to or for the use of any franchise, right, license,
permit or certificate material to the business of the Company or any Company
Subsidiary, except any failures to keep in effect any right which, in the
aggregate, are not reasonably likely to have a Company Material Adverse Effect;
(h) changed any method of keeping of its books of account or
accounting practices other than pursuant to the Corporate Reorganization;
(i) disposed of or failed to keep in effect any rights in, to
or for the use of any of the intellectual property material to the business of
the Company or any Company Subsidiary, except any such dispositions or failures
which, in the aggregate, are not reasonably likely to have a Company Material
Adverse Effect;
<PAGE>
(j) sold, transferred or otherwise disposed of any material
assets, properties or rights of any of the businesses of the Company or any
Company Subsidiary, except inventory sold in the ordinary course of business
consistent with past practice;
(k) made nor authorized any single capital expenditure in
excess of $100,000 or capital expenditures in excess of $500,000 in the
aggregate (other than emergency expenditures; it being understood that the
Company shall use its reasonable efforts under the circumstances to contact
Buyer prior to making any material emergency expenditure outside of these
baskets);
(l) changed or modified in any manner the Company's or any
Company Subsidiary's existing credit, collection and payment policies,
procedures and practices with respect to accounts receivable and accounts
payable, respectively, including without limitation, acceleration of collections
of receivables, failure to make or delay in making collections of receivables
(whether or not past due), acceleration of payment of payables or failure to pay
or delay in payment of payables;
(m) incurred any damage, destruction or loss, whether covered
by insurance or not, materially affecting the financial condition or business of
the Company or any Company Subsidiary;
(n) waived or released any material right or claim of the
Company or any Company Subsidiary; or
(o) permitted or suffered any Encumbrances on any assets
(tangible or intangible) or properties of the Company or any Company Subsidiary
other than Encumbrances incurred in the ordinary course of business consistent
with past practice and except those Encumbrances which, in the aggregate, are
not reasonably likely to have a Company Material Adverse Effect.
3.08. COMPLIANCE WITH LAW. Except as set forth in Section
3.08(a) of the Disclosure Schedule, the Company and the Company Subsidiaries
have complied and are in compliance with all, and have not received any written
notice of any violation of any, applicable Orders of any Governmental Entity,
except such non-compliances which, in the aggregate, are not reasonably likely
to have a Company Material Adverse Effect. Except as set forth in Section
3.08(b) of the Disclosure Schedule, the Company and the Company Subsidiaries
have all domestic and foreign governmental licenses, permits and other
authorizations to conduct their businesses as currently conducted and all such
permits, licenses and authorizations are in full force and effect, except where
the failure to have such licenses and permits or to have such licenses and
permits in full force and effect, in the aggregate, is not reasonably likely to
have a Company Material Adverse Effect.
3.09. CONTRACTS. Section 3.09 of the Disclosure Schedule sets
forth a complete list of all written and oral material contracts of the Company
and the Company Subsidiaries as follows:
(a) employment, severance and consulting agreements that
provide for severance or termination payments in excess of $100,000 to which the
Company or any of the Company Subsidiaries is presently a party (the "Benefit
Arrangements");
<PAGE>
(b) collective bargaining agreements;
(c) agreements that are required to be filed as an exhibit to
the Form 10, other than such agreements which would become effective only upon
the consummation of the proposed Spin-off (as defined in the Form 10); and
(d) indentures, mortgages and notes or other debt instruments
evidencing indebtedness, other than any such instrument in a principal amount of
less than $100,000.
Each material contract to which the Company or the Company
Subsidiaries is a party or is bound is valid, binding and enforceable against
the Company or any Company Subsidiary, as the case may be, and to the knowledge
of Parent, the other parties thereto, in accordance with its terms and is in
full force and effect, except those the absence of which would not, individually
or in the aggregate, have a Company Material Adverse Effect. Except as set forth
in Section 3.09 of the Disclosure Schedule, the Company and the Company
Subsidiaries are not in default under any of the material contracts, and no
event has occurred which, with notice or lapse of time, or both, would
constitute such a default, except for any defaults which, in the aggregate, are
not reasonably likely to have a Company Material Adverse Effect.
Neither the Company nor any Company Subsidiary has received
any written claim from any other party to any material contract that the Company
or any Company Subsidiary has breached any obligations to be performed by it
thereunder, or is otherwise in default or delinquent in performance thereunder,
except any of the foregoing which, in the aggregate, are not reasonably likely
to have a Company Material Adverse Effect.
3.10. LITIGATION. Except as set forth in the Form 10 or
Section 3.10(a) of the Disclosure Schedule, there is no action, suit,
investigation or proceeding pending or threatened against the Company or any
Company Subsidiary before any Governmental Entity which is reasonably likely to
have a Company Material Adverse Effect. Except as set forth in Section 3.10(b)
of the Disclosure Schedule, none of the Company or any Company Subsidiary has
received notice that it is subject to any outstanding Order of any Governmental
Entity which is reasonably likely to have a Company Material Adverse Effect.
3.11. TAXES.
(a) Except as set forth in Section 3.11(a) of the Disclosure
Schedule, each of the Company and each Company Subsidiary has duly and timely
filed all material returns, declarations, reports, estimates, information
returns and statements ("RETURNS") required to be filed with respect to it in
respect of any Taxes, and each of the Company and each Company Subsidiary has
timely paid all Taxes that are shown to be due and payable on such Returns.
Except as set forth in Section 3.11(a) of the Disclosure Schedule, no material
deficiencies for any Taxes have been asserted in writing or assessed against the
Company or any Company Subsidiary, which remain unpaid or for which adequate
provision, net of any reserves provided for matters set forth in Sections
3.11(a) and 3.11(c) of the Disclosure Schedule, has not been made in the
Financial Statements. Except as set forth in Section 3.11(a) of the Disclosure
Schedule, none of the Company or any Company Subsidiary (a) has, with respect to
any assets or property held, filed a consent to the application of Section
341(f) of the Internal Revenue Code of 1986, as amended (the "CODE"), (b) has
made any payments, is
<PAGE>
obligated to make any payments, or is a party to any agreement, including this
Agreement, that could obligate it to make any payments that will not be
deductible under Code section 280G, (c) is required to make any adjustment under
Code section 481 (or any comparable provision of state, local or foreign law) by
reason of a change in accounting method, or (d) is a partner in any entity
considered to be a partnership for federal income tax purposes. For purposes of
this Agreement, "TAXES" shall mean all income taxes (including any tax on or
based upon net income, or gross income, or income as specially defined, or
earnings, or profits, or selected items of income, earnings, or profits) and all
gross receipts, estimated, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, or windfall profit taxes, environment, alternative, or add-on minimum
taxes, custom duties or other taxes, fees, assessments, or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any federal, state, local or foreign taxing or
other authority.
(b) Neither the Company nor any Company Subsidiary is a "U.S.
Real Property Holding Corporation" within the meaning of Section 897 of the
Code.
(c) Except as set forth in Section 3.11(c) of the Disclosure
Schedule, neither the Company nor any Company Subsidiary is a party to or bound
by any Tax allocation or Tax sharing agreement or has any current or potential
contractual obligation or liability as a transferee or successor to indemnify
any other person with respect to Taxes.
(d) Except as set forth in Section 3.11(d) of the Disclosure
Schedule, no Governmental Entity currently is auditing any of the Company or
Company Subsidiaries' Returns, nor has any of the Company or Company
Subsidiaries received written notice of any proposed material audits of such
Returns. Except as set forth in Section 3.11(d) of the Disclosure Schedule, with
respect to each of the Company and Company Subsidiaries, no written claim for
Taxes (or written request for Returns) has ever been made by a Governmental
Entity in a jurisdiction where the Company or Company Subsidiary, as the case
may be, does not file Returns. Except as set forth in Section 3.11(d) of the
Disclosure Schedule, none of the Company or Company Subsidiaries has outstanding
any waiver of any statute of limitations in respect of Taxes or any outstanding
agreement regarding any extension of time with respect to a Tax assessment or
deficiency. Except as set forth in Section 3.11(d) of the Disclosure Schedule,
since the beginning of fiscal 1996, none of the Company or Company Subsidiaries
is a party to a closing agreement, or the subject of a private ruling,
concerning Taxes with any Governmental Entity which would have a material effect
continuing after Closing.
