<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 1999
REGISTRATION NO. 333-63649
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 6
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JAMES HARDIE N.V.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
THE NETHERLANDS 3272 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
WORLD TRADE CENTER
STRAWINSKYLAAN 749
1077 XX AMSTERDAM
THE NETHERLANDS
31 20 675 6061
(ADDRESS AND TELEPHONE NUMBER OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PETER SHAFRON, ESQ., GENERAL COUNSEL
26300 LA ALAMEDA, SUITE 100
MISSION VIEJO, CALIFORNIA 92691
(949) 348-1800
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
MARK W. SHURTLEFF, ESQ. DEANNA L. KIRKPATRICK, ESQ.
GIBSON, DUNN & CRUTCHER LLP DAVIS POLK & WARDWELL
JAMBOREE CENTER, 4 PARK PLAZA 450 LEXINGTON AVENUE
IRVINE, CA 92614 NEW YORK, NY 10017
(949) 451-3800 (212) 450-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent offering outside the United
States and Canada (the "International Prospectus"). The two prospectuses are
identical in all respects except for (i) the pages labeled as "Alternate Page
for International Prospectus" which will be included in the International
Prospectus to replace the corresponding pages in the U.S. Prospectus and (ii)
the exclusion of the "Notice to Ontario and Quebec Residents" section from the
International Prospectus. Final forms of each prospectus will be filed with the
Securities and Exchange Commission under Rule 424(b).
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS Subject to Completion, Dated March 2, 1999
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7,500,000 Shares
[JH LOGO]
JAMES HARDIE N.V.
Common Stock
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All of the 7,500,000 shares of common stock, nominal value NLG 0.02 per share
(the "Common Stock"), of James Hardie N.V. ("James Hardie") offered hereby are
being sold by a wholly owned indirect subsidiary (the "Selling Shareholder") of
James Hardie Industries Limited, a public company organized under the laws of
Australia and listed on the Australian Stock Exchange ("JHIL"), in concurrent
offerings in the United States and Canada and outside the United States and
Canada (collectively, the "Offerings"). Of such shares, 6,375,000 are initially
being offered in the United States and Canada by the U.S. Underwriters (the
"United States Offering") and 1,125,000 are initially being offered outside the
United States and Canada by the International Underwriters (the "International
Offering"). The per share price to the public and per share underwriting
discounts and commissions in each of the Offerings will be identical. See
"Underwriting." James Hardie will not receive any of the proceeds from the sale
of the shares offered hereby.
James Hardie is currently a wholly owned indirect subsidiary of JHIL. Following
consummation of the Offerings, JHIL will beneficially own approximately 85% of
the outstanding shares of Common Stock (or approximately 83% of the outstanding
shares of Common Stock if the U.S. Underwriters' over-allotment option is
exercised in full).
Prior to the Offerings, there has been no public market for the Common Stock. It
is currently anticipated that the initial public offering price per share will
be between $15.00 and $18.00. See "Underwriting" for the factors to be
considered in determining the initial public offering price. The shares of
Common Stock have been approved for listing (subject to official notice of
issuance) on the New York Stock Exchange (the "NYSE") under the symbol "JHX."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON STOCK
OFFERED HEREBY, SEE "RISK FACTORS" COMMENCING ON PAGE 11.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds
Price to Discounts and to Selling
Public Commissions(1) Shareholder(2)
<S> <C> <C> <C>
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Per Share $ $ $
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Total(3) $ $ $
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</TABLE>
(1) James Hardie, the Selling Shareholder and JHIL have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offerings payable by JHIL estimated to be
$1,825,000.
(3) The Selling Shareholder has granted the U.S. Underwriters a 30-day option to
purchase up to 1,125,000 additional shares of Common Stock on the same terms
per share solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public will be $ , the total
Underwriting Discounts and Commissions will be $ and the total
Proceeds to the Selling Shareholder will be $ . See "Underwriting."
The shares of Common Stock are being offered by the Underwriters as set forth
under "Underwriting" herein. It is expected that delivery of the certificates
therefor will be made at the offices of Warburg Dillon Read LLC, New York, New
York, or through the facilities of The Depository Trust Company, on or about
, 1999.
WARBURG DILLON READ LLC
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
The date of this Prospectus is , 1999.
<PAGE> 4
[GRAPHIC OF HOUSE]
James Hardie is the largest manufacturer of fiber cement building products and
systems in the United States, Australia and New Zealand.
[GRAPHIC OF HOUSE]
The Company believes that, in certain applications, its fiber cement products
and systems provide a combination of distinctive performance, design and cost
advantages when compared to the other fiber cement products and alternative
products and systems using solid wood, engineered wood, vinyl, brick, stucco and
gypsum wallboard.
[GRAPHIC OF HOUSE]
Applications include external siding roofing, internal linings, facades,
fencing, and floor and tile underlayments.
[LOGO] James Hardie N.V.
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE COMMON STOCK
AND THE IMPOSITION OF A PENALTY BID DURING AND AFTER THE OFFERINGS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
[LOGO] James Hardie N.V.
[GRAPHIC COLLAGE OF HOUSES AND THE COMPANY'S BUILDING PRODUCTS]
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the Consolidated Financial Statements and the related notes thereto, included
elsewhere in this Prospectus. Prior to the Reorganization (as more fully
described below), James Hardie Industries Limited ("JHIL"), a company organized
under the laws of Australia and listed on the Australian Stock Exchange,
operated a number of businesses in the building products industry. In connection
with the Reorganization, JHIL transferred the "Transferred Businesses" (as
defined herein) to James Hardie N.V., a company incorporated under the laws of
The Netherlands ("James Hardie" and, collectively with all of its subsidiaries,
unless the context otherwise requires, the "Company"), and retained certain
assets and liabilities and the related income and expenses (the "Retained Assets
and Liabilities"). Unless the context otherwise requires, all historical
financial information for periods prior to the Reorganization discussed in this
Prospectus include the Retained Assets and Liabilities. Such information,
therefore, may not be indicative of the Company's future financial performance.
Financial information with respect to the Transferred Businesses is presented in
this Prospectus, together with certain other adjustments, in "Unaudited Pro
Forma Consolidated Financial Data." References in this Prospectus to the
Company's historical operations refer to the operations of the Transferred
Businesses. Unless the context otherwise requires, all references in this
Prospectus to JHIL shall refer to JHIL and its subsidiaries that were not
transferred to the Company (including the Selling Shareholder). Except as
otherwise indicated, all information in this Prospectus assumes that the U.S.
Underwriters' over-allotment option is not exercised. As used in this
Prospectus, the term "fiscal year" refers to the Company's fiscal year ended
March 31 of such year, the term "dollars" or "$" refers to U.S. dollars, the
term "AUD" refers to Australian dollars, the term "NZD" refers to New Zealand
dollars, the term "msf" refers to thousands of square feet and the term "mmsf"
refers to millions of square feet.
THE COMPANY
GENERAL
The Company is the largest manufacturer of fiber cement products and
systems for internal and external building construction applications in the
United States, Australia and New Zealand. Fiber cement is one of the fastest
growing segments of the U.S. building products industry. Total U.S. industry
shipments of fiber cement were estimated by the Company to be approximately 500
mmsf during fiscal year 1998, up 35% from approximately 370 mmsf in fiscal year
1997. The Company markets its fiber cement products and systems under various
"Hardi" brand names. The Company believes that, in certain applications, its
fiber cement products and systems provide a combination of distinctive
performance, design and cost advantages when compared to other fiber cement
products and alternative products and systems using solid wood, engineered wood,
vinyl, brick, stucco and gypsum wallboard. The Company estimates that fiber
cement could grow from approximately 7% of the U.S. external siding market in
1998 to 16% by 2002.
In addition, the Company is the fourth largest producer of gypsum wallboard
in the United States. The sale of fiber cement products and gypsum wallboard
accounted for 46.9% and 24.4%, respectively, of the Company's total net sales in
fiscal year 1998 and 47.9% and 30.2%, respectively, of the Company's total net
sales for the nine months ended December 31, 1998. In addition to its fiber
cement and gypsum wallboard businesses, the Company, through its building
systems division, is the Australian and New Zealand market leader in the
manufacture and sale of modular relocatable buildings in the mining resources
market and insulated panel products in the commercial market. The Company also
manufactures windows and window systems for residential and commercial
applications in Australia.
The Company pioneered the successful development of cellulose reinforced
fiber cement in the early 1980s with its proprietary product formulation and
process technology. The Company has continued to develop and enhance its fiber
cement technology, deriving significant cost and efficiency benefits and
establishing itself as a leader in this product category. The Company's fiber
cement products are utilized in various markets including new residential
construction, manufactured housing, repair and remodeling and a variety of
commercial and industrial applications. The Company manufactures numerous types
of fiber cement products with a variety of patterned profiles and surface
finishes for a range of applications including external siding, roofing,
internal linings, facades, fencing, and floor and tile underlayments. In
contrast to
3
<PAGE> 6
certain other building materials, fiber cement provides durability attributes
such as strong resistance to moisture, fire, impact and termites, requires
relatively little maintenance and can be used as a substrate to create a wide
variety of architectural effects with textured and colored finishes. During
fiscal year 1998, management believes, based on its analysis of competitors'
sales, that the Company sold approximately 83% of the fiber cement sold in the
United States, 84% of the fiber cement sold in Australia and 93% of the fiber
cement sold in New Zealand.
During fiscal year 1998, the Company's U.S. Fiber Cement business accounted
for $181.1 million of net sales, Gypsum accounted for $200.5 million of net
sales, Australia/New Zealand Fiber Cement accounted for $211.6 million of net
sales, Building Systems accounted for $147.9 million of net sales and Other
products (which includes windows and fiber cement operations in the Philippines)
accounted for $81.2 million of net sales. Operating profit from U.S. Fiber
Cement and Gypsum (the "U.S. Operations") as a percentage of total operating
profit before expenses in connection with the Sydney-based research and
development center and certain general corporate costs, which benefit all
segments, was 72.4% in fiscal year 1998 and 87.6% for the nine months ended
December 31, 1998. See "Selected Financial and Operating Data."
James Hardie's principal executive offices are located at World Trade
Center, Strawinskylaan 749, 1077 XX Amsterdam, The Netherlands, and its
telephone number is 31 20 675 6061. The Company's principal operational offices
are located at 26300 La Alameda, Suite 100, Mission Viejo, California 92691, and
its telephone number is (949) 348-1800.
BUSINESS STRATEGY
The Company's strategic objective is to increase shareholder value by
expanding its leadership position in the manufacturing and marketing of fiber
cement and capitalizing on this position to build related businesses in the
building and construction industries worldwide. The Company seeks to maintain
its competitive advantage in fiber cement through the continued development of
differentiated products and improved process technology. In the Company's gypsum
wallboard business, management believes the Company's cost position will enable
it to maintain high levels of capacity utilization through industry downturns.
Combined, these global strategies are intended to mitigate the Company's
susceptibility to construction cycles. The international nature of the Company's
business also reduces exposure to regional construction cycles. More
specifically, the Company's strategies include the following:
Increase Demand for Fiber Cement Products
The Company plans to increase demand for fiber cement products in the
United States, Australia, New Zealand and selected Asian markets through the
continued displacement of more traditional building materials. The Company is
investing significant effort into educating builders, contractors and consumers
with respect to the performance, design and cost advantages of new and existing
fiber cement products over competing products. In the United States, management
estimates that fiber cement comprised approximately 10% of the new residential
construction segment of the external siding market in fiscal year 1998 and
approximately 6% and 1%, respectively, of the manufactured housing and
repair/remodel segments. Research commissioned by the Company indicates that its
products are generally preferred by homeowners over alternative siding products,
once they have been made aware of the features of the Company's products. As a
result of this research, in 1998, the Company began a national and regional U.S.
marketing campaign to raise awareness of the Company's siding products among
consumers. In Australia, management estimates that approximately 80% of new
residential construction utilized masonry as the external siding material in
1997. The Company is marketing its products as a substitute for masonry and is
highlighting the cost, architectural and aesthetic advantages over brick.
Defend Current Position in Fiber Cement
Competition in the fiber cement business continues to increase. Management
believes that the Company has superior products, a broad product range, a
leading position in fiber cement and low cost manufacturing facilities which
leave it well positioned to defend against this increasing competition. To
continue to protect its position, the Company intends to further expand its
product line by launching new products and applications for fiber cement.
Additionally, the Company seeks to maintain excess capacity in its fiber cement
manufacturing facilities to allow it the flexibility to meet surges in customer
demand and to minimize the business that may be lost through an inability to
supply its fiber cement products. Consequently, its first manufacturing
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<PAGE> 7
plant in California has been expanded twice and three new plants have been
constructed in Florida, Texas and Washington, at an aggregate cost of
approximately $200 million over four years. Concurrently with increasing
capacity in the United States, the Company has been upgrading and consolidating
its capacity in Australia and New Zealand. In Australia, a three year, AUD 40
million upgrade program has been implemented that management believes will
result in reduced manufacturing costs primarily through increased automation. In
New Zealand, upgrading of the factory and warehouse facilities has resulted in
increased production capacity and lower costs. See "Business -- Manufacturing
Facilities."
Continue to Develop New and Differentiated Fiber Cement Products
The Company intends to continue to focus on developing new and
differentiated products specifically targeted for its primary geographic markets
by capitalizing on its research and development facilities in the United States
and Australia. In light of increasing competition, management believes product
differentiation is key to maintaining and enhancing the Company's position and
permitting value added pricing. The Company has various new products and systems
in development and commercialization, such as a new generation of low density
fiber cement products for external trim applications, launched in October 1998,
that contain significant elements of proprietary technology which the Company
believes will preclude easy duplication by competitors.
Expand into New Geographic Markets for Fiber Cement Products
The Company plans to continue to expand into new geographic markets for
fiber cement products. Sales of fiber cement outside the United States,
Australia and New Zealand accounted for approximately 5% of fiscal year 1998
fiber cement revenues and approximately 4% of fiber cement revenues for the nine
months ended December 31, 1998. The Company began exporting fiber cement
products into the Philippines in the early 1980s as a plywood replacement and
commenced construction in 1997 of a manufacturing facility in Cabuyao (near
Manila) to meet local demand for its products. This new facility was
commissioned in December 1998. In addition, the Company has been exporting
products to Taiwan, Thailand, Singapore, Japan, the Middle East, Korea and
Indonesia and is exploring, over the long term, the possibility of constructing
manufacturing facilities in some of these locations. The Company has also
conducted detailed assessments of market opportunities in certain other regions
around the world. The continued geographic expansion of the Company into
additional markets diversifies the Company's customer base and reduces its
exposure to seasonality and the cyclicality of the construction industry in any
one particular market.
Maintain a Strong Niche Position in the U.S. Gypsum Wallboard Industry
The Company plans to continue to maintain its strong niche position in the
U.S. gypsum wallboard industry by offering a full line of products in the large
regional markets in which it operates. The Company has low-cost facilities that
currently operate at high levels of capacity utilization. The Company intends to
maintain this focus while continuing to improve operating efficiencies.
Following the expansion of its Seattle, Washington and Las Vegas, Nevada
facilities, the Company has begun work on doubling the capacity of its gypsum
wallboard plant in Nashville, Arkansas, which is scheduled to be completed in
the second half of calendar year 1999. The Nashville plant, when completed, will
be one of the largest gypsum wallboard plants in the world with approximately
1.4 billion square feet of capacity per annum and will expand the Company's
share of U.S. industry capacity in the gypsum wallboard market from
approximately 7% to approximately 9% based on Company estimates. At that time,
the Company's wallboard plants will on average have the capacity to produce 2.6
times more gypsum wallboard than the current industry average on a per plant
basis. The Company believes that its competitive strengths leave it
comparatively well positioned throughout market cycles. The Company also plans
to continue to review opportunities to invest in strategically located assets
which strengthen its niche position in the U.S. gypsum industry and which
complement its international fiber cement business.
THE REORGANIZATION
JHIL commenced operations in Australia in 1888, was incorporated in 1920
and has been listed on the Australian Stock Exchange Limited since 1951. Over
the last three years, JHIL has significantly reshaped its business through a
series of divestitures of non-core businesses, the proceeds of which were used
in part to fund the expansion of its U.S. fiber cement and gypsum wallboard
businesses. As a result of the increasing significance of the U.S. Operations,
which comprised 72.4% of total operating profits in fiscal year 1998 and 87.6%
of total operating profits for the nine months ended December 31, 1998 (before
expenses in connection
5
<PAGE> 8
with the Sydney-based research and development center and certain general
corporate costs which benefit all segments), JHIL announced a plan of
reorganization and capital restructuring (the "Reorganization"). The
Reorganization, which (with the exception of the Offerings and the relocation of
certain senior executives and managers) was consummated in November 1998, is
intended to address the structural imbalance and resulting operational,
financial and commercial issues that previously existed as a result of the
predominance of JHIL's U.S. operations and the location of corporate management
and JHIL's shareholder base in Australia. The primary components of the
Reorganization are:
- The formation of James Hardie, a wholly owned indirect subsidiary of
JHIL, which was incorporated in The Netherlands in August 1998;
- The transfer to the Company, effective November 1, 1998, pursuant to
various contribution and purchase agreements (the "Purchase Agreements"),
of JHIL's fiber cement businesses, its U.S. gypsum wallboard business,
its Australian and New Zealand building systems business and its
Australian windows business (collectively, the "Transferred Businesses")
and the retention by JHIL and its non-transferring subsidiaries of the
Retained Assets and Liabilities;
- The issuance of the Notes and the arrangement of a new Bank Facility (as
such terms are defined herein) on November 4, 1998 by the Company (the
"Debt Financing");
- The relocation of certain senior executives and managers to the Company's
U.S. operational headquarters; and
- The sale by the Selling Shareholder, through the Offerings, of
approximately 15% of the outstanding shares of Common Stock of James
Hardie.
ACQUISITION OF THE TRANSFERRED BUSINESSES
The Company and JHIL entered into the Purchase Agreements pursuant to which
the Company acquired the Transferred Businesses from JHIL and its
non-transferring subsidiaries. The Transferred Businesses were acquired by James
Hardie in consideration of 100% of its outstanding Common Stock and $349.1
million, which was paid from the proceeds of the sale of the Notes and
borrowings under the term loan portion of the Bank Facility which is more fully
described below. The $349.1 million payment represented the settlement of
intercompany indebtedness of subsidiaries of JHIL acquired by the Company in
connection with the Reorganization. In addition to the Retained Assets and
Liabilities, JHIL and its non-transferring subsidiaries also retained existing
and potential liabilities in relation to the manufacture prior to 1987 of
products containing asbestos. As part of the Retained Assets and Liabilities,
JHIL and its non-transferring subsidiaries retained the ownership of the
manufacturing sites in Australia and New Zealand on which asbestos products were
manufactured. The Company will lease and continue to manufacture from these
sites. As part of the Purchase Agreements, JHIL and certain of its
non-transferring subsidiaries agreed to indemnify the Company for certain
liabilities in relation to the operation of the Transferred Businesses prior to
the Reorganization, including all asbestos-related liabilities and environmental
liabilities relating to these sites. See "Certain Relationships and Related
Transactions -- Purchase Agreements."
DEBT FINANCING
On November 4, 1998, a financing subsidiary of the Company incorporated
under the laws of The Netherlands (the "Finance Subsidiary") completed the sale
of certain debt securities and arranged a new bank credit facility for a wholly
owned Australian subsidiary of the Company. The Finance Subsidiary issued $225
million aggregate principal amount of senior unsecured notes with a mix of
maturities ranging from 6 to 15 years with a ten-year average maturity and a
maximum of $63 million maturing in any one year (the "Notes") to certain
identified U.S. institutional investors. In addition, the Finance Subsidiary
arranged a new unsecured bank credit facility (the "Bank Facility") which
consists of an Australian dollar denominated term loan of AUD 200 million
($124.1 million based on the exchange rate on November 4, 1998) with a term of
three years, which is currently fully drawn, and a U.S. dollar denominated
revolving credit facility of $77.5 million, which will principally be used by
the Company for working capital purposes and under which the Company had
borrowings of $25 million as of February 1, 1999. See "Management's Discussion
and
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Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The amount borrowed under the revolving credit facility was
used to fund a working capital shortfall on the date such amount was borrowed.
The Notes and indebtedness incurred under the Bank Facility by the Company's
subsidiaries are unconditionally guaranteed by James Hardie on an unsecured
basis.
The Notes have a fixed interest rate. The term loan portion of the Bank
Facility has a floating interest rate equal to a fixed margin over the
Australian Bank Bill Rate. The revolving credit facility has a floating interest
rate equal to a fixed margin over LIBOR. The Debt Financing arrangements have
customary covenants including the maintenance of certain financial ratios and
limitations on payment of dividends and the incurrence of additional
indebtedness. The Notes and Bank Facility are subject to the same key covenants.
THE OFFERINGS
The Offerings were approved by the shareholders of JHIL at an extraordinary
general meeting of JHIL's shareholders held on October 16, 1998 in Sydney,
Australia ("Shareholder Approval"). JHIL has informed the Company that it
intends to consider a further selldown of its interest in the Company or a
distribution of its interest to JHIL shareholders within 12 to 24 months.
However, the timing and precise mechanisms of such a selldown or distribution
will depend on market conditions and other relevant considerations.
THE OFFERINGS
Common Stock being offered by
the Selling Shareholder in the
Offerings:
United States Offering.......... 6,375,000 shares(1)
International Offering.......... 1,125,000 shares
Total....... 7,500,000 shares(1)
Common Stock to be outstanding
after the Offerings............. 50,000,000 shares(2)
Use of Proceeds................. The Company will not receive any proceeds
from the sale of the shares of Common Stock
offered hereby.
NYSE symbol..................... JHX
Risk Factors.................... Investment in the Common Stock offered hereby
involves certain risks. Each prospective investor should carefully consider all
of the matters described herein under "Risk
Factors."
- ---------------
(1) Assumes that the U.S. Underwriters' over-allotment option is not exercised.
(2) Excludes 5,000,000 shares of Common Stock reserved for issuance under the
Company's 1999 Equity Incentive Plan (the "Equity Incentive Plan"), under
which options to purchase up to a maximum of 2,400,000 shares are expected
to be granted upon consummation of the Offerings. See
"Management -- Compensation of Directors and Officers" and
"Management -- 1999 Equity Incentive Plan." Also excludes up to 30,000
restricted shares of Common Stock to be issued to members of the Supervisory
Board upon consummation of the Offerings and 110,000 shares of Common Stock
reserved for issuance under the Company's 1999 Independent Directors
Deferred Compensation Plan (the "Directors Deferred Compensation Plan"). See
"Management -- Compensation of Directors and Officers."
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<PAGE> 10
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary consolidated historical and pro forma
financial and operating data for the periods indicated and is qualified by
reference to, and should be read in conjunction with, the Consolidated Financial
Statements and the related notes thereto, the "Unaudited Pro Forma Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained elsewhere herein. The historical financial
data presented below reflects historical data with respect to (a) the
Transferred Businesses and (b) until November 1, 1998, the Retained Assets and
Liabilities which were not transferred to the Company in the Reorganization. See
"The Reorganization." Consequently, such historical financial data is not
necessarily indicative of future results of the Company. The pro forma data
contained herein gives effect to certain transactions that are part of the
Reorganization. See "Unaudited Pro Forma Consolidated Financial Data."
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31,
------------------------------------------- ----------------------------------------
PRO FORMA(1) PRO FORMA(1)
1996 1997 1998 1998 1997 1998 1998
------- ------- -------- ------------ ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN MILLIONS, EXCEPT VOLUME AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales
U.S. Fiber Cement(2)........... $ 100.7 $ 148.7 $ 181.1 $ 181.1 $ 134.2 $ 177.6 $ 177.6
Gypsum(3)...................... 77.0 103.8 200.5 200.5 149.3 190.9 190.9
Australia/New Zealand Fiber
Cement(4).................... 264.6 262.1 211.6 211.6 169.0 132.2 132.2
Building Systems(4)............ 118.2 133.8 147.9 147.9 111.9 81.3 81.3
Other(5)....................... 64.4 65.0 81.2 81.2 64.7 49.1 49.1
------- ------- -------- -------- -------- -------- --------
Total net sales.................... 624.9 713.4 822.3 822.3 629.1 631.1 631.1
Cost of goods sold................. (429.9) (508.7) (592.3) (595.5) (444.7) (448.0) (449.9)
------- ------- -------- -------- -------- -------- --------
Gross profit....................... 195.0 204.7 230.0 226.8 184.4 183.1 181.2
Selling, general and
administrative(6)................ (134.1) (150.3) (142.7) (142.7) (108.1) (108.7) (108.7)
Restructuring and other operating
expenses(7)...................... -- (38.8) (5.1) (5.1) (2.2) (1.2) (1.2)
------- ------- -------- -------- -------- -------- --------
Operating profit................... 60.9 15.6 82.2 79.0 74.1 73.2 71.3
Net interest expense(8)............ (32.9) (25.7) (20.6) (24.2) (17.4) (11.4) (18.1)
Equity income -- RCI(9)............ 7.9 9.2 6.2 -- 4.8 -- --
Other nonoperating expenses,
net(10)(11)...................... (15.0) (14.6) (12.1) (0.2) (10.5) (4.8) --
------- ------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before income tax..... 20.9 (15.5) 55.7 54.6 51.0 57.0 53.2
Income tax (expense) benefit(8).... (2.8) 3.0 (25.0) (11.9) (19.2) (22.6) (12.9)
------- ------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations(12)................... $ 18.1 $ (12.5) $ 30.7 $ 42.7 $ 31.8 $ 34.4 $ 40.3
======= ======= ======== ======== ======== ======== ========
Pro forma earnings per share....... $ 0.86 $ 0.81
======== ========
CONSOLIDATED CASH FLOW INFORMATION:
Cash flows provided by (used in)
operating activities............. $ 80.2 $ 82.8 $ 109.1 -- $ 100.4 $ (16.7)(11) --
Cash flows provided by (used in)
investing activities............. (39.5) 118.4 (46.7) -- (48.7) (117.8) --
Cash flows provided by (used in)
financing activities............. (87.9) 14.6 (63.9) -- (67.6) (168.1) --
OTHER DATA:
Depreciation and
amortization(13)................. $ 28.0 $ 35.6 $ 38.5 $ 37.6 $ 28.0 $ 29.2 $ 28.7
Adjusted EBITDA(14)................ 88.9 86.0 120.7 116.6 102.1 102.4 100.0
Capital expenditures(13)........... 64.7 172.1 154.8 -- 118.3 87.4 --
Research and development(6)........ 12.1 15.0 18.0 -- 12.6 10.5 --
Volume(mmsf)(15)
U.S. Fiber Cement.............. 220.0 317.0 416.1 416.1 303.7 423.4 423.4
Gypsum......................... 680.3 862.3 1,554.5 1,554.5 1,153.2 1,409.4 1,409.4
Australia/New Zealand Fiber
Cement(4).................... 347.5 318.4 299.2 299.2 226.4 220.8 220.8
Average sales price per unit (per msf)
U.S. Fiber Cement.............. $ 458 $ 469 $ 435 $ 435 $ 442 $ 419 $ 419
Gypsum......................... 113 120 129 129 129 135 135
Australia/New Zealand Fiber
Cement(4).................... 684 744 643 643 670 544 544
- ----------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------------------------- ------------
1996 1997 1998 1998
----------- -------- -------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Net current assets............................ $ 393.2 $ 425.3 $ 354.8 $ 89.0(16)
Total assets.................................. 1,366.1 1,534.0 1,241.7 1,008.5
Long-term debt................................ 416.5 470.2 496.3 347.5
Long-term related party borrowings............ 202.8 202.8 -- --
Shareholders' equity.......................... 460.4 544.8 465.8 337.9(16)
</TABLE>
- ---------------
(1) Pro Forma 1998 for the Unaudited Pro Forma Consolidated Statement of Income
for the fiscal year ended March 31, 1998 and the nine months ended December
31, 1998 gives accounting effect to the following transactions: (i) the
transfer of the Transferred Businesses to the Company and the retention of
the Retained Assets and Liabilities by JHIL and its non-transferring
subsidiaries, including any related income and expenses, (ii) the
completion of the Debt Financing, and (iii) certain tax consequences of the
Reorganization. See "Unaudited Pro Forma Consolidated Financial Data." The
Unaudited Pro Forma Consolidated Statement of Income for the fiscal year
ended March 31, 1998 assumes that each of these transactions occurred on
April 1, 1997. The Unaudited Pro Forma Consolidated Statement of Income of
the nine months ended December 31, 1998 assumes that each of these
transactions occurred on April 1, 1998.
(2) In January 1996, the first production line at the Plant City, Florida fiber
cement plant was expanded and a second line was commissioned in March 1996.
During fiscal year 1997, a third production line was commissioned at Plant
City, Florida, a new fiber cement plant was constructed and the first line
commissioned in Cleburne, Texas, and the capacity of the Fontana,
California fiber cement plant was expanded. During fiscal year 1999, a new
fiber cement plant was commissioned in Tacoma, Washington.
(3) The capacity of the Las Vegas, Nevada gypsum plant was expanded in fiscal
year 1996. The Nashville, Arkansas gypsum plant was acquired in fiscal year
1997. The Las Vegas, Nevada gypsum plant and the Seattle, Washington gypsum
plant were further expanded in fiscal year 1998.
(4) Australia/New Zealand Fiber Cement includes all fiber cement produced or
sold worldwide, excluding the United States and the Philippines, and also
includes sales from building systems in New Zealand.
(5) Includes fiber cement sales in the Philippines and window sales in
Australia.
(6) Includes research and development expenses.
(7) Includes (i) for fiscal year 1997, asset write-downs, environmental costs
and employee termination costs of $17.8 million associated with the
restructuring and upgrade of the fiber cement business in Australia, and a
windows goodwill write-off of $21.0 million, (ii) for fiscal year 1998,
$5.1 million of employee termination costs associated with the
restructuring and upgrading of the fiber cement business in Australia, and
(iii) for the nine months ended December 31, 1998, $1.2 million of employee
termination costs associated with the restructuring and upgrading of the
fiber cement business in Australia.
(8) Interest and income tax expenses are the historical interest and income
taxes applicable to JHIL and its subsidiaries prior to the Reorganization.
As a result of the Reorganization, the interest and income tax expenses of
the Company will change. See "Unaudited Pro Forma Consolidated Financial
Data."
(9) Represents equity interest earned on the investment in RCI Corporation
which was sold in fiscal year 1998. See "Unaudited Pro Forma Consolidated
Financial Data."
(10) Consists primarily of losses of $17.9 million, $14.7 million and $12.2
million in fiscal years 1996, 1997 and 1998, respectively, incurred by JHIL
under a transaction entered into with Firmandale Investments Limited
("Firmandale"), which is part of the Retained Assets and Liabilities that
were not transferred to the Company in connection with the Reorganization.
For the nine months ended December 31, 1998, other nonoperating expenses is
comprised of costs associated with the Reorganization amounting to $8.4
million, the provision of $2.5 million against other investments and $6.1
million profit on the sale of one of the Company's portfolio investments.
(11) Includes a $57.3 million cash payment in connection with the settlement of
the Firmandale litigation.
(12) Constitutes net income (loss) before income (loss) from discontinued
operations and gains (losses) on the disposal of discontinued operations.
(13) Information for depreciation and amortization and capital expenditures is
for continuing businesses only.
9
<PAGE> 12
(14) Represents earnings from continuing operations before interest income,
interest expense, income taxes, other nonoperating expenses, net,
depreciation and amortization charges, and certain other property,
goodwill and equipment impairment charges as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31,
----------------------------------- --------------------------------
PRO FORMA PRO FORMA
1996 1997 1998 1998 1997 1998 1998
("ADJUSTED EBITDA") ----- ------ ------ --------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations............. $18.1 $(12.5) $ 30.7 $ 42.7 $ 31.8 $ 34.4 $ 40.3
Income tax expense
(benefit).............. 2.8 (3.0) 25.0 11.9 19.2 22.6 12.9
Net interest expense..... 32.9 25.7 20.6 24.2 17.4 11.4 18.1
Equity income -- RCI..... (7.9) (9.2) (6.2) -- (4.8) -- --
Other nonoperating
expenses, net.......... 15.0 14.6 12.1 0.2 10.5 4.8 --
Depreciation and
amortization........... 28.0 35.6 38.5 37.6 28.0 29.2 28.7
Impairment of property... -- 2.4 -- -- -- -- --
Goodwill write-off....... -- 21.0 -- -- -- -- --
Obsolete equipment
write-down............. -- 11.4 -- -- -- -- --
----- ------ ------ ------ ------ ------ ------
Adjusted EBITDA.......... $88.9 $ 86.0 $120.7 $116.6 $102.1 $102.4 $100.0
===== ====== ====== ====== ====== ====== ======
</TABLE>
Adjusted EBITDA is not a measure of financial performance under U.S.
generally accepted accounting principles ("GAAP") and should not be
considered an alternative to, or more meaningful than, income from
operations, net income or cash flows as defined by GAAP or as a measure of
the Company's profitability or liquidity. All registrants do not calculate
Adjusted EBITDA in the same manner and, accordingly, Adjusted EBITDA may
not be comparable with other registrants. The Company has included
information concerning Adjusted EBITDA herein because it believes that
such data is commonly used by certain investors to evaluate the ability of
a company's earnings from its core business operations to satisfy its
debt, capital expenditure and working capital requirements. To permit
evaluation of this data on a consistent basis from period to period,
EBITDA has been adjusted for noncash charges such as goodwill and asset
impairment charges, as well as nonoperating income and expense items. See
the Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for further
information to assist in identifying and evaluating trends in Adjusted
EBITDA.
(15) Fiber cement volume is measured in 5/16" standard feet and gypsum volume
is measured in surface feet.
(16) On February 5, 1999, the Company and JHIL entered into an agreement to
consolidate and set off certain intercompany payables and receivables as
described in Note 23 to the Consolidated Financial Statements. After the
consolidation and set off, the Company had a net receivable of $9.2
million which has been deducted from shareholders' equity as it is due
from the principal shareholder. The Company intends to effect a non-cash
settlement of this receivable prior to the closing of the Offerings. As a
result of the consolidation and set off, pro forma net current assets and
shareholders' equity at December 31, 1998 were $79.8 million and $328.7
million, respectively.
10
<PAGE> 13
RISK FACTORS
In addition to the other information set forth in this Prospectus,
prospective purchasers of the Common Stock offered hereby should carefully
consider the following factors before making an investment in the Common Stock.
This Prospectus contains forward-looking statements. These forward-looking
statements reflect the Company's views with respect to future events and
financial performance based on assumptions made by and information currently
available to management. Actual results could differ materially from those
projected in the forward-looking statements as a result of many factors,
including the risk factors set forth below. The words "believe," "expect,"
"intend," "estimate," "plan," "anticipate" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
COMPETITION AND PRICING
The markets for the Company's products are highly competitive. Competition
is based largely on price and, to a lesser extent, quality and service. The
Company's fiber cement products compete with other manufacturers' fiber cement
products as well as alternative products manufactured from natural and
engineered wood, vinyl, stucco, masonry and gypsum. Certain of the Company's
competitors may have greater financial and other resources than the Company and,
among other factors, may be less affected by reductions in margins resulting
from price competition. Fiber cement prices in the United States, Australia and
New Zealand have been declining for a number of years due to market entry by new
producers and competition from alternative products, among other reasons.
Because of the maturity of the Australian and New Zealand markets, the Company
believes that prices in those markets may continue to decline and that sales
volumes may not increase significantly or may decline. Historically, increased
sales volumes of the Company's U.S. fiber cement products and improved operating
efficiencies have more than offset the decrease in pricing for such products in
the United States. There can be no assurance, however, that there will not be
any future price decreases or that the Company will be able to offset such
decreases with increased volume or improved operating efficiencies. For example,
unanticipated technical problems could impair the Company's efforts to
commission new equipment aimed at improving operating efficiencies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year ended March 31, 1998 compared to Year ended March 31,
1997 -- Australia/New Zealand Fiber Cement Sales."
There is over-capacity in the overall siding market in the United States at
the current time. Some of the Company's competitors have lowered prices of their
fiber cement products to compete for sales and the Company is aware of three
competitors that are planning to, or are currently building or commissioning
fiber cement manufacturing facilities in the United States. The Company's
competitors can be expected to continue to expand their manufacturing
capacities, to improve the design and performance of their products and to
introduce new products with competitive price and performance characteristics.
Increased competition by existing or future competitors could accelerate the
decline of fiber cement prices, as well as require increased investment by the
Company in product development, productivity improvements and customer service
and support in order to compete in its markets.
In addition to being subject to pressure from competitors, prices are often
subject to material changes in response to relatively minor fluctuations in
supply and demand, general economic conditions, less favorable exchange rates
and other market conditions beyond the Company's control. Although gypsum
wallboard prices have increased in the past few years, such prices have
historically been subject to volatility, due primarily to over-capacity in
periods of lower demand. The U.S. gypsum wallboard market is concentrated with
the three largest producers accounting for approximately 75% of industry sales
and is subject to price volatility due to construction cycles and expanding
capacity in the industry. Several of the Company's competitors have announced
plans to add additional gypsum wallboard capacity over the next two years.
Although the Company's strategy is to mitigate declines in gypsum wallboard
prices through lowered costs and increased volumes, there can be no assurance
that future declines in the prices or demand for the products sold by the
Company as a result of competition, over-capacity or other factors will not have
a material adverse effect on the Company's business, results of operations and
financial condition.
11
<PAGE> 14
DEPENDENCE ON CONSTRUCTION MARKETS; SEASONALITY AND CYCLICALITY
Demand for the Company's products depends in large part on residential
construction markets and, to a lesser extent, on commercial construction
markets. The level of activity in residential construction markets depends on
new housing starts and residential remodeling projects, which are a function of
many factors not within the Company's control, including general economic
conditions, mortgage and other interest rates, inflation, unemployment,
demographic trends, gross domestic product growth and consumer confidence in
each of the countries and regions in which the Company operates. Historically,
in periods of economic decline, both new housing starts and residential
remodeling decline. The level of activity in the commercial construction market
depends largely on vacancy rates and general economic conditions. Because
residential and commercial construction markets are sensitive to cyclical
changes in the economy, downturns in the economy or lack of substantial
improvement in the economy of any of the Company's geographic markets could
negatively affect operating results. Because of these and other factors, there
may be substantial fluctuations in the Company's operating results and the
results for any prior period may not be indicative of results for any future
period.
The U.S. Operations are concentrated in various regional and local markets.
A large proportion of the Company's U.S. fiber cement products is sold in three
regions: the Southeast, the Southcentral and the Pacific Northwest. Gypsum
wallboard is also sold by the Company principally in regional markets, although
the Company has the ability to ship wallboard by rail throughout most of the
United States. Regional and local building products markets are highly cyclical,
experiencing peaks and valleys corresponding to regional and local construction
cycles. While the impact on the Company of regional or local downturns may be
mitigated to some degree by the geographic diversification of the Company,
profitability may be significantly affected by such construction cycles. In
addition, demand for building products is seasonal because construction activity
diminishes during the winter season.
In Australia, New Zealand and the Philippines, the Company's products are
sold nationally. Building product markets in these countries are also cyclical
and demand is seasonal because, in Australia and New Zealand, construction
activity diminishes during the summer period of December to February, and in the
Philippines, construction activity diminishes during the wet season from June to
September. The Company's other Asian markets are largely dependent on major
housing projects which in turn depend heavily on general economic conditions.
SUPPLY AND COST OF RAW MATERIALS
The Company's fiber cement and gypsum wallboard businesses may, from time
to time, experience fluctuating prices and supplies of raw materials.
Fiber Cement
Cellulose fiber, silica, cement and water are the principal raw materials
utilized in the production of fiber cement. While cellulose fiber has been
subject to fluctuating prices, all of the raw materials required in the
manufacture of the Company's fiber cement building products are available from a
number of sources and the Company has not experienced any shortages that have
materially affected its operations. There can be no assurance, however, that
price fluctuations or material delays will not occur in the future due to lack
of raw materials or suppliers. The Company's silica and cement supplier
relationships are typically non-exclusive and are generally terminable by either
party on short notice. The loss or deterioration of the Company's relationship
with a major supplier, an increase in demand by third parties for a particular
supplier's products or materials or delays in obtaining materials could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Gypsum
Gypsum rock and gypsum paperboard are the principal raw materials utilized
in the production of gypsum wallboard. The Company's gypsum wallboard
manufacturing facilities located in Nashville, Arkansas and Las Vegas, Nevada
have access to long term reserves of gypsum rock which is mined at or adjacent
to the
12
<PAGE> 15
sites where the plants are located. However, the current sole source of gypsum
rock for the Company's Seattle, Washington gypsum wallboard manufacturing
facility is a gypsum mine located in Santa Rosalia, Mexico. The mine and related
real and personal property are owned by Compania Minera Caopas S.A. de C.V. and
several of its affiliates (collectively, "Caopas"). Caopas is currently
operating under a form of Mexican bankruptcy protection. In addition, the
Company has not been able to verify the status of certain licenses or permits
issued by agencies of the Mexican government and necessary for the operation of
the mine. Therefore, there can be no assurance that shipments from the Caopas
mine will continue. Because the Company's Seattle facility is capable of only
storing approximately a 35-day supply of gypsum rock, any significant
interruption of the supply of gypsum rock would require the Company to shut down
operations at the Seattle facility until an alternative supply of gypsum rock
could be located. There are limited alternative supplies of gypsum rock
available to the northwestern part of the United States and there can be no
assurance that the Company would be able to obtain the necessary supply of
gypsum rock on reasonable terms. As a result, a cessation of shipments from the
Caopas mine and an inability to secure an alternative source of supply on
reasonable terms would have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business -- Raw
Materials -- Gypsum."
The Company entered into a long term contract with Republic Group, Inc. and
its wholly owned subsidiary, Republic Paperboard Company (collectively,
"Republic"), to supply the Company with its requirements for paper at all three
of its gypsum wallboard manufacturing facilities. Republic is scheduled to begin
supplying the Company with paper from a new facility in Lawton, Oklahoma
beginning no later than March 2000. Construction of the Lawton plant began in
July 1998. There can be no assurance, however, that the Republic paper plant
will be completed on schedule or that the Company will be able to obtain
necessary paper supply on reasonable terms. The failure of the Company to obtain
necessary paper supply on reasonable terms would have a material adverse effect
on the Company's business, results of operations and financial condition.
CHANGE IN CONSUMER PREFERENCE
There can be no assurance that the recent growth in demand for the
Company's fiber cement products will be sustained. The continued development of
builder and consumer preference for the Company's fiber cement products over
competitive products will be critical to sustaining and expanding demand for the
Company's products. Therefore, the failure to maintain and increase builder and
consumer acceptance of the Company's fiber cement products would have a material
adverse effect on the Company's growth strategy as well as its business, results
of operations and financial condition.
RELIANCE ON DISTRIBUTORS OF FIBER CEMENT AND GYPSUM PRODUCTS
The distribution channels for the Company's fiber cement products are
concentrated, with the top two U.S. distributors and the top ten U.S.
distributors accounting for approximately 57% and 87%, respectively, of the
Company's total volume of U.S. shipments in fiscal year 1998 and the top ten
distributors in Australia and New Zealand accounting for approximately 55% of
the Company's total volume of Australian and New Zealand shipments in fiscal
year 1998. The distribution channels for the Company's gypsum wallboard products
are also concentrated, with the top twelve distributors accounting for
approximately 54% of the Company's total volume of shipments in fiscal year
1998. If the Company were to lose one or more of these distributors due to
aggressive competitive pricing or otherwise, there can be no assurance that the
Company would be able to replace such distributors. Therefore, the loss of one
or more distributors could have a material adverse effect on the Company's
business, results of operations and financial condition.
ENVIRONMENTAL, LEGAL AND OTHER MATTERS
The Company is subject to U.S. federal, state and local and foreign
environmental protection and health and safety laws and regulations governing,
among other matters, its operations and the use, handling, disposal and
remediation of hazardous substances currently or formerly used by the Company,
JHIL or any of its affiliates. Under certain environmental laws including but
not limited to the United States Comprehensive Environmental Response,
Compensation and Liability Act, the Resource Conservation and Recovery Act, the
13
<PAGE> 16
Occupational Safety and Health Act, the Clean Water Act, the Clean Air Act and
the Clean Air Amendments of 1990, the Safe Drinking Water Act, the Surface
Mining Control and Reclamation Act, the Toxic Substances Control Act, the
California Safe Drinking Water and Toxic Enforcement Act, and all relevant state
and foreign analogs for the above-referenced U.S. federal statutes, the Company
or its subsidiaries could be held jointly and severally responsible for the
remediation of any hazardous substance contamination at its or its predecessors'
past or present facilities and at third party waste disposal sites and could
also be held liable for any consequences arising out of human exposure to such
substances or other environmental damage. There can be no assurance that the
costs of complying with environmental and health and safety laws relating to its
operations, or the liabilities arising from past or future releases of, or
exposure to, hazardous substances or from product liability matters, will not
result in future expenditures by the Company that could have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, the Company may, from time to time, be involved in various legal
proceedings. See "Business -- Legal Proceedings."
DESIGN DEFECTS, WARRANTY CLAIMS AND PRODUCT LIABILITY
The Company's business is based on sales of certain manufactured products,
with an emphasis on fiber cement products. Although the Company has marketed and
sold fiber cement products since the early 1980s, such products have not been
manufactured, sold and used on a widespread, long-term basis compared to
traditional competing products such as solid wood, brick, stucco and gypsum
wallboard. As a result, there can be no assurance that fiber cement products
will perform in accordance with the Company's expectations or that there are no
serious design defects in such products. Because sales of fiber cement products
are expected to constitute a substantial portion of the Company's revenues, if
the Company's fiber cement technology fails to perform as expected or a product
is discovered to have design defects, such failure or defects and any resulting
publicity could have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company offers varying warranties on its products, including a 50-year
limited warranty on certain of its fiber cement siding products in the United
States. Therefore, the existence of defects in any of the Company's products
could subject the Company to significant warranty claims. Although the Company
maintains reserves for such claims that it believes to be adequate, there can be
no assurance that warranty expense levels will not exceed the Company's
reserves. A large number of warranty claims resulting from unforeseen defects
and exceeding the Company's warranty reserves could have a material adverse
effect on the Company's business, results of operations and financial condition.
The actual or alleged existence of defects in any of the Company's products
could also subject the Company to significant product liability claims. Although
the Company has in place product liability insurance coverage that it believes
to be adequate and intends to maintain insurance coverage in the future, there
can be no assurance that such coverage will be sufficient to cover all future
product liability claims or that insurance coverage will be available at
reasonable rates in the future. Successful assertion against the Company of one
or more claims exceeding the Company's insurance coverage could have a material
adverse effect on the Company's business, results of operations and financial
condition.
RISKS OF INTERNATIONAL BUSINESS
The Company operates globally with approximately 54% of its net sales for
fiscal year 1998 and 42% of its net sales for the nine months ended December 31,
1998 originating from product sales outside of the United States. Because the
Company manufactures and sells its products internationally, its activities are
subject to certain political, economic and other uncertainties including, among
other factors, changing political and economic conditions, changing laws and
policies affecting trade, investment and taxation and the general hazards
associated with the assertion of sovereignty over certain areas in which the
Company conducts its business. Additionally, various jurisdictions have laws
limiting the right and ability of subsidiaries and joint ventures to pay
dividends and remit earnings to affiliated companies, unless specified
conditions are met.
14
<PAGE> 17
Although the Company seeks to take applicable laws, regulations and
conditions into account in structuring its business on a global basis, changes
in, or failure to comply with, the laws, regulations, policies or conditions of
any jurisdiction in which the Company conducts its business could result in,
among other consequences, the loss of the Company's assets in such jurisdiction,
the elimination of certain rights that are critical to the operation of the
Company's business in such jurisdiction, the imposition of additional taxes or
other costs or a decrease in revenues. Therefore, any change in laws,
regulations, policies or conditions of a jurisdiction could have a material
adverse effect on the Company's business, results of operations and financial
condition.
RECENT VOLATILITY IN ASIAN ECONOMIES AND FINANCIAL AND CURRENCY MARKETS
During fiscal year 1998 and for the nine months ended December 31, 1998,
approximately 3% and 2%, respectively, of the Company's revenue was generated
from product sales in Asia and the Company views continued expansion in Asia as
a potential opportunity for future growth. Continued volatility in the Asian
economies and financial and currency markets may have a material adverse effect
on the Company's expansion plans and an ongoing adverse impact on current
operations in this region. In the event of a prolonged economic crisis, the
construction industry in which the Company operates could be disproportionately
affected. As a result, the Company does not currently have any plans to
establish manufacturing facilities in Asia other than in the Philippines where a
plant was recently commissioned. The Company continues to evaluate opportunities
in the region, however, and remains of the view at this time that Asia offers
growth prospects for the Company's products in the long-term.
The recent economic volatility in Asia has also had a negative effect on
the Australian and New Zealand economies in general and the Company has begun to
recognize these effects on its operations. For example, until the Philippines
manufacturing facility was commissioned in December 1998, the Company was
supplying that market by exporting products manufactured in Australia and New
Zealand. For the nine months ended December 31, 1998, sales of fiber cement
products in the Philippines declined by 37% in local currency terms from the
same period in the previous year. This decline is due to the sharp contraction
of the Philippines building and construction market which is likely a result of
Asian economic conditions and a decline in average selling prices as a result of
increased competition. Continued contraction in this market will result in
potentially lower than expected capacity utilization for the new Philippines
manufacturing facility. In addition, there can be no assurance that exports to
other Asian markets will not continue to decline. Currency devaluation in Asian
countries has resulted and may continue to result in increased sales of lower
priced imports by certain of the Company's competitors in Australia and New
Zealand and decreased levels of exports by the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's Building Systems business has also been negatively impacted
by the Asian economic crisis and lower prices for natural resources generally.
Activity in the Australian mining and resources industry, a market serviced by
the Building Systems business, has declined due to concerns about falling demand
from Asia for minerals and other natural resources and a general decrease in
commodity prices which has deterred investment in Australian mining and resource
projects. The continuation of limited activity in this industry could have a
material adverse effect on the results of operations and financial condition of
the Building Systems business.
FOREIGN EXCHANGE RISKS
As the Company's functional currency is the U.S. dollar, its non-U.S.
operations face the additional risks of fluctuating currency values and exchange
rates. Such operations may also face hard currency shortages and controls on
currency exchange. Approximately 54% and 42% of the Company's revenues in fiscal
year 1998 and for the nine months ended December 31, 1998, respectively, were
derived from sales outside the United States. Consequently, changes in the value
of foreign currencies (principally Australian dollars, New Zealand dollars and
Philippine pesos) could significantly affect the Company's business, results of
operations and financial condition. The Company generally attempts to mitigate
foreign exchange risk by (1) entering into contracts providing for payment in
U.S. dollars instead of the local currency where possible, (2) matching
15
<PAGE> 18
anticipated non-U.S. currency receipts with disbursements and (3) hedging
through forward exchange contracts. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview." There can be no
assurance that the Company will be successful in these mitigation strategies, or
that fluctuations in foreign currencies and other foreign exchange risks would
not have a material adverse effect on the Company's business, financial
condition and results of operations.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock. There can be no assurance that an active public market for the Common
Stock will develop or, if such market develops, that it will continue. The
initial public offering price of the Common Stock will be determined through
negotiations among JHIL, the U.S. Managing Underwriter and the International
Managing Underwriter, and may not be indicative of the market price for the
Common Stock after consummation of the Offerings. The stock market in general
and the stock prices of new public companies in particular have experienced
extreme price fluctuations, sometimes without regard to the operating
performance of the particular companies. Factors such as quarterly variations in
actual or anticipated operating results, changes in or failure to meet earnings
estimates by analysts, market conditions in the industry, regulatory actions and
general political and economic conditions may have a significant effect on the
market price of the Common Stock. Following periods of volatility in the market
price of a company's securities, securities class action litigation has often
resulted. There can be no assurance that such litigation will not occur in the
future with respect to the Company. Such litigation could result in substantial
costs and a significant diversion of management's attention and resources, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
CONTROL BY JHIL
The entire net proceeds of the Offerings will ultimately be received by
JHIL. See "Use of Proceeds." Following consummation of the Offerings, JHIL will
beneficially own approximately 85% of the outstanding shares of Common Stock (or
approximately 83% of the outstanding shares of Common Stock if the U.S.
Underwriters' over-allotment option is exercised in full). As a result, JHIL
will have the ability to nominate and elect all of the directors of the Company
(although JHIL currently intends to utilize its voting power such that at least
two of the members of each of the Company's Board of Directors and Supervisory
Board, as such terms are defined herein, are independent of the Company and
JHIL). In addition, JHIL will have the ability to determine the outcome of all
other matters submitted to a vote of the Company's shareholders (without the
consent of the Company's other shareholders), will have the ability to prevent a
change of control of the Company and could cause the Company to take other
actions that might be favorable to JHIL at the expense of minority shareholders
(subject to certain requirements of reasonableness and fairness which apply
under Dutch law). Control by JHIL may prevent or discourage certain types of
transactions involving an actual or potential change of control of the Company.
The relationship between the Company and JHIL may give rise to conflicts of
interest between the two companies with respect to, among other matters, the
issuance of additional shares of the Company's securities or the declaration and
payment of dividends by the Company. Conflicts of interest also may arise in
connection with certain current or future agreements or transactions between the
Company and JHIL or JHIL's affiliates. See "Certain Relationships and Related
Transactions." Although the Company intends that the terms of any future
agreements or transactions between the Company and JHIL or JHIL's affiliates
will be at least as favorable to the Company as could be obtained from third
parties, there can be no assurance that this will be the case. The Company
intends to adopt conflict of interest policies governing any such future
transactions that are material to the Company and are not in the ordinary course
of business. Under these policies, such transactions would require the review
and approval of a majority of the Company's directors independent of the Company
and JHIL.
Subsequent to the Offerings, Dr. Keith Barton, President, Chief Executive
Officer and Chairman of the Company's Board of Directors and the Managing Board,
will continue to serve as Managing Director of JHIL. In addition, Mr. Phillip
Morley, Chief Financial Officer and a member of the Company's Board of Directors
16
<PAGE> 19
and the Managing Board, will continue to serve as Chief Financial Officer of
JHIL. Several of the Company's other directors and executive officers will also
continue in their current capacities with JHIL. While JHIL will reimburse the
Company for the allocated portion of the salary and benefits of such officers
(except Dr. Barton who will be compensated directly by JHIL for his duties as a
director and officer of JHIL), these dual responsibilities may create or appear
to create potential conflicts of interest. Material matters that are the subject
of potential or actual conflicts of interest must be approved by a majority of
the Company's directors independent of the Company and JHIL. See
"Management -- Compensation of Directors and Officers."
In connection with the Offerings, the Company and JHIL are entering into an
agreement providing certain rights in favor of JHIL including (i) the right to
require the Company to register for public offering the Common Stock offered
hereby as well as all or a portion of the Common Stock held by JHIL following
consummation of the Offerings, and (ii) certain indemnification rights with
respect to the offering or sale of securities of the Company (including, without
limitation, liabilities under the federal securities laws in connection with the
Offerings). See "Certain Relationships and Related Transactions" and "The
Reorganization."
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offerings, JHIL will beneficially own 42,500,000
shares or approximately 85% (41,375,000 shares, or approximately 83%, if the
U.S. Underwriters exercise their over-allotment option in full) of the
outstanding shares of Common Stock of the Company. No prediction can be made as
to the effect, if any, that future sales of Common Stock, or the availability of
Common Stock for future sale, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock or
the perception that sales may occur could adversely affect prevailing market
prices for the Common Stock. The Company and JHIL have agreed, subject to
certain limited exceptions, not to sell, offer or agree to sell, contract to
sell, grant any option to sell or otherwise dispose of, directly or indirectly,
any shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock or any warrants or other rights to purchase Common
Stock (or any other securities of the Company that are substantially similar to
Common Stock) or permit the registration under the Securities Act of 1933, as
amended (the "Securities Act") of any shares of Common Stock for a period of 180
days after the date of this Prospectus, without the prior written consent of
Warburg Dillon Read LLC. The Company understands that any such consent will be
granted based on Warburg Dillon Read LLC's evaluation of the effect of such sale
on the market price of the Common Stock. Following such time period, the shares
of Common Stock owned by JHIL may be sold (i) in accordance with Rule 144
promulgated under the Securities Act, (ii) in private offerings or (iii) upon
registration under the Securities Act without regard to the volume limitations
and other restrictions of Rule 144. The Company and JHIL have entered into an
agreement that provides JHIL with certain rights to have the shares of Common
Stock owned by it after the Offerings registered by the Company under the
Securities Act in order to permit the public sale of such shares. See "Certain
Relationships and Related Transactions." Although the Board of Directors of JHIL
has informed the Company that it intends to consider a selldown of the shares of
Common Stock held by it after the Offerings or a distribution of such shares to
JHIL shareholders within 12 to 24 months, the timing and precise mechanisms of
such a selldown or distribution would depend on market conditions and other
relevant considerations. See "Shares Eligible for Future Sale." In addition,
JHIL is retaining certain liabilities including liabilities in connection with
the Reorganization. See "The Reorganization." In the event that JHIL is unable
to satisfy those liabilities with cash reserves or other resources (a situation
which JHIL has informed the Company that it does not currently expect), it is
possible that JHIL would be required to sell some or all of its remaining assets
which will consist primarily of the Common Stock. In addition, JHIL has pledged
shares of the Common Stock pursuant to an AUD 75 million loan facility which, at
the time of the Offerings, will be 80% of the outstanding shares of Common Stock
of the Company. In the event that such facility is drawn and JHIL defaults under
the terms of the facility, the bank will have the authority to sell such shares.
See "Shares Eligible for Future Sale." The sale of a substantial amount of the
Common Stock could have a material adverse effect on the price of the Common
Stock.
17
<PAGE> 20
DILUTION
The initial public offering price per share of Common Stock exceeds the net
tangible book value per share of Common Stock. Accordingly, purchasers of the
Common Stock offered hereby will incur immediate and substantial dilution. See
"Dilution."
CERTAIN ANTI-TAKEOVER EFFECTS
The Company's Articles of Association contain several provisions that could
have the effect of delaying or preventing a change of control of the Company in
a transaction not approved by the Company's Board of Directors. Accordingly,
shareholders of the Company could be prevented from realizing a premium on their
shares in a transaction not approved by the Company's Board of Directors. See
"Description of Capital Stock."
POTENTIAL DIFFICULTIES IN PROTECTING SHAREHOLDER RIGHTS AND ENFORCING CIVIL
LIABILITIES
The Company's corporate affairs are governed by its Articles of Association
and Dutch law. Under the Company's Articles of Association, adoption of the
Company's annual accounts by the shareholders discharges the directors from
liability in respect of the exercise of their duties during the fiscal year
concerned, unless an explicit reservation is made by the shareholders and
subject to certain exceptions provided under Dutch law including exceptions
relating to the liability of directors upon bankruptcy of a company and general
principles of reasonableness and fairness. Under Dutch law, this discharge does
not extend to matters not disclosed to shareholders. See "Description of Capital
Stock."
James Hardie is incorporated under the laws of The Netherlands and a
substantial portion of the assets of the Company are located outside the United
States. In addition, the Selling Shareholder, JHIL, certain of the directors and
executive officers of the Company and certain of the experts named herein are
residents of jurisdictions outside the United States. As a result, it may be
difficult for investors to effect service of process within the United States
upon such persons, or to enforce outside the United States judgments obtained
against such persons in U.S. courts, or to enforce in U.S. courts judgments
obtained against such persons in courts in jurisdictions outside the United
States, including actions predicated upon the civil liability provisions of the
U.S. securities laws. In addition, it may be difficult for investors to enforce,
in original actions brought in courts in jurisdictions located outside the
United States, rights predicated upon the U.S. securities laws. See "Enforcement
of Civil Liabilities."
The rights of shareholders and the responsibilities of directors under the
laws of The Netherlands are not as clearly established as under statutes or
judicial precedent in existence in certain U.S. jurisdictions. Therefore, the
public shareholders of the Company may have more difficulty in protecting their
interests in the face of actions by the management, directors or controlling
shareholders of the Company than they would as shareholders of a corporation
incorporated in the United States.
MATTERS RELATED TO COMPANIES INCORPORATED IN THE NETHERLANDS
As a Netherlands "naamloze vennootschap" ("N.V."), the Company will be
subject to certain requirements not generally applicable to corporations
organized in U.S. jurisdictions. Among other matters, the issuance of shares by
an N.V. must be approved by the shareholders, except to the extent the authority
to issue shares or to grant options to purchase shares has been delegated by the
shareholders to another corporate body. Prior to the consummation of the
Offerings, the Selling Shareholder and another subsidiary of JHIL will
irrevocably delegate to the Board of Directors, for a period of five years from
the date of such delegation, the authority to issue such additional authorized
but unissued shares of Common Stock and Preferred Stock (as defined herein) as
the Board of Directors shall determine.
In addition, the issuance of shares of Common Stock is generally subject to
pro rata shareholder preemptive rights, except to the extent that such
preemptive rights have been excluded or limited with respect to such issuance by
an action of the shareholders or by a corporate body empowered to do so by the
shareholders. Shareholders do not have preemptive rights with respect to shares
of Common Stock issued for
18
<PAGE> 21
consideration other than cash or shares of Common Stock issued to employees of
the Company or related companies. Prior to the consummation of the Offerings or
at the first general meeting of shareholders after the consummation of the
Offerings, the Selling Shareholder and another subsidiary of JHIL will
irrevocably delegate to the Board of Directors, for a period of five years from
the date of such delegation, the authority to limit or exclude shareholder
preemptive rights with respect to any issuances of shares of Common Stock during
such period.
Under the laws of The Netherlands, the delegations described above can only
be granted for a maximum period of five years and, thus, such delegations
(unless renewed) will expire approximately five years from the date of this
Prospectus. If renewals are not approved by the shareholders, then the
requirement to obtain shareholder approval prior to the future issuance of
shares and the existence of preemptive rights may adversely affect the Company's
ability to raise additional capital, complete future financings and offerings
and issue shares for acquisitions.
RISKS OF REORGANIZATION
As part of the Reorganization, several members of the Company's senior
management are relocating from Australia to the United States. This relocation
may be disruptive to the Company's business and operations and may result in,
either immediately or over time, the loss of certain employees who choose not to
work for a foreign-managed company. In addition, several of the Company's
executive officers, including Dr. Barton and Messrs. Morley, Cameron, Baxter,
Bridges and Shafron, will continue to be executive officers of JHIL. The Company
anticipates that such officers' duties to JHIL will occupy some portion of their
time. The dual responsibilities of the Company's executive officers may
interfere with their responsibilities to the Company and give rise to conflicts
of interest. Dr. Barton's employment agreements with the Company and JHIL each
expire on October 31, 1999 and Dr. Barton has informed the Company that it is
his current intention to retire at that time.
LABOR RELATIONS
Approximately one-half of the Company's employees in Australia and New
Zealand and a quarter of the Company's employees in the United States are
currently represented by labor unions. The Company's unionized employees are
covered by two collective bargaining agreements in the United States and a range
of federal and state-based agreements in Australia. The Company's two U.S.
collective bargaining agreements were renewed in 1996 and will expire in April
1999 and September 2000. The Company's Australian agreements will expire at
various times in 1999 and 2000. Renewal negotiations, among other issues
relating to the Company's labor agreements, could result in strikes or work
interruptions. Although the Company has not recently experienced any strikes or
work interruptions in the United States, it has, in the past three years,
experienced occasional strikes and work interruptions lasting from one to six
days in Australia. In the event the Company experiences a prolonged labor
dispute at any of its facilities, any strikes or work interruptions associated
with such dispute could have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business -- Employees."
TAX RISKS ON INTERCOMPANY INTEREST AND DIVIDEND PAYMENTS
Interest and dividend payments from the Company's U.S. operating subsidiary
will be subject to a 30% U.S. withholding tax unless the U.S.-Netherlands Income
Tax Treaty (the "US-NL Treaty") applies. The US-NL Treaty applies in any taxable
year only if, among other conditions of eligibility for benefits which the
Company expects to satisfy, the aggregate number of shares of the Common Stock
traded on the applicable stock exchange during the previous taxable year is at
least 6% of the average number of shares of Common Stock outstanding during that
taxable year. Although the Company expects to satisfy this test for the fiscal
year ending on March 31, 2000 and beyond and meet the other requirements for
eligibility, the number of shares of Common Stock that is traded is beyond the
direct control of the Company and therefore there can be no assurance in this
regard. In addition, the expected tax benefits arising from the intercompany
debt arrangements (which are estimated in the unaudited pro forma consolidated
statements of income) could be adversely affected in the future by changes in
the current tax laws, regulations and interpretations thereof in
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<PAGE> 22
the United States and The Netherlands, including changes that could have
retroactive effect. In this regard, the European Commission has initiated a
review of certain tax legislation of its member countries, including The
Netherlands, to determine whether such tax legislation constitutes unpermitted
government aid in violation of European Community rules. In the event that the
European Commission were to determine that the Group Finance Activities Regime
violates European Community rules prohibiting government aid to companies or if
the European Council were to determine that the Group Finance Activities Regime
should be amended or abolished in the future pursuant to attempts to eliminate
unfair tax competition within the European Union, then the tax benefits
associated with the intercompany debt arrangements could be materially and
adversely affected.
TAX RISK TO SHAREHOLDERS RESULTING FROM CHANGES IN THE COMPANY'S TAX
CLASSIFICATION OR IN APPLICABLE TAX LAW
Shareholders could be subject to adverse U.S. federal income tax
consequences if, contrary to the Company's current expectations, the Company
were to be classified as a "passive foreign investment company" or as a "foreign
personal holding company" for U.S. federal income tax purposes. See "Taxation --
United States Taxation -- Passive Foreign Investment Company Status" and
"-- Foreign Personal Holding Company Status." In addition, shareholders could be
adversely affected by changes in the current tax laws, regulations and
interpretations thereof in the United States and The Netherlands, including
changes that could have retroactive effect. See "Taxation."
20
<PAGE> 23
THE REORGANIZATION
JHIL commenced operations in Australia in 1888, was incorporated in 1920
and has been listed on the Australian Stock Exchange Limited since 1951. Over
the last three years, JHIL has significantly reshaped its business through a
series of divestitures of non-core businesses, the proceeds of which were used
in part to fund the expansion of its U.S. fiber cement and gypsum wallboard
businesses. As a result of the increasing significance of the U.S. Operations,
which comprised 72.4% of total operating profits in fiscal year 1998 and 87.6%
of total operating profits for the nine months ended December 31, 1998 (before
expenses in connection with the Sydney-based research and development center and
certain general corporate costs which benefit all segments), JHIL announced the
Reorganization. The Reorganization, which (with the exception of the Offerings
and the relocation of certain senior executives and managers) was consummated in
November 1998, is intended to address the structural imbalance and resulting
operational, financial and commercial issues that previously existed as a result
of the predominance of JHIL's U.S. operations and the location of corporate
management and JHIL's shareholder base in Australia. The primary components of
the Reorganization are:
- The formation of James Hardie, a wholly owned indirect subsidiary of
JHIL, which was incorporated in The Netherlands in August 1998;
- The transfer to the Company, effective November 1, 1998, pursuant to the
Purchase Agreements, of the Transferred Businesses (consisting of JHIL's
international fiber cement businesses, its U.S. gypsum wallboard
business, its Australian and New Zealand building systems business and
its Australian windows business) and the retention by JHIL and its
non-transferring subsidiaries of the Retained Assets and Liabilities;
- The Debt Financing (consisting of the issuance of the Notes and the
arrangement of a new Bank Facility) on November 4, 1998;
- The relocation of certain senior executives and managers to the Company's
U.S. operational headquarters; and
- The sale by the Selling Shareholder, through the Offerings, of
approximately 15% of the outstanding shares of Common Stock of James
Hardie.
ACQUISITION OF THE TRANSFERRED BUSINESSES
The Company and JHIL entered into the Purchase Agreements pursuant to which
the Company acquired the Transferred Businesses from JHIL and its
non-transferring subsidiaries. The Transferred Businesses were acquired by James
Hardie in consideration of 100% of its outstanding Common Stock and $349.1
million, which was paid from the proceeds of the sale of the Notes and
borrowings under the term loan that is part of the Debt Financing. The $349.1
million payment represented the settlement of intercompany indebtedness of
subsidiaries of JHIL acquired by the Company in connection with the
Reorganization. In addition to the Retained Assets and Liabilities, JHIL and its
non-transferring subsidiaries also retained existing and potential liabilities
in relation to the manufacture prior to 1987 of products containing asbestos. As
part of the Retained Assets and Liabilities, JHIL and its non-transferring
subsidiaries retained the ownership of the manufacturing sites in Australia and
New Zealand on which asbestos products were manufactured prior to 1987. The
Company will lease and continue to manufacture from these sites. As part of the
Purchase Agreements, JHIL and certain of its non-transferring subsidiaries
agreed to indemnify the Company for certain liabilities in relation to the
operation of the Transferred Businesses prior to the Reorganization, including
all asbestos-related liabilities and environmental liabilities relating to these
sites. See "Certain Relationships and Related Transactions -- Purchase
Agreements."
DEBT FINANCING
On November 4, 1998, the Finance Subsidiary (a financing subsidiary of the
Company incorporated under the laws of The Netherlands) completed the sale of
the Notes and arranged the new Bank Facility for a wholly owned Australian
subsidiary of the Company. The Finance Subsidiary issued the Notes, which
consist of $225 million aggregate principal amount of senior unsecured Notes
with a mix of maturities ranging from 6 to 15 years with a ten-year average
maturity and a maximum of $63 million maturing in any one year, to
21
<PAGE> 24
certain identified U.S. institutional investors. In addition, the Finance
Subsidiary arranged the Bank Facility, which consists of an Australian dollar
denominated term loan of AUD 200 million ($124.1 million based on the exchange
rate on November 4, 1998) with a term of three years, which is currently fully
drawn, and a U.S. dollar denominated revolving credit facility of $77.5 million,
which will principally be used by the Company for working capital purposes and
under which the Company had borrowings of $25 million as of February 1, 1999.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The amount borrowed under the
revolving credit facility was used to fund a working capital shortfall on the
date such amount was borrowed. The Bank Facility is unsecured. The Notes and
indebtedness incurred under the Bank Facility by the Company's subsidiaries are
unconditionally guaranteed by James Hardie on an unsecured basis.
The Notes have a fixed interest rate. The term loan portion of the Bank
Facility has a floating interest rate equal to a fixed margin over the
Australian Bank Bill Rate. The revolving credit facility has a floating interest
rate equal to a fixed margin over LIBOR. The Debt Financing arrangements have
customary covenants including the maintenance of certain financial ratios and
limitations on payment of dividends and the incurrence of additional
indebtedness. The Notes and Bank Facility are subject to the same key covenants.
THE OFFERINGS
Shareholder Approval of the Offerings was obtained at an extraordinary
general meeting of JHIL's shareholders held on October 16, 1998, in Sydney,
Australia. JHIL has informed the Company that it intends to consider a further
selldown of its interest in the Company or a distribution of its interest to
JHIL shareholders within 12 to 24 months. However, the timing and precise
mechanisms of such a selldown or distribution will depend on market conditions
and other relevant considerations.
22
<PAGE> 25
USE OF PROCEEDS
The Company will not receive any of the net proceeds from the sale of
shares of Common Stock offered hereby, all of which will be received by the
Selling Shareholder. Such proceeds will be consolidated with JHIL's existing
cash deposits and other cash resulting from the Reorganization and will be used,
in part, to retire JHIL's retained indebtedness. To the extent that JHIL has
cash surplus to its ongoing requirements after the retirement of indebtedness,
such cash will be used to fund a return of capital to JHIL's shareholders.
DIVIDEND POLICY
The Company currently anticipates that most, if not all, of any future
earnings will be reinvested in its business for the foreseeable future. Any
determination to pay cash dividends in the future will be at the discretion of
the Board of Directors, subject to the Articles of Association, Dutch law, the
rights of the holders of preferred stock, if any, and contractual restrictions,
and after taking into account various factors, including the Company's financial
condition, results of operations, outstanding indebtedness, current and
anticipated cash needs, plans for expansion as well as commercial restrictions
and other factors.
James Hardie is a holding company that derives all of its cash flow from
its subsidiaries. Consequently, James Hardie's ability to pay dividends is also
dependent on the earnings of its subsidiaries and the receipt by James Hardie of
distributions or advances from such subsidiaries. The ability of certain
subsidiaries to make such payments to James Hardie may be subject to statutory
and other restrictions as well as withholding taxes. In addition the Bank
Facility limits, and any other future credit arrangements which the Company may
enter into may limit, the ability to pay dividends. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "The Reorganization."
James Hardie's Articles of Association provide that future cash dividends,
if any, will be declared in U.S. dollars, unless the Board of Directors
determines otherwise. See "Description of Capital Stock -- Dividends."
There are no legislative or other legal provisions currently enforced in
The Netherlands or arising under James Hardie's Articles of Association
restricting the payment of dividends to holders of the shares of Common Stock
not resident in The Netherlands, except for regulations in compliance with
United Nations and European Union sanctions. Insofar as the law of The
Netherlands is concerned, cash dividends paid in any currency may be transferred
from The Netherlands and converted into any other convertible currency.
Dividends payable by James Hardie are subject to a Dutch withholding tax at the
current rate of 25%. The withholding tax on dividends paid to holders of the
shares of Common Stock who are not residents of The Netherlands may be reduced
by virtue of an applicable income tax convention in effect between The
Netherlands and the country of residence of the recipient of dividends. See
"Taxation -- Netherlands Taxes."
If James Hardie declares dividends in its first fiscal year after the
Offerings in excess of its current earnings and profits for such year, the
excess of the dividends paid over such earnings and profits will be treated for
U.S. federal income tax purposes as a return of capital to the extent of the
shareholder's basis in the shares, and a capital gain to the extent of any
amount of such excess distributed to the shareholder in excess of such basis.
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<PAGE> 26
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1998. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------
ACTUAL PRO FORMA
----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................... $ 33.5 $ 33.5
======== =======
Short-term debt and current portion of long-term debt:
Short-term debt facility.................................. 25.0 25.0
Current portion of long-term debt......................... -- --
Payable to JHIL(1)........................................ 146.9 --
-------- -------
Total............................................. 171.9 25.0
======== =======
Long-term debt:
U.S. $ unsecured notes.................................... 225.0 225.0
AUD term loan facility.................................... 122.5 122.5
-------- -------
Total............................................. 347.5 347.5
-------- -------
Shareholder's equity:
Common stock, 150,000,000 shares authorized,
50,000,000 NLG 0.02 par value shares
issued and outstanding(2).............................. 0.6 0.6
Contributed surplus....................................... 448.8 448.8
Retained earnings......................................... 8.6 8.6
Accumulated other comprehensive (loss).................... (120.1) (120.1)
Receivable from JHIL...................................... -- (9.2)
-------- -------
Total shareholders' equity(1).......................... 337.9 328.7
-------- -------
Total capitalization.............................. $ 685.4 $ 676.2
======== =======
</TABLE>
- ---------------
(1) Reflects the pro forma adjustments for the consolidation and set-off of
receivables from JHIL and payables to JHIL that are described in Note 23 to
the Consolidated Financial Statements. After the consolidation and set-off,
the Company has a receivable from JHIL of $9.2 million. The Company intends
to effect a non-cash settlement of this receivable prior to the close of the
Offerings. Such settlement will have no impact on the total pro forma
shareholders' equity of $328.7 million.
(2) Excludes 5,000,000 shares of Common Stock reserved for issuance under the
Company's Equity Incentive Plan, under which options to purchase up to a
maximum of 2,400,000 shares are expected to be granted upon consummation of
the Offerings. See "Management -- Compensation of Directors and Officers"
and "Management -- 1999 Equity Incentive Plan." Also excludes up to 30,000
restricted shares of Common Stock to be issued to members of the Supervisory
Board upon consummation of the Offerings and 110,000 shares of Common Stock
reserved for issuance under the Company's Directors Deferred Compensation
Plan. See "Management -- Compensation of Directors and Officers."
24
<PAGE> 27
DILUTION
The Company's unaudited pro forma net tangible book value of assets as of
December 31, 1998 was $285.6 million, or $5.71 per share of Common Stock. New
investors purchasing shares of Common Stock in the Offerings will experience
immediate dilution of $10.79 per share, which is equal to the difference between
the assumed initial public offering price of $16.50 (the mid-point of the range
set forth on the cover page of this Prospectus) and such pro forma net tangible
book value per share of Common Stock of $5.71.
The following table illustrates the calculation of the per share dilution
described above.
<TABLE>
<S> <C> <C>
Initial public offering price per share(1).................. $ 16.50
Pro forma net tangible book value per share............ $ 5.71
Increase per share attributable to new investors(2).... $ --
Pro forma net tangible book value per share after the
Offerings................................................. $ 5.71
-------
Dilution per share to new investors(3)...................... $ 10.79
=======
</TABLE>
- ---------------
(1) Before deduction of underwriting discounts and commissions and estimated
expenses of the Offerings.
(2) The Company will not receive any proceeds from the sale of the shares of
Common Stock in the Offerings.
(3) Excludes 5,000,000 shares of Common Stock reserved for issuance under the
Company's Equity Incentive Plan, under which options to purchase up to a
maximum of 2,400,000 shares are expected to be granted upon consummation of
the Offerings. See "Management -- Compensation of Directors and Officers"
and "Management -- 1999 Equity Incentive Plan." Also excludes up to 30,000
restricted shares of Common Stock to be issued to members of the Supervisory
Board upon consummation of the Offerings and 110,000 shares of Common Stock
reserved for issuance under the Company's Directors Deferred Compensation
Plan. See "Management -- Compensation of Directors and Officers."
25
<PAGE> 28
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated statements of income for the
year ended March 31, 1998 and the nine months ended December 31, 1998
(collectively, the "Pro Forma Statements") reflect adjustments to the audited
Consolidated Statement of Income and the unaudited Consolidated Statement of
Income, respectively, of the Company (which, prior to the Reorganization
effective November 1, 1998, included income and expenses arising from both the
assets and liabilities of the Transferred Businesses and the Retained Assets and
Liabilities) appearing elsewhere in this Prospectus to give accounting impact to
certain transactions that occurred in connection with the Reorganization. The
pro forma adjustments to each Pro Forma Statement are described in the
accompanying footnotes to the Pro Forma Statements. The pro forma adjustments
are based on available information and certain assumptions management believes
are reasonable.
The unaudited pro forma consolidated statement of income for the fiscal
year ended March 31, 1998 and the nine months ended December 31, 1998 give
accounting effect to the following transactions: (1) the transfer of the
Transferred Businesses to the Company and the retention of the Retained Assets
and Liabilities by JHIL, including any related income and expenses, (2) the
completion of the Debt Financing, and (3) certain tax consequences of the
Reorganization. The unaudited pro forma consolidated statement of income for the
fiscal year ended March 31, 1998 assumes that each of these transactions
occurred on April 1, 1997. The unaudited pro forma consolidated statement of
income of the nine months ended December 31, 1998 assumes that each of these
transactions occurred on April 1, 1998.
The contribution of the Transferred Businesses to the Company pursuant to
the Reorganization was recorded by the Company at the carry-over historical cost
basis because the Company and the Transferred Businesses were under the common
control of JHIL. The Company recorded the recapitalization of shareholders'
equity and, in addition, the financial adjustments required to eliminate the
Retained Assets and Liabilities were recorded as a deemed transfer to JHIL.
The Pro Forma Statements should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes thereto,
and other financial information pertaining to the Company included elsewhere in
this Prospectus.
The Pro Forma Statements are for informational purposes only and should not
be construed to be indicative of the Company's consolidated financial position
or results of operations had the transactions been consummated on the dates
assumed and do not project the Company's consolidated financial position or
results of operations for any future date or period.
26
<PAGE> 29
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31, 1998
-----------------------------------------------------------------------------
PRO FORMA ADJUSTMENTS PRO FORMA PRO FORMA PRO FORMA
--------------------- WITHOUT ADJUSTMENT WITH
THE JHIL DEBT INTERCOMPANY INTERCOMPANY INTERCOMPANY
COMPANY RETAINED FINANCING TAX BENEFIT TAX BENEFIT TAX BENEFIT
------- -------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 822.3 -- -- $ 822.3 -- $ 822.3
Cost of goods sold............ (592.3) $ (3.2)(1) -- (595.5) -- (595.5)
------- ------- -------
Gross profit.................. 230.0 226.8 226.8
Selling, general and
administrative expenses..... (142.7) -- -- (142.7) -- (142.7)(2)
Restructuring and other
operating expenses.......... (5.1) -- -- (5.1) -- (5.1)
------- ------- -------
Operating profit.............. 82.2 79.0 79.0
Interest expense.............. (37.6) 37.6(3) $(24.2)(4) (24.2) -- (24.2)
Interest expense -- related
parties..................... (11.3) 11.3(3) -- -- -- --
Interest income............... 28.3 (28.3)(5) -- -- -- --
Equity earnings -- RCI........ 6.2 (6.2)(6) -- -- -- --
Other nonoperating expenses,
net......................... (12.1) 11.9(7) -- (0.2) -- (0.2)
------- ------- -------
Income (loss) from continuing
operations before income
tax......................... 55.7 -- -- 54.6 -- 54.6
Income tax (expense)
benefit..................... (25.0) (7.0)(8) 5.0(9) (27.0) $15.1(10) (11.9)
------- ------- -------
Income from continuing
operations.................. $ 30.7 $ 27.6 $ 42.7
======= ======= =======
Pro forma earnings per
share....................... $ 0.56 $ 0.86
======= =======
</TABLE>
- ---------------
(1) Reflects the difference between depreciation on buildings historically
incurred by JHIL on certain properties that it retained in the
Reorganization, and the rental expense that the Company will incur to lease
such properties from JHIL. The adjustment is comprised of:
<TABLE>
<CAPTION>
$ MILLIONS
----------
<S> <C>
Depreciation on retained property........................... $ 0.9
Additional rental expense................................... (4.1)
-----
$(3.2)
=====
</TABLE>
The rental expense assumed by the Company for purposes of this pro forma
consolidated statement of income is based on the terms of the leases the
Company has entered into with JHIL.
(2) Selling, general and administrative expenses include the historical head
office expenses of JHIL. Management estimates that head office expenses
applicable to the Company will not vary significantly from the historical
level of head office expenses incurred by JHIL.
(3) Reflects the elimination of $37.6 million in interest expense relating to
debt facilities retained by JHIL and the elimination of $11.3 million in
interest expense to related parties which relates to RCI Corporation which
was sold in fiscal year 1998.
(4) Pursuant to the Debt Financing, the Finance Subsidiary issued $225 million
aggregate principal amount of Notes and arranged the Bank Facility
consisting of an Australian denominated term loan of AUD 200 million
($124.1 million based on the exchange rate on November 4, 1998), which was
fully drawn in connection with the Reorganization, and a U.S. dollar
denominated $77.5 million revolving credit facility, under which the
Company had borrowings of $25 million as of February 1, 1999. The Notes
were issued with a mix of maturities ranging from 6 to 15 years. The
blended interest rate on the Notes and the term loan is 6.5% resulting in
an interest expense of $22.7 million assuming outstanding indebtedness of
$349.1 million for the entire year ended March 31, 1998. The average
interest rate on the revolving credit facility is 5.8% resulting in an
interest expense of $1.5 million assuming outstanding indebtedness of $25
million for the entire year ended March 31, 1998. The total interest under
the Debt Financing for the purposes of the pro forma consolidated statement
of income is therefore $24.2 million. The
27
<PAGE> 30
$349.1 million payment represents the settlement of intercompany
indebtedness of subsidiaries of JHIL acquired by the Company in connection
with the Reorganization. The effect on unaudited pro forma income for the
year ended March 31, 1998 of each 1/8% change in the blended interest rate
on the Notes, the term loan and the revolving credit facility would be $0.5
million.
(5) Reflects the elimination of interest income earned on cash and cash
equivalents held by JHIL during fiscal year 1998 which have been retained
by JHIL.
(6) Reflects equity earnings of RCI Corporation which was sold in fiscal year
1998.
(7) Primarily reflects the elimination of a $12.2 million accrual for losses
relating to guarantees and other expenses associated with the settlement of
litigation relating to the 1987 Firmandale transaction. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Ongoing obligations associated with the Firmandale litigation were retained
by JHIL and were not transferred to or assumed by the Company. The
remaining $0.3 million reduction reflects the net expenses of previous
Australian tax franking credit structures utilized by JHIL and dividend
income, comprised of:
<TABLE>
<CAPTION>
$ MILLIONS
----------
<S> <C>
Tax franking credit......................................... $ 0.2
Dividends received.......................................... (0.5)
-----
$(0.3)
=====
</TABLE>
(8) Reflects the impact of additional taxes resulting from the following
adjustments referred to above, as follows:
<TABLE>
<CAPTION>
APPLICABLE
GROSS INCOME TAX
($ MILLIONS) ($ MILLIONS)
------------ ------------
<S> <C> <C>
Depreciation on retained property........................... $ 0.9 $ --
Rental expense.............................................. (4.1) 1.5
Interest expense............................................ 37.6 (14.0)
Interest income............................................. (28.3) 10.2
Tax franking credit......................................... 0.2 --
Dividends received.......................................... (0.5) --
Interest expense -- related parties......................... 11.3 (4.1)
Equity earnings of RCI Corporation.......................... (6.2) --
Firmandale expense.......................................... 12.2 (0.6)
------
$ (7.0)
======
</TABLE>
(9) Reflects that the term loan has been drawn down in Australia, the revolving
credit facility has been drawn down in The Netherlands and the Notes have
been issued in The Netherlands. The tax expense has been calculated as
follows:
<TABLE>
<CAPTION>
TAX
PRINCIPAL INTEREST DEDUCTION
($ MILLIONS) ($ MILLIONS) TAX RATE ($ MILLIONS)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Notes................................. $225.0 $16.2 15% $2.4
Term loan............................. 124.1 6.5 36% 2.4
Revolving credit facility............. 25.0 1.5 15% 0.2
----- ----
$24.2 $5.0
===== ====
</TABLE>
28
<PAGE> 31
(10) Reflects the deferred tax (expense) benefit of the intercompany debt
arrangements of $899.2 million established in connection with the
Reorganization, assuming the Finance Subsidiary advanced to the operating
subsidiaries in the United States, Australia and New Zealand, $778.4
million, $105.2 million and $15.6 million, respectively. The adjustment
has been calculated as follows adopting an interest rate of 6.9% on
intercompany debt:
<TABLE>
<CAPTION>
DEFERRED TAX
PRINCIPAL INTEREST TAX (EXPENSE) BENEFIT
($ MILLIONS) ($ MILLIONS) RATE ($ MILLIONS)
------------ ------------ ---- -----------------
<S> <C> <C> <C> <C>
Interest income
The Netherlands......................... $899.2 $61.8 15% $(9.3)
======
Interest expense
United States........................... 778.4 53.5 40% 21.4
Australia............................... 105.2 7.2 36% 2.6
New Zealand............................. 15.6 1.1 33% 0.4
------ -----
$899.2 $15.1
====== =====
</TABLE>
The tax impact of the Debt Financing represents certain tax benefits that
the Company expects to realize as a result of the new intercompany debt
financing between the Finance Subsidiary and the operating subsidiaries. In
calculating this amount, the following effective income tax rates have been
assumed:
<TABLE>
<S> <C>
United States (anticipated federal and state taxes)......... 40%
Australia................................................... 36%
New Zealand................................................. 33%
The Netherlands (Group Finance Activities Regime)........... 15%
</TABLE>
This calculation assumes that current tax laws of all relevant
jurisdictions were in effect during fiscal year 1998, and that any tax
rulings which relevant companies have obtained in connection with the
Reorganization were also applicable and in effect during such year.
The calculation further assumes that interest payable by the U.S.
subsidiary to the Finance Subsidiary will be taxed in The Netherlands at an
effective rate of 15% pursuant to a ruling issued by the Dutch tax
authorities applicable until 2008 based on certain conditions, including
that all of the group's treasury activities are conducted exclusively from
The Netherlands.
The calculation also assumes that the intercompany debt was in place
throughout fiscal year 1998, and further assumes that (i) interest payments
were fully deductible by the U.S. subsidiary in that year, and (ii) that
such payments were not subject to U.S. withholding tax pursuant to the
US-NL Treaty.
Interest paid by the U.S. subsidiary to the Finance Subsidiary should be
currently deductible for U.S. tax purposes in any year provided that such
interest is actually paid in that year and provided that the U.S.
subsidiary has sufficient earnings to avoid limitations on the
deductibility of interest resulting from the application of the U.S.
"earnings stripping" rules. The Company does not anticipate that the U.S.
subsidiary will make interest payments with respect to the related party
debt during fiscal year 1999 or fiscal year 2000. Accordingly, no current
U.S. tax deduction will be available for such years, although the
associated tax benefit will be treated as realized currently for financial
accounting purposes as the Company expects to ultimately realize the tax
benefit from such years in the future.
Interest paid by the U.S. subsidiary to the Finance Subsidiary would likely
not be subject to the US-NL Treaty and would be subject to a 30% U.S.
withholding tax in any year unless, among other conditions of eligibility
for benefits, the aggregate number of shares of the Common Stock traded on
the applicable exchange during the previous taxable year is at least 6% of
the average number of shares outstanding during that previous taxable year,
in which case 0% withholding tax would apply under the US-NL Treaty. See
"Risk Factors -- Tax Risks on Intercompany Interest Payments."
Deductions in Australia and New Zealand for interest paid to the Finance
Subsidiary are subject to thin capitalization rules, which disallow
interest on related party loans in excess of a prescribed multiple of the
equity of the borrower. Withholding tax in Australia and New Zealand of 10%
on interest paid to the Finance Subsidiary will be available as a credit
against Dutch tax payable by the Finance Subsidiary, subject to certain
limitations.
The expected tax benefits arising from the intercompany debt arrangements
could be adversely affected in the future by changes in the current tax
laws, regulations and interpretations thereof applicable to the Company and
its subsidiaries, including changes that could have retroactive effect. In
this regard, the European Commission has initiated a review of certain tax
legislation of its member countries, including The Netherlands, to
determine whether any tax legislation constitutes unpermitted government
aid in violation of European Community rules. See "Risk Factors -- Tax
Risks on Intercompany Interest and Dividend Payments."
29
<PAGE> 32
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------
PRO FORMA ADJUSTMENTS PRO FORMA PRO FORMA
----------------------- WITHOUT PRO FORMA WITH
THE JHIL DEBT INTERCOMPANY INTERCOMPANY INTERCOMPANY
COMPANY RETAINED FINANCING TAX BENEFIT TAX BENEFIT TAX BENEFIT
------- -------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $ 631.1 -- -- $ 631.1 -- $ 631.1
Cost of goods sold.......... (448.0) $ (1.9)(1) -- (449.9) -- (449.9)
------- -------
Gross profit................ 183.1 181.2 181.2
Selling, general and
administrative expenses... (108.7) -- -- (108.7) -- (108.7)(2)
Restructuring and other
operating expenses........ (1.2) -- -- (1.2) -- (1.2)
------- ------- -------
Operating profit............ 73.2 71.3 71.3
Interest expense............ (23.8) 19.8(3) $(14.1)(4) (18.1) -- (18.1)
Interest income............. 12.4 (12.4)(5) -- -- -- --
Other nonoperating expenses,
net....................... (4.8) 4.8(6) -- --
------- ------- -------
Income (loss) from
continuing operations
before income tax......... 57.0 -- -- 53.2 -- 53.2
Income tax (expense)
benefit................... (22.6) (2.0)(7) 2.9(8) (21.7) 8.8(9) (12.9)
------- ------- -------
Income from continuing
operations................ $ 34.4 $ 31.5 $ 40.3
======= ======= =======
Pro forma earnings per
share..................... $ 0.63 $ 0.81
======= =======
</TABLE>
- ---------------
(1) Reflects the difference between depreciation on buildings historically
incurred by JHIL on certain properties that it retained in the
Reorganization, and the rental expense that the Company will incur to lease
such properties from JHIL. The adjustment is for a seven month period as
the Consolidated Statement of Income for the nine months ended December 31,
1998 includes two months of operations under the new structure and is
comprised of:
<TABLE>
<CAPTION>
$ MILLIONS
----------
<S> <C>
Depreciation on retained property........................... $ 0.5
Additional rental expense................................... (2.4)
-----
$(1.9)
=====
</TABLE>
The rental expense assumed by the Company for purposes of this pro forma
consolidated statement of income is based on the terms of the leases the
Company has entered into with JHIL.
(2) Selling, general and administrative expenses include the historical head
office expenses of JHIL. Management estimates that head office expenses
applicable to the Company will not vary significantly from the historical
level of head office expenses incurred by JHIL.
(3) Reflects the elimination of $19.8 million in interest expense relating to
debt facilities retained by JHIL.
(4) Pursuant to the Debt Financing, the Finance Subsidiary issued $225 million
of aggregate principal amount Notes and arranged the Bank Facility,
consisting of an Australian denominated term loan of AUD 200 million
($124.1 million based on the exchange rate on November 4, 1998), which was
fully drawn in connection with the Reorganization, and a U.S. dollar
denominated $77.5 million revolving credit facility, under which the
Company had borrowings of $25 million as of February 1, 1999. The Notes
were issued with a mix of maturities ranging from 6 to 15 years. The
blended interest rate on the Notes and the term loan is 6.5% resulting in
an interest expense of $17.0 million assuming outstanding indebtedness of
$349.1 million for the whole of the nine months ended December 31, 1998.
The average interest rate on the revolving credit facility is 5.8%
resulting in an interest expense of $1.1 million assuming outstanding
indebtedness of $25 million for the entire period ended December 31, 1998.
The total interest under the Debt Financing for the purposes of the pro
forma consolidated statement of income for the nine months ended December
31, 1998 is therefore $18.1 million. The adjustment is for a seven month
period as
30
<PAGE> 33
the Consolidated Statement of Income for the nine months ended December 31,
1998 includes two months of operations under the new structure. The effect
on income of each 1/8% change in the blended interest rate on the Notes and
the term loan for a nine month period would be $0.3 million.
(5) Reflects the elimination of interest income earned on cash and cash
equivalents held by JHIL during the period prior to the Reorganization
which were retained by JHIL.
(6) Reflects the elimination of other non-operating expenses, net, comprising
Reorganization costs, dividend and investment income and the writedown of
investments to net realizable value which are not expected to recur.
(7) Reflects the impact of additional taxes resulting from the following
adjustments referred to above, as follows:
<TABLE>
<CAPTION>
APPLICABLE
GROSS INCOME TAX
($ MILLIONS) ($ MILLIONS)
------------ ------------
<S> <C> <C>
Depreciation on retained property........................... $ 0.5 $ --
Rental expense.............................................. (2.4) 0.9
Interest expense............................................ 19.8 (7.4)
Interest income............................................. (12.4) 4.5
Reorganization and other non operating expenses, net........ 4.8 --
------ -----
$(2.0)
=====
</TABLE>
(8) Reflects that the term loan has been drawn down in Australia, the revolving
credit facility has been drawn down in The Netherlands and the Notes have
been issued in The Netherlands. The tax expense has been calculated as
follows:
<TABLE>
<CAPTION>
TAX
PRINCIPAL INTEREST DEDUCTION
($ MILLIONS) ($ MILLIONS) TAX RATE ($ MILLIONS)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Notes................................. $225.0 $ 9.4 15% $1.4
Term loan............................. 124.1 3.8 36% 1.4
Revolving credit facility............. 25.0 0.9 15% 0.1
----- ----
$14.1 $2.9
===== ====
</TABLE>
(9) Reflects the deferred tax (expense) benefit of the intercompany debt
arrangements of $899.2 million created in connection with the
Reorganization, assuming the Finance Subsidiary advanced to the operating
subsidiaries in the United States, Australia and New Zealand, $778.4
million, $105.2 million and $15.6 million, respectively. The adjustment is
for a seven month period as the Consolidated Statement of Income for the
nine months ended December 31, 1998 includes two months of operations under
the new structure and has been calculated as follows adopting an interest
rate of 6.9% on intercompany debt:
<TABLE>
<CAPTION>
DEFERRED TAX
PRINCIPAL INTEREST TAX (EXPENSE) BENEFIT
($ MILLIONS) ($ MILLIONS) RATE ($ MILLIONS)
------------ ------------ ---- -----------------
<S> <C> <C> <C> <C>
Interest income
The Netherlands......................... $899.2 $36.0 15% $(5.4)
======
Interest expense
United States........................... 778.4 31.2 40% 12.5
Australia............................... 105.2 4.2 36% 1.5
New Zealand............................. 15.6 0.6 33% 0.2
------ -----
$899.2 $ 8.8
====== =====
</TABLE>
The tax impact of the Debt Financing represents certain tax benefits that
the Company expects to realize as a result of the new intercompany debt
financing between the Finance Subsidiary and the operating subsidiaries. In
calculating this amount, the following income tax rates have been assumed:
<TABLE>
<S> <C>
United States (anticipated federal and state taxes)......... 40%
Australia................................................... 36%
New Zealand................................................. 33%
The Netherlands (Group Finance Activities Regime)........... 15%
</TABLE>
31
<PAGE> 34
This calculation assumes that current tax laws of all relevant jurisdictions
were in effect during the nine months ended December 31, 1998, and that any
tax rulings which relevant companies have obtained in connection with the
Reorganization were also applicable and in effect during such period.
The calculation further assumes that interest payable by the U.S. subsidiary
to the Finance Subsidiary will be taxed in The Netherlands at an effective
rate of 15% rate pursuant to a ruling issued by the Dutch tax authorities
applicable until 2008 based on certain conditions, including that all of the
group's treasury activities are conducted exclusively from The Netherlands.
The calculation also assumes that the intercompany debt was in place
throughout the nine months ended December 31, 1998, and further assumes that
(i) interest payments were fully deductible by the U.S. subsidiary in fiscal
year 1999, and (ii) that such payments were not subject to U.S. withholding
tax pursuant to the US-NL Treaty.
Interest paid by the U.S. subsidiary to the Finance Subsidiary should be
currently deductible for U.S. tax purposes in any year provided that such
interest is actually paid in that year and provided that the U.S. subsidiary
has sufficient earnings to avoid limitations on the deductibility of
interest resulting from the application of the U.S. "earnings stripping"
rules. The Company does not anticipate that the U.S. subsidiary will make
interest payments with respect to the related party debt during fiscal year
1999 or fiscal year 2000. Accordingly, no current U.S. tax deduction will be
available for such years, although the associated tax benefit will be
treated as realized currently for financial accounting purposes as the
Company expects to ultimately realize the tax benefit from such years in the
future.
Interest paid by the U.S. subsidiary to the Finance Subsidiary would likely
not be subject to the US-NL Treaty and would be subject to a 30% U.S.
withholding tax in any year unless, among other conditions of eligibility
for benefits, the aggregate number of shares of Common Stock traded on the
applicable stock exchange during the previous taxable year is at least 6% of
the average number of shares outstanding during that previous taxable year,
in which case, 0% withholding tax would apply under the US-NL Treaty. See
"Risk Factors -- Tax Risks on Intercompany Interest Payments."
Deductions in Australia and New Zealand for interest paid to the Finance
Subsidiary are subject to thin capitalization rules, which disallow interest
on related party loans in excess of a prescribed multiple of the equity of
the borrower. Withholding tax in Australia and New Zealand of 10% on
interest paid to the Finance Subsidiary will be available as a credit
against Dutch tax payable by the Finance Subsidiary, subject to certain
limitations.
The expected tax benefits arising from the intercompany debt arrangements
could be adversely affected in the future by changes in the current tax
laws, regulations and interpretations thereof applicable to the Company and
its subsidiaries, including changes that could have retroactive effect. In
this regard, the European Commission has initiated a review of certain tax
legislation of its member countries, including The Netherlands, to determine
whether any tax legislation constitutes unpermitted government aid in
violation of European Community rules. See "Risk Factors -- Tax Risks on
Intercompany Interest and Dividend Payments."
32
<PAGE> 35
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected financial and operating data for
the periods indicated and is qualified by reference to, and should be read in
conjunction with, the Consolidated Financial Statements and the related notes
thereto, the "Unaudited Pro Forma Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained elsewhere herein. The historical financial data presented below
reflects historical data with respect to (a) the Transferred Businesses and (b)
until November 1, 1998, the Retained Assets and Liabilities which were not
transferred to the Company in the Reorganization. See "The Reorganization."
Consequently, such historical financial data is not necessarily indicative of
future results of the Company.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED MARCH 31, DECEMBER 31,
-------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1997 1998
----------- ----------- ------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN MILLIONS, EXCEPT VOLUME AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales
U.S. Fiber Cement(1).................... $ 34.3 $ 47.5 $ 100.7 $ 148.7 $ 181.1 $ 134.2 $ 177.6
Gypsum(2)............................... 58.4 73.8 77.0 103.8 200.5 149.3 190.9
Australia/New Zealand Fiber Cement(3)... 205.5 270.4 264.6 262.1 211.6 169.0 132.2
Building Systems(3)..................... 60.3 104.2 118.2 133.8 147.9 111.9 81.3
Other(4)................................ 7.4 17.1 64.4 65.0 81.2 64.7 49.1
------- ------- ------- ------- -------- -------- --------
Total net sales........................... 365.9 513.0 624.9 713.4 822.3 629.1 631.1
Cost of goods sold........................ (242.4) (341.0) (429.9) (508.7) (592.3) (444.7) (448.0)
------- ------- ------- ------- -------- -------- --------
Gross profit.............................. 123.5 172.0 195.0 204.7 230.0 184.4 183.1
Selling, general and administrative(5).... (99.8) (97.7) (134.1) (150.3) (142.7) (108.1) (108.7)
Restructuring and other operating
expenses(6)............................. -- -- -- (38.8) (5.1) (2.2) (1.2)
------- ------- ------- ------- -------- -------- --------
Operating profit.......................... 23.7 74.3 60.9 15.6 82.2 74.1 73.2
Interest expense(7)....................... (22.7) (32.8) (48.7) (39.6) (37.6) (28.1) (23.8)
Interest expense - related parties(7)..... (13.2) (16.3) (17.3) (16.9) (11.3) (10.5) --
Interest income(7)........................ 10.5 20.7 33.1 30.8 28.3 21.2 12.4
Equity income - RCI(8).................... 6.8 11.3 7.9 9.2 6.2 4.8 --
Other nonoperating expenses, net(9)....... 0.2 (13.7) (15.0) (14.6) (12.1) (10.5) (4.8)
------- ------- ------- ------- -------- -------- --------
Income (loss) from continuing operations
before income tax....................... 5.3 43.5 20.9 (15.5) 55.7 51.0 57.0
Income tax (expense) benefit(7)........... 8.8 (4.4) (2.8) 3.0 (25.0) (19.2) (22.6)
------- ------- ------- ------- -------- -------- --------
Income (loss) from continuing
operations(10).......................... $ 14.1 $ 39.1 $ 18.1 $ (12.5) $ 30.7 $ 31.8 $ 34.4
======= ======= ======= ======= ======== ======== ========
Earnings per common share
Basic and diluted....................... $ 0.31 $ 0.85 $ 0.38 $ (0.26) $ 0.62 $ 0.64 $ 0.69
Weighted average number of common shares
outstanding (millions)
Basic and diluted....................... 45.1 46.2 47.5 48.2 49.5 49.5 50.0
CONSOLIDATED CASH FLOW INFORMATION:
Cash flows provided by (used in) operating
activities.............................. N/A N/A $ 80.2 $ 82.8 $ 109.1 $ 100.4 $ (16.7)(11)
Cash flows provided by (used in) investing
activities.............................. N/A N/A (39.5) 118.4 (46.7) (48.7) (117.8)
Cash flows provided by (used in) financing
activities.............................. N/A N/A (87.9) 14.6 (63.9) (67.6) (168.1)
OTHER DATA:
Depreciation and amortization(12)......... $ 13.5 $ 20.8 $ 28.0 $ 35.6 $ 38.5 $ 28.0 $ 29.2
Adjusted EBITDA(13)....................... 37.2 95.1 88.9 86.0 120.7 102.1 102.4
Capital expenditures(12).................. 71.4 47.1 64.7 172.1 154.8 118.3 87.4
Research and development(5)............... 7.9 11.4 12.1 15.0 18.0 12.6 10.5
Volume (mmsf)(14)
U.S. Fiber Cement....................... 68.7 96.5 220.0 317.0 416.1 303.7 423.4
Gypsum.................................. 603.2 642.0 680.3 862.3 1,554.5 1,153.2 1,409.4
Australia/New Zealand Fiber Cement(3)... 338.2 386.5 347.5 318.4 299.2 226.4 220.8
Average sales price per unit (per msf)
U.S. Fiber Cement....................... $ 499 $ 492 $ 458 $ 469 $ 435 $ 442 $ 419
Gypsum.................................. 97 115 113 120 129 129 135
Australia/New Zealand Fiber Cement(3)... 630 700 684 744 643 670 544
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------- DECEMBER 31,
1996 1997 1998 1998
----------- -------- -------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Net current assets........................... $ 393.2 $ 425.3 $ 354.8 $89.0(15)
Total assets................................. 1,366.1 1,534.0 1,241.7 1,008.5
Long-term debt............................... 416.5 470.2 496.3 347.5
Long-term related party borrowings........... 202.8 202.8 -- --
Shareholders' equity......................... 460.4 544.8 465.8 337.9(15)
</TABLE>
- ---------------
(1) In January 1996, the first production line at the Plant City, Florida fiber
cement plant was expanded and a second line was commissioned in March 1996.
During fiscal year 1997, a third production line was commissioned at Plant
City, Florida, a new fiber cement plant was constructed and the first line
commissioned in Cleburne, Texas, and the capacity of the Fontana,
California fiber cement plant was expanded. During fiscal year 1999, a new
fiber cement plant was commissioned in Tacoma, Washington.
(2) The capacity of the Las Vegas, Nevada gypsum plant was expanded in fiscal
years 1995 and 1996. The Nashville, Arkansas gypsum plant was acquired in
fiscal year 1997. The Las Vegas, Nevada gypsum plant and the Seattle,
Washington gypsum plant were further expanded in fiscal year 1998.
(3) Australia/New Zealand Fiber Cement includes all fiber cement produced or
sold worldwide, excluding the United States and the Philippines, and also
includes sales from building systems in New Zealand.
(4) Includes fiber cement sales in the Philippines and window sales in
Australia.
(5) Includes research and development expenses.
(6) Includes (i) for fiscal year 1997, asset write-downs, environmental costs
and employee termination costs of $17.8 million associated with the
restructuring and upgrade of the fiber cement business in Australia, and a
windows goodwill write-off of $21.0 million, (ii) for fiscal year 1998,
$5.1 million of employee termination costs associated with the
restructuring and upgrading of the fiber cement business in Australia and
(iii) for the nine months ended December 31, 1998, $1.2 million of employee
termination costs associated with the restructuring and upgrading of the
fiber cement business in Australia.
(7) Interest and income tax expenses are the historical interest and income
taxes applicable to JHIL and its subsidiaries prior to the Reorganization.
As a result of the Reorganization, the interest and income tax expenses of
the Company will change. See "Unaudited Pro Forma Consolidated Financial
Data."
(8) Represents equity interest earned on the investment in RCI Corporation
which was sold in fiscal year 1998. See "Unaudited Pro Forma Consolidated
Financial Data."
(9) Consists primarily of losses of $17.9 million, $14.7 million and $12.2
million in fiscal years 1996, 1997 and 1998, respectively, incurred by JHIL
under a transaction entered into with Firmandale which is part of the
Retained Assets and Liabilities that were not transferred to the Company in
the Reorganization. For the nine months ended December 31, 1998, other
nonoperating expenses is comprised of costs associated with the
Reorganization amounting to $8.4 million, the provision of $2.5 million
against other investments and $6.1 million profit on the sale of one of the
Company's portfolio investments.
(10) Constitutes net income (loss) before income (loss) from discontinued
operations and gains (losses) on the disposal of discontinued operations.
(11) Includes a $57.3 million cash payment in connection with the settlement of
the Firmandale litigation.
(12) Information for depreciation and amortization and capital expenditures are
for continuing businesses only.
34
<PAGE> 37
(13) Represents earnings from continuing operations before interest income,
interest expense, income taxes, other nonoperating expenses, net,
depreciation and amortization charges, and certain other property and
goodwill impairment charges as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEARS ENDED MARCH 31, DECEMBER 31,
------------------------------------------ ---------------
1994 1995 1996 1997 1998 1997 1998
ADJUSTED EBITDA ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations.... $ 14.1 $ 39.1 $ 18.1 $(12.5) $ 30.7 $ 31.8 $ 34.4
Income tax expense (benefit)......... (8.8) 4.4 2.8 (3.0) 25.0 19.2 22.6
Interest income...................... (10.5) (20.7) (33.1) (30.8) (28.3) (21.2) (12.4)
Interest expense..................... 22.7 32.8 48.7 39.6 37.6 28.1 23.8
Interest expense - related parties... 13.2 16.3 17.3 16.9 11.3 10.5 --
Equity income -- RCI................. (6.8) (11.3) (7.9) (9.2) (6.2) (4.8) --
Other nonoperating expenses, net..... (0.2) 13.7 15.0 14.6 12.1 10.5 4.8
Depreciation and amortization........ 13.5 20.8 28.0 35.6 38.5 28.0 29.2
Impairment of property............... -- -- -- 2.4 -- -- --
Goodwill write-off................... -- -- -- 21.0 -- -- --
Obsolete equipment write-down........ -- -- -- 11.4 -- -- --
------ ------ ------ ------ ------ ------ ------
Adjusted EBITDA............. $ 37.2 $ 95.1 $ 88.9 $ 86.0 $120.7 $102.1 $102.4
====== ====== ====== ====== ====== ====== ======
</TABLE>
Adjusted EBITDA is not a measure of financial performance under GAAP and
should not be considered an alternative to, or more meaningful than, income
from operations, net income or cash flows as defined by GAAP or as a
measure of the Company's profitability or liquidity. All registrants do not
calculate Adjusted EBITDA in the same manner and, accordingly, Adjusted
EBITDA may not be comparable with other registrants. The Company has
included information concerning Adjusted EBITDA herein because it believes
that such data is commonly used by certain investors to evaluate the
ability of a company's earnings from its core business operations to
satisfy its debt, capital expenditure and working capital requirements. To
permit evaluation of this data on a consistent basis from period to period,
EBITDA has been adjusted for noncash charges such as goodwill and asset
impairment charges, as well as nonoperating income and expense items. See
the Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for further
information to assist in identifying and evaluating trends in Adjusted
EBITDA.
(14) Fiber cement volume is measured in 5/16" standard feet and gypsum volume is
measured in surface feet.
(15) On February 5, 1999, the Company and JHIL entered into an agreement to
consolidate and set off certain intercompany payables and receivables as
described in Note 23 to the Consolidated Financial Statements. After the
consolidation and set off, the Company had a net receivable of $9.2 million
which has been deducted from shareholders' equity as it is due from the
principal shareholder. The Company intends to effect a non-cash settlement
of this receivable prior to the closing of the Offerings. As a result of
the consolidation and set off, pro forma net current assets and
shareholders' equity at December 31, 1998 were $79.8 million and $328.7
million, respectively.
35
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used herein, the term the "Company" refers to the Transferred Businesses
and the Retained Assets and Liabilities for all periods prior to the
consummation of the Reorganization in November 1998 and refers only to the
Transferred Businesses for periods after October 31, 1998. The following
discussion of the financial condition and results of operations of the Company
should be read in conjunction with the audited Consolidated Financial Statements
of the Company and the related notes thereto and "Unaudited Pro Forma
Consolidated Financial Data" included elsewhere in this Prospectus.
OVERVIEW
The Company is the largest manufacturer of fiber cement products and
systems for internal and external building applications in the United States,
Australia and New Zealand and is the fourth largest manufacturer of gypsum
wallboard in the United States. The Company's operations are organized into the
following five segments: (1) U.S. Fiber Cement, which manufactures and sells
fiber cement products in the United States; (2) Gypsum, which manufactures and
sells gypsum wallboard products in the United States; (3) Australia/ New Zealand
Fiber Cement, which manufactures and sells fiber cement products in Australia,
New Zealand and Asian export markets (other than the Philippines) and building
systems in New Zealand; (4) Building Systems, which manufactures, sells, rents
and installs modular relocatable buildings in Australia, and also manufactures
and sells insulated panel systems in the Australian commercial market; and (5)
Other, which includes the Company's research and development center in Sydney,
Australia; the Company's Philippines fiber cement operations; and manufacture
and sales of windows and window systems in Australia. The term "U.S. Operations"
refers to the Company's U.S. Fiber Cement and Gypsum segments.
Sales are generally invoiced in the currency of the business unit making
the sale and are generally on 30 to 60 day credit terms. Sales are recognized
when goods have been dispatched to a customer following a sales order and the
associated risks of ownership have passed to the customer. Cost of goods sold
comprises manufacturing costs including raw materials and supplies, direct and
indirect labor costs, depreciation of production facilities, production
maintenance, property taxes, real property lease expense, insurance and warranty
costs. Selling, general and administrative expenses primarily consist of officer
and other employee compensation and related benefits, advertising and promotion
costs, depreciation of non-production fixed assets, warehouse expenses,
administrative and information systems costs, amortization of goodwill and
research and development expenses.
The Company's gross profit margin in each of its segments is primarily
impacted by pricing levels, sales volumes and operating efficiencies. Since the
start of fiscal year 1997, sales prices for fiber cement have been declining in
the United States and, to a greater degree, in the Australian and New Zealand
markets due to increasing competition. The overall siding market in the United
States is operating with over-capacity. The Company's strategy is to maintain a
competitive advantage through continued development of differentiated fiber
cement products and improved process technologies. Historically, increased sales
volumes of U.S. Fiber Cement and improved operating efficiencies have more than
offset the effect of decreases in prices of such products. No assurance can be
given, however, that the Company will be able to offset future price decreases
in the United States. Pricing declines in Australia/New Zealand Fiber Cement
have not historically been offset by increased sales volume due to competition
and the maturity of the market. Because of the maturity of the Australian and
New Zealand markets and other factors, the Company believes that both prices and
sales volume in those markets may continue to decline. See "Risk
Factors -- Competition and Pricing."
In recent years, gypsum prices and sales volume have increased, resulting
in a higher gross profit margin for the Company's Gypsum segment. Although
gypsum prices have increased overall for the periods presented, gypsum pricing
has historically been cyclical, and several of the Company's competitors have
announced plans to add additional capacity over the next two years. Thus, there
can be no assurance that prices will not decline. See "Risk
Factors -- Competition and Pricing." Management believes that any future gypsum
price decreases may be offset, at least in part, by increased volumes available
for sale as a result of the Company's increased capacity and cost advantages
compared to other gypsum manufacturers. No assurance
36
<PAGE> 39
can be given, however, that the Company will be able to offset any future price
decreases. In addition, the Company's gypsum paper supply agreement with
Republic is expected to substantially reduce the Company's gypsum paperboard
costs beginning in the latter part of fiscal year 2000.
The Company maintains significant operations in foreign countries and, as a
result, is exposed to changes in exchange rates which affect its financial
position, results of operations and cash flow. For the nine months ended
December 31, 1998, the following currencies comprised the Company's net sales,
cost of goods sold, expenses and liabilities:
<TABLE>
<CAPTION>
USD AUD NZD OTHER
--- --- --- -----
<S> <C> <C> <C> <C>
Net sales.............................................. 59% 35% 5% 1%
Cost of goods sold..................................... 59% 34% 5% 2%
Expenses............................................... 30% 58% 5% 7%
Liabilities (excluding borrowings)..................... 45% 48% 3% 4%
</TABLE>
Management anticipates that sales outside the United States will continue
to be significant. The Company's results of operations, cash flows and financial
position were significantly affected by the depreciation of the Australian
dollar against the U.S. dollar that occurred in fiscal year 1998 and in the nine
months ended December 31, 1998. On translation into U.S. dollars, the Company's
consolidated financial position at December 31, 1998 consequently reported a
translation loss of $46.1 million. Furthermore, the results of operations and
cash flows are impacted by the translation of foreign earnings into U.S.
dollars. Historically, the Company has hedged, from an Australian dollar
perspective, its net investment in its operations in the United States and in
New Zealand. Since the Reorganization, the Company has hedged its net investment
in its Australian operations against the U.S. dollar. See "Risk
Factors -- Foreign Exchange Risks" and Note 17 to the Notes to the Consolidated
Financial Statements. The principal exchange rate hedging instrument employed by
the Company is a standard market forward exchange contract. Under such
contracts, the Company is obligated to buy or sell a specified foreign currency
in exchange for a specified local currency. Any extension of these forward
exchange contracts is undertaken on a marked to market basis with the
appropriate cash settlement taking place at the time of the extension. The
Company does not trade any exchange rate hedging instruments but holds them
until maturity.
The recent economic volatility in Asia has had a negative effect on the
Australian and New Zealand economies in general and the Company has begun to
recognize these effects on its operations. For example, until the Philippines
manufacturing facility was commissioned in December 1998, the Company was
supplying that market by exporting products manufactured in Australia and New
Zealand. For the nine months ended December 31, 1998, sales of fiber cement
products in the Philippines declined by 37% in local currency terms from the
same period in the previous year. This decline is due to the sharp contraction
of the Philippines building and construction market which is likely a result of
Asian economic conditions. Continued contraction in this market will result in
potentially lower than projected capacity utilization for the new Philippines
manufacturing facility. The Company's Building Systems business has also been
negatively impacted by the Asian economic crisis and lower prices for natural
resources generally. Activity in the Australian mining and resources industry, a
market serviced by the Building Systems business, has declined due to concerns
about falling demand from Asia for minerals and other natural resources and a
general decrease in commodity prices which has deterred investment in Australian
mining and resource projects. See "Risk Factors -- Recent Volatility in Asian
Economies and Financial and Currency Markets."
In fiscal year 1997, the Company commenced a major restructuring and
upgrade project of its Australian fiber cement manufacturing facilities. This
project involves the closure of the fiber cement manufacturing facility in
Brooklyn, Australia and the upgrade and modernization of three of the four
Australian manufacturing plants. The upgrade program includes the automation of
product finishing processes and is aimed at reducing direct costs, increasing
production yields and improving product quality. Restructuring costs associated
with the program, including employee termination expenses and the write-down of
long lived assets, of $17.8 million and $5.1 million were incurred in fiscal
year 1997 and fiscal year 1998, respectively. Further employee termination costs
of approximately $4.1 million are expected to be incurred, of which $1.2 million
was incurred in the nine months ended December 31, 1998.
37
<PAGE> 40
Discontinued Operations
During fiscal years 1997 and 1998, JHIL divested a number of businesses
which were not related to the core Transferred Businesses, as set out below:
<TABLE>
<CAPTION>
FISCAL YEAR
BUSINESS DIVESTED DESCRIPTION
-------- ----------- -----------
<S> <C> <C>
Building Services........... 1997 Supplier of fire protection, security monitoring, building
automation and mechanical services to the commercial and
industrial building sector in Australia and New Zealand
Irrigation.................. 1997 Irrigation products businesses based in the United States,
Australia, New Zealand and Europe
Bathroom Products........... 1997 Vitreous china, tapware and hot water systems businesses
in Australia and New Zealand
Pipelines................... 1998 Plastic pipeline and fittings businesses in Australia, New
Zealand, Singapore and Malaysia
</TABLE>
In the preparation of the historical Consolidated Financial Statements and
the Pro Forma Statements, these businesses have been treated as discontinued
operations. The total cash proceeds from these divestitures were $371.4 million.
The Reorganization
James Hardie was formed in connection with the Reorganization that (with
the exception of the Offerings and the relocation of certain senior executives
and managers) was consummated in November 1998. The Reorganization is intended
to address the structural imbalance and resulting operational, financial and
commercial issues that existed as a result of the predominance (prior to the
Reorganization) of JHIL's U.S. operations and the location of corporate
management and JHIL's shareholder base in Australia. The divestiture program,
the growth in U.S. demand for the Company's fiber cement products and the
investment in additional fiber cement and gypsum manufacturing capacity in the
United States resulted in an increasing proportion of total net sales and
operating profit being generated from the United States. The U.S. Operations
increased from 28.4% of total net sales in fiscal year 1996 to 46.4% in fiscal
year 1998. Operating profit from U.S. Operations increased as a percentage of
total operating profit (before expenses in connection with the Sydney-based
research and development center and certain general corporate costs which
benefit all segments) from 26.1% in fiscal year 1996 to 72.4% in fiscal year
1998.
The primary components of the Reorganization include the formation of James
Hardie, the November 1998 transfer to the Company of the Transferred Businesses
(which include JHIL's fiber cement, gypsum, building systems and windows
businesses) and the retention by JHIL of the Retained Assets and Liabilities,
the Debt Financing, the relocation of certain senior executives and managers to
the Company's U.S. operational headquarters and the Offerings. See "The
Reorganization."
As noted above, an element of the Reorganization is the Debt Financing. At
March 31, 1998, JHIL was funded with a capital structure comprised of $531.6
million of debt and a cash balance of $286.2 million (net of the bank overdraft
and the Firmandale liability which was paid in April 1998). As a result of the
Reorganization, the Company established a more efficient capital structure, with
a minimal holding of cash reflecting working capital requirements and a lower
net effective interest rate. As a result, interest income will be reduced
significantly and interest expense will reflect the Debt Financing.
RESULTS OF OPERATIONS
In the fiscal years 1996 through 1998 and for the nine months ended
December 31, 1998, there was a significant increase in the net sales revenues
and profits generated from the Company's U.S. Operations. This increase is
primarily due to the growth in U.S. sales volume of the Company's fiber cement
products, principally siding; improvements in manufacturing efficiencies as a
result of $135 million of capital investment during the fiscal years 1996 to
1998; and the availability of additional gypsum capacity following the capital
investment of $85.6 million, primarily to expand plant capacity from 610 mmsf in
fiscal year 1995 to 1,980
38
<PAGE> 41
mmsf at the end of fiscal year 1998, and the acquisition of the Nashville,
Arkansas gypsum facility in February 1997. Concurrently, increasing competition
in both Australia and New Zealand within the Australia/New Zealand Fiber Cement
segment has caused the Company's volumes and margins for this segment to
decrease.
The following table sets forth selected financial and operating data for
the Company expressed in millions of dollars and as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31,
------------------------------------------------------ ------------------------------------
1996 1997 1998 1997 1998
---------------- ---------------- --------------- ---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales
U.S. Fiber Cement...... $ 100.7 16.1% $ 148.7 20.8% $ 181.1 22.0% $ 134.2 21.3% $ 177.6 28.1%
Gypsum................. 77.0 12.3 103.8 14.6 200.5 24.4 149.3 23.7 190.9 30.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
U.S. Operations.... 177.7 28.4 252.5 35.4 381.6 46.4 283.5 45.0 368.5 58.3
Australia/New Zealand
Fiber Cement......... 264.6 42.3 262.1 36.7 211.6 25.7 169.0 26.9 132.2 20.9
Building Systems....... 118.2 18.9 133.8 18.8 147.9 18.0 111.9 17.8 81.3 12.9
Other.................. 64.4 10.4 65.0 9.1 81.2 9.9 64.7 10.3 49.1 7.9
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total net sales.......... 624.9 100.0 713.4 100.0 822.3 100.0 629.1 100.0 631.1 100.0
Cost of goods sold....... (429.9) (68.8) (508.7) (71.3) (592.3) (72.0) (444.7) (70.7) (448.0) (71.0)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross profit............. 195.0 31.2 204.7 28.7 230.0 28.0 184.4 29.3 183.1 29.0
Selling, general and
administrative......... (134.1) (21.4) (150.3) (21.1) (142.7) (17.4) (108.1) (17.2) (108.7) (17.2)
Restructuring and other
expenses............... -- -- (38.8) (5.4) (5.1) (0.6) (2.2) (0.3) (1.2) (0.2)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating profit......... 60.9 9.8 15.6 2.2 82.2 10.0 74.1 11.8 73.2 11.6
Interest expense......... (48.7) (7.8) (39.6) (5.6) (37.6) (4.6) (28.1) (4.5) (23.8) (3.8)
Interest
expense -- related
parties................ (17.3) (2.7) (16.9) (2.3) (11.3) (1.4) (10.5) (1.7) -- --
Interest income.......... 33.1 5.3 30.8 4.3 28.3 3.4 21.2 3.4 12.4 2.0
Equity income -- RCI..... 7.9 1.2 9.2 1.2 6.2 0.7 4.8 0.8 -- --
Other nonoperating
expenses, net.......... (15.0) (2.4) (14.6) (2.0) (12.1) (1.4) (10.5) (1.7) ( 4.8) (0.8)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income (loss) from
continuing operations
before income tax...... 20.9 3.4 (15.5) (2.2) 55.7 6.7 51.0 8.1 57.0 9.0
Income tax (expense)
benefit................ (2.8) (0.5) 3.0 0.4 (25.0) (3.0) (19.2) (3.0) (22.6) (3.6)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income (loss) from
continuing
operations............. $ 18.1 2.9% $ (12.5) (1.8)% $ 30.7 3.7% $ 31.8 5.1% $ 34.4 5.4%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1998 ("INTERIM PERIOD 1999") COMPARED TO
NINE MONTHS ENDED DECEMBER 31, 1997 ("INTERIM PERIOD 1998")
Total Net Sales. Total net sales increased by $2.0 million from $629.1
million in Interim Period 1998 to $631.1 million in Interim Period 1999. Net
sales from U.S. Operations increased by 30.0% with growth in volume in both U.S.
Fiber Cement and Gypsum, partially offset by a 5.2% decrease in fiber cement
prices. Offsetting the improved results from U.S. Operations was a 24.0%
decrease in net sales from non-U.S. Operations, of which 9.6% was attributable
to lower selling prices and the remainder to the effect of changed foreign
exchange rates.
U.S. Fiber Cement Sales. U.S. Fiber Cement sales increased by $43.4
million or 32.3% from $134.2 million in Interim Period 1998 to $177.6 million in
Interim Period 1999. The growth in sales was primarily due to a 39.4% increase
in volume from 303.7 mmsf in Interim Period 1998 to 423.4 mmsf in Interim Period
1999. This increase was primarily due to continued penetration by the Company's
fiber cement products against competing products, primarily wood-based siding.
The Tacoma, Washington plant, with 150 mmsf capacity, was commissioned during
May 1998 and began commercial production in June 1998. The
39
<PAGE> 42
increase in sales volume was partially offset by a 5.2% decrease in average
product selling price from $442 to $419 per msf which was a result of increased
competition and over-capacity in most segments of the siding industry.
Gypsum Sales. Gypsum sales increased $41.6 million or 27.9% from
$149.3 million in Interim Period 1998 to $190.9 million in Interim Period 1999.
The growth in sales was primarily due to a 22.2% increase in volume from 1,153.2
mmsf in Interim Period 1998 to 1,409.4 mmsf in Interim Period 1999, mainly
attributable to additional capacity at the Seattle, Washington and Las Vegas,
Nevada plants as a result of facility upgrades. Average sales prices were 4.7%
higher in Interim Period 1999, with sales price increases in the Southeast and
Southwest markets being partially offset by a price decrease in the Northwest.
Australia/New Zealand Fiber Cement Sales. Australia/New Zealand Fiber
Cement sales decreased $36.8 million or 21.8% from $169.0 million in Interim
Period 1998 to $132.2 million in Interim Period 1999. In local currency terms,
the decline was 7.0%. The decrease in sales was due primarily to a 2.5% decrease
in sales volume from 226.4 mmsf in Interim Period 1998 to 220.8 mmsf in Interim
Period 1999 and a 3.4% (in local currency terms) reduction in average net
selling prices caused by increased competition and industry over-capacity. In
Australia, the lower sales revenue was due primarily to lower sales volumes and
reduced average selling prices caused by increased competition and industry
over-capacity. In New Zealand, sales volumes and pricing were negatively
impacted by a reduction in residential construction activity and an average 5%
price reduction to counter increased import competition. Additionally, in
Australia, the fiber cement business experienced severe and continuing problems
commissioning new automated manufacturing equipment.
Building Systems Sales. Building Systems sales decreased by $30.6
million or 27.3% from $111.9 million in Interim Period 1998 to $81.3 million in
Interim Period 1999. In local currency terms, the decline was 13.5%. This
segment had a strong Interim Period 1998, particularly due to several large
contracts for projects in the mining sector. This level of activity did not
continue in the Interim Period 1999, primarily due to the postponement of a
number of mining projects in the wake of falling commodity prices and the Asian
financial crisis.
Other Sales. Sales by the Philippines operation and the windows
businesses decreased by $15.6 million or 24.1% from $64.7 million in Interim
Period 1998 to $49.1 million in Interim Period 1999. Sales by the Company's
Philippines operation (primarily using product imported from Australia until the
commencement of local manufacturing in December 1998) fell by 37.3% in local
currency terms to $4.5 million due to the significant decrease in housing
construction and repair activity related to the region's economic conditions and
a reduction in price by 10% in local currency terms to enable the Company's
products to remain competitive with plywood alternatives. Sales by the windows
operation decreased by $10.2 million or 19.0% from $53.6 million in Interim
Period 1998 to $43.4 million in Interim Period 1999. In local currency terms,
net sales decreased by 3.8% primarily due to a decrease in sales of wood windows
in the value-added market segments offset by an increase in sales volume of
aluminum and lower value wood windows.
Gross Profit. Gross profit decreased by $1.3 million or 0.7% from $184.4
million in Interim Period 1998 to $183.1 million in Interim Period 1999. The
Company's overall gross profit margin declined by 0.3 percentage points from
29.3% in Interim Period 1998 to 29.0% in Interim Period 1999. U.S. Fiber Cement
gross profit margin decreased by 3.6% with a 5.2% decline in selling prices and
increased costs, mainly in the second quarter and associated with the
commissioning of the Tacoma, Washington plant and the start up of additional
capacity at Plant City, Florida and Cleburne, Texas. Gypsum gross profit margins
increased by 2.7%, primarily due to an increase in average sales prices, offset
by an increase in gypsum rock prices for the Seattle, Washington plant and
start-up costs in commissioning the additional production capacity at the Las
Vegas, Nevada and Seattle, Washington plants. In addition, the Las Vegas and
Seattle plants yield lower margins than Nashville, Arkansas. The increased sales
volume for these plants reduced average gross margins. Australia/New Zealand
Fiber Cement gross profit margin decreased by 6.3%. This was due to
unanticipated and continuing commissioning costs associated with upgrading
Australian fiber cement manufacturing facilities, reduced average net selling
prices due to increased competition and a change in product mix. Building
Systems gross profit margin increased
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by 2.4% due to a higher proportion of rental revenue. Windows gross profit
margin improved by 2.3%, due to improved pricing, sales mix and production
efficiencies, offsetting increased aluminum and wood prices.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $0.6 million from $108.1 million in Interim
Period 1998 to $108.7 million in Interim Period 1999. Expressed as a percentage
ratio of net sales, the ratio remained constant at 17.2%.
Selling, general and administrative expenses include research and
development costs which amounted to $10.5 million in Interim Period 1999, a
reduction of $2.1 million compared to Interim Period 1998. This reduction was
due to fewer personnel being employed within the Sydney-based research and
development center and the effect of the weakening Australian dollar, partially
offset by an increase in spending at the Development Center in Fontana,
California to support the development and commercialization of Harditrim(TM),
the first product in the Company's new, proprietary low density product
platform.
Restructuring and Other Operating Expenses. Restructuring and other
operating expenses were $2.2 million and $1.2 million in Interim Period 1998 and
Interim Period 1999, respectively, resulting from employee terminations and
other restructuring costs associated with the Australian fiber cement
manufacturing restructuring and upgrade program.
Operating Profit. Operating profit decreased by $0.9 million from $74.1
million in Interim Period 1998 to $73.2 million in Interim Period 1999. As
described above, improvements in gross profits within the U.S. Operations and
reduced general corporate costs were offset by reduced revenues in the
Australian and New Zealand operations and the adverse effect of foreign exchange
rates.
Interest Expense and Interest Income. Interest expense decreased by $4.3
million from $28.1 million in Interim Period 1998 to $23.8 million in Interim
Period 1999 primarily as a result of decreased borrowing following the debt
refinancing and also as a result of interest rate reductions. Interest income
declined by $8.8 million from $21.2 million in Interim Period 1998 to $12.4
million in Interim Period 1999, primarily due to a reduction in the average
level of deposits following repayment of debt and the settlement of the
Firmandale matter. As part of the Reorganization, the Company revised the debt
funding structure and does not have a substantial cash balance.
Equity Income -- RCI. Equity income from RCI Corporation ceased following
the sale of the investment in RCI in fiscal year 1998. In Interim Period 1998
such equity income was $4.8 million.
Other Nonoperating Expenses, Net. Other nonoperating expenses, net were
$4.8 million in Interim Period 1999. This expense primarily represents costs
associated with the Reorganization, amounting to $8.4 million, the provision of
$2.5 million against other investments and the $6.1 million profit on the sale
of one of the Company's portfolio investments. Other nonoperating expenses, net
were $10.5 million in Interim Period 1998. This expense represents losses
incurred by JHIL under a transaction it entered into with Firmandale in 1987. In
March 1998, JHIL entered into a comprehensive settlement of all litigation
arising out of the Firmandale transaction. Any ongoing obligations associated
with the Firmandale transaction will remain with JHIL and will not be
transferred to or assumed by the Company as part of the Reorganization. See Note
12 to the Consolidated Financial Statements
Income Taxes. Income tax expense increased by $3.4 million from $19.2
million in Interim Period 1998 to $22.6 million in Interim Period 1999. The
Company's effective tax rate on income from continuing operations was 37.6% in
Interim Period 1998 compared to 39.6% in Interim Period 1999. The increase in
effective tax rate was primarily due to losses not tax-effected in the
Philippines and in relation to costs of the Reorganization.
YEAR ENDED MARCH 31, 1998 COMPARED TO YEAR ENDED MARCH 31, 1997
Total Net Sales. Total net sales increased by $108.9 million or 15.3% from
$713.4 million in fiscal year 1997 to $822.3 million in fiscal year 1998. The
growth in net sales was primarily attributable to increased volume in U.S. Fiber
Cement and Gypsum (which benefited from the first full-year of sales from
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the Nashville, Arkansas gypsum operation acquired in February 1997), partially
offset by decreases in fiber cement prices in the United States, Australia and
New Zealand.
U.S. Fiber Cement Sales. U.S. Fiber Cement sales increased by $32.4
million or 21.8% from $148.7 million in fiscal year 1997 to $181.1 million in
fiscal year 1998. The growth in sales was primarily due to a 31.2% increase in
volume from 317 mmsf in fiscal year 1997 to 416 mmsf in fiscal year 1998
resulting from continued penetration of the Company's fiber cement products in
the siding market and strong growth in volumes in the Southcentral region.
Volume was also positively impacted by an increase in production capacity from
480 mmsf to 770 mmsf due to the addition of 290 mmsf of capacity at the
Company's Cleburne, Texas plant in April 1997. The increase in sales volume was
partially offset by a 7.2% decrease in average selling price from $469 to $435
per msf which was a result of increased competition and over-capacity in the
overall siding industry.
Gypsum Sales. Gypsum sales increased $96.7 million or 93.1% from $103.8
million in fiscal year 1997 to $200.5 million in fiscal year 1998. The growth in
sales was primarily due to a 80.3% increase in volume to 1,555 mmsf mainly
resulting from the first full-year of contribution from the Nashville, Arkansas
plant which was acquired in February 1997. The increase in sales was also
positively affected by a 7.3% improvement in average sales prices over fiscal
year 1997. The expansion in the capacity of the Seattle, Washington plant from
260 mmsf to 620 mmsf was completed in the latter half of calendar 1997 and had
little impact on the fiscal year 1998 results.
Australia/New Zealand Fiber Cement Sales. Australia/New Zealand Fiber
Cement sales declined $50.5 million or 19.2% from $262.1 million in fiscal year
1997 to $211.6 million in fiscal year 1998. In local currency terms, the decline
was 11.3%. The decrease in sales was due primarily to a 6.0% decrease in sales
volume from 318 mmsf in fiscal year 1997 to 299 mmsf in fiscal year 1998. The
reduction in sales volume was a result of increased competition in Australia
and, to a lesser extent, increased volumes of lower-priced imports from Asia in
both Australia and New Zealand. Sales were further negatively impacted by
increased competition which necessitated price reductions in New Zealand.
Building Systems Sales. Building Systems sales increased by $14.1
million or 10.5% from $133.8 million in fiscal year 1997 to $147.9 million in
fiscal year 1998. In local currency terms, the rise was 21.5%. The increase in
sales in this segment was primarily due to increased sales in the mining sector,
including the addition of three major contracts for mining camp and village
accommodation in fiscal year 1998.
Other Sales. Sales by the Philippines operation and the windows
businesses increased by $16.2 million or 24.9% from $65.0 million in fiscal year
1997 to $81.2 million in fiscal year 1998. In local currency terms, the rise was
37.1%. The increase was primarily due to the commencement of sales by the
Company's Philippines operation as part of a pre-production marketing campaign
using product primarily imported from Australia. Sales by the windows operation
increased by $5.5 million or 8.9% from $61.4 million in fiscal year 1997 to
$66.9 million in fiscal year 1998. In local currency terms, the rise was 19.8%.
Gross Profit. Gross profit increased by $25.3 million or 12.4% from $204.7
million in fiscal year 1997 to $230.0 million in fiscal year 1998. The Company's
overall gross profit margin declined from 28.7% in fiscal year 1997 to 28.0% in
fiscal year 1998. Sales of fiber cement imported from the Company's Australian
and New Zealand manufacturing operations by the Company's Philippines operation
started during fiscal year 1998 as part of a marketing campaign in advance of
commencement of local production. These sales were made at a loss due to import
tariffs and shipping costs. These imports substantially decreased upon the
commencement of local manufacturing in the Philippines in December 1998. U.S.
Fiber Cement gross profit margin improved by 3.5 percentage points with a 7.2%
decline in selling prices more than offset by a decrease in pulp prices, an
improvement in manufacturing efficiencies, the absence of significant factory
start-up costs and an approximately 10.0% decline in freight costs due primarily
to the opening of the Cleburne, Texas plant. Gypsum gross profit margins
improved by 0.8 percentage points, primarily due to a 7.1% increase in sales
prices, offset in part by an increase in fixed cost of sales of $18 million,
primarily as a result of the inclusion of a full year of the Nashville operation
and a one-time cost of $0.9 million associated with the capacity expansion in
Las Vegas. Australia/New Zealand Fiber Cement gross profit margin increased by
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1.6 percentage points in fiscal year 1998. Fiscal year 1997 was adversely
affected by a $7.8 million warranty provision established with respect to two
specific products that were sold until fiscal year 1991 only in Australia and
New Zealand. One of the products was modified to avoid recurrence of the problem
and the other product has been discontinued. During fiscal year 1997, the
Company initiated a restructuring and upgrade of its Australian fiber cement
manufacturing facilities, which is expected to result in total capital costs of
$28.0 million and total expenses of $17.5 million over fiscal years 1997, 1998
and 1999. The benefits of this program are expected to be realized during fiscal
year 2000 and subsequent years. Building Systems gross profit margin decreased
by 3.0 percentage points in fiscal year 1998, primarily due to the discounting
of sales prices to retain market share against increased competition. Windows
gross profit margin improved by 1.9 percentage points in fiscal year 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $7.6 million or 5.1% from $150.3 million in
fiscal year 1997 to $142.7 million in fiscal year 1998. Expressed as a
percentage ratio of net sales, the ratio improved by 3.7 percentage points from
21.1% in fiscal year 1997 to 17.4% in fiscal year 1998. The decrease was
primarily due to a $10.1 million decrease resulting from the restructuring of
Australia/New Zealand Fiber Cement and the closure of the Brooklyn, Australia
fiber cement operations. The decrease was partially offset by a $7.1 million
increase within U.S. Fiber Cement due to additional staffing to provide the
sales and marketing infrastructure necessary to maintain volume growth,
increased marketing expenditure on fiber cement products, restructuring costs
associated with the consolidation of the customer service, finance, information
services and administration departments of the U.S. businesses to one location
and the commencement of goodwill amortization on the Nashville, Arkansas
acquisition. In addition, the decrease in selling, general and administrative
expenses was partially offset by a $4.5 million increase due to the continued
build up of the Philippines operations.
Selling, general and administrative costs include research and development
costs which amounted to $18.0 million in fiscal year 1998, an increase of $3.0
million over fiscal year 1997, primarily due to the opening in April 1997 of the
Company's fiber cement Development Center in Fontana, California.
Restructuring and Other Operating Expenses. Restructuring and other
operating expenses were $5.1 million in fiscal year 1998 and $38.8 million in
fiscal year 1997. Asset write-offs, environmental costs, employee terminations
and other restructuring costs related to the Australian fiber cement
manufacturing restructuring and upgrade program amounted to $17.8 million in
fiscal year 1997 and $5.1 million in fiscal year 1998. As part of the
restructuring program, 97 employees were terminated, of which 86 were factory
employees and 11 were sales, marketing or administrative employees. In fiscal
year 1997, the Company incurred a $21.0 million write-off of all of the goodwill
related to the windows business as a result of continuing losses in that
business.
Operating Profit. Operating profit increased by $66.6 million from $15.6
million in fiscal year 1997 to $82.2 million in fiscal year 1998. As described
above, the fiscal year 1997 results were significantly impacted by non-recurring
charges related primarily to the Australian fiber cement manufacturing
rationalization and upgrade program and the windows goodwill write-off.
Excluding these non-recurring charges, the operating profit would have increased
by $32.9 million or 60.5% from $54.4 million in fiscal year 1997 to $87.3
million in fiscal year 1998. In addition, the fiscal year 1998 results benefited
from increased sales and gross profit margins in U.S. Fiber Cement and Gypsum
and reduced operating losses, excluding the goodwill write-off, in the windows
business of $5.0 million in fiscal year 1998 compared to losses of $7.8 million
in fiscal year 1997. This was offset in part by a reduction in revenues in
Australia/New Zealand Fiber Cement.
Equity Income -- RCI. Equity income from RCI Corporation decreased from
$9.2 million in fiscal year 1997 to $6.2 million in fiscal year 1998. The
Company disposed of its investment in RCI Corporation in October 1997.
Interest Expense and Interest Income. Interest expense decreased by $2.0
million from $39.6 million in fiscal year 1997 to $37.6 million in fiscal year
1998. The decrease was primarily due to reductions in U.S. dollar and New
Zealand borrowing costs, as well as increased benefits from U.S. dollar interest
rate swaps, partially offset by an increase in average borrowings over the year.
Interest income declined by $2.5 million from $30.8 million in fiscal year 1997
to $28.3 million in fiscal year 1998. The decrease was
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primarily due to a decline in AUD interest rates and a decline in interest
income from currency swaps due to narrowing interest differentials, which was
offset by an increase in the level of average AUD deposits held. As part of the
Reorganization, the Company has established a new debt funding structure and
does not have a substantial cash balance.
Other Nonoperating Expenses, Net. Other nonoperating expenses, net were
$12.1 million in fiscal year 1998 and $14.6 million in fiscal year 1997. Of
these amounts, $12.2 million in fiscal year 1998 and $14.7 million in fiscal
year 1997 represent losses incurred by JHIL under a transaction it entered into
with Firmandale in 1987. In March 1998, JHIL entered into a comprehensive
settlement of all litigation arising out of the Firmandale transaction. Any
ongoing obligations associated with the Firmandale transaction will remain with
JHIL and were not transferred to or assumed by the Company as part of the
Reorganization. See Note 12 to the Consolidated Financial Statements.
Income Taxes. Income tax expense increased by $28.0 million from a $3.0
million benefit in fiscal year 1997 to a $25.0 million expense in fiscal year
1998. The Company's effective tax rate on income from continuing operations was
44.9% in fiscal year 1998 compared to 19.4% in fiscal year 1997. The increase in
the effective tax rate was primarily due to an increase in expenses not
deductible in fiscal year 1998, partially offset by an increase in rebates on
dividends received. The significant increase in both expenses not deductible and
rebates on dividends received resulted primarily from the disposal of the RCI
Corporation investment and increases in provisions for Firmandale which are not
deductible expenses.
YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH 31, 1996
Total Net Sales. Total net sales increased by $88.5 million or 14.2% from
$624.9 million in fiscal year 1996 to $713.4 million in fiscal year 1997. The
growth in net sales was primarily attributable to increased volume in U.S. Fiber
Cement, following the addition of two new lines at the Company's Florida
facility. Net sales were also positively impacted by increased gypsum wallboard
capacity and an increase in the average selling price of gypsum wallboard.
U.S. Fiber Cement Sales. U.S. Fiber Cement sales increased by $48.0
million or 47.7% from $100.7 million in fiscal year 1996 to $148.7 million in
fiscal year 1997. The growth in revenue was primarily due to a 44.1% increase in
volume from 220 mmsf in fiscal year 1996 to 317 mmsf in fiscal year 1997
resulting from continued penetration into the siding market and the availability
of additional capacity from the addition of two new lines at the Company's Plant
City, Florida facility. During the peak building season, the Company's U.S.
fiber cement manufacturing facilities operated at full capacity and for several
months demand exceeded the Company's U.S. manufacturing capacity. The average
selling price was stable compared to fiscal year 1996 levels.
Gypsum Sales. Gypsum sales increased by $26.8 million or 34.8% from
$77.0 million in fiscal year 1996 to $103.8 million in fiscal year 1997. The
growth in sales was primarily due to a 26.8% increase in sales volume from 680
mmsf in fiscal year 1996 to 862 mmsf in fiscal year 1997, of which 113 mmsf was
due to the acquisition of the Nashville, Arkansas operation in February 1997.
The increase in sales volumes can also be attributed to the capacity expansion
in Las Vegas, Nevada completed in the latter part of 1996. The increase in sales
was also positively affected by a 5.5% improvement in average sales price over
fiscal year 1996.
Australia/New Zealand Fiber Cement Sales. Australia/New Zealand Fiber
Cement sales declined by $2.5 million or 1% from $264.6 million in fiscal year
1996 to $262.1 million in fiscal year 1997. In local currency terms, the decline
was 6.7%. Volumes declined by 8.6% from 348 mmsf in fiscal year 1996 to 318 mmsf
in fiscal year 1997, reflecting the decline in home building activity over the
period and the effect of increased competition in Australia. Results were also
impacted by declining prices and the strengthening of the Australian dollar.
Building Systems Sales. Building Systems sales increased by $15.6
million or 13.2% from $118.2 million in fiscal year 1996 to $133.8 million in
fiscal year 1997. In local currency terms, the rise was 6.7%. The increase in
sales was primarily due to stronger demand from the mining and resources sector
and also from the expansion of the modular buildings rental fleet.
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Other Sales. Other sales were substantially unchanged and predominately
reflect the sales by the windows business, which were $61.4 million in fiscal
year 1997 and $58.5 million in fiscal year 1996.
Gross Profit. Gross profit increased by $9.7 million or 5.0% from $195.0
million in fiscal year 1996 to $204.7 million in fiscal year 1997. The Company's
overall gross profit margin declined from 31.2% in fiscal year 1996 to 28.7% in
fiscal year 1997. U.S. Fiber Cement gross profit margin declined by 1.5
percentage points primarily due to an increase of $10.2 million in fixed cost of
sales due to the commissioning of two additional lines at the Florida facility
and the construction of the Texas facility. Variable cost of sales was
consistent with fiscal year 1996. Gypsum profit margins improved by 8.5
percentage points primarily due to a 6.4% increase in average sales price.
Australia/New Zealand Fiber Cement gross margins in fiscal year 1997 declined
7.0 percentage points compared to fiscal year 1996, reflecting the effect of
increased competition and a non-recurring $7.8 million warranty provision.
Building Systems gross profit margin improved by 0.3 percentage points in fiscal
year 1997. Gross profit margin in the Other segment declined 2.8 percentage
points compared to 1996 reflecting the competitive pressures within the windows
operations and additional costs as a result of an acquisition.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $16.2 million or 12.1% from $134.1 million
in fiscal year 1996 to $150.3 million in fiscal year 1997. Expressed as a
percentage ratio of net sales, the ratio improved by 0.3 percentage points from
21.4% in fiscal year 1996 to 21.1% in fiscal year 1997. The increase in expenses
was primarily due to additional staffing within U.S. Fiber Cement to support
increased sales volumes and also the commencement of the Philippines operation.
The selling, general and administrative category includes research and
development costs which amounted to $15.0 million in fiscal year 1997, an
increase of $2.9 million over fiscal year 1996.
Restructuring and Other Operating Expenses. Restructuring and other
operating expenses amounted to $38.8 million in fiscal year 1997 (versus none in
fiscal year 1996) and had two components. The period costs of the restructuring
and upgrade of the Company's Australian fiber cement manufacturing facilities
and other restructuring costs related to Australia/New Zealand Fiber Cement
amounted to $17.8 million. Following the acquisition of Trend Windows in
December 1994, sales declined severely during fiscal year 1996 and 1997 as a
result of a slump in housing starts which was not foreseen at the time of
acquisition. In February and March 1997, a Board review of the windows business
plans for 1998 to 2000 and a full post-implementation review of the windows
acquisition revealed that the windows business would continue to incur future
operating losses due to changes in market and economic trends. These changes in
circumstances indicated that the recoverability of the carrying amount of the
windows business long-lived assets, including goodwill, should be assessed. JHIL
estimated the future cash flows (undiscounted and without interest charges)
expected to result from the use of the assets of the windows business and their
eventual disposition. As the sum of the expected future cash flows was less than
the carrying amount of the assets, JHIL had to recognize an impairment loss,
measured as the amount by which the carrying amount exceeds the fair value of
the assets. JHIL determined the fair value of the assets using the present value
of estimated expected future cashflows. The carrying amount exceeded the fair
value of the assets by $21.0 million. In instances where goodwill is identified
with assets that are subject to an impairment loss, Statement of Financial
Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" requires the
carrying amount of the identified goodwill to be eliminated before reducing the
carrying amount of impaired long-lived assets. Accordingly, JHIL wrote off $21.0
million in goodwill related to the windows business during fiscal year 1997.
During the second half of fiscal year 1997, the Company adopted a plan to
restructure and upgrade its fiber cement plants in Australia due to changes in
technology. The upgrade included a complete replacement of existing machinery
with new machinery designed to handle new technological innovations in fiber
cement which was expected to take place during fiscal year 1998 and to be
substantially completed by March 31, 1998. The existing machinery and equipment
could not be used with the new technology and did not have any alternate uses.
These changes in circumstances and the short period of time in which the
existing machinery would be used resulted in the Company recognizing an
impairment loss of $11.4 million to reduce the carrying amount of the assets to
their fair value in accordance with the SFAS No. 121 requirements for
recognizing and measuring impairment of assets held for use. Due to start-up,
integration and commissioning problems,
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<PAGE> 48
unexpected costs and delays were incurred in bringing all the new machinery
on-line and ready for use. As a result, the old equipment was not fully retired
until December 31, 1998. Such delays did not materially impact the Company's
original estimate of the impairment loss.
Operating Profit. Operating profit decreased by $45.3 million from $60.9
million in fiscal year 1996 to $15.6 million in fiscal year 1997. The decrease
was primarily due to the restructuring and other charges discussed above and, to
a lesser extent, the negative effect of competition in the Australia/New Zealand
Fiber Cement segment. In addition, increased losses in the windows business,
excluding the goodwill write-off, of $7.8 million in fiscal year 1997 compared
to $2.9 million in fiscal year 1996, which was due to the costs associated with
restructuring and modernizing the business, contributed to the decrease in
operating profit. This was offset in part by growth in both the U.S. Fiber
Cement and Gypsum operations. Excluding these non-recurring charges, the
operating profit would have decreased by $6.5 million or 10.7% from $60.9
million in fiscal year 1996 to $54.4 million in fiscal year 1997.
Equity Income -- RCI. Equity income from RCI Corporation increased from
$7.9 million in fiscal year 1996 to $9.2 million in fiscal year 1997, reflecting
the increased profitability of RCI Corporation due to a decrease in interest
rates.
Interest Expense and Interest Income. Net interest expense declined $9.1
million or 18.7% from $48.7 million in fiscal year 1996 to $39.6 million in
fiscal year 1997 primarily due to a decline in average gross borrowings over the
year as a result of the use of a portion of the proceeds from the divestiture
program to reduce debt. The average interest rate on borrowings also declined
slightly over the period, mainly due to declines in AUD and U.S. dollar short
term borrowing rates. Interest income declined by $2.3 million or 6.9% from
$33.1 million in fiscal year 1996 to $30.8 million in fiscal year 1997. The
reduction in AUD deposit rates and, to a lesser extent, U.S. dollar deposit
rates, contributed to the decline, despite the average level of deposits
remaining fairly stable between fiscal years 1996 and 1997.
Other Nonoperating Expenses, Net. Other non-operating expenses, net were
$15.0 million in fiscal year 1996 and $14.6 million in fiscal year 1997. Losses
incurred by JHIL related to the Firmandale transaction were $17.9 million in
fiscal year 1996 and $14.7 million in fiscal year 1997. Any ongoing obligations
associated with the Firmandale transaction remain with JHIL as part of the
Retained Assets and Liabilities and were not transferred to or assumed by the
Company as part of the Reorganization. See Note 12 to the Consolidated Financial
Statements.
Income Taxes. Income tax expense decreased from an expense of $2.8 million
in fiscal year 1996 to a benefit of $3.0 million in fiscal year 1997. The
Company's effective tax rate on income from continuing operations was 13.4% in
fiscal year 1996 compared to 19.4% in fiscal year 1997. The increase in the
effective tax rate was primarily due to a reduction in the research and
development incentive in 1997. The 1996 effective tax rate was also adversely
impacted by a tax rate change in 1996.
DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEMS
The Company did not have any net income from discontinued operations in
Interim Period 1999. During fiscal year 1998, JHIL completed its divestment
program with the disposition of its pipelines business. This disposition
resulted in income from discontinued operations of $9.6 million in Interim
Period 1998 and $10.2 million in fiscal year 1998.
During fiscal year 1997, the Company completed a major part of the
divestment program, with the sale of the irrigation, building services and
bathroom products businesses. These dispositions resulted in a loss from
discontinued operations of $5.8 million in fiscal year 1996 and income of $103.3
million in fiscal year 1997.
The refinancing of the Company's debt as part of the Reorganization
resulted in an extraordinary loss on extinguishment of debt of $8.3 million
after tax in Interim Period 1999.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its working capital needs and capital
expenditure requirements through a combination of cash flow from operations,
proceeds from the divestiture of businesses, credit facilities, proceeds from
the sale of property, plant and equipment and proceeds from the redemption of
investments. Seasonal fluctuations in working capital generally have not had a
significant impact on the Company's short-term or long-term liquidity.
The Company had cash and cash equivalents of $33.5 million as of December
31, 1998. As of such date, the Company also had credit facilities totaling
$428.2 million of which $375.7 million was outstanding. Of the total credit
facilities, $203.2 million was provided by banks and $225 million by purchasers
of the Notes. Of the outstanding debt, $25 million is due and payable in fiscal
year 1999 and $122.5 million of the term loan will be due and payable in fiscal
year 2002. The revolving portion of the Bank Facility can be repaid and redrawn
until maturity in 2001. The $225 million of the Notes are payable annually, in
varying tranches, from 2004 through 2013. All of the Company's outstanding debt
as of December 31, 1998 was unsecured.
As part of the Reorganization, all cash and cash equivalent balances were
retained by JHIL. JHIL established a new AUD 200 million debt facility secured
by the cash and cash equivalent balances, which was drawn and, together with the
debt facilities described above, used to retire all debt existing prior to the
Reorganization. This AUD 200 million facility terminates at the time of the
Offerings and is repayable by JHIL from the proceeds of the Offerings. In
addition, JHIL arranged an AUD 75 million facility with a two-year maturity.
This facility is secured by shares of the Common Stock indirectly owned by JHIL.
At any further selldown by JHIL of shares of the Common Stock after the
Offerings, this AUD 75 million facility will be proportionately reduced. In the
event that JHIL's ownership of shares of the Common Stock falls below 50%, this
facility will be terminated.
CASH FLOW
Cash inflow from operating activities was $100.4 million in Interim Period
1998 compared to an outflow of $16.7 million in Interim Period 1999. This
decrease of $117.1 million includes $57.3 million paid in settlement of the
Firmandale litigation. The remaining decrease of $59.8 million is principally
due to the inclusion within Interim Period 1998 of cash inflows on settlement of
accounts receivable that were retained on disposition of the pipelines business
in September 1997. Cash flow from operating activities was $109.1 million in
fiscal year 1998 and was $82.8 million in fiscal year 1997. This increase of
$26.3 million was primarily due to the increase in net income from continuing
operations.
Cash flow used in investing activities was $48.7 million in Interim Period
1998 compared to $117.8 million in Interim Period 1999. Capital expenditures
were $129.8 million in Interim Period 1998 and $111.7 million in Interim Period
1999. In Interim Period 1999, a refund of $10.5 million due to the purchaser's
overpayment at the closing of the sale of the Company's irrigation business was
paid out following mutual agreement on the closing accounts used at settlement.
Cash flow relating to investing activities used $46.7 million in fiscal year
1998 and provided $118.4 million in fiscal year 1997. Capital expenditures of
$147.7 million in fiscal year 1998 were partially offset by cash generated in
the amount of $61.4 million from the disposal of subsidiaries and businesses.
Outlays of $94.7 million for the acquisition of the Nashville, Arkansas facility
and $159.4 million on capital expenditures in fiscal year 1997 were offset by
cash generated in the amount of $375.7 million from the disposal of
subsidiaries, businesses and investments.
Net cash used in financing activities was $67.6 million in Interim Period
1998 compared to $168.1 million in Interim Period 1999. This increase was
primarily due to the repayment of borrowings as part of the Reorganization. Net
cash flows from borrowing and related hedging activities amounted to a $47.3
million outflow in Interim Period 1998 and a $148.0 million outflow in Interim
Period 1999. Dividend payments of $28.1 million were made in Interim Period 1998
compared to $18.7 million in Interim Period 1999. Net cash used for financing
activities was $63.9 million in fiscal year 1998 as compared to $14.6 million of
net cash provided in fiscal year 1997. Dividend payments of $28.1 million were
made in fiscal year 1998 and $16.6 million in fiscal year 1997. Net cash flows
from borrowing and related hedging activities amounted to a
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$47.9 million outflow in fiscal year 1998 and a $93.7 million inflow in fiscal
year 1997. In fiscal year 1997, a payment of $72.1 million was made to redeem
shares held by a minority interest.
While there can be no assurance, management believes that cash flow from
operations and funds from the proposed new credit facilities will be adequate to
meet the Company's cash flow requirements for the next eighteen months.
CAPITAL EXPENDITURES
The Company's total capital expenditures for continuing operations for
fiscal years 1997 and 1998 amounted to $172.1 million and $154.8 million,
respectively, and for the nine months ended December 31, 1998 amounted to $87.4
million. The capital expenditures were primarily used to create additional low
cost, high volume manufacturing capacity to meet increased demand for the
Company's fiber cement and gypsum products and to increase the efficiencies of
existing capacity.
Significant capital expenditures in the nine months ended December 31, 1998
included continued construction of the Company's new fiber cement plants in
Tacoma, Washington which was completed in June 1998 and in the Philippines which
was completed in December 1998; the construction of facilities to produce fiber
cement trim products in Cleburne, Texas; and the expansion of the Nashville,
Arkansas gypsum facility.
Significant capital expenditures in fiscal year 1998 included the
construction of the Company's fourth U.S. fiber cement plant in Tacoma,
Washington; the construction of the Company's Philippines fiber cement plant;
the expansions of the Seattle and Las Vegas gypsum facilities; the major upgrade
of the Company's Australian fiber cement manufacturing facilities, which has now
been largely completed; and the expansion of the Company's rental fleet of
modular buildings.
During fiscal year 1997, the Company commissioned two new production lines
at Plant City, Florida to bring its annual capacity to 300 mmsf, making it one
of the largest fiber cement plants in the world; commissioned the first line at
its new fiber cement plant in Cleburne, Texas; and commenced an expansion at the
Seattle, Washington gypsum facility.
The Company currently anticipates that its capital expenditures will be
approximately $125 million in each of fiscal years 1999 and 2000, primarily
relating to expansion and maintenance capital expenditures for the fiber cement
business in the United States and the Philippines, the gypsum business and the
Building Systems Sydney Olympic Games project. Management expects to complete
the replacement of certain equipment in the Nashville, Arkansas plant in the
first and second quarters of fiscal year 2000 which will result in $6.3 million
of depreciation being recognized within cost of goods sold in the periods prior
to replacement. Capital expenditures have historically been funded from
operating activities and business divestitures.
INFLATION
The Company does not believe that inflation has had a significant impact on
the Company's results of operations for the periods presented.
SEASONALITY AND QUARTERLY VARIABILITY
Earnings are seasonal and follow activity levels in the building and
construction industry. In the United States, the quarters ending December and
March reflect reduced levels of building activity depending on weather
conditions. In Australia, the quarter ended March is usually affected by a
slowdown due to summer vacations. In addition, general industry patterns can be
affected by weather, economic conditions, industrial disputes and other factors.
YEAR 2000 PROBLEM
The term "Year 2000 Problem" is a general term used to describe the various
problems that may result from the improper processing of dates and
date-sensitive calculations by computer systems and other machinery as the Year
2000 is approached and reached. These problems generally arise from the fact
that
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most computer hardware and software have historically used only two digits to
identify the year in a date, which frequently results in the failure to
distinguish dates in the 2000s from dates in the 1900s. As with many other
companies, the Year 2000 Problem creates risks of disrupting the Company's
business.
State of Readiness and Cost of the Year 2000 Problem
To assess the Year 2000 Problem, the Company has established a Year 2000
Steering Group charged with implementing the Company's comprehensive Year 2000
compliance program (the "Program"). The Program includes the following phases:
(a) identification; (b) risk assessment; (c) remediation; (d) testing; (e)
contingency planning; and (f) quality assurance. In addition, the Program
includes a business partner compliance program whereby the Company will seek to
determine whether its key suppliers, service providers and customers are
addressing Year 2000 Problems that might disrupt the Company's operations. The
total cost of the Program is estimated to be approximately $1.4 million
(excluding internal staffing costs).
Because the Company believes that its highest risk areas are its central
business systems which support the Company's accounting, sales, inventory and
manufacturing systems, implementation of the Program for these systems was
scheduled to be completed first. With respect to such central business systems,
the Company has either received vendor assurances that such systems are Year
2000 compliant or completed the identification, risk assessment and remediation
phases of the Program. Management expects that testing of these systems will be
completed by March 1999.
The Company is currently in the process of implementing the Program with
respect to its embedded hardware and factory equipment. With respect to such
equipment, the Company has already completed the identification and risk
assessment phases and is currently proceeding with its remediation phase.
Management expects that remediation of its embedded equipment will be completed
by June 1999. All of the Company's systems are expected to be Year 2000
compliant by December 1999.
The Company is implementing a business partner program to assess the
readiness of suppliers, customers and service providers. This program, which
commenced in April 1998 and continues throughout 1999, identifies all critical
partners and seeks responses in relation to their likely ability to maintain
operations as the Year 2000 is approached and reached. Based on its assessment
of the responses to date, management has no reason to believe that the Company's
operations will be put at material risk as a result of a Year 2000 failure in
any of its business partners' operations.
Risks Presented by the Year 2000 Problem
Based on the phases of the Program that have already been completed,
management does not believe that there are any critical systems that present a
material risk of not being Year 2000 compliant or for which a suitable
alternative cannot be implemented. As the Program proceeds into subsequent
phases, however, it is possible that the Company may identify systems that do
present a material risk of a Year 2000-related disruption. It is possible that
such a disruption could have a material adverse effect on the Company's
business, results of operations and financial condition. Furthermore, if a
business partner which provides goods or services that are critical to any of
the Company's businesses fails to appropriately address its Year 2000 Problem,
the resulting disruption could have a material adverse effect on the Company's
business, results of operations and financial condition.
Contingency Plans
The Program calls for the development of contingency plans for all systems
which have been identified as having an extreme or high risk impact on a
business function. The Company has identified certain systems for which Year
2000-specific contingency plans are required and intends to develop such
contingency plans by mid-1999.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Consolidated Financial Statements.
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BUSINESS
GENERAL
The Company is the largest manufacturer of fiber cement products and
systems for internal and external building construction applications in the
United States, Australia and New Zealand. Fiber cement is one of the fastest
growing segments of the U.S. building products industry. Total U.S. industry
shipments of fiber cement were estimated by the Company to be approximately 500
mmsf during fiscal year 1998, up 35% from approximately 370 mmsf in fiscal year
1997. The Company markets its fiber cement products and systems under various
"Hardi" brand names. The Company believes that, in certain applications, its
fiber cement products and systems provide a combination of distinctive
performance, design and cost advantages when compared to other fiber cement
products and alternative products and systems using solid wood, engineered wood,
vinyl, brick, stucco and gypsum wallboard. The Company estimates that fiber
cement could grow from approximately 7% of the U.S. external siding market in
1998 to 16% by 2002.
In addition, the Company is the fourth largest producer of gypsum wallboard
in the United States. The sale of fiber cement products and gypsum wallboard
accounted for 46.9% and 24.4%, respectively, of the Company's total net sales in
fiscal year 1998 and 47.9% and 30.2%, respectively, of the Company's total net
sales for the nine months ended December 31, 1998. In addition to its fiber
cement and gypsum wallboard businesses, the Company, through its building
systems division, is the Australian and New Zealand market leader in the
manufacture and sale of modular relocatable buildings in the mining resources
market and insulated panel products in the commercial market. The Company also
manufactures windows and window systems for residential and commercial
applications in Australia.
The Company pioneered the successful development of cellulose reinforced
fiber cement in the early 1980s with its proprietary product formulation and
process technology. The Company has continued to develop and enhance its fiber
cement technology, deriving significant cost and efficiency benefits and
establishing itself as a leader in this product category. The Company's fiber
cement products are utilized in various markets including new residential
construction, manufactured housing, repair and remodeling and a variety of
commercial and industrial applications. The Company manufactures numerous types
of fiber cement products with a variety of patterned profiles and surface
finishes for a range of applications including external siding, roofing,
internal linings, facades, fencing and floor and tile underlayments. In contrast
to some other building materials, fiber cement provides durability attributes
such as strong resistance to moisture, fire, impact and termites, requires
relatively little maintenance and can be used as a substrate to create a wide
variety of architectural effects with textured and colored finishes. During
fiscal year 1998, management believes, based on its analysis of competitors'
sales, that the Company sold approximately 83% of the fiber cement sold in the
United States, 84% of the fiber cement sold in Australia and 93% of the fiber
cement sold in New Zealand. Management estimates that the Company had
approximately 7% of the U.S. external siding market in fiscal year 1998.
In the United States, the Company is seeking to capitalize on its
leadership position in fiber cement by building related businesses such as
gypsum wallboard. The fiber cement and gypsum wallboard businesses have similar
end users and together form a large part of the internal and external building
envelope, particularly for residential construction. In the repair and remodel
segment, the Company is able to utilize common distribution channels for its
fiber cement and gypsum wallboard products. The Company has been able to apply
many of the continuous production and plant operating methods from the mature
and efficient gypsum wallboard industry to its fiber cement operations. This has
assisted the Company in its efforts to rapidly improve the speed and efficiency
of its fiber cement operations.
During fiscal year 1998, the Company's U.S. Fiber Cement business accounted
for $181.1 million of net sales, Gypsum accounted for $200.5 million of net
sales, Australia/New Zealand Fiber Cement accounted for $211.6 million of net
sales, Building Systems accounted for $147.9 million of net sales and Other
products (which includes windows and fiber cement operations in the Philippines)
accounted for $81.2 million of net sales. Operating profit from U.S. Operations
(U.S. Fiber Cement and Gypsum) as a percentage of total operating profit before
expenses in connection with the Sydney-based research and development center and
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certain general corporate costs, which benefit all segments, was 72.4% in fiscal
year 1998 and 87.6% for the nine months ended December 31, 1998. See "Selected
Financial and Operating Data."
COMPETITIVE STRENGTHS
The Company believes the following competitive strengths provide a strong
platform for growth:
International Leadership Position in Fiber Cement
The Company pioneered the successful development of cellulose reinforced
fiber cement in the early 1980s with its proprietary product formulation and
process technology. The Company's sales of fiber cement in the United States
have grown from $34.3 million in fiscal year 1994 to $181.1 million in fiscal
year 1998, displacing traditional building materials in the United States,
principally wood-based products. The Company has demonstrated a leadership
position in the fiber cement product category. Fiber cement competes in a range
of markets, typically on the basis of its durability, easy workability, cost and
aesthetic properties. In the United States, the Company estimates that it has
grown its share of the external siding market from less than 1% in 1993 to
approximately 7% in 1998. In Australia, during fiscal year 1998, the Company
sold approximately 66% of all of the external soffits, 8% of all of the external
cladding and 37% of all of the wet area internal linings used in residential
construction. Substantial research and development effort has been focused on
the introduction of new and improved fiber cement products and systems. For
example, the Company launched a new generation of low density fiber cement trim
products in October 1998. See "-- Technological Leader in Fiber Cement Products
and Process Innovation." As a result, management believes that the Company has
developed an international reputation for quality and innovation in fiber
cement.
Technological Leader in Fiber Cement Products and Process Innovation.
The Company has capitalized on its strong market positions to maintain
leadership in product research and development and process technology
enhancements. In fiscal year 1998, the Company invested approximately 4.6% of
fiber cement sales revenue ($18.0 million) in research and development. See
"-- Research and Development in Fiber Cement Technology." In previous years, the
Company's fiber cement research and development focus was aimed primarily at
enhancing process technology to improve operating efficiency while maintaining
quality. Management believes that efficiencies in the Company's processing
methods and proprietary formulations allow these products to be produced at a
lower cost relative to many of its fiber cement competitors. More recently, the
Company has focused its research efforts on developing new and differentiated
products and systems designed to deliver superior value for the Company's
customers. The Company believes that a focus on value creation for the customer
ensures that the development of differentiated products and systems is a
coordinated effort involving marketing, research and development and production
personnel. The recent launch of a new generation of low density fiber cement
trim products in the United States (Harditrim(TM)) is an example of the
Company's ability to develop and commercialize new, differentiated fiber cement
products. Harditrim(TM) utilizes proprietary technology developed by the Company
to create a less dense fiber cement product. Harditrim(TM) is the first product
to be commercialized that uses this "low density" technology and is a substitute
for thick wood and engineered wood. The Company is the only fiber cement
producer currently marketing this type of product. This low density technology
is expected to form the basis for further new and differentiated products in the
future.
Low Cost Supplier of Fiber Cement
The Company has built high volume, low cost fiber cement manufacturing
plants in the United States based on its proprietary designs and specifications.
These plants have incorporated the latest production and process knowledge
gained from earlier plants and continued research and development efforts.
Management believes that the location of the Company's plants in Texas,
California, Florida and Washington positions the Company near high growth
markets in the United States while minimizing transportation costs in connection
with product distribution and raw material sourcing. Due to these cost
efficiencies, combined with volume growth and production improvements,
management believes the Company is one of the lowest cost suppliers of fiber
cement in each of the markets it serves. Over the past four years, the Company
has adopted an
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aggressive capital investment strategy aimed at expanding capacity to meet
growing market demand. This has also enabled the Company to achieve increased
economies of scale and improve operating efficiencies.
Strong Competitive Niche Position in Gypsum Wallboard
The Company has developed a strong, low cost niche position in the gypsum
wallboard industry and is now the fourth largest producer in the United States
with approximately a 7% share of industry capacity based on Company estimates.
Management believes that the Company's manufacturing facilities in Arkansas
(after the completion of the current expansion project), Nevada and Washington
are among the lowest cost plants in their respective markets and service large
regional areas which in the aggregate accounted for approximately two-thirds of
total U.S. demand during the Company's fiscal year 1998. A $158 million
expansion program over the past three years has expanded the Company's capacity
by 368% and enhanced its competitive position, in large part, by reducing the
cost structure. During the last fiscal year, the Company has more than doubled
the capacity of its gypsum wallboard plant in Seattle and increased capacity at
the Las Vegas gypsum wallboard plant by 30%.
The Company serves as a low cost supplier in the Pacific Northwest through
its strong position in Washington where it is the larger of two U.S. producers.
United States Gypsum Company recently announced its intention to construct a new
gypsum wallboard manufacturing facility in Rainier, Oregon which is scheduled to
be operational in 2001. This market purchases about 75% of its gypsum wallboard
needs from producers in the region. The Company's Las Vegas plant is located
adjacent to one of the westernmost commercially viable natural gypsum rock
sources to the major Southwest markets, enabling the Company to be a low cost
supplier to these markets. The Nashville, Arkansas plant, which is currently
being expanded, is located on one of the easternmost commercially viable natural
gypsum rock sources in the Southeast region, enabling the Company to be a low
cost supplier to its primary markets in this region. The Company believes that
the combination of the location of its plants, low production costs and low
overhead base provides a significant competitive advantage.
BUSINESS STRATEGY
The Company's strategic objective is to increase shareholder value by
expanding its leadership position in the manufacturing and marketing of fiber
cement and capitalizing on this position to build related businesses in the
building and construction industries worldwide. The Company seeks to maintain
its competitive advantage in fiber cement through the continued development of
differentiated products and improved process technology. In the Company's gypsum
wallboard business, management believes that the Company's cost position will
enable it to maintain high levels of capacity utilization through industry
downturns. Combined, these global strategies are intended to mitigate the
Company's susceptibility to construction cycles. The international nature of the
Company's business also reduces exposure to regional construction cycles. More
specifically, the Company's strategies include the following:
Increase Demand for Fiber Cement Products
The Company plans to increase demand for fiber cement products in the
United States, Australia, New Zealand and selected Asian markets through the
continued displacement of more traditional building materials. The Company is
investing significant effort into educating builders, contractors and consumers
with respect to the performance, design and cost advantages of new and existing
fiber cement products over competing products. In the United States, management
estimates that fiber cement comprised approximately 10% of the new residential
construction segment of the external siding market in fiscal year 1998 and
approximately 6% and 1%, respectively, of the manufactured housing and
repair/remodel segments. Research commissioned by the Company indicates that its
products are generally preferred by homeowners over alternative siding products,
once they have been made aware of the features of the Company's products. As a
result of this research, in 1998 the Company began a national and regional U.S.
marketing campaign to raise awareness of the Company's siding products among
consumers. In Australia, management estimates that approximately 80% of new
residential construction utilized masonry as the external siding material in
1997.
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The Company is marketing its products as a substitute for masonry and is
highlighting the cost, architectural and aesthetic advantages over brick.
Defend Current Position in Fiber Cement
Competition in the fiber cement business continues to increase. Management
believes that the Company has superior products, a broad product range, a
leading position in fiber cement and low cost manufacturing facilities which
leave it well positioned to defend against this increasing competition. To
continue to protect its position, the Company intends to further expand its
product line by launching new products and applications for fiber cement.
Additionally, the Company seeks to maintain excess capacity in its fiber cement
manufacturing facilities to allow it the flexibility to meet surges in customer
demand and to minimize the business that may be lost through an inability to
supply its fiber cement products. Consequently, its first manufacturing plant in
California has been expanded twice and three new plants have been constructed in
Florida, Texas and Washington, at an aggregate cost of approximately $200
million over four years. Concurrently with increasing capacity in the United
States, the Company has been upgrading and consolidating its capacity in
Australia and New Zealand. In Australia, a three year, AUD 40 million upgrade
program has been implemented that management believes will result in reduced
manufacturing costs primarily through increased automation. In New Zealand,
upgrading of the factory and warehouse facilities has resulted in increased
production capacity and lower costs. See "-- Manufacturing Facilities."
Continue to Develop New and Differentiated Fiber Cement Products
The Company intends to continue to focus on developing new and
differentiated products specifically targeted for its primary geographic markets
by capitalizing on its research and development facilities in the United States
and Australia. In light of increasing competition, management believes product
differentiation is key to maintaining and enhancing the Company's position and
permitting value added pricing. The Company has various new products and systems
in development and commercialization, such as a new generation of low density
fiber cement products for external trim applications, launched in October 1998,
that contain significant elements of proprietary technology which the Company
believes will preclude easy duplication by competitors.
Expand into New Geographic Markets for Fiber Cement Products
The Company plans to continue to expand into new geographic markets for
fiber cement products. Sales of fiber cement outside the United States,
Australia and New Zealand accounted for approximately 5% of fiscal year 1998
fiber cement revenues and approximately 4% of fiber cement revenues for the nine
months ended December 31, 1998. The Company began exporting fiber cement
products into the Philippines in the early 1980s as a plywood replacement and
commenced construction in 1997 of a manufacturing facility in Cabuyao (near
Manila) to meet local demand for its products. This new facility was
commissioned in December 1998. In addition, the Company has been exporting
products to Taiwan, Thailand, Singapore, Japan, the Middle East, Korea and
Indonesia and is exploring, over the long term, the possibility of constructing
manufacturing facilities in some of these locations. The Company has also
conducted detailed assessments of market opportunities in various other regions
around the world. The continued geographic expansion of the Company into
additional markets diversifies the Company's customer base and reduces its
exposure to seasonality and the cyclicality of the construction industry in any
one particular market.
Maintain a Strong Niche Position in the U.S. Gypsum Wallboard Industry
The Company plans to continue to maintain its strong niche position in the
U.S. gypsum wallboard industry by offering a full line of products in the large
regional markets in which it operates. The Company has low-cost facilities that
currently operate at high levels of capacity utilization. The Company intends to
maintain this focus while continuing to improve operating efficiencies.
Following the expansion of its Seattle, Washington and Las Vegas, Nevada
facilities, the Company has begun work on doubling the capacity of its gypsum
wallboard plant in Nashville, Arkansas which is scheduled to be completed in the
second half of calendar year 1999. The Nashville plant, when completed, will be
one of the largest gypsum wallboard plants in the world with approximately 1.4
billion square feet of capacity per annum and will expand the Company's
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share of U.S. industry capacity in the gypsum wallboard market from
approximately 7% to approximately 9% based on Company estimates. At that time,
the Company's wallboard plants will on average have the capacity to produce 2.6
times more gypsum wallboard than the current industry average on a per plant
basis. The Company believes that its competitive strengths leave it
comparatively well positioned throughout market cycles. The Company also plans
to continue to review opportunities to invest in strategically located assets
which strengthen its niche position in the U.S. gypsum wallboard industry and
which complement its international fiber cement business.
INDUSTRY OVERVIEW
U.S. Housing Industry and Fiber Cement
In the United States, fiber cement is principally used in the residential
building industry which fluctuates based on the level of new home construction
and the repair and remodeling of existing homes. The level of activity is
generally a function of interest rates, inflation, unemployment levels,
demographic trends, gross domestic product growth and consumer confidence.
Demand for building products is also affected by residential housing starts and
existing home sales, the age and size of the housing stock and overall home
improvement expenditures. According to the U.S. Census Bureau, domestic housing
starts increased from approximately 1.0 million in 1991 to approximately 1.5
million in 1994 and then remained relatively flat with little change through
1997. Also according to the U.S. Census Bureau, residential remodeling
expenditures increased from approximately $97 billion in 1991 to $115 billion in
1994 and then remained relatively flat through 1997.
Fiber cement is one of the fastest growing segments of the building
products industry. Total industry shipments of fiber cement were estimated by
the Company to be approximately 500 mmsf during fiscal year 1998, up 35% from
approximately 370 mmsf in fiscal year 1997. The future growth of fiber cement
products will not only depend on overall demand for building products but also
the rate of penetration of fiber cement products against competing materials
such as wood, engineered wood (hardboard and oriented strand board), vinyl and
masonry. Fiber cement competition is expected to increase with three new fiber
cement manufacturing facilities expected to be commissioned in the United States
over the next 24 months by existing or new competitors.
In the United States, the largest application for fiber cement products is
in the external siding industry. Continued strength in residential construction
combined with gains in the repair and remodel market have resulted in strong
demand for external siding products. The Company estimates that the external
siding market was 6,700 mmsf in fiscal year 1998. The Company estimates that
fiber cement could grow from approximately 7% of the U.S. external siding market
in 1998 to 16% by 2002. Siding is a component of every building and it usually
occupies more square footage than other building components, such as windows and
doors. Choice of siding material is based on installed cost, durability,
aesthetic appeal, strength, weather resistance, maintenance requirements and
cost, insulating properties and other features. Different regions of the United
States show a decided preference among siding materials according to economic
conditions, weather, materials availability and local taste. The principal
siding materials are solid wood, engineered wood, fiber cement, vinyl, masonry
and stucco. Vinyl has the largest share of the siding market and fiber cement
has been gaining market share at the expense of wood and engineered wood
products due to durability concerns and the consequent higher maintenance
requirements.
International Fiber Cement Industry
In Australia and New Zealand, fiber cement building products are used in
both the residential and commercial building industries with applications in
external cladding, internal walls, ceilings, floors, soffits and fences. The
residential building industry represents the principal market for fiber cement
products, with the level of activity in this industry a function of interest
rates, inflation, unemployment levels, demographic trends, gross domestic
product growth and consumer confidence. Demand for fiber cement building
products in Australia is also affected by the level of new housing starts and
renovation activity. New housing starts in Australia grew strongly from
approximately 124,000 in fiscal year 1991 to approximately 180,000 in fiscal
year
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1995 and thereafter declined to a low of approximately 125,000 in fiscal year
1997. In fiscal year 1998, housing starts increased to approximately 143,000.
Renovation activity has increased steadily each year from fiscal year 1992 to
fiscal year 1997 for a total increase (in local currency) over this period of
approximately 31%.
Fiber cement products have gained broader acceptance across a range of
product applications in Australia and New Zealand than in the United States
primarily due to their earlier introduction. Fiber cement was developed in
Australia by the Company as a replacement for asbestos cement in the early
1980s. Competition has intensified over the past three years in the Australian
market with two Australian competitors establishing manufacturing facilities and
one import competitor entering the market. Import competition has also
intensified in New Zealand resulting in price reductions. The Asian currency
crisis has reinforced this trend. See "Risk Factors -- Recent Volatility in
Asian Economies and Financial and Currency Markets."
The recent economic downturn and currency devaluations in Asia have
adversely impacted demand for building products in the sector and increased the
cost of imported products relative to Asian-based manufacturers. Management
believes, however, that fiber cement has strong growth potential in Asian
markets in the long-term as the benefits of framed construction over traditional
masonry construction are understood and accepted. In addition, the opportunity
to replace wood-based products such as plywood with the more durable fiber
cement is seen as attractive.
U.S. Gypsum Industry
In the United States, gypsum wallboard is principally used in the new
residential construction and repair and remodeling industries and, to a lesser
extent, in the non-residential construction industry. Historically, new housing
starts, particularly single-family starts, was the leading factor in the
consumption of gypsum wallboard. More recently, however, the repair and
remodeling market has become an increasingly large consumer of gypsum wallboard.
The Company believes that new residential construction and repair and remodeling
constituted approximately 45% and 35% of the gypsum wallboard market,
respectively, in 1997. The risks posed by the cyclical new residential
construction industry are somewhat mitigated by the increasing demand from the
less cyclical repair and remodeling market.
United States industry shipments of gypsum wallboard are estimated to have
increased from 20.6 billion square feet in 1987 to 27.0 billion square feet in
1998. In addition to the continued strength of the U.S. housing market, demand
for gypsum wallboard has been favorably impacted by a trend towards the
construction of larger single-family homes. According to the U.S. Census Bureau,
the median size of single-family homes in the United States has grown steadily
from approximately 1,755 square feet in 1987 to approximately 1,970 square feet
in 1997, representing an increase of approximately 12%.
Due to the commodity nature of the products, competition in the gypsum
wallboard industry is based principally on price and, to a lesser extent, on
product quality and customer service. Companies that manufacture locally can
offer more competitive pricing, benefiting from lower transportation cost. All
of the major gypsum wallboard producers, however, also sell to national
retailers and suppliers. Historically, the wallboard industry has been able to
sustain price increases when capacity utilization is above 90%. According to the
Gypsum Association, an industry trade group, total shipments of gypsum wallboard
in 1997 resulted in capacity utilization of over 95%, the fourth consecutive
year that capacity utilization has been above 90% and the fifth consecutive year
that wallboard prices have increased.
PRODUCTS
Fiber Cement
The Company offers the widest range of fiber cement products available in
the United States, Australia and New Zealand. Sales of fiber cement products
accounted for 46.9% and 47.9% of the Company's total net sales in fiscal year
1998 and for the nine months ended December 31, 1998, respectively. The
Company's total product offering is aimed at building and construction markets,
including new residential construction, manufactured housing, repair and
remodeling and a variety of commercial and industrial building applications. In
Australia, the Company's products were initially utilized for residential
applications. Over time, however,
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fiber cement has increasingly been used in nonresidential construction. In
fiscal year 1998, 12% of the Company's Australian fiber cement sales revenue was
derived from nonresidential construction. In the United States, the Company to
date has principally focused on the new residential construction market. As a
result, management believes that additional expansion opportunities exist in the
U.S. repair and remodel, manufactured housing and nonresidential construction
segments.
The Company offers a wide range of fiber cement products for both exterior
and interior applications, some of which have not yet been introduced into the
United States. In the United States and elsewhere, the Company's products are
typically sold as planks or flat sheets with a variety of patterned profiles and
finishes. Planks are used for external siding while flat sheets are used for
internal and external wall linings and floor underlay. Outside the United
States, the Company manufactures fiber cement products for use in these and
other applications such as building facades, lattice, fencing, decorative
columns and pipes.
Management believes that the Company's products provide distinctive
performance, design and cost advantages. The principal fiber cement attribute in
exterior applications is durability, particularly when compared to competing
wood and wood-based products, while offering comparable aesthetics. The
Company's fiber cement products exhibit superior resistance to the damaging
effects of moisture, fire, impact and termites. This has enabled the Company to
capitalize on the performance problems associated with certain competing
products. In particular, for external siding applications, wood and engineered
wood can have inferior durability performance to fiber cement products. A number
of engineered wood siding manufacturers have been subject to class action claims
due to the failure of their products, such as warping and rotting, and the
Company has enjoyed strong sales growth as a result of these competitive product
failures. Increasingly, the Company's siding products are specified by brand by
developers, architects and builders on new housing projects and are often
specified by the repair segment as a replacement for engineered wood product
siding. Vinyl siding products generally have better durability characteristics
than wood-based products, but typically cannot duplicate the superior aesthetics
of fiber cement and lack the characteristics necessary for effectively accepting
paint applications.
The Company's fiber cement products provide strength and the ability to
imprint simulated patterns which closely resemble patterns and profiles of
traditional materials such as wood and stucco. The surface properties provide a
superior paint-holding finish to wood and engineered wood products such that the
periods between necessary maintenance and repainting are longer. Compared to
masonry construction, the product is lightweight, physically flexible and can be
cut using readily available tools. This makes the product suitable for
lightweight construction across a range of architectural styles. The product is
especially well suited to timber or steel framed construction. The products have
a Class 1 fire rating in the United States which means they resist burning and
produce virtually no smoke when in contact with fire.
In ceramic tile underlayment applications, the Company's products provide
superior handling and installation characteristics compared to fiberglass mesh
cement boards. Compared to wood and wood-based products, the Company's products
provide the same advantages as apply to external applications. In addition, the
Company's fiber cement products provide reduced movement in response to exposure
to moisture than many alternative composition competing products, providing a
more consistent and durable substrate on which to install tiles. In internal
lining applications where exposure to moisture and impact damage are significant
concerns, the Company's products provide superior moisture resistance and impact
resistance to traditional gypsum wet area wallboard and other competing
products.
The Company emphasizes the performance attributes of its products and
continues to develop new products which, due to the materials used and the
process technology employed in their manufacture, may be difficult for
competitors to emulate. The Company believes that the proprietary nature of
these products, its ability to competitively source raw materials for these
products and the economies of scale which are derived from their manufacture
will reinforce the Company's leadership and low cost competitive position. See
"-- Research and Development in Fiber Cement Technology."
The Company expects to continue to expand and diversify its product range
in all markets where it operates, both as a domestic manufacturer and as an
exporter. As in the past, the Company believes this strategy will enable it to
access new markets for its products and to modify existing product lines to meet
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changing customer needs. For example, the launch of a new tile backer board in
fiscal year 1998 has enabled the Company to increase sales of products to home
center retailers which access the building trade and home repair markets.
Additionally, in the past year the Company launched new "beaded lap" and
"shingle" style fiber cement siding products in the United States to capitalize
on demand for these styles of siding among home builders and homeowners. In
Australia and New Zealand, new products released over the past two years include
a premium line of milled lap siding products called Primeline(TM) and an
internal lining product with improved performance features called New
Villaboard.(TM) The October 1998 U.S. launch of Harditrim,(TM) a new generation
of low density fiber cement trim products for residential construction, further
extends the Company's product range and enhances its reputation as the leader in
fiber cement innovation. The addition of Harditrim(TM) enables the Company to
offer a fiber cement system for residential construction which allows builders
to completely replace wood and engineered wood products with fiber cement in
most exterior applications. In Asia, a new system called Hardiwall(TM) has been
introduced targeting masonry construction in commercial high rise internal wall
applications. During fiscal year 2000, the Company plans to release a new range
of facade systems in Australia and Asia aimed at the commercial market.
Gypsum
Sales of gypsum wallboard products accounted for 24.4% and 30.2% of the
Company's total net sales in fiscal year 1998 and for the nine months ended
December 31, 1998, respectively. The Company produces a wide range of gypsum
wallboard products which are used as interior wall linings in residential,
commercial and specialized (moisture and fire resistant) applications at
competitive prices. These products provide aesthetic as well as sound and fire
retardant features. The majority of these products are sold under the
Hardirock,(TM) Hardikote(TM) and Hardiwall(TM) brand names. In addition, the
Company makes a wide range of gypsum plaster products for construction and
industrial applications together with specialty ground gypsum for agricultural
markets.