(e) Except as set forth in Section 3.11(e) of the Disclosure
Schedule, each of the Company and Company Subsidiaries has withheld and paid, in
all material respects, all Taxes required to be withheld and paid in connection
with amounts paid or owing to any employee, independent contractor, creditor,
stockholder or third party.
3.12. EMPLOYEE BENEFIT PLANS; ERISA.
(a) All material written "employee benefit plans", as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and all other pension, profit sharing, retirement,
supplemental retirement, stock, stock option, change of control, basic and
supplemental accidental death and dismemberment, basic and
<PAGE>
supplemental life and health insurance, post-retirement medical or life,
welfare, dental, vision, savings, bonus, deferred compensation, incentive
compensation, business travel and accident, severance pay, salary continuation,
short-term and long-term disability, termination or other compensation plan,
arrangement or agreement or other material employee fringe benefit plans
maintained by the Company or any of the Company Subsidiaries or any other
employer (an "ERISA Affiliate") that is, or at any relevant time was, together
with the Company or any of the Company Subsidiaries, treated as a "single
employer" under Section 414(b), 414(c), 414(m) or 414(o) of the Code, or to
which the Company or any of the Company Subsidiaries or any ERISA Affiliate
contributes or is obligated to contribute thereunder for current or former
employees of the Company or any of the Company Subsidiaries (the "Employee
Benefit Plans") other than any Employee Benefit Plan which is a multiemployer
plan, as defined in Section 3(37) of ERISA ("Multiemployer Plan"), are, in all
material respects, maintained in accordance with their terms and with all
applicable provisions of the Code and ERISA (including rules and regulations
thereunder) and other applicable federal and state laws and regulations,
including the timely filing of all material reports, returns and similar
documents with the appropriate government agency or distribution to Employee
Benefit Plan participants, as applicable, except where the failure to so
maintain them would not be reasonably likely to result in a Company Material
Adverse Effect. True and complete copies of each such Employee Benefit Plan, and
where applicable, a copy of the most recent determination letter received from
the Internal Revenue Service (the "IRS"), and the most recent IRS Form 5500
filed, with respect to each such Employee Benefit Plan, have been furnished to
Buyer.
(b) Except as indicated in Section 3.12(b) of the Disclosure
Schedule, the Employee Benefit Plans (other than the Multiemployer Plans)
intended to qualify under Section 401 of the Code are, and at all times since
their inception have been, so qualified and the trusts maintained pursuant
thereto are exempt from federal income taxation under Section 501 of the Code,
and nothing has occurred with respect to the operation of such plans which would
be reasonably likely to result in the loss of such qualification or exemption or
the imposition of any material liability, penalty or tax under ERISA or the
Code. Except as set forth in Section 3.12(b) of the Disclosure Schedule, each
such Employee Benefit Plan intended to qualify under Section 401 of the Code has
received a determination letter from the IRS to the effect that each such plan
is qualified and all related trusts are exempt from federal income taxes on a
determination letter request is pending with the IRS to such effect, and no
determination letter with respect to any such plan has been revoked nor, is
there any reason for such revocation, nor has any such plan been amended, or
failed to be amended, since the date of its most recent determination letter in
any respect which would adversely affect its qualification.
(c) All contributions (including all employer contributions
and employee salary reduction contributions) and payments required to have been
made under any of the Employee Benefit Plans or by law (without regard to any
waivers granted under Section 412 of the Code) or in connection therewith have
been made by the due date thereof (including any valid extension, except where
the failure to make such contribution would not be reasonably likely to result
in a Company Material Adverse Effect). No asset of the Company or any Company
Subsidiary is subject to any lien under Sections 401(a)(29) or 412(n) of the
Code or Section 4068 of ERISA or arising out of any action filed under Section
4301(b) of ERISA.
<PAGE>
(d) Except as set forth in Section 3.12(d) of the Disclosure
Schedule, neither the Employee Benefit Plans, the Company, the Company
Subsidiaries, any ERISA Affiliate, nor any employee of the foregoing, nor any
trusts created thereunder, has engaged in a "prohibited transaction" within the
meaning of Section 4975 of the Code or Section 406 of ERISA, nor has any such
person breached any duty imposed by Title I of ERISA, with respect to any
Employee Benefit Plan.
(e) Neither the Company, the Company Subsidiaries nor any
ERISA Affiliate has incurred any material liability to the Pension Benefit
Guaranty Corporation (the "PBGC") with respect to any Employee Benefit Plan
subject to Title IV of ERISA, other than for the payment of premiums, all of
which have been paid when due. No Employee Benefit Plan has applied for or
received a waiver of the minimum funding standards imposed by Section 412 of the
Code. The Company has furnished to Buyer the most recent actuarial report with
respect to each Employee Benefit Plan that is a defined benefit pension plan, as
defined in Section 3(35) of ERISA. To the knowledge of Parent, the information
supplied to the actuary by the Company, the Company Subsidiaries and any ERISA
Affiliate for use in preparing those reports was complete and accurate. No event
has occurred since the date of any such actuarial report that had, or is likely
to have, a materially adverse effect on the ratio of plan assets to the
actuarial present value of plan obligations for accumulated benefits shown in
such report.
(f) At no time since May 31, 1995 has the Company, the Company
Subsidiaries or any ERISA Affiliate incurred any liability which could subject
Buyer to any material liability under Section 4062, 4063, 4064 or 4069 of ERISA.
(g) Except as indicated in Section 3.12(g) of the Disclosure
Schedule, at no time since May 31, 1995, have the Company, the Company
Subsidiaries or any ERISA Affiliate, been required to contribute to, or incurred
any withdrawal liability, within the meaning of Section 4201 of ERISA to any
multiemployer pension plan, within the meaning of Section 3(37) of ERISA nor
does the Company, the Company Subsidiaries or any ERISA Affiliate to the
knowledge of the Seller have any potential withdrawal liability arising from a
transaction described in Section 4204 of ERISA. All required contributions,
withdrawal liability payments or other payments of any type that the Company,
the Company Subsidiaries or any ERISA Affiliate have been obligated to make to
any multiemployer plan have been duly and timely made. Any withdrawal liability
incurred with respect to any multiemployer plan has been fully paid as of the
date hereof. Neither the Company, the Company Subsidiaries nor any ERISA
Affiliate has undertaken any course of action that could reasonably be expected
to lead to a complete or partial withdrawal from any multiemployer plan.
(h) Except as indicated in Section 3.12(h) of the Disclosure
Schedule, no payment which is or may be made by from or with respect to any
Employee Benefit Plan, to any employee, former employee, director or agent of
the Company, the Company Subsidiaries, either alone or in conjunction with any
other payment, will or could properly be characterized as an excess parachute
payment under section 280G of the Code.
3.13. TITLE TO PROPERTIES. Each of the Company and the Company
Subsidiaries has good, valid and, in the case of real property, marketable title
to all of the material assets and properties which it owns, including but not
limited to those reflected on
<PAGE>
the Balance Sheet or acquired by the Company and any Company Subsidiary since
the date of the Balance Sheet (except for assets and properties sold, consumed
or otherwise disposed of by the Company or any Company Subsidiary in the
ordinary course of business consistent with the past practice since the date of
the Balance Sheet), and such material assets and properties are owned free and
clear of all Encumbrances, except for (a) Encumbrances disclosed in the Form 10
or listed in Section 3.13 of the Disclosure Schedule, (b) liens for current
Taxes not yet due and payable or for Taxes the validity of which is being
contested in good faith by appropriate proceedings and for which adequate
reserves have been established on the Balance Sheet, (c) Encumbrances to secure
indebtedness reflected on the Balance Sheet or indebtedness incurred in the
ordinary course of business and consistent with past practice after the date
thereof, (d) mechanic's, materialmen's and similar Encumbrances which have
arisen in the ordinary course of business and (e) any of the foregoing
Encumbrances which, in the aggregate, are not reasonably likely to have a
Company Material Adverse Effect or materially adversely interfere with the use
of such assets and properties as they are presently being used.
3.14. PATENTS, TRADEMARKS, ETC. Except as set forth in Section
3.14 of the Disclosure Schedule:
(a) the Company and the Company Subsidiaries own or possess
adequate licenses or other valid rights to use all United States and foreign
patents, trademarks, trade names, service marks, copyrights and applications,
including foreign applications therefor, which are material to the conduct of
the business of the Company and the Company Subsidiaries taken as a whole (the
"Patent and Trademark Rights"),
(b) the validity of the Patent and Trademark Rights and the
title thereto of the Company or any Company Subsidiary are not being questioned
in any litigation to which the Company or any Company Subsidiary is a party, nor
is any such litigation overtly threatened, and
(c) the conduct of the business of the Company and the Company
Subsidiaries as now conducted does not infringe or otherwise conflict with any
valid patents, trademarks, trade names, service marks or copyrights of others in
any way which is reasonably likely to have a Company Material Adverse Effect.
3.15. ENVIRONMENTAL MATTERS.
(a) Except as set forth in the Form 10 or Section 3.15 of the
Disclosure Schedule, the Company and the Company Subsidiaries hold, and are in
compliance with, all material permits, licenses and government authorizations
required for the Company and the Company Subsidiaries to conduct their
respective businesses under any U.S. federal and state or foreign statutes and
regulations relating to pollution or protection of human health or the
environment, including the Comprehensive Environmental Response, Compensation,
and Liability Act, the Resource Conservation and Recovery Act, the Clean Air
Act, the Clean Water Act, and similar state laws ("Environmental Laws"), and the
Company and the Company Subsidiaries are otherwise in compliance with all
applicable Environmental Laws, except where the failure to be in compliance
would not be reasonably likely to have a Company Material Adverse Effect.
<PAGE>
(b) Except as set forth in the Form 10 or Section 3.15 of the
Disclosure Schedule, none of the Company or any Company Subsidiary has been
notified that it is a potentially responsible party under the Comprehensive
Environmental Response, Compensation, and Liability Act or any similar state or
foreign law with respect to any on-site or off-site location for which liability
is currently being asserted which is reasonably likely to have a Company
Material Adverse Effect.
(c) Except as set forth in the Form 10 or Section 3.15 of the
Disclosure Schedule, none of the Company or any Company Subsidiary is subject to
any Order relating to compliance with any Environmental Law or to investigation
or cleanup of substances regulated under any Environmental Law as hazardous
which is reasonably likely to have a Company Material Adverse Effect.
(d) Except as set forth in the Form 10 or Section 3.15 of the
Disclosure Schedule, no substances regulated under Environmental Laws have been
released, spilled, leaked, discharged, disposed of, pumped, poured emitted,
emptied, injected, leached, dumped or allowed to escape at any property now or
formerly owned, operated or leased by the Company or the Company Subsidiaries or
any former Company subsidiaries which is reasonably likely to have a Company
Material Adverse Effect.
(e) Parent has provided Buyer copies of all material
environmental inspections, investigations, studies, audits, tests, reviews or
other analyses in Seller's possession or control conducted in relation to any
property now or previously owned, operated or leased by the Company or the
Company Subsidiaries or any former Company subsidiaries.
3.16. BROKERS AND FINDERS. None of Parent, SILLC, the Company
or any Company Subsidiary or any of their respective officers, directors or
employees has incurred any liability for any investment banking fees, brokerage
fees, commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement except for such liability as shall
be borne by Parent.
3.17. UNDISCLOSED LIABILITIES. Neither the Company nor any
Company Subsidiary has any liabilities or obligations of any nature whatsoever,
whether due or to become due, accrued, absolute, contingent or otherwise, other
than (i) liabilities and obligations that are fully reflected, accrued or
reserved for in the Balance Sheet, (ii) liabilities and obligations incurred in
the ordinary course of business and consistent with past practice since the date
of the Balance Sheet, (iii) liabilities and obligations set forth in Section
3.17 of the Disclosure Schedule to the extent readily apparent on its face, and
(iv) other liabilities and obligations that individually or in the aggregate are
not reasonably likely to result in a Company Material Adverse Effect.
3.18. RELATED PARTY TRANSACTIONS. Except as described in
Section 3.18 of the Disclosure Schedule or in connection with the Corporate
Reorganization, since October 1, 1998, neither Parent nor any Affiliate of
Parent (other than the Company or any Company Subsidiary) (i) has had any
interest in any assets or property (whether real or personal, tangible or
intangible), used by the Company or any Company Subsidiary in the conduct of its
business, or (ii) has engaged in any other transaction with the Company or any
Company Subsidiary. Neither Parent nor any Affiliate of Parent (other than the
Company or any
<PAGE>
Company Subsidiary) has made any agreement or arrangement to make any payments
to any officer or employee of the Company or any Company Subsidiary conditioned
upon the execution of this Agreement or the consummation of the transactions
contemplated hereby for which the Company or any Company Subsidiary will be
liable.
3.19. ADEQUACY OF ASSETS. Except for cash management services
currently provided by Parent, the Company owns directly or through the Company
Subsidiaries all assets necessary for the Company Subsidiaries to conduct their
businesses as currently operated.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Parent and SILLC as follows:
4.01. ORGANIZATION; ETC. Buyer is a limited liability company
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite power and authority to
conduct its business as it is now being conducted and to own, lease and operate
its property and assets, except where the failure to have such power or
authority is not, in the aggregate, reasonably likely to have a Buyer Material
Adverse Effect (as defined).
4.02. AUTHORITY RELATIVE TO THIS AGREEMENT. Buyer has all
requisite limited liability company authority and power to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the other agreements and
instruments to be executed by Buyer in connection herewith and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all required limited liability company action on the part of Buyer and no other
limited liability company proceedings on the part of Buyer are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Buyer and,
assuming this Agreement has been duly authorized, executed and delivered by
Parent, SILLC and the Company, constitutes a valid and binding agreement of
Buyer, enforceable against Buyer in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
4.03. CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the
execution and delivery of this Agreement or the other agreements and instruments
to be executed by Buyer in connection herewith, nor the consummation of the
transactions contemplated hereby or thereby by Buyer will (a) violate any
provision of its Certificate of Formation or Limited Liability Company Operating
Agreement, true and correct copies of which have been furnished to Seller, (b)
require any Consent of, or filing with or notification to, any Governmental
Entity, except where the failure to obtain such Consent or make such filing or
notification is not reasonably likely to have a Buyer Material Adverse Effect,
(c) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a
<PAGE>
default (or give rise to any right of termination, cancellation or acceleration
or any obligation to repay) under, any of the terms, conditions or provisions of
any Obligation to which Buyer is a party or by which Buyer or any of its
properties or assets may be bound, except such violations, breaches and defaults
which, in the aggregate, are not reasonably likely to have a Buyer Material
Adverse Effect or those as to which requisite waiver or Consents have been
obtained or (d) violate any Order of any Governmental Entity applicable to
Buyer, except such violations which, in the aggregate, are not reasonably likely
to have a Buyer Material Adverse Effect.
4.04. ACQUISITION OF PURCHASED SECURITIES FOR INVESTMENT.
Buyer is acquiring the Purchased Securities for investment and not with a view
toward, or for sale in connection with, any distribution thereof, nor with any
present intention of distributing or selling such Purchased Securities. Buyer
agrees that the Purchased Securities may not be sold, transferred, offered for
sale, pledged, hypothecated or otherwise disposed of without registration under
the Securities Act of 1933, as amended (the "Securities Act"), except pursuant
to an exemption from such registration under the Securities Act.