Building Systems
Sales of building systems products, which include modular relocatable
buildings and insulated panel products, accounted for 20.4% and 14.9% of the
Company's total net sales in fiscal year 1998 and for the nine months ended
December 31, 1998, respectively, (including sales of building systems products
in New Zealand, which are included in the Australia/New Zealand Fiber Cement
segment for accounting purposes). The Company is the Australian market leader in
the manufacture, sale and lease of modular relocatable buildings. The Company
manufactures buildings for sale as well as for its rental fleet which is the
largest in Australia at more than 7,800 units. The Company's modular buildings
are aimed at end users in the mining and resources, building and construction,
commercial and industrial and institutional buildings markets. For example,
modular buildings are used as remote mining camp accommodations, as extensions
to public buildings, as portable offices on construction sites and as temporary
classrooms. The Company has been selected to provide up to approximately 1,250
temporary buildings as accommodations for the athletes' village as well as up to
525 buildings for the media village at the Sydney Olympic Games in the year
2000. The Company is also the Australian market leader and only national
manufacturer of insulated panel products. These products have enhanced thermal
insulation properties and are typically used in commercial buildings as
architectural features which aid in energy efficiency as well as in cool storage
applications for industries requiring climate controlled facilities such as food
processing and distribution.
Windows
Sales of window products accounted for 8.3% and 7.0% of the Company's total
net sales in fiscal 1998 and for the nine months ended December 31, 1998,
respectively. The Company manufactures wooden, aluminum and louvre windows as
well as conservatory style window systems for residential and commercial
applications in Australia where the Company believes it is the second largest
producer of windows. The Company is currently developing new wooden and aluminum
windows with the aim of increasing its market share of the low volume, higher
price segments of this highly fragmented industry. A new aluminum window is
currently undergoing test marketing in Canberra, Australia. If successful, a
staged national launch will follow in 1999. Market research and early test
market indicators have been very positive. The Company also aims to increase
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margins on the higher volume commodity segment by decreasing costs through
increased automation. The Company is currently installing automated component
manufacturing equipment at its Sydney facility to reduce costs.
MANUFACTURING FACILITIES
Fiber Cement
United States. Over the past four years, the Company has adopted an
aggressive facility investment strategy in order to build excess production
capacity in an effort to ensure that it will be able to meet any increased
demand for its products and to improve operating efficiencies. Consequently, its
first manufacturing plant in California has been expanded twice and new plants
have been constructed in each of Florida, Texas and Washington, at an aggregate
total cost of approximately $200 million over four years. Management estimates
that the Company now has four of the largest and lowest cost fiber cement
manufacturing plants in the United States, which collectively accounted for
approximately 81% of the total U.S. fiber cement manufacturing capacity as of
December 1998. Management also estimates, however, that upon completion of
construction of competitors' plants, the Company's current fiber cement
manufacturing capacity could be reduced to approximately 69% of the total U.S.
fiber cement capacity. The Company is currently the only fiber cement
manufacturer in the United States with multiple manufacturing plants and
management believes its plants have significantly larger average capacity
(approximately 2.6 times more) than those of its competitors. Management also
believes that the location of the Company's plants in California, Texas, Florida
and Washington positions the Company near high growth markets in the United
States while minimizing transportation costs in connection with product
distribution and raw material sourcing.
Australia and New Zealand. In Australia, three of the Company's four
manufacturing plants have been upgraded and modernized in the past year as part
of an AUD 40 million capital improvement program. This program, which includes
the automation of product finishing processes at all three upgraded plants, is
aimed at reducing direct costs, increasing production yields and improving
product quality. In New Zealand, the Company's fiber cement production line has
been upgraded at a cost of NZD 4 million in the past two years to increase
output and to enable the closure of a second smaller and less efficient line.
Plants and Process. The Company manufactures fiber cement in the United
States, Australia, New Zealand and the Philippines. The location of each of the
Company's fiber cement plants and the annual production capacity for such plants
are set forth below:
<TABLE>
<CAPTION>
LOCATION ANNUAL PRODUCTION CAPACITY(1)
-------- -----------------------------
<S> <C>
UNITED STATES
Fontana, California............................... 180 million square feet
Plant City, Florida............................... 300 million square feet
Cleburne, Texas................................... 290 million square feet
Tacoma, Washington................................ 150 million square feet
AUSTRALIA
Sydney, New South Wales(2)........................ 190 million square feet
Brisbane, Queensland (Carole Park)(2)(3).......... 180 million square feet
Brisbane, Queensland (Meeandah)(2)(3)............. 38.5 thousand tons(4)
Perth, Western Australia(2)....................... 140 million square feet
NEW ZEALAND
Auckland(2)....................................... 90 million square feet
THE PHILIPPINES
Cabuyao........................................... 120 million square feet
</TABLE>
- ---------------
(1) Annual production capacity is based on management's historical experience
with the Company's production process and is calculated assuming a 24 hour
day continuous operation producing 5/16" thickness siding at a target
operating speed. Plants outside the United States produce a range of thinner
products which negatively affect their outputs. Actual production is
affected by factors such as product mix, plant availability and production
speeds and is usually less than annual production capacity.
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(2) The land on which each of these facilities are located is leased on a
long-term basis from JHIL. See "Certain Relationships and Related
Transactions."
(3) There are two manufacturing plants in Brisbane. Carole Park produces only
flat sheets and Meeandah produces only pipes and columns.
(4) Pipe and column capacity is measured in tons rather than square feet.
While the same basic process is used to manufacture fiber cement at each
facility, plants are designed to produce the appropriate mix of products to meet
each market's specific needs.
All of the Company's manufacturing facilities, except for the Brisbane pipe
and column plant, have been either newly constructed or substantially modernized
and upgraded in the past four years. The facilities were constructed so that
they can be efficiently expanded in response to consumer demand by either
increasing production capacity utilization and enhancing the economies of scale
or by adding additional lines to existing facilities. For the quarter ended
December 31, 1998, capacity utilization for the Company's fiber cement plants by
country was approximately as follows:
<TABLE>
<CAPTION>
COUNTRY UTILIZATION OF CAPACITY(1)
------- --------------------------
<S> <C>
United States................................... 74%
Australia....................................... 72%
New Zealand..................................... 49%
</TABLE>
- ---------------
(1) Capacity utilization is based on management estimates as no industry
standard exists for the calculation of fiber cement manufacturing facility
capacities. The capacity utilization of the Company's fiber cement plant in
the Philippines is not shown because that plant was only recently
commissioned in December 1998.
The capital cost per unit of production for new plants has significantly
declined since the Company opened its first U.S. plant in Fontana, California in
1989. This improvement is largely attributable to its utilization of proprietary
technology. Management believes that this capital cost per unit of capacity is
substantially lower than that of many competitive plants and is one factor in
improving the Company's cost position. In addition, the Company can now build
and commission new manufacturing plants significantly faster than when it built
its first production line in the United States. Management believes that the
speed and cost at which the Company can erect new plants relative to its
competitors enable the Company to respond rapidly to emerging regional demand
for fiber cement and to gain the advantage accorded to the first local producer
in a market.
Gypsum
The Company has three gypsum wallboard manufacturing facilities in the
United States. The location of each of these facilities and their annual
production capacity is set forth below:
<TABLE>
<CAPTION>
LOCATION ANNUAL PRODUCTION CAPACITY(1)
-------- -----------------------------
<S> <C>
Seattle, Washington......................... 620 million square feet
Las Vegas, Nevada........................... 650 million square feet
Nashville, Arkansas......................... 710 million square feet
</TABLE>
- ---------------
(1) Annual production capacity is calculated assuming the manufacture of 1/2"
wallboard and Gypsum Association methodologies.
For the quarter ended December 31, 1998, the average capacity utilization
for the Company's gypsum wallboard manufacturing facilities was approximately
95%. Capacity at the Seattle plant was increased 125% in fiscal year 1998 at a
cost of $28.4 million. This project involved the construction of a second
production line and an upgrade and modernization of the first line. In addition,
the Company recently announced a $3 million upgrade project at the Seattle plant
intended to increase total plant capacity to approximately 700 million square
feet. This upgrade is scheduled to be completed in the Spring of 1999. At its
Las Vegas plant, the Company recently expanded capacity by approximately 30% at
a cost of $8 million. The Nashville plant, which was acquired in January 1997,
is currently undergoing a major refurbishment and upgrade at a cost of
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$58 million. This project, which is targeted for completion in the second half
of calendar year 1999, will almost double the annual production capacity of the
plant to approximately 1.4 billion square feet making it one of the largest
gypsum wallboard plants in the world and expanding the Company's share of
current U.S. industry capacity to approximately 9% based on Company estimates.
At that time, the Company expects that each of its wallboard plants will have on
average 2.6 times more production capacity than the current industry average.
Each of the Company's gypsum manufacturing facilities has favorable
characteristics related to its location that confer significant competitive
advantages as described below:
Seattle. The Company has a strong position in the Pacific Northwest where
it is currently the larger of only two U.S. producers in the region. Producers
within the region currently meet about 75% of the region's demand for gypsum
wallboard. The balance of the demand is satisfied by shipments into the region
from competing plants located near natural gypsum rock sources significant
distances from the Pacific Northwest and from Canada. The Company believes that
the combination of its location, low production costs and low overhead costs
provides an important competitive advantage. United States Gypsum Company
recently announced its intention to construct a new gypsum wallboard
manufacturing facility in Rainier, Oregon which it anticipates will produce 700
mmsf of wallboard per annum. United States Gypsum Company announced that the
plant will be operational in 2001 and will cost approximately $120 million to
build. Management believes that this high cost of construction is due in large
part to the need to build a plant with deep water access. There is no local
source of natural gypsum rock and raw materials are generally imported from
Baja, Mexico. Once the United States Gypsum Company plant is commissioned, local
production capacity will exceed demand. This would likely lead to some market
disruptions as product currently shipped into the region from competing plants
located near natural gypsum is displaced, and some local production is offered
for sale outside the region.
Las Vegas. The Company's Las Vegas plant is located adjacent to one of the
westernmost commercially viable natural gypsum rock sources in the United States
and supplies the major Southwest markets such as the Los Angeles basin, Phoenix
and San Diego in addition to Las Vegas itself. The combination of low cost
gypsum rock, proximity to large markets and a modern high speed plant enables
the Las Vegas facility to be a high quality and low cost supplier into its
primary markets.
Nashville. The Nashville, Arkansas plant is located on one of the
easternmost commercially viable natural gypsum rock sources in the United States
and supplies the Southeast region. The plant is also located on an efficient
rail system that enables low cost distribution into its primary markets. The
facility is expected to reduce its per unit cost significantly once the current
expansion project is completed in 1999, enabling it to be one of the lowest cost
suppliers into its primary markets.
Building Systems
The Company manufactures modular buildings at five facilities in Australia
located in the cities of Townsville, Brisbane, Melbourne, Adelaide and Perth and
at one facility in New Zealand. Insulated panel products are manufactured at six
facilities in Australia located in the cities of Brisbane, Sydney, Melbourne,
Launceston, Adelaide and Perth and at two facilities in New Zealand.
Windows
The Company manufactures windows at eight facilities in Australia.
Manufacturing is labor intensive and manufacturing practices have changed little
in the past 20 years. The Company's strategy is to automate certain processes
and consolidate manufacturing at fewer sites, thereby reducing manufacturing
costs and overhead. The Company is installing automated component manufacturing
equipment at its Sydney facility. The Company is also seeking to develop new
products targeted to the lower volume, higher value segments of the industry.
The Company leases four of its facilities and owns the remaining four
facilities.
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SALES, MARKETING AND DISTRIBUTION
Fiber Cement
The Company's principal markets for its fiber cement products are the
United States, Australia and New Zealand. In addition, the Company sells fiber
cement products in the Philippines, Taiwan, Thailand, Singapore, Japan, the
Middle East, Korea and Indonesia. The Company's "Hardi" brand name, customer
education in comparative product advantages, differentiated product range and
customer service, including technical advice and assistance, provide the basis
for the Company's marketing strategy. The Company offers its customers support
through a large specialized fiber cement sales force and customer service
infrastructure in the United States, Australia, New Zealand and the Philippines.
The customer service infrastructure includes inbound customer service support
coordinated nationally in each country, and is complemented by outbound
telemarketing capability. Within each regional market, the Company provides
sales and marketing support to building products dealers and lumber yards and
also provides support directly to the customers of these distribution channels,
principally home builders and building contractors.
In the U.S. new construction segment, there is a two-step distribution
process: the products are sold first to distributors, then to lumber yards. This
restricts the number of direct customers significantly such that, in fiscal
1998, the Company's two and ten largest U.S. customers accounted for 57% and 87%
of its U.S. fiber cement sales, respectively. The Company believes that its
leadership position has enabled it to establish distribution arrangements with a
superior selection of two-step distributors. Repair and remodel sales are
typically sold through the large home center retailers. In Australia and New
Zealand, products are generally sold directly to hardware stores and lumber
yards rather than through the two-step distribution process used in the United
States. In the Philippines, a network of thousands of small to medium size
dealers sell to consumers and builders while the Company sells product directly
to real estate developers. Physical distribution is primarily road transport in
each country with significant use of rail only in the United States.
The Company maintains dedicated regional sales management teams in the
major sales territories. The sales teams (including telemarketing staff) consist
of approximately 82 people in the United States, 127 people in Australia, 45
people in New Zealand and 54 people in the Philippines. Relationships with
national and other major accounts are maintained by national sales and national
account managers together with the regional sales managers and sales
representatives. The Company's sales force includes skilled tradespeople who
provide on-site technical advice and assistance. In certain cases, sales forces
manage specific product categories. For example, in the United States there are
separate sales forces for siding products, interior products and roofing
products. The interior products sales force provides in-store merchandising
support for home center retailers.
The Company also utilizes trade and consumer advertising and public
relations campaigns to generate demand for its products. These campaigns usually
explain the differentiating attributes of the Company's fiber cement products
and the suitability of its fiber cement products and systems for specific
applications. For example, a recent campaign in Australia highlighted the cost,
aesthetic and durability advantages of fiber cement as cladding for second story
house additions. In the United States, a consumer marketing campaign was
launched in 1998 which emphasizes the durability attributes of the Company's
products in climatic regions where competing products have suffered durability
problems and high failure rates.
Despite the fact that distributors are the direct customers of the Company,
the Company also aims to increase primary demand for its products by marketing
its products directly to homeowners, architects and builders. This "pull
through" strategy, in turn, assists the Company in expanding sales for its
distribution network as distributors benefit from the increasing demand for the
Company's products. The Company also encourages architects and builders to
specify and install the Company's products based on the quality and
craftsmanship of its products.
Geographic expansion of the Company's fiber cement business has occurred in
markets where framed construction is prevalent for residential applications or
where there are opportunities to change building practices from masonry to
framed construction as in parts of Asia. Expansion is also possible where there
are direct substitution opportunities irrespective of the methods of
construction. The Company's recent entry into
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the Philippines is an example of the ability to substitute fiber cement for an
alternative product (in this case plywood). With the exception of the Company's
current major markets, Japan and certain rural areas in Asia and Eastern Europe,
most markets in the world principally utilize masonry construction for external
walls in residential construction. Accordingly, further geographic expansion
depends on the ability of the Company to provide alternative solutions. The
Company has launched a "framed masonry" concept, using fiber cement as facing on
either side of a steel or timber frame, in an effort to penetrate new markets
currently dominated by masonry. Despite the economic volatility in Asia,
management believes that this region remains an important long-term growth
market outside the United States.
The launch of products in the Philippines has been accompanied by
strategies to address the particular needs of local customers and the building
trade as fiber cement products are relatively new to this market and until
recently were not widely used. For example, the Company has established a
carpenter training and accreditation program whereby Filipino carpenters
unfamiliar with the Company's products are taught installation techniques. To
date, approximately 16,000 carpenters have attended training nights and
approximately 6,000 of them have been accredited under this program.
Additionally, the Company has a team of "Hardie Buddies" who work as in-store
merchandisers to help establish the products in retail outlets and explain their
attributes to customers, and "Hardie On-Site-Trainers" who visit building sites
to provide advice and technical assistance to building site workers.
Products manufactured in Australia and New Zealand are exported to a number
of markets in Asia and the Middle East by ship. A regional sales management team
based in Sydney is responsible for coordinating export sales into Asia and the
Middle East. This team is supported by sales offices and sales agents in seven
countries.
Gypsum
Management believes the Company's manufacturing facilities are located such
that they can cost effectively access approximately two-thirds of the current
U.S. market for gypsum wallboard. Physical distribution is by rail and road
transport. Direct customers are principally wallboard distributors. These
distributors focus on supplying all the products and accessories required by
wallboard contractors primarily in higher volume work such as new residential
and commercial construction. For the repair and remodel segment, the Company
also supplies home center retailers. The Company has its own gypsum field sales
force of approximately 20 people that operates on a regional basis, supporting
the needs of customers surrounding the plants. Sales regions (Pacific Northwest,
Southwest and Southeast) each have a regional sales team led by a regional sales
manager located in the territory. The three plants provide product into the same
distinct territories as are serviced by the regional sales teams.
Building Systems
The Company's Building Systems division has a designated sales force of
approximately 120 people and utilizes its own distribution and selling network
to bring its modular relocatable buildings to market. It sells and leases these
products directly to end users such as mining companies and construction
contractors. Buildings are transported by road. The division's insulated panels
and systems are sold to industrial and commercial customers by its own direct
sales force. Architectural systems, including Hardipanel
Compressed(TM) fiber cement, are marketed to architects and specifiers. Physical
distribution of fiber cement panel products is carried out by the fiber cement
business.
Windows
Sales of the Company's window products are managed through a regional sales
management structure with sales staff seeking specification from builders and
then quoting on specific projects. This dedicated sales staff currently consists
of 129 people. The Company is in the process of training sales staff to sell
higher value windows and is using targeted brochure and magazine advertising
directed at consumers to promote the sale of higher value windows. This is a
directed strategy for the Australian industry where the quality of windows have
been a low priority with consumers and the average value of windows per home is
low compared to the United
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States and Europe. The Australian residential building industry does not
incorporate on a significant basis standardized sizing for windows and therefore
essentially all manufacturing is done for specific orders. Windows are
transported by road direct to building sites.
RESEARCH AND DEVELOPMENT IN FIBER CEMENT TECHNOLOGY
The Company pioneered the successful development of cellulose reinforced
fiber cement and during the 1980s progressively introduced its proprietary
product formulation and process technology. The Company has capitalized on its
strong market positions to maintain leadership in product research and
development and process technology enhancements. The Company's product
differentiation strategy, and its quest to maintain its position as one of the
low cost manufacturers of fiber cement, are supported by a significant
investment in research and development. In fiscal year 1998, the Company
invested $18.0 million or approximately 4.6% of fiber cement sales revenue
(approximately 2.2% of total net sales) in research and development. For fiscal
years 1997 and 1996, the Company invested $15.0 million and $12.1 million,
respectively, in research and development, representing 2.1% and 1.9% of total
net sales. Over the past five years, expenditure on research and development has
increased from $7.9 million to $18.0 million. Management believes that the
Company now has one of the largest and most advanced fiber cement research and
development capabilities in the world. In previous years, the Company's fiber
cement research and development focus was aimed primarily at enhancing the
process technology to improve operating efficiency while maintaining quality.
More recently, the Company has focused its research efforts on developing new
and differentiated products for the Company's key markets.
The Company's research and development activities are coordinated from a
Research and Development Unit in Sydney, Australia which employs approximately
107 full-time personnel. The specific objectives of this research and
development team are to develop (1) new and enhanced products with
differentiated attributes; (2) process technology improvements leading to
increased operational efficiency; (3) improved capital efficiency and speed of
plant construction; and (4) improved raw material cost savings. A new product
testing facility was built in Sydney in 1997 at a cost of $3 million. The
Company also opened a new research and development center in Fontana, California
in 1997 which was built at a cost of $2 million. This facility employs
approximately 25 people who work with the Sydney-based research and development
team to develop new products for the U.S. market.
COMPETITION
Fiber Cement
The fiber cement business is highly competitive. In the United States there
are currently two other manufacturers, F.C.P., Inc. in Pennsylvania, and ABT
Building Products Corporation in North Carolina, which principally supply
markets in the Eastern, Southeastern and South Central regions. ABT Building
Products Corporation has announced that it has sold its North Carolina facility
to CertainTeed Corporation, a member of the Saint-Gobain Group. Mexalit, S.A., a
member of the Saint-Gobain Group, exports some fiber cement into the United
States from a plant in Mexico. In addition, three competitors have announced
intentions to build manufacturing facilities in the United States. Re-Con
Building Products Inc. and Temple-Inland Forest Products Corporation have formed
a joint venture to build a facility in Texas and have announced that the joint
venture has commenced commercial production. CertainTeed Corporation has
announced plans to build a facility in Oregon and F.C.P., Inc. has announced its
intention to build a second manufacturing facility in South Carolina.
Some U.S. competitors have lowered prices of their fiber cement siding
products in order to compete for market share. See "Risk Factors -- Competition
and Pricing." The Company has responded by reducing its prices but has sustained
a premium between its selling prices and those of its competitors. To date,
these price reductions have been offset by cost savings arising from continuing
improvements in operating efficiencies and lower raw material costs.
Distribution costs have also continued to decline as the Company's network of
four plants has been completed.
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In Australia, there are currently two other manufacturers of fiber cement.
CSR Limited, with a single manufacturing plant in Sydney, principally services
the eastern states markets of Queensland, New South Wales and Victoria. A
smaller competitor, BGC (Australia) Pty Ltd. in Western Australia, ships product
Australia-wide and also into New Zealand. In addition, Hume Cemboard Berhad,
based in Malaysia, ships product into Australia. The Company faces increasing
price pressure in Australia because of competition. In New Zealand, the Company
is currently the only domestic manufacturer. Competition is provided principally
by product imported from Eternit in China, CSR and BGC in Australia, and also
from Hume Cemboard Berhad in Malaysia. All importers are supplying directly to
builders rather than using the conventional merchant channel. There are
currently no competitive manufacturing facilities in the Philippines, although
an asbestos cement producer is competing for the plywood replacement market.
The Company also competes against manufacturers of exterior products such
as natural and engineered wood, vinyl, brick, stucco and masonry and interior
products based on cement, gypsum and fiberglass. These competitors include ABT
Building Products Corporation, CertainTeed Corporation, Georgia-Pacific
Corporation, Jannock Limited, Louisiana-Pacific Corporation, Masonite Building
System, Owens Corning, Temple-Inland Forest Products Corporation and United
States Gypsum Company in the United States. Boral Limited, CSR Limited and
Pioneer International Limited compete in brick and gypsum wallboard in
Australia. In New Zealand, Carter Holt Harvey Limited and Fletcher Challenge
Building Products produce competing products.
Gypsum
The U.S. gypsum wallboard industry is highly competitive and concentrated
with the three largest producers accounting for approximately 75% of industry
sales. Gypsum wallboard is a commodity product for which sales closely track
building and construction activity and the level of gross domestic product.
Competition is based principally on price. Prices, in turn, are affected by
transportation costs. As a result, profitability is principally determined by
operational efficiency and the strategic location of plants.
The Company is currently the fourth largest producer in the United States
with approximately a 7% share of industry capacity based on Company estimates.
The Company's major competitors are United States Gypsum Company, National
Gypsum Company and Georgia-Pacific Corporation and several smaller, regional
competitors. Upon completion of the expansion of the Nashville, Arkansas plant,
management estimates the Company will have approximately 9% of total U.S.
current industry capacity.
The Company believes it has a differentiated position from its competitors
in the gypsum industry. Management believes that the Company's manufacturing
facilities in Las Vegas, Nevada and Seattle, Washington are, and Nashville,
Arkansas will be, among the lowest cost plants in their respective markets and
such plants service large regional areas which accounted for approximately
two-thirds of total U.S. demand in 1998. At the same time, the Company's low
cost and relatively small market share enable it to run its plants at high
levels of utilization on a regular basis.
Building Systems
Modular Relocatable Buildings. The Company services two principal markets
in Australia: the mining and resources market and the nonresidential market. The
competition in the mining and resources market sector is regional with Western
Portables Pty Limited being the major competitor in Western Australia and ATCO
Structures Pty Ltd. being the major competitor in Queensland. The nonresidential
sector has two types of competitors: companies that lease buildings and
companies that manufacture buildings. There are two other national participants
in Australia in this segment, Wreckair (a division of Brambles Industries Ltd.)
and Coates Hire Operations Pty. Limited. There are also a number of smaller
regional competitors which operate in this sector.
Insulated Panels. The Company established this industry in Australia and is
the only national manufacturer. With the exception of the Company, the supply of
insulated panels in Australia and New Zealand is highly fragmented. Management
believes that the Company maintains a competitive advantage through the
introduction of new differentiated products and the maintenance of a national
distribution and
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manufacturing capability in Australia. In addition, the Company has successfully
developed a number of architectural products which are used in facade and
roofing applications for which no comparable competitive product currently
exists.
Windows
The Australian residential window and door industry is highly fragmented
with more than 1,500 manufacturers. The three major manufacturers (Boral
Limited, Stegbar and the Company) have a combined market share of approximately
45%. The Company has a market share of approximately 12% of the windows sector.
RAW MATERIALS
Fiber Cement
The principal raw materials used in the manufacture of fiber cement are
cellulose fiber (wood-based pulp), silica (sand), portland cement and water.
Cellulose Fiber. Reliable access to specialized, consistent quality, low
cost pulp is critical to the production of fiber cement building materials.
Cellulose fiber is sourced from New Zealand and the United States and is
processed to the Company's specifications. It is subsequently further processed
using the Company's proprietary technology to provide the reinforcing material
in the cement matrix of fiber cement. The Company has developed a high level of
internal expertise in the production and use of wood-based pulps. This expertise
is shared with pulp producers, which have access to appropriate raw wood stocks,
in order to design superior reinforcing pulps. The resulting pulp designs are
typically proprietary and are the subject of confidentiality agreements between
the pulp producers and the Company. During fiscal year 1998, the Company
developed pulp supply alternatives in the United States which reduced the cost
of fiber cement production.
Silica. High purity silica is sourced locally by the various production
plants. In the majority of locations, the Company uses silica sand as its silica
source. In certain other locations, however, the Company processes quartz rock
and beneficates silica sand to ensure the quality and consistency of this key
raw material. In its Fontana, California and Tacoma, Washington plants, the
Company operates quartz mines as cost effective sources of sand are not
available.
Cement. Cement is acquired in bulk from local suppliers and is supplied on
a just in time basis to the Company's manufacturing facilities.
Water. The Company uses local water supplies and processes any waste water
to comply with environmental requirements.
Gypsum
The principal raw materials used in the production of gypsum wallboard are
gypsum rock and gypsum paperboard. The Nashville, Arkansas and Las Vegas, Nevada
facilities have access to Company owned and leased, long-term reserves of gypsum
rock which is mined at or adjacent to the plants. Based on current estimates,
the Nashville and Las Vegas mines have approximately 30 and 20 years of reserves
remaining, respectively. Gypsum rock for the Seattle plant is sourced from the
Caopas mine in Mexico and is shipped directly to the plant which has a deep
water unloading facility. See "Risk Factors -- Supply and Cost of Raw
Materials -- Gypsum." Based on current estimates, the Caopas mine has over 30
years of reserves remaining. The supply contract with Oxbow Carbon & Minerals,
Inc., the distributor for the Caopas mine, will expire on December 31, 2006. The
contract provides that the parties may mutually agree to extend the term for
another 10 years beyond 2006.
The other principal raw material requirement for gypsum wallboard is gypsum
paperboard. The Company currently has supply arrangements for paperboard with
three U.S.-based suppliers and one Canadian-based supplier. The Company signed a
10-year agreement with Republic to supply the majority of its paper needs
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from a new gypsum paperboard mill that Republic is building in Oklahoma. The
mill is due to be completed in the second half of calendar year 1999 and is
expected to begin supplying the Company in 2000. Under the terms of the
agreement with Republic, the Company's gypsum paperboard costs will decline
substantially from current levels.
Building Systems
The principal materials used in the manufacture of modular relocatable
buildings and insulated panel products are fiber cement, steel coil,
polystyrene, timber and plywood. Other inputs for the modular relocatable
buildings are finished products such as windows, plumbing and electrical
fittings. Fiber cement and windows are provided by the Company, and polystyrene
block is manufactured by the building systems division (in New Zealand) or
sourced externally in Australia. Other raw materials are readily available from
a number of competing suppliers.
Windows
The principal raw materials used in the manufacture of windows are wood
(cedar, meranti and pine), glass and aluminum. Cedar is sourced from Canada with
the price of this material determined by world supply and demand for cedar.
Meranti is sourced from Asia and pine is sourced from Australia. Glass is
sourced from Australia but competitive imports are available. Aluminum is
sourced as extrusions from Australia and China with the price determined by
world aluminum prices. Hardware, such as locks and hinges, is sourced from
Australian and New Zealand suppliers.
BACKLOG
In general, the Company does not produce against a backlog of firm orders.
Production is geared primarily to the level of incoming orders and to
projections of future demand. Inventories are maintained primarily to meet
delivery requirements of customers. The exceptions to this are modular
relocatable buildings, where the Company enters into contracts which require
stock to be built up and delivered according to a prearranged schedule, and
windows, which are produced against firm orders. At December 31, 1998 the
backlog for modular relocatable buildings was $16.6 million and amounted to
$10.6 million, $28.2 million and $15.6 million at March 31, 1996, 1997 and 1998,
respectively.
EMPLOYEES
As of December 31, 1998, the Company had approximately 4,597 full time
employees worldwide of whom 1,414 were employed in North America, 2,706 in
Australia, 288 in New Zealand and 186 in Asia. Of the total number of employees,
480 are administrative employees, 586 are in sales, 3,283 are in manufacturing,
74 are in marketing and 174 are in research and development. Approximately half
of the Company's employees are covered by labor agreements. The Company has two
collective bargaining agreements covering employees in the United States, one of
which expires in April 1999 and the other of which expires in September 2000.
All of the non-management workforce in Australia is unionized and is represented
by a large number of different unions. The Company has established processes in
place for improving productivity, negotiating wage and benefit reviews and
handling employee grievances. The Company has not experienced any strikes or
work interruptions in the United States during the last three years. The Company
has, however, experienced nine strikes over the past three years affecting the
Company's Australian operations, lasting from one to six days. The Company
believes that it maintains generally favorable relations with its employees.
ENVIRONMENTAL REGULATION
The Company's operations and properties are subject to extensive U.S.
federal, state and local and foreign environmental protection and health and
safety laws, regulations and ordinances which, among other matters, govern
activities and operations that may have adverse environmental effects, such as
discharges to air, soil and water, and establish standards for the handling of
hazardous and toxic substances and the handling and disposal of solid and
hazardous wastes ("Environmental Laws"). These Environmental Laws include, in
the
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United States, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Clean Air Act and
the Clean Air Amendments of 1990, the Occupational Safety and Health Act, the
Emergency Planning and Community Right to Know Act, the Clean Water Act, the
Surface Mining Control and Reclamation Act, the Toxic Substances Control Act and
analogous state and foreign statutes. Pursuant to certain Environmental Laws, a
current or previous owner or operator of real property may be liable for the
costs of removal or remediation of environmental contamination on, under or in
such property. In addition, persons who arrange, or are deemed to have arranged,
for the disposal or treatment of hazardous substances may also be liable for the
costs of removal or remediation of environmental contamination at the disposal
or treatment site, regardless of whether the affected site is owned or operated
by such person. Environmental Laws often impose liability whether or not the
owner, operator or arranger knew of, or was responsible for, the presence of
such environmental contamination. Also, third parties may make claims against
owners or operators of properties for personal injuries and property damage
associated with releases of hazardous or toxic substances pursuant to
Environmental Laws as well as common law tort theories, including strict
liability. Environmental compliance costs in the future will depend on
regulatory developments that cannot be predicted. The Company does not currently
anticipate that any required expenditures or modifications will have a material
adverse effect on its business, financial condition or results of operations.
The Company's Seattle facility is listed on the Washington State Priority
List because groundwater underlying the facility is impacted with metals
emanating from an offsite source. The Company does not believe it is liable for,
and has not been requested to conduct, any investigation or remediation relating
to the metals in the groundwater. The Company believes that potential liability,
if any, will not have a material adverse effect on the Company's business,
results of operations or financial condition.
LEGAL PROCEEDINGS
The Company is involved from time to time in various legal proceedings and
administrative actions incident to the normal conduct of its business. Although
it is impossible to predict the outcome of any pending legal proceeding,
management believes that such proceedings and actions should not, individually
or in the aggregate, have a material adverse effect on its business, financial
condition or results of operations. The Reorganization was structured so that no
existing or potential liabilities in relation to the manufacture by JHIL and its
non-transferring subsidiaries of products containing asbestos prior to 1987 were
assumed by the Company and the Company is indemnified by JHIL with respect to
any such liabilities. In connection with the Reorganization, JHIL and certain of
its non-transferring subsidiaries indemnified the Company for all
asbestos-related liabilities, including liabilities related to the manufacturing
sites in Australia and New Zealand which were retained by JHIL and are being
leased to the Company. While it is impossible to predict the incidence or
outcome of future litigation, the Company believes that it is unlikely that
significant personal injury suits for damages for asbestos exposure will be
filed against the Company, or if filed, would have a material adverse effect on
the Company's business, results of operations or financial condition. The
Company's belief is based in part on the advice of its Australian legal
advisers, Allen Allen & Hemsley, that there is no equivalent under Australian
law of the U.S. legal doctrine of "successor liability." Under U.S. Law, this
doctrine provides that an acquirer of the assets of a business carried on by a
corporation (as distinct from the acquirer of shares in that corporation) can,
in certain circumstances, be held responsible for liabilities arising from the
conduct of that business prior to the acquisition, notwithstanding the absence
of any contractual arrangement between the acquirer and the selling corporation
pursuant to which the acquirer agreed to assume such liabilities. Allen Allen &
Hemsley advised the Company that the general position under Australian law is
that, in the absence of a contractual agreement to transfer specified
liabilities of a business, such liabilities remain with the corporation which
previously carried on the business and are not passed on to the acquirer of the
assets. Specifically, in the case of the Company, based on the information
provided to Allen Allen & Hemsley, the transfer to the Company from JHIL and
certain non-transferring subsidiaries of business assets comprising plant and
equipment and inventory pursuant to the Reorganization should not, in the
opinion of Allen Allen & Hemsley, give rise to the assumption by the Company or
its subsidiaries of any asbestos-related liabilities (tortious or otherwise)
which may have been incurred during the period prior to the transfer of the
assets when the business was being carried on by JHIL and its non-transferring
subsidiaries.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Upon the consummation of the Offerings, the members of the Company's Board
of Directors, Supervisory Board and Managing Board and its executive officers
will be:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
SUPERVISORY BOARD
Alan McGregor................... 61 Member of the Board of Directors and Chairman of the
Supervisory Board
Peter Willcox................... 53 Member of the Board of Directors and the Supervisory Board
Michael Gillfillan*............. 49 Member of the Board of Directors and the Supervisory Board
Martin Koffel*.................. 58 Member of the Board of Directors and the Supervisory Board
Roger Siboni*................... 44 Member of the Board of Directors and the Supervisory Board
MANAGING BOARD
Keith Barton.................... 58 President, Chief Executive Officer and Chairman of the
Board of Directors and the Managing Board
Phillip Morley.................. 51 Chief Financial Officer and Member of the Board of
Directors and the Managing Board
Donald Cameron.................. 62 Treasurer and Member of the Managing Board
OTHER EXECUTIVE OFFICERS
Peter Macdonald................. 46 Chief Operating Officer
Louis Gries..................... 45 Executive Vice President -- Building Products, USA
Robert Rugg..................... 41 Executive Vice President -- Gypsum
Ken Boundy...................... 46 Executive Vice President -- International
John Moller..................... 40 Executive Vice President -- Building Systems
Robert Middendorp............... 45 Executive Vice President -- Building Products,
Australia/New Zealand
Noel Thompson................... 55 Senior Vice President -- Research and Development
Greg Baxter..................... 38 Senior Vice President -- Corporate Affairs
Brad Bridges.................... 39 Senior Vice President -- Planning, Human Resources and
Organizational Development
Peter Shafron................... 37 General Counsel and Secretary
</TABLE>
- ---------------
* Messrs. Gillfillan, Koffel and Siboni are expected to be added to the
Company's Board of Directors and Supervisory Board upon consummation of the
Offerings.
Alan McGregor, AO, Member of the Board of Directors and Chairman of the
Supervisory Board. Mr. McGregor will be a member of the Company's Board of
Directors and Chairman of the Supervisory Board. Mr. McGregor joined the Board
of Directors of JHIL as a non-executive director in March 1989 and has been
JHIL's Chairman of the Board since December 1995, a position he will continue to
hold after the Offerings. He is also Chairman of FH Faulding & Co. Ltd.,
Australian Wool Testing Authority Ltd. and Burns Philp & Company Ltd., and a
board or committee member of the University of Adelaide, Winston Churchill
Memorial Trust of Australia and The Center for Independent Studies Ltd. Mr.
McGregor received an M.A. in Economics and Law from Cambridge University in the
United Kingdom and a Bachelor of Laws from the University of Adelaide,
Australia.
Peter Willcox, Member of the Board of Directors and the Supervisory
Board. Mr. Willcox will be a member of the Company's Board of Directors and
Supervisory Board. Mr. Willcox joined the Board of Directors of JHIL as a
non-executive director in May 1992, a position he will continue to hold after
the Offerings. He is also deputy chairman and chairman elect of Lend Lease
Corporation Ltd. and a director of Energy Developments Ltd., FH Faulding & Co.
Ltd., and Schroders Australia Holdings Ltd. Mr. Willcox was previously Chief
Executive Officer of BHP Petroleum and a director of BHP Limited. Mr. Willcox
received a B.A. and M.A. in Natural Sciences and Physics from Cambridge
University, United Kingdom.
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Keith Barton, President, Chief Executive Officer and Chairman of the Board
of Directors and the Managing Board. Dr. Barton is the Company's President and
Chief Executive Officer and will be Chairman of the Board of Directors and the
Managing Board. Dr. Barton has been JHIL's Managing Director since his
appointment in April 1993, a position he continues to hold. He is also the
Chairman of a number of the Company's subsidiaries, a director of Colonial Ltd.,
a councillor of the Royal Blind Society of New South Wales, Australia and a
member of the Business Council of Australia. Prior to joining JHIL, Dr. Barton
was an Executive Director of CSR Ltd. and managed CSR Ltd.'s construction
materials, chemical, timber and U.S. businesses between 1981 and 1993. Dr.
Barton received a Bachelor of Science (Chemical Engineering) and a Doctor of
Philosophy from the University of New South Wales, Australia.
Phillip Morley, Chief Financial Officer and Member of the Board of
Directors and the Managing Board. Mr. Morley is the Company's Chief Financial
Officer and a Member of the Board of Directors and the Managing Board. Mr.
Morley joined JHIL as Chief Accountant in October 1984 and served as Financial
Controller from 1988 until 1995 and Executive General Manager -- James Hardie
Building Services from 1995 until 1997. He was appointed JHIL's Chief Financial
Officer in 1997, a position he continues to hold. He is also Chairman of James
Hardie Securiplan Nominees Pty. Ltd. Prior to joining JHIL, Mr. Morley held
senior positions in finance and management at Swift & Co. Ltd., Pfizer
Corporation and Farley & Lewers Ltd. Mr. Morley received a Bachelor of Economics
in Economics and Accounting and an M.B.A. from the University of Sydney,
Australia.
Donald Cameron, Treasurer and Member of the Managing Board. Mr. Cameron is
the Company's Treasurer and a Member of the Managing Board. Mr. Cameron joined
JHIL as General Manager, Finance -- James Hardie Pipelines in August 1991 and
served as Company Secretary and Chief Accountant from April 1994 to October
1997. In October 1997 he was appointed JHIL's Company Secretary and Treasurer.
Mr. Cameron continues to hold his position as Treasurer of JHIL but no longer
serves as Company Secretary of JHIL. Prior to joining JHIL, Mr. Cameron held a
number of senior commercial and financial positions with Southcorp Ltd. and
Rheem Australia Ltd. Mr. Cameron received a Bachelor of Economics from the
University of Adelaide, Australia.
Peter Macdonald, Chief Operating Officer. Mr. Macdonald is the Company's
Chief Operating Officer. Mr. Macdonald joined JHIL as General Manager -- James
Hardie Building Boards Australia in August 1993 and was appointed President of
James Hardie Inc. in October 1994. He was appointed Chief Operating Officer in
September 1998. Prior to joining JHIL, Mr. Macdonald held senior management
positions at Tyco Laboratories and Metal Manufactures Ltd. where he was Group
General Manager of MM Cables. Mr. Macdonald received a Bachelor of Commerce and
Administration from Victoria University, New Zealand and an M.B.A. from
Pepperdine University. Mr. Macdonald no longer holds a position at JHIL.
Louis Gries, Executive Vice President -- Building Products, USA. Mr. Gries
is the Company's Executive Vice President -- Building Products, USA. Mr. Gries
joined JHIL as Manager of the Fontana plant for James Hardie Building Products
in February 1991 and was appointed General Manager -- James Hardie Building
Products (Fiber Cement) in January 1992 before being appointed President of
James Hardie Building Products (Fiber Cement) in December 1993. Prior to joining
JHIL, Mr. Gries held senior management positions with United States Gypsum
Company. Mr. Gries received a B.S. in Mathematics from the University of
Illinois and an M.B.A. from California State University, Long Beach. Mr. Gries
no longer holds a position at JHIL.
Robert Rugg, Executive Vice President -- Gypsum. Mr. Rugg is the Company's
Executive Vice President -- Gypsum. Mr. Rugg joined JHIL as President of James
Hardie Gypsum in April 1998. Prior to joining JHIL, Mr. Rugg held a number of
senior positions with United States Gypsum Company, including General
Manager -- Industrial Gypsum and Director of Business Development -- Gypsum Wood
Fiber. Mr. Rugg received a B.S. in Finance from the University of Illinois and
an M.B.A. from St. Mary's College. Mr. Rugg no longer holds a position at JHIL.
Ken Boundy, Executive Vice President -- International. Mr. Boundy is the
Company's Executive Vice President -- International. Mr. Boundy joined JHIL as
Executive General Manager -- International in December 1994. Prior to joining
JHIL, Mr. Boundy was Chief Executive Officer of Goodman Fielder Asia
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Holdings Ltd. from 1993 until 1994, Group Corporate Development Manager for
Goodman Fielder Ltd. from 1991 until 1993 and Marketing Director for Mildara
Wines, Ltd. from 1986 until 1991. Mr. Boundy received a Bachelor and Master of
Agricultural Science from Melbourne University, Australia and an M.B.A. from
Deakin University, Australia. Mr. Boundy no longer holds a position at JHIL.
John Moller, Executive Vice President -- Building Systems. Mr. Moller is
the Company's Executive Vice President -- Building Systems. Mr. Moller joined
JHIL in April 1992 as General Manager of Building Automation, which manufactured
security systems. He was General Manager -- James Hardie Building Services from
September 1995 until it was sold in January 1997 and was appointed Executive
General Manager -- James Hardie Building Systems in January 1997. Prior to
joining JHIL, Mr. Moller held a variety of positions at Honeywell -- Australia.
Mr. Moller has a Bachelor of Engineering from the University of Adelaide,
Australia and a Graduate Diploma in Marketing from Macquarie University,
Australia. Mr. Moller no longer holds a position at JHIL.
Robert Middendorp, Executive Vice President -- Building Products,
Australia/New Zealand. Mr. Middendorp is the Company's Executive Vice
President -- Building Products, Australia/New Zealand. Mr. Middendorp joined
JHIL as General Manager, Business Development -- James Hardie Building Services
in August 1991 and served as General Manager, Planning of JHIL before being
appointed Executive General Manager -- James Hardie Building Products in April
1996. Prior to joining JHIL, Mr. Middendorp was a management consultant and held
senior commercial management positions with Repco Ltd., FH Faulding & Co. Ltd.,
Pirelli Ericsson Cables Ltd. and ACI Ltd. Mr. Middendorp received a Bachelor of
Economics in Accounting from the University of Adelaide, Australia. Mr.
Middendorp no longer holds a position at JHIL.
Noel Thompson, Senior Vice President -- Research and Development. Mr.
Thompson is the Company's Senior Vice President -- Research and Development. Mr.
Thompson joined JHIL as head of product development for James Hardie Building
Products in September 1993 and was appointed General Manager -- Research and
Development in January 1996. Prior to joining JHIL, Mr. Thompson held various
positions in research and development and manufacturing at BHP Steel. He has
also held various positions at the University of New South Wales, the Australian
Atomic Energy Commission and the University of Sydney. Mr. Thompson received a
B.S. in Physics from the University of Sydney, Australia and an M.S. in Nuclear
Science and Engineering from the University of Birmingham, United Kingdom. Mr.
Thompson no longer holds a position at JHIL.
Greg Baxter, Senior Vice President -- Corporate Affairs. Mr. Baxter is the
Company's Senior Vice President -- Corporate Affairs. Mr. Baxter joined JHIL as
General Manager -- Corporate Affairs in November 1996, a position he continues
to hold. Prior to joining JHIL, Mr. Baxter was a partner principal of Balstrup
Baxter Corporate Communication from 1993 until 1996 and was General
Manager -- Corporate Affairs for Goodman Fielder Ltd. from 1990 until 1993.
Brad Bridges, Senior Vice President -- Planning, Human Resources and
Organizational Development. Mr. Bridges is the Company's Senior Vice
President -- Planning, Human Resources and Organizational Development. Mr.
Bridges joined JHIL as Manager, Logistics -- James Hardie Pipelines (New
Zealand) in May 1989. He served as Manager, Divisional Planning &
Logistics -- James Hardie Pipelines from 1992 until May 1996 and General
Manager, Planning of JHIL from May 1996 until September 1997. He was appointed
JHIL's General Manager -- Human Resources, Organizational Development and
Planning in September 1997, a position he continues to hold. He is also a
director of James Hardie Securiplan Nominees Pty. Ltd. Mr. Bridges received a
Bachelor of Technology in Industrial Technology from Massey University, New
Zealand.
Peter Shafron, General Counsel and Secretary. Mr. Shafron is the Company's
General Counsel and Secretary. Mr. Shafron joined JHIL as Legal Officer in
August 1993 and served as Senior Company Solicitor from June 1995 before being
appointed JHIL's General Counsel in March 1997, a position he continues to hold.
Mr. Shafron was appointed Company Secretary of JHIL in October 1998 and is also
a director of James Hardie Finance Ltd., a subsidiary of JHIL. Prior to joining
JHIL, Mr. Shafron was an associate with the Australian law firm of Allen Allen &
Hemsley. Mr. Shafron received a B.A. from the Australian National University and
a Bachelor of Laws and a Master of Laws from the University of Sydney,
Australia.
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Upon consummation of the Offerings, the Company expects the following
persons will be added to the Company's Board of Directors and the Supervisory
Board:
Michael Gillfillan. Mr. Gillfillan was Vice Chairman and Chief Credit
Officer of Wells Fargo Bank, N.A., from 1996 to 1998 and from 1992 to 1994. He
has also served as Vice Chairman, Commercial and Corporate Banking Groups of
Wells Fargo Bank, N.A., from 1994 to 1996.
Martin Koffel. Mr. Koffel is currently Chairman of the Board of Directors,
Chief Executive Officer and President of URS Corporation, an engineering
services company, positions he has held since 1989.
Roger Siboni. Mr. Siboni is currently President and Chief Executive Officer
of Epiphany, Inc., a provider of web-based enterprise relationship management
services, positions he has held since August 1998. Prior to that, he served as
Deputy Chairman and Chief Operating Officer of KPMG Peat Marwick LLP from
October 1996 to July 1998. Mr. Siboni also served as a national managing partner
of the information, communication and entertainment practice of KPMG Peat
Marwick LLP and a member of the firm's management committee from 1993 to 1996.
MANAGEMENT STRUCTURE
Upon consummation of the Offerings, the Company will have a multi-tiered
board structure. This structure will consist of a board of managing directors
(the "Managing Board"), a board of supervisory directors (the "Supervisory
Board"), and a board of directors (the "Board of Directors"). The Managing
Board, which will consist of a small number of executive officers of the
Company, is responsible for the day-to-day operations of the Company. The
Supervisory Board, which will consist exclusively of persons who are not
officers or employees of the Company, is responsible for advising and
supervising the Managing Board, taking into account the general interest of the
Company. The Board of Directors will consist of all of the members of the
Supervisory Board, the Chairman of the Managing Board and such members of the
Managing Board as the Chairman of the Managing Board shall determine (provided
that the number of Managing Directors on the Board of Directors at any given
time cannot exceed the number of Supervisory Directors then on the Board of
Directors). The Board of Directors oversees the general course of affairs of the
Company and its business. Pursuant to the Company's Articles of Association, the
Board of Directors may from time to time adopt written policies governing the
internal organization of the Managing Board, including directions to the
Managing Board concerning general financial, economic, personnel and social
policies of the Company. In addition, the Board of Directors may from time to
time specify by resolution certain actions of the Managing Board that require
the approval of the Board of Directors. The general meeting of shareholders of
the Company may also from time to time specify by written resolution certain
decisions of the Managing Board that require the approval of the general meeting
of shareholders of the Company.
Members of the Managing and Supervisory Boards are elected by the
shareholders of the Company. Commencing at such time as JHIL shall cease to own,
directly or indirectly, a majority of the outstanding shares of capital stock,
the Board of Directors will have the power to make "binding nominations" for the
election of members of the Managing Board and the Supervisory Board. The general
meeting of shareholders of the Company may resolve by a resolution passed with a
two-thirds majority of the votes cast at the meeting, provided that such
majority also represents more than half of the outstanding Common Stock, to
overrule any such binding nominations. See "Description of Capital Stock."
Members of the Managing Board and the Supervisory Board are elected for a
one-year term.
Each director holds office until the expiration of such director's term of
office or such director's resignation, retirement or removal. Supervisory
directors must retire no later than the day of the annual meeting of
shareholders held in the year in which such director reaches the age of 72. The
general meeting of shareholders may suspend or dismiss directors by a resolution
passed by two-thirds of the votes cast at the meeting, provided that such
majority also represents more than half of the issued share capital. If,
however, the Board of Directors has proposed such suspension or dismissal, such
a resolution may be adopted with a simple majority of the votes cast at the
meeting. In addition, the Supervisory Board may suspend members of the Managing
Board. Executive officers, other than members of the Managing Board, are
appointed by the
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Managing Board (with the approval of the Board of Directors), and serve at the
pleasure of the Managing Board.
Upon consummation of the Offerings, the Company's Articles of Association
will provide that the Managing Board shall consist of one or more persons and
that the Supervisory Board shall consist of two or more persons. The Board of
Directors shall therefore consist of three or more persons. The Articles of
Association will not provide for a maximum number of persons to sit on such
Boards and thus (subject to the foregoing minimums) the exact number of members
of the Managing Board and the exact number of members of the Supervisory Board
will be set by the Board of Directors, while the exact number of members of the
Board of Directors will depend on the number of supervisory directors then in
office as well as the number of managing directors who are designated by the
Chairman of the Managing Board to sit on the Board of Directors provided that,
as noted above, the number of managing directors that are on the Board of
Directors cannot exceed the number of supervisory directors on the Board of
Directors. Upon the consummation of the Offerings, the Managing Board, the
Supervisory Board and the Board of Directors will consist of three, five and
seven persons, respectively.
References in this Prospectus to directors shall, unless the context
indicates otherwise, refer to those persons who are members of one or more of
the Board of Directors, the Managing Board or the Supervisory Board.
The Board of Directors, the Managing Board and the Supervisory Board shall
each select a Chairman from their respective members. Under the laws of The
Netherlands, members of the Managing Board may not serve on the Supervisory
Board (but may serve on the Board of Directors).
The powers of the Board of Directors, the Managing Board and the
Supervisory Board can only be exercised by duly adopted resolutions. Resolutions
of any of the Board of Directors, the Managing Board and the Supervisory Board
may be adopted by a majority of the members of such board who are present or
represented at a duly constituted meeting at which a majority of the members of
such board is present or represented, provided however, that the due adoption of
resolutions by the Board of Directors requires that at least one of the
supervisory directors votes in favor of such resolution. In case of a deadlock
at a meeting of the Board of Directors, the Chairman of the Supervisory Board
shall decide. Each of the boards may adopt resolutions by unanimous written
consent. Pursuant to the Articles of Association, the Board of Directors has the
authority, by a resolution adopted unanimously by all members of the Board of
Directors, to terminate the existence of the Board of Directors, in which case
all of the authorities of the Board of Directors shall be vested in the
Supervisory Board.
The Chief Executive Officer of the Company acting individually or two
managing directors acting jointly have the power to bind the Company, provided
that such persons have been duly authorized to do so by the Managing Board. No
other individuals will have the power to bind the Company unless such person has
been duly authorized to do so by the Managing Board (subject to the approval of
the Board of Directors) or such person has been granted a power of attorney to
do so.
BOARD COMMITTEES
Audit Committee
Promptly following the consummation of the Offerings, the Board of
Directors will create an Audit Committee which will consist of at least two
independent directors. The Audit Committee will be charged with reviewing and
assessing the adequacy of accounting polices, internal and external reporting
procedures, and the internal auditing and risk management control systems, and
meeting with the Company's independent accountants.
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Compensation Committee
Promptly following the consummation of the Offerings, the Board of
Directors will create a Compensation Committee which will consist of at least
two independent directors. The Compensation Committee will advise the Board of
Directors on the compensation of directors and executive officers.
COMPENSATION OF DIRECTORS AND OFFICERS
Commencing with the Offerings, in addition to reimbursement for
out-of-pocket expenses, all non-employee members of the Board (who also comprise
the Supervisory Board) other than Messrs. McGregor and Willcox, will receive
$25,000 per year as compensation for services on the Board of Directors and the
Supervisory Board. All members of the Supervisory Board will receive $1,500 for
attendance at each Board of Directors or Supervisory Board meeting in the United
States ($4,500 per meeting outside the United States), $1,000 for participation
in each meeting by conference call and $1,500 for attendance at each committee
meeting (reduced to $1,000 if such committee meeting is held on the same day as
a meeting of the Board of Directors or the Supervisory Board). In addition, each
committee chairman will receive $5,000 per year as compensation for services as
committee chairman.
In addition, on the date of the initial public offering, the members of the
Supervisory Board other than Messrs. McGregor and Willcox, will each be entitled
to receive 6,000 shares of restricted stock, of which 1,500 shares will become
unrestricted on each anniversary of such grant. Pursuant to the Equity Incentive
Plan, the members of the Supervisory Board are also entitled to receive options
to purchase up to 6,000 shares of Common Stock at the initial offering price.
Fifty percent of such options will vest immediately and the remaining 50% of
such options will vest prior to the annual shareholders' meeting in 2000. In
addition, pursuant to the Equity Incentive Plan, non-employee directors are
entitled to annual grants of options to purchase up to 6,000 shares of Common
Stock at fair market value on the date of grant immediately following each
annual meeting of the shareholders. So long as such person continues to be a
director of the Company, such annual grants will vest at the earlier of the
one-year anniversary of such grant or on the date of the annual meeting of the
shareholders the following year. Each non-employee director who joins the Board
of Directors after the initial public offering will receive a grant of options
to purchase 6,000 shares of Common Stock at fair market value on the date of
issuance upon joining the Board. Fifty percent of such options will vest
immediately upon grant, and the remaining 50% of such options will vest on the
date of the next annual meeting of the shareholders following election so long
as such person continues to serve as a director.
Prior to the consummation of the Offerings, the Managing Board will approve
the Directors Deferred Compensation Plan. An aggregate of 110,000 shares of
Common Stock will be reserved for issuance under the Directors Deferred
Compensation Plan. Pursuant to the plan, non-employee directors may defer
payment of their annual compensation and meeting fees. Such deferred amounts
will be held in an account as stock units and will accumulate dividends which
will be converted to stock units and held in the same account. Upon ceasing to
serve as a director of the Company, a director participating in the plan will
receive shares of stock equivalent to the number of stock units held in his
account.
Each of the members of the Managing Board has an employment agreement with
the Company pursuant to which each is compensated for his services as a managing
director. See " -- Employment Agreements."
Dr. Barton and Messrs. Morley, Cameron, Baxter, Bridges and Shafron are
also officers of JHIL. JHIL has entered into employment agreements with each of
these officers. Except for Dr. Barton's agreement, JHIL has assigned the
benefits of these employment agreements to the Company, subject to additional
expatriate provisions commencing upon the agreed date of relocation for each
individual officer. The Company directly pays all of the salary and benefits for
such officers. Under this arrangement, the Company has entered into a
reimbursement agreement (the "Reimbursement Agreement") with JHIL pursuant to
which JHIL reimburses the Company for the amount of time spent by officers of
the Company performing work for JHIL and its subsidiaries. See "Certain
Relationships and Related Transactions." Dr. Barton, however, is paid directly
by the Company and JHIL for the performance of his duties for the Company and
JHIL, respectively. The Company also has employment agreements directly with
Messrs. Morley, Cameron, Macdonald, Gries
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and Rugg, and has been assigned agreements from JHIL for Messrs. Boundy, Moller,
Middendorp and Thompson. See "-- Employment Agreements."
The Company sponsors a defined contribution plan, the James Hardie Inc.
Retirement and Profit Sharing Plan, for its employees in the United States and a
defined benefit pension plan, the Hardiplan Superannuation Plan, for its
employees in Australia. The U.S. defined contribution plan is a tax-qualified
retirement and savings plan (the "401(k) Plan") covering all employees subject
to certain eligibility requirements. Participating employees may elect to reduce
their current compensation by up to 14% of their salary or the statutorily
prescribed annual contribution limits and have the amount of such reduction
contributed to the 401(k) Plan. In addition, the Company matches employee
contributions dollar for dollar up to a maximum of the first 6% of an employee's
salary. The Hardiplan Superannuation Plan is funded based on statutory
requirements in Australia and is based primarily on the participants' eligible
compensation and years of credited service.
The Company also will maintain an Economic Profit Incentive Plan and the
Equity Incentive Plan. See "-- Economic Profit Incentive Plan and 1999 Equity
Incentive Plan." The Company will convert shares of shadow stock previously
issued by JHIL under its U.S. and Australian shadow plans into options to
purchase shares of stock in the Company pursuant to the Equity Incentive Plan.
The conversion will occur at the consummation of the Offerings and will be based
on the initial public offering price of the Common Stock adjusted for any gains
or losses on the shadow shares in JHIL at the time of conversion. The vesting
period for the options, which ranged from three to five years from the time of
grant under the shadow plans, will continue for each corresponding option
granted in the conversion as if the option were issued on the date of the shadow
stock issuance, except that the options will have graduated vesting rather than
cliff vesting. The Company also intends to give additional options to certain
participants at the initial public offering price upon the consummation of the
Offerings. The Company intends to issue a maximum amount of 2,400,000 option
shares, in the aggregate, in connection with the conversions from the JHIL
shadow plans and the additional grants.
The Company did not pay any compensation to its directors or its officers
in fiscal year 1998 because it was not incorporated at that time.
The aggregate amount of compensation paid by JHIL in fiscal year 1998
(including base salaries and bonuses paid under JHIL's Economic Profit Incentive
Plan (as described herein)) to the above-listed members of the Board of
Directors, the Supervisory Board and the Managing Board of the Company and to
the executive officers of the Company as a group (15 persons), in their
capacities as members of the Board of Directors and/or corporate officers of
JHIL, was approximately $2.8 million. In addition, each of these directors and
officers (except Messrs. Gries and Rugg), in their capacities as members of the
Board of Directors and/or corporate officers of JHIL, participated in JHIL's
Hardiplan Superannuation Plan, a defined benefit plan. JHIL, however, did not
make any payments to the trustee-managed superannuation fund on behalf of the
directors and officers in fiscal year 1998. While JHIL ordinarily would have
been required to make payments to the superannuation fund, the fund had a
surplus in fiscal year 1998 and, pursuant to the rules of that fund, a portion
of that surplus was allocated to the accounts of each of the directors and
officers in lieu of a payment by JHIL. Had the superannuation fund not been in
surplus in fiscal year 1998, JHIL would have been required to make contributions
of approximately $410,000 on behalf of such directors and officers. Messrs.
Gries and Rugg participated in the James Hardie Inc. Retirement and Profit
Sharing Plan, a defined contribution plan, in fiscal year 1998. In that year,
JHIL contributed $10,000 to this plan on behalf of Mr. Gries and $3,133 to this
plan on behalf of Mr. Rugg.
EMPLOYMENT AGREEMENTS
The following descriptions of the employment agreements between the Company
and each of Dr. Barton and Messrs. Morley, Cameron, Macdonald, Gries, Rugg,
Boundy, Moller, Middendorp, Thompson, Baxter, Bridges and Shafron (each an
"Employment Agreement") are intended only as a summary. Copies of Dr. Barton's
and Mr. Macdonald's Employment Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. Prior to the
Reorganization, certain of the Employment
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Agreements were with JHIL, but were assigned to the Company, subject to
additional expatriate provisions for the officers relocating to the United
States, which are included in the description below.
Dr. Barton will serve as President, Chief Executive Officer and Chairman of
the Board of Directors and the Managing Board of the Company pursuant to the
terms of two employment agreements with the Company which continue in effect
until October 31, 1999. Under the terms of the employment agreement for his
duties as Chairman of the Board of Directors and the Managing Board, Dr. Barton
receives a salary of AUD 80,000 and is eligible to receive a bonus targeted at
100% of his annual salary upon the accomplishment of certain mutually agreed
upon objectives. Under the terms of the employment agreement for his duties as
President and Chief Executive Officer of the Company, Dr. Barton receives an
annual salary of $371,855 and is eligible to receive a bonus targeted at 100% of
his annual salary upon the accomplishment of certain mutually agreed upon
objectives. In addition, under the terms of such employment agreement, Dr.
Barton is eligible to receive options and other awards under the Company's
Equity Incentive Plan. Dr. Barton also has an employment agreement with JHIL for
services provided to JHIL. See "Certain Relationships and Related
Transactions -- Members of Boards and Executive Officers of the Company and
JHIL."
Mr. Macdonald has an employment agreement with the Company pursuant to
which he serves as Chief Operating Officer of the Company. The agreement expires
on October 31, 1999, but may continue in effect thereafter for one-year
extension terms until proper notice of its termination is given by either party
thereto. Under the terms of the employment agreement, Mr. Macdonald receives an
annual salary of $350,000 and is eligible to receive a bonus targeted at 30% of
his annual salary under the Company's Economic Profit Incentive Plan. His salary
will be reviewed on an annual basis. In addition, under the terms of the
employment agreement, Mr. Macdonald is eligible to receive options and other
rewards under the Company's Equity Incentive Plan and certain additional
benefits. If the Company terminates Mr. Macdonald without cause or Mr. Macdonald
resigns for good reason, he is entitled to the equivalent of two-years' base
compensation plus an amount equal to two times his average bonus paid in the
preceding three years.
Messrs. Morley, Baxter, Bridges and Shafron also have employment agreements
with the Company that include expatriate packages and were assigned by JHIL.
These employment agreements provide for an annual base salary of $208,000,
$198,500, $198,500 and $170,500, respectively. Salaries will be reviewed
annually in July of each year. Messrs. Morley, Baxter, Bridges and Shafron are
each entitled to receive a bonus under the Company's Economic Profit Incentive
Plan and are eligible to receive options and other awards under the Company's
Equity Incentive Plan. Messrs. Morley, Baxter, Bridges and Shafron also will
receive relocation and other benefits. Each of these employment agreements
continues in effect for three years from the date of each officer's relocation
to the United States. These employment agreements are terminable by the Company
with twelve-months' written notice in the first year of the agreements,
nine-months' written notice in the first half of the second year of the
agreements, six-months' written notice in the second half of the second year of
the agreements and three-months' written notice in the third year of the
agreements. The Company may pay a terminated officer's salary for the
notification period in lieu of notification. Each officer may terminate his
agreement with three-months' written notice. In addition, Mr. Morley has a
separate employment agreement with the Company for his duties as a member of the
Managing Board of the Company. Pursuant to such agreement, Mr. Morley receives
an annual base salary of $50,000 and is eligible to receive a bonus targeted at
25% of his annual salary upon the accomplishment of certain mutually agreed upon
objectives.
Mr. Cameron has an employment agreement with the Company pursuant to which
he serves as Treasurer and Managing Director of the Company. Under the terms of
the employment agreement, Mr. Cameron receives an annual base salary of NLG
273,287 reviewed annually in July of each year. Mr. Cameron is entitled to
receive a bonus targeted at 20% of his annual salary upon the accomplishment of
certain mutually agreed upon objectives under the Company's Economic Profit
Incentive Plan and is eligible to receive options and other awards under the
Company's Equity Incentive Plan. Mr. Cameron will also receive relocation and
other benefits. The agreement continues in effect for three years from the date
of Mr. Cameron's relocation to The Netherlands. The Company may terminate the
agreement with six-months' written notice, and Mr. Cameron may terminate the
agreement with three-months' written notice. In addition, Mr. Cameron has a
separate employment agreement with the Company that includes an expatriate
package which was assigned from JHIL. The terms and provisions of the agreement
assigned from JHIL remain dormant during the
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course of the other agreement described herein except for certain provisions
relating to Mr. Cameron's continued employment with the Company and
participation in certain benefit programs.
Mr. Gries has an employment agreement with the Company pursuant to which he
serves as Executive Vice President -- Building Products, USA. Under the terms of
the employment agreement, Mr. Gries receives an annual salary of $235,000 and is
eligible to receive a bonus targeted at 25% of his annual salary under the
Company's Economic Profit Incentive Plan. His salary will be reviewed on an
annual basis. In addition, under the terms of the employment agreement, Mr.
Gries is eligible to receive options and other awards under the Company's Equity
Incentive Plan and certain additional benefits. If the Company terminates Mr.
Gries without cause or Mr. Gries resigns for good reason, he is entitled to the
equivalent of two-years' base compensation plus an amount equal to two times his
average bonus paid in the preceding three years.
Mr. Rugg has an employment agreement with a U.S. subsidiary of the Company
pursuant to which he serves as Executive Vice President -- Gypsum which began in
April 1998, prior to the transfer of such subsidiary to the Company pursuant to
the Reorganization. Under the terms of the employment agreement, Mr. Rugg
receives an annual salary of $210,000, reviewed annually, with a bonus under the
Company's Economic Profit Incentive Plan. In addition, Mr. Rugg is eligible to
receive options and other awards under the Company's Equity Incentive Plan. Mr.
Rugg also received certain benefits for joining the subsidiary, including a
payment for foregone options to purchase shares of stock of his previous
employer and a grant of shadow stock in JHIL. The agreement continues in effect
until Mr. Rugg's termination or separation from the Company's subsidiary. If the
Company's subsidiary terminates him without cause or Mr. Rugg resigns for good
reason, he is entitled to the equivalent of between twelve and twenty-four
months' base compensation plus an amount equal to his average bonus paid in the
preceding three years.
Messrs. Boundy, Moller, Middendorp and Thompson have employment agreements
with the Company which were assigned by JHIL pursuant to which each will receive
an annual base salary of AUD 295,050, AUD 209,350, AUD 264,000 and AUD 200,000,
respectively. Salaries will be reviewed annually in July of each year. Messrs.
Boundy, Moller, Middendorp and Thompson are each entitled to receive a bonus
under the Company's Economic Profit Incentive Plan and are eligible to receive
options and other awards under the Company's Equity Incentive Plan. Each of
Messrs. Boundy, Moller, Middendorp and Thompson may terminate his respective
agreement upon three-months' written notice to the Company. The Company may
terminate the agreements for cause (with one-months' notice or pay), for
incapacity (with three-months' notice or pay) or at any time (with six-months'
notice or pay, except for Mr. Boundy's agreement which provides for
twelve-months' notice or pay). The agreements will remain in force until
terminated in accordance with the provisions set forth therein.
ECONOMIC PROFIT INCENTIVE PLAN
JHIL maintains an Economic Profit Incentive Plan pursuant to which it
provides incentive compensation to certain of its directors and officers.
Following the consummation of the Offerings, the Company intends to adopt a
similar plan. Under the Company's Economic Profit Incentive Plan, designated
directors and officers will be entitled to receive bonus payments upon the
accomplishment of certain economic profit target levels of the Company and
certain other mutually agreed upon personal objectives. The Company's Economic
Profit Incentive Plan is a variable pay plan which links the Company's economic
profit to bonus payments to certain key individuals. The target bonus is paid to
the participant at the end of the year if the economic profit target is met. If
the economic profit target is exceeded, one-third of the excess bonus is paid to
the participant at the end of the year; the remaining two-thirds is then
deposited with a notional bank and can be reduced in future years if the
economic profit target is not met. This arrangement distinguishes between
sustained performance and one-time performance and encourages participants to
maintain a long-term view.
1999 EQUITY INCENTIVE PLAN
Under the Company's Equity Incentive Plan, designated directors, officers,
employees, consultants and advisers of the Company will be eligible to receive
awards in the form of stock options, performance awards, restricted stock
grants, stock appreciation rights, dividend equivalent rights, phantom stock or
other stock-
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based benefits. The Equity Incentive Plan is intended to promote the long-term
financial interests of the Company by encouraging its management and other
persons to acquire an ownership position in the Company, to align their
interests with those of the Company's shareholders and to encourage and reward
their performance. The Equity Incentive Plan, which will be approved by the
Managing Board, will be effective prior to the consummation of the Offerings.
An aggregate of 5,000,000 shares of Common Stock will be reserved for
issuance under the Equity Incentive Plan, provided that such number (and any
awards granted) will be subject to adjustment in the event of a stock split,
stock dividend or other change in the Common Stock or the capital structure or a
restructuring of the Company. No individual may be granted options or awards in
respect of more than 250,000 shares as performance-based compensation in any
calendar year.
The Equity Incentive Plan will be administered by the Board of Directors or
the Compensation Committee. Subject to the provisions of the Equity Incentive
Plan, the Board of Directors or the Compensation Committee will be authorized to
determine who may participate in the Equity Incentive Plan, the number and types
of awards made to each participant and the terms, conditions and limitations
applicable to each award. In addition, the Board of Directors or the
Compensation Committee will have the exclusive power to interpret the Equity
Incentive Plan and to adopt such rules and regulations as it may deem necessary
or appropriate for purposes of administering the Equity Incentive Plan. Subject
to certain limitations, the Board of Directors will be authorized to amend,
modify or terminate the Equity Incentive Plan to meet any changes in legal
requirements or for any other purpose permitted by law.
The purchase or exercise price of any award granted under the Equity
Incentive Plan may be paid in cash or other consideration at the discretion of
the Board of Directors or the Compensation Committee. The Board of Directors or
the Compensation Committee, in its discretion, may allow cashless exercises of
awards or may provide Company assistance to purchase such options.
Stock Options. Under the Equity Incentive Plan, the Board of Directors or
the Compensation Committee is authorized to grant options to purchase shares of
Common Stock, including options qualifying as "incentive stock options" ("ISOs")
under Section 422 of the U.S. Internal Revenue Code of 1986, as amended (the
"Code"), and options that do not so qualify ("NSOs") to eligible persons as
additional compensation for their services to the Company. Options shall be
exercisable over such periods as may be determined by the Board of Directors or
the Compensation Committee, but no stock option may be exercised after ten years
from the date of grant. Options may be exercisable in installments and upon such
other terms as determined by the Board of Directors or the Compensation
Committee. Options will be evidenced by notices of option grants sent by the
Board of Directors or the Compensation Committee. No option may be transferable
other than by will or by the laws of descent and distribution or pursuant to
certain domestic relations orders. The purchase price of shares of Common Stock
subject to an ISO shall not be less than 100% of the Fair Market Value (as
defined in the Equity Incentive Plan) of such shares of Common Stock on the date
of grant (or 110% in the case of an ISO granted to an individual holding more
than 10% of the Company's capital stock).
Performance Awards. The Board of Directors or the Compensation Committee,
in its discretion, may grant performance awards to an eligible person contingent
on the attainment of criteria specified by the Board of Directors or the
Compensation Committee. Performance awards will be paid in the form of cash,
shares of Common Stock or a combination of both. The Board of Directors or the
Compensation Committee will determine the total number of performance shares
subject to an award, the terms and the time at which the performance shares will
be issued.
Restricted Stock Awards. Under the Equity Incentive Plan, the Board of
Directors or the Compensation Committee may grant restricted shares of Common
Stock, which are subject to forfeiture under such conditions and for such
periods of time as the Board of Directors or the Compensation Committee may
determine. Shares of such restricted stock may not be sold, transferred,
assigned, pledged or otherwise encumbered so long as such shares remain
restricted. The Board of Directors or the Compensation Committee shall determine
the conditions or restrictions of any restricted stock awards, which may include
restrictions on requirements of continued employment, individual performance or
the Company's financial performance.
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Stock Appreciation Rights. Under the Equity Incentive Plan, the Board of
Directors or the Compensation Committee also may grant stock appreciation rights
either in tandem with an option or alone. Stock appreciation rights granted in
tandem with a stock option may be granted at the same time as the stock option
or at a later time. A stock appreciation right shall entitle the participant to
receive from the Company an amount payable in cash, in shares of Common Stock or
in a combination of cash and Common Stock, equal to the positive difference
between the fair market value of a share of Common Stock on the date of exercise
and the grant price, or such lesser amount as the Board of Directors or the
Compensation Committee may determine.
Dividend Equivalent Rights. Dividend equivalent rights, defined as a right
to receive all or some portion of the cash dividends that are or would be
payable with respect to shares of Common Stock, may be awarded in tandem with
stock options, stock appreciation rights or other awards under the Equity
Incentive Plan. The Board of Directors or the Compensation Committee will
determine the terms and conditions of these rights. The rights may be paid in
cash, shares of Common Stock or other awards.
Phantom Stock. Under the Equity Incentive Plan, the Board of Directors or
the Compensation Committee may grant awards of phantom stock to eligible
persons. Phantom stock is a cash payment measured by the fair market value of a
specified number of shares on a certain date, or measured by the excess of fair
market value over a specified minimum. Phantom stock awards may include the
dividends granted for such number of specified shares.
Other Stock-Based Benefits. The Board of Directors or the Compensation
Committee may award other stock-based benefits, including stock payments, stock
bonuses and stock sales.
Effect of Change in Control. The Equity Incentive Plan provides for the
automatic acceleration of certain benefits in the event of a "Change in Control"
of the Company. A Change in Control will be deemed to have occurred if either
(1) any person or group acquires beneficial ownership equivalent to 30% of the
voting securities of the Company, (2) individuals who are directors as of the
closing of the Offerings, or individuals who became directors after being
approved by a majority of such individuals (or, in the case of directors
nominated by a person, entity or group with 20% of the voting power of the
Company, by two-thirds of such individuals) cease to constitute at least a
majority of the members of the Board of Directors, or (3) there occurs the
consummation of certain mergers, the sale of substantially all of the assets of
the Company or a complete liquidation or dissolution of the Company.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Association provide that the Company is
authorized to indemnify its directors, officers and agents against all
liabilities resulting from (1) any action, suit or proceeding (other than an
action by or in the right of the Company), provided that such person acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the Company and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe his conduct was
unlawful or out of his mandate, and (2) any action or proceeding by or in the
right of the Company to procure a judgment in its favor provided that such
person acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the Company and except that no indemnification
will be made if such person is adjudged to be liable for gross negligence or
willful misconduct in the performance of his duty to the Company, unless a court
determines that such person is fairly and reasonably entitled to
indemnification. Such indemnification will only be made upon a determination by
the Board of Directors or, if the Board of Directors so resolves, by independent
legal counsel or by a general meeting of shareholders that indemnification is
proper under the circumstances because such person has satisfied the applicable
standard of conduct.
The Company is entering into indemnity agreements with the directors and
certain officers of the Company which provide indemnification to the greatest
extent permitted by law. The Company has also purchased insurance policies under
which such individuals are insured against liabilities resulting from their
conduct when acting in their capacities on behalf of the Company. In addition,
Article 37 of the Articles of Association provides that the adoption by the
general meeting of shareholders of the annual accounts will fully discharge the
directors from liability in respect of the exercise of their duties during the
financial year
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concerned, unless a proviso is made by the general meeting of shareholders and
without prejudice to certain provisions of the Dutch Civil Code. Under Dutch
law, this discharge is not absolute and would not be effective as to any matters
not disclosed to the Company's shareholders and is subject to general principles
of reasonableness and fairness.
JHIL AND THE SELLING SHAREHOLDER
JHIL beneficially owns (through the Selling Shareholder and another
indirect wholly owned subsidiary of JHIL) 50,000,000 shares of the Company's
Common Stock representing 100% of the issued and outstanding Common Stock prior
to the Offerings. After giving effect to the sale of shares of Common Stock to
be sold in the Offerings by the Selling Shareholder, JHIL will beneficially own
approximately 85% of the outstanding shares of the Company's Common Stock. If
the U.S. Underwriters' over-allotment option is exercised in full, JHIL will
beneficially own 41,375,000 shares of Common Stock, representing approximately
83% of the outstanding shares of Common Stock.
JHIL is a public company organized under the laws of Australia and listed
on the Australian Stock Exchange. JHIL's address is Level 9, 65 York Street,
Sydney NSW 2000, Australia. JHIL's Australian Company Number is 000 009 263.
The Selling Shareholder, RCI Netherlands Holdings B.V., is a company
incorporated under the laws of The Netherlands and is a wholly owned indirect
subsidiary of JHIL. The address of the Selling Shareholder is World Trade
Center, Strawinskylaan 749, 1077 XX Amsterdam, The Netherlands, and its
corporate seat is in Amsterdam, The Netherlands.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONTROL OF THE COMPANY
Upon completion of the Offerings, JHIL will beneficially own approximately
85% of the outstanding shares of Common Stock (or approximately 83% of the
outstanding shares of Common Stock if the U.S. Underwriters' over-allotment
option is exercised in full). JHIL intends to cause three independent persons to
be added to the Board of Directors and the Supervisory Board of the Company upon
consummation of the Offerings. JHIL currently intends to utilize its voting
power to elect at least two members independent of the Company and JHIL to the
Board of Directors and the Supervisory Board for so long as it is the majority
shareholder of the Company. The Articles of Association of the Company, however,
do not restrict JHIL's power as the majority shareholder of the Company to
nominate and elect its representatives as directors of the Company. As a result,
for at least so long as JHIL remains the majority shareholder of the Company,
JHIL will be in a position to exercise effective control over the Company.
The Company intends to adopt conflict of interest policies that would
require the approval of a majority of the independent directors for any related
party transactions that are material to the Company and outside of the ordinary
course of business, including any future dealings with JHIL.
REGISTRATION RIGHTS AGREEMENT
The Company and JHIL will enter into a registration rights agreement (the
"Registration Rights Agreement") which provides that, from time to time and at
the request of JHIL, its direct or indirect wholly owned subsidiaries, or their
respective transferees, successors or assigns owning at least 2% of the
outstanding shares of the Common Stock (the "Holders"), the Company will use its
best efforts to effect registration under the applicable U.S. federal and state
securities laws of shares of the Common Stock beneficially owned by the Holders
for sale in accordance with certain specified methods described in the
Registration Rights Agreement, and will take such other action necessary or
appropriate to permit the sale thereof in the United States (as well as any
other jurisdiction if the Company has previously taken action to permit the sale
of its securities therein), subject to certain limitations specified in the
Registration Rights Agreement. The Holders will also have the right to include
shares of the Common Stock held by it in certain other registrations of
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shares of Common Stock initiated by the Company. The selling Holders will bear
the registration expenses incurred in connection with the Offerings and each
selling Holder will bear its pro rata share of such expenses in connection with
any future registrations under the Registration Rights Agreement. Such
registration rights are subject to a "lock-up" agreement whereby the Selling
Shareholder has agreed not to sell any shares of Common Stock without the prior
consent of Warburg Dillon Read LLC for a period of 180 days from the date of
this Prospectus. See "Underwriting." The Company has also agreed to indemnify
the Holders against certain liabilities in connection with any registration
effected pursuant to the Registration Rights Agreement, including liabilities
under the Securities Act.
PURCHASE AGREEMENTS
In connection with the Reorganization, the Company entered into the
Purchase Agreements and acquired the Transferred Businesses from JHIL. See "The
Reorganization." The Purchase Agreements contain indemnity provisions which
provide that, for a period of seven years after the Reorganization, JHIL and any
relevant non-transferring subsidiary will indemnify the Company for certain
matters in relation to the operation of the Transferred Businesses prior to the
Reorganization as expressly described in the Purchase Agreements (this indemnity
does not include claims that, in the aggregate, amount to less than $50,000). In
addition, JHIL and the relevant non-transferring subsidiary have agreed to
provide unlimited indemnification to the Company for (i) all claims related to
asbestos liability; (ii) all environmental-related claims arising from the
condition of the real properties prior to the Reorganization or the conduct of
the relevant businesses prior to the Reorganization (excluding claims arising
from deliberate actions taken by the Company with the intention of triggering an
environmental claim); (iii) taxes incurred by any subsidiary being transferred
to the Company which relate to periods prior to the Reorganization; and (iv) all
claims in relation to defective products and services manufactured or supplied
by JHIL or the relevant subsidiary prior to the Reorganization (excluding claims
below a specified threshold) for each of the transferring businesses, which in
the aggregate amounts to approximately $2.4 million.
REIMBURSEMENT AGREEMENT
Several of the officers of the Company are also officers of JHIL or may
provide services to JHIL from time to time. The Company pays all of the salaries
and benefits of all of these officers, other than Dr. Barton. Pursuant to the
provisions of the Reimbursement Agreement, the Company tracks the time such
officers spend in performing services for JHIL and JHIL reimburses the Company
for the allocated portion of the salary and benefits of such officers. Dr.
Barton, however, is paid directly by the Company and JHIL for the time spent by
Dr. Barton in performing his duties for the Company and JHIL, respectively.
Certain other officers or employees of JHIL may from time to time provide
services to the Company. JHIL will be similarly reimbursed by the Company for
these services. In addition the Company and JHIL are each reimbursed for any
services or facilities provided for the benefit of the other entity. Expense
reimbursements are made quarterly.
LEASE AGREEMENTS
The Company has entered into lease agreements with subsidiaries of JHIL
whereby the Company leases, on a long-term basis, an office building in
Australia and fiber cement manufacturing facilities in Australia and New
Zealand. Obligations under such leases amount to an aggregate of approximately
$4.1 million per year. All of the leases expire on October 31, 2008 with the
exception of two leases that expire on October 31, 2000. All of the leases
contain renewal options and provisions adjusting lease payments based on changes
in various market factors as reflected in changes in the consumer price index.
After December 31, 1998, the Company and JHIL agreed to consolidate and
set-off certain intercompany debt that was in existence at the date of the
Reorganization. On a pro forma basis at December 31, 1998, total capitalization
would have been $328.7 million after a deduction of the net receivable of $9.2
million from shareholders' equity. The Company intends to effect a non-cash
settlement of this receivable prior to the close of the Offerings, which will
have no impact on the total shareholders' equity.
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MEMBERS OF BOARDS AND EXECUTIVE OFFICERS OF THE COMPANY AND JHIL
Dr. Barton, who is President, Chief Executive Officer and Chairman of the
Board of Directors and the Managing Board of the Company, is also the Managing
Director and a member of the Board of Directors of JHIL. Mr. Morley, who is the
Chief Financial Officer and a member of the Board of Directors and the Managing
Board of the Company, is also the Chief Financial Officer of JHIL. In addition,
Mr. McGregor and Mr. Willcox, both of whom are members of the Board of Directors
and the Supervisory Board of the Company, are also the Chairman and a member of
the Board of Directors of JHIL, respectively. Dr. Barton has an employment
agreement with JHIL for services provided to JHIL. See "Management -- Directors
and Executive Officers of the Company." From time to time, these interlocking
directorships may give rise to conflicts of interests. Several of the Company's
other executive officers will also continue to be executive officers of JHIL,
which may give rise to additional conflicts of interest. The Company intends to
implement policies designed to identify any conflicts of interest that may arise
in the future, and to avoid or minimize possible adverse consequences of any
such conflicts. See "Risk Factors -- Control by JHIL."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have 50,000,000 shares
of Common Stock issued and outstanding. The 7,500,000 shares of Common Stock
(8,625,000 shares if the U.S. Underwriters' over-allotment option is exercised
in full) offered hereby will be freely transferable and tradable in the United
States without restrictions under the Securities Act, except for any shares
purchased by an affiliate of the Company (as that term is defined below), which
will be subject to the resale limitations of the Securities Act ("Rule 144").
None of the outstanding shares of Common Stock that will be beneficially owned
by JHIL after the Offerings have been registered under the Securities Act and,
as a result, such shares may not be sold in the United States in the absence of
an effective registration statement under the Securities Act other than in
accordance with Rule 144 or another exemption from registration. Upon completion
of the Offerings, JHIL will have certain rights to register its shares of Common
Stock under the Securities Act. JHIL will bear its pro rata share of
registration expenses incurred in connection with any future offerings. See
"Certain Relationships and Related Transactions -- Registration Rights
Agreement." JHIL has no agreement with the Company not to sell or distribute
such shares and, except for restrictions in the Underwriting Agreement set forth
below, there can be no assurance concerning the period of time during which JHIL
will maintain its beneficial ownership of shares of Common Stock. Although JHIL
has made no decision on its future intentions regarding a further selldown of
its shares of Common Stock held by it after the Offerings or a distribution of
such shares to the JHIL shareholders, it has informed the Company that it
intends to consider such a selldown or distribution in 12 to 24 months. Pursuant
to the Underwriting Agreement, JHIL has agreed, subject to certain exceptions,
not to sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock or any security convertible into or exchangeable or exercisable for
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Warburg Dillon Read LLC on
behalf of the Underwriters.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares of the Company
are required to be aggregated) who has been deemed to have owned shares of an
issuer for at least one year, including an affiliate, is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the then outstanding number of shares of such class or the
average weekly reported volume of trading in such shares on all national
securities exchanges during the four calendar weeks preceding the filing with
the Commission of the required notice of sale. Pursuant to Rule 144, certain
shares of the Common Stock that are beneficially owned by JHIL may be sold in
the United States commencing as early as October 1999. A person (or persons
whose shares of the Company are required to be aggregated) who is not deemed an
affiliate of an issuer at the time of the sale and for at least three months
prior to the sale is entitled to sell such shares under Rule 144 without regard
to the volume limitations described above, provided that at least two years have
elapsed since such shares were purchased from either the issuer or an affiliate
of the issuer. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such issuer.
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Prior to the Offerings, there has been no market for the Common Stock.
Although the Company can make no predictions as to the effect, if any, that
sales of shares of Common Stock or the possibility of future sales of shares by
JHIL or its shareholders or by persons who exercise awards under the Equity
Incentive Plan would have on the market price of the shares of Common Stock
prevailing from time to time, sales of substantial amounts of the shares of
Common Stock in the public market, including any future public offering of such
stock, could have an adverse affect on the market price of the shares of Common
Stock.
JHIL has established an AUD 75 million loan facility which was drawn to AUD
30 million as at February 1, 1999. Drawdowns under this facility are to be
secured by shares of Common Stock held by JHIL. The number of shares pledged as
security for the drawdowns are calculated such that the value of the shares
pledged is three times the value of the drawn amount of the facility. In the
event that the facility is drawn and JHIL defaults under the terms of the
facility, the lenders will have the authority to sell the Common Stock.
DESCRIPTION OF CAPITAL STOCK
James Hardie was incorporated under the laws of The Netherlands by notarial
deed dated August 11, 1998. Certain provisions of the Articles of Association of
James Hardie, as such Articles of Association will be amended and restated prior
to the consummation of the Offerings (an English translation of which has been
included as an exhibit to the Registration Statement of which this Prospectus
forms a part), and certain provisions of Dutch law, are summarized below. Such
summary does not purport to be complete and is qualified in its entirety by
reference to the Articles of Association and Dutch law.
SHARE CAPITAL
Upon consummation of the Offerings, the authorized share capital of the
Company will amount to NLG 3,000,000, consisting of 150,000,000 shares of Common
Stock, with a nominal value of NLG 0.02 per share, and 150,000,000 shares of
preferred stock ("Preferred Stock"), with a nominal value of NLG 0.02 per share.
Common Stock
Upon consummation of the Offerings, 50,000,000 shares of Common Stock will
be issued and outstanding. Shares of Common Stock will only be issued in
registered form. All of the shares of Common stock offered hereby will initially
be represented by a single global certificate held through DTC and registered in
the name of Cede & Co., the nominee of DTC. American Stock Transfer & Trust
Company will maintain the New York Registry and act as transfer agent and
registrar for the shares (the "Transfer Agent and Registrar"). Beneficial
interests in the shares represented by the global certificate will be
represented, and transfers of such beneficial interests will be effected,
through accounts of financial institutions acting on behalf of beneficial owners
as direct and indirect participants in DTC.
Preferred Stock
Upon the consummation of the Offerings, no shares of Preferred Stock will
be outstanding. The Board of Directors (or, upon the expiration of the
delegation of authority described below and any extensions thereof, the general
meeting of shareholders) will have the power to issue shares of Preferred Stock,
in one or more series and from time to time, although it has no current plans to
do so. If such shares are issued, the holders thereof will be entitled to
receive, when and as declared by the Board of Directors, dividends prior to the
payment of any dividends to the holders of Common Stock. Dividends on any given
series of Preferred Stock shall be calculated as a percentage (the "Preferred
Dividend Rate") of the nominal value of the shares of such series plus the
amount of share premium paid to the Company upon the issuance of shares of such
series. The Preferred Dividend Rate shall be the "prime rate" on corporate loans
in the United States as quoted in the Wall Street Journal (on such date, not
more than sixty days prior to the first issuance of the relevant series, as the
Board of Directors may determine), as increased or decreased by such amount, not
to exceed four percentage points, as the Board of Directors may determine at the
time of the first issuance of shares of such series. In addition, holders of
Preferred Stock will be entitled to a liquidation preference, payable in the
event of any liquidation, dissolution or winding up of the Company, before any
distribution is made to the holders of
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Common Stock. The liquidation preference for any given series of Preferred Stock
shall be equal to the nominal value of the shares of such series plus the amount
of share premium paid to the Company upon the issuance of shares of such series,
together with any accrued but unpaid dividends. Holders of Preferred Stock will
have the right to one vote for each share of Preferred Stock held on every
matter submitted to a vote of the shareholders and such holders will also vote
as a class on certain matters. Shares of Preferred Stock may be issued for a
subscription price equal to their nominal value and, if so designated by the
Board of Directors (or, if applicable, the general meeting of shareholders),
only 25% of the nominal value of the shares of Preferred Stock needs to be paid
up at the time of issuance. Shares of Preferred Stock will only be issued in
registered form evidenced by certificates. Issuances of Preferred Stock may
adversely affect, among other matters, the voting, dividend and liquidation
rights of holders of Common Stock. The issuance of Preferred Stock may also have
the effect of delaying, deferring or preventing a change in control of the
Company.
DIVIDENDS
Pursuant to the Articles of Association and Dutch law, the declaration of
dividends, if any, will be at the discretion of the Board of Directors (subject
to the dividend rights of holders of Preferred Stock, if any). The Board of
Directors may resolve that James Hardie make distributions out of James Hardie's
annual profit, general share premium account and out of any other reserves that
are available for shareholder distributions under Dutch law. James Hardie may
make stock dividends as well as cash dividends. The Board of Directors may also
resolve that James Hardie pay interim dividends. James Hardie may not pay
dividends, including interim dividends, if the payment would reduce
shareholders' equity to an amount less than the sum of James Hardie's share
capital account, plus certain reserves that are required to be maintained by
Dutch law or the Articles of Association. Rights to cash dividends and
distributions that have not been collected within five years and two days after
the date on which they became due and payable revert to James Hardie.
All calculations to determine the amounts available for dividends will be
based on James Hardie's statutory accounts which will, as a holding company, be
different from its consolidated accounts. Because James Hardie is a holding
company and has no operations of its own, James Hardie is dependent on dividends
or other advances from its subsidiaries to fund any cash dividends. See
"Dividend Policy."
James Hardie's Articles of Association provide that future dividends, if
any, will be declared and paid in U.S. dollars, unless the Board of Directors
determines otherwise. Cash dividends payable to holders of shares will be paid
to the Transfer Agent and Registrar (which will, if necessary, convert such
dividends into dollars) for disbursement to the holders of the shares.
SHAREHOLDERS MEETINGS AND VOTING RIGHTS
Each shareholder has the right to attend general meetings of shareholders,
either in person or by proxy, to address shareholder meetings and to exercise
voting rights, subject to the provisions of the Articles of Association. A
meeting of shareholders will be held in The Netherlands at least annually,
within six months after the close of each fiscal year and in either Amsterdam,
Haarlemmermeer (Schiphol Airport), The Hague or Rotterdam. Additional meetings
of shareholders may be held as often as the Board of Directors, the Managing
Board or the Supervisory Board deems necessary or upon the call of holders of
shares of Common Stock or other persons entitled to attend such meetings jointly
representing at least 10% of the total outstanding share capital.
The Company will give notice of each meeting of shareholders by mail. Such
notice will be given no later than the fifteenth day prior to the day of the
meeting and will include or be accompanied by an agenda identifying the business
to be considered at the meeting. The Company currently is exempt from the proxy
rules under the Exchange Act. Holders of shares of Common Stock directly or
indirectly held through DTC will be provided notice of general meetings of
shareholders and other communications with shareholders by DTC in accordance
with its customary procedures. DTC may grant proxies or otherwise authorize DTC
participants (or persons holding beneficial interests in the shares of Common
Stock through such DTC participants) to exercise any rights of a shareholder.
Under its usual procedures, DTC will mail an omnibus proxy to the Company
assigning Cede & Co.'s consenting or voting rights to those DTC participants to
whose
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accounts the shares of Common Stock are credited on a record date as soon as
possible after such record date. In order for holders of shares of Common Stock
held directly or indirectly through DTC to attend general meetings of
shareholders in person, such holders need not withdraw such shares of Common
Stock from DTC but must follow such rules and procedures as may be established
by the Transfer Agent and Registrar.
Each share of Common Stock (and each share of Preferred Stock, if any)
entitles the holder thereof to one vote on each matter to be voted upon by the
holders of the Common Stock. Commencing at such time as JHIL ceases to own,
directly, or indirectly, a majority of the outstanding capital stock of the
Company, the Board of Directors will have the power to make binding nominations
for the election of members of the Supervisory Board and the Managing Board. If
the Board of Directors exercises this power, it must nominate at least two
persons for each position to be filled, and the person receiving the greater
number of votes will be elected. The general meeting of shareholders may resolve
by a resolution passed with a two-thirds majority of the votes cast at the
meeting (provided that shareholders representing at least half of the issued
share capital are present) to overrule any such binding nominations. Members of
the Supervisory Board and members of the Managing Board will be elected to serve
one-year terms.
Unless otherwise required by the Articles of Association or Dutch law,
resolutions of the general meeting of shareholders will be validly adopted by a
majority of the votes cast at a meeting at which at least a majority of the
outstanding share capital is present or represented except that, pursuant to the
Articles of Association, there is no quorum requirement for the valid adoption
of resolutions proposed or approved by the Board of Directors. Except where
expressly otherwise stated in this Prospectus, all references here and elsewhere
in this Prospectus to actions by the shareholders are references to actions
taken by way of such a resolution at a meeting of shareholders.
ADOPTION OF ANNUAL ACCOUNTS AND DISCHARGE OF MANAGEMENT
Each year, the Managing Board must prepare annual accounts within five
months after the end of the Company's fiscal year (unless the shareholders have
approved an extension of this period for up to six additional months due to
certain special circumstances recognized as such under Dutch law) and submit
such accounts to the shareholders for adoption. The annual accounts, including
the management report, will be prepared in English (unless the shareholders
approve a resolution to the contrary) and according to U.S. GAAP.