4.05. FINANCIAL CAPABILITY. Buyer has obtained a commitment
letter (the "Buyer Commitment Letter") providing an aggregate of $70 million for
this transaction and the transaction contemplated by the Securities Purchase
Agreement and naming Parent as a third-party beneficiary, a true and correct
copy of which letter is contained in Section 4.05 of the Disclosure Schedule.
4.06. BROKERS AND FINDERS. Neither Buyer nor any of its
officers, directors or employees has employed any investment banker, broker or
finder or incurred any liability for any investment banking fees, brokerage
fees, commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement.
4.07. BUYER'S SOPHISTICATION. Buyer is an informed and
sophisticated purchaser, and has engaged expert advisors, experienced in the
evaluation and purchase of securities. Buyer has undertaken such investigation
as it has deemed necessary to enable it to make an informed and intelligent
decision with respect to this Agreement and the transactions contemplated
hereby. Buyer acknowledges that none of Parent, SILLC nor the Company (or their
agents or representatives) has made any representation or warranty as to SILLC,
the Company, any Company Subsidiary, or their prospects (financial or
otherwise), except as expressly set forth in this Agreement. Except as otherwise
set forth in this Agreement, the Indemnification Agreement and the Stock
Purchase Agreement (as defined in Section 9.14) or the Tax Sharing Agreement, it
is therefore expressly understood and agreed that Buyer accepts the condition of
the properties of SILLC, of the Company and the Company Subsidiaries "AS IS,
WHERE IS" without any representation, warranty or guarantee, express or implied,
as to merchantability, fitness for a particular purpose or otherwise as to the
condition, size, extent, quantity, type or value of such property.
ARTICLE V
COVENANTS OF THE PARTIES
5.01. CONDUCT OF BUSINESS OF THE COMPANY. Except as
contemplated by this Agreement, the Corporate Reorganization or Section 5.01 of
the Disclosure Schedule or with
<PAGE>
the prior written consent of Buyer (which consent shall not be unreasonably
withheld) during the period from the date of this Agreement to the Closing Date,
the Company shall, and shall cause each Company Subsidiary to (a) conduct its
business and operations in the ordinary course of business consistent with past
practice except for the Corporate Reorganization and (b) use all commercially
reasonable efforts consistent therewith to preserve intact its properties,
assets and business organizations, to keep available the services of its
officers and employees and to maintain satisfactory relationships with
customers, suppliers, distributors and others having commercially beneficial
business relationships with it, to maintain its books of account and records, in
each case, in the ordinary course of business consistent with past practice.
Without limiting the generality of the foregoing, and except as otherwise
provided in this Agreement or as contemplated hereby or by the Corporate
Reorganization or as set forth in Section 5.01 of the Disclosure Schedule, the
Company shall not, and shall cause each Company Subsidiary not to, prior to the
Closing Date, without the prior written consent of Buyer (which consent shall
not be unreasonably withheld):
(a) issue, sell or pledge, or authorize or propose the
issuance, sale or pledge of (i) additional shares of capital stock of the
Company or any Company Subsidiary, as the case may be, or securities convertible
into any such shares or any rights, warrants or options to acquire any such
shares or other convertible securities or (ii) any other securities in respect
of, in lieu of, or in substitution for, the shares of capital stock of the
Company or any Company Subsidiary, as the case may be, outstanding on the date
hereof;
(b) declare or pay any dividend or distribution on any units
of Company Common Stock or shares of capital stock of any Company Subsidiary;
(c) redeem, purchase or otherwise acquire any outstanding
units of Company Common Stock or any outstanding shares of capital stock of any
Company Subsidiary (or any warrants, rights or options to acquire Company Common
Stock or any outstanding shares of capital stock of any Company Subsidiary);
(d) amend its Certificate of Incorporation, or By-Laws (or
other comparable governing documents);
(e) except as contemplated by this Agreement, incur any
long-term indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse the obligations of any other Person;
(f) (i) increase the rate or terms of compensation of any of
its directors, officers or employees, except such increases for employees as are
granted in the ordinary course of business consistent with past practice
previously budgeted (a copy of which budget has been delivered to Buyer prior to
the date hereof), or (ii) pay or agree to pay any pension, retirement allowance
or other employee benefit not required or permitted by any existing Employee
Benefit Plan or other agreement or arrangement to any such director, officer or
employee, whether past or present;
(g) sell, transfer, lease or otherwise dispose of any of its
property or assets (other than inventory in the ordinary course of business) or
mortgage or encumber any of its material property or assets;
<PAGE>
(h) make any loan to, or enter into or effect any other
transaction with, any of its directors or officers, or Parent or any Affiliate
of Parent (excluding the Company and the Company Subsidiaries);
(i) enter into other material agreements, commitments or
contracts, except agreements, commitments or contracts made in the ordinary
course of business consistent with past practice;
(j) make any election for Tax purposes or for purposes of a
Return (or have any such election made on its behalf), including any election
pursuant to Treasury Regulation section 301.7701, or enter into any agreement,
arrangement or settlement with respect to material Taxes with a Governmental
Entity or other Person;
(k) change any method of accounting;
(l) merge or consolidate with, or purchase substantially all
of the assets of, or otherwise acquire any business of any Person, except
pursuant to the Corporate Reorganization;
(m) take any action or omit to take any action which will
result in a material violation of any applicable law or Order or cause a
material breach of any agreements, contracts or commitments by it which is
material to its business (including, without limitation, the material contracts
disclosed in Schedule 3.09 of the Disclosure); or
(n) agree or commit to take any of the foregoing actions.
5.02. BUYER COMMITMENT LETTER. Buyer shall maintain the Buyer
Commitment Letter in full force and effect until the Closing Date.
5.03. ADDITIONAL INFORMATION.
(a) From the date of this Agreement until the Closing Date,
Parent will cause the Company and the Company Subsidiaries to provide Buyer and
its officers, consultants, employees, counsel, agents, lenders and other
representatives with reasonable access during normal business hours to the
properties, books, contracts, and records of the Company and the Company
Subsidiaries. All such information shall be subject to the terms and conditions
of the letter agreement dated August 17, 1999 (the "Confidentiality Agreement"),
between Citicorp Venture Capital Ltd. and USI.
(b) After the Closing, upon reasonable written notice, Buyer
will give or cause to be given to Parent and its authorized representatives,
reasonable access to such information relating to the Company and the Company
Subsidiaries as is reasonably necessary for the preparation or filing of any Tax
return, financial statement or report, or is otherwise reasonably requested;
PROVIDED, HOWEVER, that any such access shall be conducted at a reasonable time
and in such a manner as not to interfere unreasonably with the operations of the
business of the Company and the Company Subsidiaries. Buyer agrees to cause each
of the Company and the Company Subsidiaries to preserve its records for a period
of seven (7) years from the Closing Date and, if it wishes to destroy any such
records after the retention period, it shall first give sixty (60) days' prior
written notice to Parent, which shall
<PAGE>
then have the right to take possession of such records, at its expense, within
sixty (60) days after the delivery of such notice.
(c) CERTAIN POST-CLOSING ASSISTANCE BY THE BUYER. So long as
it does not unreasonably interfere with the business operation of the Company or
any Company Subsidiary, Buyer agrees to cause the appropriate personnel at the
Company and the Company Subsidiaries, at no cost or expense to Parent, to
prepare during normal business hours and with reasonable advance notice all
customary accounting and related reports with respect to the Company and the
Company Subsidiaries for periods since September 30, 1999, up to the Closing
Date which are reasonably requested by Parent in connection with Parent's
preparation and/or filing of various financial and accounting reports.
(d) CASH MANAGEMENT. Parent shall continue to cause the
funding by the Company and the Company Subsidiaries of the Company and Company
Subsidiary checks, in accordance with past practices, which are presented for
payment through the day prior to the Closing Date. Parent shall have no
obligation to fund checks which are presented for payment on and after the
Closing Date. Amounts received in the lockbox and depository accounts of Parent
through the Closing Date shall continue to be paid to Parent in accordance with
past practices, provided that such collections are appropriately reflected on
the Balance Sheet. The bank accounts of the Company and the Company Subsidiaries
will continue to be owned by the Company and the Company Subsidiaries after the
Closing Date.