Adoption of the Company's annual accounts by the shareholders discharges
the directors for liability towards the Company in respect of the exercise of
their duties during the financial year covered by the accounts, unless an
explicit reservation is made by the shareholders and subject to certain
exceptions under Dutch law, including exceptions relating to the liability of
the directors upon bankruptcy of a company and to general principles of
reasonableness and fairness. Under Dutch law, this discharge does not extend to
matters not disclosed to shareholders.
LIQUIDATION RIGHTS
In the event of the dissolution and liquidation of the Company, holders of
shares of Common Stock are entitled to receive all of the assets of the Company
available for distribution after payment of all liabilities and liquidation
expenses pro rata based on the number of shares of Common Stock held by such
holders, subject to the prior liquidation rights of the holders of Preferred
Stock then outstanding, if any. As a holding company, James Hardie's sole
material assets are the capital stock of its subsidiaries. Therefore, in the
event of a dissolution or liquidation, James Hardie will either distribute the
capital stock of its subsidiaries or sell such stock and distribute the net
proceeds thereof, after satisfying its liabilities.
ISSUE OF SHARES; PREEMPTIVE RIGHTS
Unless limited or eliminated by the shareholders or the Board of Directors
as described below, holders of shares of Common Stock have a pro rata preemptive
right to subscribe for any newly issued shares of Common Stock, except for
shares of Common Stock issued for consideration other than cash, shares of
Common Stock issued to employees of James Hardie or a group company (as
determined under Dutch law)
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and shares of Common Stock issued to persons upon exercise of previously
acquired rights to subscribe for such shares.
The shareholders, upon proposal by the Board of Directors, have the power
to cause the Company to issue additional shares of Common Stock as well as
shares of Preferred Stock (and to grant options), in each case on the terms and
conditions proposed by the Board of Directors. Shortly before the consummation
of the Offerings or at the first general meeting of shareholders after the
consummation of the Offerings, the Selling Shareholder and another subsidiary of
JHIL will delegate to the Board of Directors, for a period of five years (the
maximum permitted by Dutch law), authority to issue additional shares of Common
Stock and shares of Preferred Stock (and to grant options) from time to time and
the authority to limit or eliminate preemptive rights with respect to issuances
of Common Stock. It is anticipated that the Board of Directors will eliminate
preemptive rights with respect to any and all issuances of shares of Common
Stock during such period.
REPURCHASE OF SHARES
The Company may acquire shares of Common Stock, subject to certain
provisions of Dutch law and of the Company's Articles of Association, if and
insofar as (1) shareholders' equity, less the amount to be paid for the shares
of Common Stock acquired, is not less than the sum of the nominal value of the
Company's issued share capital, plus any reserves required to be maintained by
Dutch law or the Articles of Association, and (2) the Company and its
subsidiaries would thereafter not hold, or hold as pledgee, shares of Common
Stock with an aggregate par value exceeding one-tenth of the Company's issued
share capital (all calculated in accordance with accounting principles generally
accepted in The Netherlands). Common Stock repurchases may be effected by the
Board of Directors only if the shareholders have authorized the Board of
Directors to effect such repurchases. Shortly before the consummation of the
Offerings, the Selling Shareholder and another subsidiary of JHIL will grant
such authority to the Board of Directors for a period of 18 months (the maximum
permitted by Dutch law).
REDUCTION OF SHARE CAPITAL
Upon proposal by the Board of Directors, the shareholders may reduce the
issued share capital by cancellation of shares of Common Stock held by James
Hardie or by reducing the par value of shares of Common Stock, subject to
certain statutory provisions. A resolution to reduce the issued share capital
requires the approval of at least a majority of the votes cast or, if less than
half of the issued share capital is represented at the meeting, the approval of
at least two-thirds of the votes cast. In addition, James Hardie is required to
file such resolution of the shareholders with the trade register of the Chamber
of Commerce and Industry in the district in which James Hardie has its place of
business (the "Filing") and publish the Filing in a national daily newspaper.
During a two-month period following the publication of the Filing, creditors of
James Hardie may oppose such reduction of share capital.
AMENDMENT OF ARTICLES OF ASSOCIATION
The Articles of Association may be amended by resolution of the
shareholders upon proposal by the Board of Directors.
DISCLOSURE OF HOLDINGS
Under the Dutch Act on disclosure of holdings in listed companies 1996 (Wet
melding zeggenschap in ter beurze genoteerde vennootschappen 1996) (the
"Disclosure Act"), if shares of Common Stock are admitted to official quotation
or listing on the Amsterdam Stock Exchange or on any other such stock exchange
in the European Economic Area, holders and certain beneficial owners of an
interest in the voting rights and/or the capital of James Hardie must promptly
notify James Hardie and the Securities Board of The Netherlands (Stichting
Toezicht Effectenverkeer) if their voting rights or capital interest in James
Hardie reaches, exceeds or falls below the rate of 5% - 10%, 10% - 25%,
25% - 50%, 50% - 66 2/3% or over 66 2/3%. Failure to comply constitutes a
criminal offense and could result in criminal as well as civil sanctions,
including suspension of voting rights. At this time, James Hardie does not
intend to list on any such exchange.
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LIMITATIONS ON RIGHT TO HOLD OR VOTE SHARES OF COMMON STOCK
Article 10 of the Company's Articles of Association provides that, unless
approved by the Board of Directors (and subject to certain other exceptions),
any person or group (a "Large Shareholder") who acquires beneficial ownership of
more than 20% of the outstanding shares of Common Stock must sell or otherwise
transfer the portion of the shares exceeding such threshold (the "Excess
Shares") within 30 days of the date on which such person is notified by the
Company. If the Large Shareholder does not sell or otherwise transfer the Excess
Shares within 30 days after notice from the Company, the Company may redeem the
Excess Shares or sell, on behalf of the Large Shareholder, the Excess Shares to
one or more third parties, at a price per share equal to the lower of (a) the
average of the closing sale prices for the shares of Common Stock on the NYSE
for the 20 trading days immediately preceding the notice described above from
the Company or (b) the closing sale price on the trading day immediately
preceding such sale. Once the Company has provided the notice described above,
the Large Shareholder may not vote, or receive dividends with respect to, any
Excess Shares. For purposes of Article 10, a person shall not be considered to
beneficially own a share of the Common Stock solely as a result of an agreement,
arrangement or understanding to vote such share if such agreement, arrangement
or understanding arises solely from a revocable proxy given in response to a
public proxy solicitation made pursuant to, and in compliance with, all
applicable laws. Neither JHIL, the Selling Shareholder, nor any entity
controlled thereby will be considered a Large Shareholder. This article may have
the effect of delaying or preventing a change in control of the Company.
There are currently no limitations imposed by Dutch law or the Company's
Articles of Association on the rights of persons who are not residents of The
Netherlands to hold or vote shares of Common Stock, solely as a result of such
non-resident status.
SHARE CERTIFICATES AND TRANSFER
The shares of Common Stock will be in registered form only and will be
registered in a register kept by or on behalf of the Company by the Transfer
Agent and Registrar, evidenced by certificates.
The shares of Common Stock have been approved for listing (subject to
official notice of issuance) on the NYSE.
The transfer of shares of Common Stock requires a written instrument
intended for such purpose and, except when James Hardie itself is a party to
such legal act, the written acknowledgment of the transfer by James Hardie or
service of the instrument of transfer (or a certified copy or extract thereof)
on James Hardie. In order to facilitate such transfer, James Hardie will provide
the Transfer Agent and Registrar with powers of attorney to enable execution and
acknowledgment of the appropriate documents to comply with Dutch law.
Certificates representing shares of Common Stock are transferred by delivery
thereof to the Transfer Agent and Registrar on behalf of James Hardie and will
be acknowledged by the Transfer Agent and Registrar on behalf of James Hardie by
endorsement on the certificate itself or by the issuance of a new share
certificate.
The CUSIP number for the Common Stock is N47235 10 1.
TAXATION
GENERAL
The following general discussion of the material tax consequences of an
investment in the shares of Common Stock is based on the current law applicable
in The Netherlands and the United States as in effect on the date of this
Prospectus and is subject to changes therein, including changes that could have
retroactive effect. This discussion does not purport to describe all tax
consequences that may be relevant to a purchaser of Common Stock. The statements
set forth below, to the extent they constitute matters of U.S. law, summaries of
U.S. legal matters or U.S. legal conclusions, are the opinion of Gibson, Dunn &
Crutcher LLP, U.S. tax counsel to the Company, and to the extent they constitute
matters of Dutch tax law, summaries of Dutch tax matters or Dutch taxation
conclusions, are the opinion of PricewaterhouseCoopers N.V., Dutch tax counsel
to
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the Company. Gibson, Dunn & Crutcher LLP, U.S. tax counsel to the Company, has
not opined as to whether the Company is or will become either a "foreign
personal holding company" or a "passive foreign investment company" for U.S. tax
purposes because such determinations are inherently factual in nature. Except as
specifically provided for herein, this discussion does not consider the effect
of any foreign, state, local or other tax laws that may be applicable to a
purchaser of Common Stock.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE TAX
CONSEQUENCES OF AN INVESTMENT IN SHARES IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES, INCLUDING THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.
UNITED STATES TAXATION
The following discussion contains a description of the material U.S.
federal income tax consequences generally applicable to an investment in the
shares of Common Stock ("Shares") by the following persons who invest in Shares
pursuant to the Offerings, and who hold such Shares as capital assets ("U.S.
Shareholders"): (1) citizens or residents of the United States (as defined for
U.S. federal income tax purposes), (2) corporations, partnerships or other
entities created or organized in or under the laws of the United States or any
political subdivision thereof, (3) estates the income of which is subject to
U.S. federal income taxation regardless of its source, and (4) trusts if (A) a
court in the United States is able to exercise primary supervision over the
administration of the trust and (B) one or more U.S. persons have the authority
to control all of the substantial decisions of the trust. This summary does not
purport to be a comprehensive description of all the tax considerations that may
be relevant to a U.S. Shareholder's decision to acquire Shares. In particular,
this summary does not address (a) the tax treatment of special classes of U.S.
Shareholders, such as financial institutions, life insurance companies,
tax-exempt organizations, shareholders whose functional currency is not the U.S.
dollar or dealers in securities, (b) the tax treatment of U.S. Shareholders who
own (directly or indirectly by attribution through certain related parties) 10%
or more of the voting stock of the Company, (c) the application of other U.S.
federal taxes such as U.S. federal estate tax, and (d) the application of any
aspect of state, local and non-U.S. tax laws.
Taxation of Distributions
The gross amount of any distribution by the Company (including any Dutch
taxes withheld therefrom) with respect to Shares generally will be included in
the gross income of a U.S. Shareholder as dividend income to the extent paid out
of current or accumulated earnings and profits of the Company, as determined
under U.S. federal income tax principles ("earnings and profits"). To the extent
that the amount of any distribution is not paid out of earnings and profits of
the Company, such amount will first be treated as a tax-free return of capital
to the extent of the U.S. Shareholder's adjusted tax basis in the Shares and, to
the extent that such amount exceeds the U.S. Shareholder's adjusted tax basis in
the Shares, such excess will be taxed as capital gain. See discussion of
"Capital Gains Rates" below. Distributions treated as dividends generally will
be treated as income from sources outside the United States and generally will
be foreign source "passive" income (or, in the case of certain U.S.
Shareholders, foreign source "financial services income") for purposes of the
foreign tax credit provisions. See discussion of "Credit of Foreign Taxes
Withheld" below. U.S. Shareholders will not be entitled to the dividends
received deduction with respect to any distributions by the Company treated as
dividends.
The amount of any distribution in Dutch guilders (or another foreign
currency) will generally equal the fair market value in U.S. dollars of the
Dutch guilders (or other foreign currency) on the date of receipt. A U.S.
Shareholder will have a basis for U.S. federal income tax purposes in the Dutch
guilders (or other foreign currency) distributed equal to their U.S. dollar
value on the date of receipt. Any gain or loss recognized upon the subsequent
disposition of the Dutch guilders (or other foreign currency) will generally be
U.S. source ordinary income or loss, but individual U.S. Shareholders may be
entitled to nonrecognition of any gain realized on the disposition of the Dutch
guilders (or other foreign currency) to the extent such gain does not exceed
$200 and the realization transaction constitutes a "personal transaction" for
purposes of the U.S. Internal Revenue Code of 1986, as amended (the "Code"). The
amount of any distribution of property other than money will be equal to its
fair market value on the date of distribution.
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Credit of Foreign Taxes Withheld
Subject to certain conditions and limitations (including pursuit of refunds
to the extent available), the foreign tax legally owed and withheld or paid with
respect to dividends on Shares generally will be eligible for credit against a
U.S. Shareholder's federal income tax liability. Alternatively, a U.S.
Shareholder may claim a deduction for such amount of withheld foreign taxes, but
only for a year for which such U.S. Shareholder elects to do so with respect to
all foreign income taxes. The rules relating to the determination of the foreign
tax credit are complex, and U.S. Shareholders should consult their tax advisors
to determine whether and to what extent a foreign tax credit would be available.
Under certain specific circumstances, and subject to certain limitations
and conditions, the Company may be permitted to retain a portion of Dutch
withholding taxes that are withheld from dividend distributions to its
shareholders, rather than paying such amounts to The Netherlands Tax
Administration. This will result from the application of a Netherlands tax
credit which may not exceed 3% of the dividend distribution, and which will be
available to the extent that the dividend distribution relates to dividends
received by the Company from qualifying non-Netherlands subsidiaries, with
respect to which at least 5% withholding tax has been withheld. It is unclear
whether U.S. Shareholders will be eligible for a foreign tax credit for the
retained portion of Dutch withholding taxes. If the U.S. Shareholders are
ineligible for a foreign tax credit with respect to this amount, they may be
entitled to claim a deduction for such amount for U.S. federal income tax
purposes. The Company does not anticipate that a significant portion of
dividends will be subject to the above-described rules.
Sale or Other Disposition of Shares
Gain or loss, if any, recognized by a U.S. Shareholder on the sale or other
disposition of Shares will be subject to U.S. federal income taxation as capital
gain or loss in an amount equal to the difference between the U.S. Shareholder's
adjusted tax basis in such Shares and the amount realized on the sale or other
disposition. Lower marginal tax rates may apply to individual U.S. Shareholders
in the case of capital gains, depending on the holding period of Shares sold by
such U.S. Shareholders. See discussion of "Capital Gains Rates" below. For U.S.
federal income tax purposes, capital losses not offset by capital gain are
subject to limitations on deductibility. Gain or loss realized by a U.S.
Shareholder on the sale or other disposition of Shares generally will be treated
as income from sources within the United States for purposes of the foreign tax
credit provisions, unless the gain is attributable to an office or fixed place
of business maintained by the U.S. Shareholder outside the United States, and
certain other conditions are met.
Capital Gains Rates
For individual U.S. Shareholders, the difference between the tax rates
applicable to capital gain and ordinary income may be significant. The highest
marginal income tax rate (disregarding the effect of limitations on deductions)
applicable to ordinary income by an individual U.S. Shareholder is 39.6%. Any
net capital gain recognized by an individual U.S. Shareholder generally will be
taxed at a maximum rate of 20% with respect to capital gain attributable to the
sale or exchange of assets held for more than one year. Gain attributable to the
sale or exchange of capital assets held for one year or less is short-term
capital gain, which is taxable as ordinary income.
Passive Foreign Investment Company Status
Special U.S. federal income tax rules apply to U.S. Shareholders owning
capital stock of a "passive foreign investment company" (a "PFIC"). A foreign
corporation will be considered a PFIC for any taxable year in which 75% or more
of its gross income is passive income or in which 50% or more of the average
value of its assets are considered "passive assets" (generally assets that
generate passive income or assets held for the production of passive income).
For these purposes, passive income generally does not include interest,
dividends or royalties received from related parties. The Company believes that
it currently is not a PFIC for U.S. federal income tax purposes and does not
anticipate that it will become a PFIC in the future.
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If the Company were classified as a PFIC, a U.S. Shareholder generally
would be subject to increased tax liability (possibly including an interest
charge) upon the sale or other disposition of Shares or upon receipt of "excess
distributions," unless such U.S. Shareholder elects (1) to be taxed currently on
its pro rata portion of the Company's income, whether or not such income was
distributed in the form of dividends or otherwise, or (2) to mark its Shares to
market by accounting for any difference between such Shares' fair market value
and adjusted basis at the end of the taxable year by either an inclusion in
income or a deduction from income.
Foreign Personal Holding Company Status
A foreign corporation will be classified as a "foreign personal holding
company" (an "FPHC") if (i) at any time during the corporation's taxable year,
five or fewer individuals, who are U.S. citizens or residents, directly or
indirectly own more than 50% of the corporation's capital stock (by either
voting power or value) (the "Shareholder Test") and (ii) the corporation
receives at least 60% of its gross income (reduced to at least 50% after the
initial year of qualification under certain circumstances), as adjusted, for the
taxable year from certain passive sources (the "Income Test"). Although the
Company believes that it will meet the Income Test because most of its income
will likely be derived from dividends paid by its subsidiaries, the Company
believes that the Shareholder Test was not met prior to the Offerings and will
not be met immediately after the Offerings. Therefore, the Company believes that
it currently is not an FPHC for U.S. federal income tax purposes.
If the Company were classified as an FPHC, U.S. Shareholders (including
certain indirect holders) would be required to include in income, as a dividend,
their pro rata share of the Company's undistributed taxable income, as
specifically adjusted, if they were holders on the last day of the Company's
taxable year (or, if earlier, the last day on which the Company satisfies the
Shareholder Test), but such pro rata share would increase their basis in shares
of Common Stock by a corresponding amount. In addition, if the Company became an
FPHC, U.S. persons who acquire Shares from decedents would not receive a
"stepped-up" basis in such Shares. Instead, such a holder would have a tax basis
equal to the lower of fair market value or the decedent's basis.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to dividends paid
in respect of Shares to non-corporate U.S. Shareholders or the proceeds received
on the sale, exchange or redemption of Shares by non-corporate U.S.
Shareholders, and such amounts may be subject to a 31% U.S. backup withholding
tax. Backup withholding tax will not apply, however, to a U.S. Shareholder who
(1) is a corporation or comes within certain exempt categories and, when
required, demonstrates this fact, or (2) furnishes a correct taxpayer
identification number or certificate of foreign status and makes certain other
required certifications as provided by the backup withholding rules. Generally,
a U.S. Shareholder will provide such certifications on Form W-9 (Request for
Taxpayer Identification Number and Certification). A U.S. Shareholder who does
not furnish the Company with his or her correct taxpayer identification number
may also be subject to penalties imposed by the U.S. Internal Revenue Service
(the "IRS"). Backup withholding is not an additional tax and may be claimed as a
credit against the U.S. federal income tax liability of a U.S. Shareholder,
provided that the required information is furnished to the IRS.
NETHERLANDS TAXATION
The statements below represent a broad analysis of the current Netherlands
tax law and are limited to tax implications for a holder of shares of Common
Stock who is not a citizen or resident or deemed resident of The Netherlands.
The description is not to be read as extending by implication to matters not
specifically referred to herein and does not purport to be a comprehensive
description of all the tax considerations that may be relevant to a prospective
investor's decision to acquire shares of Common Stock. Any prospective investor
should consult such investor's own tax advisor, as individual circumstances may
affect the general tax consequences described in this summary.
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Withholding Tax
Dividends distributed by the Company generally are subject to a withholding
tax imposed by The Netherlands at a rate of 25%. The term "dividends" for this
purpose includes, but is not limited to:
(1) distributions in cash or in kind, constructive distributions, and
repayments of additional paid-in capital not recognized as such for
Netherlands dividend withholding tax purposes;
(2) liquidation proceeds, proceeds of redemption of shares of Common
Stock or, generally, consideration for the repurchase of shares of Common
Stock by the Company in excess of the average paid-in capital recognized
for Netherlands dividend withholding tax purposes;
(3) the par value of shares of Common Stock issued to a holder of
shares of Common Stock or an increase of the par value of shares of Common
Stock, as the case may be, to the extent that no contribution to capital,
recognized for Netherlands dividend withholding tax purposes, was made or
will be made; and
(4) partial repayment of paid-in capital, recognized for Netherlands
dividend withholding tax purposes, if and to the extent that there are net
profits, within the meaning of the Dividend Withholding Tax Act, unless the
general meeting of shareholders of the Company has previously resolved to
make such repayment and provided that the par value of the shares of Common
Stock concerned has been reduced by a corresponding amount by changing the
Articles of Association of the Company.
As a result of contributions in shares to the paid-in capital of the
Company made prior to the initial public offering, a portion of such paid-in
capital may not be recognized for Dutch dividend withholding tax purposes. If a
holder of shares of Common Stock is resident in a country with which The
Netherlands has concluded a convention to avoid double taxation that is in
effect, such holder may, depending on the terms of such double taxation
convention, be eligible for a full or partial exemption from, or refund of,
Netherlands dividend withholding tax. Arguably, repayment of paid-in capital in
the manner described in the second part of the sentence in (4) above, may be
subject to dividend withholding tax to the extent that dividends have been
received from qualifying non-Netherlands subsidiaries out of profits generated
after the contribution in shares.
Under the US-NL Treaty, dividends paid by the Company to a resident of the
United States (other than an exempt organization or exempt pension organization)
are generally eligible for a reduction of the 25% Netherlands withholding tax to
15%, or in the case of certain U.S. corporate shareholders owning at least 10%
of the voting power of the Company, 5%, unless the shares of Common Stock held
by such resident are attributable to a business or part of a business that is,
in whole or in part, carried on through a permanent establishment or a permanent
representative in The Netherlands. The US-NL Treaty provides for a complete
exemption for dividends received by exempt pension organizations and exempt
organizations, as defined therein. A holder of shares of Common Stock other than
an individual will not be eligible for the benefits of the US-NL Treaty if such
holder of shares of Common Stock does not satisfy one or more of the tests set
forth in the limitation on benefits provisions of Article 26 of the US-NL
Treaty.
A holder of shares of Common Stock (other than an exempt organization or
exempt pension organization) generally may claim the benefits of a reduced
withholding tax rate pursuant to the US-NL Treaty by submitting a duly signed
Form IB 92 USA, which form includes a banker's affidavit stating that the shares
of Common Stock are in the bank's custody in the name of the applicant, or that
the shares of Common Stock have been shown to the bank as being the property of
the applicant. If the Form IB 92 USA is submitted prior to the dividend payment
date and all relevant conditions are fulfilled, the Company can apply the
reduced withholding tax rate to the dividend payment. A holder of shares of
Common Stock unable to claim withholding tax relief in this manner can obtain a
refund of excess tax withheld by filing a Form IB 92 USA and describing the
circumstances that prevented claiming withholding tax relief at source.
Holders of shares of Common Stock through DTC will initially receive
dividends subject to a withholding tax rate of 25%. An amount equal to 10% of
the dividend should be paid to such holders upon timely receipt by the dividend
disbursing agent (via any nominee) of required documentation that such holders
are eligible for the reduced rate under the US-NL Treaty.
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Qualifying U.S. exempt organizations must seek a full refund of the tax
withheld by using Form IB 95 USA, which form also includes a banker's affidavit.
An exempt pension organization may obtain a full exemption of the dividend
withholding tax at source upon payment of the dividends, provided a duly signed
Form IB 92 USA is filed in advance of the payment, which form also includes a
banker's affidavit, and all relevant conditions are fulfilled.
Taxes on Income and Capital Gains
A holder of shares of Common Stock will not be subject to any Netherlands
taxes on income or capital gains in respect of dividends distributed by the
Company or in respect of capital gains realized on the disposition of shares of
Common Stock (other than the dividend withholding tax described above), provided
that:
(1) such holder is neither resident nor deemed to be resident in The
Netherlands;
(2) such holder does not have a business or an interest in a business
that is, in whole or in part, carried on through a permanent establishment
or a permanent representative in The Netherlands and to which business or
part of a business, as the case may be, the shares of Common Stock are
attributable; and
(3) the shares of Common Stock owned by such holder do not form part
of a substantial interest or a deemed substantial interest, as defined, in
the share capital of the Company or, if such shares of Common Stock do form
part of such an interest, they form part of the assets of a business.
Shares of Common Stock will generally not form part of a substantial
interest if the holder of such shares of Common Stock, alone or together with
his spouse, certain other relatives and/or certain persons sharing his
household, does not own, directly or indirectly, or is entitled to certain other
rights (e.g. options) relating to shares of Common Stock representing 5% or more
of the total issued and outstanding capital or the issued and outstanding
capital of shares of Common Stock of the Company. A deemed substantial interest
generally exists if (part of) a substantial interest has been disposed of or is
deemed to have been disposed of without recognition of gain.
A holder of shares of Common Stock, who meets the conditions set forth in
this section under (1) and (2), but who has a substantial interest or a deemed
substantial interest, which does not form part of the assets of a business, is
generally subject to Netherlands income tax in respect of dividends distributed
by the Company or capital gains realized on the disposition of shares of Common
Stock, at a rate of up to 25%, if such holder is an individual, or at a rate of
35%, if such holder is not an individual. Such holder is generally entitled to
credit Netherlands dividend withholding tax withheld against Netherlands income
tax, if any.
If such holder is resident of a country with which The Netherlands has
concluded a convention to avoid double taxation, such holder may, depending on
the terms of such double taxation convention, be eligible for an exemption from
Netherlands income tax on capital gains realized upon the disposition or deemed
disposition of shares of Common Stock, or to a full or partial exemption from
Netherlands income tax on dividends distributed by the Company.
Under the US-NL Treaty, capital gains realized by such holder upon the
disposition of shares of Common Stock, provided such holder is a resident, as
defined, of the United States, are, with certain exceptions, generally exempt
from Netherlands tax on income and capital gains.
Under the US-NL Treaty, dividends received from the Company by such holder
who is a resident of the United States (other than an exempt organization or an
exempt pension organization) are with certain exceptions generally eligible for
a reduction of The Netherlands income tax liability to 15%. The US-NL Treaty
provides for a complete exemption of Netherlands income tax for dividends
received by U.S. resident exempt pension organizations and exempt organizations,
as defined.
As indicated above, a holder of shares of Common Stock, other than an
individual, will not be eligible for the benefits of the US-NL Treaty if such
holder of shares of Common Stock does not satisfy one or more of the tests set
forth in the limitation on benefits provisions of Article 26 of the US-NL
Treaty.
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Net Wealth Tax
A holder of shares of Common Stock will not be subject to Netherlands net
wealth tax in respect of the shares of Common Stock, provided that such holder
is not an individual or, if the holder is an individual, provided that the
conditions set forth under paragraphs (1) and (2) of the section "Taxes on
Income and Capital Gains" above are met.
Gift, Estate and Inheritance Taxes
No gift, estate or inheritance taxes will arise in The Netherlands with
respect to an acquisition of shares of Common Stock by way of a gift by, or on
the death of, a holder of shares of Common Stock who is neither resident nor
deemed to be resident in The Netherlands, unless:
(1) such holder has at the time of the gift or had at the time of the
holder's death, a business or an interest in a business that is or was, in
whole or in part, carried on through a permanent establishment or a
permanent representative in The Netherlands and to which business or part
of a business, as the case may be, the shares of Common Stock are or were
attributable; or
(2) in the case of a gift of shares of Common Stock made by a holder
at a time when such holder was not a resident or deemed to be resident in
The Netherlands, such holder dies within 180 days after the date of the
gift, while being resident or deemed to be resident in The Netherlands.
For purposes of Netherlands gift and inheritance tax, an individual who
holds Netherlands nationality will be deemed to be resident in The Netherlands
if he has been resident in The Netherlands at any time during the 10 years
preceding the date of the gift or his death.
For purposes of Netherlands gift tax, an individual not holding Netherlands
nationality will be deemed to be resident in The Netherlands if he has been
resident in The Netherlands at any time during the 12 months preceding the date
of the gift.
Capital Duty Payable by the Company
Netherlands capital duty will be payable by the Company at the rate of 1%
of any contribution (including cash, in kind and/or deemed capital
contributions) made in respect of the shares of Common Stock, including a 1%
capital duty payable in The Netherlands on the proceeds received by the Company
in any future issuance of shares. Specific exemptions from capital duty were
applicable with respect to the contributions to the capital of the Company
(excluding certain minimum cash contributions) made prior to the Offerings.
Other Taxes and Duties
No other Netherlands registration tax, transfer tax, stamp duty or any
similar documentary tax or duty will be payable by investors in the Company in
respect of or in connection with the subscription issue, placement, allotment or
delivery of the shares of Common Stock.
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UNDERWRITING
The names of the U.S. Underwriters for the United States Offering and the
aggregate number of shares of Common Stock that each has severally agreed to
purchase from the Selling Shareholder, subject to the terms and conditions
specified in the Underwriting Agreement, are as follows:
<TABLE>
<CAPTION>
U.S. UNDERWRITERS NUMBER OF SHARES
----------------- ----------------
<S> <C>
Warburg Dillon Read LLC.....................................
Credit Suisse First Boston Corporation......................
Merrill Lynch Pierce, Fenner & Smith
Incorporated...................................
---------
Total............................................. 6,375,000
=========
</TABLE>
The U.S. Managing Underwriter is Warburg Dillon Read LLC.
The names of the International Underwriters for the International Offering
and the aggregate number of shares of Common Stock that each has severally
agreed to purchase from the Selling Shareholder, subject to the terms and
conditions specified in the Underwriting Agreement, are as follows:
<TABLE>
<CAPTION>
INTERNATIONAL UNDERWRITERS NUMBER OF SHARES
-------------------------- ----------------
<S> <C>
UBS AG, acting through its division Warburg Dillon Read.....
Credit Suisse First Boston (Europe) Limited.................
Merrill Lynch International.................................
---------
Total............................................. 1,125,000
=========
</TABLE>
The International Managing Underwriter is UBS AG, acting through its
division Warburg Dillon Read.
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The per share price to the public and the per
share underwriting discounts and commissions for the Offerings will be
identical. The closing of the United States Offering is a condition to the
closing of the International Offering, and vice versa.
If any shares of Common Stock offered are purchased by the Underwriters,
all such shares will be so purchased. The Underwriting Agreement contains
certain provisions whereby if any U.S. Underwriter or International Underwriter
defaults in its obligation to purchase the shares to be purchased by it and if
the aggregate obligations of the U.S. Underwriters or International Underwriters
so defaulting do not exceed 10% of the shares offered in the United States
Offering or the International Offering, respectively, the remaining U.S.
Underwriters, or some of them, or the remaining International Underwriters, or
some of them, as the case may be, must assume such obligations.
The shares of Common Stock offered hereby are being initially offered
severally by the Underwriters for sale at the price set forth on the cover page
hereof, or at such price less a concession not in excess of $ per share on
sales to certain dealers. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other dealers.
The shares offered hereby will be delivered when, as and if accepted by the
Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the Offerings without notice. The Underwriters reserve the right
to reject any order for the purchase of the shares of Common Stock offered
hereby. After the initial public offering of the shares of Common Stock, the
public offering price, the concession and the reallowance may be changed by the
U.S. Managing Underwriter or the International Managing Underwriter.
Pursuant to the Agreement Between the U.S. Underwriters and International
Underwriters (the "Agreement Between Underwriters"), each U.S. Underwriter has
represented and agreed that, with certain exceptions, (1) it is not purchasing
any U.S. Shares (as defined below) for the account of anyone other than a United
States or Canadian Person (as defined below) and (2) it has not offered or sold,
and will not offer or
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sell, directly or indirectly, any U.S. Shares or distribute any prospectus
relating to the U.S. Shares outside the United States or Canada or to anyone
other than a United States or Canadian Person. Pursuant to the Agreement Between
Underwriters, each International Underwriter has represented and agreed that,
with certain exceptions, (1) it is not purchasing any International Shares (as
defined below) for the account of any United States or Canadian Person and (2)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any International Shares or distribute any prospectus relating to the
International Shares within the United States or Canada or to any United States
or Canadian Person. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement Between
Underwriters. As used herein "United States or Canadian Person" means any
national or resident of the United States or Canada, or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or of any political subdivision thereof (other
than a branch located outside the United States and Canada of any United States
or Canadian Person) and includes any United States or Canadian branch of a
person who is otherwise not a United States or Canadian Person. All shares of
Common Stock to be purchased by the U.S. Underwriters and the International
Underwriters are referred to herein as the "U.S. Shares" and the "International
Shares," respectively.
Pursuant to the Agreement Between Underwriters, sales may be made between
the U.S. Underwriters and the International Underwriters of such number of
shares of Common Stock as may be mutually agreed. As a result, shares of Common
Stock originally purchased pursuant to the U.S. Underwriting Agreement may be
sold outside the United States and Canada, and shares of Common Stock originally
purchased pursuant to the International Underwriting Agreement may be sold in
the United States or Canada. The price of any shares so sold will, unless
otherwise agreed, be the price to the public, less an amount not greater than
the selling concession.
Pursuant to the Agreement Between Underwriters, each U.S. Underwriter has
represented that it has not offered or sold, and has agreed not to offer or
sell, any shares of Common Stock, directly or indirectly, in Canada in
contravention of the securities laws of Canada or any province or territory
thereof and has represented that any offer of Common Stock in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
shares of Common Stock a notice stating in substance that, by purchasing such
Common Stock, such dealer represents and agrees that it has not offered or sold,
and will not offer or sell, directly or indirectly, any of such Common Stock in
Canada or to, or for the benefit of, any resident of Canada in contravention of
the securities laws of Canada or any province or territory thereof and that any
offer of Common Stock in Canada will be made only pursuant to an exemption from
the requirement to file a prospectus in the province of Canada in which such
offer is made, and that such dealer will deliver to any other dealer to whom it
sells any of such Common Stock a notice to the foregoing effect.
Pursuant to the Agreement Between Underwriters, each International
Underwriter has represented and agreed that: (1) it has not offered or sold and
during the period of six months from the date hereof will not offer or sell any
shares of Common Stock to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations of 1995 (the "Regulations"); (2) it has
complied and will comply with all applicable provisions of the Financial
Services Act of 1986 and the Regulations with respect to anything done by it in
relation to the shares of Common Stock in, from or otherwise involving the
United Kingdom; and (3) it has only issued or passed on and will only issue or
pass on to any person in the United Kingdom any document received by it in
connection with the offer of the shares of Common Stock if that person is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
In any jurisdiction this Prospectus is for distribution only to persons to
whom it may lawfully be issued and only in accordance with the laws and
regulations of such jurisdiction. The distribution of this Prospectus
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and the offer and the sale of the Common Stock offered hereby may be restricted
by law in certain jurisdictions. Persons who receive this Prospectus must inform
themselves about and observe such restrictions.
In Belgium, this Prospectus is being distributed only to banks, subscribers
and other persons, distribution to whom will not contravene any relevant laws or
restrictions regarding the public offering of securities.
Neither this Prospectus, which has not been approved by, nor registered nor
filed with the Commission des Operations de Bourse, nor any other offering
material relating to the shares of Common Stock may be used in connection with
any offer for subscription or sale of the shares of Common Stock to the public
in France or be distributed to the public in France other than to a limited
number of institutional investors (excluding investment trusts or funds) acting
for their own account. Persons into whose possession this material comes must
inform themselves about and observe any such restrictions. This material does
not constitute and may not be used for or in connection with either an offer to
any person to whom it is unlawful to make such an offer or a solicitation by
anyone not authorized so to act.
The Selling Shareholder has granted to the U.S. Underwriters an option,
which may be exercised within 30 days after the date of this Prospectus, to
purchase up to an additional 1,125,000 shares of Common Stock to cover
over-allotments, if any, on the same terms per share. To the extent the U.S.
Underwriters exercise this option, each of the U.S. Underwriters will be
obligated, subject to certain conditions, to purchase the number of additional
shares of Common Stock proportionate to such U.S. Underwriter's initial
commitment.
The Company, the Selling Shareholder and JHIL have agreed, subject to
certain limited exceptions, that they will not sell, offer or agree to sell,
contract to sell, grant any option to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock or warrants or other rights to
purchase Common Stock or any other securities of the Company that are
substantially similar to Common Stock or permit the registration under the
Securities Act of any shares of Common Stock for a period of 180 days after the
date of this Prospectus without the prior written consent of Warburg Dillon Read
LLC.
The Company, the Selling Shareholder and JHIL have agreed in the
Underwriting Agreement to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
Warburg Dillon Read LLC and its affiliates have rendered certain financial
advisory and investment banking services to JHIL and its affiliates, including
in connection with the Reorganization, for which they have received customary
fees.
The U.S. Managing Underwriter and the International Managing Underwriter
have advised the Company and the Selling Shareholder that they do not expect
sales to discretionary accounts by the Underwriters to exceed 5% of the total
number of shares sold in the Offerings.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 375,000 of the shares of Common Stock
offered hereby for employees, officers and business associates of the Company.
The number of shares of Common Stock available for sale to the general public
will be reduced to the extent such persons purchase such reserved shares. Any
reserved shares that are not so purchased will be offered by the Underwriters to
the general public on the same basis as the other shares offered thereby.
In connection with the Offerings, the U.S. Managing Underwriter and the
International Managing Underwriter, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions or
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of shares of Common Stock in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the U.S. and the International Managing
Underwriters to reclaim a selling concession from a syndicate member when shares
of Common Stock
95
<PAGE> 98
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
shares of Common Stock to be higher than it would otherwise be in the absence of
such transactions. These transactions may be effected on the NYSE or otherwise
and, if commenced, may be discontinued at any time.
Prior to the Offerings, there has been no public market for the shares of
Common Stock. Consequently, the offering price will be determined by
negotiations among the Selling Shareholder, the U.S. Managing Underwriter and
the International Managing Underwriter. Among the principal factors considered
in such negotiations will be the prevailing market and general economic
conditions, the price-to-earnings ratios of other publicly traded companies, the
revenues and earnings of the Company in recent periods, the current financial
position of the Company, estimates of the business potential of the Company and
the present state of the Company's development. Additionally, consideration will
be given to the general state of the securities market, the market conditions
for new issues of securities and the demand for securities of comparable
companies at the time the Offerings are made.
The shares of Common Stock have been approved for listing (subject to
official notice of issuance) on the NYSE. In connection with the listing of the
Common Stock on the NYSE, the Underwriters will undertake to sell round lots of
100 shares or more to a minimum of 2,000 beneficial holders.
96
<PAGE> 99
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholder by De Brauw Blackstone
Westbroek N.V. Advice with respect to Dutch tax matters has been provided by
PricewaterhouseCoopers N.V., Dutch tax advisors to the Company. Certain legal
matters in connection with the Offerings will be passed upon for the Company by
Gibson, Dunn & Crutcher LLP and for the Underwriters by Davis Polk & Wardwell.
Gibson, Dunn & Crutcher LLP and Davis Polk & Wardwell will rely on the opinions
of De Brauw Blackstone Westbroek N.V. with respect to all matters of Dutch law
and PricewaterhouseCoopers N.V. with respect to Dutch tax law matters.
EXPERTS
The consolidated balance sheets as of March 31, 1997 and 1998, and the
consolidated statements of income, cash flows and changes in shareholders'
equity for each of the three years in the period ended March 31, 1998, included
in this Prospectus have been included herein in reliance on the report of
PricewaterhouseCoopers, Australia, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form F-1
filed by the Company with the U.S. Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus omits certain of the information contained in the
Registration Statement, and reference is hereby made to the Registration
Statement and related exhibits for further information with respect to the
Company and the securities offered hereby. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and in
such instance reference is made to the copy of such document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission. Each such
statement is qualified by such reference.
As a result of the United States Offering, the Company will become subject
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), applicable to "foreign private issuers," and in accordance
therewith will file reports, including annual reports, and other information
with the Commission. Such reports and other information may be obtained, upon
written request, from the Transfer Agent and Registrar at its principal office
located at 40 Wall Street, New York, New York 10005. Such reports and other
information may also be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at Room 1024 Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. In addition, reports and other information concerning the
Company may be inspected at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005. As a foreign private issuer, the Company
is exempt from the rules under the Exchange Act prescribing the furnishing and
content of proxy statements and annual reports to shareholders and the
short-swing profit recovery provisions set forth in Section 16 of the Exchange
Act. The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements examined by an independent
accounting firm and with quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
97
<PAGE> 100
ENFORCEMENT OF CIVIL LIABILITIES
The Company is incorporated under the laws of The Netherlands with its
corporate seat in Amsterdam, The Netherlands. Certain of the Company's
directors, executive officers and subsidiaries, and certain of the experts named
herein, are residents of jurisdictions outside the United States and significant
assets of the Company and of such persons are located outside the United States.
As a result, it may be difficult for investors to effect service of process
within the United States upon the Company or such other persons, or to enforce
outside the United States judgments obtained against such persons in the U.S.
courts, or to enforce in U.S. courts judgments obtained against such persons in
courts in jurisdictions outside the United States, in each case, in any action,
including actions predicated upon the civil liability provisions of U.S.
securities laws.
The Company has been advised by its Dutch counsel, De Brauw Blackstone
Westbroek N.V., that the United States and The Netherlands do not currently have
a treaty providing for reciprocal recognition and enforcement of judgments
(other than arbitration awards) in civil and commercial matters. In the view of
such counsel, a final judgment for the payment of money rendered by any federal
or state court in the United States based on civil liability, whether or not
predicated solely upon the federal securities laws of the United States, would
not be directly enforceable in The Netherlands. However, if the party in whose
favor such final judgment is rendered brings a new suit in a court of competent
jurisdiction in The Netherlands, such party may submit in the course of such
proceedings the final judgment that has been rendered in the United States. If a
Netherlands court finds that the jurisdiction of the federal or state court in
the United States has been based on grounds that are internationally acceptable
and that proper legal procedures have been observed, the court in The
Netherlands would, in principle, give binding effect to the final judgment that
has been rendered in the United States unless such judgment contravenes
Netherlands' public policy. In addition, there is doubt as to whether a court in
The Netherlands would render a judgment in an original action predicated solely
upon the federal securities laws of the United States. Further, it may be
difficult for investors to enforce, in original actions brought in courts in
jurisdictions located outside the United States, rights predicated upon the U.S.
securities laws. See "Risk Factors -- Potential Difficulties in Protecting
Shareholder Rights and in Enforcing Civil Liabilities."
98
<PAGE> 101
NOTICE TO ONTARIO AND QUEBEC RESIDENTS
RESALE RESTRICTIONS
The distribution of the shares of Common Stock in Ontario or Quebec is
being made only on a private placement basis exempt from the requirement that
the Company and the Selling Shareholder prepare and file a prospectus with the
securities regulatory authorities in Ontario or Quebec. Accordingly, any resale
of the shares of Common Stock in Ontario or Quebec must be made in accordance
with Ontario or Quebec securities laws which may require resales to be made in
accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Ontario or Quebec securities regulatory
authority. PURCHASERS ARE ADVISED TO SEEK LEGAL ADVICE PRIOR TO ANY RESALE OF
THE SHARES OF COMMON STOCK IN ONTARIO OR QUEBEC.
REPRESENTATIONS OF PURCHASERS
Each purchaser of shares of Common Stock in Ontario or Quebec who receives
a purchase confirmation will be deemed to represent to the Company, the Selling
Shareholder and the dealer from whom such purchase confirmation is received that
(1) such purchaser is entitled under applicable Ontario or Quebec securities
laws to purchase such shares of Common Stock without the benefit of a prospectus
qualified under such securities laws, (2) where required by law, that such
purchaser is purchasing as principal and not as agent, (3) such purchaser has
reviewed the text above under "Resale Restrictions," (4) such purchaser is
basing its investment decision solely on the basis of this document and not on
any other information concerning the Company or this Offering and (5) such
purchaser shall, where required, execute all private placement reports as and
when required under Ontario and Quebec securities laws, as appropriate.
RIGHTS OF ACTION
The Company is organized under the laws of The Netherlands. The securities
being offered are those of a foreign issuer and Ontario purchasers will not
receive the contractual right of action prescribed by section 32 of the
Regulation under the Securities Act (Ontario). As a result, Ontario purchasers
must rely on other remedies that may be available, including common law rights
of action for damages or rescission or rights of action under the civil
liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the Company's directors and officers as well as the experts named
herein and the Selling Shareholder may be located outside of Canada and, as a
result, it may not be possible for Ontario purchasers to effect service of
process within Canada upon the Company, the Selling Shareholder or such persons.
All or a substantial portion of the assets of the Company, the Selling
Shareholder and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the Company, the Selling
Shareholder or such persons in Canada or to enforce a judgment obtained in
Canadian courts against the Company, the Selling Shareholder or persons outside
of Canada.
RESPONSIBILITY
Except as otherwise expressly required by applicable law, no
representation, warranty, or undertaking (express or implied) is made and no
responsibilities or liabilities of any kind or nature whatsoever are accepted by
any underwriter or any dealer as to the accuracy or completeness of the
information contained herein or any other information provided by the Company in
connection with the Offering of Common Stock.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Ontario and Quebec purchasers of shares of Common Stock should consult
their own legal and tax advisors with respect to tax consequences of an
investment in the shares of Common Stock in their particular circumstances and
with respect to the eligibility of the shares for investment by the purchasers
under relevant provincial or Canadian legislation.
99
<PAGE> 102
[This page intentionally left blank]
<PAGE> 103
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
JAMES HARDIE N.V. AND SUBSIDIARIES:
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of March 31, 1997 and 1998
and as of December 31, 1998 (Unaudited)................ F-3
Consolidated Statements of Income for the Years Ended
March 31, 1996, 1997 and 1998 and the Nine Months Ended
December 31, 1997 and 1998 (Unaudited)................. F-4
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1996, 1997 and 1998 and the Nine Months Ended
December 31, 1997 and 1998 (Unaudited)................. F-5
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended March 31, 1996, 1997 and 1998 and
the Nine Months Ended December 31, 1997 and 1998
(Unaudited)............................................ F-6
Notes to Consolidated Financial Statements................ F-8
Supplementary Data: Quarterly Financial Data
(Unaudited)............................................ F-43
</TABLE>
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II Valuation and Qualifying Accounts:
See Note 3, Accounts Receivable, to the Consolidated
Financial Statements................................... F-13
See Note 13, Income Taxes, to the Consolidated Financial
Statements............................................. F-25
</TABLE>
F-1
<PAGE> 104
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
James Hardie N.V. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and cash flows and changes in shareholders'
equity present fairly, in all material respects, the financial position of James
Hardie N.V. and Subsidiaries at March 31, 1997 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles in the United States. These financial statements are the
responsibility of management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with Australian Auditing Standards which have been
applied on a basis consistent with generally accepted auditing standards in the
United States, and which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers
Sydney, Australia
May 12, 1998
F-2
<PAGE> 105
JAMES HARDIE N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(MILLIONS OF U.S. DOLLARS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
-------------------- DECEMBER 31,
1997 1998 1998
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 338.6 $ 350.0 $ 33.5
Accounts and notes receivable, net of allowance for
doubtful accounts of $4.8 million
and $5.4 million as of March 31, 1997 and 1998,
respectively and $4.3 million
as of December 31, 1998................................. 169.3 125.3 98.0
Inventories............................................... 84.3 63.7 72.1
Prepaid expenses and other current assets................. 6.8 13.5 21.9
Deferred tax assets....................................... 12.6 53.3 0.8
Net current assets -- discontinued operations............. 47.7 -- --
Related party receivables -- JHIL......................... -- -- 160.6
-------- -------- --------
Total current assets................................ 659.3 605.8 386.9
Cash on deposit............................................. 49.0 -- --
Long-term receivables....................................... 5.4 11.0 12.2
Investments................................................. 31.0 14.6 3.1
Equity investments.......................................... 179.2 -- --
Property, plant and equipment, net.......................... 400.5 479.0 489.2
Intangibles, net............................................ 38.0 36.4 35.2
Mineral reserves............................................ 25.4 24.7 26.7
Prepaid pension cost........................................ 8.0 12.2 10.4
Deferred tax assets......................................... 62.6 58.0 44.8
Net non-current assets -- discontinued operations........... 75.6 -- --
-------- -------- --------
Total assets........................................ $1,534.0 $1,241.7 $1,008.5
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 97.2 $ 112.4 $ 75.9
Bank overdraft............................................ 5.3 2.1 3.2
Short term debt facility.................................. 18.4 35.3 25.0
Current portion of related party borrowings............... 70.3 -- --
Accrued compensation...................................... 13.8 12.0 12.1
Accrued product warranties................................ 16.9 11.4 3.4
Firmandale liability...................................... -- 61.7 --
Deferred tax liability.................................... 1.3 -- 22.9
Related party payables -- JHIL............................ -- -- 146.9
Other liabilities......................................... 10.8 16.1 8.5
-------- -------- --------
Total current liabilities........................... 234.0 251.0 297.9
Long term debt.............................................. 470.2 496.3 347.5
Related party borrowings.................................... 202.8 -- --
Firmandale liability........................................ 55.6 -- --
Deferred tax liability...................................... -- 13.7 14.8
Other liabilities........................................... 19.6 14.9 10.4
-------- -------- --------
Total liabilities................................... 982.2 775.9 670.6
-------- -------- --------
Minority interest........................................... 7.0 -- --
-------- -------- --------
Commitments and contingencies (Note 11)
Shareholders' equity:
Capital................................................... 533.1 551.7 --
Common stock, 150,000,000 shares authorized, 50,000,000
shares, NLG 0.02 par value shares issued and outstanding
at December 31, 1998.................................... -- -- 0.6
Contributed surplus....................................... -- -- 448.8
Retained earnings......................................... -- -- 8.6
Executive and employee loans.............................. (4.1) (10.6) --
Accumulated other comprehensive income (loss)............. 15.8 (75.3) (120.1)
-------- -------- --------
Total shareholders' equity.......................... 544.8 465.8 337.9
-------- -------- --------
Total liabilities and shareholders' equity.......... $1,534.0 $1,241.7 $1,008.5
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 106
JAMES HARDIE N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED MARCH 31, ENDED DECEMBER 31,
--------------------------- -------------------
1996 1997 1998 1997 1998
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................... $ 624.9 $ 713.4 $ 822.3 $ 629.1 $ 631.1
Cost of goods sold........................... (429.9) (508.7) (592.3) (444.7) (448.0)
------- ------- ------- ------- -------
Gross profit............................ 195.0 204.7 230.0 184.4 183.1
Selling, general and administrative
expenses................................... (134.1) (150.3) (142.7) (108.1) (108.7)
Restructuring and other operating expenses
(Note 12).................................. -- (38.8) (5.1) (2.2) (1.2)
------- ------- ------- ------- -------
Operating profit........................ 60.9 15.6 82.2 74.1 73.2
Interest expense............................. (48.7) (39.6) (37.6) (28.1) (23.8)
Interest expense -- related parties.......... (17.3) (16.9) (11.3) (10.5) --
Interest income.............................. 33.1 30.8 28.3 21.2 12.4
Equity income -- RCI Corporation............. 7.9 9.2 6.2 4.8 --
Other nonoperating expenses, net (Note 12)... (15.0) (14.6) (12.1) (10.5) (4.8)
------- ------- ------- ------- -------
Income (loss) from continuing operations
before income tax (expense) benefit... 20.9 (15.5) 55.7 51.0 57.0
Income tax (expense) benefit................. (2.8) 3.0 (25.0) (19.2) (22.6)
------- ------- ------- ------- -------
Income (loss) from continuing
operations............................ 18.1 (12.5) 30.7 31.8 34.4
------- ------- ------- ------- -------
Discontinued operations:
Income (loss) from discontinued operations,
net of income tax (expense) benefit of $9.8
million, $(0.6) million and $(2.1) million
for the years ended March 31, 1996, 1997
and 1998, respectively and net of income
tax (expense) benefit of $(2.7) million for
the nine months ended December 31, 1997.... (5.8) (18.1) 4.2 4.7 --
Gain on disposal, net of income tax (expense)
benefit of $(5.7) million and $9.7 million
for the years ended March 31, 1997 and
1998, respectively and net of income tax
(expense) benefit of $9.8 million for the
nine months ended December 31, 1997........ -- 121.4 6.0 4.9 --
------- ------- ------- ------- -------
Income (loss) from discontinued
operations............................ (5.8) 103.3 10.2 9.6 --
------- ------- ------- ------- -------
Extraordinary loss of $(11.8) million
net of income tax benefit of $3.5
million for early extinguishment of
debt.................................. -- -- -- -- (8.3)
------- ------- ------- ------- -------
Net income.............................. $ 12.3 $ 90.8 $ 40.9 $ 41.4 $ 26.1
======= ======= ======= ======= =======
Earnings per share -- basic and diluted (Note
2):
Income (loss) from continuing operations... $ 0.38 $ (0.26) $ 0.62 $ 0.64 $ 0.69
Income (loss) from discontinued
operations.............................. $ (0.12) $ 2.14 $ 0.21 $ 0.19 $ --
Extraordinary loss......................... -- -- -- -- $ (0.17)
Net income per share....................... $ 0.26 $ 1.88 $ 0.83 $ 0.83 $ 0.52
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 107
JAMES HARDIE N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED MARCH 31, ENDED DECEMBER 31,
----------------------------- --------------------
1996 1997 1998 1997 1998
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 12.3 $ 90.8 $ 40.9 $ 41.4 $ 26.1
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on disposal of subsidiaries and businesses........... -- (121.4) (6.0) (4.9) --
Goodwill impairment (Note 8 and Note 12).................. -- 31.8 -- -- --
Depreciation and amortization............................. 53.5 59.7 43.8 31.9 29.2
Obsolete equipment writedown.............................. -- 11.4 -- -- --
Equity income from RCI Corporation........................ (7.9) (9.2) (6.2) (6.2) --
Firmandale provisions..................................... 14.8 11.4 9.0 4.3 (57.3)
Deferred income taxes..................................... (26.8) (25.7) 6.4 6.5 27.7
Prepaid pension cost...................................... 4.3 7.6 9.7 9.2 2.0
Other..................................................... 11.4 14.8 6.3 (3.3) (9.0)
Changes in operating assets and liabilities:
Accounts receivable, prepaids and other current assets.... (7.8) (22.2) 41.0 52.5 (15.3)
Inventories............................................... 30.7 (14.6) 4.0 (3.6) (8.1)
Accounts payable and accrued liabilities.................. 3.2 44.1 (31.1) (23.5) 9.0
Other provisions.......................................... (7.5) 4.3 (8.7) (3.9) (21.0)
------- ------- ------- -------- --------
Net cash provided by operating activities............... 80.2 82.8 109.1 100.4 (16.7)
------- ------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment............... (100.5) (159.4) (147.7) (129.8) (111.7)
Proceeds from sale of property, plant, and equipment...... 19.8 37.0 14.0 6.3 4.1
Payments for subsidiaries and businesses, net of cash
acquired................................................ (3.1) (103.4) -- -- --
Disposal of subsidiaries and businesses, net of cash
invested................................................ 5.9 310.0 61.4 61.4 (10.5)
Purchases of investments and negotiable securities........ (0.8) (25.4) (41.2) (40.6) (7.9)
Proceeds from sale and maturity of investments............ 36.0 65.8 65.3 52.5 7.2
Loans to other entities................................... (0.7) (4.8) (0.2) (0.2) --
Loans repaid by other entities............................ 4.0 2.9 1.7 1.7 1.0
Payments for intangibles.................................. (0.1) (4.3) -- -- --
------- ------- ------- -------- --------
Net cash provided by (used in) investing activities....... $ (39.5) $ 118.4 $ (46.7) $ (48.7) $ (117.8)
------- ------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.................................. $ 664.1 $ 821.1 $ 402.2 $ 316.2 551.7
Repayments of borrowings.................................. (705.9) (727.4) (450.1) (363.5) (699.7)
Proceeds from issuance of capital......................... 0.7 -- 7.0 4.5 --
Proceeds from outside equity interests.................... -- 6.3 14.6 10.9 --
Payments to outside equity interests (Note 6)............. -- (72.1) -- --
Dividends paid............................................ (36.9) (16.6) (28.1) (28.1) (18.7)
Contribution (dividend) with respect to excluded
businesses.............................................. (9.9) 3.3 (9.5) (7.6) --
Cash transferred with Retained Assets and Liabilities..... -- -- -- -- (1.4)
------- ------- ------- -------- --------
Net cash provided by (used in) financing activities..... (87.9) 14.6 (63.9) (67.6) (168.1)
------- ------- ------- -------- --------
Effects of exchange rate changes on cash.................... 1.8 1.7 (40.0) (36.9) (13.9)
------- ------- ------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (45.4) 217.5 (41.5) (52.8) (316.5)
Cash and cash equivalents at beginning of year.............. 219.4 174.0 391.5 391.5 350.0
------- ------- ------- -------- --------
Cash and cash equivalents at end of year.................... $ 174.0 $ 391.5 $ 350.0 $ 338.7 $ 33.5
======= ======= ======= ======== ========
COMPONENTS OF CASH AND CASH EQUIVALENTS:
Cash at bank and on hand -- continuing operations......... $ (0.6) $ 58.5 $ 29.3 $ 24.1 $ 12.5
Cash at bank and on hand -- discontinued operations....... 11.4 3.9 -- -- --
Negotiable securities..................................... 9.6 4.6 -- -- --
Deposits.................................................. 153.6 324.5 320.7 314.6 21.0
------- ------- ------- -------- --------
Cash and cash equivalents at end of year.................... $ 174.0 $ 391.5 $ 350.0 $ 338.7 $ 33.5
======= ======= ======= ======== ========
Cash and cash equivalents at year end comprise:
Current assets -- cash and cash equivalents................. 142.1 338.6 350.0 338.7 33.5
Cash on deposit............................................. 20.5 49.0 -- -- --
Discontinued operations..................................... 11.4 3.9 -- -- --
------- ------- ------- -------- --------
174.0 391.5 350.0 338.7 33.5
======= ======= ======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Cash paid during the year for interest...................... $ 60.9 $ 42.4 $ 30.9 $ 26.4 $ 35.9
Cash paid during the year for income taxes.................. $ 22.7 $ 29.2 $ 12.3 $ 12.3 $ 9.7
</TABLE>
- ---------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 108
JAMES HARDIE N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(MILLIONS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
EXECUTIVE ACCUMULATED
AND OTHER
EMPLOYEE COMPREHENSIVE
CAPITAL LOANS INCOME (LOSS) TOTAL
------- --------- ------------- ------
<S> <C> <C> <C> <C>
Balance as of March 31, 1995.......................... $481.4 $ (4.7) $(13.3) $463.4
Comprehensive income:
Net income.......................................... 12.3 12.3
Other comprehensive income:
Foreign currency translation adjustment.......... 28.7 28.7
Unrealized loss on available-for-sale
securities..................................... (0.7) (0.7)
------ ------
Other comprehensive income....................... 28.0 28.0
------
Total comprehensive income....................... 40.3
Dividends paid........................................ (36.9) (36.9)
Deemed dividend with respect to excluded businesses... (9.9) (9.9)
Issuance of capital................................... 5.1 (4.4) 0.7
Stock compensation.................................... 0.7 0.7
Executive and employee loans.......................... 2.1 2.1
------ ------ ------ ------
Balance as of March 31, 1996.......................... 452.7 (7.0) 14.7 460.4
Comprehensive income:
Net income.......................................... 90.8 90.8
Other comprehensive income:
Foreign currency translation adjustment.......... 1.6 1.6
Unrealized loss on available-for-sale
securities..................................... (0.5) (0.5)
------ ------
Other comprehensive income....................... 1.1 1.1
------
Total comprehensive income....................... 91.9
Dividends paid........................................ (16.6) (16.6)
Deemed dividend with respect to excluded businesses... 3.3 3.3
Stock compensation.................................... 2.9 2.9
Executive and employee loans.......................... 2.9 2.9
------ ------ ------ ------
Balance as of March 31, 1997.......................... 533.1 (4.1) 15.8 544.8
Comprehensive income:
Net income.......................................... 40.9 40.9
Other comprehensive income:
Foreign currency translation adjustment.......... (89.6) (89.6)
Unrealized loss on available-for-sale
securities..................................... (1.5) (1.5)
------ ------
Other comprehensive income....................... (91.1) (91.1)
------
Total comprehensive income....................... (50.2)
Dividends paid........................................ (28.1) (28.1)
Deemed dividend with respect to excluded businesses... (9.5) (9.5)
Issuance of capital................................... 14.8 (7.8) 7.0
Stock compensation.................................... 0.5 0.5
Executive and employee loans.......................... 1.3 1.3
------ ------ ------ ------
Balance as of March 31, 1998.......................... $551.7 $(10.6) $(75.3) $465.8
====== ====== ====== ======
</TABLE>
(continued on next page)
F-6
<PAGE> 109
JAMES HARDIE N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
(UNAUDITED)
(MILLIONS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
RETAINED
EARNINGS ACCUMULATED
ACCUMULATED EXECUTIVE OTHER
PAR VALUE FROM AND COMPREHENSIVE
NLG 0.02 CONTRIBUTED NOVEMBER 1, EMPLOYEE INCOME
CAPITAL PER SHARE SURPLUS 1998 LOANS (LOSS) TOTAL
------- --------- ----------- ----------- --------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of March 31, 1998........... $551.7 $(10.6) $ (75.3) $465.8
Comprehensive income:
Net income........................... 17.5 8.6 26.1
Other comprehensive income:
Foreign currency translation
adjustment...................... (46.1) (46.1)
Unrealized loss on
available-for-sale securities... (0.6) (0.6)
Unrealized gain on
available-for-sale securities
transferred to JHIL............. 1.9 1.9
------- ------
Other comprehensive income........ (44.8) (44.8)
------
Total comprehensive income........ (18.7)
Dividends paid......................... (18.7) (18.7)
Stock compensation..................... 0.2 0.2
Executive and employee loans........... 0.4 0.4
Transfers to (from) JHIL............... (101.3) 10.2 (91.1)
Recapitalization at November 1, 1998... (449.4) 0.6 448.8 0.0
------ ------ ------ ------ ------ ------- ------
Balance as of December 31, 1998........ $ -- $ 0.6 $448.8 $ 8.6 $ -- $(120.1) $337.9
====== ====== ====== ====== ====== ======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 110
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND
On July 2, 1998, James Hardie Industries Limited ("JHIL") announced a plan
of reorganization and capital restructuring (the "Reorganization"). James Hardie
N.V. (and together with its subsidiaries, the "Company" or "James Hardie") was
incorporated in August 1998, all of the common stock of which was owned by
indirect subsidiaries of JHIL. On October 16, 1998, the Reorganization was
approved by JHIL's shareholders. Effective as of November 1, 1998, JHIL
contributed its fiber cement businesses, its U.S. gypsum wallboard business, its
Australian and New Zealand building systems businesses and its Australian
windows business (collectively, the "Transferred Businesses") to the Company. In
connection with the Reorganization, JHIL and its non-transferring subsidiaries
retained certain unrelated assets and liabilities (the "Retained Assets and
Liabilities").
BASIS OF PRESENTATION
For the periods prior to November 1, 1998, the effective date of the
Reorganization, the Company's consolidated financial statements retroactively
reflect the results of operations, cash flows, changes in equity and financial
position of the Retained Assets and Liabilities in addition to the Transferred
Businesses. Such consolidated financial statements exclude the results of
operations, cash flows and financial position of an amusement park, a healthcare
organization and certain asbestos-related costs and liabilities related to
businesses abandoned by JHIL in 1987 because of their dissimilar and unrelated
nature to the Transferred Businesses. Commencing with the effective date of the
Reorganization, the Company's unaudited interim consolidated financial
statements reflect the results of operations, cash flows, changes in equity and
financial position of the Company and its consolidated subsidiaries on a
stand-alone basis and therefore also exclude the Retained Assets and
Liabilities.
The contribution of the Transferred Businesses to the Company pursuant to
the Reorganization was recorded by the Company at the carry-over historical cost
basis because the Company and the Transferred Businesses were under the common
control of JHIL. On the effective date of the Reorganization, the Company
recorded the recapitalization of shareholders' equity and, in addition, the
financial adjustments required to eliminate the Retained Assets and Liabilities
were recorded as a deemed transfer to JHIL.
Interest expense, income tax expense and selling, general and
administrative expenses included in the consolidated financial statements
reflect the historical expenses associated with borrowings of JHIL, the previous
Australian and international tax structure, the compensation costs associated
with JHIL's stock purchase and option arrangements and the costs of JHIL's head
office functions located in Sydney, Australia. All such costs incurred by JHIL
are included in these consolidated financial statements. The borrowings have
been repaid and new indebtedness has been incurred. The Company has
substantially restructured its international tax arrangements, plans to make
awards under new stock compensation plans and has established new operational
headquarters in the United States. Accordingly, the historical consolidated
balance sheets, statements of income, cash flows and changes in equity presented
herein are not necessarily indicative of the results of operations and financial
condition of the Company had the Reorganization been consummated prior to such
periods. Assuming that the Reorganization occurred at the start of the relevant
period, unaudited pro forma net sales, income from continuing operations and
earnings per share would have been $822.3 million, $42.7 million and $0.86 and
$631.1 million, $40.3 million and $0.81 for the year ended March 31, 1998 and
the nine months ended December 31, 1998, respectively. These pro forma results
do not purport to be indicative of what would have occurred had the
Reorganization been consummated as of such dates or of the Company's future
results or earnings per share.
F-8
<PAGE> 111
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED INTERIM FINANCIAL INFORMATION
The information furnished in the consolidated financial statements for the
nine month periods ended December 31, 1998 and 1997, respectively, the quarter
ended March 31, 1998, and for the quarters ended June 30, September 30 and
December 31, 1998 and 1997, respectively, is unaudited but includes all
adjustments which, in the opinion of management is necessary for a fair
presentation of results, cash flows and financial position of the respective
interim periods. Such adjustments are of a normal recurring nature, except for
the adjustments related to the Reorganization described above. Interim financial
statements are by necessity somewhat tentative; judgements are used to estimate
interim amounts for items that are normally determinable only on an annual
basis.
2. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company manufactures and sells fiber cement building products for
internal and external building construction applications primarily in the United
States, Australia, New Zealand and the Philippines. In addition, the Company
produces gypsum wallboard products in the United States. It also manufactures
modular relocatable buildings, insulated steel panel products and windows in
Australia and New Zealand.
ACCOUNTING PRINCIPLES
The consolidated financial statements are prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP"). The U.S.
dollar is used as the reporting currency. All subsidiaries are consolidated and
all significant intercompany transactions and balances are eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from these
estimates.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities are translated into U.S. dollars at current
exchange rates while revenues and expenses are translated at average exchange
rates in effect for the period. The effects of foreign currency translation
adjustments are included directly in a separate component of equity. Prior to
the Reorganization financial instruments were used to hedge, from an Australian
dollar perspective, the amount of its net investment in foreign operations.
After the Reorganization, the Company uses financial instruments to hedge, from
a U.S. dollar perspective, the amount of its net investment in foreign
operations. Gains and losses, net of taxes, arising on such hedges are
recognized in the cumulative translation adjustment account in equity. Gains and
losses arising from foreign currency transactions are recognized in income
currently.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include amounts on deposit in banks and cash
invested temporarily in various highly liquid financial instruments with
maturities of three months or less when acquired. Cash and cash equivalents
include a deposit designated, but not legally restricted, for legal settlement
of the Firmandale litigation (see Note 12) in the amount of $49.0 million and
$61.7 million at March 31, 1997 and 1998, respectively. There are no deposits
designated for Firmandale at December 31, 1998. Effective with the
F-9
<PAGE> 112
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reorganization, Firmandale forms part of the Retained Assets and Liabilities of
JHIL and therefore the Company has no exposure to Firmandale.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is generally
determined under the first-in, first-out method, except that the cost of raw
materials and supplies is determined using actual or average costs. Cost
includes the costs of materials, labor and applied factory overhead.
INVESTMENTS
Management determines the proper classifications of investments at the time
of purchase and re-evaluates such designations at each balance sheet date. All
marketable securities were designated as available for sale securities.
Accordingly, these securities are stated at fair value, with unrealized gains
and losses charged to a separate component of equity, net of taxes. Realized
gains and losses on sales of investments are recognized in income currently.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Property, plant and
equipment of businesses acquired are recorded at their fair market value at the
date of the acquisition. Depreciation of property, plant and equipment is
computed using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings................................................... 40
Building improvements....................................... 5 to 10
Modular relocatable building lease fleet.................... 10
Machinery and equipment..................................... 5 to 20
Computer equipment.......................................... 3 to 4
Office furniture and equipment.............................. 3 to 10
</TABLE>
The cost of additions and improvements is capitalized, while maintenance
and repair costs are expensed as incurred. Interest is capitalized in connection
with the construction of major facilities. The capitalized interest is recorded
as part of the asset to which it relates and is amortized over the asset's
estimated useful life. Retirements, sales and disposals of assets are recorded
by removing the cost and accumulated depreciation amounts with any resulting
gain or loss reflected in income.
INTANGIBLES
Intangibles consist primarily of goodwill, which represents cost in excess
of the fair value of the identifiable net assets of businesses acquired.
Goodwill is amortized using the straight-line method over the period such
additional value is expected to be realized, typically twenty to twenty-five
years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets, including goodwill, for
financial impairment in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" and will continue to evaluate them
as events or changes in circumstances indicate that the carrying amount of such
assets may not be fully recoverable. The Company evaluates the recoverability of
long-lived assets by measuring the carrying amount of the assets against the
estimated undiscounted future cashflows associated with them. At the time such
F-10
<PAGE> 113
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
evaluations indicate that the future undiscounted cashflows of certain
long-lived assets are not sufficient to recover the carrying value of such
assets, the assets are adjusted to their fair values.
ENVIRONMENTAL
Environmental remediation expenditures that relate to current operations
are expensed or capitalized as appropriate. Expenditures that relate to an
existing condition caused by past operations, and which do not contribute to
current or future revenue generation, are expensed. Liabilities are recorded
when environmental assessments and/or remedial efforts are probable and the
costs can be reasonably estimated. Estimated liabilities are not discounted to
present value. Generally, the timing of these accruals coincides with completion
of a feasibility study or the Company's commitment to a formal plan of action.
MINERAL RESERVES
The Company records acquired gypsum and silica mineral proven and probable
ore reserves at their fair market value at the date of acquisition. Depletion
expense is recorded based on the estimated rate per ton multiplied by the number
of tons extracted during the period. The rate per ton may be periodically
revised by management based on changes in the estimated tons available to be
extracted which, in turn, is based on third party studies of proven and probable
reserves. The estimated costs of reclamation associated with mining activities
are accrued during production and are included in determining the cost of
production.
REVENUE RECOGNITION
Sales revenue is recognized when products are shipped or as services are
rendered. Construction contract revenues are recognized using the
percentage-of-completion method based on the costs incurred relative to total
estimated costs. Provisions for anticipated losses on construction contracts are
recognized in income currently. Rental income from the modular relocatable
building lease fleet is recognized on a monthly basis in accordance with the
terms of the operating leases. Sales revenue is presented net of sales returns
and allowances.
ACCRUED WARRANTY
An accrual for estimated future warranty costs is recorded based on the
historical relationship of warranty costs to sales.
FINANCIAL INSTRUMENTS
Interest rate swaps and forward exchange contracts are used to manage
market risks and reduce exposure resulting from fluctuations in interest rates
and foreign currency exchange rates. Where such contracts are designated as, and
effective as, a hedge, gains and losses arising on such contracts are deferred
and recognized on a basis consistent with corresponding losses and gains on the
underlying hedged item.
Financial instruments, which potentially subject the Company to significant
concentrations of credit risk, consist principally of cash investments, trade
accounts receivable, forward exchange contracts and interest rate swaps.
The Company maintains cash and cash equivalents, investments and certain
other financial instruments with various major financial institutions. The
Company performs periodic evaluations of the relative credit standing of these
financial institutions and, where appropriate, places limits on the amount of
credit exposure with any one institution.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of customers and their geographical dispersion.
Credit is extended based on an evaluation of each customer's
F-11
<PAGE> 114
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
financial condition and, generally, collateral is not required. The Company has
historically not incurred significant credit losses.
STOCK-BASED COMPENSATION
The Company accounts for stock option grants and other equity incentive
awards in accordance with Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations. Under
APB No. 25, compensation expense is recorded when the current market price of
the underlying stock exceeds the exercise price on the date of grant. Under the
JHIL Employee and Executive Share Purchase Plans, loans were provided to
employees to buy shares in JHIL.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 requires disclosure of Basic and Diluted
Earnings Per Share ("EPS"). Basic EPS is calculated using income divided by the
weighted average of common shares outstanding during the year. Diluted EPS is
similar to Basic EPS except that the weighted average of common shares
outstanding is increased to include the number of additional common shares that
would have been outstanding if the dilutive potential common shares, such as
options, had been issued. The Company has adopted SFAS No. 128. EPS has been
presented for all periods on a basis that retroactively reflects, as is
described in Note 1, the formation of the Company and the Reorganization. The
weighted number of shares of the Company for the three years in the period ended
March 31, 1998 and for each of the nine month periods ended December 31, 1997
and 1998, was 47.5 million, 48.2 million, 49.5 million, 49.5 million, and 50.0
million, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the FASB issued SFAS No. 130, "Reporting on Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components. This standard is effective for the fiscal year ending
March 31, 1999. Comprehensive income consists of "net income" and "other
comprehensive income" items that are recognized directly in equity such as
foreign currency translation adjustments and the net unrealized gain (loss) on
available-for-sale securities. The Statement also requires the accumulated
balance of other comprehensive income to be disclosed separately from retained
earnings and capital in the balance sheet. The Company has adopted SFAS No. 130
(see Note 19). This Statement relates to the disclosure and presentation of
financial information and has had no impact on results of operations or
financial position.
In 1998, the FASB also issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing standards. The effective date of this standard is for the
fiscal year ending March 31, 2001. All derivatives are required to be recognized
in the statement of financial position as either assets or liabilities and
measured at fair value. The effects of SFAS No. 133 on the Company's results
will depend on the nature, amount and fair values of its open hedging and hedged
positions when SFAS No. 133 is adopted, which is expected to be April 1, 1999.
Furthermore, the Company's financial and hedge exposures have changed
significantly due to the Reorganization. Accordingly, the Company has not yet
determined the effects SFAS No. 133 will have on either its financial position
or results of operations.
In 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on
capitalization of the costs incurred for computer software developed or obtained
for internal use. It also provides guidance for determining whether computer
software is for internal use and for the accounting of the proceeds of computer
software originally developed or obtained for internal
F-12
<PAGE> 115
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
use and then subsequently sold to the public. SOP 98-1 is effective for the
fiscal year ending March 31, 2000. Management believes the effect of adopting
SOP 98-1 will not have a material impact on the accompanying consolidated
financial statements.
In 1998, the AICPA also issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that costs of start-up activities,
including organization costs, be expensed as incurred. Start-up activities are
broadly defined and include one-time activities related to opening a new
facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer or beneficiary,
initiating a new process in an existing facility, commencing some new operation,
and organizing a new entity. SOP 98-5 is effective for the fiscal year ending
March 31, 2000, with initial application reported as the cumulative effect of a
change in accounting principle. As the Company's policy is to expense all
start-up costs as incurred, management believes adoption of SOP 98-5 will not
have a material impact on the accompanying consolidated financial statements.
3. ACCOUNTS RECEIVABLE
The collectibility of accounts receivable, consisting mainly of trade
receivables, is reviewed on an ongoing basis and an allowance for doubtful
accounts is provided for known and estimated bad debts. The changes in the
allowance for doubtful accounts are as follows (in millions):
<TABLE>
<CAPTION>
MARCH 31,
----------------------- DECEMBER 31,
1996 1997 1998 1998
----- ----- ----- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at beginning of period........... $ 4.8 $ 5.1 $ 4.8 $ 5.4
Charged to expense....................... 2.2 0.6 2.3 0.7
Costs and deductions..................... (2.2) (0.5) (2.3) (0.1)
Foreign currency movements............... 0.3 (0.4) 0.6 (0.1)
Transfers to JHIL upon Reorganization.... -- -- -- (1.6)
----- ----- ----- -----
Balance at end of period................. $ 5.1 $ 4.8 $ 5.4 $ 4.3
===== ===== ===== =====
</TABLE>
4. INVENTORIES
Inventories consist of the following components (in millions):
<TABLE>
<CAPTION>
MARCH 31,
-------------- DECEMBER 31,
1997 1998 1998
----- ----- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and supplies....................... $31.4 $30.0 $33.3
Work-in-process.................................. 8.5 7.0 7.4
Contracts in progress less advance billings...... 4.6 3.3 0.5
Finished goods................................... 39.8 23.4 30.9
----- ----- -----
Total inventory........................ $84.3 $63.7 $72.1
===== ===== =====
</TABLE>
Work-in-process includes amounts related to construction contracts. The net
amount of construction work-in-process of $4.6 million, $3.3 million and $0.5
million was determined after deducting payments and progress billings of $33.4
million and $56.6 million as of March 31, 1997 and 1998, respectively, and $49.7
million as of December 31, 1998.
F-13
<PAGE> 116
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS
Investments consist of the following components (in millions):
<TABLE>
<CAPTION>
MARCH 31,
-------------- DECEMBER 31,
1997 1998 1998
----- ----- ------------
(UNAUDITED)
<S> <C> <C> <C>
Available-for-sale securities:
Marketable securities at cost.................. $ 3.3 $ 5.6 $ --
Gross unrealized gains (losses)................ 0.2 (1.3) --
----- ----- -----
Marketable securities at fair value............ 3.5 4.3 --
Other investments at cost approximating fair
value.......................................... 27.5 10.3 3.1
----- ----- -----
Total investments...................... $31.0 $14.6 $ 3.1
===== ===== =====
</TABLE>
6. EQUITY INVESTMENTS
Included in equity investments at March 31, 1997 is $178.0 million related
to the net assets of RCI Corporation and $1.2 million related to other equity
investments. The net assets of RCI Corporation represented a 39.6% voting
interest in the issued share capital of RCI Corporation. The Company also had
borrowings of $273.1 million from subsidiaries of RCI Corporation. After
purchasing additional shares in RCI Corporation for $38.5 million, receiving
dividends of $54.0 million and a return of capital of $5.8 million, paying break
fees of $22.2 million, accruing additional equity income of $6.2 million, and
other costs of $0.3 million, the Company's carrying amount on the date of
disposal was $184.8 million. During 1998, the Company disposed of its investment
in RCI Corporation to a subsidiary of RCI Corporation for a total consideration
of $185.4 million, of which $7.4 million was received in cash and $178.0 million
through the exercise of a legal right of set-off between the resulting
receivable from the RCI Corporation subsidiary and the Company's borrowings. An
additional $95.0 million of borrowings was repaid during 1998.
During 1996, 1997 and 1998, the Company earned equity income on its
investment in RCI Corporation of $7.9 million, $9.2 million and $6.2 million,
respectively, and incurred interest expense of $17.3 million, $16.9 million and
$11.3 million, respectively, on its borrowings from RCI Corporation. A gain on
disposal of $0.6 million was recognized within equity income in 1998 as a result
of disposing of the investment and repaying the borrowings.
At March 31, 1997, RCI Corporation had total assets of $452.1 million,
shareholders' equity of $451.5 million, and the quoted market price of the
Company's investment was $184.4 million. In March 1997, the minority interest
held by RCI Corporation in redeemable common stock of a subsidiary of JHIL was
redeemed for $72.1 million. This amount has been disclosed in the consolidated
statement of cash flows as a payment to minority interests. At the same time,
the Company borrowed $72.1 million from RCI Corporation.
F-14
<PAGE> 117
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The consolidated results of operations of RCI Corporation are summarized as
follows (in millions):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED MARCH 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Investment income........................................... 9.8 9.1
Loan interest -- JHIL....................................... 17.3 16.9
Bank deposit interest....................................... 0.8 0.4
----- -----
27.9 26.4
Expenses.................................................... (2.8) (2.6)
----- -----
Net income before taxation.................................. 25.1 23.8
Taxation.................................................... -- --
----- -----
Net income after taxation................................... 25.1 23.8
Dividends to preference shareholders........................ (14.0) (13.0)
----- -----
Net income after claims of preference shareholders.......... 11.1 10.8
===== =====
</TABLE>
The summarized balance sheet information of RCI Corporation is as follows
(in millions):
<TABLE>
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
Assets:
Cash and cash equivalents................................. $ 7.7
Investments............................................... 170.3
Other current assets...................................... 1.0
------
Total current assets.............................. 179.0
------
Loans receivable -- JHIL.................................. 273.1
------
Total assets................................................ $452.1
======
Liabilities:
Accounts payable.......................................... 0.6
------
Total current liabilities......................... 0.6
------
Total equity................................................ 451.5
------
Total liabilities and equity................................ $452.1
======
</TABLE>
The Company disposed of its equity investment in RCI Corporation during
October 1997.
F-15
<PAGE> 118
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following components (in
millions):
<TABLE>
<CAPTION>
MARCH 31,
------------------ DECEMBER 31,
1997 1998 1998
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Property, plant and equipment, at cost:
Land....................................... $ 27.7 $ 24.5 $ 16.0
Buildings and improvements................. 96.0 115.7 81.0
Modular relocatable building lease fleet... 48.1 55.2 57.2
Machinery and equipment.................... 393.4 433.8 465.0
------- ------- -------
565.2 629.2 619.2
Less accumulated depreciation................ (164.7) (150.2) (130.0)
------- ------- -------
Property, plant and equipment, net........... $ 400.5 $ 479.0 $ 489.2
======= ======= =======
</TABLE>
Interest related to the construction of major facilities is capitalized and
included in the cost of the asset to which it relates. Interest capitalized was
$0.5 million, $2.5 million and $2.1 million for the years ended March 31, 1996,
1997 and 1998, respectively, and $2.9 million for the nine months ended December
31, 1998. Depreciation expense for continuing operations was $26.9 million,
$34.2 million and $36.5 million for the years ended March 31, 1996, 1997 and
1998, respectively, and $26.8 million and $28.1 million for the nine months
ended December 31, 1997 and 1998, respectively.
8. INTANGIBLE ASSETS
Intangible assets consist of the following components (in millions):
<TABLE>
<CAPTION>
MARCH 31,
-------------- DECEMBER 31,
1997 1998 1998
----- ----- ------------
(UNAUDITED)
<S> <C> <C> <C>
Intangible assets:
Goodwill....................................... $38.1 $38.1 $38.1
Trademarks, patents and other intangibles...... 0.9 0.3 0.3
----- ----- -----
39.0 38.4 38.4
Less accumulated amortization.................... (1.0) (2.0) (3.2)
----- ----- -----
Intangibles, net................................. $38.0 $36.4 $35.2
===== ===== =====
</TABLE>
Amortization expense related to goodwill and other intangibles was $1.1
million, $1.4 million, and $2.0 million for the years ended March 31, 1996, 1997
and 1998, respectively, and $1.2 million and $1.1 million for the nine months
ended December 31, 1997 and 1998, respectively.
In 1997, there was a write-off of goodwill of $21.0 million in the Windows
business in accordance with the Company's impairment of long-lived assets
policy. An additional amount of $10.8 million was also written off in 1997 with
respect to goodwill of a discontinued business.
9. RETIREMENT PLANS
The Company has adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS No. 132 standardizes
disclosure requirements and requires additional information regarding changes in
benefit obligations and the fair value of plan assets. SFAS No. 132 does not
change the existing measurement or recognition provisions of SFAS No. 87,
"Employers' Accounting for Pensions," and SFAS No. 88 "Employers' Accounting for
Settlements and Curtailments of Defined Benefit
F-16
<PAGE> 119
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pension Plans and for Termination Benefits." Prior years' information has been
restated to conform with the requirements of this standard.
The Company sponsors a defined contribution plan for employees in its U.S.
operations and a defined benefit plan for its Australian employees. The defined
contribution plan covers all U.S. employees meeting certain eligibility
requirements and provides for contributions of up to 6% of their salary. The
Company's expense for the defined contribution plan totalled $1.1 million, $1.2
million, and $1.3 million in 1996, 1997 and 1998, respectively. The expense
totalled $1.2 million for the nine months ended December 31, 1998.
The components of net periodic pension cost for the Australian defined
benefit pension plan are as follows (in millions):
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED MARCH 31, ENDED
------------------------- DECEMBER 31,
1996 1997 1998 1998
----- ------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Service cost................................. $ 8.6 $ 11.1 $ 6.7 $ 3.9
Interest cost................................ 9.4 10.2 7.1 2.9
Expected return on plan assets............... (11.1) (12.1) (7.5) (5.2)
Amortization of unrecognized transition
asset...................................... (2.6) (2.3) (1.5) (0.9)
Amortization of prior service cost........... -- -- -- --
Recognized net actuarial (gain) loss......... -- 0.1 (1.0) 0.2
----- ------ ------ ------
Net periodic pension cost.................... $ 4.3 $ 7.0 $ 3.8 $ 0.9
===== ====== ====== ======
</TABLE>
Net income was also affected by settlement and curtailment items as
follows: The Pipelines, Bathroom Products, Building Services and Irrigation
businesses were sold during 1997 and 1998, resulting in settlement gains of $3.9
million and $9.8 million, respectively. The cost of providing for termination
benefits related to the ordinary course of business was $0.9 million and $0.8
million in 1997 and 1998, respectively. These terminations resulted in
curtailment gains of $0.3 million and $0.5 million in 1997 and 1998,
respectively.
Assumptions used in developing the projected benefit obligation as of March
31 and December 31 for the Australian defined benefit plan were as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------- DECEMBER 31,
1996 1997 1998 1998
---- ---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Discount rate...................................... 9.0% 8.0% 6.0% 5.25%
Rate of increase in compensation................... 5.0% 4.5% 4.5% 4.0%
Expected return on plan assets..................... 9.0% 9.0% 9.0% 8.5%
</TABLE>
Plan assets consist primarily of investments in marketable securities. Net
unrecognized gains and losses are amortized over the average remaining service
period of active employees. A market related value of assets is used to
determine pension costs using a five year average of stocks held for investment
purposes. The discount rate is based on the yield on 10 year high quality
investment securities. The decline in the discount rate from 1996 to 1998 is a
direct result of the decline in the yields of the high quality investment
securities over the same period.
F-17
<PAGE> 120
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The actuarial changes in the benefit obligation, changes in plan assets,
and the funded status of the Australian defined benefit plan are as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1998
---------------- ------------
1997 1998
------ ------ (UNAUDITED)
<S> <C> <C> <C>
CHANGES IN BENEFIT OBLIGATION:
Benefit obligation -- beginning balance.............. $106.7 $ 94.4 $ 67.4
Service cost......................................... 11.1 6.7 3.9
Interest cost........................................ 10.2 7.1 2.9
Plan participants' contributions..................... 3.3 2.4 1.1
Plan amendments...................................... -- -- 0.5
Actuarial (gain) loss................................ (5.5) 11.2 3.7
Divestitures......................................... (15.9) (25.5) --
Curtailment (gain) loss.............................. (0.3) (0.5) --
Special termination benefits......................... 0.9 0.8 --
Benefits paid........................................ (16.9) (15.5) (7.7)
Foreign currency translation difference.............. 0.8 (13.7) (5.3)
------ ------ ------
Benefit obligation -- ending balance................. $ 94.4 $ 67.4 $ 66.5
====== ====== ======
CHANGES IN PLAN ASSETS:
Fair value of plan assets -- beginning balance....... $142.9 $135.3 $108.3
Actual return on plan assets......................... 20.9 32.0 --
Divestitures......................................... (15.9) (25.5) --
Employer contributions............................... -- -- --
Plan participants' contributions..................... 3.3 2.4 1.1
Benefits paid........................................ (16.9) (15.5) (7.7)
Foreign currency translation difference.............. 1.0 (20.5) (8.4)
------ ------ ------
Fair value of plan assets -- ending balance.......... $135.3 $108.2 $ 93.3
====== ====== ======
FUNDED STATUS........................................ $ 40.9 $ 40.8 $ 26.8
Unamortized prior service cost....................... -- -- 0.4
Unrecognized actuarial (gain) loss................... (16.9) (20.4) (10.2)
Unrecognized prior service cost...................... (16.0) (8.2) (6.6)
------ ------ ------
Prepaid (accrued) pension cost....................... $ 8.0 $ 12.2 $ 10.4
====== ====== ======
</TABLE>
10. SHORT AND LONG TERM DEBT AND RELATED PARTY BORROWINGS
Following the Reorganization, long term debt consists of the following (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
(UNAUDITED)
<S> <C>
U.S.$ unsecured notes, 7.09% average rate................. $225.0
AUD term loan facility, 5.24% average rate................ 122.5
------
347.5
Less current maturities..................................... (0.0)
------
Total long term debt........................................ $347.5
======
</TABLE>
F-18
<PAGE> 121
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The US$ unsecured notes form part of a seven tranche private placement
facility. Repayments are due in seven installments that commence on November 5,
2004 and end on November 5, 2013. The tranches bear fixed interest rates of
6.86%, 6.92%, 6.99%, 7.05%, 7.12%, 7.24% and 7.42%, respectively.
The AUD term loan can be repaid and redrawn until maturity in 2001.
Interest is recalculated quarterly based on the Reuters Bank Bill Swap Yield
("BBSY") bid rate +0.30%. The rate as at December 31, 1998 was 5.24%.
At December 31, 1998, the scheduled maturities of long term debt for the
next five years were as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
(UNAUDITED)
<S> <C>
1999.................................................... --
2000.................................................... --
2001.................................................... 122.5
2002.................................................... --
2003.................................................... --
2004 and thereafter..................................... 225.0
</TABLE>
The Company had the following short-term revolving credit facility
available at December 31, 1998 (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
(UNAUDITED)
<S> <C>
U.S.$ revolving credit facility............................. $77.5
=====
</TABLE>
At December 31, 1998 the Company had drawn down $25 million of this
revolving credit facility. The weighted average interest rate on outstanding
short-term borrowings was 5.86% at December 31, 1998.
At December 31, 1998, management believes it was in compliance with all
restrictive covenants contained in the unsecured notes, term loan and the
revolving credit facilities. Under the most restrictive of these covenants, the
Company is required to:
- maintain a ratio of Consolidated Funded Debt to Consolidated Funded
Capitalization of less than 60% (this reduces to 55% after March 31,
1999).
- maintain the aggregate amount of Secured Debt to Consolidated Net Worth
at less than 20%.
- maintain Consolidated Net Worth at greater than $250 million until March
31, 1999, $275 million until March 31, 2000, $300 million until March 31,
2001 and $320 million thereafter.
- ensure that earnings before interest and taxes is not less than twice Net
Interest Charges in any year ending March 31 for the revolving credit
facility.
F-19
<PAGE> 122
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Prior to the Reorganization, long term debt at March 31, 1997 and 1998
consisted of the following (in millions):
<TABLE>
<CAPTION>
MARCH 31,
---------------- DECEMBER 31,
1997 1998 1998
------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C>
U.S.$ noncollateralized notes, 6.67% average rate,
payable to 2007................................... $158.0 $158.0 $ --
U.S.$ revolving credit facility, 5.935% average
rate.............................................. 245.5 300.0 --
NZD promissory note, 9.295% average rate............. 70.3 64.7 --
NZD convertible notes, 7.5% interest rate, payable in
2001.............................................. 14.8 8.9 --
------ ------ ------
488.6 531.6 --
Less current maturities................................ (18.4) (35.3) --
------ ------ ------
Total long term debt................................... $470.2 $496.3 $ --
====== ====== ======
</TABLE>
Related party borrowings at March 31, 1997 and 1998 consisted of the
following (in millions):
<TABLE>
<CAPTION>
MARCH 31,
----------------
1997 1998
------ ------
<S> <C> <C>
U.S.$ fixed rate 9.70% loan due March 29, 2012 ........... $100.0 $ --
U.S.$ LIBOR plus 1.25% loan due March 29, 2012............ 93.0 --
U.S.$ revolving credit loan due March 29, 1998 extendable
to March 29, 2012...................................... 9.8 --
U.S.$ extendable LIBOR plus 0.15% term loans due September
15, 1997............................................... 70.3 --
------ ------
273.1 --
Less current maturities..................................... (70.3) --
------ ------
Total long term related party borrowings.................... $202.8 $ --
====== ======
</TABLE>
The noncollateralized U.S. $ notes were part of a two tranche private
placement facility. The tranches bore fixed rates of interest of 9.23% and
9.44%, respectively, but were swapped for floating rates which match the cash
flows of the notes exactly at LIBOR + 0.96%. At March 31, 1997 and 1998, the
swap rates were 6.67%.
The U.S. $ revolving credit facility could be repaid and redrawn until
maturity at various dates in 2000 and 2001. Interest was recalculated quarterly
based on LIBOR + 0.175% to 0.35% and the rates at March 31, 1997 were 5.76% to
6.03%. The rates at March 31, 1998 were 5.83% to 6.04%.
The NZD promissory note was repayable within 90 days, but the Company
entered into refinancing agreements that permitted it to replace the notes with
two credit note facilities for the same principal and which expired in 1999 and
2000. The Company intended to refinance $41.6 million with facilities that
expired in April 2000. Accordingly, of the $64.7 million NZD promissory note,
$23.1 million was classified as current. At March 31, 1997, the rates were 7.47%
to 7.71% and at March 31, 1998, interest rates were 8.72% to 9.87%.
The related party borrowings with RCI Corporation (see Note 6) were settled
in fiscal year 1998.
At March 31, 1998 the scheduled maturities of debt for the next five years
were as follows: $35.3 million in 1999; $53.5 million in 2000; $311.9 million in
2001; $20.6 million in 2002; $12.0 million in 2003; and $98.3 million in total
thereafter.
The weighted average interest rate on outstanding short-term borrowings was
8.8%, 7.3% and 8.2% for 1996, 1997 and 1998, respectively.
F-20
<PAGE> 123
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company had the following credit facilities available at March 31, 1998
which had not been drawn down (in millions):
<TABLE>
<CAPTION>
MARCH 31,
1998
---------
<S> <C>
AUD promissory note standby................................. $66.5
NZD revolving credit facility............................... 60.1
U.S.$ revolving credit facility............................. 55.0
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
YEAR 2000
The Company has established a Year 2000 compliance program. All of the
Company's computer systems are expected to be compliant or replaced by a
compliant solution by mid-1999. In the United States and the Philippines, the
Company believes that its exposure is relatively small due to the more recent
acquisition of its central systems. The Company is also exposed to Year 2000
failures in key suppliers and in its customer base. There can be no assurance
that problems will not arise as a result of Year 2000 issues with the Company's
systems or those of its key suppliers and its customer base.
ENVIRONMENTAL
The operations of the Company, like those of other companies engaged in
similar businesses, are subject to various federal, state and local laws and
regulations on air and water quality, waste handling and disposal. The Company's
policy is to accrue for environmental costs when it is determined that it is
probable that an obligation exists and the amount can be reasonably estimated.
In the opinion of management, based on information presently known, the ultimate
liability for such matters should not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows,
but could exceed the cleanup costs of $2.0 million accrued.
LEGAL
The Company is involved from time to time in various legal proceedings and
administrative actions incident to the normal conduct of its business. Although
it is impossible to predict the outcome of any pending legal proceeding,
management believes that such proceedings and actions should not, individually
or in the aggregate, have a material adverse effect on its financial position,
results of operations or cash flows.
OPERATING LEASES
As the lessee, the Company principally enters into property and equipment
leases. The following are future minimum lease payments for non-cancellable
operating leases having a remaining term in excess of one year at March 31, 1998
and December 31, 1998 (in millions):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1998
--------- ------------
(UNAUDITED)
<S> <C> <C>
1999........................................... $ 8.0 $ 1.9
2000........................................... 6.8 7.0
2001........................................... 5.6 5.6
2002........................................... 5.1 4.9
2003........................................... 0.8 4.9
Remainder...................................... 4.6 27.5
----- -----
Total.......................................... $30.9 $51.8
===== =====
</TABLE>
F-21
<PAGE> 124
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Rental expense amounted to $12.9 million, $15.1 million and $9.7 million in
the years ended March 31, 1996, 1997 and 1998, respectively and $6.8 million and
$7.1 million in the nine months ended December 31, 1997 and 1998.
MODULAR RELOCATABLE BUILDING LEASE FLEET INCOME
Future guaranteed hire rental income under operating leases in which the
Company is the lessor is $3.5 million, of which $3.1 million becomes due in
fiscal year 1999.
CAPITAL COMMITMENTS
Commitments for the acquisition of plant and equipment contracted for but
not recognized as liabilities (in millions):
<TABLE>
<CAPTION>
MARCH 31,
-------------- DECEMBER 31,
1997 1998 1998
----- ----- ------------
(UNAUDITED)
<S> <C> <C> <C>
Payable within one year.................................. $37.1 $63.1 $24.1
Payable later than one year, not later than two years.... -- 27.1 --
----- ----- -----
$37.1 $90.2 $24.1
===== ===== =====
</TABLE>
OTHER COMMITMENTS
On May 14, 1998, the U.S. Gypsum business entered into a paperboard supply
agreement which commences on or before October 1, 2000 and runs for ten years
from commencement date (as defined in the agreement) or until October 1, 2010,
whichever is later. Under the agreement the selling price is computed by a
formula whereby an initial base price is adjusted for changes in the cost of
certain key grades of paper stock and other factors as detailed in the
agreement. The percentage of the recycled paperboard requirements of the U.S.
Gypsum business to be supplied under the agreement is as follows:
<TABLE>
<CAPTION>
LAS VEGAS,
NEVADA AND
ARKANSAS SEATTLE
% %
--------- ----------
<S> <C> <C>
From commencement to September 30, 2000..................... 7 --
From October 1, 2000 to December 31, 2000................... 7 95%
(plus or
minus 5%)
From January 1, 2001 to termination......................... 95% 95%
(plus or (plus or
minus 5%) minus 5%)
</TABLE>
No paperboard was supplied under this agreement in the nine months ended
December 31, 1998.
12. RESTRUCTURING AND OTHER OPERATING EXPENSES AND OTHER NONOPERATING EXPENSES,
NET
The Company incurred restructuring and other operating expenses of $38.8
million and $5.1 million for the years ended March 31, 1997 and 1998,
respectively. For fiscal year 1997, the Company incurred asset write-downs and
employee termination costs of $15.4 million associated with the restructuring
and upgrade of the fiber cement business in Australia, a Windows goodwill
write-off of $21.0 million and environmental costs of $2.4 million. Employee
termination costs of $5.1 million, $2.2 million and $1.2 million for year ended
March 31, 1998 and nine months ended December 31, 1997 and 1998, respectively,
associated with the restructuring and upgrade of the fiber cement business in
Australia, were incurred.
F-22
<PAGE> 125
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Restructuring and other operating expenses consist of the following amounts
(in millions):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
----------------------- --------------
1996 1997 1998 1997 1998
---- ------ ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Obsolete equipment write-down.............. $ -- $(11.4) $ -- $ -- $ --
Impairment charge -- Largs Bay and Brooklyn
property writedowns...................... -- (2.4) -- -- --
Goodwill write-off -- Windows.............. -- (21.0) -- -- --
Environmental costs........................ -- (2.4) -- -- --
Employee termination costs................. -- (1.6) (5.1) (2.2) (1.2)
---- ------ ----- ----- -----
$ -- $(38.8) $(5.1) $(2.2) $(1.2)
==== ====== ===== ===== =====
</TABLE>
Following the acquisition of Trend Windows in December 1994, sales declined
severely during fiscal year 1996 and 1997 as a result of a slump in housing
starts which was not foreseen at the time of acquisition. In February and March
1997, a Board review of the Windows Business Plan for 1998 to 2000 and a full
post-implementation review of the Windows acquisition revealed that Windows
would continue to incur future operating losses due to changes in market and
economic trends. These changes in circumstances indicated that the
recoverability of the carrying amount of Window's long-lived assets, including
goodwill, should be assessed. The Company estimated the future cash flows
(undiscounted and without interest charges) expected to result from the use of
the assets of the Window's business and their eventual disposition. As the sum
of the expected future cash flows was less than the carrying amount of the
assets, the Company had to recognize an impairment loss, measured as the amount
by which the carrying amount exceeds the fair value of the assets. The Company
determined the fair value of the assets using the present value of estimated
expected future cash flows. The carrying amount exceeded the fair value of the
assets by $21.0 million. In instances where goodwill is identified with assets
that are subject to an impairment loss, SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
requires the carrying amount of the identified goodwill to be eliminated before
reducing the carrying amount of impaired long-lived assets. Accordingly, the
Company wrote-off $21.0 million in goodwill related to the Windows business
during fiscal year 1997.
During the second half of fiscal year 1997, the Company adopted a plan to
restructure and upgrade its fiber cement plants in Australia due to changes in
technology. The upgrade included a complete replacement of existing machinery
with new machinery designed to handle new technological innovations in fiber
cement which was expected to take place during fiscal year 1998 and to be
substantially completed by March 31, 1998. The existing machinery and equipment
could not be used with the new technology and did not have any alternate uses.
These changes in circumstances and the short period of time in which the
existing machinery would be used resulted in the Company's recognizing an
impairment loss of $11.4 million to reduce the carrying amount of the assets to
their fair value in accordance with the SFAS No. 121 requirements for
recognizing and measuring impairment of assets held for use. Due to start-up,
integration and commissioning problems, unexpected costs and delays were
incurred in bringing all the new machinery on-line and ready for use. As a
result, the old equipment was not fully retired until December 31, 1998. Such
delays did not materially impact the Company's original estimate of the
impairment loss.
The writedowns related to Brooklyn and Largs Bay were in connection with
properties that have been abandoned and are held for disposal. Such assets have
been written down to their fair value.
F-23
<PAGE> 126
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Other nonoperating expenses, net consist of the following amounts (in
millions):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
-------------------------- ---------------
1996 1997 1998 1997 1998
------ ------ ------ ------ -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Dividend and investment income......... $ 4.4 $ 1.6 $ 0.1 $ -- $ 6.1
Firmandale provisions and expenses..... (17.9) (14.7) (12.2) (10.5) --
Reorganization expenses................ -- -- -- -- (8.4)
Write-down of investments to net
realizable value..................... -- -- -- -- (2.5)
Other expenses, net.................... (1.5) (1.5) -- -- --
------ ------ ------ ------ -----
$(15.0) $(14.6) $(12.1) $(10.5) $(4.8)
====== ====== ====== ====== =====
</TABLE>
On March 12, 1998, JHIL entered into a comprehensive settlement of all
litigation arising out of a dispute between American Endeavour Fund ("AEF") and
London Pacific Group Limited. JHIL was joined to the litigation as a result of a
transaction it entered into in 1987 with Firmandale Investments Limited
("Firmandale"). All litigation between the parties has been discontinued, with
each party bearing its own costs and each party has released each other party
from any future claims arising out of or connected with the dispute or the
litigation. Certain indemnities given by JHIL to the directors of AEF and
Firmandale for liabilities they may incur in those capacities will continue.
Because of the releases contained in the settlement agreement, the Directors of
JHIL consider that these indemnities do not expose JHIL to any further
liability. As part of the settlement arrangements, Yelrom International Pty
Limited ("Yelrom"), a wholly-owned subsidiary of JHIL, made a partial offer in
March 1998 to acquire 10,976,512 AEF shares for $20.3 million, representing
approximately 20% of AEF's issued share capital, at $1.85 each. The underlying
net asset value of AEF is estimated to be $0.853 per share, or $9.4 million. In
April 1998, JHIL made a payment of $51.8 million to settle its liabilities under
its guarantee of the financial obligations of Firmandale, and assumed control of
the 75% of AEF owned by Firmandale. As part of the settlement arrangements, AEF
was placed into voluntary liquidation with its assets to be distributed between
AEF's shareholders in a way which will permit Yelrom to recover up to $4.0
million of its acquisition costs. The Firmandale provision of $61.7 million at
March 31, 1998 covers the $51.8 million guarantee payment, the anticipated loss
arising from the Yelrom offer and all related legal and professional costs. No
insurance recoveries have been assumed or included in estimating this accrual.
In the opinion of management, any further adjustments to this provision will not
be material to the financial position, results of operations or cash flows of
JHIL.
Effective with the Reorganization, Firmandale forms part of the Retained
Assets and Liabilities of JHIL and therefore the Company has no exposure to
Firmandale.
F-24
<PAGE> 127
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES
The income tax (expense) benefit includes income taxes currently payable
and those deferred because of temporary differences between the financial
statement and tax bases of assets and liabilities. The income tax expense
(benefit) for income from continuing operations consists of the following (in
millions):
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED MARCH 31, ENDED
-------------------------- DECEMBER 31,
1996 1997 1998 1998
------ ------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income (loss) from continuing operations
before income tax (expense) benefit:
Domestic(1)............................ $(14.3) $(16.9) $(17.4) $ 8.3
Foreign................................ 35.2 1.4 73.1 48.7
------ ------ ------ ------
$ 20.9 $(15.5) $ 55.7 $ 57.0
====== ====== ====== ======
Income tax (expense) benefit:
Current
Domestic(1)............................ $ -- $ -- $ -- $ (1.7)
Foreign................................ (19.8) (29.0) (11.0) 8.1
------ ------ ------ ------
(19.8) (29.0) (11.0) 6.4
------ ------ ------ ------
Deferred
Domestic(1)............................ 19.5 35.3 (4.5) 0.7
Foreign................................ (2.5) (3.3) (9.5) (29.7)
------ ------ ------ ------
17.0 32.0 (14.0) (29.0)
------ ------ ------ ------
Income tax (expense) benefit................ $ (2.8) $ 3.0 $(25.0) $(22.6)
====== ====== ====== ======
</TABLE>
Income tax (expense) benefit for discontinued operations consists of the
following (in millions):
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED MARCH 31, ENDED
---------------------- DECEMBER 31,
1996 1997 1998 1998
---- ----- ----- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income tax (expense) benefit on discontinued
operations:
Current
Domestic(1)................................ $ -- $ -- $ -- $ --
Foreign.................................... -- -- -- --
---- ----- ----- ------
-- -- -- --
---- ----- ----- ------
Deferred
Domestic(1)................................ 9.8 (0.6) (2.1) --
Foreign.................................... -- -- -- --
---- ----- ----- ------
9.8 (0.6) (2.1) --
---- ----- ----- ------
Income tax (expense) benefit on disposal of
discontinued operations....................... -- (5.7) 9.7 --
---- ----- ----- ------
Total income tax (expense) benefit for
discontinued operations....................... $9.8 $(6.3) $ 7.6 $ --
==== ===== ===== ======
</TABLE>
- ---------------
(1) Domestic for periods up to November 1, 1998 represents Australia and
thereafter The Netherlands.
F-25
<PAGE> 128
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the three years, the statutory rates were 35% in the U.S., 36% in
Australia, 35% in the Philippines and 33% in New Zealand. The provision for
income taxes is reconciled to the tax at the statutory rate as follows (in
millions):
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED MARCH 31, ENDED
--------------------------- DECEMBER 31,
1996 1997 1998 1998
----- ------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CONTINUING OPERATIONS
Income tax (expense) benefit computed at
the statutory tax rates.................. $(6.9) $ 4.6 $(21.2) $(20.2)
Depreciation and amortization not
allowable................................ (0.8) (0.6) 0.1 0.1
Expenses not deductible.................... (3.1) (4.0) (26.8) (3.4)
Rebates on dividends received.............. 2.8 0.2 21.4 --
Non-assessable income...................... 3.6 0.1 -- 3.7
Research and development incentive......... 7.2 1.3 2.4 0.4
Losses not available for carryforward...... -- (0.4) (1.7) (2.8)
Core technology cost base.................. -- 45.3 -- --
Other items................................ (7.0) 0.5 5.7 (0.4)
Movement in valuation allowance............ 1.4 (44.0) (4.9) --
----- ------ ------ ------
Income tax (expense) benefit............... $(2.8) $ 3.0 $(25.0) $(22.6)
----- ------ ------ ------
Effective tax rate......................... 13.4% 19.4% 44.9% 39.6%
===== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED MARCH 31, ENDED
--------------------------- DECEMBER 31,
1996 1997 1998 1998
----- ------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
DISCONTINUED OPERATIONS
Income tax (expense) benefit computed at
the statutory tax rates.................. $ 5.5 $ 6.6 $ (2.1) $ --
Depreciation and amortization not
allowable................................ (0.5) (0.6) 0.3 --
Expenses not deductible.................... (0.4) (0.7) -- --
Adjustment of prior year taxes............. 0.6 (5.0) -- --
Other items................................ 2.9 0.3 (0.3) --
Movement in valuation allowance............ 1.7 (1.2) -- --
----- ------ ------ ------
Income tax (expense) benefit............... $ 9.8 $ (0.6) $ (2.1) $ --
===== ====== ====== ======
Effective tax rate......................... 62.8% (3.4)% 33.3% --%
===== ====== ====== ======
</TABLE>
F-26
<PAGE> 129
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31,
---------------- DECEMBER 31,
1997 1998 1998
------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Core technology...................................... $ 45.3 $ 38.3 $ 35.3
Provisions and accruals.............................. 18.7 34.9 16.1
Income in advance.................................... 27.8 32.3 --
Net operating loss carryforwards..................... 30.9 27.3 24.5
Foreign currency movements........................... -- 9.8 0.3
Capital loss carryforwards........................... 1.9 6.5 --
Income in advance.................................... 5.4 6.4 --
Provisions........................................... 26.1 6.2 --
AMT credit carryforwards............................. -- 5.8 4.6
Customer lists....................................... 4.4 4.3 4.3
Plant and equipment.................................. -- 1.4 --
Other................................................ 2.7 5.2 --
------ ------ ------
163.2 178.4 85.1
Valuation allowance.................................. (48.4) (46.0) (36.5)
------ ------ ------
$114.8 $132.4 $ 48.6
------ ------ ------
Deferred tax liabilities:
Plant and equipment.................................. $(10.6) $(20.2) $(24.5)
Prepaid pension cost................................. (6.3) (4.4) (3.4)
Provisions........................................... -- (4.3) (4.3)
Currency swaps....................................... (3.2) (2.8) --
Leveraged investments................................ (6.6) (2.4) --
Prepayments.......................................... (2.6) (0.7) (0.3)
Foreign currency movements........................... (9.7) -- --
Prepayments.......................................... (1.3) -- --
Income receivable.................................... (0.6) -- (3.5)
Other................................................ -- -- (4.7)
------ ------ ------
(40.9) (34.8) (40.7)
------ ------ ------
Total deferred taxes, net.............................. $ 73.9 $ 97.6 $ 7.9
====== ====== ======
</TABLE>
The Company establishes valuation allowances in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes." Deferred tax assets
are reduced by a valuation allowance if it is more likely than not that some
portion or all of the deferred tax asset will not be realized. The valuation
allowance has primarily been established against the temporary difference
relating to core technology, arising from a change in legislation effective
January 20, 1997 and that may only be realized on sale of the core technology at
an amount that exceeds its tax basis. A valuation allowance has therefore been
established against this asset and against other capital losses in existence on
the basis that there is doubt about the ability of the Company to generate
capital gains sufficient to offset the losses. During 1998, the net increase in
the valuation allowance was $4.6 million which resulted from increased capital
losses in the year. For the nine months ended December 31, 1998, the unaudited
change in valuation allowance resulted from transfer of the underlying net
deferred tax asset to JHIL as part of the restructure.
At March 31, 1998 the cumulative undistributed earnings of non-Australian
subsidiaries were approximately $108.0 million. The unaudited undistributed
earnings of non-Dutch subsidiaries were approximately $142 million at December
31, 1998. Since it is the Company's intention to indefinitely reinvest these
earnings,
F-27
<PAGE> 130
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
no taxes have been provided. The amount of foreign withholding taxes that would
be payable upon remittance of those earnings is approximately $21 million at
March 31, 1998 and $9.4 million at December 31, 1998.
At March 31, 1998, the Company had net operating loss carryforwards of
approximately $76.0 million, which could be carried forward indefinitely. After
the Reorganization, net operating loss carryforwards at December 31, 1998 were
reduced to $68.0 million. There were no foreign tax credit entitlements at March
31, 1998 or at December 31, 1998 which have not been reflected as deductible
foreign taxes for financial and tax reporting purposes.
The changes in the valuation allowance are as follows (in millions):
<TABLE>
<CAPTION>
MARCH 31,
------------------------- DECEMBER 31,
1996 1997 1998 1998
----- ------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at beginning of period......... $(6.1) $ (3.1) $(48.4) $(46.0)
Charged to expense..................... 3.1 (45.2) (4.9) --
Costs and deductions................... -- -- -- --
Foreign currency movements............. (0.1) (0.1) 7.3 3.0
Transfers to JHIL-Reorganization....... -- -- -- 6.5
----- ------ ------ ------
Balance at end of period............... $(3.1) $(48.4) $(46.0) $(36.5)
===== ====== ====== ======
</TABLE>
14. DISCONTINUED OPERATIONS
PIPELINES
On September 5, 1997, the Board of Directors approved a plan to sell the
pipelines businesses. This divestment was consummated on September 26, 1997. A
loss of $10.2 million represented the deficiency of the proceeds of sale of
$56.0 million over the net book value of the assets transferred of $71.4 million
and retirement plan settlement gains of $5.2 million. The sale resulted in an
income tax benefit of $5.0 million. The proceeds of sale consisted of cash of
$61.0 million less selling costs of $2.5 million and repayment of payables of
$2.5 million.
BATHROOM PRODUCTS
On November 7, 1996, the Board of Directors approved a plan to sell the
bathroom products businesses. This divestment of the Australian operations was
consummated on March 21, 1997. A profit of $4.7 million represented the excess
of the proceeds of sale of $46.0 million over the net book value of the assets
transferred of $41.3 million. Retirement plan settlement gains of $4.6 million
were recognized in 1998 with respect to the sale. The sale resulted in an income
tax benefit of $1.6 million in 1997 with the income tax expense relating to
retirement plan settlement gains recognized in 1998 amounting to $1.7 million.
An additional gain on disposal of $0.1 million, net of an income tax expense of
$0.5 million was recognized in 1998 relating to this sale. The proceeds of sale
consisted of cash of $49.3 million less sales costs of $3.3 million.
In addition, on May 7, 1997, the sale of the New Zealand operations of
bathroom products was consummated. Proceeds from sale amounted to $5.4 million
representing the book value of the assets transferred. No profit or loss was
recognized on the sale.
BUILDING SERVICES
On November 7, 1996, the Board of Directors approved a plan to sell the
building services businesses. The divestment was consummated on November 19,
1996. A gain of $96.5 million represented the excess of the proceeds of sale of
$158.9 million over the net book value of the assets transferred of $65.6
million and includes retirement plan settlement gains of $3.2 million. The sale
resulted in an income tax benefit of
F-28
<PAGE> 131
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$1 million. An additional gain on disposal of $0.6 million was recognized in
1998 relating to this sale after an income tax benefit of $0.9 million. The
proceeds of sale consisted of cash of $174.7 million less selling costs of $15.8
million.
In addition, on September 13, 1995 the Board of Directors approved a plan
to sell the security business of Building Services. On December 4, 1995 the
divestment was consummated. Proceeds from sale amounted to $5.9 million and the
book value of assets transferred was $5.9 million. There was no income tax
associated with the sale.
IRRIGATION
On May 8, 1996, the Board of Directors approved a plan to sell the
irrigation businesses. This divestment was consummated on September 20, 1996. A
gain of $26.1 million represented the excess of the proceeds of sale of $105.1
million over the net book value of the assets transferred of $79.7 million and
includes retirement plan settlement gains of $0.7 million. The sale resulted in
an income tax expense of $8.4 million. An additional gain on disposal of $7.7
million was recognized in 1998 relating to this sale after an income tax benefit
of $6.0 million. The proceeds of sale consisted of cash of $114.4 million less
selling costs of $5.4 million and other holding fee costs of $3.9 million.
F-29
<PAGE> 132
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The results of operations of discontinued businesses are as follows (in
millions):
<TABLE>
<CAPTION>
MARCH 31,
------------------------- DECEMBER 31,
1996 1997 1998 1997
------ ------ ----- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
PIPELINES
Net sales.................................. $180.1 $185.0 $96.1 $96.1
Income (loss) before income tax............ 4.6 (12.7) 6.3 7.4
Income tax (expense) benefit............... 0.6 -- (2.1) (2.7)
------ ------ ----- -----
Net income (loss).......................... 5.2 (12.7) 4.2 4.7
------ ------ ----- -----
BATHROOM PRODUCTS
Net sales.................................. 79.7 78.4 -- --
Income (loss) before income tax............ (8.7) (3.2) -- --
Income tax (expense) benefit............... 3.5 0.6 -- --
------ ------ ----- -----
Net income (loss).......................... (5.2) (2.6) -- --
------ ------ ----- -----
BUILDING SERVICES
Net sales.................................. 247.7 194.2 -- --
Income (loss) before income tax............ (15.2) 4.1 -- --
Income tax (expense) benefit............... 7.6 (2.1) -- --
------ ------ ----- -----
Net income (loss).......................... (7.6) 2.0 -- --
------ ------ ----- -----
IRRIGATION
Net sales.................................. 137.7 84.0 -- --
Income (loss) before income tax............ 3.7 (5.7) -- --
Income tax (expense) benefit............... (1.9) 0.9 -- --
------ ------ ----- -----
Net income (loss).......................... 1.8 (4.8) -- --
------ ------ ----- -----
TOTAL
Net sales.................................. 645.2 541.6 96.1 96.1
Income (loss) before income tax............ (15.6) (17.5) 6.3 7.4
Income tax (expense) benefit............... 9.8 (0.6) (2.1) (2.7)
------ ------ ----- -----
Net income (loss).......................... (5.8) (18.1) 4.2 4.7
------ ------ ----- -----
Gain (loss) on disposal, net of income tax... -- 121.4 6.0 4.9
------ ------ ----- -----
Income (loss) from discontinued operations... $ (5.8) $103.3 $10.2 $ 9.6
====== ====== ===== =====
</TABLE>
F-30
<PAGE> 133
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of net assets of discontinued operations at March 31, 1997
at net realizable value are as follows (in millions):
<TABLE>
<CAPTION>
1997
------
<S> <C>
NET CURRENT ASSETS
Cash...................................................... $ 3.9
Accounts and notes receivable -- net...................... 57.2
Inventories............................................... 28.5
Accounts payable and accrued liabilities.................. (29.2)
Other current liabilities................................. (12.7)
------
Total net current assets.................................... 47.7
------
NET NON-CURRENT ASSETS
Property, plant and equipment -- net...................... 66.4
Deferred tax assets....................................... 8.3
Other assets.............................................. 0.9
------
Total net non-current assets................................ 75.6
------
Total net assets............................................ $123.3
======
</TABLE>
15. STOCK-BASED COMPENSATION
DR. R.K. BARTON PLAN
Dr. R.K. Barton was granted 2,500,000 options by JHIL on September 8, 1993
under the R.K. Barton Share Option Plan. Each option conferred the right to
subscribe for one ordinary JHIL share at a price of AUD 2.42 per share, provided
that the market price exceeded AUD 3.63 on the date of exercise. On June 16,
1997, R.K. Barton exercised all of his 2,500,000 options. This Plan was
accounted for as a variable plan under APB No. 25 and, accordingly, compensation
expense of $2.5 million was recognized in 1997.
SHADOW STOCK PLANS
The U.S. Shadow Stock Plan provides an incentive to certain key employees
in the United States based on any growth in the JHIL share price over time as if
such employees were the owners of that number of JHIL's common stock as are
equal to the number of shares of Shadow Stock issued to employees. The vesting
period of Shadow Stock is five years. The total number of shares outstanding at
March 31, 1996, 1997 and 1998 was 365,000 shares, 783,500 shares and 1,540,500
shares, respectively.
In December 1998, a Shadow Stock Plan for non U.S. based employees was
instituted under similar terms to the U.S. Shadow Stock Plan except that the
vesting period in the shares is three years. In December 1998, 3,003,000 shares
were issued under the Non U.S. Shadow Stock Plan and remained outstanding at
December 31, 1998.
The Plans have been accounted for as variable plans under APB No. 25 and,
accordingly, compensation expense of $0.1 million, $0.2 million and $0.6 million
was recognized in 1996, 1997 and 1998, respectively.
EXECUTIVE SHARE PURCHASE PLAN
Prior to July 1998, JHIL had an Executive Share Purchase Plan. Under the
terms of the Plan, eligible executives had purchased JHIL shares at their market
price when issued. Executives funded purchases of JHIL shares with interest-free
loans provided by JHIL and collateralized by the shares. In such cases, the
amount of indebtedness was reduced by any amounts payable by JHIL in respect of
such shares, including
F-31
<PAGE> 134
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
dividends. Loans are generally payable within two years after termination of an
executive's employment. Based on JHIL's experience, substantially all of such
loans are being repaid over time. Accordingly, fixed plan accounting has been
applied under APB No. 25, except that dividends declared on the shares are
recognized as compensation expense. Compensation expense was $0.7 million, $0.4
million and $0.5 million for 1996, 1997 and 1998, respectively. The unaudited
compensation expense for the nine months ended December 31, 1997 and 1998 was
$0.5 million and $0.2 million, respectively. Shares issued to executives during
1996, 1997 and 1998 totalled 2,826,000, 10,000 and 2,502,000, respectively. The
average issue price per share was $1.72, $2.85 and $2.95 in 1996, 1997 and 1998,
respectively.
16. ACQUISITIONS
On February 1, 1997, the Company purchased Boral Gypsum, Inc. ("Boral"), a
gypsum mining and wallboard manufacturing operation in Nashville, Arkansas. The
acquisition has been accounted for as a purchase for financial reporting
purposes. The purchase price was comprised of $94.7 million in cash and the
assumption of $4.2 million in liabilities. The estimated fair values of assets
acquired are summarized as follows (in millions):
<TABLE>
<S> <C>
Trade receivables........................................... $11.3
Inventories................................................. 2.1
Prepaid expenses............................................ 0.1
Property, plant and equipment............................... 27.3
Mineral reserves............................................ 20.8
Goodwill.................................................... 37.3
-----
Total............................................. $98.9
=====
</TABLE>
The operating results for Boral have been included with those of the
Company from February 1, 1997. Sales for the period from February 1, 1997 to
March 31, 1997 were $14.5 million.
The following summarized unaudited pro forma financial information for the
fiscal years ended March 31 assumes the acquisition had occurred on April 1 of
each year (in millions):
<TABLE>
<CAPTION>
PRO FORMA
----------------
1996 1997
------ ------
<S> <C> <C>
Pro forma net sales........................................ $705.6 $786.3
====== ======
Pro forma operating profit................................. $ 77.4 $ 32.3
====== ======
</TABLE>
These amounts include the actual results of the Boral operation for fiscal
year 1996 and for the first ten months of fiscal year 1997. These amounts are
based on certain assumptions and estimates and do not reflect any benefits that
might be achieved by the acquisition. The pro forma results do not necessarily
represent results which would have occurred if the acquisition had taken place
on the basis assumed above, nor are they indicative of the results of future
combined operations.
17. FINANCIAL INSTRUMENTS
The Company enters into foreign currency forward exchange contracts and
interest rate swaps to manage its market risk due to fluctuations in foreign
exchange rates and interest rates.
INTEREST RATES
Bank overdrafts and loans bore an average variable interest rate of 6.54%
and 6.50% as of March 31, 1997 and 1998, respectively. These liabilities exposed
the Company to the risk of rising interest rates increasing
F-32
<PAGE> 135
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
interest expense. The Company's policy was generally to use interest rate swaps
and purchased options to hedge these exposures. A swap or other instrument is
designated as a hedge if it is expected to be effective as a hedge. Both the
swap and the underlying position were monitored to ensure hedge effectiveness
was maintained over time. At March 31, 1998, these instruments covered
approximately 57% of the Company's net liabilities (liabilities of $524.8
million less assets of $350.0 million) that were exposed to variable interest
rates.
Simultaneously with the issuance of the $158.0 million non-collateralized
fixed rate notes, the Company entered into an interest rate swap. This
effectively converted the fixed rate notes, issued between 9.23% and 9.44%, to
variable rates (6.67% at March 31, 1998).
The interest rate swaps the Company entered into were plain vanilla
contracts to receive variable swap interest at variable rates and to pay swap
interest at fixed interest rates for a specified period and at specified rates.
Variable rates were primarily determined by reference to the 90 day LIBOR rate.
Net swap interest paid or received was accrued as an adjustment to interest
expense.
The following table summarizes the notional values and related terms of
interest rate swaps at March 31, 1998. Notional amounts (shown in millions)
provide an indication of the extent to which the Company was involved in such
agreements, but did not represent its exposure to market risk.
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------------------------------------
WEIGHTED AVERAGE RATE
-------------------------------
NOTIONAL VALUE MATURITY DATES RECEIVE PAY
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Interest rate swaps:
Pay variable........... $158.0 1999 - 2007 9.23% to 9.44% 6.67 at LIBOR
+ 0.96%
Pay fixed.............. $100.0 2001 90-day LIBOR 5.90 to 5.96%
</TABLE>
Following the Reorganization, bank overdrafts and loans bore an average
interest rate of 5.86% as at December 31, 1998. At December 31, 1998,
approximately 60% of the Company's interest cost is fixed (the proportion of
interest payable on the U.S.$ unsecured notes). At December 31, 1998, no
interest rate hedging instruments had been entered into in relation to the
remaining floating interest cost.
FOREIGN CURRENCY
As a multinational corporation, the Company maintains significant
operations in foreign countries. As a result of these activities, the Company is
exposed to changes in exchange rates which affect its results of operations and
cash flows. Historically, the Company managed its Australian dollar exposure to
changes in foreign currency exchange rates through its normal operating and
financing activities, as well as through the use of financial instruments. The
major areas considered for hedging include foreign currency denominated sale and
purchase commitments, receivables and payables, intercompany loans, net
investments and dividends relating to foreign operations. Where they are
effective as hedges, both on-balance sheet financial instruments and forward
exchange contracts may be designated as hedges in net investments in foreign
operations, in which case the after-tax gains or losses arising on the hedge are
included in the cumulative translation adjustment account in equity. The
principal investments are in operations located in Australia, New Zealand and
the United States.
Generally, the only instruments the Company uses are foreign exchange
contracts. At March 31, 1997 the Company had contracts to buy Australian dollars
and sell U.S. dollars of $501.5 million at average exchange rates of U.S.$0.7398
buys AUD 1, and contracts to buy U.S. dollars and sell Australian dollars of
$143.5 million at average exchange rates of U.S.$0.7833 buys AUD 1, maturing
within one year, that resulted in a net short U.S. dollar hedge position of
$358.0 million hedging its net investment in the U.S. operations. At
F-33
<PAGE> 136
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1998, the Company had contracts to buy Australian dollars and sell
U.S. dollars of $192.6 million at average exchange rates of U.S.$0.6943 buys AUD
1 and contracts to buy U.S. dollars and sell Australian dollars of $242.0
million at average exchange rates of U.S.$0.6690 buys AUD 1, maturing within two
years, that resulted in a net long U.S. dollar hedge position of $49.4 million
hedging its negative net investment in the U.S. operations. The change in the
net investment resulted from returns of capital and other distributions from the
U.S. and other U.S. dollar denominated subsidiaries.
At March 31, 1997 and 1998, the Company had contracts to buy New Zealand
dollars and sell Australian dollars of $150.8 million and $68.6 million, at
average exchange rates of AUD 1 buys NZD 1.1205 and NZD 1.1618, respectively,
and maturing within one year. This hedge relates to the New Zealand operations
net NZD liability position.
After the Reorganization, at December 31, 1998, the Company had contracts
to sell Australian dollars and to buy U.S. dollars of $165.6 million, at an
average exchange rate of U.S. $0.6238 buys AUD $1. These hedges relate to
Australian dollar denominated related party loans and hedges of the net
investment in foreign operations. At December 31, 1998, the Company had
contracts to sell New Zealand dollars and buy U.S. dollars of $15.2 million, at
an exchange rate of U.S. $0.5233 buys NZD $1. This hedge relates to New Zealand
dollar denominated related party loans.
The Company also purchases raw materials and fixed assets and sells some
finished product for amounts denominated in foreign currencies. In order to
protect against exchange rate movements, the Company may enter into forward
exchange contracts timed to mature when settlement of the underlying
transactions is due to occur. Any unrealized gains and losses on the contracts,
together with the cost of the contracts, are deferred and will be recognized in
the measurement of the underlying transaction. At March 31, 1997 and 1998 and
December 31, 1998, there were no material contracts outstanding.
CREDIT RISK
The credit risk on financial assets of the Company which have been
recognized on the balance sheet, other than equity investments, is generally the
carrying amount, net of any provisions for doubtful accounts.
Investments in government bonds which have been purchased at a discount to
face value are carried on the balance sheet at an amount less than the amount
realizable at maturity. The total credit risk exposure of the Company could also
be considered to include the difference between the carrying amount and the
realizable amount.
For off-balance sheet financial instruments, which are deliverable,
including derivatives, credit risk also arises from the potential failure of
counterparties to meet their obligations under the respective contracts at
maturity.
The Company is exposed to losses on forward exchange contracts in the event
that counterparties fail to deliver the contracted amount. In accordance with
the terms of its master netting agreement with each counterparty, at March 31,
the credit exposure to the Company is calculated as the net fair value of all
contracts outstanding with that counterparty. At March 31, 1997, 1998 and
December 31, 1998, total credit exposure arising from forward exchange contracts
was $388.4 million, $194.8 million and $0.2 million, respectively.
The counterparties are prime financial institutions. The Company controls
risk through the use of credit ratings and reviews. At March 31, 1998 and
December 31, 1998, the Company had no significant concentration of credit risk
with any single counterparty or group of counterparties.
F-34
<PAGE> 137
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FAIR VALUES
The carrying values of cash and cash equivalents, marketable securities,
accounts receivable, short-term borrowings and accounts payable are a reasonable
estimate of their fair value due to the short-term nature of these instruments.
The following table summarizes the estimated fair value of the Company's
remaining financial instruments (in millions):
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------
1997 1998 DECEMBER 31, 1998
----------------- ----------------- -----------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
-------- ------ -------- ------ -------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Long-term debt
Floating...................... $310.2 $318.5 $341.6 $357.0 $122.5 $122.5
Fixed......................... 160.0 160.0 154.7 154.7 225.0 228.4
------ ------ ------ ------ ------ ------
Total................. $470.2 $478.5 $496.3 $511.7 $347.5 $350.9
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
--------------------------- DECEMBER 31,
1997 1998 1998
----------- ----------- ------------
FAIR VALUE FAIR VALUE FAIR VALUE
GAIN (LOSS) GAIN (LOSS) GAIN (LOSS)
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Derivatives
Currency forwards.................. $27.5 $(9.1) $ 2.8
Interest rate swaps
Pay variable.................... $10.3 $16.3 --
Receive variable................ -- -- --
Options............................ -- -- --
</TABLE>
Fair values of long-term debt were determined by reference to the March 31,
1997 and 1998 and December 31, 1998 market values for comparably rated debt
instruments and without any adjustment for the effect of hedges. Fair values of
forward contracts and swaps are based on dealer quotes at the respective
reporting dates.
18. OPERATING SEGMENT INFORMATION AND CONCENTRATIONS OF RISK
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which requires the reporting of certain
financial information by operating segment and geographical area. The Company
has reported its operating segment information in the format that the operating
segment information will be available to and evaluated by the Board of
Directors. U.S. Fiber Cement manufactures and sells fiber cement products in the
United States. Gypsum manufactures and sells gypsum wallboard products in the
United States. Australia/New Zealand Fiber Cement manufactures and sells fiber
cement products in Australia, New Zealand and Asian export markets other than
the Philippines. Building Systems manufactures, leases and installs modular
relocatable buildings, and also manufactures and sells insulated panel systems
in Australia. Other includes the Research and Development center in Sydney,
Australia, the Philippines fiber cement operations and the manufacturing and
selling operations of Windows in Australia. The Company's reportable operating
segments are strategic operating units that are managed separately due to their
different products and geographical location.
F-35
<PAGE> 138
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OPERATING SEGMENTS
The Company's operating segments and geographical information are as
follows (in millions):
<TABLE>
<CAPTION>
NET SALES TO
CUSTOMERS(1)
----------------
NET SALES TO CUSTOMERS(1) DECEMBER 31,
-------------------------- ----------------
1996 1997 1998 1997 1998
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
U.S. Fiber Cement..................... $100.7 $148.7 $181.1 $134.2 $177.6
Gypsum................................ 77.0 103.8 200.5 149.3 190.9
Australia/New Zealand Fiber Cement.... 264.6 262.1 211.6 169.0 132.2
Building Systems...................... 118.2 133.8 147.9 111.9 81.3
Other................................. 63.2 63.2 79.4 63.4 47.9
------ ------ ------ ------ ------
Segments Total................... 623.7 711.6 820.5 627.8 629.9
General Corporate..................... 1.2 1.8 1.8 1.3 1.2
------ ------ ------ ------ ------
Worldwide Total.................. $624.9 $713.4 $822.3 $629.1 $631.1
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
INCOME FROM TOTAL
OPERATIONS IDENTIFIABLE
--------------- TOTAL ASSETS
INCOME FROM OPERATIONS DECEMBER 31, IDENTIFIABLE ASSETS ------------
------------------------ --------------- ------------------- DECEMBER 31,
1996 1997 1998 1997 1998 1997 1998 1998
------ ------ ------ ------ ------ -------- -------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Fiber Cement................... $ 17.5 $ 27.7 $ 37.6 $ 29.2 $ 31.6 $ 162.5 $ 188.9 $ 220.9
Gypsum.............................. 6.9 18.1 39.9 32.8 46.5 190.2 214.8 237.7
Australia/New Zealand Fiber
Cement(2),(3)..................... 62.9 25.8 35.7 34.4 16.7 182.6 156.1 125.5
Building Systems(7)................. 10.2 10.0 9.9 10.8 6.1 85.8 86.9 72.7
Other(2),(4)........................ (13.1) (43.3) (27.0) (19.9) (16.2) 63.5 82.6 81.8
------ ------ ------ ------ ------ -------- -------- --------
Segments Total.................. 84.4 38.3 96.1 87.3 84.7 684.6 729.3 738.6
General Corporate(6),(9)............ (23.5) (22.7) (13.9) (13.2) (11.5) 726.1 512.4 269.9
------ ------ ------ ------ ------ -------- -------- --------
Total Operating Profit.............. 60.9 15.6 82.2 74.1 73.2 N/A N/A N/A
Net interest expense(8)............. (15.6) (8.8) (9.3) (6.9) (11.4) N/A N/A N/A
Other income/(expense).............. (24.4) (22.3) (17.2) (16.2) (4.8) N/A N/A N/A
Discontinued........................ N/A N/A N/A N/A N/A 123.3 -- --
------ ------ ------ ------ ------ -------- -------- --------
Worldwide Total................. $ 20.9 $(15.5) $ 55.7 $ 51.0 $ 57.0 $1,534.0 $1,241.7 $1,008.5
====== ====== ====== ====== ====== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ADDITIONS TO DEPRECIATION
PROPERTY, AND
PLANT AND AMORTIZATION
ADDITIONS TO PROPERTY, EQUIPMENT(5) DEPRECIATION AND -------------
PLANT AND EQUIPMENT(5) ------------ AMORTIZATION DECEMBER 31,
---------------------- DECEMBER 31, --------------------- -------------
1996 1997 1998 1998 1996 1997 1998 1997 1998
---- ------ ------ ------------ ----- ----- ----- ----- -----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Fiber Cement................... $16.8 $ 76.2 $ 41.9 $ 24.6 $ 4.4 $ 6.7 $ 9.0 $ 4.2 $ 6.3
Gypsum.............................. 9.5 47.8 28.3 23.5 3.6 5.0 8.9 7.3 7.5
Australia/New Zealand Fiber
Cement............................ 10.3 28.4 29.7 13.2 9.4 12.0 9.2 8.6 6.8
Building Systems.................... 16.4 12.2 22.6 9.2 6.1 7.5 8.1 5.9 6.4
Other............................... 3.3 4.9 24.2 16.1 3.0 3.3 2.3 1.5 1.7
---- ------ ------ ------ ----- ----- ----- ----- -----
Segments Total.................. 56.3 169.5 146.7 86.6 26.5 34.5 37.5 27.5 28.7
General Corporate................... 8.4 2.6 8.1 0.8 1.5 1.1 1.0 0.5 0.5
Discontinued........................ N/A N/A N/A N/A 25.5 24.1 5.3 3.9 --
---- ------ ------ ------ ----- ----- ----- ----- -----
Worldwide Total................. $64.7 $172.1 $154.8 $ 87.4 $53.5 $59.7 $43.8 $31.9 $29.2
==== ====== ====== ====== ===== ===== ===== ===== =====
</TABLE>
F-36
<PAGE> 139
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
NET SALES TO TOTAL
CUSTOMERS(1) IDENTIFIABLE
NET SALES TO --------------- TOTAL ASSETS
CUSTOMERS(1) DECEMBER 31, IDENTIFIABLE ASSETS ------------
------------------------ --------------- ------------------- DECEMBER 31,
1996 1997 1998 1997 1998 1997 1998 1998
------ ------ ------ ------ ------ -------- -------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States......................... $177.7 $252.5 $381.5 $283.5 $368.5 $ 352.8 $ 403.7 $ 458.5
Australia............................. 364.3 379.3 361.8 282.1 220.9 263.3 242.3 203.0
New Zealand........................... 77.0 77.9 63.4 51.6 34.8 40.6 33.3 22.3
Other Countries....................... 4.7 1.9 13.8 10.6 5.7 27.9 50.0 54.8
------ ------ ------ ------ ------ -------- -------- --------
Segments Total.................... 623.7 711.6 820.5 627.8 629.9 684.6 729.3 738.6
General Corporate..................... 1.2 1.8 1.8 1.3 1.2 726.1 512.4 269.9
Discontinued.......................... N/A N/A N/A N/A N/A 123.3 -- --
------ ------ ------ ------ ------ -------- -------- --------
Worldwide Total................... $624.9 $713.4 $822.3 $629.1 $631.1 $1,534.0 $1,241.7 $1,008.5
====== ====== ====== ====== ====== ======== ======== ========
</TABLE>
- ---------------
"N/A" -- Not applicable.
(1) Export sales and intersegment sales are not significant. No single customer
represents 10% or more of total sales.
(2) The operating profit of Australia/New Zealand Fiber Cement was reduced by
restructuring and other expenses of $17.8 million in fiscal year 1997, $5.1
million in fiscal year 1998 and $2.2 million and $1.2 million for the nine
months ended December 31, 1997 and 1998, respectively, (see Note 12). In
addition, the operating profit of Other was reduced by restructuring and
other expenses of $21.0 million for a goodwill impairment charge in fiscal
year 1997 (see Note 12).
(3) Sales of building systems products in New Zealand are included in the
Australia/New Zealand Fiber Cement segment.
(4) Income from the operations of Other includes expenses of $9.2 million, $10.6
million, and $11.0 million in 1996, 1997 and 1998, respectively, relating to
the Sydney-based Research and Development Center. Additionally, research and
development costs of $0.8 million and $3.6 million in 1997 and 1998 are
expensed in the U.S. Fiber Cement operating segment and research and
development costs of $2.9 million, $3.6 million and $3.4 million are
expensed in the Australia/New Zealand Fiber Cement segment.
Income from operations of Other includes expenses of $7.3 million and $4.6
million for the nine months ended December 31, 1997 and 1998, respectively,
relating to the Sydney-based Research and Development Center. Additionally,
research and development costs of $2.6 million and $4.0 million for the
nine months ended December 31, 1997 and 1998, are expensed in the U.S.
Fiber Cement operating segment and research and development costs of $2.7
million and $1.9 million are expensed in the Australia/New Zealand Fiber
Cement segment for the nine months ended December 31, 1997 and 1998,
respectively.
Research and development expenditures are expensed as incurred and in total
amounted to $12.1 million, $15.0 million and $18.0 million for the years
ended March 31, 1996, 1997 and 1998, respectively. For the nine months
ended December 31, 1997 and 1998, total research and development
expenditure amounted to $12.6 million and $10.5 million, respectively.
(5) Additions to property, plant and equipment include both cash and credit
purchases.
(6) Up to the date of the Reorganization, General Corporate comprised selling,
general and administrative expenses related to the Company's Sydney,
Australia corporate office and the existing U.S. corporate office. Post
reorganization, no expenses relating to the Sydney, Australia corporate
office have been incurred. The principal components are officer and employee
compensation and related benefits, professional and legal fees,
administrative costs, and rental expense, net of rental income, on the
Company's corporate offices.
F-37
<PAGE> 140
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Additionally, pension costs related to the Australian defined benefit plans
for Australia/New Zealand Fiber Cement, Building Systems and Other segments
totalling $2.0 million, $3.3 million and $2.4 million in 1996, 1997 and
1998, respectively, have been included in the General Corporate segment.
Pension costs related to Australian defined benefit plans for Australia/New
Zealand Fiber Cement, Building Systems and Other segments totalling $1.8
million and $0.9 million for the nine months ended December 31, 1997 and
1998, respectively, have been included in the General Corporate segment. In
1996, there was an expense of $6.7 million related to surplus lease space
and, in 1997, stock compensation expense of $2.9 million.
(7) The Building Systems segment includes commission income received from the
Australia/New Zealand Fiber Cement segment for fiber cement systems which
are marketed to architects and specifiers by Building Systems but are
physically distributed by the Australia/New Zealand Fiber Cement segment.
Commissions earned during 1996, 1997 and 1998 were $6.9 million, $7.4
million and $6.7 million, respectively. Commissions earned during the nine
months ended December 31, 1997 and 1998 were $5.3 million and $4.4 million,
respectively.
(8) The Company does not report net interest and expense for each reportable
segment as reportable segments are not held directly accountable for
interest expense.
(9) The Company does not report deferred tax assets and liabilities for each
reportable segment as reportable segments are not held directly accountable
for deferred taxes. All deferred taxes are included in General Corporate.
CONCENTRATIONS OF RISK
The current sole source of gypsum rock for the Seattle, Washington gypsum
wallboard manufacturing facility is a gypsum mine located in Santa Rosalia,
Mexico. The mine is owned by Compania Minera Caopas S.A. de C.V. (and its
affiliates), which is currently operating under a form of Mexican bankruptcy
protection, and management has been unable to determine the status of certain
licenses or permits necessary for operation of the mine. Therefore, there can be
no assurance that shipments from the Caopas mine will continue. A cessation of
shipments from the Caopas mine and an inability to secure an alternative source
of supply on reasonable terms would have a material adverse effect on the
business, results of operations, cash flows and financial position of the
Company.
The distribution channels for the Company's fiber cement products and
gypsum wallboard products are concentrated. If the Company were to lose one or
more of their major distributors, there can be no assurance that the Company
will be able to find a replacement. Therefore, the loss of one or more
distributors could have a material adverse effect on the Company's results of
operations, cash flows and financial position.
Approximately 54% of the Company's revenues in fiscal year 1998 were
derived from sales outside the United States. Consequently, changes in the value
of foreign currencies could significantly affect the results of operations, cash
flows and financial position of the Company's non-U.S. operations on translation
into U.S. dollars.
F-38
<PAGE> 141
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. COMPREHENSIVE INCOME
As of April 1, 1998 the Company adopted SFAS No. 130 which establishes
standards for the reporting and display of comprehensive income and its
components. The components of total comprehensive income were as follows (in
millions):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
------------------------- ----------------
1996 1997 1998 1997 1998
------ ----- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income..................................... 12.3 90.8 40.9 41.4 26.1
Other comprehensive income (loss):
Net unrealized gains (losses) on
available-for-sale securities............. (0.7) (0.5) (1.5) (1.8) 1.3
Hedging from an Australian dollar
perspective, the net investment in foreign
operations:
Gross currency translation gains
(losses)................................ 10.2 0.5 (42.0) (43.0) 23.4
Income tax (expense) benefit.............. (12.9) (1.2) (36.8) 38.5 (27.7)
------ ----- ------ ------ ------
Net currency translation gains (losses)...... (2.7) (0.7) (5.2) (4.5) (4.3)
Net currency translation gains (losses) on
translation into U.S. dollars............. 31.4 2.3 (84.4) (88.8) (41.8)
------ ----- ------ ------ ------
Total other comprehensive income (loss),
net of income tax.................... 28.0 1.1 (91.1) (95.1) (44.8)
------ ----- ------ ------ ------
Total comprehensive income (loss)....... 40.3 91.9 (50.2) (53.7) (18.7)
====== ===== ====== ====== ======
</TABLE>
The components of total accumulated other comprehensive income, net of
related tax, which is displayed in the balance sheet, were as follows (in
millions):
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
MARCH 31, ENDED DECEMBER 31,
-------------- ------------------
1997 1998 1997 1998
----- ------ ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net unrealized gains (losses) on
available-for-sale securities................... $ 0.2 $ (1.3) $ (1.6) $ --
Foreign currency translation gains (losses)....... 15.6 (74.0) (77.7) (120.1)
----- ------ ------ -------
Total accumulated other comprehensive
income (loss)......................... $15.8 $(75.3) $(79.3) $(120.1)
===== ====== ====== =======
</TABLE>
F-39
<PAGE> 142
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. SHAREHOLDERS' EQUITY
SHARE CAPITAL
At December 31, 1998, the authorized share capital of the Company was NLG
3,000,000, consisting of 150,000,000 shares of common stock, with a nominal
value of NLG 0.02 per share.
Effective with the Reorganization, the Company's equity was recapitalized
by the issuance of 50,000,000 shares of common stock with a nominal value of
$0.6 million and unaudited contributed capital of $448.8 million. The
Reorganization resulted in a deemed transfer to JHIL on November 1, 1998 of the
Retained Assets and Liabilities with an unaudited basis of $101.3 million. The
Retained Assets and Liabilities were comprised of (in millions):
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Cash and cash equivalents................................... $ 1.4
Accounts and notes receivable............................... 26.2
Investments and long term receivables....................... 20.9
Property, plant and equipment, net.......................... 34.0
Net deferred tax assets..................................... 45.8
Accounts payable and other current liabilities.............. (27.0)
------
$101.3
======
</TABLE>
DIVIDENDS
Pursuant to the Articles of Association and Dutch law, the declaration of
dividends, if any, will be at the discretion of the Board of Directors (subject
to the dividend rights of holders of Preferred Stock, if any). The Board of
Directors may resolve that James Hardie make distributions out of James Hardie's
annual profit, general share premium account and out of any other reserves that
are available for shareholder distributions under Dutch law. The Board of
Directors may also resolve that James Hardie pay interim dividends. James Hardie
may not pay dividends, including interim dividends, if the payment would reduce
shareholders' equity to an amount less than the sum of James Hardie's share
capital account, plus certain reserves that are required to be maintained by
Dutch law or the Articles of Association. James Hardie's Articles of Association
provide that future dividends, if any, will be declared and paid in U.S.
dollars, unless the Board of Directors determines otherwise.
21. EXTRAORDINARY ITEM
In connection with the Reorganization, the Company raised financing to
repay related party borrowings to JHIL. The Company incurred an unaudited $8.3
million, net of taxes, extraordinary loss for prepayment penalties.
22. RELATED PARTY TRANSACTIONS (UNAUDITED)
PURCHASE AGREEMENTS
In connection with the Reorganization (Note 1), the Company entered into
the Purchase Agreements and acquired the Transferred Businesses from JHIL. The
Transferred Businesses were acquired by the Company in consideration of 100% of
its outstanding common stock and $349.1 million, which was paid from the
issuance of notes and borrowings under a new term loan. The $349.1 million
payment represented the settlement of liabilities to JHIL which existed as
intercompany indebtedness in subsidiaries contributed to the Company. The
Purchase Agreements contain indemnity provisions which provide that, for a
period of seven years after the Reorganization, JHIL and any relevant
non-transferring subsidiary will indemnify the
F-40
<PAGE> 143
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company for certain matters in relation to the operation of the Transferred
Businesses prior to the Reorganization as expressly described in the Purchase
Agreements (this indemnity does not include claims that, in the aggregate,
amount to less than $50,000). In addition, JHIL and the relevant
non-transferring subsidiary have agreed to provide unlimited indemnification to
the Company for (i) all claims related to asbestos liability; (ii) all
environmental-related claims arising from the condition of the real properties
prior to the Reorganization or the conduct of the relevant businesses prior to
the Reorganization (excluding claims arising from deliberate actions taken by
the Company with the intention of triggering an environmental claim); (iii)
taxes incurred by any subsidiary being transferred to the Company which relate
to periods prior to the Reorganization; and (iv) all claims in relation to
defective products and services manufactured or supplied by JHIL or the relevant
subsidiary prior to the Reorganization (excluding claims below a specified
threshold) for each of the transferring businesses, which in the aggregate
amounts to approximately $2.4 million.
LEASE AGREEMENTS
The Company has entered into lease agreements with subsidiaries of JHIL
whereby the Company leases, on a long-term basis, an office building in
Australia and fiber cement manufacturing facilities in Australia and New
Zealand. Obligations under such leases amount to an aggregate of approximately
$4.1 million per year. All of the leases expire on October 31, 2008 with the
exception of two leases that expire on October 31, 2000. All of the leases
contain renewal options and provisions adjusting lease payments based on changes
in various market factors as reflected in changes in the consumer price index.
REIMBURSEMENT AGREEMENT
Several of the officers of the Company are also officers of JHIL or may
provide services to JHIL from time to time. The Company pays all of the salaries
and benefits of all of these officers, other than Dr. Barton. Pursuant to the
provisions of the Reimbursement Agreement, the Company tracks the time such
officers spend in performing services for JHIL and JHIL reimburses the Company
for the allocated portion of the salary and benefits of such officers. Dr.
Barton, however, is paid directly by the Company and JHIL for the time spent by
Dr. Barton in performing his duties for the Company and JHIL, respectively.
Certain other officers or employees of JHIL may from time to time provide
services to the Company. JHIL will be similarly reimbursed by the Company for
these services. In addition the Company and JHIL are each reimbursed for any
services or facilities provided for the benefit of the other entity. Expense
reimbursements are made quarterly.
FOREIGN CURRENCY CONTRACTS
The Company has entered into contracts to sell Australian dollars and to
buy U.S. dollars of $165.6 million and to sell New Zealand dollars and buy U.S.
dollars of $15.2 million with JHIL. At December 31, 1998, $6.5 million has been
included as a receivable from JHIL under these contracts.
F-41
<PAGE> 144
JAMES HARDIE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECEIVABLES FROM AND PAYABLES TO JHIL
At December 31, 1998 unaudited receivables from and payables to JHIL
consisted of (in millions):
<TABLE>
<CAPTION>
POST
BALANCES AT REORGANIZATION
REORGANIZATION ACTIVITY TOTAL
-------------- -------------- -------
<S> <C> <C> <C>
Receivables....................................... $ 154.1 $ 6.5 $ 160.6
Payables.......................................... (143.4) (3.5) (146.9)
------- ----- -------
$ 10.7 $ 3.0 $ 13.7
======= ===== =======
</TABLE>
Certain balances at the date of the Reorganization have been settled
between the parties post December 31, 1998 (see Note 23) as a transfer to JHIL.
Balances arising post Reorganization are as a result of the Lease and
Reimbursement agreements and Foreign Currency contracts referred to above.
STOCK BASED COMPENSATION
Several employees of the Company are participants in JHIL's Executive Share
Purchase Plan. Under the terms of the Plan, employees funded the purchase of
JHIL shares with interest-free loans provided by JHIL and collateralized by the
shares. As of July 1998, JHIL had decided not to issue any further shares in
this Plan. As of December 31, 1998 the employees had loans payable to JHIL of
$8.5 million.
23. SUBSEQUENT EVENTS (UNAUDITED)
On February 5, 1999, the Company entered into binding agreements to sell to
JHIL three non-operating subsidiaries. At December 31, 1998, the combined net
assets of these subsidiaries was $6.8 million and, for the nine months period
ended December 31, 1998, the combined net income (loss) of these subsidiaries
was zero.
On February 5, 1999, the Company and JHIL entered into an agreement to
consolidate and set-off certain intercompany receivables and payables that were
in existence at the date of the Reorganization. The following unaudited pro
forma consolidated balance sheet data gives accounting effect to the
consolidation and set-off of the intercompany accounts as if they had occurred
on December 31, 1998 (in millions):
<TABLE>
<CAPTION>
CONSOLIDATION
DECEMBER 31, AND
1998 SET-OFF PRO FORMA
------------ ------------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Current assets................................... $ 386.9 $(150.3)(1) $ 236.6
Other assets..................................... 621.6 621.6
-------- -------
Total assets........................... 1,008.5 858.2
======== =======
Current liabilities.............................. 297.9 (141.1)(1) 156.8
Other liabilities................................ 372.7 372.7
-------- -------
Total liabilities...................... 670.6 529.5
Shareholders' equity............................. 337.9 (9.2)(1) 328.7
-------- -------
Total liabilities and shareholders' equity....... $1,008.5 $ 858.2
======== =======
</TABLE>
- ---------------
(1) Represents the consolidation and set-off of receivables from JHIL of $150.3
million with payables to JHIL of $141.1 million. The net receivable after
the set-off of $9.2 million has been deducted from shareholders' equity as
it is due from the principal shareholder.
F-42
<PAGE> 145
JAMES HARDIE N.V. AND SUBSIDIARIES
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA (UNAUDITED)
(MILLIONS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1998 YEAR ENDING MARCH 31, 1999
BY QUARTER BY QUARTER
------------------------------------- ---------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 218.2 $ 212.1 $ 198.8 $ 193.2 $ 206.2 $ 209.6 $ 215.3
Cost of goods sold................... (153.5) (151.1) (140.1) (147.6) (147.7) (147.8) (152.5)
------- ------- ------- ------- ------- ------- -------
Gross profit......................... $ 64.7 $ 61.0 $ 58.7 $ 45.6 $ 58.5 $ 61.8 $ 62.8
======= ======= ======= ======= ======= ======= =======
Operating profit..................... $ 23.8 $ 30.8 $ 19.5 $ 8.1 $ 22.9 $ 25.7 $ 24.6
Interest expense..................... (12.4) (17.4) (8.8) (10.3) (7.3) (9.1) (7.4)
Interest income...................... 6.3 9.9 5.0 7.1 3.4 6.0 3.0
Equity income -- RCI corporation..... 2.9 2.1 (0.2) 1.4 -- -- --
Other non operating expenses......... (2.1) (6.4) (2.0) (1.6) -- (6.9) 2.1
------- ------- ------- ------- ------- ------- -------
Income from continuing operations
before income tax.................. 18.5 19.0 13.5 4.7 19.0 15.7 22.3
Income tax (expense)................. (5.6) (6.6) (7.0) (5.8) (6.6) (8.7) (7.3)
------- ------- ------- ------- ------- ------- -------
Income from continuing operations.... 12.9 12.4 6.5 (1.1) 12.4 7.0 15.0
Income (loss) from discontinued
operations......................... 6.3 (5.5) 8.8 0.6 -- -- --
------- ------- ------- ------- ------- ------- -------
Extraordinary loss................... -- -- -- -- -- -- (8.3)
------- ------- ------- ------- ------- ------- -------
Net Income........................... $ 19.2 $ 6.9 $ 15.3 $ (0.5) $ 12.4 $ 7.0 $ 6.7
======= ======= ======= ======= ======= ======= =======
</TABLE>
F-43
<PAGE> 146
[LOGO] James Hardie N.V.
[MAP OF THE UNITED STATES DETAILING THE COMPANY'S GYPSUM MANUFACTURING SITES IN
SEATTLE, LAS VEGAS AND NASHVILLE AND THE COMPANY'S FIBER CEMENT MANUFACTURING
SITES IN FONTANA, CLEBURNE, PLANT CITY AND TACOMA.]
[MAP OF ASIA DETAILING THE COMPANY'S FIBER CEMENT MANUFACTURING SITE IN MANILA,
THE COMPANY'S SALES OFFICES IN TAPEI, SINGAPORE AND JAKARTA, AND THE COMPANY'S
SALES AGENTS IN SEOUL, OSAKA, HONG KONG, BANGKOK AND HO CHI MINH CITY.]
[MAP OF AUSTRALIA AND NEW ZEALAND DETAILING THE COMPANY'S FIBER CEMENT
MANUFACTURING SITES IN BRISBANE, SYDNEY, PERTH AND AUCKLAND AND THE COMPANY'S
WINDOWS MANUFACTURING SITES IN BRISBANE, TAMWORTH, NEWCASTLE/OURIMBAH, SYDNEY,
ADELAIDE, CANBERRA AND MELBOURNE.]
[MAP OF AUSTRALIA AND NEW ZEALAND DETAILING THE COMPANY'S BUILDING SYSTEMS
MANUFACTURING SITES IN JAKARTA, TOWNSVILLE, BRISBANE, PERTH, ADELAIDE,
MELBOURNE, SYDNEY, LAUNCESTON, CHRISTCHURCH AND AUCKLAND.]
[This page intentionally left blank]
<PAGE> 147
No dealer, salesperson or other individual has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Underwriters. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Common Stock in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Company since the date hereof.
TABLE OF CONTENTS
------------------------------------------------------
<TABLE>
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 11
The Reorganization..................... 21
Use of Proceeds........................ 23
Dividend Policy........................ 23
Capitalization......................... 24
Dilution............................... 25
Unaudited Pro Forma Consolidated
Financial Data....................... 26
Selected Financial and Operating
Data................................. 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 36
Business............................... 50
Management............................. 68
JHIL and the Selling Shareholder....... 79
Certain Relationships and Related
Transactions......................... 79
Shares Eligible for Future Sale........ 81
Description of Capital Stock........... 82
Share Certificates and Transfer........ 86
Taxation............................... 86
Underwriting........................... 93
Legal Matters.......................... 97
Experts................................ 97
Available Information.................. 97
Enforcement of Civil Liabilities....... 98
Notice to Ontario and Quebec
Residents............................ 99
Index to Financial Statements.......... F-1
</TABLE>
Until , 1999 all dealers effecting transactions in the Common Stock,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a Prospectus when acting as Underwriters and with respect to
their unsold allotments or subscriptions.
PROSPECTUS , 1999
7,500,000 Shares
JAMES HARDIE N.V.
JH LOGO
Common Stock
WARBURG DILLON READ LLC
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
<PAGE> 148
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
PROSPECTUS Subject to Completion, Dated March 2, 1999
- --------------------------------------------------------------------------------
7,500,000 Shares
JH LOGO
JAMES HARDIE N.V.
Common Stock
- --------------------------------------------------------------------------------
All of the 7,500,000 shares of common stock, nominal value NLG 0.02 per share
(the "Common Stock"), of James Hardie N.V. ("James Hardie") offered hereby are
being sold by a wholly owned indirect subsidiary (the "Selling Shareholder") of
James Hardie Industries Limited, a public company organized under the laws of
Australia and listed on the Australian Stock Exchange ("JHIL"), in concurrent
offerings outside the United States and Canada and in the United States and
Canada (collectively, the "Offerings"). Of such shares, 1,125,000 are initially
being offered outside the United States and Canada by the International
Underwriters (the "International Offering") and 6,375,000 are initially being
offered in the United States and Canada by the U.S. Underwriters (the "United
States Offering"). The per share price to the public and per share underwriting
discounts and commissions in each of the Offerings will be identical. See
"Underwriting." James Hardie will not receive any of the proceeds from the sale
of the shares offered hereby.
James Hardie is currently a wholly-owned indirect subsidiary of JHIL. Following
consummation of the Offerings, JHIL will beneficially own approximately 85% of
the outstanding shares of Common Stock (or approximately 83% of the outstanding
shares of Common Stock if the U.S. Underwriters' over-allotment option is
exercised in full).
Prior to the Offerings, there has been no public market for the Common Stock. It
is currently anticipated that the initial public offering price per share will
be between $15.00 and $18.00. See "Underwriting" for the factors to be
considered in determining the initial public offering price. The shares of
Common Stock have been approved for listing (subject to official notice of
issuance) on the New York Stock Exchange (the "NYSE") under the symbol "JHX."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON STOCK
OFFERED HEREBY, SEE "RISK FACTORS" COMMENCING ON PAGE 11.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds
Price to Discounts and to Selling
Public Commissions(1) Shareholder(2)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Per Share $ $ $
- ---------------------------------------------------------------------------------------------------------
Total(3) $ $ $
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) James Hardie, the Selling Shareholder and JHIL have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offerings payable by JHIL estimated to be
$1,825,000.
(3) The Selling Shareholder has granted the U.S. Underwriters a 30-day option to
purchase up to 1,125,000 additional shares of Common Stock on the same terms
per share solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public will be $ , the total
Underwriting Discounts and Commissions will be $ and the total
proceeds to the Selling Shareholder will be $ . See "Underwriting."
The shares of Common Stock are being offered by the Underwriters as set forth
under "Underwriting" herein. It is expected that delivery of the certificates
therefor will be made at the offices of UBS AG, acting through its division
Warburg Dillon Read, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1999.
WARBURG DILLON READ
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH INTERNATIONAL
The date of this Prospectus is , 1999.
<PAGE> 149
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholder by De Brauw Blackstone
Westbroek N.V. Advice with respect to Dutch tax matters has been provided by
PricewaterhouseCoopers N.V., Dutch tax advisors to the Company. Certain legal
matters in connection with the Offerings will be passed upon for the Company by
Gibson, Dunn & Crutcher LLP and for the Underwriters by Davis Polk & Wardwell.
Gibson, Dunn & Crutcher LLP and Davis Polk & Wardwell will rely on the opinions
of De Brauw Blackstone Westbroek N.V. with respect to all matters of Dutch law
and PricewaterhouseCoopers N.V. with respect to Dutch tax law matters.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheets as of March 31, 1997 and 1998, and the
consolidated statements of income, cash flows and changes in shareholders'
equity for each of the three years in the period ended March 31, 1998, included
in this Prospectus have been audited by PricewaterhouseCoopers, Australia,
independent accountants, as stated in their report appearing herein.
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form F-1
filed by the Company with the U.S. Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus omits certain of the information contained in the
Registration Statement, and reference is hereby made to the Registration
Statement and related exhibits for further information with respect to the
Company and the securities offered hereby. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and in
such instance reference is made to the copy of such document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission. Each such
statement is qualified by such reference.
As a result of the United States Offering, the Company will become subject
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), applicable to foreign private issuers, and in accordance
therewith will file reports, including annual reports, and other information
with the Commission. Such reports and other information may be obtained, upon
written request, from the Transfer Agent and Registrar at its principal office
located at 40 Wall Street, New York, New York 10005. Such reports and other
information may also be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at Room 1024 Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. In addition, reports and other information concerning the
Company may be inspected at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005. As a foreign private Company, the
Company is exempt from the rules under the Exchange Act prescribing the
furnishing and content of proxy statements and annual reports to shareholders
and the short-swing profit recovery provisions set forth in Section 16 of the
Exchange Act.
97
<PAGE> 150
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
ENFORCEMENT OF CIVIL LIABILITIES
The Company is incorporated under the laws of The Netherlands with its
corporate seat in Amsterdam, The Netherlands. Certain of the members of the
Company's directors, executive officers and subsidiaries, and certain of the
experts named herein, are residents of jurisdictions outside the United States
and significant assets of the Company and of such persons are located outside
the United States. As a result, it may be difficult for investors to effect
service of process within the United States upon the Company or such other
persons, or to enforce outside the United States judgments obtained against such
persons in the U.S. courts, or to enforce U.S. court judgments obtained against
such persons in courts in jurisdictions outside the United States, in each case,
in any action, including actions predicated upon the civil liability provisions
of U.S. securities laws.
The Company has been advised by its Dutch counsel, De Brauw Blackstone
Westbroek N.V., that the United States and The Netherlands do not currently have
a treaty providing for reciprocal recognition and enforcement of judgments
(other than arbitration awards) in civil and commercial matters. In the view of
such counsel, a final judgment for the payment of money rendered by any federal
or state court in the United States based on civil liability, whether or not
predicated solely upon the federal securities laws of the United States, would
not be directly enforceable in The Netherlands. However, if the party in whose
favor such final judgment is rendered brings a new suit in a court of competent
jurisdiction in The Netherlands, such party may submit in the course of such
proceedings the final judgment that has been rendered in the United States. If a
Netherlands court finds that the jurisdiction of the federal or state court in
the United States has been based on grounds that are internationally acceptable
and that proper legal procedures have been observed, the court in The
Netherlands would, in principle, give binding effect to the final judgment that
has been rendered in the United States unless such judgment contravenes
Netherlands' public policy. In addition, there is doubt as to whether a court in
The Netherlands would render a judgment in an original action predicated solely
upon the federal securities laws of the United States. Further, it may be
difficult for investors to enforce, in original actions brought in courts in
jurisdictions located outside the United States, rights predicated upon the U.S.
securities laws. See "Risk Factors -- Potential Difficulties in Protecting
Shareholder Rights and in Enforcing Civil Liabilities."
98
<PAGE> 151
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
No dealer, salesperson or other individual has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Underwriters. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Common Stock in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Company since the date hereof.
TABLE OF CONTENTS
------------------------------------------------------
<TABLE>
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 11
The Reorganization.................... 21
Use of Proceeds....................... 23
Dividend Policy....................... 23
Capitalization........................ 24
Dilution.............................. 25
Unaudited Pro Forma Consolidated
Financial Data...................... 26
Selected Financial and Operating
Data................................ 33
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 36
Business.............................. 50
Management............................ 68
JHIL and the Selling Shareholder...... 79
Certain Relationships and Related
Transactions........................ 79
Shares Eligible for Future Sale....... 81
Description of Capital Stock.......... 82
Share Certificates and Transfer....... 86
Taxation.............................. 86
Underwriting.......................... 93
Legal Matters......................... 97
Independent Public Accountants........ 97
Available Information................. 97
Enforcement of Civil Liabilities...... 98
Index to Financial Statements......... F-1
Until , 1999 all dealers effecting
transactions in the Common Stock, whether
or not participating in this distribution,
may be required to deliver a Prospectus.
This delivery requirement is in addition to
the obligation of dealers to deliver a
Prospectus when acting as Underwriters and
with respect to their unsold allotments or
subscriptions.
</TABLE>
PROSPECTUS , 1999
7,500,000 Shares
JAMES HARDIE N.V.
JH LOGO
Common Stock
WARBURG DILLON READ
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH INTERNATIONAL
<PAGE> 152
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of the fees and
expenses (other than sales commissions) payable by JHIL in connection with the
sale and distribution of the shares of Common Stock.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 53,941
NASD Filing Fee............................................. 18,785
New York Stock Exchange Listing Fee......................... 100,000
Blue Sky Fees and Expenses.................................. 10,000
Printing and Mailing Fees and Expenses...................... 450,000
Accounting Fees and Expenses................................ 480,000
Legal Fees and Expenses..................................... 650,000
Transfer Agent and Registrar Fees and Expenses.............. 15,000
Miscellaneous............................................... 47,274
----------
Total............................................. $1,825,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Association provide that the Company is
authorized to indemnify its directors, officers and agents against all
liabilities resulting from (1) any action, suit or proceeding (other than an
action by or in the right of the Company), provided that such person acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the Company and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe his conduct was
unlawful or out of his mandate, and (2) any action or proceeding by or in the
right of the Company to procure a judgment in its favor provided that such
person acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the Company and except that no indemnification
shall be made if such person is adjudged to be liable for gross negligence or
willful misconduct in the performance of his duty to the Company, unless a court
determines that such person is fairly and reasonably entitled to
indemnification. Such indemnification shall only be made upon a determination by
the Board of Directors or, if the Board of Directors so resolves, by independent
legal counsel or by a general meeting of shareholders that indemnification is
proper under the circumstances because such person has satisfied the applicable
standard of conduct.
The Company is entering into indemnity agreements (copies of which are
filed as exhibits to the Registration Statement) with the directors and certain
officers of the Company which provide indemnification to the greatest extent
permitted by law. The Company has also purchased insurance policies under which
such individuals are insured against liabilities resulting from their conduct
when acting in their capacities on behalf of the Company. In addition, Article
37 of the Articles of Association provides that the adoption by the general
meeting of shareholders of the annual accounts shall fully discharge the
directors from liability in respect of the exercise of their duties during the
financial year concerned, unless a proviso is made by the general meeting of
shareholders and without prejudice to certain provisions of the Dutch Civil
Code. Under Dutch law, this discharge is not absolute and would not be effective
as to any matters not disclosed to the Company's shareholders and is subject to
general principles of reasonableness and fairness.
Reference is also made to the form of Underwriting Agreement filed as an
exhibit to the Registration Statement for provisions relating to the
indemnification of the directors and certain officers of the Company by the
underwriters.
II-1
<PAGE> 153
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In August 1998, in connection with the Reorganization, James Hardie issued
1,000 shares of the Common Stock to JHIL in exchange for NLG 100,000. On October
22, 1998, these 1,000 shares were converted into 5,000,000 shares pursuant to a
redivision of shares. At the same time, James Hardie issued an additional
45,000,000 shares of the Common Stock to a subsidiary of JHIL in exchange for
the contribution of the Transferred Businesses. The issuances of such shares of
the Common Stock were exempt from registration under the Securities Act because,
among other reasons, such shares were offered and sold outside of the United
States.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement(1)
2.1 Share Acquisition Agreement, dated October 28, 1998, between
JHIL and James Hardie Australia Pty Limited re acquisition
of shares of James Hardie Fibre Cement Pty Limited(2)
2.2 Share Acquisition Agreement, dated October 28, 1998, between
JHIL and James Hardie Australia Pty Limited re acquisition
of shares of James Hardie Windows (Holdings) Pty Limited and
James Hardie Building Systems (Holdings) Pty Limited(2)
2.3 Share Sale and Purchase Agreement, dated October 23, 1998,
between RCI Pty Limited, James Hardie N.V. and JHIL re
acquisition of shares of PT James Hardie Indonesia(2)
2.4 Share Acquisition Agreement, dated October 23, 1998, among
RCI Pty Limited, James Hardie N.V. and JHIL re acquisition
of shares of James Hardie Philippines Inc.(2)
2.5 Share Acquisition Agreement, dated October 22, 1998, among
James Hardie N.V., RCI Malta Investments Limited and JHIL re
acquisition of shares of James Hardie Research (Holdings)
Pty Limited(2)
2.6 Share Contribution Agreement, dated October 22, 1998, among
James Hardie N.V., RCI Malta Investments Limited and JHIL re
acquisition of shares of James Hardie (Holdings) Inc.(2)
2.7 Business Acquisition Agreement, dated October 28, 1998,
among James Hardie & Coy Pty Limited, James Hardie Australia
Pty Limited and JHIL(2)
2.8 Business Acquisition, dated October 28, 1998, Agreement
among James Hardie & Coy Pty Limited, James Hardie US
Investments Carson Inc. and JHIL(2)
2.9 Business Acquisition Agreement, dated October 28, 1998,
among James Hardie US Investments Carson Inc., James Hardie
Australia Pty Limited and JHIL(2)
2.10 Agreement for Sale and Purchase of Business, dated November
2, 1998, among James Hardie Building Products Limited, James
Hardie New Zealand Limited and JHIL(2)
3.1 Form of Amended and Restated Articles of Association of
James Hardie N.V.(3)
4.1 Form of Common Stock Certificate of James Hardie N.V.(4)
5.1 Opinion of De Brauw Blackstone Westbroek N.V.(5)
8.1 Opinion of PricewaterhouseCoopers N.V. as to certain tax
matters
8.2 Opinion of Gibson, Dunn & Crutcher LLP as to certain tax
matters(5)
10.1 Registration Rights Agreement between James Hardie N.V. and
JHIL(4)
10.2 James Hardie N.V. 1999 Equity Incentive Plan(3)
10.3 James Hardie N.V. 1999 Independent Directors Deferred
Compensation Plan(3)
10.4 Employment Agreement, dated January 1, 1999, between James
Hardie Inc. and Dr. Keith Barton(3)
10.5 Employment Agreement between James Hardie N.V. and Dr. Keith
Barton(3)
10.6 Employment Agreement, dated September 1, 1998, between James
Hardie Inc. and Peter Macdonald(3)
</TABLE>
II-2
<PAGE> 154
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
10.7 Form of Joint and Several Indemnity Agreement among James
Hardie N.V., James Hardie (USA) Inc. and certain indemnitees
thereto(4)
10.8 Form of Deed of Access to Documents, Indemnity and Insurance
among James Hardie N.V. and certain indemnitees thereto(1)
10.9 Reimbursement Agreement between James Hardie N.V. and
JHIL(3)
10.10 Gypsum Supply Agreement, dated January 1, 1995, between
Oxbow Carbon & Minerals, Inc. and James Hardie Gypsum
(Washington), Inc.(6)
10.11 Paperboard Supply Agreement, dated May 14, 1998, among
Republic Paperboard Company, Republic Group Incorporated and
James Hardie Gypsum, Inc.(6)
10.12 Lease Agreement, effective November 1, 1998, among James
Hardie & Coy Pty Limited, JHIL and James Hardie Australia
Pty Limited re premises at Cnr Cobalt & Silica Street,
Carole Park, Queensland, Australia(2)
10.13 Lease Agreement, effective November 1, 1998, among James
Hardie & Coy Pty Limited, JHIL and James Hardie Australia
Pty Limited re premises at 46 Randle Road, Meeandah,
Queensland, Australia(2)
10.14 Lease Agreement, effective November 1, 1998, among James
Hardie & Coy Pty Limited, JHIL and James Hardie Australia
Pty Limited re premises at Cnr Colquhoun & Devon Streets,
Rosehill, New South Wales, Australia(2)
10.15 Lease Agreement, effective November 1, 1998, among James
Hardie & Coy Pty Limited, JHIL and James Hardie Australia
Pty Limited re premises at 1 Grand Avenue, Camellia, New
South Wales, Australia(2)
10.16 Lease Agreement, dated November 6, 1998, among James Hardie
& Coy Pty Limited, JHIL and James Hardie Australia Pty
Limited re premises at Rutland, Avenue, Welshpool, Western
Australia, Australia(2)
10.17 Lease Agreement, effective November 1, 1998, among James
Hardie Building Products Limited, JHIL and James Hardie New
Zealand Limited re premises at Cnr O'Rorke & Station Roads,
Penrose, Auckland, New Zealand(2)
10.18 Lease Agreement, effective November 1, 1998, among James
Hardie Building Products Limited, JHIL and James Hardie New
Zealand Limited re premises at 44-74 O'Rorke Road, Penrose,
Auckland, New Zealand(2)
10.19 Lease Agreement, effective November 1, 1998, among James
Hardie Building Products Limited, James Hardie New Zealand
Limited and JHIL re premises at State Highway 16, Kumeu, New
Zealand(2)
10.20 Note Purchase Agreement, dated November 5, 1998, among James
Hardie Finance B.V., James Hardie N.V. and certain
purchasers thereto re $225,000,000 Guaranteed Senior Notes
10.21 Form of 364 Day Standby Loan Agreement among James Hardie
Finance B.V., James Hardie N.V., James Hardie Aust. Investco
Pty Limited and certain lenders thereto
10.22 Form of Revolving Loan Agreement among James Hardie Aust.
Investco Pty Limited, James Hardie Finance B.V., James
Hardie N.V. and certain lenders thereto
21.1 List of Subsidiaries of James Hardie N.V.(1)
23.1 Consent of PricewaterhouseCoopers
23.2 Consent of PricewaterhouseCoopers N.V. (included in Exhibit
8.1)
23.3 Consent of De Brauw Blackstone Westbroek N.V. (included in
Exhibit 5.1)(5)
23.4 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
8.2)(5)
23.5 Consent of Allen Allen & Hemsley(7)
23.6 Consent of Gibson, Dunn & Crutcher LLP(5)
24.1 Powers of Attorney(4)
</TABLE>
II-3
<PAGE> 155
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
99.1 Consent of Michael Gillfillan(4)
99.2 Consent of Martin Koffel(4)
99.3 Consent of Roger Siboni(4)
</TABLE>
- ---------------
(1) Previously filed with this Registration Statement on February 8, 1999.
(2) Previously filed with this Registration Statement on November 27, 1998.
(3) Previously filed with this Registration Statement on February 19, 1999.
(4) Previously filed with this Registration Statement on September 17, 1998.
(5) Previously filed with this Registration Statement on February 24, 1999.
(6) Certain portions of the exhibit have been omitted pursuant to a confidential
treatment request filed separately with the Securities and Exchange
Commission.
(7) Previously filed with this Registration Statement on October 15, 1998.
(b) FINANCIAL STATEMENTS SCHEDULES.
Not Applicable.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be decreed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 156
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form F-1 and has duly caused this Amendment
No. 6 to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Irvine, State of California, on the 2nd day of March, 1999.
JAMES HARDIE N.V.,
a company incorporated under the laws
of The Netherlands
By: *
------------------------------------
Keith Barton
President, Chief Executive Officer
and Chairman of the Board of
Directors and the Managing Board**
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 6 has been signed by the following persons in the capacities
indicated on the 2nd day of March, 1999.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
* President, Chief Executive Officer and
- -------------------------------------------------------- Chairman of the Board of Directors and the
Keith Barton Managing Board (Principal Executive
Officer)**
* Chief Financial Officer and Member of the
- -------------------------------------------------------- Board of Directors and the Managing Board
Phillip Morley (Principal Financial Officer and Principal
Accounting Officer)**
* Member of the Board of Directors and the
- -------------------------------------------------------- Supervisory Board**
Alan McGregor
* Member of the Board of Directors and the
- -------------------------------------------------------- Supervisory Board**
Peter Willcox
* Member of the Managing Board
- --------------------------------------------------------
Donald Cameron
/s/ PETER MACDONALD Authorized Representative in the United
- -------------------------------------------------------- States
Peter Macdonald
</TABLE>
<PAGE> 157
- ---------------
* By: /s/ PETER MACDONALD
-------------------------
Peter Macdonald
Attorney-in-fact
** Messrs. Barton, Morley, McGregor and Cameron are currently members of, and
constitute a majority of, the Managing Board of the Registrant. Mr. Gunther
A.R. Warris, the only other current member of the Managing Board, has
tendered his resignation from the Managing Board, such resignation to become
effective on the date that this Registration Statement is declared effective
(the "Effective Date"). Pursuant to resolutions adopted prior to the date
hereof by the Managing Board and the General Meeting of Shareholders of the
Registrant: (a) the Articles of Association have been amended to create the
Supervisory Board and the Board of Directors; (b) Messrs. Barton, Morley and
McGregor have been appointed to the additional positions indicated; (c) Mr.
McGregor will cease to be a member of the Managing Board; and (d) Mr. Willcox
has been appointed to the positions indicated, effective, in each case, as of
the Effective Date. In addition, on or shortly after the Effective Date,
Messrs. Gillfillan, Koffel and Siboni will be added to the Board of Directors
and the Supervisory Board. All persons who have signed this Registration
Statement have been specifically authorized to do so by the Managing Board
and the General Meeting of Shareholders of the Registrant.
<PAGE> 158
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement(1)
2.1 Share Acquisition Agreement, dated October 28, 1998, between
JHIL and James Hardie Australia Pty Limited re acquisition
of shares of James Hardie Fibre Cement Pty Limited(2)
2.2 Share Acquisition Agreement, dated October 28, 1998, between
JHIL and James Hardie Australia Pty Limited re acquisition
of shares of James Hardie Windows (Holdings) Pty Limited and
James Hardie Building Systems (Holdings) Pty Limited(2)
2.3 Share Sale and Purchase Agreement, dated October 23, 1998,
between RCI Pty Limited, James Hardie N.V. and JHIL re
acquisition of shares of PT James Hardie Indonesia(2)
2.4 Share Acquisition Agreement, dated October 23, 1998, among
RCI Pty Limited, James Hardie N.V. and JHIL re acquisition
of shares of James Hardie Philippines Inc.(2)
2.5 Share Acquisition Agreement, dated October 22, 1998, among
James Hardie N.V., RCI Malta Investments Limited and JHIL re
acquisition of shares of James Hardie Research (Holdings)
Pty Limited(2)
2.6 Share Contribution Agreement, dated October 22, 1998, among
James Hardie N.V., RCI Malta Investments Limited and JHIL re
acquisition of shares of James Hardie (Holdings) Inc.(2)
2.7 Business Acquisition Agreement, dated October 28, 1998,
among James Hardie & Coy Pty Limited, James Hardie Australia
Pty Limited and JHIL(2)
2.8 Business Acquisition, dated October 28, 1998, Agreement
among James Hardie & Coy Pty Limited, James Hardie US
Investments Carson Inc. and JHIL(2)
2.9 Business Acquisition Agreement, dated October 28, 1998,
among James Hardie US Investments Carson Inc., James Hardie
Australia Pty Limited and JHIL(2)
2.10 Agreement for Sale and Purchase of Business, dated November
2, 1998, among James Hardie Building Products Limited, James
Hardie New Zealand Limited and JHIL(2)
3.1 Form of Amended and Restated Articles of Association of
James Hardie N.V.(3)
4.1 Form of Common Stock Certificate of James Hardie N.V.(4)
5.1 Opinion of De Brauw Blackstone Westbroek N.V.(5)
8.1 Opinion of PricewaterhouseCoopers N.V. as to certain tax
matters
8.2 Opinion of Gibson, Dunn & Crutcher LLP as to certain tax
matters(5)
10.1 Registration Rights Agreement between James Hardie N.V. and
JHIL(4)
10.2 James Hardie N.V. 1999 Equity Incentive Plan(3)
10.3 James Hardie N.V. 1999 Independent Directors Deferred
Compensation Plan(3)
10.4 Employment Agreement, dated January 1, 1999, between James
Hardie Inc. and Dr. Keith Barton(3)
10.5 Employment Agreement between James Hardie N.V. and Dr. Keith
Barton(3)
10.6 Employment Agreement, dated September 1, 1998, between James
Hardie Inc. and Peter Macdonald(3)
10.7 Form of Joint and Several Indemnity Agreement among James
Hardie N.V., James Hardie (USA) Inc. and certain indemnitees
thereto(4)
10.8 Form of Deed of Access to Documents, Indemnity and Insurance
among James Hardie N.V. and certain indemnitees thereto(1)
10.9 Reimbursement Agreement between James Hardie N.V. and
JHIL(3)
10.10 Gypsum Supply Agreement, dated January 1, 1995, between
Oxbow Carbon & Minerals, Inc. and James Hardie Gypsum
(Washington), Inc.(6)
10.11 Paperboard Supply Agreement, dated May 14, 1998, among
Republic Paperboard Company, Republic Group Incorporated and
James Hardie Gypsum, Inc.(6)
</TABLE>
<PAGE> 159
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
10.12 Lease Agreement, effective November 1, 1998, among James
Hardie & Coy Pty Limited, JHIL and James Hardie Australia
Pty Limited re premises at Cnr Cobalt & Silica Street,
Carole Park, Queensland, Australia(2)
10.13 Lease Agreement, effective November 1, 1998, among James
Hardie & Coy Pty Limited, JHIL and James Hardie Australia
Pty Limited re premises at 46 Randle Road, Meeandah,
Queensland, Australia(2)
10.14 Lease Agreement, effective November 1, 1998, among James
Hardie & Coy Pty Limited, JHIL and James Hardie Australia
Pty Limited re premises at Cnr Colquhoun & Devon Streets,
Rosehill, New South Wales, Australia(2)
10.15 Lease Agreement, effective November 1, 1998, among James
Hardie & Coy Pty Limited, JHIL and James Hardie Australia
Pty Limited re premises at 1 Grand Avenue, Camellia, New
South Wales, Australia(2)
10.16 Lease Agreement, dated November 6, 1998, among James Hardie
& Coy Pty Limited, JHIL and James Hardie Australia Pty
Limited re premises at Rutland, Avenue, Welshpool, Western
Australia, Australia(2)
10.17 Lease Agreement, effective November 1, 1998, among James
Hardie Building Products Limited, JHIL and James Hardie New
Zealand Limited re premises at Cnr O'Rorke & Station Roads,
Penrose, Auckland, New Zealand(2)
10.18 Lease Agreement, effective November 1, 1998, among James
Hardie Building Products Limited, JHIL and James Hardie New
Zealand Limited re premises at 44-74 O'Rorke Road, Penrose,
Auckland, New Zealand(2)
10.19 Lease Agreement, effective November 1, 1998, among James
Hardie Building Products Limited, James Hardie New Zealand
Limited and JHIL re premises at State Highway 16, Kumeu, New
Zealand(2)
10.20 Note Purchase Agreement, dated November 5, 1998, among James
Hardie Finance B.V., James Hardie N.V. and certain
purchasers thereto re $225,000,000 Guaranteed Senior Notes
10.21 Form of 364 Day Standby Loan Agreement among James Hardie
Finance B.V., James Hardie N.V., James Hardie Aust. Investco
Pty Limited and certain lenders thereto
10.22 Form of Revolving Loan Agreement among James Hardie Aust.
Investco Pty Limited, James Hardie Finance, B.V., James
Hardie N.V. and certain lenders thereto.
21.1 List of Subsidiaries of James Hardie N.V.(1)
23.1 Consent of PricewaterhouseCoopers
23.2 Consent of PricewaterhouseCoopers N.V. (included in Exhibit
8.1)
23.3 Consent of De Brauw Blackstone Westbroek N.V. (included in
Exhibit 5.1)(5)
23.4 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
8.2)(5)
23.5 Consent of Allen Allen & Hemsley(7)
23.6 Consent of Gibson, Dunn & Crutcher LLP(5)
24.1 Powers of Attorney(4)
99.1 Consent of Michael Gillfillan(4)
99.2 Consent of Martin Koffel(4)
99.3 Consent of Roger Siboni(4)
</TABLE>
- ---------------
(1) Previously filed with this Registration Statement on February 8, 1999.
(2) Previously filed with this Registration Statement on November 27, 1998.
(3) Previously filed with this Registration Statement on February 19, 1999.
(4) Previously filed with this Registration Statement on September 17, 1998.
(5) Previously filed with this Registration Statement on February 24, 1999.
<PAGE> 160
(6) Certain portions of the exhibit have been omitted pursuant to a confidential
treatment request filed separately with the Securities and Exchange
Commission.
(7) Previously filed with this Registration Statement on October 15, 1998.
<PAGE> 1
EXHIBIT 8.1
[PricewaterhouseCoopers N.V. Letterhead]
James Hardie N.V.
World Trade Center
Strawinskylaan 749
1077 XX Amsterdam
February 25, 1999
Dear Sirs,
You have requested our opinion regarding certain Netherlands tax consequences of
an investment in the shares of Common Stock (the "Shares") of James Hardie N.V.,
a Netherlands corporation (the "Company"), acquired pursuant to an initial
public offering (the "Offering") of the Shares in the United States.
In formulating our opinion as to the matters certified, we have examined such
documents as we have deemed appropriate, including the Registration Statement of
the Company on Form F-1 dated September 17, 1998, as amended through Amendment
No. 5 dated February 24, 1999, filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933 (such Registration Statement being
referred to hereinafter as the "Registration Statement"). Also, we have obtained
such additional information as we have deemed relevant and necessary through
consultation with various officers and representatives of the Company.
The terms of the Offering which are set forth in the Registration Statement are
incorporated herein by reference.
Based upon the terms of the Offering as set forth in the Registration
Statement, we confirm that the statements set forth under the headings
"Taxation - United States Taxation - Credit of Foreign Taxes Withheld" and
"Taxation - Netherlands Taxation" in the Registration Statement, to the extent
that they constitute matters of Dutch tax law, summaries of Dutch tax matters
or Dutch tax conclusions, constitute our opinion.
<PAGE> 2
We express no opinion as to any law other than the tax law of The Netherlands
as it stands as the date hereof, which tax law may be changed at any time with
retroactive effect. Terms and expressions as used under the headings "Taxation
- -- United States Taxation -- Credit of Foreign Taxes Withheld" and "Taxation --
Netherlands Taxation" in the Registration Statement have the meaning attributed
to the equivalent Dutch language terms and expressions under the law of The
Netherlands. This opinion will be governed by and construed in accordance with
Netherlands law. No opinion is expressed on any matters other than those
specifically referred to herein.
We hereby consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our corporation (PricewaterhouseCoopers N.V.)
herein.
Yours sincerely,
PricewaterhouseCoopers N.V.