5.04. COVENANT TO SATISFY CONDITIONS. Parent will use all
reasonable efforts to ensure that the conditions set forth in Article VII hereof
are satisfied. Buyer will use all reasonable efforts to ensure that the
conditions set forth in Article VI hereof are satisfied.
5.05. EMPLOYEE MATTERS.
(a) Except as may otherwise be required by a collective
bargaining agreement or contract, the Company and the Company Subsidiaries shall
maintain after the Closing Date the Employee Benefit Plans or substitute for
such Plans other plans and policies which shall provide benefits and coverage to
current and retired employees of the Company and the Company Subsidiaries that
are in the aggregate substantially similar to the benefits and coverage afforded
by the Employee Benefit Plans. Prior to the Closing, the Seller and the Company
will take any and all such actions necessary or appropriate to establish, adopt,
enter into and implement such plans, policies, administrative systems and
contracts, including, without limitation, establishing as necessary plans and
related trust agreements that are substantially identical to the pension benefit
plans included within the Employee Benefit Plans, continuing such benefits and
coverage in accordance with this Section 5.05(a). Nothing in this Agreement
shall preclude the Company from amending or terminating any Employee Benefit
Plan or any other Company benefit plan.
(b) As soon as practicable, but no more than sixty (60) days
following the Closing Date, the Seller shall cause the assets related to the
accounts maintained for the benefit of current and former employees of the
Company and the Company Subsidiaries pursuant to the 401(k) plans set forth on
Section 5.05(b) of the Disclosure Schedule (the "Company 401(k) Plans") held in
the applicable Master Trusts (the "Master 401(k) Trusts") to be transferred to a
successor trust established by the Company or one of its Affiliates (the "New
401(k) Trust"). The amount of assets transferred from the Master 401(k) Trusts
to the
<PAGE>
New 401(k) Trust shall be equal to the fair market value of the assets held in
the Master 401(k) Trusts for such employee and former employees' accounts.
(c) As soon as practicable following the Closing Date, but in
no event later than (i) 60 days after the Closing Date and (ii) 30 days after
the finalization of the necessary data required for determination of assets and
liabilities, Parent shall spin off assets and liabilities from Parent's USI
Group Pension Plan (the "Spinoff Plan") for benefits accrued as of the Closing
Date with respect to the active, terminated vested and retired former employees
of the Company Subsidiaries participating in the Spinoff Plan as detailed in
Schedule 5.05(c). The amount of assets transferred shall be calculated in
accordance with section 1.414(1)-1(n)(1) of the Treasury Regulations applying
the following PBGC assumptions used for plans terminating as of the Closing
Date:
- PBGC interest rate used to value annuities specified in
Table I of Appendix B of Part 4044 of the PBGC
regulations promulgated under ERISA
- 1983 Group Annuity Mortality Table
- Expense load in accordance with Appendix C of Part 4044
of the PBGC regulations promulgated under ERISA
- Expected retirement ages as specified in Appendix D of
Part 4044 of the PBGC regulations promulgated under
ERISA
- No other demographic assumption shall be used.
The amount of assets to be transferred shall be calculated as of the Closing
Date based on employee data as of 12/31/99, aged to the Closing Date and
credited with actual trust earnings from the Closing Date to the actual transfer
date, adjusted for applicable benefit payments and plan expenses in accordance
with past practices.
(d) All contributions that are, or will be, required to be
made to the Spinoff Plan or a successor to such plans by Section 302 of ERISA or
section 412 of the Code with respect to the plan year beginning or ending in
1999, to the extent not paid by Parent prior to the Closing Date, will be paid
subsequent to the Closing Date by Parent in accordance with Section 302 of ERISA
and section 412 of the Code.
5.06. FURTHER ASSURANCES. Each of the parties hereto agrees to
use its reasonable efforts to take, or cause to be taken, all action, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations or otherwise to consummate and make effective the
transactions contemplated by this Agreement including the Corporate
Reorganization, the sale, assignment, transfer and conveyance of the Purchased
Units, the Note, and the Company Shares contemplated by Article I hereof and the
underlying assets and properties used in the conduct of the business of any
Company Subsidiary or the benefits thereof. If at any time after the Closing
Date any further action is necessary or desirable to carry out the purposes of
this Agreement including the Corporate Reorganization and the sale, assignment,
transfer and conveyance of the Purchased Units, the Note, and the Company Shares
contemplated by Article I hereof and the underlying assets
<PAGE>
and properties used in the conduct of the business of any Company Subsidiary or
the benefits thereof, the parties hereto shall take or cause to be taken all
such necessary action, including, without limitation, the execution and delivery
of such further instruments and documents as may be reasonably requested by any
party for such purposes or otherwise to consummate and make effective the
transactions contemplated hereby.
5.07. BINDING ON SUCCESSORS. In the event Buyer, the Company
or any of their respective successors or assigns or Parent, SILLC or any of
their respective successors or assigns (a) consolidates with or merges into any
other Person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (b) transfers all or substantially all of its
properties and assets to any Person, then and in each such case, proper
provision shall be made so that the successors and assigns of Buyer or the
Company or Parent or SILLC, as applicable (or their successors and assigns),
shall assume any obligations set forth in this Article V that survive the
Closing Date.
5.08. NON-SOLICITATION.
(a) In consideration of the consideration paid to SILLC
pursuant to Section 1.02 hereof, Parent covenants and agrees that, for three (3)
years after the Closing Date, neither Parent nor any of its Affiliates shall
solicit, employ, retain as a consultant, interfere with or attempt to entice
away from the Company or any Company Subsidiary or any successor to any of the
foregoing any individual who is, has agreed to be or within one year of such
solicitation, employment, retention, interference or enticement has been,
employed or retained by the Company, the Company Subsidiary or any successor to
any of the foregoing.
(b) Parent acknowledges and agrees that the remedy at law for
any breach, or threatened breach, of any of the provisions of this Section 5.08
will be inadequate and, accordingly, Parent covenants and agrees that the Buyer
shall, in addition to any other rights and remedies which the Buyer may have, be
entitled to equitable relief, including injunctive relief, and to the remedy of
specific performance with respect to any breach or threatened breach of such
covenant, as may be available from any court of competent jurisdiction. Such
right to obtain equitable relief may be exercised, at the option of the Buyer,
concurrently with, prior to, after, or in lieu of, the exercise of any other
rights or remedies that the Buyer may have as a result of any such breach or
threatened breach.
(c) In the event that the provisions of this Section 5.08
shall be determined by a court of competent jurisdiction to be unenforceable
under applicable law as to that jurisdiction (the parties agreeing that such
decision shall not be binding, RES JUDICATA or collateral estoppel in any other
jurisdiction) for any reason whatsoever, then any such provision or provisions
shall not be deemed void, but the parties hereto agree that said limits may be
modified by the court and that said covenant contained in this Section 5.08
shall be amended in accordance with said modifications, it being specifically
agreed by Seller and the Buyer that it is their continuing desire that this
covenant be enforced to the full extent of its terms and conditions or if a
court finds the scope of the covenant unenforceable, the court should redefine
the covenant so as to comply with applicable law.
5.09. CONFIDENTIALITY. Parent shall, and shall cause its
Affiliates and representatives to, keep confidential and not disclose to any
other Person or use for its own benefit or the benefit of any other Person any
confidential proprietary information,
<PAGE>
technology, know-how, trade secrets (including, without limitation, all results
of research and development), product formulas, industrial designs, franchises,
inventions or other industrial and intellectual property in its, his, her or
their possession or control regarding the Company, any Company Subsidiary or
their business and operation. The obligations of the Parent under this Section
5.09 shall not apply to information which (i) is or becomes generally available
to the public without breach of the commitment provided for in this Section; or
(ii) is required to be disclosed by law, order or regulation of a court or
tribunal or governmental authority; PROVIDED, HOWEVER, that, in any such case,
Parent shall notify the Buyer and the Company as early as reasonably practicable
prior to disclosure to allow the Buyer and the Company to take appropriate
measures to preserve the confidentiality of such information.