/s/ R. UNGER /s/ W.M.M. VAN DER BEEK
- ---------------------------- ----------------------------
R. Unger W.M.M. van der Beek
James Hardie N.V. (2)
<PAGE> 1
EXHIBIT 10.20
JAMES HARDIE FINANCE B.V., AS ISSUER
JAMES HARDIE N.V., AS GUARANTOR
NOTE PURCHASE AGREEMENT
DATED NOVEMBER 5, 1998
$225,000,000
GUARANTEED SENIOR NOTES
6.86% Guaranteed Senior Notes due 2004, Series A--$24,000,000
6.92% Guaranteed Senior Notes due 2005, Series B--$35,000,000
6.99% Guaranteed Senior Notes due 2006, Series C--$37,000,000
7.05% Guaranteed Senior Notes due 2007, Series D--$11,000,000
7.12% Guaranteed Senior Notes due 2008, Series E--$63,000,000
7.24% Guaranteed Senior Notes due 2010, Series F--$20,000,000
7.42% Guaranteed Senior Notes due 2013, Series G--$35,000,000
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
1. AUTHORIZATION OF NOTES......................................................................................1
2. SALE AND PURCHASE OF NOTES..................................................................................2
3. CLOSING.....................................................................................................2
4. CONDITIONS TO CLOSING.......................................................................................3
4.1. Representations and Warranties.........................................................................3
4.2. Performance; No Default................................................................................3
4.3. Compliance Certificates................................................................................3
4.4. Opinions of Counsel....................................................................................3
4.5. Purchase Permitted By Applicable Law, etc..............................................................4
4.6. Sale of Other Notes....................................................................................4
4.7. Payment of Special Counsel Fees........................................................................4
4.8. Private Placement Number...............................................................................4
4.9. Changes in Corporate Structure.........................................................................4
4.10. Execution of Subsidiary Guarantee.....................................................................4
4.11. Concurrent Completion of Reorganization...............................................................5
4.12. Evidence of Consent to Receive Service of Process.....................................................5
4.13. Proceedings and Documents.............................................................................5
5. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS..............................................................5
5.1. Organization; Power and Authority......................................................................5
5.2. Authorization, etc.....................................................................................6
5.3. Disclosure.............................................................................................6
5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates.......................................7
5.5. Financial Statements...................................................................................7
5.6. Compliance with Laws, Other Instruments, etc...........................................................8
5.7. Governmental Authorizations, etc.......................................................................8
5.8. Litigation; Observance of Agreements, Statutes and Orders..............................................8
5.9. Taxes..................................................................................................9
5.10. Title to Property; Leases.............................................................................9
5.11. Licenses, Permits, etc................................................................................9
5.12. Compliance with ERISA................................................................................10
5.13. Private Offering by the Issuer.......................................................................11
5.14. Use of Proceeds; Margin Regulations..................................................................11
5.15. Existing Debt; Future Liens..........................................................................11
5.16. Foreign Assets Control Regulations, etc..............................................................12
5.17. Status under Certain Statutes........................................................................12
5.18. Environmental Matters................................................................................12
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
5.19. Year 2000............................................................................................12
6. REPRESENTATIONS OF THE PURCHASER...........................................................................13
6.1. Purchase for Investment...............................................................................13
6.2. Source of Funds.......................................................................................13
7. INFORMATION AS TO THE OBLIGORS.............................................................................15
7.1. Financial and Business Information....................................................................15
7.2. Officer's Certificate.................................................................................17
7.3. Inspection............................................................................................17
8. PREPAYMENT OF THE NOTES....................................................................................18
8.1. No Required Prepayments...............................................................................18
8.2. Optional Prepayments with Make-Whole Amount...........................................................18
8.3. Allocation of Partial Prepayments.....................................................................18
8.4 Maturity; Surrender, etc. ............................................................................19
8.5 Purchase of Notes ....................................................................................19
8.6. Make-Whole Amount.....................................................................................19
9. AFFIRMATIVE COVENANTS......................................................................................20
9.1. Compliance with Law...................................................................................20
9.2. Insurance.............................................................................................21
9.3. Maintenance of Properties.............................................................................21
9.4. Payment of Taxes and Claims...........................................................................21
9.5. Corporate Existence, etc..............................................................................21
9.6. Nature of Business....................................................................................22
9.7. Environmental Compliance..............................................................................22
9.8. Ownership of Issuer and Subsidiary Guarantor; Activities..............................................22
9.9. Covenant to Secure Notes Equally......................................................................23
10. NEGATIVE COVENANTS........................................................................................23
10.1. Transactions with Affiliates.........................................................................23
10.2. Merger, Consolidation; Sale of Assets................................................................23
10.3. Liens................................................................................................25
10.4. Incurrence of Funded Debt............................................................................27
10.5. Priority Debt........................................................................................27
10.6. Restricted Payments..................................................................................27
10.7. Consolidated Net Worth...............................................................................28
10.8. Restrictions on Dividends by Subsidiaries............................................................28
11. GUARANTEE, ETC............................................................................................28
11.1. Guarantee............................................................................................28
11.2. Guarantee Absolute and Unconditional; Waivers, Etc...................................................29
12. TAX INDEMNIFICATION.......................................................................................30
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
13. EVENTS OF DEFAULT.........................................................................................34
14. REMEDIES ON DEFAULT, ETC..................................................................................36
14.1. Acceleration.........................................................................................36
14.2. Other Remedies.......................................................................................37
14.3. Rescission...........................................................................................37
14.4. No Waivers or Election of Remedies, Expenses, etc....................................................37
15. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.............................................................38
15.1. Registration of Notes................................................................................38
15.2. Transfer and Exchange of Notes.......................................................................38
15.3. Replacement of Notes.................................................................................39
16. PAYMENTS ON NOTES.........................................................................................39
16.1. Place of Payment.....................................................................................39
16.2. Home Office Payment..................................................................................39
17. EXPENSES, ETC.............................................................................................40
17.1. Transaction Expenses.................................................................................40
17.2. Survival.............................................................................................40
18. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT..............................................40
19. AMENDMENT AND WAIVER......................................................................................41
19.1. Requirements.........................................................................................41
19.2. Solicitation of Holders of Notes.....................................................................41
19.3. Binding Effect, etc..................................................................................41
19.4. Notes held by an Obligor, etc........................................................................42
20. CONFIDENTIAL INFORMATION..................................................................................42
21. REPRODUCTION OF DOCUMENTS.................................................................................43
22. NOTICES...................................................................................................43
23. SUBSTITUTION OF PURCHASER.................................................................................44
24. MISCELLANEOUS.............................................................................................44
24.1. Successors and Assigns...............................................................................44
24.2. Payments Due on Non-Business Days....................................................................44
24.3. Severability.........................................................................................44
24.4. Construction.........................................................................................44
24.5. Counterparts.........................................................................................45
24.6. Submission to Jurisdiction, Service of Process.......................................................45
24.7. Obligations to make Payments in Dollars..............................................................46
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
24.8. Assumption of Company's Obligations..................................................................46
24.9. Governing Law........................................................................................47
SCHEDULE A -- INFORMATION RELATING TO PURCHASERS
SCHEDULE B -- DEFINED TERMS
SCHEDULE 4.9 -- Changes in Corporate Structure
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries of the Issuer and Ownership of Subsidiary Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.11 -- Patents, etc.
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Debt
EXHIBIT 1 -- Form of Guaranteed Senior Note
EXHIBIT 4.4(a)(i) -- Form of Opinion of New York Special Counsel for the Obligors
EXHIBIT 4.4(a)(ii) -- Form of Opinion of Netherlands Special Counsel for the Obligors
EXHIBIT 4.4(a)(iii) -- Form of Opinion of Special Counsel for the Obligors
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers
EXHIBIT 5.5 Pro Forma Statements
</TABLE>
iv
<PAGE> 6
JAMES HARDIE FINANCE B.V., AS ISSUER
JAMES HARDIE N.V., AS GUARANTOR
26300 La Alameda, Suite 250
Mission Viejo, CA 92691
GUARANTEED SENIOR NOTES
November 5, 1998
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
James Hardie Finance B.V., a company incorporated under the laws of The
Netherlands with its corporate seat at Amsterdam, The Netherlands (the
"ISSUER"), and James Hardie N.V., a company incorporated under the laws of The
Netherlands with its corporate seat at Amsterdam, The Netherlands (the
"GUARANTOR" and, collectively with the Issuer, the "OBLIGORS") agree with you as
follows:
1. AUTHORIZATION OF NOTES.
The Issuer will authorize the issue and sale of $225,000,000 aggregate
principal amount of its Guaranteed Senior Notes (the "NOTES", such term to
include any such notes issued in substitution therefor pursuant to Section 15 of
this Agreement or the Other Agreements (as hereinafter defined)). The Notes will
be issued in seven separate series which shall be entitled, shall be issued in
such amounts, shall bear interest and shall mature as follows:
<TABLE>
<CAPTION>
TITLE PRINCIPAL AMOUNT INTEREST RATE MATURITY DATE
----- ---------------- ------------- -------------
<S> <C> <C> <C>
Series A $24,000,000 6.86% November 5, 2004
Series B 35,000,000 6.92% November 5, 2005
Series C 37,000,000 6.99% November 5, 2006
Series D 11,000,000 7.05% November 5, 2007
Series E 63,000,000 7.12% November 5, 2008
Series F 20,000,000 7.24% November 5, 2010
Series G 35,000,000 7.42% November 5, 2013
</TABLE>
The Notes shall be substantially in the form set out in Exhibit 1, with
such changes therefrom, if any, as may be approved by you and the Issuer.
Certain capitalized terms used in this Agreement are defined in Schedule B;
references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a
Schedule or an Exhibit attached to this Agreement and references to "this
Agreement" shall mean this Agreement as it may from time to time be amended or
supplemented. Payment of the principal of, and Make-Whole Amount (if any) and
interest on,
<PAGE> 7
the Notes, and performance by the Issuer of all of its obligations
under this Agreement, will be unconditionally guaranteed by the Guarantor as
provided in Section 11 hereof.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Issuer will
issue and sell to you and you will purchase from the Issuer, at the Closing
provided for in Section 3, Notes in the principal amount and of the particular
series specified opposite your name in Schedule A at the purchase price of 100%
of the principal amount thereof. Contemporaneously with entering into this
Agreement, the Issuer is entering into separate Note Purchase Agreements (the
"OTHER AGREEMENTS") identical with this Agreement with each of the other
purchasers named in Schedule A (the "OTHER PURCHASERS"), providing for the sale
at such Closing to each of the Other Purchasers of Notes in the principal amount
and of the particular series specified opposite its name in Schedule A. Your
obligation hereunder and the obligations of the Other Purchasers under the Other
Agreements are several and not joint obligations and you shall have no
obligation under any Other Agreement and no liability to any Person for the
performance or non-performance by any Other Purchaser thereunder.
3. CLOSING.
The sale and purchase of the Notes to be purchased by you and the Other
Purchasers shall occur at the offices of Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, NY 10019, at 10:00 a.m., New York time, at a closing (the
"CLOSING") on November 5, 1998 or on such other Business Day thereafter as may
be agreed upon by the Issuer and you and the Other Purchasers. At the Closing,
the Issuer will deliver to you the Notes to be purchased by you in the form of a
single Note (or such greater number of Notes in denominations of at least
$100,000 as you may request) dated the date of the Closing and registered in
your name (or in the name of your nominee), against delivery by you to the
Issuer or its order of immediately available funds in the amount of the purchase
price therefor by wire transfer of immediately available funds as follows:
BankAmerica International, New York
Swift Code: BOFAUS3N
ABA No.: 026009593
for the account of:
James Hardie Finance Limited
CHIPS UID: 258417
A/c 6550-6-07300
If at the Closing the Issuer shall fail to tender such Notes to you as
provided above in this Section 3, or any of the conditions specified in Section
4 shall not have been fulfilled to your satisfaction, you shall, at your
election, be relieved of all further obligations under this Agreement, without
thereby waiving any rights you may have by reason of such failure or such
non-fulfillment.
2
<PAGE> 8
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at
the Closing, of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each Obligor in this Agreement
shall be correct when made and at the time of the Closing.
4.2. PERFORMANCE; NO DEFAULT.
Each Obligor shall have performed and complied with all agreements and
conditions contained in this Agreement required to be performed or complied with
by it prior to or at the Closing and after giving effect to the issue and sale
of the Notes (and the application of the proceeds thereof as contemplated by
Schedule 5.14) no Default or Event of Default shall have occurred and be
continuing. Except as otherwise contemplated by the Memorandum, neither Obligor
nor any of their respective Subsidiaries shall have entered into any transaction
since the date of the Memorandum that would have been prohibited by Sections
10.1, 10.3, 10.4 or 10.6 hereof had such Sections applied since such date.
4.3. COMPLIANCE CERTIFICATES.
(a) Officer's Certificate. Each Obligor shall have delivered
to you an Officer's Certificate, dated the date of the Closing, certifying that
the conditions specified in Sections 4.1, 4.2, 4.9 and 4.11 have been fulfilled.
(b) Secretary's Certificate. Each Obligor shall have delivered
to you a certificate certifying as to the resolutions attached thereto and other
corporate proceedings relating to the authorization, execution and delivery of
the documents to which such Obligor is a party and the incumbency and authority
of persons executing such documents.
4.4. OPINIONS OF COUNSEL.
You shall have received opinions in form and substance satisfactory to
you, dated the date of the Closing (a) from (i) Gibson, Dunn & Crutcher LLP,
(ii) De Brauw Blackstone Westbroek P.C. and (iii) Allen Allen & Hemsley, counsel
for the Obligors, in substantially the forms set forth in Exhibits 4.4(a)(i),
4.4 (a)(ii) and 4.4(a)(iii), respectively, and in each case covering such other
matters incident to the transactions contemplated hereby as you or your counsel
may reasonably request (and each Obligor hereby instructs its counsel to deliver
such opinion to you) and (b) from Willkie Farr & Gallagher, your special counsel
in connection with such transactions, substantially in the form set forth in
Exhibit 4.4(b) and covering such other matters incident to such transactions as
you may reasonably request.
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4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing your purchase of Notes shall (i) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as Section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (ii) not
violate any applicable law or regulation (including, without limitation,
Regulation T, U or X of the Board of Governors of the Federal Reserve System)
and (iii) not subject you to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by you, you shall have received an Officer's
Certificate certifying as to such matters of fact as you may reasonably specify
to enable you to determine whether such purchase is so permitted.
4.6. SALE OF OTHER NOTES.
Contemporaneously with the Closing the Issuer shall sell to the Other
Purchasers and the Other Purchasers shall purchase the Notes to be purchased by
them at the Closing as specified in Schedule A.
4.7. PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 17.1, the Issuer shall have
paid on or before the Closing the fees, charges and disbursements of your
special counsel referred to in Section 4.4 to the extent reflected in a
statement of such counsel rendered to the Issuer at least one Business Day prior
to the Closing.
4.8. PRIVATE PLACEMENT NUMBER.
A private placement number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for the Notes.
4.9. CHANGES IN CORPORATE STRUCTURE.
Except in connection with the Reorganization or as specified in
Schedule 4.9, each Obligor shall not have changed its jurisdiction of
incorporation or been a party to any merger or consolidation and shall not have
succeeded to all or any substantial part of the liabilities of any other entity,
at any time following the date of the most recent financial statements referred
to in Schedule 5.5.
4.10. EXECUTION OF SUBSIDIARY GUARANTEE.
The Subsidiary Guarantor shall have executed and delivered to you a
Subsidiary Guarantee (the "SUBSIDIARY GUARANTEe") substantially in the form of
Exhibit 4.10 hereto and the same shall be in full force and effect.
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4.11. CONCURRENT COMPLETION OF REORGANIZATION.
Contemporaneously with the Closing, the Reorganization shall have been
consummated substantially as set forth in the Memorandum.
4.12. EVIDENCE OF CONSENT TO RECEIVE SERVICE OF PROCESS.
You shall have received, in form and substance reasonably satisfactory
to you, evidence of the consent of CT Corporation System in New York, New York
to the appointment and designation provided for by Section 24.6 (and the payment
of all fees relating thereto).
4.13. PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be satisfactory to you and your special counsel, and you
and your special counsel shall have received all such counterpart originals or
certified or other copies of such documents as you or they may reasonably
request.
5. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS.
The Issuer and the Guarantor jointly and severally represent and
warrant to you that:
5.1. ORGANIZATION; POWER AND AUTHORITY.
Each of the Issuer and the Guarantor is a corporation duly incorporated
and validly existing under the laws of The Netherlands, and is duly qualified as
a foreign corporation and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. The Issuer
has all corporate power and authority to own or hold under lease the properties
it purports to own or hold under lease, to transact the business it transacts
and proposes to transact, to participate in the Reorganization as described in
the Memorandum, to execute and deliver this Agreement, the Notes and the Other
Agreements to which it is a party and to perform the provisions hereof and
thereof. The Guarantor has all corporate power and authority to own or hold
under lease the properties it purports to own or hold under lease, to transact
the business it transacts and proposes to transact, to participate in the
Reorganization as described in the Memorandum, to execute and deliver this
Agreement and the Other Agreements to which it is a party and to perform the
provisions hereof and thereof. The Subsidiary Guarantor is a corporation duly
organized and validly existing as a corporation under the laws of Australia and
has all corporate power and authority to execute, deliver and perform its
obligations under the Subsidiary Guarantee.
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5.2. AUTHORIZATION, ETC.
This Agreement, the Notes and the Other Agreements to which the Issuer
is a party have been duly authorized by all necessary corporate action on the
part of the Issuer, and this Agreement constitutes, and upon execution and
delivery thereof, each Note will constitute, a legal, valid and binding
obligation of the Issuer enforceable against the Issuer in accordance with its
terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law). This Agreement and the Other Agreements to
which the Guarantor is a party have been duly authorized by all necessary
corporate action on the part of the Guarantor, and this Agreement constitutes a
legal, valid and binding obligation of the Guarantor, enforceable against the
Guarantor in accordance with its terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). The Subsidiary Guarantee has
been duly authorized by all necessary corporate action on the part of the
Subsidiary Guarantor and, upon execution and delivery thereof, will constitute a
legal, valid and binding obligation of the Subsidiary Guarantor, enforceable
against the Subsidiary Guarantor in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
5.3. DISCLOSURE.
The Issuer, through its agent, Warburg Dillon Read LLC has delivered to
you and each Other Purchaser a copy of a Private Placement Offering Memorandum,
dated August 1998 (that Memorandum as supplemented by the information set forth
in, or by reference in, Schedule 5.3, herein being referred to as the
"MEMORANDUM"), relating to the transactions contemplated hereby. The Memorandum
fairly describes, in all material respects, the general nature of the business
and principal properties of the Guarantor and the Issuer and the Reorganization.
This Agreement, the Memorandum, the documents, certificates or other writings
delivered to you by or on behalf of any Obligor in connection with the
transactions contemplated hereby and the financial statements listed in Schedule
5.5, taken as a whole, do not contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were made. Since March
31, 1998 (and after giving effect to the Reorganization), there has been no
change in the financial condition, operations, business, properties or prospects
of any Obligor or any Subsidiary except changes that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
There is no fact known to any Obligor that could reasonably be expected to have
a Material Adverse Effect that has not been set forth herein or in the
Memorandum or in the other documents, certificates and other writings delivered
to you by or on behalf of any Obligor specifically for use in connection with
the transactions contemplated hereby. Notwithstanding
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the foregoing, no Purchaser should rely on any information not contained either
in the Memorandum, this Agreement or the documents provided by the Obligors in
connection with the Closing, and any purchase made by any Purchaser on the basis
of information not contained therein or inconsistent therewith is not
authorized. Specifically, and without limitation, the Obligors do not make any
representations or warranties with respect to the accuracy or inaccuracy of the
statements contained in the Registration Statement of James Hardie N.V. on Form
F-1, and the Purchasers should not rely on any such statements.
5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES;
AFFILIATES.
(a) Schedule 5.4 contains (except as noted therein and after
giving effect to the Reorganization) complete and correct lists (i) of the
Guarantor's Subsidiaries, showing, as to each Subsidiary, the correct name
thereof, the jurisdiction of its organization or incorporation, and the
percentage of shares of each class of its capital stock or similar equity
interests outstanding owned by the Guarantor and each other Subsidiary, (ii) of
the Guarantor's Affiliates, other than Subsidiaries, and (iii) of each Obligor's
directors and senior officers.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the
Guarantor and its Subsidiaries (or to be so owned after giving effect to the
Reorganization) have been (or as of the Closing will have been) validly issued,
are (or at Closing will be) fully paid and nonassessable and are (or at Closing
will be) owned by the Guarantor or another Subsidiary free and clear of any Lien
(except as otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is (or after
giving effect to the Reorganization at Closing will be) a corporation or other
legal entity duly organized or incorporated, validly existing and in good
standing under the laws of its jurisdiction of organization or incorporation,
and is duly qualified as a foreign corporation or other legal entity and is in
good standing in each jurisdiction in which such qualification is required by
law, other than those jurisdictions as to which the failure to be so qualified
or in good standing could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Each such Subsidiary has (or after
giving effect to the Reorganization at Closing will have) the corporate or other
power and authority to own or hold under lease the properties it purports to own
or hold under lease and to transact the business it transacts and proposes to
transact.
(d) No Subsidiary is a party to, or otherwise subject to any
legal restriction or any agreement (other than this Agreement, the agreements
listed on Schedule 5.4 and customary limitations imposed by corporate law
statutes) restricting the ability of such Subsidiary to pay dividends out of
profits or make any other similar distributions of profits to the Guarantor or
any of its Subsidiaries that owns outstanding shares of capital stock or similar
equity interests of such Subsidiary.
5.5. FINANCIAL STATEMENTS.
The Guarantor has delivered to each Purchaser copies of the financial
statements of the Guarantor and its Subsidiaries listed on Schedule 5.5. All of
said financial statements (including
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in each case the related schedules and notes) fairly present in all material
respects the consolidated financial position of the Guarantor and its
Subsidiaries as of the respective dates specified in such Schedule and the
consolidated results of their operations and cash flows for the respective
periods so specified and have been prepared in accordance with GAAP consistently
applied throughout the periods involved except as set forth in the notes thereto
(subject, in the case of any interim financial statements, to normal year-end
adjustments). The "Pro Forma Statements" attached hereto as Exhibit 5.5 are
derived from and consistent with the the aforesaid financial statements referred
to and included in the Memorandum and comply as to form in all material respects
with all applicable accounting regulations and pronouncements relating to pro
forma financial statements. The assumptions on which the pro forma adjustments
reflected in the Pro Forma Statements are based provide a reasonable basis for
presenting the significant effects of the Reorganization and such pro forma
adjustments give appropriate effect to such assumptions and are properly applied
in the Pro Forma Statements. As of the date of the Closing and after giving
effect to the Reorganization, the Pro Forma Statements will reflect the
financial position and results of operations of the Guarantor and its
Subsidiaries as of the dates and for the periods covered thereby, all on a pro
forma basis as provided for therein.
5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by each Obligor of this
Agreement, the execution, delivery and performance by the Issuer of Notes and
the execution, and performance of the Subsidiary Guarantee by the Subsidiary
Guarantor will not (i) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any property
of any Obligor or any Subsidiary under, any indenture, mortgage, deed of trust,
loan, purchase or credit agreement, lease, corporate charter or by-laws, or any
other agreement or instrument to which any Obligor or any Subsidiary is bound or
by which any Obligor or any Subsidiary or any of their respective properties may
be bound or affected, (ii) conflict with or result in a breach of any of the
terms, conditions or provisions of any order, judgment, decree, or ruling of any
court, arbitrator or Governmental Authority applicable to any Obligor or any
Subsidiary or (iii) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to any Obligor or any
Subsidiary.
5.7. GOVERNMENTAL AUTHORIZATIONS, ETC.
No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance (a) by each Obligor of this Agreement, (b) by
the Issuer of the Notes or (c) by the Subsidiary Guarantor of the Subsidiary
Guarantee.
5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
(a) There are no actions, suits or proceedings pending or, to
the knowledge of either Obligor, threatened against or affecting any Obligor or
any Subsidiary or any property of any Obligor or any Subsidiary in any court or
before any arbitrator of any kind or before or by any Governmental Authority
that, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
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(b) Neither Obligor nor any Subsidiary is in default under any
term of any agreement or instrument to which it is a party or by which it is
bound, or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
(c) Schedule 5.3 sets forth a reasonably detailed description
of all material litigation and other proceedings involving or affecting the
Guarantor and its Subsidiaries (after giving effect to the Reorganization).
5.9. TAXES.
The Obligors and each Subsidiary have filed all tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments levied
upon them or their properties, assets, income or franchises, to the extent such
taxes and assessments have become due and payable and before they have become
delinquent, except for any taxes and assessments (i) the amount of which is not
individually or in the aggregate Material or (ii) the amount, applicability or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which such Obligor or such Subsidiary, as the
case may be, has established adequate reserves in accordance with GAAP. Neither
Obligor knows of any basis for any other tax or assessment that could reasonably
be expected to have a Material Adverse Effect. The charges, accruals and
reserves on the books of the Guarantor and its Subsidiaries in respect of
Federal, state or other taxes for all fiscal periods are adequate.
5.10. TITLE TO PROPERTY; LEASES.
The Obligors and each Subsidiary have (or after giving effect to the
Reorganization at the Closing will have) good and sufficient title to its
properties that individually or in the aggregate are Material, including all
such properties reflected in the most recent audited balance sheet referred to
in Section 5.5 or purported to have been acquired by any Obligor or any
Subsidiary after said date (except as sold or otherwise disposed of in the
ordinary course of business), in each case free and clear of Liens prohibited by
this Agreement. All leases that individually or in the aggregate are Material
are (or after giving effect to the Reorganization at the Closing will be) valid
and subsisting and are (or will be) in full force and effect in all material
respects.
5.11. LICENSES, PERMITS, ETC.
Except as disclosed in Schedule 5.11 (and in each case after giving
effect to the Reorganization),
(a) each of the Obligors and each Subsidiary owns or possesses
all licenses, permits, franchises, authorizations, patents, copyrights, service
marks, trademarks and trade names, or rights thereto, that individually or in
the aggregate are Material, without known conflict with the rights of others;
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(b) to the best knowledge of each of the Obligors, no product
of any Obligor infringes in any material respect any license, permit, franchise,
authorization, patent, copyright, service mark, trademark, trade name or other
right owned by any other Person; and
(c) to the best knowledge of each of the Obligors, there is no
Material violation by any Person of any right of the Obligors or any Subsidiary
with respect to any patent, copyright, service mark, trademark, trade name or
other right owned or used by any Obligor or any Subsidiary.
5.12. COMPLIANCE WITH ERISA.
(a) The Obligors and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for such
instances of noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. Neither the Obligors nor any
ERISA Affiliate have incurred any liability pursuant to Title I or IV of ERISA
or the penalty or excise tax provisions of the Code relating to employee benefit
plans (as defined in Section 3 of ERISA), and no event, transaction or condition
has occurred or exists that could reasonably be expected to result in the
incurrence of any such liability by the Obligors or any ERISA Affiliate, or in
the imposition of any Lien on any of the rights, properties or assets of the
Obligors or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or
412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities
under each of the Plans (other than Multiemployer Plans), determined as of the
end of such Plan's most recently ended plan year on the basis of the actuarial
assumptions specified for funding purposes in such Plan's most recent actuarial
valuation report, did not exceed the aggregate current value of the assets of
such Plan allocable to such benefit liabilities. The term "BENEFIT LIABILITIES"
has the meaning specified in section 4001 of ERISA and the terms "CURRENT VALUE"
and "PRESENT VALUE" have the meaning specified in section 3 of ERISA.
(c) The Obligors and their ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.
(d) The expected post-retirement benefit obligation
(determined as of the last day of the Guarantor's most recently ended fiscal
year in accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage mandated by
section 4980B of the Code) of the Guarantor and its Subsidiaries is not
Material.
(e) The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder and the execution and delivery of the
Subsidiary Guarantee will not involve any transaction that is subject to the
prohibitions of section 406 of ERISA or in connection with which a tax could be
imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation by
the Obligors in the first sentence of this Section 5.12(e) is made in reliance
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upon and subject to the accuracy of your representation in Section 6.2 as to the
sources of the funds used to pay the purchase price of the Notes to be purchased
by you.
5.13. PRIVATE OFFERING BY THE ISSUER.
Neither of the Obligors nor anyone acting on behalf of either of them
has offered the Notes or any similar securities for sale to, or solicited any
offer to buy any of the same from, or otherwise approached or negotiated in
respect thereof with, any person other than you, the Other Purchasers and not
more than 75 other Institutional Investors, each of which has been offered the
Notes at a private sale for investment. Neither the Obligors nor anyone acting
on behalf of either of them has taken, or will take, any action that would
subject the issuance or sale of the Notes to the registration requirements of
Section 5 of the Securities Act.
5.14. USE OF PROCEEDS; MARGIN REGULATIONS.
The Issuer will apply the proceeds of the sale of the Notes as set
forth in Schedule 5.14. No part of the proceeds from the sale of the Notes
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System (12 CFR 221), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Obligors in a violation of Regulation X of said Board (12 CFR 224)
or to involve any broker or dealer in a violation of Regulation T of said Board
(12 CFR 220). Margin stock does not constitute more than 25% of the value of the
consolidated assets of the Obligors and the Subsidiaries and the Obligors do not
have any present intention that margin stock will constitute more than 25% of
the value of such assets. As used in this Section, the terms "margin stock" and
"purpose of buying or carrying" shall have the meanings assigned to them in said
Regulation U.
5.15. EXISTING DEBT; FUTURE LIENS.
(a) Except as described therein, Schedule 5.15 sets forth a
complete and correct list of all outstanding Debt of the Obligors and the
Subsidiaries as of September 30, 1998, since which date there has been no
Material change in the amounts, interest rates, sinking funds, installment
payments or maturities of the Debt of the Obligors or the Subsidiaries. Neither
the Obligors nor any Subsidiary are in default and no waiver of default is
currently in effect, in the payment of any principal or interest on any Debt of
any Obligor or any such Subsidiary and no event or condition exists with respect
to any Debt of any Obligor or any Subsidiary that would permit (or that with
notice or the lapse of time, or both, would permit) one or more Persons to cause
such Debt to become due and payable before its stated maturity or before its
regularly scheduled dates of payment.
(b) Neither the Obligors nor any Subsidiary have agreed or
consented to cause or permit in the future (upon the happening of a contingency
or otherwise) any of its property, whether now owned or hereafter acquired, to
be subject to a Lien not permitted by Section 10.3.
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5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC.
Neither the sale of the Notes by the Issuer hereunder nor its use of
the proceeds thereof will violate the Trading with the Enemy Act, as amended, or
any of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.17. STATUS UNDER CERTAIN STATUTES.
Neither the Obligors nor any Subsidiary are subject to regulation under
the Investment Issuer Act of 1940, as amended, the Public Utility Holding Issuer
Act of 1935, as amended, the Interstate Commerce Act, as amended, or the Federal
Power Act, as amended.
5.18. ENVIRONMENTAL MATTERS.
Neither the Obligors nor any Subsidiary have knowledge of any claim or
have received any notice of any claim, and no proceeding has been instituted
raising any claim against any Obligor or any Subsidiary or any of their
respective real properties now or formerly owned, leased or operated by any of
them or other assets, alleging any damage to the environment or violation of any
Environmental Laws, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect. Except as otherwise disclosed
to you in writing (and in each case after giving effect to the Reorganization):
(a) neither the Obligors nor any Subsidiary have knowledge of
any facts which would give rise to any claim, public or private, of violation of
Environmental Laws or damage to the environment emanating from, occurring on or
in any way related to real properties now or formerly owned, leased or operated
by any of them in a manner contrary to any Environmental Laws or to other assets
or their use, except, in each case, such as could not reasonably be expected to
result in a Material Adverse Effect;
(b) neither the Obligors nor any Subsidiary have stored any
Hazardous Materials on real properties now or formerly owned, leased or operated
by any of them and have not disposed of any Hazardous Materials in a manner
contrary to any Environmental Laws in each case in any manner that could
reasonably be expected to result in a Material Adverse Effect; and
(c) all buildings on all real properties now owned, leased or
operated by the Obligors or any Subsidiary are in compliance with applicable
Environmental Laws, except where failure to comply could not reasonably be
expected to result in a Material Adverse Effect.
5.19. YEAR 2000.
With respect to the Guarantor and its Subsidiaries (after
giving effect to the Reorganization), (a) a review and assessment has been
initiated of all areas within the Guarantor's and its Subsidiaries' business and
operations (including those affected by suppliers, vendors and customers) that
could be adversely affected by the "Year 2000 Problem" (that is, the
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risk that computer applications used by the Guarantor or any of its Subsidiaries
(or suppliers, vendors and customers) may be unable to recognize and properly
perform date-sensitive functions involving certain dates prior to and any date
after December 31, 1999), (b) a plan and timetable has been developed for
addressing the Year 2000 Problem on a timely basis, and (c) to date, that plan
has been implemented in accordance with that timetable. Any reprogramming
required to avoid a Year 2000 Problem will be completed by June 30, 1999, except
where failure to do so, individually or in the aggregate, could not reasonably
be expected to result in a Material Adverse Effect. The cost to the Guarantor
and its Subsidiaries of such reprogramming and testing and of the reasonably
foreseeable consequences of the Year 2000 Problem to the Guarantor and its
Subsidiaries (including reprogramming errors and the failure of others' systems
or equipment) will not result in a Default or a Material Adverse Effect. Except
for such reprogramming referred to in the preceding sentence as may be
necessary, the computer and management information systems of the Guarantor and
its Subsidiaries are and, with ordinary course upgrading and maintenance, will
continue through the final maturity date of the Notes to be sufficient to permit
the Guarantor and its Subsidiaries to conduct their respective businesses
without a Material Adverse Effect.
6. REPRESENTATIONS OF THE PURCHASER.
6.1. PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Notes for your own account or
for one or more separate accounts maintained by you or for the account of one or
more pension or trust funds and not with a view to the distribution thereof,
provided that the disposition of your or their property shall at all times be
within your or their control. You understand that the Notes have not been
registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Issuer is
not required to register the Notes. You also represent that you are an
Institutional Investor and that the Notes will not be offered, sold, transferred
or delivered as part of their initial distribution or at any time thereafter by
you, directly or indirectly, other than to an Institutional Investor.
6.2. SOURCE OF FUNDS.
You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:
(a) the Source is an "insurance company general account" (as
the term is defined in PTCE 95-60 (issued July 12, 1995)) in respect of which
the reserves and liabilities (as defined by the annual statement for life
insurance companies approved by the National Association of Insurance
Commissioners (the "NAIC Annual Statement")) for the general account contract(s)
held by or on behalf of any employee benefit plan together with the amount of
the reserves and liabilities for the general account contract(s) held by or on
behalf of any other employee benefit plans maintained by the same employer (or
affiliate thereof as defined in PTCE
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95-60) or by the same employee organization in the general account do not exceed
10% of the total reserves and liabilities of the general account (exclusive of
separate account liabilities) plus surplus as set forth in the NAIC Annual
Statement filed with your state of domicile; or
(b) if you are an insurance company, the Source does not
include assets allocated to any separate account maintained by you in which any
employee benefit plan (or its related trust) has any interest, other than a
separate account that is maintained solely in connection with your fixed
contractual obligations under which the amounts payable, or credited, to such
plan and to any participant or beneficiary of such plan (including any
annuitant) are not affected in any manner by the investment performance of the
separate account; or
(c) the Source is either (i) an insurance company pooled
separate account, within the meaning of Prohibited Transaction Exemption ("PTE")
90-1 (issued January 29, 1990), or (ii) a bank collective investment fund,
within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as you
have disclosed to the Issuer in writing pursuant to this paragraph (c), no
employee benefit plan or group of plans maintained by the same employer or
employee organization beneficially owns more than 10% of all assets allocated to
such pooled separate account or collective investment fund; or
(d) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM
Exemption), no employee benefit plan's assets that are included in such
investment fund, when combined with the assets of all other employee benefit
plans established or maintained by the same employer or by an affiliate (within
the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the
same employee organization and managed by such QPAM, exceed 20% of the total
client assets managed by such QPAM, the conditions of Part I(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a person controlling or
controlled by the QPAM (applying the definition of "control" in Section V(e) of
the QPAM Exemption) owns a 5% or more interest in the Issuer and (i) the
identity of such QPAM and (ii) the names of all employee benefit plans whose
assets are included in such investment fund have been disclosed to the Issuer in
writing pursuant to this paragraph (d); or
(e) the Source is a governmental plan; or
(f) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee benefit plans,
each of which has been identified to the Issuer in writing pursuant to this
paragraph (f); or
(g) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "employee benefit plan",
"governmental plan", "party in interest" and "separate account" shall have the
respective meanings assigned to such terms in Section 3 of ERISA.
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7. INFORMATION AS TO THE OBLIGORS.
7.1. FINANCIAL AND BUSINESS INFORMATION.
The Guarantor shall deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements -- within 60 days after the end of
each quarterly fiscal period in each fiscal year of the Guarantor (other than
the last quarterly fiscal period of each such fiscal year), duplicate copies of,
(i) a consolidated balance sheet of the Guarantor and
its Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Guarantor and its
Subsidiaries, for such quarter and (in the case of the second and third
quarters) for the portion of the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial statements generally, and
certified by a Senior Financial Officer as fairly presenting, in all material
respects, the financial position of the companies being reported on and their
results of operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified above of
copies of the Guarantor's Quarterly Report on Form 10-Q prepared in compliance
with the requirements therefor and filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this Section 7.1(a);
(b) Annual Statements -- within 105 days after the end of each
fiscal year of the Guarantor, duplicate copies of,
(i) a consolidated balance sheet of the Guarantor and
its Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Guarantor and its
Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied by an opinion thereon of independent certified public accountants of
recognized national standing, which opinion shall state that such financial
statements present fairly, in all material respects, the financial position of
the companies being reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances, and provided
that the delivery within the time period specified above of the Guarantor's
Annual Report on Form 10-K for such fiscal year (together with the Guarantor's
annual report to
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<PAGE> 21
shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act)
prepared in accordance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the requirements
of this Section 7.1(b);
(c) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or proxy
statement sent by any Obligor or any Subsidiary to public securities holders
generally, and (ii) each regular or periodic report, each registration statement
(without exhibits except as expressly requested by such holder), and each
prospectus and all amendments thereto filed by any Guarantor or any Subsidiary
with the Securities and Exchange Commission and of all press releases and other
statements made available generally by any Obligor or any Subsidiary to the
public concerning developments that are Material;
(d) Notice of Default or Event of Default -- promptly, and in
any event within five days after a Responsible Officer becoming aware of the
existence of any Default or Event of Default or that any Person has given any
notice or taken any action with respect to a claimed default hereunder or that
any Person has given any notice or taken any action with respect to a claimed
default of the type referred to in Section 13(f), a written notice specifying
the nature and period of existence thereof and what action each Obligor is
taking or proposes to take with respect thereto;
(e) ERISA Matters -- promptly, and in any event within five
days after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any, that
each Obligor and each ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event,
as defined in section 4043(b) of ERISA and the regulations thereunder,
for which notice thereof has not been waived pursuant to such
regulations as in effect on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by any Obligor or any
ERISA Affiliate of a notice from a Multiemployer Plan that such action
has been taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by any Obligor or any ERISA
Affiliate pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, or in
the imposition of any Lien on any of the rights, properties or assets
of any Obligor or any ERISA Affiliate pursuant to Title I or IV of
ERISA or such penalty or excise tax provisions, if such liability or
Lien, taken together with any other such liabilities or Liens then
existing, could reasonably be expected to have a Material Adverse
Effect;
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(f) Notices from Governmental Authority -- promptly, and in
any event within 30 days of receipt thereof, copies of any notice to any Obligor
or any Subsidiary from any Federal or state Governmental Authority relating to
any order, ruling, statute or other law or regulation that could reasonably be
expected to have a Material Adverse Effect; and
(g) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations, affairs,
financial condition, assets or properties of any Obligor or any Subsidiary or
relating to the ability of any Obligor to perform its obligations hereunder and
under the Notes as from time to time may be reasonably requested by any such
holder of Notes.
7.2. OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Obligors were in
compliance with the requirements of Sections 10.2, 10.3, 10.4, 10.5, 10.6 and
10.7, during the quarterly or annual period covered by the statements then being
furnished (including with respect to each such Section, where applicable, the
calculations of the maximum or minimum amount, ratio or percentage, as the case
may be, permissible under the terms of such Sections, and the calculation of the
amount, ratio or percentage then in existence); and
(b) Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made, under his
or her supervision, a review of the transactions and conditions of the Obligors
and each Subsidiary from the beginning of the quarterly or annual period covered
by the statements then being furnished to the date of the certificate and that
such review shall not have disclosed the existence during such period of any
condition or event that constitutes a Default or an Event of Default or, if any
such condition or event existed or exists (including, without limitation, any
such event or condition resulting from the failure of any Obligor or any
Subsidiary to comply with any Environmental Law), specifying the nature and
period of existence thereof and what action each Obligor shall have taken or
proposes to take with respect thereto.
7.3. INSPECTION.
The Guarantor shall permit the representatives of each holder of Notes
that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice to the
Guarantor, to visit the principal executive office of the Guarantor, to discuss
the affairs, finances and accounts of the Guarantor and its Subsidiaries with
the Guarantor's officers, and (with the consent of
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<PAGE> 23
the Guarantor, which consent will not be unreasonably withheld) its independent
public accountants, and (with the consent of the Guarantor, which consent will
not be unreasonably withheld) to visit the other offices and properties of the
Guarantor and each Subsidiary, all at such reasonable times and as often as may
be reasonably requested in writing; and
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Guarantor to visit and inspect any of the offices or
properties of the Guarantor or any Subsidiary, to examine all their respective
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants (and by this
provision the Guarantor authorizes said accountants to discuss the affairs,
finances and accounts of the Guarantor and its Subsidiaries), all at such times
and as often as may be requested.
8. PREPAYMENT OF THE NOTES.
8.1. NO REQUIRED PREPAYMENTS.
The Notes shall be due and payable in full at maturity, without
required prepayments.
8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.
The Issuer may, at its option, upon notice as provided below, prepay at
any time all, or from time to time any part of, the Notes, in an amount not less
than $10,000,000 aggregate principal amount in the case of a partial prepayment,
at 100% of the principal amount so prepaid, plus the Make-Whole Amount
determined for the prepayment date with respect to such principal amount. The
Issuer will give each holder of Notes written notice of each optional prepayment
under this Section 8.2 not less than 30 days and not more than 60 days prior to
the date fixed for such prepayment. Each such notice shall specify such date,
the aggregate principal amount of the Notes to be prepaid on such date, the
principal amount of each Note held by such holder to be prepaid (determined in
accordance with Section 8.3), and the interest to be paid on the prepayment date
with respect to such principal amount being prepaid, and shall be accompanied by
a certificate of a Senior Financial Officer as to the estimated Make-Whole
Amount due in connection with such prepayment (calculated as if the date of such
notice were the date of the prepayment), setting forth the details of such
computation. Two Business Days prior to such prepayment, the Issuer shall
deliver to each holder of Notes a certificate of a Senior Financial Officer
specifying the calculation of such Make-Whole Amount as of the specified
prepayment date. Other than as provided under Section 14.1 hereof, no holder of
any Note has the right to demand or cause a prepayment.
8.3. ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment of the Notes, the principal
amount of the Notes to be prepaid shall be allocated among all of the Notes at
the time outstanding in proportion, as nearly as practicable, to the respective
unpaid principal amounts thereof not theretofore called for prepayment.
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8.4. MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this Section 8, the
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Make-Whole Amount, if
any. From and after such date, unless the Issuer shall fail to pay such
principal amount when so due and payable, together with the interest and
Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall be surrendered to the
Issuer and canceled and shall not be reissued, and no Note shall be issued in
lieu of any prepaid principal amount of any Note.
8.5. PURCHASE OF NOTES.
The Issuer will not and will not permit any Affiliate to purchase,
redeem, prepay or otherwise acquire, directly or indirectly, any of the
outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes. The Issuer will
promptly cancel all Notes acquired by it or any Affiliate pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any such
Notes.
8.6. MAKE-WHOLE AMOUNT.
The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Remaining Scheduled
Payments with respect to the Called Principal of such Note over the amount of
such Called Principal, provided that the Make-Whole Amount may in no event be
less than zero. For the purposes of determining the Make-Whole Amount, the
following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Section 8.2 or has become or is
declared to be immediately due and payable pursuant to Section 14.1, as the
context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Called Principal from their respective scheduled due dates to
the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" means, with respect to the Called Principal of any
Note, 0.50% over the yield to maturity implied by (i) the yields reported, as of
10:00 A.M. (New York City time) on the second Business Day preceding the
Settlement Date with respect to such Called Principal, on the display designated
as "Page PX1" on the Bloomberg Financial Markets Service (or such other display
as may replace Page PX1 on the Bloomberg Financial Markets Service) for actively
traded U.S. Treasury securities having a maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date, or (ii) if such yields
are not reported as
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of such time or the yields reported as of such time are not ascertainable, the
Treasury Constant Maturity Series Yields reported, for the latest day for which
such yields have been so reported as of the second Business Day preceding the
Settlement Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor publication) for
actively traded U.S. Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date. Such
implied yield will be determined, if necessary, by (a) converting U.S. Treasury
bill quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between (1) the actively traded U.S.
Treasury security with the average life closest to and greater than the
Remaining Average Life and (2) the actively traded U.S. Treasury security with
the average life closest to and less than the Remaining Average Life.
"REMAINING AVERAGE LIFE" means, with respect to any Called Principal,
the number of years (calculated to the nearest one-twelfth year) obtained by
dividing (i) such Called Principal into (ii) the sum of the products obtained by
multiplying (a) the principal component of each Remaining Scheduled Payment with
respect to such Called Principal by (b) the number of years (calculated to the
nearest one-twelfth year) that will elapse between the Settlement Date with
respect to such Called Principal and the scheduled due date of such Remaining
Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such Called
Principal if no payment of such Called Principal were made prior to its
scheduled due date, provided that if such Settlement Date is not a date on which
interest payments are due to be made under the terms of the Notes, then the
amount of the next succeeding scheduled interest payment will be reduced by the
amount of interest accrued to such Settlement Date and required to be paid on
such Settlement Date pursuant to Section 8.2 or 14.1.
"SETTLEMENT DATE" means, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
Section 8.2 or has become or is declared to be immediately due and payable
pursuant to Section 14.1, as the context requires.
9. AFFIRMATIVE COVENANTS.
Each Obligor covenants that so long as any of the Notes are
outstanding:
9.1. COMPLIANCE WITH LAW.
The Guarantor will and will cause each of its Subsidiaries to comply
with all laws, ordinances or governmental rules or regulations to which each of
them is subject, including, without limitation, Environmental Laws, and will
obtain and maintain in effect all licenses, certificates, permits, franchises
and other governmental authorizations necessary to the ownership of their
respective properties or to the conduct of their respective businesses, in each
case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses,
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certificates, permits, franchises and other governmental authorizations could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
9.2. INSURANCE.
The Guarantor will and will cause each of its Subsidiaries to maintain,
with financially sound and reputable insurers, insurance with respect to their
respective properties and businesses against such casualties and contingencies,
of such types, on such terms and in such amounts (including deductibles,
co-insurance and self-insurance, if adequate reserves are maintained with
respect thereto) as is customary in the case of entities of established
reputations engaged in the same or a similar business and similarly situated.
9.3. MAINTENANCE OF PROPERTIES.
The Guarantor will and will cause each of its Subsidiaries to maintain
and keep, or cause to be maintained and kept, their respective properties in
good repair, working order and condition (other than ordinary wear and tear), so
that the business carried on in connection therewith may be properly conducted
at all times, provided that this Section shall not prevent the Guarantor or any
Subsidiary from discontinuing the operation and the maintenance of any of its
properties if such discontinuance is desirable in the conduct of its business
and the Guarantor has concluded that such discontinuance could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
9.4. PAYMENT OF TAXES AND CLAIMS.
The Guarantor will and will cause each of its Subsidiaries to file all
tax returns required to be filed in any jurisdiction and to pay and discharge
all taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies imposed on them or any of their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Guarantor or any Subsidiary,
provided that neither the Guarantor nor any Subsidiary need pay any such tax or
assessment or claims if (i) the amount, applicability or validity thereof is
contested by the Guarantor or such Subsidiary on a timely basis in good faith
and in appropriate proceedings, and the Guarantor or such Subsidiary has
established adequate reserves therefor in accordance with GAAP on the books of
the Guarantor or such Subsidiary or (ii) the nonpayment of all such taxes and
assessments in the aggregate could not reasonably be expected to have a Material
Adverse Effect.
9.5. CORPORATE EXISTENCE, ETC.
The Guarantor will at all times preserve and keep in full force and
effect its corporate existence and that of the Issuer (subject to the provisions
of Section 10.2(i)). Subject to Section 10.2, the Guarantor will at all times
preserve and keep in full force and effect the corporate existence of each of
its Subsidiaries (unless merged into the Guarantor or a Subsidiary) and all
rights and franchises of the Guarantor and its Subsidiaries unless, in the good
faith judgment of
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the Guarantor, the termination of or failure to preserve and keep in full force
and effect such corporate existence, right or franchise could not, individually
or in the aggregate, have a Material Adverse Effect.
9.6. NATURE OF BUSINESS.
Neither the Guarantor nor any Subsidiary will engage in any business
if, as a result, the general nature of the business, taken on a consolidated
basis, which would then be engaged in by the Guarantor and its Subsidiaries
would be substantially changed from the general nature of the business engaged
in by the Guarantor and its Subsidiaries on the date of the Closing as
contemplated by and after giving effect to the Reorganization.
9.7. ENVIRONMENTAL COMPLIANCE.
The Guarantor and each Subsidiary will (i) obtain and maintain all
permits, licenses, and other authorizations that are required of it under all
Environmental Laws other than those which the failure to obtain or maintain,
individually or in the aggregate, could not reasonably be expected to have, a
Material Adverse Effect, (ii) comply with all terms and conditions of all such
permits, licenses, and authorizations and with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables contained in all Environmental Laws or in any
regulation, ordinance or code applicable to it and any, plan, order, decree,
judgment, injunction, notice, or demand letter issued, entered, promulgated, or
approved thereunder directly applicable to it, except to the extent of any
noncompliance which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect, and (iii) operate all property owned
or leased by it such that no claim or obligation, including a clean-up
obligation, which individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect shall arise under any Environmental Law, and
if any claim is made against it or any such obligation shall arise under any
Environmental Law, it shall at its own cost and expense, timely satisfy such
claim or obligation, provided no such claim or obligation need be satisfied for
so long as (A) it is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted and (B) such reserves or other
appropriate provision, if any, as shall be required by GAAP shall have been made
therefor.
9.8. OWNERSHIP OF ISSUER AND SUBSIDIARY GUARANTOR; ACTIVITIES.
Subject only to the provisions of Section 10.2(i), the Guarantor will
at all times maintain the Issuer and the Subsidiary Guarantor as Wholly-Owned
Subsidiaries of the Guarantor, and the capital stock of, and any other ownership
interests in, the Issuer and the Subsidiary Guarantor will at all times remain
free of any Lien.. The Subsidiary Guarantor will engage only in the business of
incurring the Debt represented by the Permitted Australian Credit Facilities and
advancing as a loan or contribution the proceeds thereof to Wholly-Owned
Subsidiaries of the Guarantor primarily engaged in business operations in
Australia and (ii) being a party to the Subsidiary Guarantee (and any similar
guarantee of Debt of the Issuer).
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9.9. COVENANT TO SECURE NOTES EQUALLY.
If the Guarantor or any Subsidiary shall create or assume any Lien upon
any of its property or assets, whether now owned or hereafter acquired, other
than Liens permitted by the provisions of Section 10.3 (unless prior written
consent to the creation or assumption thereof shall have been obtained pursuant
to Section 19), it will make or cause to be made effective provision
satisfactory in form and substance to the Required Holders (including, without
limitation, opinions of counsel relating thereto) whereby the Notes will be
secured by such Lien equally and ratably with any and all other Debt thereby
secured so long as any such other Debt shall be so secured. Securing the Notes
as provided in this Section 9.9 shall not permit the existence of any Lien not
otherwise permitted by Section 10.3.
10. NEGATIVE COVENANTS.
Each Obligor covenants that so long as any of the Notes are
outstanding:
10.1. TRANSACTIONS WITH AFFILIATES.
The Guarantor will not and will not permit any Subsidiary to enter into
directly or indirectly any transaction or Material group of related transactions
(including without limitation the purchase, lease, sale or exchange of
properties of any kind or the rendering of any service) with any Affiliate
(other than the Guarantor or another Subsidiary), except in the ordinary course
and pursuant to the reasonable requirements of the Guarantor's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Guarantor or such Subsidiary than would be obtainable in a comparable
arm's-length transaction with a Person not an Affiliate.
10.2. MERGER, CONSOLIDATION; SALE OF ASSETS.
Neither the Guarantor nor any Subsidiary shall merge or consolidate
with any other Person or sell, lease or transfer or otherwise dispose of its
respective assets to any Person or Persons, except that:
(i) any Subsidiary may merge or consolidate with or
sell, lease, transfer or otherwise dispose of all or any of its assets
to the Guarantor or a Wholly-Owned Subsidiary (provided, that the
Guarantor or such Wholly-Owned Subsidiary shall be the continuing or
surviving corporation in the case of a merger or consolidation and, in
the case of a merger or consolidation involving, or a sale of all or
any substantial part of its assets by, a Subsidiary which is a
corporation or other entity organized under the laws of, and having its
principal place of business in, a state of the United States of America
or the District of Columbia (a "US ENTITY"), the acquiring or surviving
entity is a US Entity) and upon any such sale, transfer or other
disposition of all or substantially all of such Subsidiary's assets,
such Subsidiary may liquidate and dissolve;
(ii) the Guarantor may merge or consolidate with or
convey, transfer or lease all or substantially all of its assets in a
single integrated transaction to, any other corporation, limited
liability company or limited partnership; provided, that (a) in the
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case of a merger or consolidation, the Guarantor shall be the
continuing or surviving corporation or (b) the successor or acquiring
Person (1) shall be solvent and organized under the laws of any state
of the United States of America or the District of Columbia or the
jurisdiction of incorporation of the Guarantor; and (2) shall expressly
assume in writing all of the obligations and covenants of the Guarantor
under this Agreement, and provided further, that in each case,
immediately after and giving effect thereto, (A) no Default or Event of
Default would exist and (B) the Guarantor would be permitted by the
provisions of Section 10.4 to incur at least $1.00 of additional Funded
Debt owing to a Person other than a Subsidiary of the Issuer;
(iii) the Guarantor and each Subsidiary may sell or
lease, as lessor, inventory in the ordinary course of its business.
(iv) the Guarantor and each Subsidiary may dispose of
equipment or other assets that have become obsolete or otherwise no
longer useful or required for the conduct of its business, provided
such that dispositions do not, individually or in the aggregate,
constitute a liquidation of all or substantially all of the Guarantor's
or any Subsidiary assets; and
(v) in addition to the matters set forth above, the
Guarantor and any Subsidiary may sell, transfer or otherwise dispose of
some or all of its respective properties or assets in a transaction not
otherwise permitted pursuant to this Section 10.2 for fair and adequate
consideration (a "DISPOSITION"), and if such Disposition is a
Disposition of all or substantially all of the assets of a Subsidiary,
such Subsidiary may thereafter liquidate and dissolve; provided, that
immediately after and giving effect to any such Disposition, the
greater of (a) the aggregate book value of each property and asset so
sold (each an "ASSET SOLD" and collectively, the "ASSETS SOLD"), as
reflected on the most recent consolidated balance sheet furnished to
the holders pursuant to Section 7.1(a) prior to the date of Disposition
of such Asset Sold, or (b) the aggregate net proceeds (with any
non-cash proceeds being valued at its fair market value) of the Assets
Sold (1) during the immediately preceding twelve months, less the
aggregate amount of Qualifying Reinvestments, did not exceed more than
15% of Consolidated Total Assets as reflected on the most recent
consolidated balance sheet delivered to the holders pursuant to Section
7.1(a) or (2) since the date of the Closing, less the aggregate amount
of Qualifying Reinvestments, did not exceed more than 30% of
Consolidated Total Assets as reflected on the most recent consolidated
balance sheet delivered to the holders pursuant to Section 7.1(a);
provided, that, in each case other than the sale or lease of inventory pursuant
to clause (iii) above or disposition of assets pursuant to clause (iv) above, no
Default or Event of Default exists immediately before or immediately after
giving effect to such sale, transfer or disposition of properties or assets or
such merger or consolidation nor would any Default or Event of Default
reasonably be expected to result therefrom.
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For purposes of clause (v) of this Section 10.2, a "QUALIFYING
REINVESTMENT" is the use of the proceeds, or of funds expended reasonably
concurrently in anticipation of the proceeds (i.e. not more than three months
prior to receipt of such proceeds), of Assets Sold not more than eighteen months
after the date of a Disposition, to (a) purchase (x) assets usable in any
business permitted to be conducted by Section 9.6, or (y) either (1) all of the
outstanding capital stock or other equity interests of a Person which,
immediately after such purchase, is a Wholly-Owned Subsidiary of the Guarantor
and is engaged in a business permitted to be conducted by Section 9.6, or (2)
all or substantially all of the assets and business of a Person which is engaged
in any business permitted to be conducted by Section 9.6; provided, that if the
Assets Sold are subject to a Lien securing the Notes at the time of sale or
other disposition, the assets, equipment, real property, improvements, capital
stock or other equity interests purchased with the proceeds of such Assets Sold
shall not constitute Qualifying Reinvestments unless promptly made subject to a
Lien securing the Notes with the same priority and otherwise substantially the
same terms and conditions as the Liens on the Assets Sold or (b) to make an
optional prepayment of the Notes pursuant to Section 8.2 or to prepay any other
Debt ranking at least pari passu with the Notes.
10.3. LIENS.
The Guarantor will not, and will not permit any of its Subsidiaries to,
directly or indirectly create, incur, assume or permit to exist (upon the
happening of a contingency or otherwise) any Lien on or with respect to any
property or asset (including, without limitation, any document or instrument in
respect of goods or accounts receivable) of the Guarantor or any such
Subsidiary, whether now owned or held or hereafter acquired, or any income or
profits therefrom, or assign or otherwise convey any right to receive income or
profits, except:
(a) Liens for taxes, assessments or other governmental charges
which are not yet due and payable or the payment of which is not at the time
required by Section 9.4;
(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Liens, in each case,
incurred in the ordinary course of business for sums not yet due and payable or
the payment of which is not at the time required by Section 9.4;
(c) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business (i) in connection with workers'
compensation, unemployment insurance and other types of social security or
retirement benefits, or (ii) to secure (or to obtain letters of credit that
secure) the performance of tenders, statutory obligations, surety bonds, appeal
bonds, bids, leases (other than Capital Leases), performance bonds, purchase,
construction or sales contracts and other similar obligations, in each case not
incurred or made in connection with the borrowing of money, the obtaining of
advances or credit or the payment of the deferred purchase price of property;
(d) any attachment or judgment Lien, unless the judgment it
secures shall not, within 90 days after the entry thereof, have been discharged
or execution thereof stayed pending appeal, or shall not have been discharged
within 90 days after the expiration of any such stay;
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(e) leases or subleases granted to others, easements,
rights-of-way, restrictions and other similar charges or encumbrances, in each
case incidental to, and not interfering with, the ordinary conduct of the
business of the Guarantor or any of its Subsidiaries, provided that such Liens
do not, in the aggregate, materially detract from the value of such property;
(f) Liens on property or assets of the Guarantor or any of its
Subsidiaries securing Debt owing to the Guarantor or to any of its Wholly-Owned
Subsidiaries (other than the Subsidiary Guarantor);
(g) any Lien created to secure all or any part of the
purchase price, or to secure Debt incurred or assumed to pay all or any part of
the purchase price or cost of construction, of property (or any improvement
thereon) acquired or constructed by the Guarantor or a Subsidiary after the date
of the Closing, provided that
(i) any such Lien shall extend solely to the item or
items of such property (or improvement thereon) so acquired or
constructed and, if required by the terms of the instrument originally
creating such Lien, other property (or improvement thereon) which is an
improvement to or is acquired for specific use in connection with such
acquired or constructed property (or improvement thereon) or which is
real property being improved by such acquired or constructed property
(or improvement thereon),
(ii) the principal amount of the Debt secured by any
such Lien shall at no time exceed an amount equal to the fair market
value (as determined in good faith by the Guarantor) of such property
at the time of such acquisition or construction, and
(iii) any such Lien shall be created
contemporaneously with, or within 180 days after, the acquisition or
construction of such property;
(h) any Lien existing on property of a Person immediately
prior to its being consolidated with or merged into the Guarantor or a
Subsidiary or its becoming a Subsidiary, or any Lien existing on any property
acquired by the Issuer or any Subsidiary at the time such property is so
acquired (whether or not the Debt secured thereby shall have been assumed),
provided that (i) no such Lien shall have been created or assumed in
contemplation of such consolidation or merger or such Person's becoming a
Subsidiary or such acquisition of property, and (ii) each such Lien shall extend
solely to the item or items of property so acquired and, if required by the
terms of the instrument originally creating such Lien, other property which is
an improvement to or is acquired for specific use in connection with such
acquired property;
(i) any Lien renewing, extending or refunding any Lien
permitted by paragraphs (g) or (h) of this Section 10.3, provided that (i) the
principal amount of Debt secured by such Lien immediately prior to such
extension, renewal or refunding is not increased or the maturity thereof
reduced, (ii) such Lien is not extended to any other property, and (iii)
immediately after such extension, renewal or refunding no Default or Event of
Default would exist; and
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(j) any Lien in addition to those described in subsections (a)
through (i) above securing Debt incurred after the date of the Closing if the
Debt secured thereby is not otherwise prohibited by Section 10.5.
10.4. INCURRENCE OF FUNDED DEBT.
The Guarantor will not, and will not permit any Subsidiary to, directly
or indirectly, create, incur, assume, guarantee, or otherwise become directly or
indirectly liable with respect to, any Funded Debt, unless on the date the
Guarantor or such Subsidiary becomes liable with respect to any such Debt and
immediately after giving effect thereto and the concurrent retirement of any
other Debt,
(a) no Default or Event of Default exists;
(b) the ratio of Consolidated Funded Debt to Consolidated
Funded Capitalization does not exceed 60% for the period from the Closing
through March 31, 1999 and 55% thereafter; and
(c) the Guarantor would be permitted by the provisions of
Section 10.5 hereof to incur at least $1.00 of additional Priority Debt.
For the purposes of this Section 10.4, any Person becoming a Subsidiary
after the date hereof shall be deemed, at the time it becomes a Subsidiary, to
have incurred all of its then outstanding Debt, and any Person extending,
renewing or refunding any Debt shall be deemed to have incurred such Debt at the
time of such extension, renewal or refunding.
10.5. PRIORITY DEBT.
The Guarantor will not at any time permit the aggregate amount of
Priority Debt to exceed 20% of Consolidated Net Worth.
10.6. RESTRICTED PAYMENTS.
The Guarantor will not, and will not permit any of its
Subsidiaries to, at any time, declare or make, or incur any liability to declare
or make, any Restricted Payment unless immediately after giving effect to such
action:
(a) no Default or Event of Default would exist;
(b) the aggregate amount of all Restricted Payments
made subsequent to the date hereof would not exceed the sum of (x)
$25,000,000 , (y) the Applicable Percentage of Consolidated Net Income
(less 100% if Consolidated Net Income is a negative number) on a
cumulative basis for the period from the date hereof to the date of
such Restricted Payment and (z) the Net Proceeds of Capital Stock
received by the Guarantor for the period from the date hereof to the
date of such Restricted Payment; and
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(c) the Guarantor would be permitted by the
provisions of Section 10.4 hereof to incur at least $1.00 of additional
Funded Debt owing to a Person other than a Subsidiary of the Guarantor.
10.7. CONSOLIDATED NET WORTH.
The Guarantor will not, at any time, permit Consolidated Net
Worth to be less than $250 million until March 31, 1999, $275 million until
March 31, 2000, $300 million until March 31, 2001 and $320 million thereafter.
10.8. RESTRICTIONS ON DIVIDENDS BY SUBSIDIARIES
Except for this Agreement and the Bank Credit Agreements as in
effect on the date hereof and as may be required by law, the Guarantor will not,
and will not permit any Subsidiary to, enter into any agreement that would
restrict any Subsidiary's ability or right to pay dividends to, or make advances
to or investments in, the Guarantor (or if any such Subsidiary is not directly
owned by Guarantor, the "parent" Subsidiary of such Subsidiary).
11. GUARANTEE, ETC.
11.1. GUARANTEE.
The Guarantor hereby absolutely unconditionally and irrevocably
guarantees to each and every holder of any of the Notes from time to time
(a) the due and punctual payment of
(i) the principal of and Make-Whole Amount (if any)
and interest on all outstanding Notes (including interest on such
principal and Make-Whole Amount and, to the extent permitted by
applicable law, on any overdue interest), whether at the stated
maturity, by acceleration, pursuant to any prepayment or otherwise, in
accordance with the Notes and this Agreement, and
(ii) all other sums which may become due from the
Issuer under the Notes or this Agreement, including costs, expenses and
taxes, and
(b) the due and punctual performance and observance by the
Issuer of all covenants, agreements and conditions on its part to be performed
and observed hereunder;
such payment and other obligations so guaranteed are collectively called the
"GUARANTEED OBLIGATIONS". If default shall be made in the performance of any of
the Guaranteed Obligations, the Guarantor will also pay to the holder of any
Note such amounts, to the extent lawful, as shall be sufficient to pay the costs
and expenses of collection or of otherwise enforcing any of such holder's rights
under this Agreement, including reasonable counsel fees.
The obligations of the Guarantor under this Section 11 shall survive
the transfer or payment of the Notes.
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11.2. GUARANTEE ABSOLUTE AND UNCONDITIONAL; WAIVERS, ETC.
(a) The obligations of the Guarantor under Section 11.1
constitute a present and continuing guaranty of payment and not of
collectibility and shall be absolute and unconditional and, to the extent
permitted by applicable law, the Guaranteed Obligations shall not be subject to
any counterclaim, setoff, deduction or defense based upon any claim the
Guarantor may have against the Issuer or any other Person, and shall remain in
full force and effect without regard to, and shall not be released, discharged
or in any way affected or impaired by any thing, event, happening, matter,
circumstance or condition whatsoever (whether or not the Guarantor shall have
any knowledge or notice thereof or consent thereto), including without
limitation:
(i) any amendment or modification of any provision of
this Agreement or any of the Notes or any assignment or transfer
thereof, including without limitation the renewal or extension of the
time of payment of any of the Notes or the granting of time in respect
of such payment thereof, or of any furnishing or acceptance of security
or any additional guarantee or any release of any security or guarantee
so furnished or accepted for any of the Notes;
(ii) any waiver, consent, extension, granting of
time, forbearance, indulgence or other action or inaction under or in
respect of this Agreement or the Notes, or any exercise or nonexercise
of any right, remedy or power in respect hereof or thereof;
(iii) any bankruptcy, receivership, insolvency,
reorganization, arrangement, readjustment, composition, liquidation or
similar proceedings with respect to the Issuer or any other Person or
the properties or creditors of any of them;
(iv) the occurrence of any Default or Event of
Default under, or any invalidity or any unenforceability of, or any
misrepresentation, irregularity or other defect in, this Agreement;
(v) any transfer of any assets to or from the Issuer,
including without limitation any transfer or purported transfer to the
Issuer from any Person, any invalidity, illegality of, or inability to
enforce, any such transfer or purported transfer, any consolidation or
merger of the Issuer with or into any Person, or any change whatsoever
in the objects, capital structure, constitution or business of the
Issuer;
(vi) any failure on the part of the Issuer or any
other guarantor to perform or comply with any term of this Agreement,
the Notes or any other agreement;
(vii) any suit or other action brought by any
beneficiaries or creditors of, or by, the Issuer or any other person
for any reason whatsoever, including without limitation any suit or
action in any way attacking or involving any issue, matter or thing in
respect of this Agreement, the Notes or any other agreement;
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(viii) any lack or limitation of status or of power,
incapacity or disability of the Issuer or any trustee or agent thereof;
or
(ix) any other thing, event, happening, matter,
circumstance or condition whatsoever, not in any way limited to the
foregoing.
(b) The Guarantor hereby unconditionally waives diligence,
presentment, demand of payment, protest and all notices whatsoever and any
requirement that any holder of a Note exhaust any right, power or remedy against
the Issuer under this Agreement or the Notes or any other agreement or
instrument referred to herein or therein, or against any other guarantor or any
other Person under any other guarantee of, or security for, any of the
Guaranteed Obligations.
(c) In the event that the Guarantor shall at any time pay any
amount on account of the Guaranteed Obligations or take any other action in
performance of its obligations hereunder, the Guarantor shall have no
subrogation or other rights hereunder or under the Notes and the Guarantor
hereby waives all rights it may have to be subrogated to the rights of any
holder of a Note, and all other remedies that it may have against the Issuer, in
respect of any payment made hereunder unless and until the Guaranteed
Obligations shall have been indefeasibly paid in full. If any amount shall be
paid to the Guarantor on account of any such subrogation rights or other remedy,
notwithstanding the waiver thereof, such amount shall be received in trust for
the benefit of the holders of the Notes and shall forthwith be paid to such
holders to be credited and applied upon the Guaranteed Obligations, whether
matured or unmatured, in accordance with the terms hereof. The Guarantor agrees
that its obligations under this Section 11 shall be automatically reinstated if
and to the extent that for any reason any payment by or on behalf of the Issuer
is rescinded or must be otherwise restored by any holder of any Note, whether as
a result of any proceedings in bankruptcy or reorganization or otherwise, all as
though such amount had not been paid.
Each default in the payment or performance of any of the
Guaranteed Obligations shall give rise to a separate claim and cause of action
hereunder, and separate claims or suits may be made and brought, as the case may
be, hereunder as each such default occurs. The Guarantor will from time to time
deliver, upon the reasonable request of any holder of a Note, a satisfactory
acknowledgment of its continued liability hereunder.
12. TAX INDEMNIFICATION.
(a) Gross-Up of Payments Subject to Taxes. In the event of the
imposition by or for the account of any Governmental Authority (the "TAXING
AUTHORITY") of The Netherlands or any other country or jurisdiction outside of
the United States of America from or through which any payment in respect of any
Note or this Agreement is made by an Obligor or which is a jurisdiction of
residence of an Obligor for tax purposes (any such Authority or country or
jurisdiction is hereinafter referred to as a "TAXING JURISDICTION") of any tax
(whether income, documentary, sales, stamp, registration, issue, capital,
property, excise or other), duty, levy, impost, fee, charge or withholding (each
a "TAX", and collectively, "TAXES") which requires such Obligor to make a
deduction or withholding in respect of such Tax from any payment in
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respect of any Note or this Agreement (each such payment is referred to herein
as a "NOTE-RELATED PAYMENT"), each Obligor hereby agrees to pay forthwith from
time to time in connection with such Note-Related Payment to the holder of the
Note entitled to such Note-Related Payment such amount (the "TAX REIMBURSEMENT
AMOUNT") as shall be required so that such Note-Related Payment received by such
holder will, after the deduction or withholding of or other payment for or on
account of such Tax and any interest or penalties relating thereto as well as
any additional Taxes to be withheld or deducted in respect of such Tax
Reimbursement Amount, be equal to the amount due and payable to such holder in
respect of such Note-Related Payment before the imposition or assessment of such
Tax, provided that:
(i) in the case where such holder is not resident in
the United States of America, the Obligors shall not be obligated to
pay any such Tax Reimbursement Amount to such holder in excess of the
hypothetical Tax Reimbursement Amount which the Obligors would have
been obligated to pay hereunder if authorization could have been
obtained under the double tax treaty between the United States of
America and the Taxing Jurisdiction in force at the relevant time in
order for such Obligor to make the Note-Related Payment to such holder
either with no deduction or withholding of such Taxes or with a
deduction or withholding of a lesser amount in respect of such Taxes as
if the Notes held by such holder were beneficially owned at all
relevant times by Persons who were resident in the United States of
America for the purposes of such treaty and were otherwise eligible in
full for all benefits and exceptions available under such treaty with
respect to interest received from such Obligor;
(ii) no Obligor shall be obligated to pay any such
Tax Reimbursement Amount to such holder in respect of any Taxes which
would not have been imposed but for the existence of any present or
former connection (other than the mere holding of a Note) between such
holder (or a fiduciary, settlor, beneficiary, member of, shareholder
of, or possessor of a power over, such holder, if such holder is an
estate, trust, partnership or corporation, or any Person other than
such holder to whom the relevant Note or any amount payable thereon is
attributable for the purposes of such Tax) and the Taxing Jurisdiction
or any political subdivision or territory or possession thereof or
therein or area subject to its jurisdiction arising out of such
holder's (or such fiduciary's, settlor's, beneficiary's, member's,
shareholder's or possessor's or Persons other than such holder) being
or having been a citizen or resident thereof, being or having been
present or engaged in trade or business therein or having or having had
a permanent establishment therein;
(iii) no Obligor shall be obligated to pay any such
Tax Reimbursement Amount to such holder in respect of any Taxes that
constitute estate, inheritance, gift, sale, transfer, personal property
or similar tax, assessments or governmental charges;
(iv) no Obligor shall be obligated to pay any such
Tax Reimbursement Amount to such holder to the extent of the imposition
of any Tax by reason of:
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(A) such holder's not being eligible in full
for the benefits and exemptions available under the double
taxation treaty then in effect between the Taxing Jurisdiction
and the United States of America in relation to interest
received by such holder from an Obligor (including, without
limitation, (y) being exempt from United States of America
taxes on income with respect to interest on the Notes of such
holder or (z) if such holder is an estate, trust, partnership
or corporation, or if any Person other than such holder to
whom the relevant Note or any amount payable thereon is
attributable, the relevant fiduciary, settlor, beneficiary,
member of, shareholder of, or possessor of a power over, such
holder would not have been eligible in full for the aforesaid
benefits and exemptions),
(B) the failure to comply by such holder or
any other Person mentioned in subclause (A) above with a
written request of an Obligor addressed to such holder to
provide information concerning the nationality, residence,
domicile or identity of such holder or such other Person or,
information as to if, and where, any declaration of residence,
domicile or other similar claim or reporting requirement
described in subclause (C) hereof has been made by such holder
or other Person,
(C) the failure by such holder or any other
Person mentioned in subclause (A) above to make any aforesaid
declaration of residence, domicile or other claim or reporting
requirement, or to provide such information or certification
to a taxation authority, as is required by a statute, treaty
or regulation of the Taxing Jurisdiction (including a claim
(or a requirement to provide information relating to such a
claim) under any international treaty between the United
States of America and such Taxing Jurisdiction providing for
the avoidance of double taxation) as a precondition to
exemption from all or part of such Tax, in the case of you,
within 60 days after the date of Closing, in the case of any
payment hereunder, at least 90 days prior to the date of such
payment, and in respect of any subsequent holder of Notes, at
least 90 days prior to the date of the next payment in respect
of such holder, provided that no holder of a Note shall be
considered to have delayed or failed to make any such
declaration or to file any form (x) that would involve the
disclosure of confidential or proprietary tax return or other
information, (y) if such holder has filed the appropriate
forms in respect of such declaration with the United States
Internal Revenue Service (or other appropriate authority) at
least 30 days prior to the payment in question or (z) in the
case of forms or declarations not required under existing law
and practices as of the date of the Closing, unless an Obligor
has requested that such forms or declarations be filed (and
has furnished such forms or declarations to such holder) and
such holder has had a reasonable period of time (not less than
30 days) to file such forms or declarations, or
(D) any combination of subclauses (A), (B)
and (C) above;
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nothing in this clause (iv) shall be construed to impose any
obligation on you or any other such holder (or any other
Person mentioned in subclause (A) above) to contest any
determination by the Taxing Authority in respect of such
declarations, reports or forms or to require, or be deemed to
require, the disclosure by you or any other such holder of any
confidential or proprietary information.
Not later than 30 days after the date of the Closing, the Issuer will furnish
you with copies of all forms currently required to be filed in The Netherlands
pursuant to paragraph (C) above, and in connection with the transfer of any Note
pursuant to Section 15.2, the Issuer will furnish the transferee of such Note
with copies of all forms then required.
(b) Receipt for Taxes. As soon as reasonably practicable after
the date of any payment by any Obligor of any Tax in respect of any Note-Related
Payment, such Obligor shall furnish to each affected holder of a Note a
certified copy of the original tax receipt (if such a receipt has been issued
and, if such tax receipt has not then been issued, such Obligor shall furnish a
copy thereof to such affected holder as soon as reasonably practicable as such
tax receipt is so issued). If such Obligor shall have determined, with respect
to any holder of Notes, that a deduction or withholding of Tax from Note-Related
Payments shall be required to be made to such holder and that no Tax
Reimbursement Amount will be payable to such holder under this Section 12 in
respect of such Tax, such Obligor will use its best efforts to inform such
holder of the imposition or withholding of such Tax and of the applicable
exemption set forth in Section 12 that releases such Obligor from the obligation
to pay a Tax Reimbursement Amount in respect thereof.
(c) Payment of Taxes to Taxing Jurisdiction. If any deduction
or withholding for Tax shall at any time be required by the laws of a Taxing
Jurisdiction in respect of any Note-Related Payments to a holder of Notes, the
Obligor making any such Note-Related Payments will promptly pay over to the
Taxing Authority imposing such Tax the full amount required to be deducted or
withheld in respect thereof (including, without limitation, the full amount of
any Tax required to be deducted or withheld from or otherwise paid in respect of
any related Tax Reimbursement Amount).
(d) Refunds of Tax Reimbursement Amounts. If an Obligor makes
payment of any Tax Reimbursement Amount and a recipient thereof subsequently
receives a refund, credit or allowance in respect thereof (a "TAX REFUND"), and
such recipient determines in its good faith that the Tax Refund is attributable
to the Taxes with respect to which such Tax Reimbursement Amount was paid, then
such recipient shall promptly reimburse such Obligor such amount as such
recipient shall determine, in good faith, to be the proportion of the Tax Refund
as will leave such recipient, after such reimbursement, in no better or worse
position than in which such recipient would have been if payment of such Tax
Reimbursement Amount had not been required. The foregoing notwithstanding,
nothing in this clause (d) shall restrict the right of any recipient to arrange
the tax affairs of such recipient as such recipient shall think fit. Nothing in
this clause (d) shall require any recipient to disclose any information
regarding the tax affairs of such recipient.
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(e) Stamp Taxes. The Obligors will pay all stamp, documentary
or similar taxes which may be payable in respect of the execution and delivery
of this Agreement or of the execution and delivery (except as otherwise provided
in Section 15 with respect to transfer of Notes) of any of the Notes or the
Guarantee or the Subsidiary Guarantee or of any amendment of, or waiver or
consent under or with respect to, this Agreement or of any of the Notes or the
Guarantee or the Subsidiary Guarantee and will save each holder of any Note and
all subsequent holders of the Notes harmless against all liabilities resulting
from nonpayment or delay in payment of any such tax required to be paid by the
Obligors hereunder.
(f) Survival of Obligations. The obligations of each Obligor
under this Section 12 will survive the payment or transfer of any Note and the
termination of this Agreement.
13. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following conditions or
events shall occur and be continuing:
(a) the Issuer defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration or
otherwise; or
(b) the Issuer defaults in the payment of any interest on any
Note for more than five Business Days after the same becomes due and payable; or
(c) any Obligor defaults in the performance of or compliance
with any term contained in Sections 10.1 through 10.8; or
(d) any Obligor defaults in the performance of or compliance
with any term contained herein (other than those referred to in paragraphs (a),
(b) and (c) of this Section 13) and such default is not remedied within 30 days
after the earlier of (i) a Responsible Officer obtaining actual knowledge of
such default and (ii) an Obligor receiving written notice of such default from
any holder of a Note (any such written notice to be identified as a "notice of
default" and to refer specifically to this paragraph (d) of Section 13); or
(e) any representation or warranty made in writing by or on
behalf of any Obligor or by any officer of any Obligor in this Agreement or in
any writing furnished in connection with the transactions contemplated hereby
proves to have been false or incorrect in any material respect on the date as of
which made; or
(f) (i) the Guarantor or any Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any principal of or
premium or make-whole amount or interest on any Debt that is outstanding in an
aggregate principal amount of at least $10,000,000 beyond any period of grace
provided with respect thereto, or (ii) the Guarantor or any Subsidiary is in
default in the performance of or compliance with any term of any evidence of any
Debt in an aggregate outstanding principal amount of at least $10,000,000 or of
any
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mortgage, indenture or other agreement relating thereto or any other condition
exists, and as a consequence of such default or condition such Debt has become,
or has been declared (or one or more Persons are entitled to declare such Debt
to be), due and payable before its stated maturity or before its regularly
scheduled dates of payment, or (iii) as a consequence of the occurrence or
continuation of any event or condition (other than the passage of time or the
right of the holder of Debt to convert such Debt into equity interests), the
Guarantor or any Subsidiary has become obligated to purchase or repay Debt
before its regular maturity or before its regularly scheduled dates of payment
in an aggregate outstanding principal amount of at least $10,000,000; or
(g) the Guarantor or any Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes
an assignment for the benefit of its creditors, (iv) consents to the appointment
of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing (except for actions (including the
appointment of a receiver) in connection with the termination of the existence
of a Subsidiary as permitted under Section 9.5); or
(h) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Guarantor or any
of its Subsidiaries, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Guarantor or any of
its Subsidiaries, or any such petition shall be filed against the Guarantor or
any of its Subsidiaries and such petition shall not be dismissed within 60 days;
or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $10,000,000 are rendered against one or more of the
Guarantor and its Subsidiaries and which judgments are not, within 60 days after
entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within 60 days after the expiration of such stay; or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a waiver of
such standards or extension of any amortization period is sought or granted
under section 412 of the Code, (ii) a notice of intent to terminate any Plan
shall have been or is reasonably expected to be filed with the PBGC or the PBGC
shall have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified any
Obligor or any ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined
in accordance with Title IV of ERISA, shall exceed $10,000,000, (iv) any
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Obligor or any ERISA Affiliate shall have incurred or is reasonably expected to
incur any liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, (v) any Obligor
or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Issuer
or any Subsidiary establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that would increase the
liability of the any Obligor or any Subsidiary thereunder; and any such event or
events described in clauses (i) through (vi) above, either individually or
together with any other such event or events, could reasonably be expected to
have a Material Adverse Effect; or
(k) the Guarantee shall at any time, for any reason, cease to
be in full force and effect or shall be declared to be null and void in whole or
in any material part by the final judgment (which is non-appealable or has not
been stayed pending appeal or as to which all rights to appeal have expired or
been exhausted) of any Governmental Authority having jurisdiction, or the
validity or enforceability of the Guarantee shall be contested by or on behalf
of the Guarantor or any of its Subsidiaries, or the Guarantor or any such
Subsidiary shall renounce the Guarantee or deny that the Guarantor is bound
thereby or has any further liability thereunder; or
(l) the Subsidiary Guarantee shall at any time, for any
reason, cease to be in full force and effect or shall be declared to be null and
void in whole or in any material part by the final judgment (which is
non-appealable or has not been stayed pending appeal or as to which all rights
to appeal have expired or been exhausted) of any Governmental Authority having
jurisdiction, or the validity or enforceability of the Subsidiary Guarantee
shall be contested by or on behalf of the Guarantor or any of its Subsidiaries,
or the Guarantor or any such Subsidiary shall renounce the Subsidiary Guarantee
or deny that the Subsidiary Guarantor is bound thereby or has any further
liability thereunder.
As used in Section 13(j), the terms "EMPLOYEE BENEFIT PLAN" and
"EMPLOYEE WELFARE BENEFIT PLAN" shall have the respective meanings assigned to
such terms in Section 3 of ERISA.
14. REMEDIES ON DEFAULT, ETC.
14.1. ACCELERATION.
(a) If an Event of Default with respect to any Obligor
described in paragraph (g) or (h) of Section 13 (other than an Event of Default
described in clause (i) of paragraph (g) or described in clause (vi) of
paragraph (g) by virtue of the fact that such clause encompasses clause (i) of
paragraph (g)) has occurred, all the Notes then outstanding shall automatically
become immediately due and payable.
(b) If any other Event of Default has occurred and is
continuing, the Required Holders may at any time at its or their option, by
notice or notices to each Obligor, declare all the Notes then outstanding to be
immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b)
of Section 13 has occurred and is continuing, any holder or holders of Notes at
the time outstanding affected by
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such Event of Default may at any time, at its or their option, by notice or
notices to each Obligor, declare all the Notes held by it or them to be
immediately due and payable.
Upon any Notes becoming due and payable under this Section 14.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) if such Notes are declared due and payable under
Section 14.1(a), 14.1(b) or 14.1(c), the Make-Whole Amount determined in respect
of such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. Each Obligor
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Issuer
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Issuer in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
14.2. OTHER REMEDIES.
If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 14.1, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.
14.3. RESCISSION.
At any time after any Notes have been declared due and payable pursuant
to clause (b) or (c) of Section 14.1, the Required Holders, by written notice to
each Obligor, may rescind and annul any such declaration and its consequences if
(a) an Obligor has paid all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid
other than by reason of such declaration, and all interest on such overdue
principal and Make-Whole Amount, if any, and (to the extent permitted by
applicable law) any overdue interest in respect of the Notes, at the Default
Rate, (b) all Events of Default and Defaults, other than non-payment of amounts
that have become due solely by reason of such declaration, have been cured or
have been waived pursuant to Section 19, and (c) no judgment or decree has been
entered for the payment of any monies due pursuant hereto or to the Notes. No
rescission and annulment under this Section 14.3 will extend to or affect any
subsequent Event of Default or Default or impair any right consequent thereon.
14.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of any Note
in exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any
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Note upon any holder thereof shall be exclusive of any other right, power or
remedy referred to herein or therein or now or hereafter available at law, in
equity, by statute or otherwise. Without limiting the obligations of the
Obligors under Section 17, the Issuer will pay to the holder of each Note on
demand such further amount as shall be sufficient to cover all costs and
expenses of such holder incurred in any enforcement or collection under this
Section 14, including, without limitation, reasonable attorneys' fees, expenses
and disbursements.
15. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
15.1. REGISTRATION OF NOTES.
The Issuer shall keep at its registered office in The Netherlands and
its principal executive office in the United States a register for the
registration and registration of transfers of Notes. As of the date hereof such
offices are located, respectively, as follows:
World Trade Center and 26300 La Alameda
Tower C, 4th Floor Suite 250
Strawinskylaan 819 Mission Viejo, CA 92691
PO Box 819
1070 XX Amsterdam
THE NETHERLANDS
The name and address of each holder of one or more Notes, each transfer
thereof and the name and address of each transferee of one or more Notes shall
be registered in such register. Prior to due presentment for registration of
transfer, the Person in whose name any Note shall be registered shall be deemed
and treated as the owner and holder thereof for all purposes hereof, and the
Issuer shall not be affected by any notice or knowledge to the contrary. The
Issuer shall give to any holder of a Note that is an Institutional Investor
promptly upon request therefor, a complete and correct copy of the names and
addresses of all registered holders of Notes.
15.2. TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office of the
Issuer for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of such Note or
his attorney duly authorized in writing and accompanied by the address for
notices of each transferee of such Note or part thereof), the Issuer shall
execute and deliver, at the Issuer's expense (except as provided below), one or
more new Notes (as requested by the holder thereof) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form of Exhibit 1. Each
such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Issuer may
require payment of a sum sufficient to cover any stamp tax or governmental
charge in respect of any such transfer of Notes which is imposed by the United
States of America or any state thereof or any taxing authority of any thereof.
Notes shall not be transferred in
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denominations of less than $100,000 (except that in the case of the transfer of
all of the Notes by any holder of Notes aggregating less than $100,000 one Note
may be issued in a denomination equal to such aggregate amount); provided that
the denomination of any Note shall not in any event be less than NLG100,000
(100,000 Dutch Guilders). Any transferee, by its acceptance of a Note registered
in its name (or the name of its nominee), shall be deemed to have made the
representation set forth in Section 6.2.
15.3. REPLACEMENT OF NOTES.
Upon receipt by the Issuer of evidence reasonably satisfactory to it of
the ownership of and the loss, theft, destruction or mutilation of any Note
(which evidence shall be, in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership and such loss, theft, destruction
or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note is, or
is a nominee for, an original Purchaser or another holder of a Note with a
minimum net worth of at least $100 million, such Person's own unsecured
agreement of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Issuer at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.
16. PAYMENTS ON NOTES.
16.1. PLACE OF PAYMENT.
Subject to Section 16.2, payments of principal, Make-Whole Amount, if
any, and interest becoming due and payable on the Notes shall be made in New
York, NY at the principal office of The Bank of New York in such jurisdiction.
The Issuer may at any time, by notice to each holder of a Note, change the place
of payment of the Notes so long as such place of payment shall be either the
principal office of the Issuer in such jurisdiction or the principal office of a
bank or trust company in such jurisdiction.
16.2. HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 16.1 or in such Note to the
contrary, the Issuer will pay all sums becoming due on such Note for principal,
Make-Whole Amount, if any, and interest by the method and at the address
specified for such purpose below your name in Schedule A, or by such other
method or at such other address as you shall have from time to time specified to
the Issuer in writing for such purpose, without the presentation or surrender of
such Note or the making of any notation thereon, except that upon written
request of the Issuer made concurrently with or
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reasonably promptly after payment or prepayment in full of any Note, you shall
surrender such Note for cancellation, reasonably promptly after any such
request, to the Issuer at its principal executive office or at the place of
payment most recently designated by the Issuer pursuant to Section 16.1. Prior
to any sale or other disposition of any Note held by you or your nominee you
will, at your election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Issuer in exchange for a new Note or Notes pursuant to Section
15.2. The Issuer will afford the benefits of this Section 16.2 to any
Institutional Investor that is the direct or indirect transferee of any Note
purchased by you under this Agreement and that has made the same agreement
relating to such Note as you have made in this Section 16.2.
17. EXPENSES, ETC.
17.1. TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are consummated,
the Obligors jointly and severally will pay all costs and expenses (including
reasonable attorneys' fees of a special counsel and, if reasonably required,
local or other counsel) incurred by you and each Other Purchaser or holder of a
Note in connection with such transactions and in connection with any amendments,
waivers or consents under or in respect of this Agreement or the Notes (whether
or not such amendment, waiver or consent becomes effective), including, without
limitation: (a) the costs and expenses incurred in enforcing or defending (or
determining whether or how to enforce or defend) any rights under this Agreement
or the Notes or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or the Notes, or
by reason of being a holder of any Note, and (b) the costs and expenses,
including financial advisors' fees, incurred in connection with the insolvency
or bankruptcy of the Guarantor or any Subsidiary or in connection with any
work-out or restructuring of the transactions contemplated hereby and by the
Notes. The Obligors jointly and severally will pay, and will save you and each
other holder of a Note harmless from, all claims in respect of any fees, costs
or expenses if any, of brokers and finders (other than those retained by you).
17.2. SURVIVAL.
The obligations of the Obligors under Section 17 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Notes, and the termination of this Agreement.
18. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by you of any Note or portion thereof or interest therein and the payment of any
Note, and may be relied upon by any subsequent holder of a Note, regardless of
any investigation made at any time by or on behalf of you or any other holder of
a Note. All statements contained in any certificate or other instrument
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<PAGE> 46
delivered by or on behalf of any Obligor pursuant to this Agreement shall be
deemed representations and warranties of such Obligor under this Agreement.
Subject to the preceding sentence, this Agreement and the Notes embody the
entire agreement and understanding between you and the Obligors and supersede
all prior agreements and understandings relating to the subject matter hereof.
19. AMENDMENT AND WAIVER.
19.1. REQUIREMENTS.
This Agreement and the Notes may be amended, and the observance of any
term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of each Obligor and the
Required Holders, except that (a) no amendment or waiver of any of the
provisions of Section 1, 2, 3, 4, 5, 6 or 23 hereof, or any defined term (as it
is used therein), will be effective as to you unless consented to by you in
writing, and (b) no such amendment or waiver may, without the written consent of
the holder of each Note at the time outstanding (i) subject to the provisions of
Section 14 relating to acceleration or rescission, change the amount or time of
any prepayment or payment of principal of, or change the rate or change the time
of payment or method of computation of interest or of the Make-Whole Amount on,
the Notes, (ii) change the percentage of the principal amount of the Notes the
holders of which are required to consent to any such amendment or waiver, or
(iii) amend any of Sections 8, 11, 12, 13(a), 13(b), 14, 19 or 20.
19.2. SOLICITATION OF HOLDERS OF NOTES.
(a) Solicitation. The Issuer will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Issuer will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 19 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.
(b) Payment. No Obligor will directly or indirectly pay or
cause to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any holder of Notes as
consideration for or as an inducement to the entering into by any holder of
Notes or any waiver or amendment of any of the terms and provisions hereof
unless such remuneration is concurrently paid, or security is concurrently
granted, on the same terms, ratably to each holder of Notes then outstanding
even if such holder did not consent to such waiver or amendment.
19.3. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this Section 19
applies equally to all holders of Notes and is binding upon them and upon each
future holder of any Note and upon
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each Obligor without regard to whether such Note has been marked to indicate
such amendment or waiver. No such amendment or waiver will extend to or affect
any obligation, covenant, agreement, Default or Event of Default not expressly
amended or waived or impair any right consequent thereon. No course of dealing
between an Obligor and the holder of any Note nor any delay in exercising any
rights hereunder or under any Note shall operate as a waiver of any rights of
any holder of such Note. As used herein, the term "THIS AGREEMENT" and
references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.
19.4. NOTES HELD BY AN OBLIGOR, ETC.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by an Obligor or any of their
respective Affiliates shall be deemed not to be outstanding.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means
information delivered to you by or on behalf of the Guarantor or any Subsidiary
in connection with the transactions contemplated by or otherwise pursuant to
this Agreement that is proprietary in nature and that was clearly marked or
labeled or otherwise adequately identified when received by you as being
confidential information of the Guarantor or such Subsidiary, provided that such
term does not include information that (a) was publicly known or otherwise known
to you prior to the time of such disclosure, (b) subsequently becomes publicly
known through no act or omission by you or any person acting on your behalf, (c)
otherwise becomes known to you other than through disclosure by the Guarantor or
any Subsidiary or (d) constitutes financial statements delivered to you under
Section 7.1 that are otherwise publicly available. You will maintain the
confidentiality of such Confidential Information in accordance with procedures
adopted by you in good faith to protect confidential information of third
parties delivered to you, provided that you may deliver or disclose Confidential
Information to (i) your directors, officers, employees, agents, attorneys and
affiliates (to the extent such disclosure reasonably relates to the
administration of the investment represented by your Notes), (ii) your financial
advisors and other professional advisors who agree to hold confidential the
Confidential Information substantially in accordance with the terms of this
Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor
to which you sell or offer to sell such Note or any part thereof or any
participation therein (if such Person has agreed in writing prior to its receipt
of such Confidential Information to be bound by the provisions of this Section
20), (v) any Person from which you offer to purchase any security of the Issuer
(if such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (vi) any federal
or state regulatory authority having jurisdiction over you, (vii) the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
your investment portfolio or
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(viii) any other Person to which such delivery or disclosure may be necessary or
appropriate (w) to effect compliance with any law, rule, regulation or order
applicable to you, (x) in response to any subpoena or other legal process, (y)
in connection with any litigation to which you are a party or (z) if an Event of
Default has occurred and is continuing, to the extent you may reasonably
determine such delivery and disclosure to be necessary or appropriate in the
enforcement or for the protection of the rights and remedies under your Notes
and this Agreement. Each holder of a Note, by its acceptance of a Note, will be
deemed to have agreed to be bound by and to be entitled to the benefits of this
Section 20 as though it were a party to this Agreement. On reasonable request by
the Guarantor in connection with the delivery to any holder of a Note of
information required to be delivered to such holder under this Agreement or
requested by such holder (other than a holder that is a party to this Agreement
or its nominee), such holder will enter into an agreement with the Guarantor
embodying the provisions of this Section 20.
21. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. Each
Obligor agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 21
shall not prohibit an Obligor or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
22. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the
address specified for such communications in Schedule A, or at such
other address as you or it shall have specified to the Issuer in
writing,
(ii) if to any other holder of any Note, to such
holder at such address as such other holder shall have specified to the
Issuer in writing,
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(iii) if to the Issuer, to the Issuer at its address
set forth at the beginning hereof to the attention of Don E. Cameron,
or at such other address as the Issuer shall have specified to the
holder of each Note in writing, or
(iv) if to the Guarantor, to the Guarantor at its
address set forth at the beginning hereof to the attention of Don E.
Cameron, or at such other address as the Guarantor shall have specified
to the holder of each Note in writing.
Notices under this Section 22 will be deemed given only when actually received.
23. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as
the purchaser of the Notes that you have agreed to purchase hereunder, by
written notice to the Issuer, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 23), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Issuer of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this Section
23), such word shall no longer be deemed to refer to such Affiliate, but shall
refer to you, and you shall have all the rights of an original holder of the
Notes under this Agreement.
24. MISCELLANEOUS.
24.1. SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement by or on
behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any subsequent
holder of a Note) whether so expressed or not.
24.2. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-whole Amount or interest on
any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day without including the additional days elapsed in
the computation of the interest payable on such next succeeding Business Day.
24.3. SEVERABILITY.
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or
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unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
24.4. CONSTRUCTION.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant contained
herein, so that compliance with any one covenant shall not (absent such an
express contrary provision) be deemed to excuse compliance with any other
covenant. Where any provision herein refers to action to be taken by any Person,
or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
24.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
24.6. SUBMISSION TO JURISDICTION, SERVICE OF PROCESS.
Each Obligor hereby expressly waives all rights to object to
jurisdiction or execution in any legal action or proceeding relating to this
Agreement or the Notes which it may now or hereafter have by reason of its
domicile or by reason of any subsequent or other domicile. Each Obligor agrees
that any legal action or proceeding with respect to this Agreement or any Note,
or any instrument, agreement or document mentioned or contemplated herein, or to
enforce any judgment obtained against such Obligor in any such legal action or
proceeding against it or any of their respective properties or revenues may be
brought by the holder of any Note in the courts of the State of New York or of
the United States of America located in New York, New York, as the holder of any
Note may elect, and by execution and delivery of this Agreement, each Obligor
irrevocably submits to each such jurisdiction.