5.10. MANAGEMENT SERVICES AGREEMENT. Buyer and Parent will
mutually agree on the terms of a Management Services Agreement between the
Company and SILLC, to be effective on the Closing Date for a term of five years
(the "Management Services Agreement"). The Management Services Agreement will
provide that the Company will pay to SILLC $3.5 million during each year of the
term (paid quarterly), for management services to be agreed by the parties. In
addition, the Management Services Agreement will provide that SILLC shall be
entitled to a lump-sum payment equal to the sum of all remaining payments due
under the Management Services Agreement in the event that the Company is sold to
a party not affiliated with Buyer or SILLC during the term.
5.11. CHANGE IN CONTROL PAYMENTS. The Company shall pay or
shall cause to be paid all amounts which shall become due and payable by the
Company or any of the Company Subsidiaries as a result of a trigger of a change
of control or similar provision in any agreement as a result of consummation of
the transactions contemplated herein.
5.12. RETURN OF COMPANY SHARES TO JUSI. At the Closing,
pursuant to an escrow agreement mutually acceptable to Buyer, SILLC and Parent
(the "Escrow Agreement"), SILLC will deliver the Company Shares to an escrow
agent to be selected by Parent and reasonably acceptable to SILLC. The escrow
agent will hold the Company Shares until the fifth anniversary of the Closing
(the "Maturity Date"), and will return the Company Shares to SILLC on the
Maturity Date, except that (i) if USI has not been fully released from the
Guarantee on or before the Maturity Date, on the Maturity Date SILLC shall
forthwith transfer and assign all of its right, title and interest in and to the
Company Shares to JUSI and (ii) if an event of default has occurred and is
continuing under the Company Credit Facility and USI has made a cash payment
under the Guarantee, USI will have the right, exercisable upon written demand
given 90 days after such payment (and so long as SILLC has not reimbursed USI
for the amount of the payment under the Guarantee (plus accrued interest at the
prime rate of Chase Manhattan Bank)), to require that the Company Shares be
returned to JUSI promptly following such demand. Prior to the Maturity Date,
Buyer shall not, and shall cause the Company not to, amend, supplement, or
modify any of the terms of the Company Credit Facility without the prior written
consent of USI, unless such amendment, supplement or modification (A) results in
an immediate and full release of USI from the Guarantee or (B) effects changes
that do not increase the maximum amount of the commitment under the Company
Credit Facility
<PAGE>
or the interest rate payable thereunder or that are not otherwise more
restrictive or burdensome than the existing terms of the Company Credit
Facility.
5.13. TRANSITIONAL ADMINISTRATIVE SERVICES. For a period of
six (6) months after the Closing, Parent shall, at no cost to the Company or
SILLC, perform administrative services for the Company consistent with those
performed for the Company since January 1, 1999. During this six-month period,
Parent shall cooperate with SILLC and/or one or more third party service
providers selected by SILLC to effect an orderly transition of services from
Parent to SILLC and/or other service providers.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF PARENT, NEWCO
AND THE COMPANY
The obligations of Parent, SILLC and the Company to effect the
transactions contemplated hereby shall be subject to the receipt of the
deliveries contemplated by Section 2.03 hereof and to the fulfillment, or
written waiver by Parent, at or prior to the Closing of each of the following
conditions:
6.01. REPRESENTATIONS AND WARRANTIES TRUE.
(a) Each of the representations and warranties of Buyer
contained in Sections 4.01, 4.02 and 4.06 of this Agreement shall be true and
correct at and as of the Closing Date, with the same force and effect as though
made at and as of the Closing Date (except to the extent that any representation
or warranty is made as of a specific date, in which case such representation or
warranty shall be true and correct as of such date).
(b) The representations and warranties of Buyer in this
Agreement (other than those referred to in Section 6.01(a)) shall be true and
correct at and as of the Closing Date with the same force and effect as though
made at and as of the Closing Date (except to the extent that any representation
or warranty is made as of a specific date, in which case such representation or
warranty shall be true and correct as of such date). The determination of
whether the condition set forth in this Section 6.01(b) shall be satisfied shall
be made on a cumulative basis by adding the effect of all breaches of
representations and warranties (determined without regard to any materiality or
Buyer Material Adverse Effect or similar qualifiers). If the effect of the
aggregation of such breaches of representations or warranties does not result in
a Buyer Material Adverse Effect, then this condition shall be deemed satisfied.
6.02. PERFORMANCE. Buyer shall have performed and complied in
all material respects with all agreements, obligations, covenants and conditions
required by this Agreement to be performed or complied with by it on or prior to
the Closing.
6.03. NO INJUNCTION OR PROCEEDING. No Order shall have been
enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits or restricts the consummation of the transactions contemplated hereby.
No action or proceeding by any Governmental Entity shall be pending or
threatened in writing against Buyer, the Parent, SILLC, the Company or any of
their respective Affiliates, associates, officers or directors
<PAGE>
seeking to prevent or delay the transactions contemplated hereby or challenging
any of the terms or provisions of this Agreement or seeking material damages in
connection therewith.
6.04. CERTIFICATES. Buyer shall have furnished Parent with
such certificates of its officers and others to evidence its compliance with the
conditions set forth in this Article VI as may be reasonably requested by
Parent.
6.05. CREDIT FACILITY. The lenders under the Company
Commitment Letter shall have made available to the Company an aggregate of $178
million under the Company Credit Facility and an additional $15 million shall be
available immediately after such borrowing.
6.06. SECURITIES PURCHASE TRANSACTION. The transactions
contemplated by the Securities Purchase Agreement shall have been consummated.
6.07. MATERIAL ADVERSE EFFECT. No Buyer Material Adverse
Effect shall have occurred nor shall any event or circumstance which could
reasonably be expected to produce a Buyer Material Adverse Effect have occurred.
6.08. HSR ACT. The applicable waiting periods under the HSR
Act shall have expired or been terminated.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYER
The obligation of Buyer to effect the transactions
contemplated hereby shall be subject to its receipt of the deliveries
contemplated by Section 2.02 hereof and to the fulfillment, or written waiver by
Buyer, at or prior to the Closing of each of the following conditions:
7.01. REPRESENTATIONS AND WARRANTIES TRUE.
(a) Each of the representations and warranties of Parent
contained in Sections 3.01, 3.02, 3.03, 3.04 and 3.16 of this Agreement shall be
true and correct at and as of the Closing Date with the same force and effect as
though made at and as of the Closing Date, with the same force and effect as
though made at and as of the Closing Date (except to the extent that any
representation or warranty is made as of a specific date, in which case such
representation or warranty shall be true and correct as of such date).
(b) The representations and warranties of Parent in this
Agreement (other than those referred to in Section 7.01(a)) shall be true and
correct at and as of the Closing Date (except to the extent that any
representation or warranty is made as of a specific date, in which case such
representation or warranty shall be true and correct as of such date). The
determination of whether the condition set forth in this Section 7.01(b) shall
be satisfied shall be made on a cumulative basis by adding the effect of all
breaches of representations and warranties (determined without regard to any
materiality or Company Material Adverse Effect or similar qualifiers). If the
effect of the aggregation of such breaches of
<PAGE>
representations or warranties does not result in a Company Material Adverse
Effect, then this condition shall be deemed satisfied.
7.02. PERFORMANCE. Parent, SILLC and the Company shall have
performed and complied in all material respects with all agreements,
obligations, covenants and conditions required by this Agreement to be performed
or complied with by it on or prior to the Closing.
7.03. NO INJUNCTION OR PROCEEDING. No Order shall have been
enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits or restricts the consummation of the transactions contemplated hereby.
No action or proceeding by any Governmental Entity shall be pending or
threatened in writing against Buyer, Parent, SILLC, the Company or any of their
respective Affiliates, associates, officers or directors seeking to prevent or
delay the transactions contemplated hereby, challenging any of the terms or
provisions of this Agreement or seeking material damages in connection
therewith.
7.04. CERTIFICATES. Parent shall have furnished Buyer with
such certificates of its officers or other representatives and others to
evidence compliance by the Seller with the conditions set forth in this Article
VII as may be reasonably requested by Buyer.
7.05. CREDIT FACILITY. The Company shall have borrowed an
aggregate of $178 million under the Company Credit Facility and an additional
$15 million shall be available immediately after such borrowing.
7.06. CONSENTS. Parent, the Company or the appropriate Company
Subsidiary shall have received all consents from third parties (including any
Governmental Entity), the absence of which could reasonably be expected to have
a Company Material Adverse Effect, including the consents described in Section
3.05 of the Disclosure Schedule, in form and substance reasonably acceptable to
Buyer.
7.07. MATERIAL ADVERSE EFFECT. No Company Material Adverse
Effect shall have occurred nor shall any event or circumstance which could
reasonably be expected to produce a Company Material Adverse Effect have
occurred.
7.08. HSR ACT. The applicable waiting periods under the HSR
Act shall have expired or been terminated.
ARTICLE VIII
TERMINATION AND ABANDONMENT
8.01. TERMINATION. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by written mutual consent of Buyer and Parent;
(b) by either Parent or Buyer by written notice given to the
other at any time after March 31, 2000 if, through no fault of the party seeking
termination, the Closing shall not have occurred;
<PAGE>
(c) by Buyer by written notice given to Parent, if there has
been a material violation or breach by Parent, SILLC or the Company of any
agreement, representation or warranty contained in this Agreement and such
violation or breach has not been cured within 30 days following notice thereof;
or
(d) by Parent by written notice given to the Buyer, if there
has been a material violation or breach by Buyer of any agreement,
representation or warranty contained in this Agreement and such violation or
breach has not been cured within 30 days following notice thereof.
8.02. PROCEDURE AND EFFECT OF TERMINATION. In the event of
termination of this Agreement and abandonment of the transactions contemplated
hereby by any or all of the parties pursuant to Section 8.01 hereof, written
notice thereof shall forthwith be given to the other party or parties hereto and
this Agreement shall terminate and the transactions contemplated hereby shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
(a) upon request therefor, each party will redeliver all
documents, work papers and other material of any other party or of the Company
or any Company Subsidiary relating to the transactions contemplated hereby,
whether obtained before or after the execution hereof, to the party furnishing
or causing to be furnished the same;
(b) all information received by Buyer with respect to the
business of the Company or any Company Subsidiary shall be held subject to and
in accordance with the terms of the Confidentiality Agreement, which agreement
shall continue notwithstanding the termination of this Agreement; and
(c) any termination pursuant to Section 8.01(c) or (d) shall
not be deemed a waiver of any rights or remedies otherwise available under this
Agreement, by operation of law or otherwise, to the party who so terminates and
shall not relieve the breaching party (whether or not it is the terminating
party) from any liability to the other party hereto arising from or related to
such breach.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.01. AMENDMENT AND MODIFICATION. This Agreement may be
amended, modified or supplemented at any time by the parties hereto only by an
instrument in writing duly signed by the parties hereto.
9.02. EXTENSION; WAIVER. At any time prior to the Closing
Date, the parties entitled to the benefits of the respective term or provision
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein any document, certificate or
writing delivered pursuant hereto or (c) waive compliance with any obligation,
covenant, agreement or condition contained herein. Any agreement on the part of
any party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of the parties entitled to the benefits
of such extended or waived term or provision.
<PAGE>
No waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provision hereof (whether or
not similar). No delay on the part of any party in exercising any right, power,
or privilege hereunder shall operate as a waiver thereof.
9.03. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except
as otherwise provided for in the Indemnification Agreement and the Tax Sharing
Agreement, the representations and warranties made in this Agreement shall not
survive beyond the Closing.
9.04. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement together
with the Indemnification Agreement, the Tax Sharing Agreement, the Registration
Rights Agreement, the Stockholders Agreement and the Management Agreement (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof (other than the Confidentiality Agreement) and (b) shall not be
assigned by operation of law or otherwise by Parent, SILLC or the Company
without the prior written consent of Buyer, which shall not be unreasonably
withheld. This Agreement may be assigned by Buyer to (i) any Affiliate (but no
such assignment shall release Buyer of its obligations hereunder) (ii) one or
more of its lenders if required by same or (iii) to any purchaser of the
outstanding stock or all or substantially all of the assets of the Company,
without the prior written consent of Seller.
9.05. VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, each of which shall remain in full force
and effect.
9.06. NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed given if
delivered personally or by facsimile transmission or telexed or three days after
being mailed by registered or certified mail (return receipt requested), postage
prepaid, and one Business Day after deposited with an overnight courier service
if delivered by overnight courier, to the parties at the following addresses (or
at such other address for a party as shall be specified by like notice;
PROVIDED, that notices of a change of address shall be effective only upon
receipt thereof):
(a) if to the Parent, SILLC or the Company, to:
c/o U.S. Industries, Inc.
101 Wood Avenue South
Iselin, New Jersey 08830
Telephone: (732) 767-0700
Telecopy: (732)767-2208
Attention: General Counsel
<PAGE>
(b) if to Buyer, to:
Automotive Interior Products, LLC
c/o Citicorp Venture Capital Ltd.
399 Park Avenue, Sixth Floor
New York, New York 10043
Telephone: (212) 559-1127
Telecopy: (212) 888-2940
Attention: Michael T. Bradley
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Telephone: (215) 994-4000
Telecopy: (215) 994-2222
Attention: G. Daniel O'Donnell
9.07. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
9.08. SPECIFIC PERFORMANCE. The parties hereto agree that if
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached, irreparable damage would occur,
no adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.
9.09. PUBLIC DISCLOSURE. Notwithstanding anything herein to
the contrary, each of the parties to this Agreement hereby agrees with the other
party or parties hereto that, except as may be required to comply with the
requirements of any applicable laws and the rules and regulations of any stock
exchange upon which the securities of one of the parties (or its Affiliate) is
listed, in which case the party making the release or announcement shall provide
a copy of such release or announcement 48 hours in advance to the other parties,
no press release or announcement with respect to the transactions contemplated
by this Agreement shall be issued by any party to this Agreement prior to the
Closing without the advance consent of the other parties.
9.10. DESCRIPTIVE HEADINGS. The descriptive headings herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning interpretation of this Agreement.
9.11. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
<PAGE>
9.12. FEES AND EXPENSES. Whether or not the transactions
contemplated by this Agreement are consummated, Parent shall pay all of the
reasonable and invoiced out-of-pocket expenses incurred by Parent, the Company
and any Company Subsidiary in connection with the negotiation and preparation of
this Agreement and the consummation of the transactions contemplated hereby,
including, without limitation, all legal, accounting and other costs and
expenses and any filing fee under the HSR Act; provided, however, that any
out-of-pocket expenses incurred in connection with the Bank Commitment Letter
and the Credit Facility, and up to $700,000 of other reasonable and invoiced
out-of-pocket legal and accounting expenses incurred by Parent, shall be paid
out of proceeds of the Company Credit Facility. If the transactions contemplated
by this Agreement are consummated, the Company shall pay all of the reasonable
and invoiced out-of-pocket legal, accounting and environmental consulting
expenses incurred by the Buyer in connection with the negotiation and
preparation of this Agreement and the consummation of the transactions
contemplated hereby, and Buyer shall pay any other expenses incurred by it in
connection therewith. If the transactions contemplated by this Agreement are not
consummated, Buyer shall be responsible for all of its own out-of- pocket
expenses.