In addition, each Obligor hereby irrevocably and
unconditionally waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of venue of any of the actions,
suits or proceedings described above arising out of or in connection with this
Agreement or the Notes brought in any of such courts, and waives and agrees not
to plead or claim that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
Each Obligor hereby irrevocably designates, appoints and
empowers CT Corporation System with offices at 1633 Broadway, New York, New
York, and its successors, as the designee, appointee and agent of such Obligor
to receive, accept and acknowledge, for and on behalf of such Obligor and its
respective properties, service of any and all legal process, summons, notices
and documents which may be served in any such action, suit or proceeding in the
case of the courts of the State of New York or of the United States of America
located in New York, New York, which service may be made on any such designee,
appointee and agent in
45
<PAGE> 51
accordance with legal procedures prescribed for such courts. Each Obligor shall
take any and all actions necessary to continue such designation in full force
and effect and should such designee, appointee and agent become unavailable for
this purpose for any reason, such Obligor will forthwith irrevocably designate a
new designee, appointee and agent with offices in New York, New York, which
shall irrevocably agree to act as such, with the powers and for the purposes
specified in this Section 24.6. Each Obligor further irrevocably consents and
agrees to service of any and all legal process, summons, notices and documents
out of any of such courts in any such action, suit or proceeding delivered to
such Obligor in accordance with this Section 24.6 or to its then designee,
appointee or agent for service. Service upon any Obligor or any such designee,
appointee and agent as provided for herein shall constitute valid and effective
personal service upon such Obligor and that the failure of any such designee,
appointee and agent to give any notice of such service to such Obligor shall not
impair or affect in any way the validity of such service or any judgment
rendered in any action or proceeding based thereon. Nothing herein shall, or
shall be construed so as to, limit the right of the holder of the Notes to bring
actions, suits or proceedings with respect to the obligations and liabilities of
either Obligor under, or any other matter arising out of or in connection with,
this Agreement or the Notes, or for recognition or enforcement of any judgment
rendered in any such action, suit or proceeding, in the courts of whatever
jurisdiction in which the respective offices of the holders of the Notes may be
located or assets of such Obligor may be found or as otherwise shall to the
holders of the Notes seem appropriate, or to affect the right to service of
process in any jurisdiction in any other manner permitted by law.
24.7. OBLIGATIONS TO MAKE PAYMENTS IN DOLLARS.
The Obligors shall make payments under this Agreement and under the
Notes in Untited States currency ("DOLLARS") and the respective obligations of
the Obligors to make such payments shall not be discharged or satisfied by any
tender, or any recovery pursuant to any judgment, which is expressed in or
converted into any currency other than Dollars, except to the extent such tender
or recovery shall result in the actual receipt by the holder of any Note of the
full amount of Dollars expressed to be payable in respect of any such
obligations. The obligation of the Obligors to make payments in Dollars as
aforesaid shall be enforceable as an alternative or additional cause of action
for the purpose of recovery in Dollars of the amount, if any, by which such
actual receipt shall fall short of the full amount of Dollars expressed to be
payable in respect of any such obligations, and shall not be affected by
judgment being obtained for any other sums due under this Agreement or the
Notes.
24.8. ASSUMPTION OF COMPANY'S OBLIGATIONS.
(A) The Guarantor may cause any James Hardie USA Entity or James Hardie
Netherlands Entity (any such Entity being herein called a "NEW ISSUER") to
assume the obligations of the Issuer for the due and punctual payment of the
principal of and Make-Whole Amount (if any) and interest on the Notes and the
performance of each and every other covenant and obligation of the Issuer under
this Agreement and the Notes, provided that as a condition precedent to any such
assumption,
46
<PAGE> 52
(1) The Guarantor shall have delivered to each holder of a
Note (i) written notice of such assumption at least 30 days prior to
the date of such assumption, which notice shall refer specifically to
this Section 24.8 and shall specify the date such assumption is to
become effective, (ii) an irrevocable and unconditional assumption of
such obligations duly executed and delivered by such New Issuer in a
form approved in writing by the Required Holders (the "ASSUMPTION
AGREEMENT"), (iii) a written confirmation, from each of the Guarantor
and the Subsidiary Guarantor of their continued liability under the
Guarantee and the Subsidiary Guarantee, respectively, and (iv) an
opinion of independent counsel of recognized standing, in customary
form and subject only to customary qualifications, addressed to each
such holder, to the effect that the Assumption Agreement is a legal,
valid and binding agreement of such New Issuer enforceable in
accordance with its terms; and
(2) immediately after giving effect to such assumption, no
Default or Event of Default shall have occurred and be continuing.
(B) In the event that any New Issuer shall assume the obligations of
the Issuer pursuant to Subsection (A) above, all references to the Issuer in
this Agreement or any Note or any document, instrument or agreement executed, or
to be executed, in connection herewith or therewith shall be deemed to be
references to such New Issuer, except for references to the Issuer relating to
its status prior to such assumption.
24.9. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of New York
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
47
<PAGE> 53
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Issuer, whereupon the foregoing shall become a binding agreement among you and
the Issuer and the Guarantor.
Very truly yours,
JAMES HARDIE FINANCE B.V.
By /s/
------------------------
Title: Attorney
JAMES HARDIE N.V.
By /s/
------------------------
Title: Attorney
48
<PAGE> 54
The foregoing agreement is
hereby accepted as of the
date first above written.
TEXAS LIFE INSURANCE COMPANY
By: /s/ [SIG]
------------------------------
Title: Authorized Signatory
<PAGE> 55
The foregoing agreement is
hereby accepted as of the
date first above written.
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ GERALD P. MARCUS
-------------------------------
Gerald P. Marcus
Title: Director
<PAGE> 56
The foregoing agreement is
hereby accepted as of the
date first above written.
STATE FARM LIFE INSURANCE COMPANY
By: /s/ DONALD E. HELTNER By: /s/ LYLE TRIEBWASSER
-------------------------------- --------------------------------
Name: Donald E Heltner Name: Lyle Triebwasser
Title: Vice President -- Title: Senior Investment
Taxable Fixed Income Officer
<PAGE> 57
The foregoing agreement is
hereby accepted as of the
date first above written.
AMERITAS LIFE INSURANCE CORP.
By: /s/ WILLIAM W. LESTER
----------------------------------
William W. Lester
Vice President-Securities
<PAGE> 58
The foregoing agreement is
hereby accepted as of the
date first above written.
PRINCIPAL LIFE INSURANCE COMPANY
By: /s/ SARAH J. PITTS
----------------------------------
Sarah J. Pitts
Counsel
By: /s/ JAMES C. FIFIELD
----------------------------------
James C. Fifield
Counsel
<PAGE> 59
The foregoing agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ [SIG]
----------------------------------
Title: Vice President
<PAGE> 60
The foregoing agreement is
hereby accepted as of the
date first above written.
AMERICAN INVESTORS LIFE INSURANCE
COMPANY
By: /s/ [SIG]
-----------------------------------
Title: Vice President
Investment Management & Research
<PAGE> 61
The foregoing agreement is
hereby accepted as of the
date first above written.
THE PAUL REVERE LIFE INSURANCE COMPANY
By: Provident Investment Management, LLC
Its: Agent
By: /s/ David Fussell
-----------------------------------
David Fussell
Vice President
<PAGE> 62
The foregoing agreement is
hereby accepted as of the
date first above written.
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By: /s/ [SIG]
-----------------------------------
Title: Managing Director
<PAGE> 63
The foregoing agreement is
hereby accepted as of the
date first above written.
CM LIFE INSURANCE COMPANY
By: /s/ JOHN B. JOYCE
-----------------------------------
Title: Investment Officer
<PAGE> 64
The foregoing agreement is
hereby accepted as of the
date first above written.
OHIO NATIONAL LIFE ASSURANCE
CORPORATION
By: /s/ MICHAEL A.BOEDEKER
--------------------------------
Title: Michael A. Boedeker
Vice President, Fixed Income Securities
<PAGE> 65
The foregoing agreement is
hereby accepted as of the
date first above written.
USAA LIFE INSURANCE COMPANY
By: /s/ [SIG]
--------------------------------
Title: Senior Vice President
<PAGE> 66
The foregoing agreement is
hereby accepted as of the
date first above written.
THE GUARDIAN LIFE INSURANCE COMPANY
OF AMERICA
By: /s/ [SIG]
--------------------------------
Title: Vice President
<PAGE> 67
The foregoing agreement is
hereby accepted as of the
date first above written.
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY
By CIGNA Investments, Inc.
By: /s/ RICHARD B. McGAULEY
---------------------------------
RICHARD B. McGAULEY
Title: Managing Director
<PAGE> 68
The foregoing agreement is
hereby accepted as of the
date first above written.
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY on behalf of One or More Separate Accounts
By CIGNA Investments, Inc.
By: /s/ RICHARD B. McGAULEY
---------------------------------
RICHARD B. McGAULEY
Title: MANAGING DIRECTOR
<PAGE> 69
The foregoing agreement is
hereby accepted as of the
date first above written.
LIFE INSURANCE COMPANY OF NORTH
AMERICA
By CIGNA Investments, Inc.
By: /s/ RICHARD B. McGAULEY
---------------------------------
RICHARD B. McGAULEY
Title: MANAGING DIRECTOR
<PAGE> 70
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
<PAGE> 71
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. All payments on account of the Note shall be made by crediting in the form of bank wire $3,250,000
transfer of Federal or other immediately available funds (identifying each payment as (Series C)
James Hardie Finance B.V. 6.99% Guaranteed Senior Note due 2006, interest and principal) No. RC-5
to:
Citibank, N.A.
111 Wall Street
New York, NY 10043
ABA No. 021000089
For MassMutual Long-Term Pool
Account No. 4067-3488
Re: Description of security, principal and interest split
With telephone advice of payment to the Securities Custody and
Collection Department of Massachusetts Mutual Life Insurance Company at
(413) 744-3561
2. All notices and communications to be addressed as first provided above,
except notices with respect to payments to be addressed to:
Attention: Securities Custody and
Collection Department
F 381
3. Taxpayer Identification No.: 04-1590850
</TABLE>
<PAGE> 72
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. All payments on account of the Note shall be made by crediting in the form of bank wire $1,000,000
transfer of Federal or other immediately available funds (identifying each payment as (Series C)
James Hardie Finance B.V. 6.99% Guaranteed Senior Note due 2006, interest and principal) No. RC-10
to:
Chase Manhattan Bank, N.A.
4 Chase Metro Tech Center
New York, NY 10081
ABA No. 021000021
For MassMutual IFM Non-Traditional
Account No. 910-2509073
Re: Description of security, principal and interest split
With telephone advice of payment to the Securities Custody and
Collection Department of Massachusetts Mutual Life Insurance Company at
(413) 744-3561
2. All notices and communications to be addressed as first provided above,
except notices with respect to payments to be addressed to:
Attention: Securities Custody and
Collection Department
F 381
3. Taxpayer Identification No.: 04-1590850
</TABLE>
<PAGE> 73
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. All payments on account of the Note shall be made by crediting in the form of bank wire $625,000
transfer of Federal or other immediately available funds (identifying each payment as (Series C)
James Hardie Finance B.V. 6.99% Guaranteed Senior Note due 2006, interest and principal) No. RC-11
to:
Chase Manhattan Bank, N.A.
4 Chase Metro Tech Center
New York, NY 10081
ABA No. 021000021
For MassMutual Pension Management
Account No. 910-2594018
Re: Description of security, principal and interest split
With telephone advice of payment to the Securities Custody and
Collection Department of Massachusetts Mutual Life Insurance Company at
(413) 744-3561
2. All notices and communications to be addressed as first provided above,
except notices with respect to payments to be addressed to:
Attention: Securities Custody and
Collection Department
F 381
3. Taxpayer Identification No.: 04-1590850
</TABLE>
<PAGE> 74
CM LIFE INSURANCE COMPANY
C/O MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. All payments on account of the Note shall be made by crediting in the form of bank wire $125,000
transfer of Federal or other immediately available funds (identifying each payment as (Series C)
James Hardie Finance B.V. 6.99% Guaranteed Senior Note due 2006, interest and principal) No. RC-12
to:
Citibank, N.A.
111 Wall Street
New York, NY 10043
ABA No. 021000089
For Segment 43 - Universal Life
Account No. 4068-6561
Re: Description of security, principal and interest split
With telephone advice of payment to the Securities Custody and
Collection Department of Massachusetts Mutual Life Insurance Company at
(413) 744-3561
2. All notices and communications to be addressed as first provided above,
except notices with respect to payments to be addressed to:
Attention: Securities Custody and
Collection Department
F 381
3. Taxpayer Identification No.: 06-1041383
</TABLE>
<PAGE> 75
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. All payments on account of the Note shall be made by crediting in the form of bank wire $3,900,000
transfer of Federal or other immediately available funds (identifying each payment as (Series E)
James Hardie Finance B.V. 7.12% Guaranteed Senior Note due 2008, interest and principal) No. RE-4
to:
Citibank, N.A.
111 Wall Street
New York, NY 10043
ABA No. 021000089
For MassMutual Long-Term Pool
Account No. 4067-3488
Re: Description of security, principal and interest split
With telephone advice of payment to the Securities Custody and
Collection Department of Massachusetts Mutual Life Insurance
Company at (413) 744-3561
2. All notices and communications to be addressed as first provided above,
except notices with respect to payments to be addressed to:
Attention: Securities Custody and
Collection Department
F 381
3. Taxpayer Identification No.: 04-1590850
</TABLE>
<PAGE> 76
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. All payments on account of the Note shall be made by crediting in the form of bank wire $1,200,000
transfer of Federal or other immediately available funds (identifying each payment as (Series E)
James Hardie Finance B.V. 7.12% Guaranteed Senior Note due 2008, interest and principal) No. RE-7
to:
Chase Manhattan Bank, N.A.
4 Chase Metro Tech Center
New York, NY 10081
ABA No. 021000021
For MassMutual IFM Non-Traditional
Account No. 910-2509073
Re: Description of security, principal and interest split
With telephone advice of payment to the Securities Custody and
Collection Department of Massachusetts Mutual Life Insurance Company at
(413) 744-3561
2. All notices and communications to be addressed as first provided above,
except notices with respect to payments to be addressed to:
Attention: Securities Custody and
Collection Department
F 381
3. Taxpayer Identification No.: 04-1590850
</TABLE>
<PAGE> 77
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. All payments on account of the Note shall be made by crediting in the form of bank wire $750,000
transfer of Federal or other immediately available funds (identifying each payment as (Series E)
James Hardie Finance B.V. 7.12% Guaranteed Senior Note due 2008, interest and principal) No. RE-8
to:
Chase Manhattan Bank, N.A.
4 Chase Metro Tech Center
New York, NY 10081
ABA No. 021000021
For MassMutual Pension Management
Account No. 910-2594018
Re: Description of security, principal and interest split
With telephone advice of payment to the Securities Custody and
Collection Department of Massachusetts Mutual Life Insurance Company at
(413) 744-3561
2. All notices and communications to be addressed as first provided above,
except notices with respect to payments to be addressed to:
Attention: Securities Custody and
Collection Department
F 381
3. Taxpayer Identification No.: 04-1590850
</TABLE>
<PAGE> 78
CM LIFE INSURANCE COMPANY
C/O MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. All payments on account of the Note shall be made by crediting in the form of bank wire $150,000
transfer of Federal or other immediately available funds (identifying each payment as (Series E)
James Hardie Finance B.V. 7.12% Guaranteed Senior Note due 2008, interest and principal) No. RE-9
to:
Citibank, N.A.
111 Wall Street
New York, NY 10043
ABA No. 021000089
For Segment 43 - Universal Life
Account No. 4068-6561
Re: Description of security, principal and interest split
With telephone advice of payment to the Securities Custody and
Collection Department of Massachusetts Mutual Life Insurance Company at
(413) 744-3561
2. All notices and communications to be addressed as first provided above,
except notices with respect to payments to be addressed to:
Attention: Securities Custody and
Collection Department
F 381
3. Taxpayer Identification No.: 06-1041383
</TABLE>
<PAGE> 79
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. All payments on account of the Note shall be made by crediting in the form of bank wire $4,250,000
transfer of Federal or other immediately available funds (identifying each payment as (Series F)
James Hardie Finance B.V. 7.24% Guaranteed Senior Note due 2010, interest and principal) No. RF-2
to:
Citibank, N.A.
111 Wall Street
New York, NY 10043
ABA No. 021000089
For MassMutual Long-Term Pool
Account No. 4067-3488
Re: Description of security, principal and interest split
With telephone advice of payment to the Securities Custody and
Collection Department of Massachusetts Mutual Life Insurance Company at
(413) 744-3561
2. All notices and communications to be addressed as first provided above,
except notices with respect to payments to be addressed to:
Attention: Securities Custody and
Collection Department
F 381
3. Taxpayer Identification No.: 04-1590850
</TABLE>
<PAGE> 80
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. All payments on account of the Note shall be made by crediting in the form of bank wire $750,000
transfer of Federal or other immediately available funds (identifying each payment as (Series F)
James Hardie Finance B.V. 7.24% Guaranteed Senior Note due 2010, interest and principal) No. RF-3
to:
Chase Manhattan Bank, N.A.
4 Chase MetroTech Center
New York, NY 10081
ABA No. 021000021
For MassMutual Pension Management
Account No. 910-2594018
Re: Description of security, principal and interest split
With telephone advice of payment to the Securities Custody and
Collection Department of Massachusetts Mutual Life Insurance Company at
(413) 744-3561
2. All notices and communications to be addressed as first provided above,
except notices with respect to payments to be addressed to:
Attention: Securities Custody and
Collection Department
F 381
3. Taxpayer Identification No.: 04-1590850
</TABLE>
<PAGE> 81
AMERITAS LIFE INSURANCE CORP.
<TABLE>
<S> <C> <C>
1. All payments by wire transfer of immediately available funds to: $2,000,000
Series C
No. RC-9
U.S. Bank
ABA #104-000-029
Ameritas Life Insurance Corp.
Acc# 1-494-0070-0188
Re: Description of Note; Principal & Interest Breakdown
with sufficient information to identify the source and application of such funds
2. All notices of payments and written confirmations of such wire transfers:
Ameritas Life Insurance Corp.
5900 "O" Street
Lincoln, NE 68510-2234
Fax Number (402) 467-6970
Attn: James Mikus
3. All other communications:
Ameritas Life Insurance Corp.
5900 "O" Street
Lincoln, NE 68510-2234
Attn: James Mikus
4. Taxpayer Identification No.: 47-0098400
</TABLE>
<PAGE> 82
STATE FARM LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. Wire Transfer Instructions: $5,000,000
Series B
The Chase Manhattan Bank No. RB-2
ABA No. 021000021
SSG Private Income Processing
A/C #900-9-000200
For Credit to Account Number G 06893
Ref. PPN N4703# AB 9
Rate: 6.92%
Maturity Date: November 5, 2005
2. Send notices (as well as a photocopy of the original security) to:
State Farm Life Insurance Company
Investment Dept. E-10
One State Farm Plaza
Bloomington, IL 61710
3. Send confirms to:
State Farm Life Insurance Company
Investment Accounting Dept. D-3
One State Farm Plaza
Bloomington, IL 61710
4. Taxpayer Identification No.: 37-0533090
</TABLE>
<PAGE> 83
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
<TABLE>
<S> <C> <C>
1. All payments on account of Notes held by such purchaser shall be made by wire $30,000,000
transfer of immediately available funds for credit to: Series B
No. RB-1
Account No. 890-0304-391
Bank of New York $11,000,000
New York, New York Series D
(ABA No: 021-000-018 No. RD-1
Each such wire transfer shall set forth a reference to the name of the Company, $15,000,000
maturity date, interest rate, Security No. !INV6175! and the due date and application Series F
(as among principal, interest and Yield-Maintenance Amount) of the payment being made. No. RF-1
2. Address for all notices relating to payments:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
Attention: Manager, Investment Operations Group
Telephone: (973) 802-5260
Telecopy: (973) 802-8055
3. Address for all other communications and notices:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Two Prudential Plaza
180 N. Stetson Street - Suite 5600
Chicago, IL 60601-6716
Attention: International Finance
Telephone: (312) 540-0931
Telecopy: (312) 540-4222
4. Receipt of telephonic prepayment notices:
Manager, Investment Structure and Pricing
Telephone: (973) 802-7398
Telecopy: (973) 802-9425
5. Taxpayer Identification No.: 22-1211670
</TABLE>
<PAGE> 84
TEXAS LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. All payments by wire transfer of immediately available funds to: $3,000,000
Series E
The Chase Manhattan Bank No. RE-2
ABA #021-000-021
New York, New York
SSG Private Income Processing
Account No. 900-9-000200
Texas Life Insurance Company
Account Number G06748
With reference to PPN # N4703# AE3
with sufficient information to identify the source and application of such funds
2. All notice and other communications:
Texas Life Insurance Company
c/o Metropolitan Life Insurance Company
Private Placements Unit
334 Madison Avenue
Convent Station, New Jersey 07961-0633
Facsimile (973) 254-3050
With a copy to:
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010-3690
Attention: George M. Bryant (Area 6-H)
Facsimile: (212) 578-3916
3. Taxpayer Identification No.: 74-0940890
</TABLE>
<PAGE> 85
METROPOLITAN LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. All payments by wire transfer of immediately available funds to: $23,500,000
Series E
The Chase Manhattan Bank No. RE-1
ABA #021-000-021
New York, New York
Metropolitan Life Insurance Company
Account No. 002-2-410591
With reference to PPN # N4703# AE3
with sufficient information to identify the source and application of such funds
2. All notices and other communications:
Metropolitan Life Insurance Company
Private Placements Unit
334 Madison Avenue
Convent Station, New Jersey 07961-0633
Facsimile (973) 254-3050
With a copy to:
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010-3690
Attention: George M. Bryant (Area 6-H)
Facsimile: (212) 578-3916
3. Taxpayer Identification No.: 13-5581829
</TABLE>
<PAGE> 86
PRINCIPAL LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. All notices with respect to the Note, except with respect to payment, should be $24,000,000
sent to: Series A
No. RA-1
Principal Life Insurance Company
711 High Street
Des Moines, IA 50392-0800
Attn: Investment Department-Securities Division
Fax #: 515-248-2490
Confirmation #: 515-248-3495
2. All notices with respect to payment on the Note should be sent to:
Principal Life Insurance Company
711 High Street
Des Moines, IA 50392-0960
Attn: Investment Accounting-Securities
Fax #: 515-248-2643
Confirmation #: 515-247-0689
3. All payments with respect to the Note are to be made by a wire transfer
of immediately available funds to:
Norwest Bank Iowa, N.A.
7th & Walnut Streets
Des Moines, IA 50309
ABA No.: 073 000 228
OBI Reference: PFGSE (S) B00617620
For credit to Principal Life Insurance Company
General Account No. 0000014752
4. Taxpayer Identification No.: 42-0127290
</TABLE>
<PAGE> 87
USAA LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. All payments on or in respect of the Notes to be by bank wire transfer $20,000,000
of Federal or other immediately available funds (identifying each payment Series E
as James Hardie Finance B.V., 7.12% Series E Guaranteed Senior Notes, due No. RE-3
2008, PPN, principal or interest) to:
Bankers Trust Company/USAA
ABA #021001033
Private Placement Processing
AC #99 911 145
for credit to: USAA Life Insurance Company
Accounting Number 99717
2. All notices with respect to payments and written confirmation of each
such payment, to be addressed to:
USAA Life Insurance Company
c/o FSC Portfolio Accounting
USAA Building, B-1-W
9800 Fredericksburg Road
San Antonio, Texas 78288
3. All other communications:
Insurance Company Portfolios
USAA IMCO
USAA Building, BK D04N
9800 Fredericksburg Road
San Antonio, Texas 78288
4. Taxpayer Identification No.: 74-1472662
</TABLE>
<PAGE> 88
THE PAUL REVERE LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. Address all notices regarding payments and all other communications to: $20,000,000
Series G
Provident Investment Management, LLC No. RG-4
Private Placements
One Fountain Square
Chattanooga, Tennessee 37402
Telephone: (423) 755-1365
Fax: (423) 755-3351
2. All payments on account of the Notes shall be made by wire transfer of
immediately available funds to:
CUDD & CO.
c/o The Chase Manhattan Bank
New York, NY
ABA No. 021 000 021
SSG Private Income Processing
A/C #900-9-000200
Custodial Account No. G06992
Please reference: Issuer
PPN
Coupon
Principal + $_________
Interest = $_________
3. Taxpayer Identification No.: 13-6022143 (CUDD & CO.)
</TABLE>
<PAGE> 89
THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA
<TABLE>
<S> <C> <C>
1. Payment by wire to: $6,000,000
Series C
The Chase Manhattan Bank No. RC-6
FED ABA #021000021
CHASE/NYC/CTR/BNF
A/C 900-9-000200 $7,000,000
Reference A/C #G05978 The Guardian Series E
And the name and CUSIP for which payment is being made No. RE-5
2. Address for all notices relating to payments:
The Guardian Life Insurance Company of America
Attn: Investment Accounting M-IA
201 Park Avenue South
New York, NY 10003
Fax (212) 677-9023
3. Address for all other communications and notices:
The Guardian Life Insurance Company of America
201 Park Avenue South
New York, NY 10003
Attn: Thomas M. Donohue
Investment Department 7B
Fax: (212) 777-6715
4. Taxpayer Identification No.: 13-6022143
</TABLE>
<PAGE> 90
AMERICAN INVESTORS LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
1. Wire instructions for American Investors Life Insurance Company: $7,000,000
Series C
Bankers Trust Company No. RC-7
New York, NY
ABA #021001033
Credit Account #99911145
For Further Credit Account #093398
American Investors Life Insurance Co.
Ref: Issue name, coupon, maturity date
Contact at Bankers Trust Co. Richard McCormack (212) 618-2230 or Lorraine Squires
(212) 618-2200, Fax number (212) 518-2280
2. Address for all notices with respect to payments:
AmerUs life Insurance Company
699 Walnut Street, Suite 1700
Des Moines, Iowa 50309
Attn: Dan Owens
Tel: (515) 283-3431
Fax: (515) 283-3434
3. Address for all other communications:
AmerUs Life Insurance Company
699 Walnut Street, Suite 1700
Des Moines, Iowa 50309
Attn: Steve Sweeney
Tel: (515) 362-3542
Fax: (515) 283-3434
4. Taxpayer Identification No.: 48-0696320
Taxpayer Identifiction No.: 13-6065491 (Salkeld & Co.)
</TABLE>
<PAGE> 91
OHIO NATIONAL LIFE ASSURANCE CORPORATION
<TABLE>
<S> <C> <C>
1. Address for payments on account of the Notes: $3,500,000
Series E
By bank wire transfer of Federal or other immediately
available funds No. RE-6 (identifying each payment as to
issuer, security, and principal or interest) to:
Star Bank, N.A. (ABA #042-000013) $3,500,000
5th & Walnut Streets Series C
Cincinnati, OH 45202 No. RC-8
For credit to Ohio National Life Assurance Corporation's Account No. 865-215-8
2. All notices and communications, including notices with respect to
payments and written confirmation of each such payment, to be addressed
to:
Ohio National Life Assurance Corporation
Post Office Box 237
Cincinatti, OH 45201
Attention: Investment Department
3. Taxpayer Identification No.: 31-0962495
</TABLE>
<PAGE> 92
<TABLE>
<S> <C> <C>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY $4,400,000
Series C
No. RC-1
1. Payment
Federal Funds Wire Transfer to: $3,100,000
Series C
No. RC-2
Chase NYC/CTR/
BNF=CIGNA Private Placements/AC=9009001802
ABA# 021000021 $6,135,000
Series G
Accompanying Information: No. RG-1
OBI=[name of company; description of security; interest rate;
maturity date; PPN; due date and application (as among
principal, premium and interest of the payment being made);
contact name and phone.]
2. Address for Notices Related to Payments:
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Securities Processing S-309
900 Cottage Grove Road
Hartford, CT 06152-2309
CIG & Co.
c/o CIGNA Investment, Inc.
Attention: Private Securities - S307
Operations Group
900 Cottage Grove Road
Hartford, CT 06152-2307
Fax: (860) 726-7203
With a copy to:
Chase Manhattan Bank
Private Placement Servicing
P.O. Box 1508
Bowling Green Station
New York, New York 10081
Attention: CIGNA Private Placements
Fax: (212) 552-3107/1005
3. Address for All Other Notices:
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities Division - S-307
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
Fax: (860) 726-7203
4. Taxpayer Identification No.: 13-3574027
</TABLE>
<PAGE> 93
<TABLE>
<S> <C> <C>
$3,000,000
CONNECTICUT GENERAL LIFE INSURANCE COMPANY ON BEHALF OF ONE OR MORE SEPARATE ACCOUNTS Series C
No. RC-3
SEE INFORMATION UNDER "CONNECTICUT GENERAL LIFE INSURANCE COMPANY."
$3,000,000
Series C
No. RC-4
$5,065,000
Series G
No. RG-2
</TABLE>
<PAGE> 94
<TABLE>
<S> <C> <C>
$3,800,000
LIFE INSURANCE COMPANY OF NORTH AMERICA Series G
No. RG-3
SEE INFORMATION UNDER "CONNECTICUT GENERAL LIFE INSURANCE COMPANY."
</TABLE>
<PAGE> 95
SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"AFFILIATE" means, at any time, and with respect to any Person, (a) any
other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) any Person beneficially owning or holding, directly
or indirectly, 10% or more of any class of voting or equity interests of the
Issuer or any Subsidiary or any corporation of which the Issuer and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% or more of any class of voting or equity interests. As used in this
definition, "CONTROL" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Unless the context otherwise clearly requires, any reference to an "Affiliate"
is a reference to an Affiliate of the Issuer.
"APPLICABLE PERCENTAGE" means 75% until such time and for so long as
JHIL either (x) no longer, directly or indirectly, owns any shares of Voting
Stock of the Guarantor or any of its Subsidiaries or (y) owns less than 50% of
the Voting Stock of the Guarantor and any other holder or "group" (within the
meaning of the Exchange Act) owns a percentage of such Voting Stock which is
greater than the percentage owned by JHIL, then in either of such cases
"Applicable Percentage" shall mean 100%.
"ASSET(S) SOLD" is defined in Section 10.2.
"BANK CREDIT AGREEMENTS" means (i) the four separate Revolving Loan
Agreements, each dated as of the date hereof, between the Subsidiary Guarantor
(as borrower), the Issuer and the Guarantor (as guarantors) and, respectively,
ANZ Banking Group, Wachovia Bank, Banque Nationale de Paris and Wesdeutsche
Landesbank Girozentrale (the "Bank Lenders") under which the Subsidiary
Guarantor may borrow up to an aggregate of A$200,000,000 (A$ referring to
Australian dollars), and (ii) the four separate Standby Loan Agreements, each
dated as of the date hereof, between the Issuer (as borrower), the Guarantor and
the Subsidiary Guarantor (as guarantors) and, respectively, each of the Bank
Lenders under which the Issuer may borrow up to an aggregate of $80,000,000 (or
the equivalent in Australian currency).
"BUSINESS DAY" means (a) for the purposes of Section 8.6 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in New York,
New York are required or authorized to be closed, and (b) for the purposes of
any other provision of this Agreement, any day other than a Saturday, a Sunday
or a day on which commercial banks in New York, New York or Los Angeles,
California are required or authorized to be closed.
<PAGE> 96
"CAPITAL LEASE" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the lessee under
such Capital Lease which would, in accordance with GAAP, appear as a liability
on a balance sheet of such Person.
"CLOSING" is defined in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"CONFIDENTIAL INFORMATION" is defined in Section 22.
"CONSOLIDATED FUNDED CAPITALIZATION" means, at any time, the sum of
Consolidated Net Worth and Consolidated Funded Debt.
"CONSOLIDATED FUNDED DEBT" means, as of any date of determination, the
total of all Funded Debt of the Guarantor and its Subsidiaries outstanding on
such date, after eliminating all offsetting debits and credits between the
Guarantor and its Subsidiaries and all other items required to be eliminated in
the course of the preparation of consolidated financial statements of the
Guarantor and its Subsidiaries in accordance with GAAP.
"CONSOLIDATED NET INCOME" of the Guarantor for any period means the
consolidated net income (loss) of the Guarantor and its Subsidiaries for such
period, all determined in accordance with GAAP consistently applied and after
provisions for minority interests, but not including in the computation of the
foregoing any gains from the sale or other disposition of any capital assets to
the extent such gains exceed losses from the sale, abandonment or other
disposition of capital assets, any gains resulting from the revaluation of
assets, any gains resulting from an acquisition by the Guarantor or any of its
Subsidiaries at a discount of any Debt of the Guarantor or any of its
Subsidiaries, any equity of the Guarantor or any of its Subsidiaries in the
unremitted earnings of any Person which is not a Subsidiary, extraordinary items
or transactions of a non-recurring or non-operating and material nature or
arising from gains on sales relating to the discontinuance of operations, any
earnings of any Person acquired by the Guarantor or any of its Subsidiaries
through purchase, merger or consolidation or otherwise for any time prior to the
date of acquisition, any life insurance proceeds, or any deferred credit (or
amortization of a deferred credit) representing the excess of equity in any
Subsidiary at the date of acquisition over the cost of the investment in such
Subsidiary.
"CONSOLIDATED NET WORTH" means, at any time, the sum of (i) the par
value (or value stated on the books of the corporation) of the capital stock
(but excluding treasury stock and capital stock subscribed and unissued) of the
Guarantor and its Subsidiaries plus (ii) the amount of the paid-in capital and
retained earnings of the Guarantor and its Subsidiaries, in each case as such
amounts would be shown on a consolidated balance sheet of the Guarantor and its
Subsidiaries as of such time prepared in accordance with GAAP.
2
<PAGE> 97
"CONSOLIDATED TOTAL ASSETS" means, at any time, the total assets of the
Guarantor and its Subsidiaries determined on a consolidated basis in accordance
with GAAP.
"DEBT" means, with respect to any Person, without duplication,
(a) its liabilities for borrowed money (including, without
limitation and in any event, all liabilities in respect of letters of credit
(excluding letters of credit posted in respect of payment of accounts payable
arising in the ordinary course of business) or instruments serving a similar
function issued or accepted for its account by banks and other financial
institutions);
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in the
ordinary course of business but including, without limitation, all liabilities
created or arising under any conditional sale or other title retention agreement
with respect to any such property);
(c) its Capital Lease Obligations;
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it has assumed
or otherwise become liable for such liabilities);
(e) all Preferred Stock of Subsidiaries of such Person which
is not owned by such Person or a Wholly-Owned Subsidiary of such Person;
(f) any Guaranty of such Person with respect to liabilities of
a type described in any of clauses (a) through (e) hereof.
Debt of any Person shall include all obligations of such Person of the
character described in clauses (a) through (f) to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
deemed to be extinguished under GAAP.
"DEFAULT" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"DEFAULT RATE" means that rate of interest that is the greater of (i)
2% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes or (ii) 2% over the rate of interest publicly announced
by The Bank of New York in New York, NY as its "base" or "prime" rate.
"DISPOSITION" is defined in Section 10.2.
"DISTRIBUTION" means, in respect of any corporation, association or
other business entity:
(a) dividends or other distributions or payments on capital
stock or other equity interest of such corporation, association or other
business entity (except distributions in such stock or other equity interest);
and
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<PAGE> 98
(b) the redemption or acquisition of such stock or other
equity interests or of warrants, rights or other options to purchase such stock
or other equity interests (except when solely in exchange for such stock or
other equity interests).
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Issuer
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in Section 13.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FUNDED DEBT" means, with respect to any Person, all Debt of such
Person which by its terms or by the terms of any instrument or agreement
relating thereto matures, or which is otherwise payable or unpaid, one year or
more from the date of the creation thereof, and shall include as of any date of
determination the lowest average monthly balance outstanding under the revolving
or standby credit facilities of the Guarantor and its Subsidiaries in the twelve
(12) month period immediately preceding the date of determination.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
(a) the government of
(i) the United States of America or any State or
other political subdivision thereof, or
(ii) any jurisdiction in which the Guarantor or any
Subsidiary conducts all or any part of its business, or which asserts
jurisdiction over any properties of the Guarantor or any Subsidiary, or
(iii) the jurisdiction of incorporation or domicile
of the Guarantor or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
4
<PAGE> 99
"GUARANTEED OBLIGATIONS" is defined in Section 11.1.
"GUARANTOR" means James Hardie N.V., a company incorporated under the
laws of The Netherlands, and its permitted successors hereunder.
"GUARANTY" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment
of such indebtedness or obligation, or (ii) to maintain any working capital or
other balance sheet condition or any income statement condition of any other
Person or otherwise to advance or make available funds for the purchase or
payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or
obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the
obligor under any Guaranty, the indebtedness or other obligations that are the
subject of such Guaranty shall be assumed to be direct obligations of such
obligor.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"HOLDER" means, with respect to any Note, the Person in whose name such
Note is registered in the register maintained by the Issuer pursuant to Section
15.1.
"INSTITUTIONAL INVESTOR" means (investment) banks, pension funds,
insurance companies, securities firms and investment institutions, central
governments, large national and supranational organizations and other comparable
entities, including, inter alia, treasuries and finance companies of large
enterprises, who or which are regularly active in the financial markets on a
professional basis and for their own account.
5
<PAGE> 100
"ISSUER" means James Hardie Finance B.V., a company incorporated under
the laws of The Netherlands, and its permitted successors hereunder.
"JAMES HARDIE NETHERLANDS ENTITY" means any Wholly-Owned Subsidiary of
the Guarantor which is a company incorporated under the laws of The Netherlands,
and has its principal place of business in, The Netherlands or a state of the
United States of America or the District of Columbia.
"JAMES HARDIE USA ENTITY" means any Wholly-Owned Subsidiary of the
Guarantor which is a corporation organized under the laws of, and has its
principal place of business in, a state of the United States of America or the
District of Columbia.
"JHIL" means James Hardie Industries Limited, a corporation organized
under the laws of New South Wales, and as of the date of this Agreement the
owner of all the Voting Stock of the Guarantor.
"LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"MAKE-WHOLE AMOUNT" is defined in Section 8.6.
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets, properties, or prospects of the Guarantor
and its Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Guarantor and its Subsidiaries taken as a whole, or (b) the ability of the
Issuer or the Guarantor to perform its obligations under this Agreement and the
Notes, or (c) the validity or enforceability of this Agreement or the Notes, or
(d) the ability of the Subsidiary Guarantor to perform its obligations under the
Subsidiary Guarantee, or (e) the validity or enforceability of the Subsidiary
Guarantee.
"MEMORANDUM" is defined in Section 5.3.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001(a)(3) of ERISA).
"NET PROCEEDS OF CAPITAL STOCK" means, with respect to any period, cash
proceeds received by the Guarantor during such period from the sale of all
capital stock of the Guarantor (net of all costs and all out-of-pocket expenses
in connection therewith, including, without limitation, placement, underwriting
and brokerage fees and expenses), including in such proceeds:
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<PAGE> 101
(a) the net amount paid to the Guarantor upon issuance and
exercise during such period of any right to acquire any such capital stock, or
paid during such period to convert a convertible debt security to such capital
stock (but excluding any amount paid upon issuance of such convertible debt
security); and
(b) any amount paid to the Guarantor during such period upon
issuance of any convertible debt security issued after the date of the Closing
and thereafter converted into capital stock of the Guarantor during such period.
"NEW ISSUER" is defined in Section 24.8.
"NOTE-RELATED PAYMENT" is defined in Section 12.
"NOTES" is defined in Section 1.
"OBLIGOR" means either the Issuer or the Guarantor and "OBLIGORS" means
the Issuer and the Guarantor.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of an Obligor whose responsibilities extend to
the subject matter of such certificate.
"OTHER AGREEMENTS" is defined in Section 2.
"OTHER PURCHASERS" is defined in Section 2.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"PERMITTED AUSTRALIAN CREDIT FACILITIES" means Debt of the Subsidiary
Guarantor, the proceeds of which are applied as provided in Section 9.8, but
only so long as the Subsidiary Guarantee remains in effect.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Issuer or any ERISA Affiliate or
with respect to which the Issuer or any ERISA Affiliate may have any liability.
"PREFERRED STOCK" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation as
to the payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
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<PAGE> 102
"PRIORITY DEBT" means (a) all Debt of the Guarantor and the
Subsidiaries secured by any Lien with respect to any property owned by the
Guarantor or any of its Subsidiaries and (b) all Debt of Subsidiaries (except
Debt owed to the Guarantor or a Wholly-Owned Subsidiary and Debt of the
Subsidiary Guarantor permitted by Section 9.8 and Section 10.4).
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"PURCHASE AGREEMENTS" means the agreements identified as such in
Schedule 4.9 hereto.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"QUALIFYING REINVESTMENTS" is defined in Section 10.2.
"REORGANIZATION" means
(a) the formation of the Guarantor as a Wholly-Owned Subsidiary of
JHIL;
(b) the formation of the Issuer and the Subsidiary Guarantor as
Wholly-Owned Subsidiaries of the Guarantor;
(c) the entering into of the Purchase Agreements providing for the
transfer to the Guarantor and its Subsidiaries of JHIL's international fiber
cement business, its United States gypsum business, its Australian and New
Zealand building systems business and its Australian windows business (the
"Transferred Businesses") as described in the Memorandum;
(d) the consummation of the transfer of the Transferred Businesses
pursuant to and as provided for in the Purchase Agreements:
(e) the retention by JHIL and certain of its other Subsidiaries of
certain assets and liabilities (the "Retained Assets and Liabilities") as
described in the Memorandum (as to which Retained Assets and Liabilities JHIL
provides indemnites to the Guarantor and its Subsiduaries as set forth in in the
Purchase Agreements);
(f) the entering into of this Agreement and the Other Agreements and
the issuance of the Notes hereunder and thereunder (the "Note Sale");
(g) the entering into of the Bank Credit Agreements and the borrowing
of up to A$200,000,000 (A$ referring to Australian currency) Revolving Loans
thereunder (the "Bank Loan"); and
(h) the application of the proceeds of the Note Sale and the Bank Loan
ultimately in payment of the amounts and for the purposes specified in Schedule
5.14.
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<PAGE> 103
"REQUIRED HOLDERS" means, at any time, the holders of at least 51% in
principal amount of the Notes at the time outstanding (exclusive of Notes then
owned by either Obligor or their respective Affiliates).
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any other
officer of an Obligor with responsibility for the administration of the relevant
portion of this agreement.
"RESTRICTED PAYMENT" means
(a) any Distribution in respect of the Guarantor or any
Subsidiary of the Guarantor (other than on account of capital stock or other
equity interests of a Subsidiary of the Guarantor owned legally and beneficially
by the Guarantor or another Subsidiary of the Guarantor), including, without
limitation, any Distribution resulting in the acquisition by the Guarantor of
securities which would constitute treasury stock, and
(b) any payment, repayment, redemption, retirement, repurchase
or other acquisition, direct or indirect, by the Guarantor or any Subsidiary of,
on account of, or in respect of, the principal of any Subordinated Debt (or any
installment thereof) prior to the regularly scheduled maturity date thereof (as
in effect on the date such Subordinated Debt was originally incurred).
For purposes of this Agreement, the amount of any Restricted Payment
made in property shall be the greater of (x) the fair market value of such
property (as determined in good faith by the board of directors (or equivalent
governing body) of the Person making such Restricted Payment) and (y) the net
book value thereof on the books of such Person, in each case determined as of
the date on which such Restricted Payment is made.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.
"SENIOR FINANCIAL OFFICER" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the relevant Obligor.
"SUBSIDIARY" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Guarantor.
"SUBSIDIARY GUARANTOR" means James Hardie Aust. Invesco Pty Limited, a
company organized under the laws of Australia, and its permitted successors
under the Subsidiary Guarantee.
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<PAGE> 104
"SUBSIDIARY GUARANTEE" is defined in Section 4.10.
"SUBORDINATED DEBT" means any Debt that is in any manner subordinated
in right of payment or security in any respect to Debt evidenced by the Notes.
"TAX" is defined in Section 12.
"TAX REFUND" is defined in Section 12.
"TAX REIMBURSEMENT AMOUNT" is defined in Section 12.
"TAXES" is defined in Section 12.
"TAXING AUTHORITY" is defined in Section 12.
"TAXING JURISDICTION" is defined in Section 12.
"WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary one
hundred percent (100%) of all of the equity interests (except directors'
qualifying shares) and voting interests of which are owned by any one or more of
the Guarantor and the Guarantor's other Wholly-Owned Subsidiaries at such time.
"YEAR 2000 PROBLEM" is defined in Section 5.19.
10
<PAGE> 105
SCHEDULE 4.9
CHANGES IN CORPORATE STRUCTURE
(a) The Obligors have not changed their jurisdictions of incorporation, have not
been parties to any mergers or consolidations and have not succeeded to all or
any substantial part of the liabilities of any other entity since June 30, 1998,
except in connection with the Reorganization.
(b) The "Purchase Agreements," which constitute part of the Reorganization, are
listed below:
1. Share Acquisition Agreement between JHIL and James Hardie
Australia Pty Limited re acquisition of shares of James Hardie
Fibre Cement Pty Limited.
2. Share Acquisition Agreement between JHIL and James Hardie
Australia Pty Limited re acquisition of shares of James Hardie
Windows (Holdings) Pty Limited and James Hardie Building
Systems (Holdings) Pty Limited.
3. Share Sale and Purchase Agreement between RCI Pty Limited, the
Guarantor and JHIL re acquisition of shares of PT James Hardie
Indonesia.
4. Share Acquisition Agreement among RCI Pty Limited, the
Guarantor and JHIL re acquisition of shares of James Hardie
Philippines Inc.
5. Share Acquisition Agreement among the Guarantor, RCI Malta
Investments Limited and JHIL re acquisition of shares of James
Hardie Research Holdings Pty Limited.
6. Share Contribution Agreement among the Guarantor, RCI Malta
Investments Limited and JHIL re acquisition of shares of James
Hardie (Holdings) Inc.
7. Business Acquisition Agreement among James Hardie & Coy Pty
Limited, James Hardie Australia Pty Limited and JHIL.
8. Business Acquisition Agreement among James Hardie & Coy Pty
Limited, James Hardie US Investments Carson Inc. and JHIL.
9. Business Acquisition Agreement among James Hardie US
Investments Carson Inc., James Hardie Australia Pty Limited
and JHIL.
10. Agreement for Sale and Purchase of Business among James Hardie
Building Products Limited, James Hardie New Zealand Limited
and JHIL.
<PAGE> 106
SCHEDULE 5.3
SUPPLEMENTAL INFORMATION FOR PRIVATE PLACEMENT OFFERING MEMORANDUM
The following information supersedes any information to the contrary
set forth in the Private Placement Offering Memorandum, dated August 1998 (the
"Memorandum"), of James Hardie N.V. and James Hardie Finance B.V. All
capitalized terms not otherwise defined herein have the respective meanings
ascribed to them in the Memorandum.
(A) CLOSING OF THE SALE OF THE NOTES
The closing of the sale of the Notes offered hereby will no longer be
contingent upon, or occur concurrently with, the closing of the planned initial
public offering (the "IPO") of approximately 15% of the outstanding shares of
capital stock of the Company. While the other components of the Reorganization
- -- including the closing of the sale of the Notes and the establishment of one
or more new bank credit facilities -- are expected to be completed in November
1998 concurrently with the closing of the sale of the Notes, the IPO is not
expected to be consummated at such time.
JHIL intends to consummate the IPO when market and other relevant
conditions are suitable. However, if JHIL fails to consummate the IPO, the US-NL
Treaty will not apply and interest and dividend payments that would be made from
the Company's U.S. operating subsidiary will be subject to a 30% U.S.
withholding tax. See "Risk Factors -- Tax Risks on Intercompany Interest
Payments." Therefore, if JHIL fails to consummate the IPO, the tax benefits that
are otherwise expected to arise from the new intercompany debt financing will
not be realized. Furthermore, pursuant to a resolution of the shareholders of
JHIL, adopted at an Extraordinary General Meeting on October 16, 1998,
shareholder approval of the IPO will expire on March 31, 1999. As a result,
while JHIL may decide to consummate the IPO after March 31, 1999, such IPO will
require reapproval by the shareholders of JHIL.
At the time of the closing of the sale of the Notes, the board of
directors of the Company will be comprised of Donald Cameron, Gunther A. R.
Warris and Wilhelmus B. M. Q. Pessers. Messrs. Warris and Pessers will serve at
the pleasure of JHIL as directors on an interim basis until such time that the
IPO is consummated. Upon the consummation of the IPO, the Company expects the
board of directors to be comprised of the persons set forth in the Memorandum
and three independent directors.
(B) JHIL PURCHASE AGREEMENT INDEMNITIES
The indemnity provisions contained in the Purchase Agreements which
will facilitate the Reorganization provide unlimited indemnity by JHIL and the
relevant non-transferring subsidiary to the Company for (i) all claims related
to asbestos liability; (ii) all environmental related claims arising from the
condition of the real properties prior to the consummation of the Purchase
Agreements or the conduct of the relevant businesses prior to the consummation
of the Purchase Agreements (excluding claims arising from deliberate actions
taken by the Company with the intention of triggering an environmental claim);
(iii) taxes incurred by any subsidiary being transferred to the Company which
relate to the period prior to the consummation of the Purchase Agreements; and
(iv) all claims in relation to defective products and services manufactured or
supplied by JHIL or the relevant subsidiary prior to the consummation of the
Purchase Agreements (excluding claims below a specified threshold for each
transferring business which in aggregate amounts to approximately $2.4 million).
For a period of seven years after the consummation of the Purchase
Agreements, JHIL and any relevant non-transferring subsidiary are also
indemnifying the Company in relation to other matters expressly warranted in the
Purchase Agreements. This indemnity does not include individual claims of less
than $1,000 or claims, when aggregated with all other claims in that financial
year, that do not exceed $50,000. Claims related to the warranties are also
excluded from the indemnity to the extent that certain key managers had
knowledge of the matter prior to closing. Complete copies of the Purchase
Agreements are available upon request from the Company.
<PAGE> 107
(C) RISK FACTOR RELATING TO RECENT VOLATILITY IN ASIAN ECONOMIES AND
FINANCIAL AND CURRENCY MARKETS
During fiscal year 1998, approximately 3% of the Company's revenue was
generated from product sales in Asia and the Company views continued expansion
in Asia as a potential opportunity for future growth. Continued volatility in
the Asian economies and financial and currency markets may have a material
adverse effect on the Company's expansion plans and current operations in this
region. In the event of a prolonged economic crisis, the construction industry
in which the Company operates could be disproportionately affected. As a result,
the Company does not currently have any plans to establish manufacturing
facilities in Asia other than in the Philippines where a plant is currently
under construction and is scheduled to be commissioned in October 1998. However,
the Company continues to evaluate opportunities in the region and remains of the
view at this time that Asia offers growth prospects for the Company's products
in the long-term.
The recent economic volatility in Asia has also had a negative effect
on the Australian and New Zealand economies in general and the Company is
beginning to recognize these effects on its operations. For example, until the
commission of the Philippines manufacturing facility later this year, the
Company is supplying that market by exporting products manufactured in Australia
and New Zealand. For the three months ended June 30, 1998, sales of fiber cement
products in the Philippines declined by 41.9% in local currency terms from $4.1
million for the same period in the previous year to $1.6 million. This decline
is due to the contraction of the Philippines building and construction market
which is likely a result of Asian economic conditions. Continued contraction in
this market will result in a slower start-up and potentially lower than expected
capacity utilization for the new Philippines manufacturing facility. In
addition, there can be no assurance that exports to other Asian markets will not
continue to decline. Currency devaluation in Asian countries has resulted and
may continue to result in increased sales of lower priced imports by certain of
the Company's competitors in Australia and New Zealand and decreased levels of
exports by the Company.
The Company's Building Systems business, which comprised approximately
18% of the Company's net sales and 12% of the Company's operating profit for
fiscal year 1998, has also been negatively impacted by the Asian economic
crisis. Activity in the Australian mining and resources industry, a market
serviced by the Building Systems business, has declined due to concerns about
falling demand from Asia for minerals and other natural resources and a general
decrease in commodity prices which has deterred investment in Australian mining
and resource projects. The continuation of limited activity in this industry
could have a material adverse effect on the results of operations and financial
condition of the Building Systems business.
(D) LEGAL PROCEEDINGS
The Company and its subsidiaries (collectively, the "Group") are
involved from time to time in various legal proceedings and administrative
actions incident to the normal conduct of the Group's business. Although it is
impossible to predict the outcome of any pending legal proceeding, management
believes that such proceedings and actions should not, individually or in the
aggregate, have a material adverse effect on its business, financial condition
or results of operations. The Reorganization has been structured so that no
existing or potential liabilities in relation to the manufacture by JHIL and its
non-transferring subsidiaries of products containing asbestos prior to 1987 are
being assumed by the Group and the Group is indemnified by JHIL with respect to
any such liabilities. While it is impossible to predict the incidence or outcome
of future litigation, the Group believes that it is unlikely that significant
personal injury suits for damages for asbestos exposure will be filed against
the Group, or if filed, would have a material adverse effect on the Group's
business, results of operations or financial condition. The Group's belief is
based in part upon the advice of its Australian legal advisers, Allen Allen &
Hemsley, that there is no equivalent under Australian law of the U.S. legal
doctrine of "successor liability." Under U.S. Law, this doctrine provides that
an acquirer of the assets of a business carried on by a corporation (as distinct
from the acquirer of shares in that corporation) can, in certain circumstances,
be held responsible for liabilities arising from the conduct of that business
prior to the acquisition, notwithstanding the absence of any contractual
arrangement between the acquirer and the selling corporation pursuant to which
the acquirer agreed to assume such liabilities. Allen Allen & Hemsley has
advised the Company that the general position under Australian law is that in
the absence of a contractual agreement to transfer specified liabilities of a
business, such liabilities remain with the corporation which previously carried
on the business and are not passed on to the acquirer of the assets.
Specifically, in the case
2
<PAGE> 108
of the Group, based on the information provided to Allen Allen & Hemsley, the
transfer to it from JHIL and certain non-transferring subsidiaries of business
assets comprising plant and equipment and inventory should not, in the opinion
of Allen Allen & Hemsley, give rise to the assumption by any member of the Group
of any asbestos related liabilities (tortious or otherwise) which may have been
incurred during the period prior to the transfer of the assets when the business
was being carried on by JHIL and its non-transferring subsidiaries.
3
<PAGE> 109
SCHEDULES 5.4
(a)(i) Subsidiaries of James Hardie N.V.
as of October 30, 1998
<TABLE>
<S> <C>
James Hardie NV Netherlands
James Hardie Finance BV Netherlands
James Hardie International Holdings BV Netherlands
James Hardie Philippines Inc. Philippines
PT James Hardie Indonesia Indonesia
James Hardie Research (Holdings) Pty Ltd Australia
James Hardie FC Pty Ltd Australia
James Hardie Research Pty Ltd. Australia
James Hardie Tech Pty Ltd. Australia
James Hardie USA Investments BV Netherlands
James Hardie (Holdings) Inc. USA
James Hardie (USA) Inc. USA
James Hardie Building Products Inc. USA
James Hardie Credit Corp. USA
James Hardie Gypsum Inc. USA
James Hardie Industries (USA) Inc. USA
James Hardie Trading Co Inc. USA
Wallace O'Connor Inc. USA
Wallace O'Connor Pacific Inc. USA
James Hardie US Investments Sierra Inc. USA
James Hardie US Investments Washoe Inc. USA
James Hardie NZ Trustees Ltd NZ
James Hardie Hardie NZ Investco Trust NZ Trust
James Hardie NZ Holdings Trust NZ Trust
James Hardie NZ New Zealand Ltd NZ
James Hardie Aust. Holdings Pty Ltd Australia
James Hardie Aust. Investco Pty Ltd Australia
James Hardie Aust. Investco Services Pty Ltd Australia
James Hardie Aust. Investments No. 1 Pty Ltd Australia
James Hardie Aust. Investments No. 2 Pty Ltd Australia
James Hardie Australia Pty Ltd Australia
James Hardie Building Systems (Holdings) Pty Ltd Australia
James Hardie Building Systems Pty Ltd Australia
James Hardie Fibre Cement Pty Ltd Australia
James Hardie Windows (Holdings) Pty Ltd Australia
James Hardie Windows Pty Ltd Australia
Louvre Properties Pty Ltd Australia
</TABLE>
Each of the Subsidiaries listed above, except for James Hardie Tech Pty Ltd., is
owned 100% by James Hardie N.V. and/or its other Subsidiaries. With respect to
James Hardie Tech Pty Ltd., 6,700,000 shares are held by James Hardie Research
(Holdings) Pty Ltd., a Subsidiary of James Hardie N. V., and two shares are held
by James Hardie Industries Ltd.
<PAGE> 110
SCHEDULES 5.4 (cont'd)
(a)(ii) Non-subsidiary Affiliates
of James Hardie N.V.
as of October 30, 1998
<TABLE>
<S> <C>
James Hardie Industries Limited Australia
ACN 001 664 740 Pty Ltd Australia
Hardie Trading Pty Ltd in Liquidation Australia
James Hardie & Coy Pty Ltd Australia
James Hardie US Investments Carson Inc. USA
James Hardie Finance Ltd Australia
James Hardie Finance Inc USA
Jaekero Pty Ltd Australia
Moosthato Pty Ltd Australia
Naco Paqcific Pty Ltd Australia
RCI Pty Ltd Australia
Oletool (WA) Pty Ltd Australia
Fibre Cement Technology *Australia) Pty Ltd Australia
Framex Seirra Pty Ltd Australia
Hardie Holdings (NZ) Ltd. NZ
James Hardie Impey Ltd NZ
Fire & Safety Products (NZ) Ltd NZ
Kern Holdings Ltd NZ
James Hardie Building Products Ltd NZ
James Hardie Finance (NZ) Ltd NZ
James Hardie Impey Employee Share Scheme Ltd NZ
Noel Products Ltd NZ
James Hardie Impey Finance Ltd NZ
James Hardie Acceptances BV Netherlands
James Hardie Building Boards (Asia) Pta Ltd Singapore
James Hardie (Holdings) Ltd Jersey
Hardie Ltd Jersey
JHI Development Capital Ltd Jersey
RCI Finance Ltd Jersey
James Hardie (Netherlands) BV Netherlands
Marehurst Europe Ltd Malta
RIS Irrigation Portugal SA Portugal
RIS International Finance NV Aruba
RIS Irrigation (Holdings) BV Netherlands
RCI International Services Company Ltd in Liquidation Hungary
RCI Malta Holdings Ltd Malta
RCI Malta Investments Ltd Malta
RCI Netherlands Investments BV Netherlands
James Hardie NV Netherlands
Yelrom International Pty Ltd Australia
Seapip Pty Ltd Australia
</TABLE>
<PAGE> 111
SCHEDULES 5.4 (cont'd)
(a)(iii) Directors and Senior Officers of Obligors:
James Hardie N.V.:
Managing Directors - Donald Ewen Cameron
Wilhelmus B.M.Q. Pessers
Gunther A.R. Warris
James Hardie Finance B.V.:
Sole Managing Director - Donald Ewen Cameron
<PAGE> 112
SCHEDULE 5.5
FINANCIAL STATEMENTS
The following list identifies the financial statements for the James
Hardie Businesses that are attached hereto:
1. Report of the Independent Accountants
2. Consolidated Balance Sheets as of March 31, 1997 and 1998.
3. Consolidated Statements of Income for the Years Ended March 31,
1996, 1997 and 1998.
4. Consolidated Statements of Cash Flows for the Years Ended March 31,
1996, 1997 and 1998.
5. Consolidated Statements of Changes in Equity for the Years Ended
March 31, 1996, 1997 and 1998.
6. Notes to Consolidated Financial Statements
7. Consolidated Balance Sheets as of March 31, 1998 (audited) and June
30, 1998 (unaudited).
8. Consolidated Statements of Income for the Three Month Periods Ended
June 30, 1997 and 1998 (unaudited).
9. Consolidated Statements of Cash Flows for the Three Month Periods
Ended June 30, 1997 and 1998 (unaudited).
10. Consolidated Statements of Changes in Equity for the Three Month
Periods Ended June 30, 1997 and 1998 (unaudited).
11. Notes to Consolidated Financial Statements (unaudited)
<PAGE> 113
SCHEDULE 5.11
LICENSES, PERMITS, ETC.
No exceptions.
<PAGE> 114
SCHEDULE 5.14
USE OF PROCEEDS
The use of proceeds from the issue of the Notes by James Hardie Finance
B.V. will be the ultimate repayment of existing debt (including, without
limitation, the prepayment of the 9.23% Series A Guaranteed Senior Notes due
2005 and the 9.44% Series B Guaranteed Notes due 2007 of James Hardie Finance
Inc. issued in 1995 (the "1995 Notes"). The repayment of debt (including the
1995 Notes) will occur following the repayment of intercompany loans, which
repayment will be funded in part by the use of the proceeds from the issuance of
the Notes.
<PAGE> 115
SCHEDULE 5.15
Existing Debt as of 30 September 1998
<TABLE>
<CAPTION>
ENTITY AMOUNT
- ------ ------
(MILLIONS)
<S> <C> <C>
1. James Hardie Finance (NZ) Limited
Promissory Notes issued under a NZ$250 million
facility established in 1997 NZ$ 54
2. James Hardie Impey Finance Limited
Convertible Notes issued in NZ$ 13
3. James Hardie Finance Inc
Senior unsecured notes issued under a Private Placement
to various United States institutions in January 1995 US$158
Revolving Credit facilities with various banks US$240
4. Various subsidiaries
Amounts drawn under overdraft facilities established
with the Group's bankers A$ 6
</TABLE>
<PAGE> 116
EXHIBIT 1
[FORM OF GUARANTEED SENIOR NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS AND, ACCORDINGLY, MAY
NOT BE TRANSFERRED UNLESS REGISTERED OR EXEMPT FROM REGISTRATION
UNDER SAID ACT OR SUCH OTHER LAWS.
THE NOTES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR DELIVERED AS PART OF THEIR
INITIAL DISTRIBUTION OR AT ANY TIME THEREAFTER, DIRECTLY OR INDIRECTLY,OTHER
THAN TO (INVESTMENT) BANKS, PENSION FUNDS, INSURANCE COMPANIES, SECURITIES FIRMS
AND INVESTMENT INSTITUTIONS, CENTRAL GOVERNMENTS, LARGE NATIONAL AND
SUPRANATIONAL ORGANIZATIONS AND OTHER COMPARABLE ENTITIES, INCLUDING, INTER
ALIA, TREASURIES AND FINANCE COMPANIES OF LARGE ENTERPRISES, WHO OR WHICH ARE
REGULARLY ACTIVE IN THE FINANCIAL MARKETS ON A PROFESSIONAL BASIS AND FOR THEIR
OWN ACCOUNT.
JAMES HARDIE FINANCE B.V.
____% GUARANTEED SENIOR NOTE DUE ____, SERIES _
No. [_____] [Date]
$[_______] PPN[______________]
FOR VALUE RECEIVED, the undersigned, JAMES HARDIE FINANCE B.V. (herein
called the "Issuer"),incorporated and existing under the laws of The
Netherlands, hereby promises to pay to[_________]or registered assigns, the
principal sum of [____] DOLLARS on [____], with interest (computed on the basis
of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at
the rate of [____]% per annum from the date hereof, payable semiannually, on the
fifth day of May and November in each year, commencing with the May 5 or
November 5 next succeeding the date hereof, until the principal hereof shall
have become due and payable, and (b) to the extent permitted by law on any
overdue payment (including any overdue prepayment) of principal, any overdue
payment of interest and any overdue payment of any Make-Whole Amount (as defined
in the Note Purchase Agreements referred to below), payable semiannually as
aforesaid (or, at the option of the registered holder hereof, on demand), at a
rate per annum from time to time equal to the greater of (i) [____]% or (ii) 2%
over the rate of interest
<PAGE> 117
publicly announced by The Bank of New York from time to time in New York, NY as
its "base" or "prime" rate.
Payments of the principal of and Make-Whole Amount (if any) and
interest on this Note are to be made in lawful money of the United States of
America at The Bank of New York, New York, NY or at such other place as the
Issuer shall have designated by written notice to the holder of this Note as
provided in the Note Purchase Agreements referred to below.
This Note is one of a series of Guaranteed Senior Notes (herein called
the "Notes") issued pursuant to separate Note Purchase Agreements, dated as of
November 5,1998 (as from time to time amended, the "Note Purchase Agreements"),
among the Issuer, James Hardie N.V. (the "Guarantor") and the respective
Purchasers named therein and is entitled to the benefits thereof. Each holder of
this Note will be deemed, by its acceptance hereof, (i) to have agreed to the
confidentiality provisions set forth in Section 20 of the Note Purchase
Agreements and (ii) to have made the representation set forth in Section 6.2 of
the Note Purchase Agreements.
This Note is a registered Note and, as provided in the Note Purchase
Agreements, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Issuer may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Issuer will not be affected by any notice to the
contrary.
This Note is subject to optional prepayment, in whole or from time to
time in part, at the times and on the terms specified in the Note Purchase
Agreements, but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreements,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreements.
The due and punctual payment of the principal of and Make-Whole Amount
(if any) and interest on the Notes has been absolutely unconditionally and
irrevocably guaranteed by the Guarantor as provided in the Note Purchase
Agreements.
THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE
RIGHTS OF THE ISSUER AND THE HOLDER HEREOF SHALL BE GOVERNED BY, THE LAW OF THE
STATE OF NEW YORK EXCLUDING CHOICE OF LAW PRINCIPLES OF NEW YORK LAW THAT WOULD
REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
JAMES HARDIE FINANCE B.V.
By
-------------------------
Title:
2
<PAGE> 118
EXHIBIT 4.4(a)(i)
FORM OF OPINION OF NEW YORK
SPECIAL COUNSEL FOR THE OBLIGORS
<PAGE> 119
[LETTERHEAD OF GIBSON, DUNN & CRUTCHER LLP]
November 5, 1998
(212) 351-4000 C 46223-00001
The Purchasers listed on
Schedule A hereto
Re: James Hardie Finance B.V. -- Note Purchase Agreement
dated as of November 5, 1998
Ladies and Gentlemen:
We have acted as special counsel to James Hardie Finance B.V.,
a company incorporated under the laws of The Netherlands (the "Issuer"), and
James Hardie N.V., a company incorporated under the laws of The Netherlands (the
"Guarantor"), in connection with the preparation of:
(i) the Note Purchase Agreement dated as of November 5, 1998
(the "Purchase Agreement") by and among the Issuer, the Guarantor and
certain purchasers as listed on Schedule A hereto (the "Purchasers");
and
(ii) the Series A, B, C, D, E, F and G Guaranteed Senior
Notes, in the aggregate principal amount of $225,000,000, dated as of
the date hereof made by the Issuer payable to the respective Purchasers
(the "Notes").
This opinion is being furnished to you pursuant to Section 4.4
of the Purchase Agreement. Each capitalized term used and not defined herein has
the meaning assigned to that term in the Purchase Agreement. The Purchase
Agreement and the Notes are collectively referred to herein as the "Documents."
<PAGE> 120
November 5, 1998
Page 2
We have assumed with your permission that:
a) The signatures on all documents examined by us are
genuine, all individuals executing such documents had all
requisite legal capacity and competency and were duly
authorized, the documents submitted to us as originals are
authentic and the documents submitted to us as certified
or reproduction copies conform to the originals;
b) Each of the Purchasers has all requisite power and
authority to execute, deliver and perform its obligations
under the Purchase Agreement, the execution and delivery
of the Purchase Agreement by the Purchasers and
performance of their obligations thereunder have been duly
authorized by all necessary action of the Purchasers and
do not violate any law, regulation, order, judgment or
decree applicable to the Purchasers, and the Purchase
Agreement is the legal, valid and binding obligation of
the Purchasers, enforceable against them in accordance
with its terms;
c) Each of the Issuer and the Guarantor has been duly
incorporated and is a validly existing corporation in good
standing under the laws of its jurisdiction of
incorporation, has the requisite corporate power and
authority to execute and deliver the Documents to which it
is a party and to perform its obligations thereunder, has
taken all necessary corporate action to authorize the
execution and delivery of the Documents to which it is a
party and the performance of its obligations thereunder
and has duly executed and delivered the Documents to which
it is a party;
d) Except as reflected in the Documents, there are no
agreements or understandings between or among the Issuer,
the Guarantor, the Purchasers or third parties that would
expand, modify or otherwise affect the terms of the
Documents or the respective rights or obligations of the
parties thereunder; and
e) The representations and warranties set forth in the
Purchase Agreement of the Purchasers are accurate, each
Purchaser and each other person to whom offers were made
is an "accredited investor" within the meaning of
Regulation D promulgated under the Securities Act, none of
the Purchasers has taken or intends to take any action
that would subject the issuance and sale of the Notes to
the registration requirements of the Securities Act, and
the offer and sale of the Notes occurred pursuant to
private negotiations between the Issuer and the
Purchasers.
In rendering this opinion, we have made such inquiries and
examined, among other things, originals or copies, certified or otherwise
identified to our satisfaction, of such records, agreements, certificates,
instruments and other documents as we have considered
<PAGE> 121
November 5, 1998
Page 3
necessary or appropriate for purposes of this opinion. As to certain factual
matters, we have relied upon the representations and warranties of the Issuer
and the Guarantor in the Documents, certificates of officers of the Issuer and
Guarantor or certificates obtained from public officials. We have also, with
your permission and without independent investigation, relied upon, and assumed
the correctness of the conclusions expressed in, the opinions of even date of De
Brauw Blackstone Westbroek P.C. and Allen Allen & Hemsley with respect to all
matters covered thereby.
Except as expressly stated otherwise herein, whenever an
opinion herein with respect to the existence or absence of facts is stated to be
to our knowledge, such statement is intended to signify that, during the course
of our representation of the Issuer and Guarantor, as herein described, no
information has come to the attention of the lawyers working on substantive
matters for the Issuer or the Guarantor during the prior twelve (12) months (and
who are still employed by this firm) that would give us actual knowledge of
facts contrary to the existence or absence of the facts indicated. However, we
have not undertaken any independent investigation to determine the existence or
absence of such facts, and no inference as to our knowledge of the existence or
absence of such facts should be drawn from our representation of the Issuer or
the Guarantor or any affiliate thereof.
Based on the foregoing and in reliance thereon, and subject to
the assumptions, exceptions, qualifications and limitations set forth herein, we
are of the opinion that:
1. Each Document constitutes a legal, valid and binding
obligation of the Issuer, enforceable against it in accordance with its terms.
2. The Purchase Agreement constitutes a legal, valid and
binding obligation of the Guarantor, enforceable against it in accordance with
its terms.
3. The execution and delivery by each of the Issuer and the
Guarantor of the Documents to which it is a party and the performance of its
obligations thereunder do not result in a breach or violation of Regulations U,
T and X of the Board of Governors of the Federal Reserve System.
4. Neither the Issuer nor the Guarantor is an "investment
company" or, to our knowledge, a company "controlled by an investment company"
within the meaning of the Investment Company Act of 1940, as amended.
5. The execution, delivery and performance by each of the
Issuer and the Guarantor of the Documents to which it is a party do not and will
not (i) violate or result in a breach or default under any order, judgment or
decree of any court or other agency of government of the State of New York or
the United States of America binding on the Issuer or the Guarantor of which we
have knowledge, (ii) violate any law or regulation of the State of New
<PAGE> 122
November 5, 1998
Page 4
York or the United States of America applicable to the Issuer or the Guarantor
that, in our experience, is generally applicable to transactions in the nature
of those contemplated by the Documents, or (iii) require any authorization,
consent, waiver or approval of any governmental authority or regulatory body of
the State of New York or the United States of America, except for filings and
authorizations as may be required under any securities or Blue Sky laws and such
authorizations, consents, waivers or approvals that, if not made or obtained,
would not have a material adverse effect on the Issuer or the Guarantor or on
either of the Issuer's or Guarantor's ability to perform its obligations under
the Documents to which it is a party and would not expose any Purchaser to
liability.
6. To our knowledge, there is no action, suit or proceeding
pending or threatened in the United States against the Issuer or the Guarantor
of the nature described in Section 5.8(a) of the Purchase Agreement or in which
an injunction or order has been entered preventing or adversely affecting
consummation of the transactions that are contemplated by the Purchase Agreement
to be consummated by the Issuer or the Guarantor on the Closing Date.
7. The issuance and sale of the Notes on the date hereof is
exempt from the registration requirements of Section 5 of the Securities Act and
it is not necessary to qualify the Purchase Agreement under the Trust Indenture
Act of 1939, as amended, in connection therewith.
The foregoing opinions are subject to the following
exceptions, qualifications and limitations:
A. We render no opinion herein as to matters involving the
laws of any jurisdiction other than the States of New York and the United States
of America. This opinion is limited to the effect of the present state of the
laws of the State of New York and the United States of America and the facts as
they presently exist. We assume no obligation to revise or supplement this
opinion in the event of future changes in such laws or the interpretations
thereof or such facts.
B. Our opinions set forth in paragraphs 1 and 2 are subject to
(i) the effect of any bankruptcy, insolvency, reorganization, moratorium,
arrangement or similar laws affecting the enforcement of creditors' rights
generally (including, without limitation, the effect of statutory or other laws
regarding fraudulent transfers or preferential transfers or distributions by
corporations to stockholders) and (ii) general principles of equity, including
without limitation concepts of materiality, reasonableness, good faith and fair
dealing and the possible unavailability of specific performance, injunctive
relief or other equitable remedies, regardless of whether enforceability is
considered in a proceeding in equity or at law.
C. We express no opinion regarding (i) the effectiveness of
any waiver (whether or not stated as such) under the Documents of, or any
consent thereunder relating to,
<PAGE> 123
November 5, 1998
Page 5
any unknown future rights or the rights of any party thereto existing, or duties
owing to it, as a matter of law, (ii) the effectiveness of any waiver (whether
or not stated as such) contained in the Documents of rights of any party, or
duties owing to it, that is broadly or vaguely stated or does not describe the
right or duty purportedly waived with reasonable specificity, (iii) provisions
relating to indemnification, exculpation or contribution, to the extent such
provisions may be held unenforceable as contrary to public policy or federal or
state securities laws, (iv) any provision in any Document waiving the right to
object to venue in any court; (v) any consent or agreement to submit to the
jurisdiction of any Federal Court; (vi) any waiver of the right to jury trial;
(vii) the effect on the enforceability of the Note Purchase Agreement against
the Guarantor of any facts or circumstances occurring after the date hereof that
would constitute a defense to the obligation of a surety, unless such defense
has been waived effectively by such Guarantor; and (viii) any provision of the
Documents requiring written amendments or waivers of such documents insofar as
it suggests that oral or other modifications, amendments or waivers could not be
effectively agreed upon by the parties or that the doctrine of promissory
estoppel might not apply.
D. In rendering our opinions expressed in paragraph 5, while
we advise you that (subject to the other assumptions, exceptions, qualifications
and limitations herein) the Documents may be performed in a manner that does not
result in a violation, breach or default described therein, we express no
opinion as to whether the actual performance of the terms and provisions of the
Documents after the date hereof will not violate any law, regulation, order,
judgment or decree applicable to the Issuer or the Guarantor.
E. Our opinions in paragraphs 5(i) and 6 are based solely upon
inquiry of Gibson, Dunn & Crutcher LLP lawyers who have billed time to the
Issuer or the Guarantor during the last twelve (12) months and factual
certificates of the Issuer or the Guarantor.
F. We express no opinion as to the applicability to, or the
effect of noncompliance by, any Purchaser with any state or federal laws
applicable to the transactions contemplated by the Documents because of the
nature of the business of such Purchaser.
This opinion is rendered to the Purchasers in connection with
the Documents and may not be relied upon by any person other than the Purchasers
or by the Purchasers in any other context, provided that the Purchasers may
provide this opinion (i) to regulatory authorities should they so request or in
connection with their normal examinations, (ii) to the independent auditors and
attorneys of the Purchasers, (iii) pursuant to order or legal process of any
court or governmental agency, (iv) in connection with any legal action to which
any Purchaser is a party arising out of the transactions contemplated by the
Documents, or (v) to proposed permitted transferees of the interests of any
Purchaser under the Documents (provided that such delivery shall not constitute
a re-issue or reaffirmation of this opinion as of any date after the date
hereof). This opinion may not be quoted without the prior written consent of
this Firm.
Very truly yours,
/s/ GIBSON, DUNN & CRUTCHER LLP
-------------------------------
GIBSON, DUNN & CRUTCHER LLP
<PAGE> 124
SCHEDULE A
The Prudential Insurance Company of America
Connecticut General Life Insurance Company
Life Insurance Company of North America
Metropolitan Life Insurance Company
Texas Life Insurance Company
Principal Life Insurance Company
USAA Life Insurance Company
The Paul Revere Life Insurance Company
Massachusetts Mutual Life Insurance Company
CM Life Insurance Company
The Guardian Life Insurance Company of America
American Investors Life Insurance Company
Ohio National Life Assurance Corporation
State Farm Life Insurance Company
Ameritas Life Insurance Corp.
<PAGE> 125
EXHIBIT 4.4(a)(ii)
FORM OF OPINION OF NETHERLANDS
SPECIAL COUNSEL FOR THE OBLIGORS
<PAGE> 126
[Letterhead of De Brauw Blackstone Westbroek P.C.]
November 5, 1998
03191AH.N05
To the investors listed
in the annex to this opinion
letter (collectively: the "INVESTORS")
Dear Sirs:
JAMES HARDIE FINANCE B.V.
US$ 225,000,000 GUARANTEED SENIOR NOTES
I have acted as legal counsel in respect of the law of the Netherlands to
James Hardie Finance B.V., a company incorporated under the law of the
Netherlands, with corporate seat at Amsterdam, the Netherlands (the "ISSUER"),
and to James Hardie N.V., a company incorporated under the law of the
Netherlands, with corporate seat at Amsterdam, the Netherlands (the
"GUARANTOR"), in connection with the issue and private placement (the "ISSUE")
by the Issuer of US$225,000,000 aggregate principal amount Guaranteed Senior
Notes due 2004 (Series A), 2005 (Series B), 2006 (Series C), 2007 (Series D),
2008 (Series E), 2010 (Series F) and 2013 (Series G) (collectively, the
"NOTES"), stated to be absolutely, unconditionally and irrevocably guaranteed as
to payment of principal, interest and any Make-Whole Amount (as defined in the
Note Purchase Agreements (as defined below)) by the Guarantor and James Hardie
Aust. Investco Pty Limited, a company organized under the laws of Australia.
This opinion is rendered pursuant to section 4.4 of the Note Purchase
Agreements (as defined below).
For the purpose of this opinion I have examined the following documents:
(a) a telecopy dated October 26, 1998, of an official copy of the deed
of incorporation of the Issuer containing the text of the articles
of association of the Issuer (the "ISSUER ARTICLES OF ASSOCIATION"),
as filed with the Chamber of Commerce and Industry in Amsterdam, the
Netherlands (the "CHAMBER OF COMMERCE");
(b) a telecopy dated November 5, 1998, of an extract from the trade
register regarding the Issuer, dated November 5, 1998, provided by
the Chamber of Commerce;
(c) a telecopy dated October 23, 1998, of an official copy of the deed
of incorporation of the Guarantor and the text of the articles of
association of the Guarantor as most recently amended by deed of
amendment executed on October 22, 1998, according to the Extract (as
defined below) (the "GUARANTOR ARTICLES OF ASSOCIATION"), both as
filed with the Chamber of Commerce;
<PAGE> 127
(d) a telecopy dated November 5, 1998, of an extract from the trade
register regarding the Guarantor dated November 5, 1998, provided by
the Chamber of Commerce (the "EXTRACT");
(e) a telecopy dated October 27, 1998, of a resolution of the board of
managing directors (bestuur) of the Issuer dated October 22, 1998
(the "ISSUER RESOLUTION");
(f) a telecopy dated November 3, 1998, of a power of attorney dated
November 3, 1998, granted in the name of the Issuer to Phillip
Graham Morley, Allan Richard Brown, Bryon Borgardt and Virginia
Lester (the "ISSUER POWER OF ATTORNEY");
(g) a telecopy dated October 27, 1998, of an undated resolution of the
managing board (bestuur) of the Guarantor (the "GUARANTOR
RESOLUTION");
(h) a telecopy dated November 4, 1998, of a power of attorney dated
November 3, 1998, granted in the name of the Guarantor to Phillip
Graham Morley, Allan Richard Brown, Bryon Borgardt and Virginia
Lester (the "GUARANTOR POWER OF ATTORNEY");
(i) a photocopy of an execution copy of a note purchase agreement, to be
dated November 5, 1998, together with the executed signatory pages
to all 15 note purchase agreements, each among the Issuer, the
Guarantor, and one of the Investors (collectively, the "NOTE
PURCHASE AGREEMENTS"), each containing the form of the Notes;
(j) a private placement offering memorandum dated August 1998, relating
to the Issue, as supplemented by the information set forth in
schedule 5.3 to the Note Purchase Agreements;
and such other documents as I have deemed necessary to enable me to render this
opinion.
My examination has been limited to the text of the documents.
The Issuer Resolution and the Guarantor Resolution are hereinafter
together referred to as the "RESOLUTIONS". The Issuer Power of Attorney and the
Guarantor Power of Attorney are hereinafter together referred to as the "POWERS
OF ATTORNEY".
For the purpose of this opinion I have made the following assumptions:
(i) all the parties to the Note Purchase Agreements other than the
Issuer and the Guarantor have the required capacity, power and
authority to enter into, execute and deliver the Note Purchase
Agreements and to perform their respective obligations
thereunder, and the Note Purchase Agreements have been duly
authorised, executed and delivered by all the parties thereto
other than the Issuer and the Guarantor;
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<PAGE> 128
(ii) no rule of law which under the The Hague Convention on the Law
applicable to Agency of 14th March 1978 applies or may be applied
to the existence and extent of the authority of any person who is
authorised to execute and deliver the Note Purchase Agreements
under the Powers of Attorney, adversely affects the existence and
extent of such authority under the law of the Netherlands;
(iii) the Notes have been or will have been executed and delivered in
the name of the Issuer, manually or in facsimile, by the managing
director of the Issuer (with approval of the signing managing
director to use his facsimile signature);
(iv) the Note Purchase Agreements and the Notes, when duly executed
and delivered by all the parties thereto, constitute valid,
binding and enforceable obligations of all the parties thereto
under New York law to which they are expressed to be subject;
(v) all signatures on original documents are the genuine signatures
of the persons purported to have executed the same and copies (in
whatever form) conform to the originals;
(vi) the Issuer complies with the conditions in order not to be
considered a credit institution (kredietinstelling) within the
meaning of the 1992 Act on the supervision of the credit system
(Wet toezicht kredietwezen 1992) pursuant to the Regulation of
the Minister of Finance of February 4, 1993 in implementation of
section 1 subsection 3 of the 1992 Act on the supervision of the
credit system (Netherlands Government Gazette (Nederlandse
Staatscourant) 1993, 29);
(vii) the Notes are only issued and offered in individual denominations
of at least NLG 100,000 or the equivalent thereof in any other
currency; and
(viii) the Resolutions and the Powers of Attorney are in full force and
effect and have not been revoked at the date hereof.
I have not investigated the law of any jurisdiction other than the
Netherlands and I do not express an opinion on the law of any jurisdiction other
than the Netherlands. I only express an opinion on matters of the law of the
Netherlands as it stands and has been published as at the date of this opinion.
No opinion is expressed on any taxation matters.
Terms and expressions of law and of legal concepts as used in this opinion
have the meaning attributed to them under the law of the Netherlands and this
opinion should be read and understood accordingly.
Based upon the foregoing (including the documents listed above and the
assumptions set out above) and subject to the qualifications listed below and
subject to any facts, circumstances, events or documents not disclosed to me in
the course of my examination referred to above, I am, at the date hereof, of the
following opinion:
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<PAGE> 129
1. The Issuer has been duly incorporated and is validly existing as a
legal entity in the form of a private company with limited liability
(besloten vennootschap met beperkte aansprakelijkheid) under the law
of the Netherlands, and the Guarantor has been duly incorporated and
is validly existing as a legal entity in the form of a limited
liability company (naamloze vennootschap) under the law of the
Netherlands.
2. The Issuer has the corporate power and authority to execute and
deliver the Note Purchase Agreements, to execute, deliver and offer
the Notes and to perform its obligations under the Note Purchase
Agreements and the Notes.
3. The Guarantor has the corporate power and authority to execute and
deliver the Note Purchase Agreements and to perform its obligations
under the Note Purchase Agreements.
4. The Issuer has taken all necessary corporate action to authorize the
execution and delivery by the Issuer of the Note Purchase
Agreements, the execution, delivery and offering by the Issuer of
the Notes and the performance by the Issuer of its obligations under
the Note Purchase Agreements and the Notes.
5. The Guarantor has taken all necessary corporate action to authorize
the execution and delivery by the Guarantor of the Note Purchase
Agreements and the performance by the Guarantor of its obligations
under the Note Purchase Agreements.
6. The choice of New York law as the law expressed to be governing the
Note Purchase Agreements and the Notes will be recognized and
accordingly:
- the Note Purchase Agreements and the Notes will, according to
the courts of the Netherlands duly applying New York law,
constitute valid and binding obligations of the Issuer,
enforceable against the Issuer in accordance with their
respective terms; and
- the Note Purchase Agreements will, according to the courts of
the Netherlands duly applying New York law, constitute valid
and binding obligations of the Guarantor, enforceable against
the Guarantor in accordance with their terms.
7. The execution and delivery by the Issuer of the Note Purchase
Agreements and the Notes, the performance by the Issuer of its
obligations under the Note Purchase Agreements and the Notes and the
offering by the Issuer of the Notes as contemplated under the Note
Purchase Agreements do not and will not conflict with or result in a
breach of any provision of the law of the Netherlands or of the
Issuer Articles of Association.
4
<PAGE> 130
8. The execution and delivery by the Guarantor of the Note Purchase
Agreements and the performance by the Guarantor of its obligations
under the Note Purchase Agreements do not and will not conflict with
or result in a breach of any provision of the law of the Netherlands
or of the Guarantor Articles of Association.
9. No licence, authorization, permission or consent from any public
authority or governmental agency of the Netherlands is required
by the law of the Netherlands for the valid execution and
delivery by the Issuer of the Note Purchase Agreements and the
Notes, for the performance by the Issuer of its obligations under
the Note Purchase Agreements and the Notes or for the offering by
the Issuer of the Notes as contemplated under the Note Purchase
Agreements.
10. No licence, authorization, permission or consent from any public
authority or governmental agency of the Netherlands is required by
the law of the Netherlands for the valid execution and delivery by
the Guarantor of the Note Purchase Agreements and for the
performance by the Guarantor of its obligations under the Note
Purchase Agreements.
11. In order to ensure the legality, validity, enforceability or
admissibility in evidence of the Note Purchase Agreements or the
Notes, it is not necessary that any of these documents be filed or
recorded with any public office in the Netherlands.
12. The submission by the Issuer and the Guarantor to the jurisdiction
of the courts of the State of New York or of the United States of
America located in New York, New York, will be recognised by the
courts of the Netherlands and will, according to the courts of the
Netherlands duly applying New York law, be valid and binding on the
Issuer and the Guarantor.
The opinions expressed above are subject to the following qualifications:
(aa) the opinions expressed above are limited by any applicable
bankruptcy, moratorium and other laws affecting creditors' rights
generally (including statutory preferences);
(bb) when applying New York law as the law governing the Note Purchase
Agreements and the Notes, the courts of competent jurisdiction of
the Netherlands, if any:
- may give effect to the mandatory rules of the law of another
country with which the situation has a close connection, if
and insofar as, under the law of the latter country, those
rules must be applied whatever the law applicable to the Note
Purchase Agreements and the Notes;
- will apply the law of the Netherlands in a situation where it
is mandatory irrespective of the law otherwise applicable to
the Note Purchase Agreements and the Notes;
5
<PAGE> 131
- may refuse to apply New York law if such application is
manifestly incompatible with the public policy of the
Netherlands;
- shall have regard to the law of the country in which
performance takes place in relation to the manner of
performance and the steps to be taken in the event of
defective performance;
(cc) the recognition of the submission by the Issuer and the Guarantor to
the jurisdiction of the courts of the State of New York or of the
United States of America located in New York, New York will be
subject to similar conditions and limitations as those set forth in
the EC Convention on jurisdiction and the enforcement of judgments
in civil and commercial matters of 27th September 1968, as amended,
and the rules and regulations promulgated pursuant thereto, such as
the limitation that application for provisional, including
protective, measures which are available under the law of another
state than the State of New York may be made to the courts of that
state;
(dd) the enforcement in the Netherlands of the Note Purchase Agreements
and the Notes and of foreign judgments will be subject to the rules
of civil procedure as applied by the courts of the Netherlands
including the rules of private international law relating to civil
procedure;
(ee) in the absence of an applicable convention between a foreign country
(such as the United States of America) and the Netherlands, a
judgment in respect of the Note Purchase Agreements or the Notes,
rendered by a court of the foreign country, will not be recognized
and enforced by the courts of the Netherlands; in order to obtain a
judgment which is enforceable in the Netherlands, the party in whose
favor a final judgment of the court of the foreign country has been
rendered will have to file its claim with the court of competent
jurisdiction of the Netherlands and may submit in the course of the
proceedings the judgment rendered by the court of the foreign
country; if and to the extent that the court of the Netherlands
finds that the jurisdiction of the court of the foreign country has
been based on grounds which are internationally acceptable and that
proper legal procedures have been observed, the court of the
Netherlands will, in principle, give binding effect to the judgment
of the court of the foreign country, unless such judgment
contravenes principles of public policy of the Netherlands;
(ff) to the extent that the law of the Netherlands is applicable, the
provision that the holder of any Note will be treated as its
absolute owner as set forth in section 15.1 of the Note Purchase
Agreements notwithstanding any notice to the contrary, may not be
enforceable under all circumstances;
(gg) a holder of a Note may obtain a duplicate Note in the Netherlands
subject to the provisions of the Securities Replacement Act
(Efffectenvernieuwingswet), if such Note has been destroyed, lost or
stolen in the Netherlands or has been mutilated;
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<PAGE> 132
(hh) to the extent that the law of the Netherlands is applicable, a
creditor of a company may invoke the nullity of any legal act
(rechtshandeling) (including but not limited to a guarantee pursuant
to which such company guarantees the performance of the obligations
of a third party and any other legal act having a similar effect)
performed by such company without the obligation (onverplicht) to do
so and as a consequence of which the creditors (present or future)
of the company are prejudiced, provided that at the moment of the
performance of the legal act such company and, unless the act has
been performed for no consideration (om niet), the party with or
towards whom such company has performed such act, knew or should
have known that the creditors (present of future) of such company
would be prejudiced; and
(ii) a guarantee by a company incorporated under the law of the
Netherlands for the performance of obligations of a third party
which is not a wholly owned direct or indirect subsidiary of such
company may, if such guarantee is not in the legitimate business
interest of such company, be deemed to be (i) exceeding the
corporate objects of such company, (ii) violating the articles of
association of such company, and (iii) not valid, binding and
enforceable against such company under the law of the Netherlands;
(jj) under Netherlands law a power of attorney, instruction, designation
or appointment (such as the appointment of CT Corporation System as
agent as set forth in section 24.6 of the Note Purchase Agreements)
may not be deemed to be irrevocable, to the extent that such power
of attorney, instruction, designation or appointment has not been
granted or given for the performance of a legal act in the interest
of the receiver thereof or of a third party, and to the extent
Netherlands law would apply thereto, such power of attorney,
instruction, designation or appointment would terminate upon the
bankruptcy of the grantor, instructor, designator or appointor
thereof; and
(kk) no opinion is rendered in respect of the authority of Warburg Dillon
Read LLC to act as securities intermediary (effectenbemiddelaar) in
or from within the Netherlands with respect to the offering and sale
of the Notes.
This opinion is rendered to you and is for the sole benefit of yourselves
and it may not be relied upon by any person other than yourselves and your legal
advisers for the purpose of giving their opinion to you in connection with this
matter. This opinion may not without my prior written consent be relied upon by,
transmitted to or filed with any other person, firm, company or institution.
Yours faithfully,
/s/
Kaarina A. Zimmer for
De Brauw Blackstone Westbroek P.C.
7
<PAGE> 133
ANNEX
The Prudential Insurance Company of America
Connecticut General Life Insurance Company
Life Insurance Company of North America
Metropolitan Life Insurance Company
Texas Life Insurance Company
Principal Life Insurance Company
USAA Life Insurance Company
The Paul Revere Life Insurance Company
Massachusetts Mutual Life Insurance Company
CM Life Insurance Company
The Guardian Life Insurance Company of America
American Investors Life Insurance Company
Ohio National Life Assurance Corporation
State Farm Life Insurance Company
Ameritas Life Insurance Corp.
<PAGE> 134
EXHIBIT 4.4(a)(iii)
FORM OF OPINION OF AUSTRALIAN
SPECIAL COUNSEL FOR THE OBLIGORS
<PAGE> 135
[Letterhead of Allen Allen & Hemsley]
4 November 1998
To: Each Noteholder referred to below
Dear Sirs
JAMES HARDIE REORGANISATION
We have acted for James Hardie Aust. Investco Pty Limited (the GUARANTOR) in
connection with the Deed Poll Deed of Guarantee (the GUARANTEE) dated 4 November
1998 executed by the Guarantor in favour of the Noteholders.
Definitions in the Guarantee apply in this opinion but FACILITY means any
Revolving Facility Agreement dated 3 November 1998 between the Guarantor and
each of Wachovia Bank, The Industrial Bank of Japan Limited, Westdeutsche
Landesbank and Banque Nationale de Paris and dated 4 November 1998 between the
Guarantor and Australia and New Zealand Banking Group Limited. ISSUER means
James Hardie Finance B.V., a company incorporated in The Netherlands, JHNV means
James Hardie N.V., a company incorporated in The Netherlands, NOTE means any
guaranteed senior note issued under any NPA, NOTEHOLDER means any person in
whose name any Note is registered under any NPA, NPA means any note purchase
agreement, to be dated as of 5 November 1998, and executed by the Issuer and
each initial noteholder and RELEVANT JURISDICTION means the Commonwealth of
Australia or New South Wales.
No assumption or qualification in this opinion limits any other assumption or
qualification in it.
1. GUARANTEE
We have examined the following documents:
(a) an executed counterpart of the Guarantee;
(b) of the constitution of the Guarantor;
(c) certified copies of extracts of resolutions passed by the board of
directors of the Guarantor;
(d) certified copies of extracts of resolutions passed by the board of
directors of James Hardie Aust. Holdings Pty Limited (the sole
shareholder of the Guarantor);
(e) executed powers of attorney in connection with the execution of the
Guarantee by the Guarantor;
(f) a solvency certificate executed by the directors of the Guarantor; and
<PAGE> 136
(g) the unexecuted form of each:
(i) NPA;
(ii) 364 day standby facility agreement between the Guarantor and JHNV
as guarantors and the Issuer as borrower and each of Westdeutsche
Landesbank Girozentrale, Banque Nationale de Paris, Australian
and New Zealand Banking Group Limited and Wachovia Bank (the
Banks); and
(iii) revolving loan facility agreement between the Guarantor as
borrower, the Issuer and JHNV as guarantors, and each of the
Banks and The Industrial Bank of Japan Limited.