9.13. PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and nothing in this
Agreement, express or implied, is intended by or shall confer upon any other
Person or Persons any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
9.14. DEFINITIONS. As used in this Agreement:
"Affiliate" shall have the meaning set forth in Rule 12b-2 of
the regulations promulgated under the Securities and Exchange Act of 1934, as
amended.
"Business Day" shall mean any day in which banks are open for
business in New York City.
"Buyer Material Adverse Effect" shall mean a material adverse
effect (or series of related changes or effects) on the business, financial
condition or results of operations of the Buyer; PROVIDED that, for purposes of
this Agreement, changes or effects (i) attributable to worldwide, national or
local economic conditions or (ii) generally affecting the industries in which
the Buyer operates shall, in each case, not be deemed to constitute a Buyer
Material Adverse Effect.
"Company Material Adverse Effect" shall mean a material
adverse effect (or series of related changes or effects) on the business,
financial condition or results of operations of the Company and the Company
Subsidiaries taken as a whole; PROVIDED that, for purposes of this Agreement,
changes or effects (i) attributable to worldwide, national or local economic
conditions or (ii) generally affecting the industries in which the Company or
any Company Subsidiary operates shall, in each case, not be deemed to constitute
a Company Material Adverse Effect.
"Corporate Reorganization" means the transactions contemplated
by Section 1.02 of the Securities Purchase Agreement by and among U.S.
Industries, Inc., JUSI Holdings, Inc., Strategic Industries, LLC and Automotive
Interior Products, LLC, dated as of January 15, 2000 (the "Securities Purchase
Agreement").
<PAGE>
"Form 10" shall mean the following sections of Amendment No. 2
to the Form 10 filed with the Securities and Exchange Commission on November 4,
1999, solely as it relates to the Company Subsidiaries: "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Person" shall mean any individual, corporation, partnership,
association, limited liability company, trust, unincorporated organization,
other entity or group (as group is defined in Section 13(d)(3) of the Exchange
Act).
"SILLC Material Adverse Effect" shall mean a material adverse
effect (or series of related changes or effects) on the business, financial
condition or results of operations of SILLC and its Subsidiaries taken as a
whole; PROVIDED that, for purposes of this Agreement, changes or effects (i)
attributable to worldwide, national or local economic conditions or (ii)
generally affecting the industries in which SILLC or any Subsidiary of SILLC
operates shall, in each case, not be deemed to constitute a SILLC Material
Adverse Effect.
"SILLC Stockholders Agreement" shall mean the Securities
Purchase and Holders Agreement, to be dated the Closing Date, by and among
SILLC, the Company, JUSI Holdings, Inc. and Management Investors.
"Subsidiary" shall mean any Person of which more than 50% of
the total voting power of stock or other equity interests having ordinary voting
power for the election of directors or managers of such Person is at the time
owned or controlled, directly or indirectly, by another Person.
[SIGNATURES BEGIN ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be signed by its duly authorized officers as of the date first
above written.
U.S. INDUSTRIES, INC.
By:
------------------------------
Name:
Title:
JUSI HOLDINGS, INC.
By:
------------------------------
Name:
Title:
STRATEGIC INDUSTRIES, LLC
By:
------------------------------
Name:
Title:
STRATEGIC INDUSTRIES, INC.
By:
------------------------------
Name:
Title:
AUTOMOTIVE INTERIOR PRODUCTS, LLC
By:
------------------------------
Name:
Title:
<PAGE>
================================================================================
SUBSCRIPTION AGREEMENT
BY AND AMONG
U.S. INDUSTRIES, INC.,
JUSI HOLDINGS, INC.,
STRATEGIC INDUSTRIES, LLC,
STRATEGIC INDUSTRIES, INC.,
AND
AUTOMOTIVE INTERIOR PRODUCTS, LLC
Dated as of January 15, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I SUBSCRIPTION FOR SECURITIES..............................1
1.01. Subscription for Note and Units of SILLC.....................1
1.02. Subscription for the Company Shares..........................2
1.03. Incurrence of Company Debt...................................2
1.04. Repayment of Intercompany Debt...............................2
ARTICLE II THE CLOSING..............................................2
2.01. Time and Place of Closing....................................2
2.02. Deliveries by SILLC..........................................3
2.03. Deliveries by Buyer..........................................3
2.04. Deliveries by the Company....................................3
2.05. Deliveries by Parent.........................................4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT.................4
3.01. Corporate Organization; Etc..................................4
3.02. Capitalization of the Company and SILLC......................5
3.03. Company Subsidiaries.........................................6
3.04. Each Parent's, SILLC's and the Company's Authority Relative to
this Agreement...........................................6
3.05. Consents and Approvals; No Violations........................7
3.06. Financial Statements.........................................7
3.07. Form 10; Absence of Certain Changes..........................7
3.08. Compliance with Law..........................................9
3.09. Contracts....................................................9
3.10. Litigation..................................................10
3.11. Taxes ...................................................10
3.12. Employee Benefit Plans; ERISA...............................12
3.13. Title to Properties.........................................14
3.14. Patents, Trademarks, Etc....................................14
3.15. Environmental Matters.......................................14
3.16. Brokers and Finders.........................................15
3.17. Undisclosed Liabilities.....................................15
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
3.18. Related Party Transactions..................................16
3.19. Adequacy of Assets..........................................16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.................16
4.01. Organization; Etc...........................................16
4.02. Authority Relative to this Agreement........................16
4.03. Consents and Approvals; No Violations.......................16
4.04. Acquisition of Purchased Securities for Investment..........17
4.05. Financial Capability........................................17
4.06. Brokers and Finders.........................................17
4.07. Buyer's Sophistication......................................17
ARTICLE V COVENANTS OF THE PARTIES................................18
5.01. Conduct of Business of the Company..........................18
5.02. Buyer Commitment Letter.....................................19
5.03. Additional Information......................................19
5.04. Covenant to Satisfy Conditions..............................20
5.05. Employee Matters............................................20
5.06. Further Assurances..........................................21
5.07. Binding on Successors.......................................22
5.08. Non-Solicitation............................................22
5.09. Confidentiality.............................................23
5.10. Management Services Agreement...............................23
5.11. Change in Control Payments..................................23
5.12. Return of Company Shares to JUSI............................23
5.13. Transitional Administrative Services........................24
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF PARENT,
NEWCO AND THE COMPANY...................................24
6.01. Representations and Warranties True.........................24
6.02. Performance.................................................25
6.03. No Injunction or Proceeding.................................25
6.04. Certificates................................................25
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
6.05. Credit Facility.............................................25
6.06. Securities Purchase Transaction.............................25
6.07. Material Adverse Effect.....................................25
6.08. HSR Act.....................................................25
ARTICLE VII CONDITIONS TO OBLIGATIONS OF BUYER......................25
7.01. Representations and Warranties True.........................25
7.02. Performance.................................................26
7.03. No Injunction or Proceeding.................................26
7.04. Certificates................................................26
7.05. Credit Facility.............................................26
7.06. Consents....................................................26
7.07. Material Adverse ...........................................26
7.08. HSR Act.....................................................26
ARTICLE VIII TERMINATION AND ABANDONMENT.............................27
8.01. Termination.................................................27
8.02. Procedure and Effect of Termination.........................27
ARTICLE IX MISCELLANEOUS PROVISIONS................................28
9.01. Amendment and Modification..................................28
9.02. Extension; Waiver...........................................28
9.03. Non-Survival of Representations and Warranties..............28
9.04. Entire Agreement; Assignment................................28
9.05. Validity....................................................28
9.06. Notices.....................................................28
9.07. Governing Law...............................................29
9.08. Specific Performance........................................29
9.09. Public Disclosure...........................................29
9.10. Descriptive Headings........................................30
9.11. Counterparts................................................30
9.12. Fees and Expenses...........................................30
9.13. Parties in Interest.........................................30
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
9.14. Definitions.................................................30
LIST OF ANNEXES
Annex A - Form of Junior Subordinated Note
Annex B - Indemnification Agreement
Annex C - Registration Rights Agreement
Annex D - Stockholders Agreement
Annex E - Release
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<PAGE>
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