2. ASSUMPTIONS
For the purposes of giving this opinion we have assumed the following.
(a) The authenticity of all seals and signatures and of any duty stamp or
marking.
(b) The completeness, and the conformity to original instruments, of all
copies submitted to us, and that any document (other than the Guarantee)
or authorisation submitted to us continues in full force and effect.
(c) Each power of attorney referred to in paragraph 1(e) above has been or
will be registered in the jurisdiction of execution and of the governing
law of each Guarantee to which it relates.
(d) The Guarantor executes the Guarantee for its benefit and for the
purposes of its business. In relation to this assumption, we note the
following.
(i) The Guarantor has arranged the Facilities under which certain
banks agree to make financial accommodation available to the
Guarantor. One of the conditions precedent to the Facilities is
that the Issuer and JHNV (each a company with significant
assets) guarantee the Guarantor's payment of all Secured Moneys
under the Facility. The Issuer and JHNV will only grant that
guarantee if the Guarantor executes the Guarantee. We understand
that without the guarantee of the Issuer and JHNV, it is
unlikely that the Guarantor could arrange the Facilities.
(ii) The borrowing under the Facilities benefits the Guarantor
because it enables it to capitalise its wholly owned subsidiary,
James Hardie Aust. Investco Services Pty Limited, who will lend
those funds to another subsidiary of the Guarantor, James Hardie
Australia Pty Limited, who will purchase certain operating
businesses, the ownership of which the Guarantor was
specifically incorporated for. The directors of the Guarantor
consider that the purchase and ultimate ownership of those
businesses will benefit the Guarantor. Further, we note that the
directors of the Guarantor concluded that given the financial
strength of the Issuer, and the fact
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<PAGE> 137
that JHNV guarantees the same obligations as the Guarantee, the
likelihood of demand being made under the Guarantee is remote.
While the existence of benefit to the company is a question solely for
the directors of the Guarantor, it appears that the directors had
reasonable grounds for concluding that there was commercial benefit in
executing the Guarantee. We note that the directors determination of the
existence of that benefit is recorded in the extract of minutes referred
to in paragraph 1(c) of this opinion.
(e) No entity has engaged or will engage in misleading or unconscionable
conduct or is or will be involved in or a party to any relevant
transaction or any associated activity in a manner or for a purpose not
evident on the face of the Guarantee which might render the Guarantee or
any relevant transaction or associated activity in breach of law, void
or voidable.
(f) The Guarantee has been or will be executed in New South Wales.
(g) Insofar as any obligation under the Guarantee is to be performed in any
jurisdiction other than a Relevant Jurisdiction, its performance will
not be illegal or unenforceable under the law of that jurisdiction.
(h) Each of the Guarantor, JHNV and the Issuer are wholly owned subsidiaries
of James Hardie Industries Limited at the time of execution of the
Guarantee.
(i) All proceeds of the Notes will be lent by the Issuer to James Hardie USA
Inc.. That company will use all the proceeds of that loan to repay
inter-company debt to James Hardie Finance Inc (JHFI). JHFI will use all
of those repayments to repay lenders who are not members of the James
Hardie group.
3. QUALIFICATIONS
Our opinion is subject to the following qualifications.
(a) We express no opinion as to any laws other than the laws of each
Relevant Jurisdiction as in force at the date of this opinion.
(b) Our opinion that an obligation or document is enforceable means that the
obligation or document is of a type and form which courts in the
Relevant Jurisdictions enforce. It does not mean that the obligation or
document can necessarily be enforced in accordance with its terms in all
circumstances. In particular:
(i) equitable remedies, such as injunction and specific performance,
are discretionary; and
(ii) the enforceability of an obligation, document or security
interest may be affected by statutes of limitation, by estoppel,
waiver and similar principles, by the doctrine of frustration,
by laws concerning insolvency, bankruptcy, liquidation,
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<PAGE> 138
administration, enforcement of security interests or
reorganisation, or by other laws generally affecting creditors'
or counterparties' rights or duties.
(c) We have relied on a search of public records of the Australian
Securities and Investments Commission on 27 October 1998. We note that
records disclosed by such search may not be complete or up to date.
(d) We have relied on the assumptions specified in s129 of the Corporations
Law and note that you may do so unless you knew or suspected that the
assumption was incorrect.
(e) Any provision that certain calculations, determinations or certificates
will be conclusive and binding will not apply if those calculations,
determinations or certificates are fraudulent or manifestly inaccurate.
(f) Clause 8 of the Guarantee may not be enforceable in accordance with its
terms, as a court may reserve to itself a decision as to whether any
provision is severable.
(g) The obligation of a party under the Guarantee to pay interest on overdue
amounts at a rate higher than the rate applying before the amount fell
due may be held to constitute a penalty and be unenforceable.
(h) We express no opinion on any provision in the Guarantee requiring
written amendments and waivers insofar as it suggests that oral or other
modifications, amendments or waivers could not be effectively agreed on
or granted between or by the parties.
(i) The courts might not give full effect to an indemnity for legal costs or
for penalties on Taxes.
(j) We have relied, as to certain matters of fact, on certificates of
officers of the Guarantor and on certain information provided by
PricewaterhouseCoopers relating to use of the proceeds of the Notes.
(k) Insofar as our opinions in clause 4 relate to the performance of the
Guarantee, those opinions are limited to the principal transactions
contemplated by the Documents. They do not extend to the performance of
obligations under other documents referred to in the Guarantee.
(l) A judgment by a court may be given in some cases only in Australian
dollars.
(m) Purported waivers of statutory rights or agreements not to sue or
agreements to agree or negotiate or consult may not be enforceable.
(n) In relation to our opinion in 4(j), we note that section 260A of the
Corporations Law has only been operative since 1 July 1998 and we are
only aware of one case on it (Re Bidvest). That case does not provide
very much guidance on the interpretation of the section. Further, if the
giving of financial assistance is part of a larger transaction, it is
not
4
<PAGE> 139
clear whether the courts will consider the giving of that assistance in
isolation from, or as part of, that larger transaction.
4. OPINION
Based on the assumptions and subject to the qualifications set out above we are
of the following opinion.
(a) The Guarantor is incorporated under the laws of the place of its
incorporation stated in the Guarantee.
(b) The Guarantor has the corporate power to enter into and perform its
obligations under the Guarantee.
(c) The execution, delivery and performance by the Guarantor of the
Guarantee did not and will not violate in any respect any existing
provision of:
(i) any law of any Relevant Jurisdiction; or
(ii) its constitution.
(d) The Guarantee constitutes legal, valid and binding obligations of the
Guarantor enforceable in competent courts of the Relevant Jurisdictions.
(e) All Authorisations under the laws of any Relevant Jurisdiction now
obtainable and required in connection with the execution, delivery,
performance, validity or enforceability of the Guarantee have been
obtained or effected and are in full force and effect.
(f) No stamp or registration or similar taxes or charges are payable under
the laws of any Relevant Jurisdiction in connection with the execution,
delivery, performance and enforcement of the Guarantee or any
transaction contemplated by them other than nominal duty, financial
institutions duty and debits tax.
(g) It is not necessary or advisable under the laws of any Relevant
Jurisdiction to file, register or record the Guarantee.
(h) Neither the Guarantor nor any of its properties or assets has any
immunity from the jurisdiction of any court or from legal process under
the laws of any Relevant Jurisdiction.
(i) It is not necessary that a Noteholder should be licensed, qualified or
otherwise entitled to carry on business under the laws of any Relevant
Jurisdiction in order to enforce its rights under the Guarantee or by
reason only of the execution, delivery and performance of the Guarantee.
5
<PAGE> 140
(j) The issuing of the Guarantee does not constitute the giving of financial
assistance within the meaning of s260A of the Corporations Law because
all proceeds of the Notes are applied in repayment of existing external
debt of James Hardie Finance Inc. and are not used to assist the
acquisition of shares in the Guarantor, or any holding company of the
Guarantor. However, if a court were to conclude that the issuing of the
Guarantee did constitute such financial assistance, we think it unlikely
that that court would conclude that there had been a breach of s260A.
That section is only breached by the giving of financial assistance
which materially prejudices the company giving the assistance, its
creditors or shareholders. We note that:
(i) the shareholders of the Guarantor have acknowledged the issuing
of the Guarantee and have concluded that they do not suffer any
material prejudice;
(ii) for the reasons stated in paragraph 2(d)(ii) above, the
likelihood of a demand being made under the Guarantee could
reasonably be considered remote and the Guarantor's directors
have concluded that its execution benefits the Guarantor;
(iii) at the date of execution of the Guarantee, we understand that the
Guarantor had no creditors other than:
(A) the banks under the Facilities; and
(B) some of those same banks under a 364 day standby facility
which has also been guaranteed by the Guarantor.
In relation to the Facilities, the cross guarantees from the
Issuer and JHNV were requirements of the banks to their entering
into the Facilities.
In relation to the 364 day standby facility, the guarantees of
JHNV and of the Guarantor were requirements of the lending banks.
As the banks are aware, those guarantees by the Issuer and JHNV
could only be issued by those companies on the basis that the
Guarantor issued the Guarantee. The banks therefore appear to
benefit from the issuing of the Guarantee since if the Guarantor
did not do so, the banks would not receive the benefit of the
guarantees from the Issuer and JHNV, companies with significant
assets. Creditors do not therefore appear to suffer any material
prejudice from the issuing of the Guarantee.
(k) The indebtedness of the Guarantor under the Guarantee will rank pari
passu with its indebtedness under the Facilities and all other unsecured
unsubordinated indebtedness of the Guarantor which is not mandatorily
preferred by law.
(l) Part 2E of the Corporations Law (which affects transactions involving
public companies and entities controlled by public companies where the
public company or entity does not get full value from the transaction,
and the benefiting party is a related party) does not
6
<PAGE> 141
apply to the issuing of the Guarantee as the Guarantor, the Issuer and
JHNV are all directly or indirectly wholly owned subsidiaries of James
Hardie Industries Limited.
(m) There is no Australian equivalent of the United States legal doctrine of
"successor liability" which might transfer asbestos related liability to
a company which is acquiring assets of, as opposed to shares in, any
transferring company.
(n) If after issuing the Guarantee the Guarantor is solvent (and we note the
directors' certificate referred to in 1(f) states that it is) and the
execution of the Guarantee by the Guarantor (having regard to the
benefits and detriment to it in entering into the Guarantee) is
ultimately for its benefit and for the purposes of its business so that
a reasonable person in its position would have entered into it, the
Guarantee will not be void or voidable on the basis of Australian
fraudulent conveyance laws.
This opinion is addressed to you for your sole benefit. It is not to be relied
on by any other person or for any other purpose nor is it to be quoted or
referred to in any public document or filed with any Government Agency or other
person without our consent.
Yours faithfully
/s/ Allen Allen & Hemsley
7
<PAGE> 142
EXHIBIT 4.4(b)
FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS
<PAGE> 143
[LETTERHEAD OF WILLKIE FARR & GALLAGHER]
November 5, 1998
Metropolitan Life Insurance Company
Texas Life Insurance Company
One Madison Avenue
New York, NY 10010
Re: James Hardie Finance B.V.(Issuer) and James Hardie N.V. (Guarantor)
6.86% Guaranteed Senior Notes due 2004, Series A--$24,000,000
6.92% Guaranteed Senior Notes due 2005, Series B--$35,000,000
6.99% Guaranteed Senior Notes due 2006, Series C--$37,000,000
7.05% Guaranteed Senior Notes due 2007, Series D--$11,000,000
7.12% Guaranteed Senior Notes due 2008, Series E--$63,000,000
7.24% Guaranteed Senior Notes due 2010, Series F--$20,000,000
7.42% Guaranteed Senior Notes due 2013, Series G--$35,000,000
Ladies and Gentlemen:
We have acted as your special counsel in connection with (i)
the issuance by James Hardie Finance B.V. (the "Issuer") of its above-referenced
Guaranteed Senior Notes in an aggregate principal amount of $225,000,000 (the
"Notes"), and (ii) the purchases by you pursuant to the separate Note Purchase
Agreements made by you with the Issuer and James Hardie N.V., (the "Guarantor"),
as guarantor of the Notes, under date of November 5, 1998 (the "Note Purchase
Agreements") of Notes in the respective aggregate principal amounts and of the
particular series as set forth in Schedule A to the Note Purchase Agreements.
We have examined such corporate records of the Issuer and the
Guarantor, agreements and other instruments, certificates of public officials
and of officers and representatives of the Issuer and the Guarantor, and such
other documents, as we have deemed necessary in connection with the opinions
hereinafter expressed. In such examination, we have assumed the genuineness of
all signatures, the authenticity of documents submitted to us as originals and
the conformity with the authentic originals of all documents submitted to us as
copies. As to questions of fact material to such opinions we have, when relevant
facts were not independently established, relied
<PAGE> 144
2
upon the representations set forth in the Note Purchase Agreements and upon
certifications by officers or other representatives of the Issuer and the
Guarantor.
In addition, we attended the closing held today at our office
at which you purchased and made payment for Notes in the respective aggregate
principal amounts to be purchased by you, all in accordance with the Note
Purchase Agreements.
Based upon the foregoing and having regard for legal
considerations that we deem relevant, we render our opinion to you pursuant to
Section 4.4 of the Note Purchase Agreements as follows:
1. The Note Purchase Agreements constitute legal,
valid and binding obligations of the Issuer and the Guarantor,
enforceable against Issuer and the Guarantor in accordance with their
terms.
2. The Notes being purchased by you today constitute
legal, valid and binding obligations of the Issuer, enforceable against
the Issuer in accordance with their terms.
3. No consent, approval or authorization of, or
declaration, qualification, registration or filing with, any New York
or United States Federal governmental authority is required for the
valid execution and delivery of the Note Purchase Agreements or the
valid offer, issue, sale and delivery of the Notes pursuant to the Note
Purchase Agreements.
4. It is not necessary in connection with the offer,
issue, sale and delivery of the Notes, under the circumstances
contemplated by the Note Purchase Agreements, to register the Notes
under the Securities Act of 1933, as amended, or to qualify an
indenture in respect of the Notes under the Trust Indenture Act of
1939, as amended. If you should in the future deem it expedient to sell
such Notes, or any Notes delivered in substitution or exchange therefor
pursuant to the Note Purchase Agreements, such resale would not require
registration of any such Notes under the Securities Act of 1933, as
amended, or qualification of an indenture in respect thereof under the
Trust Indenture Act of 1939, as amended, provided either that such
resale does not involve any public offering of such Notes or that at
the time and under the circumstances of such resale you would not be
deemed to have purchased such Notes from the Issuer with a view to, or
to be offering or selling such Notes for the Issuer in connection with,
a distribution thereof, or to be participating or having a direct or
indirect participation in any such undertaking, or to be participating
or having
<PAGE> 145
3
a participation in the direct or indirect underwriting of any such
undertaking, and assuming that at the time you would not be an
affiliate of the Issuer.
5. The use of proceeds from the sale of the Notes will not be
deemed to be, directly or indirectly, for the purposes of buying or
carrying any margin stock within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System and it is not
necessary for you to obtain a statement in conformity with the
requirements of Federal Reserve Form FR G-3 or to register on Federal
Reserve Form FR G-1 under such Regulation U in connection with your
purchase of the Notes.
We have examined the opinions of Gibson, Dunn & Crutcher LLP,
special counsel to the Issuer and the Guarantor, De Brauw Blackstone Westbroek
P.C., Netherlands counsel to the Issuer and the Guarantor, and Allen Allen &
Hemsley, Australian counsel for the Issuer and the Guarantor, each dated today
and delivered to you pursuant to Section 4.4 of the Note Purchase Agreements,
which opinions are satisfactory to us in form and substance with respect to the
matters respectively specified therein and we believe that both you and we are
justified in relying thereon. We call to your attention the fact that in
approving the substance of said opinions we have not made an investigation
sufficient to enable us to express an independent opinion with respect to the
substantive matters covered by said opinions (other than substantive matters
governed by United States Federal laws or the laws of the State of New York and
specifically covered by this opinion); however nothing has come to our attention
that would cause us to disagree with the legal conclusions expressed in any of
said opinions as to any such matters.
The opinions expressed above as to the enforceability of any
agreement or instrument in accordance with its terms are subject to the
exception that such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and (ii) general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
We express no opinion as to any provision in the Note Purchase
Agreements insofar as such provisions relate to (a) the subject matter
jurisdiction of a United States Federal District Court sitting in New York to
adjudicate any controversy relating to the Note Purchase Agreements or the
Notes, or (b) the waiver of inconvenient forum with respect to proceedings in
any such United States Federal District Court.
<PAGE> 146
4
We are members of the bar of the State of New York and do not
herein intend to express any opinion as to any matters governed by any laws
other than United States Federal laws and the laws of the State of New York. To
the extent that the opinions expressed above involve matters governed by
Netherlands law or Australian law, we have relied upon the aforementioned
opinions of De Brauw Blacksone Westbroek P.C. and Allen Allen & Hemsley,
respectively, and our conclusions as to such matters are subject to the same
assumptions, limitations and qualifications as are contained in said opinions.
This opinion is given solely for your benefit, and for the
benefit of other institutional investor holders from time to time of Notes
purchased by you today, in connection with the closing held today of the
transactions contemplated by the Note Purchase Agreements and may not be relied
upon by any other person for any purpose without our prior written consent.
Very truly yours,
/s/ WILLKIE FARR & GALLAGHER
<PAGE> 147
EXHIBIT 5.5
PRO FORMA STATEMENTS
<PAGE> 148
COVER NOTE TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The "Unaudited Pro Forma Consolidated Financial Data" containing the Pro Forma
Statements has been excerpted from the publicly available amendment No. 1 to the
Form F-1 Registration Statement of James Hardie N.V. as filed with the
Securities and Exchange Commission on October 15, 1998 (as amended, the
"Registration Statement"). Neither the Registration Statement nor the prospectus
included therein is incorporated herein by reference. Any reference to "this
Prospectus" in the excerpted pages should be read as a reference to "the
Memorandum". The Pro Forma Statements were prepared to give accounting effect to
certain transactions that will occur in connection with the Reorganization based
on the assumptions stated therein, including an assumption that the equity
offering on Form F-1 would be completed at the same time as the Reorganization
and the Debt Financing.
In the event that the equity offering does not occur as planned, or it does
occur but other conditions relating to the treatment of interest paid by the
U.S. Subsidiary to the Finance Subsidiary under the US-NL Tax Treaty are not
met, then withholding taxes of 30% in the U.S. may become payable in any year,
although this amount may be partially alleviated by the deductibility in the
Netherlands of foreign tax paid in the U.S. For the purposes of the Debt
Financing and assuming that such equity offering does not occur, management has
estimated that additional income tax expense of US$14.6 million and US$3.7
million would need to be reflected as a pro forma adjustment in the unaudited
pro forma statements of income for the fiscal year ended March 31, 1998 and for
the three months ended June 30, 1998, respectively. After giving effect to these
adjustments, the pro forma income from continuing operations would be US$29.5
million and US$10.0 million income for the fiscal year ended March 31, 1998 and
for the three months ended June 30, 1998, respectively.
For a discussion of the principal tax issues and conditions, refer to footnote
nine to the unaudited pro forma consolidated statement of income for the fiscal
year ended March 31, 1998 and to footnote seven to the unaudited pro forma
consolidated statement of income for the three months ended June 30, 1998.
The company has not determined how it may reorganize its intercompany financing
arrangements if the equity offering does not occur and the pro forma adjustment
described above does not reflect the benefits, if any, that may be generated
from alternative financial arrangements. The pro forma data is for informational
purposes only and should not be construed to be indicative of the Company's
financial position or results of operations had the transactions been
consummated on the dates assumed and do not project the Company's consolidated
financial position or results of operations for any future date or period.
<PAGE> 149
COMPANY REPRESENTATION
In relation to the "Unaudited Pro Forma Consolidated Financial Data," and when
read in conjunction with the covering note prepared for the Private Placement
Memorandum, the assumptions on which the pro forma adjustments reflected in the
Pro Forma Statements are based provide a reasonable basis for presenting the
significant effects of the Reorganization and Debt Financing assuming that the
equity offering does not occur, and such pro forma adjustments give appropriate
effect to such assumptions and are properly applied in the Pro Forma Statements.
2
<PAGE> 150
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial statements of
income (the "Unaudited Pro Forma Consolidated Statements of Income") for the
year ended March 31, 1998 and the three months ended June 30, 1998 and the
unaudited pro forma consolidated balance sheet (the "Unaudited Pro Forma
Consolidated Balance Sheet") as of June 30, 1998 (collectively, the "Pro Forma
Statements") reflect adjustments to the audited Consolidated Financial
Statements of the James Hardie Businesses (consisting of both the assets and
liabilities of the Transferred Businesses and the Retained Assets and
Liabilities) appearing elsewhere in this Prospectus to give accounting impact to
certain transactions that will occur in connection with the Reorganization. The
pro forma adjustments to each Pro Forma Statement are described in the
accompanying footnotes to the Pro Forma Statements. The pro forma adjustments
are based on available information and certain assumptions management believes
are reasonable.
The Pro Forma Statements are for informational purposes only and should not
be construed to be indicative of the Company's consolidated financial position
or results of operations had the transactions been consummated on the dates
assumed and do not project the Company's consolidated financial position or
results of operations for any future date or period.
In accordance with U.S. GAAP, the transfers to the Company of the
Transferred Businesses will be accounted for in the Consolidated Financial
Statements of the Company at cost using the "as if" pooling method on the basis
that the transfers are under common control. The financial adjustments required
to eliminate the Retained Assets and Liabilities will be recorded as a deemed
transfer to JHIL in the Consolidated Financial Statements of the Company. All
pro forma adjustments have been recorded at historical cost in the Pro Forma
Statements.
The Pro Forma Statements should be read in conjunction with the
Consolidated Financial Statements of the James Hardie Businesses and the related
notes thereto, and other financial information pertaining to the Company and the
James Hardie Businesses included elsewhere in this Prospectus.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The Unaudited Pro Forma Consolidated Balance Sheet gives accounting effect
to the following pro forma transactions that affect the James Hardie Businesses'
historical financials as if they occurred on June 30, 1998: (1) the transfer of
the Transferred Businesses to the Company and the retention of the Retained
Assets and Liabilities by JHIL and (2) the completion of the Debt Financing.
The total shareholders' equity disclosed in the Unaudited Pro Forma
Consolidated Balance Sheet gives accounting effect to the adjustments noted as
if they occurred on June 30, 1998. Total equity at the date of the
Reorganization may differ significantly from that disclosed in the Unaudited Pro
Forma Consolidated Balance Sheet as a result of movements in foreign exchange
rates that impact the balance of the foreign currency translation adjustment
account, earnings, capital expenditure and other cash flows impacting cash
balances in the period June 30, 1998 to the date of the Offerings.
<PAGE> 151
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------------------------------------
PRO FORMA ADJUSTMENTS
-----------------------------
JHIL
RETAINED
ASSETS
JAMES HARDIE AND REVISED DEBT
BUSINESSES LIABILITIES STRUCTURE PRO FORMA
------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 204.5 $(202.5)(1) $ 2.0
Accounts and notes receivable, net of
allowance for doubtful accounts............ 113.9 (8.5)(2) -- 105.4
Inventories.................................. 60.0 -- -- 60.0
Prepaid expenses and other current assets.... 14.2 (2.3)(2) -- 11.9
Deferred tax assets.......................... 24.9 (8.7)(3) -- 16.2
-------- ------
Total current assets............... 417.5 195.5
Long term receivables........................ 10.9 (7.3)(2) -- 3.6
Investments.................................. 20.4 (17.6)(2) -- 2.8
Property, plant and equipment, net........... 488.6 (26.2)(4) -- 462.4
Intangibles, net............................. 36.0 -- -- 36.0
Mineral reserves............................. 24.4 -- -- 24.4
Prepaid pension cost......................... 10.7 -- -- 10.7
Deferred tax assets.......................... 68.5 (51.6)(3) -- 16.9
-------- ------
Total assets....................... $1,077.0 $752.3
======== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities..... $ 84.0 $ (15.9)(2) -- $ 68.1
Bank overdraft............................... 2.7 (2.7)(1) --
Current portion of long term debt............ 31.4 (31.4)(1) -- --
Accrued compensation......................... 11.8 -- -- 11.8
Accrued product liabilities.................. 10.7 (5.5)(2) -- 5.2
Other liabilities............................ 6.2 (6.2)(2) -- --
-------- ------
Total current liabilities.......... 146.8 85.1
Long-term debt............................... 481.9 (481.9)(1) $ 340.0(7) 340.0
Deferred tax liability....................... 14.4 -- -- 14.4
Other noncurrent liabilities................. 14.1 (5.2)(2) -- 8.9
-------- ------
Total liabilities.................. $ 657.2 $448.4
-------- ------
Shareholders' equity:
Capital...................................... $ 543.4 $ 211.9(6) $(340.0)(7) $415.3
Unrealized gain(loss) on available securities
for sale................................... (1.8) 1.8(2) -- --
Cumulative translation adjustment............ (111.4) -- -- (111.4)
Employee loans............................... (10.4) 10.4(5) -- --
-------- ------
Total shareholders' equity......... 419.8 303.9(8)
-------- ------
Total liabilities and shareholders'
equity........................... $1,077.0 $752.3
======== ======
</TABLE>
<PAGE> 152
- ---------------
(1) Reflects the elimination of cash deposits and existing debt facilities of
JHIL which are to be retained by JHIL.
(2) Retained Assets and Liabilities of JHIL or its non-transferring
subsidiaries which will not be transferred to the Company are comprised of:
<TABLE>
<CAPTION>
$ MILLIONS
----------
<S> <C>
Accounts and notes receivable, net of allowance for doubtful
accounts:
Financing structures retained by JHIL..................... $ 8.5
=====
Prepaid expenses and other current assets:
Capitalized expenses...................................... $ 2.3
=====
Long term receivables:
Vendor finance............................................ $ 7.3
=====
Investments:
AEF portfolio............................................. $ 7.5
Other..................................................... 10.1
-----
$17.6
=====
Accounts payable and accrued liabilities:
Financing structures retained by JHIL..................... $15.4
Other..................................................... 0.5
-----
$15.9
=====
Accrued product liabilities:
JHIL or its non-transferring subsidiaries will retain
responsibility for certain specific product warranty
claims.................................................. $ 3.7
Environmental rectification............................... 1.8
-----
$ 5.5
=====
Other current liabilities................................... $ 6.2
=====
Other noncurrent liabilities
Surplus lease space....................................... $ 2.3
Product warranty (see note above)......................... $ 2.2
Other..................................................... $ 0.7
-----
$ 5.2
=====
Unrealized loss on securities available for sale............ $ 1.8
=====
</TABLE>
(3) Adjustment made to deferred tax assets associated with certain of the above
liabilities and residing in JHIL and certain subsidiaries which will not
form part of the Transferred Businesses amounting to $60.3 million.
(4) Reflects properties to be retained by JHIL or its non-transferring
subsidiaries and leased to the Company with a net book value of $26.2
million. The properties concerned comprise:
<TABLE>
<CAPTION>
NET
BOOK VALUE
$ MILLIONS
----------
<S> <C>
Fiber Cement Australia...................................... $19.6
Fiber Cement New Zealand.................................... 6.6
-----
$26.2
=====
</TABLE>
(5) Reflects the removal of employee loans related to executive share purchase
plan which will be retained by JHIL and will not transfer to or be assumed
by the Company.
(6) For accounting purposes, the retention by JHIL and its non-transferring
subsidiaries of the Retained Assets and Liabilities as set forth in
adjustments (1) to (5) above is recorded as a deemed contribution by JHIL to
the Company of $211.9 million.
<PAGE> 153
(7) Reflects adjustments which are required to facilitate the Debt Financing and
the related deemed dividend. The Finance Subsidiary will issue approximately
$225 million aggregate principal amount of Notes and arrange a Bank
Facility, including a $115 million term facility and a $80 million revolving
credit facility. At the time of the Offerings, the Company does not expect
to have drawn down the revolving credit facility. The Notes will be issued
with a mix of maturities ranging from 6 to 15 years. The Pro Forma
Consolidated Balance Sheet reflects the indebtedness under the Bank Facility
and the Notes of $340 million.
(8) The total shareholders' equity disclosed in the Unaudited Pro Forma
Consolidated Balance Sheet gives accounting effect to the adjustments noted
in (1) to (7) above as if they occurred on June 30, 1998. Total equity at
the date of the Offerings may differ significantly from that disclosed in
the Unaudited Pro Forma Consolidated Balance Sheet as a result of movements
in foreign exchange rates that impact the balance of the foreign currency
translation adjustment account, earnings, capital expenditure and other cash
flows impacting cash balances in the period from June 30, 1998 to the date
of the Offerings.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
The Unaudited Pro Forma Consolidated Statements of Income for the fiscal
year ended March 31, 1998 and the three months ended June 30, 1998 give
accounting effect to the following transactions that affect the James Hardie
Businesses' historical financials as if they occurred on April 1, 1997 and April
1, 1998 respectively: (1) the transfer of the Transferred Businesses to the
Company and the retention of the Retained Assets and Liabilities by JHIL,
including any related income and expenses, (2) the completion of the Debt
Financing, and (3) certain tax consequences of the Reorganization.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31, 1998
----------------------------------------------------------------------------------
PRO FORMA ADJUSTMENTS PRO FORMA PRO FORMA PRO FORMA
--------------------- WITHOUT ADJUSTMENT WITH
JAMES HARDIE JHIL DEBT INTERCOMPANY INTERCOMPANY INTERCOMPANY
BUSINESSES RETAINED FINANCING TAX BENEFIT TAX BENEFIT TAX BENEFIT
------------ -------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 822.3 -- -- $ 822.3 -- $ 822.3
Cost of goods sold......... (592.3) $ (4.2)(1) -- (596.5) -- (596.5)
------- ------- -------
Gross profit............... 230.0 225.8 225.8
Selling, general and
administrative
expenses................. (142.7) -- -- (142.7) -- (142.7)(10)
Restructuring and other
operating expenses....... (5.1) -- -- (5.1) -- (5.1)
------- ------- -------
Operating profit........... 82.2 78.0 78.0
Interest expense........... (37.6) 37.6(2) $(22.9)(3) (22.9) -- (22.9)
Interest expense -- related
parties.................. (11.3) 11.3(2) -- -- -- --
Interest income............ 28.3 (28.3)(4) -- -- -- --
Equity earnings -- RCI..... 6.2 (6.2)(5) -- -- -- --
Other nonoperating
expenses, net............ (12.1) 11.9(6) -- (0.2) -- (0.2)
------- ------- -------
Income (loss) from
continuing operations
before income tax........ 55.7 -- -- 54.9 -- 54.9
Income tax (expense)
benefit.................. (25.0) (6.7)(7) 4.9(8) (26.8) $16.0(9) (10.8)
------- ------- -------
Income from continuing
operations............... $ 30.7 $ 28.1 $ 44.1
======= ======= =======
Pro forma earnings per
share.................... $ $
======= =======
</TABLE>
<PAGE> 154
- ---------------
(1) Reflects the difference between depreciation historically incurred by JHIL
on certain properties that it will retain in the Reorganization, and the
rental expense that the Company will incur to lease such properties from
JHIL. The adjustment is comprised of:
<TABLE>
<CAPTION>
$ MILLIONS
----------
<S> <C>
Depreciation on retained property........................... $ 0.9
Additional rental expense................................... (5.1)
-----
$(4.2)
=====
</TABLE>
The rental expense assumed by the Company for purposes of the Pro Forma
Consolidated Statement of Income is based on an assessment of the fair market
rental for the properties retained by JHIL and the terms of the leases the
Company will enter into with JHIL.
(2) Reflects the elimination of $37.6 million in interest expense relating to
the existing debt facilities of the James Hardie Businesses which will be
retained by JHIL and the elimination of $11.3 million in interest expense to
related parties which relates to RCI Corporation sold in fiscal year 1998.
(3) Pursuant to the Debt Financing, the Finance Subsidiary will issue
approximately $225 million aggregate principal amount of Notes and will
arrange a Bank Facility consisting of $115 million term loan and an $80
million revolving credit facility. At the time of the Offerings, the Company
does not expect to have drawn down on the revolving credit facility. The
Notes will be issued with a mix of maturities ranging from 6 to 15 years.
The blended interest rate on the Notes and the term loan is estimated by the
Company to be 6.7% or $22.9 million assuming outstanding indebtedness of
$340 million for the entire year ended March 31, 1998. The $340 million
payment represents the settlement of liabilities to JHIL which arise in
connection with the Reorganization. The effect on unaudited pro forma income
for the year ended March 31, 1998 of each 1/8% change in the blended
interest rate on the Notes and the term loan would be $0.4 million.
(4) Reflects the elimination of interest income earned on cash and cash
equivalents held by the James Hardie Businesses during fiscal year 1998
which are to be retained by JHIL.
(5) Reflects equity earnings of RCI Corporation sold in fiscal year 1998.
(6) The amount of $11.9 million primarily reflects the elimination of a $12.2
million accrual for losses relating to guarantees and other expenses
associated with the settlement of litigation relating to the 1987 Firmandale
transaction. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Ongoing obligations associated with
the Firmandale litigation will be retained by JHIL and will not be
transferred to or assumed by the Company. The remaining $0.3 million
reduction reflects the net expenses of previous tax franking credit
structures utilized by JHIL and dividend income, comprised of:
<TABLE>
<CAPTION>
$ MILLIONS
----------
<S> <C>
Tax franking credit......................................... $ 0.2
Dividends received.......................................... (0.5)
-----
$(0.3)
=====
</TABLE>
(7) Reflects the impact of additional taxes resulting from the following
adjustments referred to above, as follows:
<TABLE>
<CAPTION>
APPLICABLE
GROSS INCOME TAX
($ MILLIONS) ($ MILLIONS)
------------ ------------
<S> <C> <C>
Depreciation on retained property........................... $ 0.9 $ --
Rental expense.............................................. (5.1) 1.8
Interest expense............................................ 37.6 (14.0)
Interest income............................................. (28.3) 10.2
Tax franking credit......................................... 0.2 --
Dividends received.......................................... (0.5) --
Interest expense -- related parties......................... 11.3 (4.0)
Equity earnings of RCI Corporation.......................... (6.2) --
Firmandale expense.......................................... 12.2 (0.7)
------
$ (6.7)
======
</TABLE>
<PAGE> 155
(8) Assumes that the term loan has been drawn down in Australia and the Notes
have been issued in The Netherlands. The tax expense has been calculated as
follows:
<TABLE>
<CAPTION>
TAX
PRINCIPAL INTEREST DEDUCTION
($ MILLIONS) ($ MILLIONS) TAX RATE ($ MILLIONS)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Notes................................. $225.0 $16.0 15% $2.4
Term loan............................. 115.0 6.9 36% 2.5
----- ----
$22.9 $4.9
===== ====
</TABLE>
(9) Reflects the deferred tax (expense) benefit of the intercompany debt
arrangements of an estimated $877.0 million established in connection with
the Reorganization, with the Finance Subsidiary assumed to be advancing to
its subsidiaries in the United States, Australia and New Zealand, $747.0
million, $97.0 million and $33.0 million, respectively. The adjustment has
been calculated as follows assuming an interest rate of 7.5% on
intercompany debt:
<TABLE>
<CAPTION>
DEFERRED TAX
PRINCIPAL INTEREST TAX (EXPENSE) BENEFIT
($ MILLIONS) ($ MILLIONS) RATE ($ MILLIONS)
------------ ------------ ---- -----------------
<S> <C> <C> <C> <C>
Interest income
The Netherlands......................... $877.0 $65.8 15% $(9.8)
======
Interest expense
United States........................... 747.0 56.0 40% 22.4
Australia............................... 97.0 7.2 36% 2.6
New Zealand............................. 33.0 2.5 33% 0.8
------ -----
$877.0 $16.0
====== =====
</TABLE>
The actual amount of the intercompany debt at the date of the
Reorganization will vary from that noted above due to foreign exchange
movements and other movements on intercompany account balances.
The tax impact of the Debt Financing represents certain tax benefits that
the Company expects to realize as a result of the new intercompany debt
financing between the Finance Subsidiary and James Hardie's U.S.
subsidiary. In calculating this amount, the following income tax rates have
been assumed:
<TABLE>
<S> <C>
United States (anticipated federal and state taxes)......... 40%
Australia................................................... 36%
New Zealand................................................. 33%
The Netherlands (Financial Risk Reserve Regime)............. 15%
</TABLE>
This calculation assumes that current tax laws of all relevant
jurisdictions were in effect during fiscal year 1998, and that any tax
rulings which relevant companies have obtained in connection with the
Reorganization were also applicable and in effect during such year.
The calculation further assumes that interest payable by the U.S.
subsidiary to the Finance Subsidiary will be taxed in The Netherlands at an
effective rate of 15% pursuant to a ruling issued by the Dutch tax
authorities applicable until 2008 based on certain conditions, including
that all of the group's treasury activities are conducted exclusively from
The Netherlands.
The calculation also assumes that the intercompany debt was in place
throughout fiscal year 1998, and further assumes that (i) interest payments
were fully deductible by the U.S. subsidiary in that year, and (ii) that
such payments were not subject to U.S. withholding tax pursuant to the
US-NL Treaty.
Interest paid by the U.S. subsidiary to the Finance Subsidiary should be
currently deductible for U.S. tax purposes in any year provided that such
interest is actually paid in that year and provided that the U.S.
subsidiary has sufficient earnings to avoid limitations on the
deductibility of interest resulting from the application of the U.S.
"earnings stripping" rules. The Company does not anticipate that the U.S.
subsidiary will make interest payments with respect to the related party
debt during fiscal year 1999 or fiscal year 2000. Accordingly, no current
U.S. tax deduction will be available for such years, although the
associated tax benefit will be treated as realized currently for financial
accounting purposes as the Company expects to ultimately realize the tax
benefit from such years in the future.
Interest paid by the U.S. subsidiary to the Finance Subsidiary would likely
not be subject to the US-NL Treaty and would be subject to a 30% U.S.
withholding tax in any year unless, among other conditions of eligibility
for benefits, the aggregate number of shares of the Common Stock traded on
the applicable exchange during the previous taxable
<PAGE> 156
year is at least 6% of the average number of shares outstanding during that
previous taxable year, in which case 0% withholding tax would apply under
the US-NL Treaty. See "Risk Factors -- Tax Risks on Intercompany Interest
Payments."
Deductions in Australia and New Zealand for interest paid to the Finance
Subsidiary are subject to thin capitalization rules, which disallow
interest on related party loans in excess of a prescribed multiple of the
equity of the borrower. Withholding tax in Australia and New Zealand of 10%
on interest paid to the Finance Subsidiary will be available as a credit
against Dutch tax payable by the Finance Subsidiary, subject to certain
limitations.
(10) Selling, general and administrative expenses include the current head
office expenses of the James Hardie Businesses. Management estimates that
head office expenses applicable to the Company will not vary significantly
from the current level of head office expenses incurred by the James Hardie
Businesses.
<PAGE> 157
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30 1998
------------------------------------------------------------------------------------
PRO FORMA ADJUSTMENTS PRO FORMA PRO FORMA
----------------------- WITHOUT PRO FORMA WITH
JAMES HARDIE JHIL DEBT INTERCOMPANY INTERCOMPANY INTERCOMPANY
BUSINESSES RETAINED FINANCING TAX BENEFIT TAX BENEFIT TAX BENEFIT
------------ -------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................. $ 206.2 -- -- $ 206.2 -- $ 206.2
Cost of goods sold..................... (147.7) $(0.9)(1) -- (148.6) -- (148.6)
------- -------
Gross profit........................... 58.5 57.6 57.6
Selling, general and administrative
expenses............................. (35.1) -- -- (35.1) -- (35.1)
Restructuring and other operating
expenses............................. (0.5) -- -- (0.5) -- (0.5)
------- ------- -------
Operating profit....................... 22.9 22.0 22.0
Interest expense....................... (7.3) 7.3(2) $(5.7)(3) (5.7) -- (5.7)
Interest income........................ 3.4 (3.4)(4) -- -- -- --
------- ------- -------
Income (loss) from continuing
operations before income tax......... 19.0 -- -- 16.3 -- 16.3
Income tax (expense) benefit........... (6.6) (1.2)(5) 1.2(6) (6.6) $ 4.0(7) (2.6)
------- ------- -------
Income from continuing operations...... $ 12.4 $ 9.7 $ 13.7
======= ======= =======
Pro forma earnings per share........... $ $
======= =======
</TABLE>
- ---------------
(1) Reflects the difference between depreciation on buildings historically
incurred by JHIL on certain properties that it will retain in the
Reorganization, and the rental expense that the Company will incur to lease
such properties from JHIL. The adjustment is comprised of:
<TABLE>
<CAPTION>
$ MILLIONS
----------
<S> <C>
Depreciation on retained property........................... $ 0.2
Additional rental expense................................... (1.1)
-----
$(0.9)
=====
</TABLE>
The rental expense assumed by the Company for purposes of the Pro Forma
Consolidated Statement of Income is based on an assessment of the fair market
rental for the properties retained by JHIL and the terms of the leases the
Company will enter into with JHIL.
(2) Reflects the elimination of $7.3 million interest expense relating to the
existing debt facilities of the James Hardie Businesses which will be
retained by JHIL.
(3) Pursuant to the Debt Financing, the Finance Subsidiary will issue
approximately $225 million of aggregate principal amount Notes and will
arrange a Bank Facility, consisting of $115 million term loan and an $80
million revolving credit facility. At the time of the Offerings, the Company
does not expect to have drawn down on the revolving credit facility. The
Notes will be issued with a mix of maturities ranging from 6 to 15 years.
The blended interest rate on the Notes and the term loan is estimated by the
Company to be 6.7% or $5.7 million assuming outstanding indebtedness of $340
million for the whole of the three months ended June 30, 1998. The effect on
income of each 1/8% change in the blended interest rate on the Notes and the
term loan for a three month period would be $0.1 million.
(4) Reflects the elimination of interest income earned on cash and cash
equivalents held by the James Hardie Businesses which are to be retained by
JHIL.
<PAGE> 158
(5) Reflects the impact of additional taxes resulting from the following
adjustments referred to above, as follows:
<TABLE>
<CAPTION>
APPLICABLE
GROSS INCOME TAX
($ MILLIONS) ($ MILLIONS)
------------ ------------
<S> <C> <C>
Depreciation on retained property........................... $ 0.2 $ --
Rental expense.............................................. (0.8) 0.3
Interest expense............................................ 7.3 (2.7)
Interest income............................................. (3.4) 1.2
-----
$(1.2)
=====
</TABLE>
(6) Assumes that the term loan has been drawn down in Australia and the Notes
have been issued in The Netherlands. The tax expense has been calculated as
follows:
<TABLE>
<CAPTION>
TAX
PRINCIPAL INTEREST DEDUCTION
($ MILLIONS) ($ MILLIONS) TAX RATE ($ MILLIONS)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Notes................................. $225.0 $4.0 15% $0.6
Term loan............................. 115.0 1.7 36% 0.6
---- ----
$5.7 $1.2
==== ====
</TABLE>
(7) Reflects the deferred tax (expense) benefit of the intercompany debt
arrangements of $877.0 million created in connection with the
Reorganization, with the Finance Subsidiary assumed to be advancing to its
subsidiaries in the United States, Australia and New Zealand, $747.0
million, $97.0 million and $33.0 million, respectively. The adjustment has
been calculated as follows assuming an interest rate of 7.5% on intercompany
debt:
<TABLE>
<CAPTION>
DEFERRED TAX
PRINCIPAL INTEREST TAX (EXPENSE) BENEFIT
($ MILLIONS) ($ MILLIONS) RATE ($ MILLIONS)
------------ ------------ ---- -----------------
<S> <C> <C> <C> <C>
Interest income
The Netherlands......................... $877.0 $16.4 15% $(2.4)
======
Interest expense
United States........................... 747.0 13.9 40% 5.6
Australia............................... 97.0 1.8 36% 0.6
New Zealand............................. 33.0 0.6 33% 0.2
------ -----
$877.0 $ 4.0
====== =====
</TABLE>
The actual amount of the intercompany debt at the date of the Reorganization
will vary from that noted above due to foreign exchange movements and other
movements on intercompany account balances.
The tax impact of the Debt Financing represents certain tax benefits that
the Company expects to realize as a result of the new intercompany debt
financing between the Finance Subsidiary and the Company's U.S. subsidiary.
In calculating this amount, the following income tax rates have been
assumed:
<TABLE>
<S> <C>
United States (anticipated federal and state taxes)......... 40%
Australia................................................... 36%
New Zealand................................................. 33%
The Netherlands (Financial Risk Reserve Regime)............. 15%
</TABLE>
This calculation assumes that current tax laws of all relevant jurisdictions
were in effect during the three months ended June 30, 1998, and that any tax
rulings which relevant companies have obtained in connection with the
Reorganization were also applicable and in effect during such quarter.
The calculation further assumes that interest payable by the U.S. subsidiary
to the Finance Subsidiary will be taxed in The Netherlands at a 15% rate
pursuant to a ruling issued by the Dutch tax authorities applicable until
2008 based on certain conditions, including that all of the group's treasury
activities are conducted exclusively from The Netherlands.
The calculation also assumes that the intercompany debt was in place
throughout the three months ended June 30, 1998, and further assumes that
(i) interest payments were fully deductible by the U.S. subsidiary in fiscal
year 1999, and (ii) that such payments were not subject to U.S. withholding
tax pursuant to the US-NL Treaty.
<PAGE> 159
Interest paid by the U.S. subsidiary to the Finance Subsidiary should be
currently deductible for U.S. tax purposes in any year provided that such
interest is actually paid in that year and provided that the U.S. subsidiary
has sufficient earnings to avoid limitations on the deductibility of
interest resulting from the application of the U.S. "earnings stripping"
rules. The Company does not anticipate that the U.S. subsidiary will make
interest payments with respect to the related party debt during fiscal year
1999 or fiscal year 2000. Accordingly, no current U.S. tax deduction will be
available for such years, although the associated tax benefit will be
treated as realized currently for financial accounting purposes as the
Company expects to ultimately realize the tax benefit from such years in the
future.
Interest paid by the U.S. subsidiary to the Finance Subsidiary would likely
not be subject to the US-NL Treaty and would be subject to a 30% U.S.
withholding tax in any year unless, among other conditions of eligibility
for benefits, the aggregate number of shares of Common Stock traded on the
applicable stock exchange during the previous taxable year is at least 6% of
the average number of shares outstanding during that previous taxable year,
in which case, 0% withholding tax would apply under the US-NL Treaty. See
"Risk Factors -- Tax Risks on Intercompany Interest Payments."
Deductions in Australia and New Zealand for interest paid to the Finance
Subsidiary are subject to thin capitalization rules, which disallow interest
on related party loans in excess of a prescribed multiple of the equity of
the borrower. Withholding tax in Australia and New Zealand of 10% on
interest paid to the Finance Subsidiary will be available as a credit
against Dutch tax payable by the Finance Subsidiary, subject to certain
limitations.
(8) Selling, general and administrative expenses include the current head office
expenses of the James Hardie Businesses. Management estimates that head
office expenses applicable to the Company would not vary significantly from
the current level of head office expenses incurred by the James Hardie
Businesses.
<PAGE> 1
EXHIBIT 10.21
JAMES HARDIE FINANCE B.V.
(Borrower)
JAMES HARDIE N.V.
and
JAMES HARDIE AUST. INVESTCO PTY LTD
(Guarantors)
and
(Lender)
===============================================================================
364 DAY STANDBY LOAN AGREEMENT
===============================================================================
(C) Allen Allen & Hemsley
Sydney
REF: AGM 1312903 MXK
<PAGE> 2
================================================================================
T A B L E O F C O N T E N T S
================================================================================
<TABLE>
<S> <C> <C>
1. DEFINITIONS AND INTERPRETATION .............................................. 1
1.1 Definitions ..................................................... 1
1.2 Interpretation .................................................. 8
1.3 Document or agreement ........................................... 9
1.4 Determination, statement and certificate ........................ 9
1.5 Repayment and prepayment ........................................ 9
2. PURPOSE ..................................................................... 9
3. DRAWDOWN NOTICES ............................................................ 9
4. LOAN FACILITY ............................................................... 9
4.1 Currency ........................................................ 9
4.2 Advance of Loan ................................................ 10
4.3 Repayment ...................................................... 10
4.4 Continuation of Loan in same currency .......................... 10
5. ORIGINAL DOLLAR AMOUNT OF LOANS ............................................ 10
6. REVIEW OF FACILITY ......................................................... 10
7. SELECTION OF FUNDING PERIODS ............................................... 10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
8. INTEREST ................................................................... 11
8.1 Notification of rates and amounts .............................. 11
8.2 Interest rate .................................................. 11
8.3 Basis of calculation of interest ............................... 11
8.4 Payment of interest ............................................ 11
9. FEES ....................................................................... 11
10. CANCELLATION OF COMMITMENT ................................................. 12
10.1 During Availability Period ..................................... 12
10.2 At end of Availability Period .................................. 12
11. PREPAYMENTS ................................................................ 12
11.1 Voluntary prepayments .......................................... 12
11.2 Interest ....................................................... 12
11.3 Limitation on prepayments ...................................... 12
12. PAYMENTS ................................................................... 12
12.1 Manner ......................................................... 12
12.2 Payment to be made on Business Day ............................. 13
13. TAXATION ................................................................... 13
13.1 Additional payments ............................................ 13
13.2 Reimbursement .................................................. 13
14. CHANGES IN LAW ............................................................. 13
14.1 Increased costs ................................................ 13
14.2 Minimisation ................................................... 14
14.3 Illegality ..................................................... 14
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
15. CONDITIONS PRECEDENT ....................................................... 15
15.1 Conditions precedent to Drawdown Notice ........................ 15
15.2 Conditions precedent to each Loan .............................. 15
16. REPRESENTATIONS AND WARRANTIES ............................................. 15
16.1 Representations and warranties ................................. 15
16.2 Reliance on representations and warranties ..................... 18
17. UNDERTAKINGS ............................................................... 18
17.1 General undertakings ........................................... 18
17.2 Liens .......................................................... 19
17.3 Financial undertakings ......................................... 21
17.4 Term of undertakings ........................................... 21
18. INFORMATION AS TO BORROWER ................................................. 22
18.1 Financial and business information ............................. 22
18.2 Officer's certificate .......................................... 23
19. EVENTS OF DEFAULT .......................................................... 23
19.1 Events of Default .............................................. 23
19.2 Consequences ................................................... 26
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
20. GUARANTEE .................................................................. 26
20.1 Interpretation ................................................. 26
20.2 Guarantee ...................................................... 26
20.3 Payment ........................................................ 26
20.4 Unconditional nature of obligation ............................. 26
20.5 Principal and independent obligation ........................... 27
20.6 No marshalling ................................................. 27
20.7 No competition ................................................. 28
20.8 Suspense account ............................................... 28
20.9 Rescission of payment .......................................... 28
20.10 Indemnity ...................................................... 29
20.11 Continuing guarantee and indemnity ............................. 29
20.12 Variations ..................................................... 29
20.13 Judgment ....................................................... 29
20.14 Conditions precedent ........................................... 29
21. INTEREST ON OVERDUE AMOUNTS ................................................ 30
21.1 Accrual and payment ............................................ 30
21.2 Rate ........................................................... 30
22. INDEMNITIES ................................................................ 30
23. CURRENCY INDEMNITY ......................................................... 31
23.1 General ........................................................ 31
23.2 Reimbursement .................................................. 31
24. REVIEW EVENT ............................................................... 31
25. CONTROL ACCOUNTS ........................................................... 31
26. EXPENSES ................................................................... 31
27. STAMP DUTIES ............................................................... 32
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
28. SET-OFF .................................................................... 32
29. WAIVERS, REMEDIES CUMULATIVE ............................................... 32
30. SEVERABILITY OF PROVISIONS ................................................. 32
31. SURVIVAL OF REPRESENTATIONS ................................................ 32
32. INDEMNITY AND REIMBURSEMENT OBLIGATIONS .................................... 32
33. MORATORIUM LEGISLATION ..................................................... 33
34. CONSENTS AND OPINIONS ...................................................... 33
35. ASSIGNMENTS ................................................................ 33
35.1 Assignment by Borrower and Guarantors .......................... 33
35.2 Assignment by Lender ........................................... 33
35.3 Disclosure ..................................................... 33
35.4 Change of Lending Office ....................................... 33
35.5 No increased costs ............................................. 34
36. NOTICES .................................................................... 34
37. RESPONSIBLE OFFICERS ....................................................... 34
38. FURTHER ASSURANCES ......................................................... 35
39. JURISDICTION ............................................................... 35
39.1 Jurisdiction ................................................... 35
39.2 Process agents ................................................. 35
40. GOVERNING LAW .............................................................. 36
41. COUNTERPARTS ............................................................... 36
42. CONFIDENTIAL INFORMATION ................................................... 36
</TABLE>
<PAGE> 7
================================================================================
STANDBY LOAN AGREEMENT
================================================================================
AGREEMENT dated 1998 between:
1. JAMES HARDIE FINANCE B.V. incorporated in The Netherlands, with
statutory seat at Amsterdam, The Netherlands of Postbus 75084, 1070 AB
Amsterdam, Tripolis 300, Burgerweeshuispad 301, Amsterdam, The
Netherlands (the BORROWER);
2. JAMES HARDIE N.V. incorporated in The Netherlands, with statutory seat
at Amsterdam, The Netherlands of Postbus 75084, 1070 AB Amsterdam,
Tripolis 300, Burgerweeshuispad 301, Amsterdam, The Netherlands (the
PARENT);
3. JAMES HARDIE AUST. INVESTCO PTY LTD (ACN 084 175 584) incorporated in
South Australia of 65 York Street, Sydney, (JHI); and
4. (the LENDER).
RECITAL
The Borrower and the Guarantors have requested the Lender to provide the
Borrower with a facility under which loans of up to US$ (or its
equivalent in Australian Dollars) may be made available to the Borrower.
IT IS AGREED as follows.
1. DEFINITIONS AND INTERPRETATION
A. DEFINITIONS
The following definitions apply unless the context requires
otherwise.
AUTHORISATION includes:
(a) any consent, authorisation, registration,
filing, lodgement, agreement, notarisation,
certificate, permission, licence, approval,
authority or exemption from, by or with a
Governmental Authority; or
(b) in relation to anything which will be fully or
partly prohibited or restricted by law if a
Governmental Authority intervenes or acts in any
way within a specified period after lodgement,
filing, registration or notification, the expiry
of that period without intervention or action.
AVAILABILITY PERIOD means the period commencing on the date of
this Agreement and ending on the Final Maturity Date or, if
earlier, the date on which the Commitment is cancelled.
<PAGE> 8
BBR for a period means:
(a) the average bid rate displayed at or about
10.20am (Sydney time) on the first day of that
period on the Reuters screen BBSY page for a
term equivalent to the period;
(b) if:
(i) for any reason that rate is not
displayed for a term equivalent
to that period; or
(ii) the basis on which that rate is
displayed is changed and in the
opinion of the Lender it ceases
to reflect the Lender's cost of
funding to the same extent as at
the date of this Agreement,
then BBR will be the rate determined by the
Lender to be the average of the buying rates
quoted to the Lender by Australia and New
Zealand Banking Group Limited, Commonwealth Bank
of Australia, National Australia Bank Limited
and Westpac Banking Corporation at or about
10.20am (Sydney time) on that date. The buying
rates must be for bills of exchange accepted by
an Australian bank and which have a term
equivalent to the period; or
(c) if at any time less than 3 of the banks referred
to in paragraph (b) provide quotations at the
request of the Lender, BBR shall be the rate
certified by the Lender to be its cost of funds
for the relevant period.
Rates will be expressed as a yield per cent per annum to
maturity.
BUSINESS DAY means a weekday on which:
(a) for the purposes of making or receiving any
payments in US dollars, banks are open in New
York;
(b) for the purpose of determining LIBOR banks are
open in London; and
(c) for all other purposes, banks are open in
Amsterdam and Sydney.
CAPITAL LEASE means, at any time, a lease with respect to which
the lessee is required concurrently to recognise the acquisition
of an asset and the incurrence of a liability in accordance with
GAAP.
CAPITAL LEASE OBLIGATION means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the
lessee under such Capital Lease which would, in accordance with
GAAP, appear as a liability on a balance sheet of such Person.
CHANGE OF CONTROL means, after the date of the Reorganisation, a
Person acquiring control of the Parent who did not immediately
after the date of Reorganisation have the power to control the
Parent, as the term control is defined in AAS24.
COMMITMENT means US$ as reduced or cancelled under
this Agreement.
CONFIDENTIAL INFORMATION is defined in clause 42.
CONSOLIDATED FUNDED CAPITALISATION means, at any time, the sum of
Consolidated Net Worth and Consolidated Funded Debt.
CONSOLIDATED FUNDED DEBT means, as of any date of determination,
the total of all Funded Debt of the Parent and its Subsidiaries
outstanding on such date, after eliminating all offsetting debits
and credits between any of the Parent and its Subsidiaries and
all other items required to be eliminated in the course of the
preparation of consolidated financial statements of the Parent
and its Subsidiaries in accordance with GAAP.
<PAGE> 9
CONSOLIDATED NET WORTH means, at any time, the sum of:
(a) the par value (or value stated on the books of
the corporation) of the capital stock (but
excluding treasury stock and capital stock
subscribed and unissued) of the Parent and its
Subsidiaries; and
(b) the amount of the paid-in capital and retained
earnings of the Parent and its Subsidiaries,
in each case as such amounts would be shown on a consolidated
balance sheet of the Parent and its Subsidiaries as of such time
prepared in accordance with GAAP.
DEBT means, with respect to any Person, without duplication,
(a) its liabilities for borrowed money (including
all liabilities in respect of letters of credit,
(excluding letters of credit and performance
guarantees posted in respect of payment of
accounts payable arising in the ordinary course
of business) or instruments serving a similar
function issued or accepted for its account by
banks and other financial institutions);
(b) its liabilities for the deferred purchase price
of property acquired by such Person (excluding
accounts payable arising in the ordinary course
of business but including all liabilities
created or arising under any conditional sale or
other title retention agreement with respect to
any such property);
(c) its Capital Lease Obligations;
(d) all liabilities for borrowed money secured by
any Lien with respect to any property owned by
such Person (whether or not it has assumed or
otherwise become liable for such liabilities);
and
(e) all Preferred Stock of Subsidiaries of such
Person which is not owned by such Person or a
Wholly Owned Subsidiary of such Person;
(f) any Guaranty of such Person with respect to
liabilities of a type described in any of
paragraphs (a) to (e) of this definition.
Debt of any Person shall include all obligations of such Person
of the character described in paragraphs (a) to (f) to the extent
such Person remains legally liable in respect thereof
notwithstanding that any such obligation is deemed to be
extinguished under GAAP.
DEFAULT means an event or condition the occurrence of existence
of which would, with the lapse of time or the giving of notice or
both, become an Event of Default.
DRAWDOWN DATE means the date on which any accommodation under
this Agreement is or is to be drawn.
DRAWDOWN NOTICE means a notice under clause 3.
EBIT means the operating profit of the Parent and its
Subsidiaries before adjustments for abnormal or exceptional items
and income tax but after adding back Net Interest Charges,
determined in each case by reference to the latest audited
consolidated financial statements of the Parent and its
Subsidiaries delivered to the Lender under clause 18.1(b).
ENVIRONMENTAL LAWS means any and all United States Federal,
state, local, and foreign statutes, laws,
<PAGE> 10
regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the
protection of the environment or the release of any materials
into the environment, including those related to hazardous
substances or wastes, air emissions and discharges to waste or
public systems.
ERISA means the Employee Retirement Income Security Act of 1974
of the United States of America, as amended from time to time,
and the rules and regulations promulgated thereunder from time to
time in effect.
EVENT OF DEFAULT means any of the events specified in clause 19.
EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
EXCLUDED TAX means a Tax imposed by a jurisdiction on the net
income of the Lender because the Lender has a connection with
that jurisdiction but not a Tax:
(a) which is calculated by reference to the gross
amount of a payment derived by the Lender under
this Agreement or another document referred to
in this Agreement (without the allowance of a
deduction); or
(b) which is imposed as a result of the Lender being
considered to have a connection with that
jurisdiction solely as a result of it being a
party to this Agreement or a transaction
contemplated by this Agreement.
FINAL MATURITY DATE means, subject to clause 12.2, the date which
is 364 days after the date of this Agreement or such later date
as is agreed under clause 6.
FUNDED DEBT means, with respect to any Person, all Debt of such
Person which by its terms or by the terms of any instrument or
agreement relating thereto matures, or which is otherwise payable
or unpaid, one year or more from the date of the creation
thereof, and shall include as of any date of determination the
lowest average monthly balance outstanding under the Borrower's
or JHI's revolving or standby credit facilities in the 12 month
period immediately preceding the date of determination.
FUNDING PERIOD means a period for the fixing of interest rates
for, and the funding of, a Loan. That period commences on the
Drawdown Date of that Loan and has a duration specified in the
Drawdown Notice in respect of that Loan.
GAAP means:
(a) generally accepted accounting principles as in
effect from time to time in the United States of
America; or
(b) in relation to a company incorporated in
Australia, accounting principles and practices
applying by law or otherwise generally accepted
in Australia, consistently applied.
GOVERNMENTAL AUTHORITY means
(a) the government of:
(i) the United States of America or
any State or other political
subdivision thereof; or
(ii) any jurisdiction in which the
Parent or any Subsidiary
conducts all or any part of its
business, or which asserts
jurisdiction over any properties
of the Parent or any Subsidiary;
or
(iii) the jurisdiction of
incorporation or domicile of the
Parent or any Subsidiary.
(b) any entity exercising executive, legislative,
judicial, regulatory or administrative functions
of, or pertaining to, any such government.
<PAGE> 11
GUARANTOR means:
(a) the Parent; or
(b) JHI.
GUARANTY means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person
guaranteeing or in effect guaranteeing any indebtedness, dividend
or other obligation of any other Person in any manner, whether
directly or indirectly, including obligations incurred through an
agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or
any property constituting security therefor;
(b) to advance or supply funds (i) for the purchase
or payment of such indebtedness or obligation,
or (ii) to maintain any working capital or other
balance sheet condition or any income statement
condition of any other Person or otherwise to
advance or make available funds for the purchase
or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or
services primarily for the purpose of assuring
the owner of such indebtedness or obligation of
the ability of any other Person to make payment
of the indebtedness or obligation; or
(d) otherwise to assure the owner of such
indebtedness or obligation against loss in
respect thereof.
In any computation of the indebtedness or other liabilities of
the obligor under any Guaranty, the indebtedness or other
obligations that are the subject of such Guaranty shall be
assumed to be direct obligations of such obligor.
LENDING OFFICE means the office of the Lender described above or
another office designated by it as a Lending Office by notice to
the Borrower.
LIBOR for a period means:
(a) the rate determined by the Lender to be the rate
for deposits in US dollars for a term equivalent
to that period displayed on the Telerate Page
3750 at or about 10.20am (London time) 2
Business Days before the first day of the
period; or
(b) if:
(i) for any reason there are no
rates displayed for a term
equivalent to that period; or
(ii) the basis on which those rates
are displayed is changed and in
the opinion of the Lender those
rates cease to reflect the
Lender's cost of funding to the
same extent as at the date of
this Agreement,
then LIBOR will be the rate determined by the
Lender to be the average of the rates quoted to
it by 3 leading banks selected by Chase
Manhattan Bank, Citibank N.A. and Union Bank of
Switzerland in the London interbank market at or
about 10.20am (London time) 2 Business Days
before that period for the making of deposits in
US dollars with the Lender for a term comparable
to that period.
<PAGE> 12
LIEN means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any
interest or title of any vendor, lessor, lender or other secured
party to or of such Person under any conditional sale or other
title retention agreement or Capital Lease, upon or with respect
to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all
similar arrangements).
LIQUIDATION includes receivership, compromise, arrangement,
amalgamation, administration, reconstruction, winding up,
dissolution, assignment for the benefit of creditors, bankruptcy
or death.
LOAN means each loan lent or to be lent under this Agreement
which has the same Funding Period.
MARGIN means [0.45] per annum.
MATERIAL ADVERSE EFFECT means a material adverse effect on:
(a) the business, operations, affairs, financial
condition, assets or properties of the Parent
and its Subsidiaries taken as a whole;
(b) the ability of the Borrower or a Guarantor to
perform its obligations under this Agreement; or
(c) the validity or enforceability of this
Agreement.
MEMORANDUM means the Information Memorandum dated 7 August 1998
delivered by Warburg Dillon Read to the Lender.
NET INTEREST CHARGES means all continuing, regular or periodic
costs, charges and expenses (including interest, discount costs,
charges and expenses (including but not limited to interest,
discount costs and any and all fees associated with or incurred
under any Debt) incurred by the Parent and any of its
Subsidiaries in effecting, servicing or maintaining at any time
its Debt, less interest income received by or arising to the
Parent or such Subsidiaries in the same period for which such Net
Interest Charges are being determined, in each case by reference
to the financial statements referred to in clause 18.1.
OBLIGOR means:
(a) the Borrower; or
(b) a Guarantor.
ORIGINAL DOLLAR AMOUNT means, in relation to a Loan or part of a
Loan, the US dollar amount of that Loan or part nominated in the
relevant Drawdown Notice reduced from time to time by any
prepayment and/or repayment of that Loan or part other than a
repayment under clause 4.4.
PERSON means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated
organisation, or a government or agency or political subdivision
thereof.
PREFERRED STOCK means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such
corporation as to payment of dividends or the payment of any
amount upon liquidation or dissolution of such Person.
PRINCIPAL OUTSTANDING means the total principal amount of all
outstanding Loans.
REORGANISATION means the reorganisation and capital restructuring
of certain companies owned, at the date of this Agreement, by
James Hardie Industries Limited, as described in pages A-7 to A-8
of the Memorandum.
<PAGE> 13
RESPONSIBLE OFFICER means:
(a) in respect of an Obligor, any Senior Financial
Officer and any other officer of an Obligor with
responsibility for the administration of the
relevant portion of this Agreement; and
(b) in respect of the Lender, any person whose title
or acting title includes the word MANAGER,
DIRECTOR or PRESIDENT or cognate expressions, or
any secretary or director.
REVIEW DATE means 30 April and 31 October in each year,
commencing with 30 April 1999.
SAME DAY FUNDS means:
(a) for Australian dollars, immediately available
Australian dollar funds; or
(b) for US dollars, US dollar funds settled through
the New York Clearing House Interbank Payments
System (or another manner of payment in US
dollars specified by the Lender as being
customary for the settlement of international
transactions of the type contemplated by this
Agreement).
SECURED DEBT means, with respect to any Person, any Debt of such
Person that is secured in any manner by any Lien on any property.
SECURED MONEY means all money which the Borrower (whether alone
or not) is or at any time may become actually or contingently
liable to pay to or for the account of the Lender (whether alone
or not) for any reason whatever under or in connection with this
Agreement.
It includes money by way of principal, interest, fees, costs,
indemnities, charges, duties or expenses or payment of liquidated
or unliquidated damages under or in connection with this
Agreement, or as a result of a breach of or default under or in
connection with this Agreement.
Where the Borrower would have been liable but for its
Liquidation, it will be taken still to be liable.
SENIOR FINANCIAL OFFICER means, in relation to an Obligor, the
chief financial officer, principal accounting officer, treasurer
or comptroller of that Obligor.
SUBSIDIARY means, as to any Person, any corporation, association
or other business entity in which such Person or one or more of
its Subsidiaries or such Person and one or more of its
Subsidiaries owns sufficient equity or voting interests to enable
it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership
or joint venture if more than a 50% interest in the profits or
capital thereof is owned by such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries
(unless such partnership can and does ordinarily take
major business actions without the prior approval of such Person
or one or more of its Subsidiaries). Unless the context otherwise
clearly requires, any reference to a SUBSIDIARY is a reference to
a Subsidiary of the Parent.
SUBORDINATED DEBT means debt that is in any manner subordinated
in right of payment or security in any respect to the Secured
Money.
TAX includes any tax, levy, impost, deduction, charge, rate,
duty, compulsory loan or withholding which is levied or imposed
by a Governmental Authority, and any related interest, penalty,
charge, fee or other amount.
UNDRAWN COMMITMENT means the Commitment less the total Original
Dollar Amount of all Loans.
<PAGE> 14
WHOLLY-OWNED SUBSIDIARY means, at any time, any Subsidiary, one
hundred percent (100%) of all of the equity interests (except
directors' qualifying shares) and voting interests of which are
owned by any one or more of the Parent and the Parent's other
Wholly-Owned Subsidiaries at such time.
YEAR 2000 PROBLEM means the risk that computer applications used
by the Parent and each Subsidiary may be unable to recognise and
perform date sensitive functions involving certain dates prior to
and any date after 31 December 1999.
B. INTERPRETATION
Headings are for convenience only and do not affect
interpretation. The following rules apply unless the context
requires otherwise.
1. The singular includes the plural and the
converse.
2. A gender includes all genders.
3. Where a word or phrase is defined, its other
grammatical forms have a corresponding meaning.
4. A reference to a person, corporation, trust,
partnership, unincorporated body or other entity
includes any of them.
5. A reference to a clause, annexure or schedule is
a reference to a clause of, or annexure or
schedule to, this Agreement.
6. A reference to a party to this Agreement or
another agreement or document includes the
party's successors and permitted substitutes or
assigns.
7. A reference to legislation or to a provision of
legislation includes a modification or
re-enactment of it, a legislative provision
substituted for it and a regulation or statutory
instrument issued under it.
8. A reference to WRITING includes a facsimile
transmission and any means of reproducing words
in a tangible and permanently visible form.
9. A reference to CONDUCT includes an omission,
statement or undertaking, whether or not in
writing.
10. Mentioning anything after INCLUDE, INCLUDES or
INCLUDING does not limit what else might be
included.
11. A reference to an ASSET or PROPERTY, unless
otherwise specifically limited, includes any
real or personal property of any kind, tangible
or intangible, choate or inchoate.
12. An Event of Default SUBSISTS until it has been
waived in writing by the Lender or remedied.
13. A reference to an amount for which a person is
CONTINGENTLY LIABLE includes an amount which
that person may become actually or contingently
liable to pay if a contingency occurs, whether
or not that liability will actually arise.
C. DOCUMENT OR AGREEMENT
A reference to:
1. an AGREEMENT includes a Lien, Guaranty,
undertaking, deed, agreement or legally
enforceable arrangement whether or not in
writing; and
<PAGE> 15
2. a DOCUMENT includes an agreement (as so defined)
in writing or a certificate, notice, instrument
or document.
A reference to a specific agreement or document includes it as
amended, novated, supplemented or replaced from time to time,
except to the extent prohibited by this Agreement.
D. DETERMINATION, STATEMENT AND CERTIFICATE
Except where otherwise provided in this Agreement any
determination, statement or certificate by the Lender or a
Responsible Officer of the Lender provided for in this Agreement
is sufficient evidence unless proven wrong.
E. REPAYMENT AND PREPAYMENT
1. A reference to REPAYMENT or PREPAYMENT of all or
part of a Loan is to payment to the Lender in
the relevant currency of the relevant amount
determined, in the case of part of a Loan, in
accordance with paragraph (b).
2. Where part of a Loan is to be repaid or prepaid
the Borrower shall repay or prepay in the
currency of the Loan the same fraction of the
Loan as the Original Dollar Amount of the amount
to be prepaid or repaid is of the Original
Dollar Amount of the Loan.
II. PURPOSE
The Borrower shall use the net proceeds of all Loans for general
corporate purposes.
III. DRAWDOWN NOTICES
To make a drawing the Borrower shall give to the Lender an
irrevocable Drawdown Notice substantially in the form of annexure
A. That Drawdown Notice must be received by the Lender not later
than 11 am (Sydney time) 3 Business Days before the proposed
Drawdown Date (which must be a Business Day).
IV. LOAN FACILITY
A. CURRENCY
The currency of each Loan will be:
1. US dollars; or
2. Australian Dollars,
as requested by the Borrower in the relevant Drawdown Notice.
B. ADVANCE OF LOAN
1. Subject to this Agreement, whenever the Borrower
requests a Loan the Lender will provide that
Loan by 1pm (local time in the place of payment)
on the relevant Drawdown Date in Same Day Funds
in the relevant currency to the account
specified in the relevant Drawdown Notice.
(b) The Lender will not be obliged to provide a Loan
if as a result the total Original Dollar Amount
of all outstanding Loans would exceed the
Commitment.
<PAGE> 16
C. REPAYMENT
The Borrower shall repay each Loan on the last day of its Funding
Period in the currency in which it is then denominated except to
the extent it is redrawn on that day.
D. CONTINUATION OF LOAN IN SAME CURRENCY
If all or part of a Loan is to be redrawn on the last day of its
Funding Period in the same currency, then on that day the
Borrower and the Lender will not be obliged to repay or provide
the amount of the Loan which is being redrawn in that currency.
V. ORIGINAL DOLLAR AMOUNT OF LOANS
The Borrower shall ensure that the Original Dollar Amount of each
Loan is a minimum of US$5,000,000 or the Undrawn Commitment
unless the Lender agrees otherwise.
VI. REVIEW OF FACILITY
1. The Borrower may, not more than 75 Business Days
and not less than 45 Business Days prior to a
Review Date request an extension of the Final
Maturity Date to a date falling 364 days after
that Review Date [(or, in respect of the Review
Date falling on 30 April 2003, to the date
falling 5 years after the date of this
Agreement)].
[2. The Borrower may not request that the Final
Maturity Date extend beyond the date which is 5
years after the date of this Agreement.]
3. A request by the Borrower shall be in writing in
the form provided for in annexure C and given to
the Lender.
4. The Lender may at its discretion accept or
decline any such request.
5. If the Lender wishes to accept any such request,
then it shall return its copy of the notice
referred to in paragraph (a) above as signed by
it to the Borrower within 7 days of the Review
Date, and the Final Maturity Date will then be
extended to the date specified in the notice.
VII. SELECTION OF FUNDING PERIODS
1. Subject to this clause, the Borrower may only
select Funding Periods of 1, 2, 3 or 6 months.
2. The Borrower may select any other period agreed
by the Lender to enable consolidation of Loans.
3. If a Funding Period ends on a day which is not a
Business Day, that Funding Period will be
extended to the next Business Day in the same
calendar month or, if none, the preceding
Business Day.
4. If a Funding Period of a number of months
commences on a date in a month and there is no
corresponding date in the month in which it is
to end, it will end on the last Business Day of
the latter month.
5. No Funding Period may extend beyond the Final
Maturity Date.
6. If the Borrower fails to select Funding Periods
complying with this clause the Lender may vary
any Drawdown Notice to ensure compliance.
VIII. INTEREST
A. NOTIFICATION OF RATES AND AMOUNTS
The Lender will notify the Borrower of the interest rates and
amounts of currency determined under this clause as soon as they
are ascertained. Failure to do so will not affect the obligations
of the Borrower in any way.
<PAGE> 17
B. INTEREST RATE
Interest accrues from day to day on each Loan for each Funding
Period at the rate per annum determined by the Lender to be the sum
of the Margin and in the case of a Loan denominated in:
1. US dollars, LIBOR; and
2. Australian dollars, BBR,
for that Funding Period.
C. BASIS OF CALCULATION OF INTEREST
That interest will be calculated on the basis of the actual number
of days elapsed and in the case of a Loan denominated in:
1. US dollars, a year of 360 days; and
2. Australian dollars, a year of 365 days.
D. PAYMENT OF INTEREST
The Borrower shall pay that accrued interest in the relevant
currency on the last day of the relevant Funding Period.
IX. FEES
A. FACILITY FEE
1. A facility fee is payable at the rate of [0.20]% per
annum on the daily amount of the Commitment from the
date of this Agreement.
2. The facility fee is calculated on the actual number of
days and on the basis of a year of 360 days.
3. The Borrower shall pay the facility fee in US dollars in
advance on the first Business Day of each calendar
quarter, commencing with a payment on the date of this
Agreement.
[4. On cancellation of all or part of the Commitment, the
Lender shall refund to the Borrower any facility fee
paid on such cancelled Commitment in respect of the
period after the date of such cancellation.]
[B. ESTABLISHMENT FEE
On the date of first drawdown under this Agreement, the Borrower
shall pay to the Lender an establishment fee of US$20,000.]
X. CANCELLATION OF COMMITMENT
A. DURING AVAILABILITY PERIOD
On giving not less than 30 days irrevocable notice to the Lender the
Borrower may cancel all or part of the Undrawn Commitment at any
time during the Availability Period. A partial cancellation must be
in a minimum of US$5,000,000, unless the Lender agrees otherwise.
B. AT END OF AVAILABILITY PERIOD
At the close of business (Sydney time) on the last day of the
Availability Period the Commitment will be cancelled.
<PAGE> 18
XI. PREPAYMENTS
A. VOLUNTARY PREPAYMENTS
1. Subject to this clause, if it gives at least 30 days'
prior notice to the Lender the Borrower may prepay all
or part of the Principal Outstanding. That notice is
irrevocable. The Borrower shall prepay in accordance
with it.
2. Unless the Lender agrees otherwise, the Borrower may
only prepay a Loan on the last day of its Funding
Period.
3. Unless the Lender agrees otherwise, prepayment of part
only of a Loan may only be made of a part having an
Original Dollar Amount of a minimum of US$5,000,000.
B. INTEREST
When the Borrower prepays any amount it shall pay interest accrued
on that amount.
C. LIMITATION ON PREPAYMENTS
The Borrower may not prepay all or any part of the Principal
Outstanding except as set out in this Agreement.
XII. PAYMENTS
A. MANNER
The Obligors shall make all payments under this Agreement in Same
Day Funds:
1. if in US dollars, by 11am (New York time) on the due
date to the account specified in schedule 1, or any
other account from time to time notified by the Lender;
and
2. if in Australian dollars, by 11am (Sydney time) on the
due date to the account specified by the Lender from
time to time in respect of Australian dollars,
without set-off, counterclaim or other deduction except any
compulsory deduction for Taxation.
B. PAYMENT TO BE MADE ON BUSINESS DAY
Whenever any payment becomes due on a day which is not a Business
Day, the due date will be the preceding Business Day.
XIII. TAXATION
A. ADDITIONAL PAYMENTS
Whenever an Obligor is obliged to make a deduction in respect of Tax
from any payment under this Agreement it shall:
1. pay the amount deducted to the appropriate Governmental
Authority in accordance with applicable law and deliver
to the Lender official receipts evidencing payment of
that amount; and
2. unless the Tax is an Excluded Tax, pay the Lender
together with such payment any additional amounts
necessary to ensure that the Lender receives when due a
net amount (after payment of any Taxes in respect of
those additional amounts) in the relevant currency equal
to the full amount which it would have received had a
deduction not been made.
<PAGE> 19
B. REIMBURSEMENT
1. Whenever:
a. an Obligor pays any additional amount under
clause 13.1(b) (ADDITIONAL PAYMENTS) in
respect of deducted Tax; and
b. the Lender decides that it has received any
clearly identifiable relief for the deducted
Tax in computing its income Tax,
the Lender will promptly pay to the relevant Obligor the
amount of any consequent reduction in its income Tax,
but only to the extent that it determines that a payment
to the relevant Obligor can be made without prejudice to
the retention of the relief.
2. Nothing in paragraph (a) interferes with the right of
the Lender to arrange its tax affairs in any manner it
thinks fit. In particular, the Lender need not claim any
relief in respect of deducted Tax in priority to any
other relief available to it. Nor need it disclose to an
Obligor any information regarding its tax affairs or tax
computations.
XIV. CHANGES IN LAW
A. INCREASED COSTS
Whenever the Lender determines that:
1. the effective cost to the Lender or any of its holding
companies of making, funding or maintaining any Loan or
the Commitment is increased in any way;
2. any amount paid or payable to the Lender or received or
receivable by the Lender, or the effective return to the
Lender or any of its holding companies, under or in
respect of this Agreement is reduced in any way;
3. the return of the Lender or any of its holding companies
on the capital which is or becomes directly or
indirectly allocated by the Lender or the holding
company to any Loan or the Commitment is reduced in any
way; or
4. to the extent that any relevant law, official directive
or request relates to or affects the Commitment, any
Loan or this Agreement, the overall return on capital of
the Lender or any of its holding companies is reduced in
any way,
5. a cost is imposed on the Lender or any of its holding
companies due to its provision or maintenance of the
Commitment or any Loan,
as a result of any change in, any making of, or any change in the
interpretation or application by any Governmental Authority of, any
law, official directive or request, then:
6. the Lender will promptly notify the Borrower; and
7. after the giving of 30 days' written notice by the
Lender to the Borrower of its intention to require
compensation, from time to time the Borrower shall pay
the Lender the amount certified by a Responsible Officer
of the Lender to be necessary to compensate the Lender
or the relevant holding company (as the case may be) for
the increased cost or the reduction, such certificate to
include the basis on which such amount has been
calculated.
<PAGE> 20
Without limiting the above in any way, this clause applies:
8. to any law, official directive or request with respect
to Taxation (except an Excluded Tax) or reserve,
liquidity, capital adequacy, special deposit or similar
requirements; and
9. to official directives or requests which do not have the
force of law where it is the practice of responsible
bankers or financial institutions in the country
concerned to comply with them.
B. MINIMISATION
1. (NO DEFENCE) If the Lender and (if applicable) its
holding company have acted in good faith it will not be
a defence that any cost, reduction or payment or loss of
tax credit referred to in clause 13.1 (TAXATION) or this
clause could have been avoided.
(b) (MINIMISATION) The Lender will use reasonable endeavours
to minimise any cost, reduction or payment or loss of
tax credit referred to in this clause or the effect of
any unlawfulness or impracticability referred to in
clause 14.3.
C. ILLEGALITY
If the making of any law or treaty, or a change in the
interpretation or application by any Governmental Authority of any
law or treaty makes it unlawful or impracticable for the Lender to
make, fund or maintain the advances required under this Agreement:
1. the Lender may terminate the Commitment by notice to the
Borrower;
2. if required by the law or treaty, or if necessary to
prevent or remedy a breach of the law or treaty, the
Borrower shall prepay the Principal Outstanding,
together with all interest, fees and other amounts
payable under this Agreement; and
3. the Borrower shall make the prepayment immediately or,
if in the opinion of the Lender delay in prepayment is
permitted by, or will not cause a breach of, the law or
treaty, no later than the latest permitted day.
XV. CONDITIONS PRECEDENT
A. CONDITIONS PRECEDENT TO DRAWDOWN NOTICE
The right of the Borrower to give a Drawdown Notice and the
obligations of the Lender under this Agreement are subject to the
condition precedent that the Lender receives in form and substance
satisfactory to the Lender:
1. (VERIFICATION CERTIFICATE) a certificate in relation to
each Obligor given by a director of the relevant Obligor
substantially in the form of annexure B with the
attachments referred to;
2. (LEGAL OPINIONs) legal opinions from De Brauw Blackstone
Westbroek P.C., Netherlands legal advisors to the
Borrower and the Parent and Allen Allen & Hemsley,
Australian legal advisors to the Borrower and the
Parent;
3. (REORGANISATION) evidence that the Reorganisation has
occurred; and
[4. (REDUCTION OF COMMITMENT) evidence that the commitment
of the Lender under a revolving loan agreement dated on
or about the date of this Agreement between the Lender
and each Obligor, has been reduced to A$50,000,000 or
less.]
<PAGE> 21
B. CONDITIONS PRECEDENT TO EACH LOAN
The obligations of the Lender to make available each Loan are
subject to the further conditions precedent that:
1. (REPRESENTATIONS TRUE)
a. the representations and warranties by each
Obligor in this Agreement are true as at the
date of the first Drawdown Notice and the
first Drawdown Date; and
b. the representations and warranties by each
Obligor in paragraphs (a), (b), (c), (d)(i),
(e), (f), (g), (i), (j), (k), (l) and (n) of
clause 16.1 are true as at the date of each
subsequent Drawdown Notice and the relevant
Drawdown Date,
as though they had been made at that date in respect of
the facts and circumstances then subsisting; and
2. (NO DEFAULT) no Event of Default or Default subsists at
the date of the relevant Drawdown Notice and the
relevant Drawdown Date or will result from the provision
of the Loan.
XVI. REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES
Each Obligor makes the following representations and warranties.
1. (ORGANIZATION; POWER AND AUTHORITY) Each Obligor is a
corporation duly incorporated and validly existing under
the laws of The Netherlands in the case of the Borrower
and the Parent, and South Australia in the case of JHI.
2. (CORPORATE AUTHORIZATION, DOCUMENTS BINDING) This
Agreement has been duly authorized by all necessary
corporate action on the part of each Obligor, and this
Agreement constitutes a legal, valid and binding
obligation of each Obligor enforceable against each
Obligor in accordance with its terms, except as such
enforceability may be limited by:
a. applicable bankruptcy, insolvency,
reorganization, moratorium or other similar
laws affecting the enforcement of creditors'
rights generally; and
b. general principles of equity (regardless of
whether such enforceability is considered in
a proceeding in equity or at law).
3. (COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC) The
execution, delivery and performance by each Obligor of
this Agreement will not:
a. contravene its Memorandum or Articles of
Association or other constituent documents;
b. result in the creation of any Lien in
respect of any property of any Obligor or
any Subsidiary;
c. contravene any law to which any Obligor or
any Subsidiary is bound or by which any
Obligor or any Subsidiary or any of their
respective properties may be bound or
affected;
<PAGE> 22
d. conflict with or result in a breach of any
of the terms, conditions or provisions of
any order, judgment, decree, or ruling of
any court, arbitrator or Governmental
Authority applicable to any Obligor or any
Subsidiary;
e. violate any provision of any statute or
other rule or regulation of any Governmental
Authority applicable to any Obligor or any
Subsidiary; or
f. result in the acceleration or cancellation
of any agreement or obligation in respect of
Debt of the Parent or any of its
Subsidiaries.
4. (DISCLOSURE)
a. All information given to the Lender by it or
with its authority was, when given, true and
correct in all material respects as at the
date of this Agreement or, if later, when
provided.
b. There is no fact known to any Obligor that
could reasonably be expected to have a
Material Adverse Effect that has not been
set forth in this Agreement or in the
Memorandum or in the other documents,
certificates and other writings delivered to
the Lender by or on behalf of any Obligor
specifically for use in connection with the
transactions.
5. (OWNERSHIP) After the Reorganisation has occurred, the
Parent will be the ultimate beneficial owner of the
whole of the issued share capital of the Borrower.
6. (FINANCIAL STATEMENTS)
a. The most recent financial statements of
James Hardie Industries Limited and its
Subsidiaries (including in each case the
related schedules and notes) fairly present
in all material respects the consolidated
financial position of James Hardie
Industries Limited and its Subsidiaries as
of the end of the financial period to which
they relate and have been prepared in
accordance with GAAP consistently applied
throughout the periods involved except as
set forth in the notes thereto (subject, in
the case of any interim financial
statements, to normal year-end adjustments).
b. Since the date of delivery of those
statements, there has been no change in the
financial condition, operations, business or
prospects of any Obligor or any Subsidiary
except changes that individually or in the
aggregate could not reasonably be expected
to have a Material Adverse Effect.
7. (AUTHORISATIONS ETC) All Authorisations necessary or
advisable in connection with the execution, delivery or
performance by each Obligor of this Agreement have been
obtained and are in full force and effect.
8. (LITIGATION) No litigation, arbitration, administrative
proceeding or other procedure for the resolution of
disputes is currently taking place, pending or to its
knowledge, threatened against it (including, in the case
of the Parent its Subsidiaries) or its business, assets
or revenues involving a claim or claims in an amount
exceeding (whether alone or in aggregate) US$5,000,000
and which could reasonably be expected to have a
Material Adverse Effect.
9. (LIENS) No Lien exists over any of the assets or
resources of any Obligor which is not permitted by
clause 17.2.
10. (ENVIRONMENTAL MATTERS) The Parent and each of its
Subsidiaries has complied with all applicable
Environmental Laws and the terms and conditions of any
Authorisation issued pursuant to an Environmental Law,
except where a failure to be in compliance could not,
individually or in aggregate, reasonably be expected to
effect in any way a Material Adverse
<PAGE> 23
Effect and as far as it knows, there are no outstanding
or threatened claims relating to any breach of
Environmental Law against it or any Subsidiary of the
Parent which could, individually or in aggregate,
reasonably be expected to have in any way a Material
Adverse Effect.
11. (NO IMMUNITY) Neither it nor any of its assets or
revenues has any immunity from jurisdiction, suit,
execution, attachment or other legal process in any
jurisdiction in which its assets are located or it
carries on business.
12. (RANKING) Its obligations under this Agreement rank pari
passu with all its other unsecured and unsubordinated
obligations other than those mandatorily preferred by
law.
13. (FINANCIAL BENEFIT TO A RELATED PARTY) The execution of
this Agreement and the performance by it of its
obligations or the exercise of its rights under it, and
without relying on any provision of Division 4 or 5 of
Part 3.2A of the Corporations Law, other than section
243M do not and will not contravene section 243H of the
Corporations Law.
14. (OTHER DEFAULT) Neither the Parent nor any of its
Subsidiaries is in default under any law, Authorisation,
agreement or obligation binding upon it or applicable to
its business, assets or revenues which could reasonably
be expected to have a Material Adverse Effect.
[15. (YEAR 2000 ISSUES) The Borrower has made a full and
complete assessment of the Year 2000 Problem and has a
realistic and achievable program for remediating the
Year 2000 Problem on a timely basis. Based on such
assessment and program, the Borrower does not
reasonably anticipate that the Year 2000 Problem will
have a Material Adverse Effect on its operations,
business or financial condition.]
B. RELIANCE ON REPRESENTATIONS AND WARRANTIES
Each Obligor acknowledges that the Lender has entered this Agreement
in reliance on the representations and warranties in this clause.
XVII. UNDERTAKINGS
A. GENERAL UNDERTAKINGS
Each Obligor undertakes to the Lender as follows.
1. (AUTHORISATIONS) Each Obligor will obtain, comply with
and maintain in full force and effect all Authorisations
necessary or advisable in connection with the execution,
delivery and performance by it and the validity and
enforceability against it of this Agreement to the
extent necessary to ensure that non-compliance with such
Authorisations or failures to obtain or maintain in
effect such Authorisations could not, individually or in
the aggregate, reasonably be expected to have a Material
Adverse Effect.
2. (NATURE OF BUSINESS) Neither the Parent nor any
Subsidiary will engage in any business if, as a result,
the general nature of the business, taken on a
consolidated basis, which would then be engaged in by
the Parent and its Subsidiaries would be substantially
changed from the general nature of the business engaged
in by the Parent and its Subsidiaries on the date on
which the Reorganisation occurred.
3. (COMPLIANCE WITH LAWS) The Parent and each Subsidiary
will comply with all laws binding on it, except to the
extent of any noncompliance which, individually or in
the aggregate, could not reasonably be expected to have
a Material Adverse Effect.
4. (ENVIRONMENTAL COMPLIANCE) The Parent and each
Subsidiary will:
a. obtain and maintain all Authorisations that
are required of it under all Environmental
Laws other than those which the failure to
obtain or maintain,
<PAGE> 24
individually or in the aggregate, could not
reasonably be expected to have, a Material
Adverse Effect;
b. comply with all terms and conditions of all
such Authorisations and with all other
limitations, restrictions, conditions,
standards, prohibitions, requirements,
obligations, schedules, and timetables
contained in all Environmental Laws or in
any regulation, ordinance or code applicable
to it and any plan, order, decree, judgment,
injunction, notice, or demand letter issued,
entered, promulgated, or approved thereunder
directly applicable to it except to the
extent of any noncompliance which,
individually or in the aggregate, could not
reasonably be expected to have a Material
Adverse Effect; and
c. operate all property owned or leased by it
such that no claim or obligation, including
a clean-up obligation, which individually or
in the aggregate, could reasonably be
expected to have a Material Adverse Effect
shall arise under any Environmental Law, and
if any claim is made against it or any such
obligation shall arise under any
Environmental Law, it shall at its own cost
and expense, timely satisfy such claim or
obligation, provided no such claim or
obligation need be satisfied for so long as:
(1) it is being contested in good
faith by appropriate proceedings
promptly initiated and
diligently conducted; and
(2) such reserves or other
appropriate provision, if any,
as shall be required by GAAP
shall have been made therefor.
5. (YEAR 2000 ISSUES) The Parent and each Subsidiary will
continue or commence reviewing the areas within its
respective businesses and operations which could be
adversely affected by the Year 2000 Problem, develop
programmes to address any issues identified by such
review on a timely basis and notify the Lender
immediately it identifies such an issue that is likely
to have a Material Adverse Effect.
[6. (INSURANCE) It will insure and keep insured all its
assets which are of an insurable nature in the manner
and to the extent which a business enterprise holding
similar property, and engaged in a business in a similar
locality, would prudently insure against.]
B. LIENS
Each Obligor undertakes to the Lender that the Parent will not, and
will not permit any of its Subsidiaries to, directly or indirectly
create, incur, assume or permit to exist (upon the happening of a
contingency or otherwise) any Lien on or with respect to any
property or asset (including any document or instrument in respect
of goods or accounts receivable) of the Parent or any such
Subsidiary, whether now owned or held or hereafter acquired, or any
income or profits therefrom, or assign or otherwise convey any right
to receive income or profits, except:
1. Liens for taxes, assessments or other governmental
charges which are not yet due and payable or the payment
of which is not at the time required by law;
2. statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar
Liens, in each case, incurred in the ordinary course of
business for sums not yet due and payable or sums which
are being contested in good faith;
3. Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business:
a. in connection with workers' compensation,
unemployment insurance and other types of
social security or retirement benefits; or
b. to secure (or to obtain letters of credit
that secure) the performance of tenders,
statutory obligations, surety bonds, appeal
bonds, bids, leases (other than Capital
Leases), performance bonds, purchase,
construction or sales contracts and other
similar obligations,
<PAGE> 25
in each case not incurred or made in connection with the
borrowing of money, the obtaining of advances or credit
or the payment of the deferred purchase price of
property;
4. any attachment or judgment Lien, unless the judgment it
secures shall not, within 90 days after the entry
thereof, have been discharged or execution thereof
stayed pending appeal, or shall not have been discharged
within 90 days after the expiration of any such stay;
5. leases or subleases granted to others, easements,
rights-of-way, restrictions and other similar charges or
encumbrances, in each case incidental to, and not
interfering with, the ordinary conduct of the business
of the Parent or any of its Subsidiaries, provided that
such Liens do not, in the aggregate, materially detract
from the value of such property;
6. Liens on property or assets of the Parent or any of its
Subsidiaries securing Debt owing to the Parent or to any
of its Wholly-Owned Subsidiaries (other than the
Borrower);
7. any Lien created to secure all or any part of the
purchase price, or to secure Debt incurred or assumed to
pay all or any part of the purchase price or cost of
construction, of property (or any improvement thereon)
acquired or constructed by the Parent or a Subsidiary
after the first Drawdown Date, provided that
a. any such Lien shall extend solely to the item or
items of such property (or improvement thereon) so
acquired or constructed and, if required by the
terms of the instrument originally creating such
Lien, other property (or improvement thereon)
which is an improvement to or is acquired for
specific use in connection with such acquired or
constructed property (or improvement thereon) or
which is real property being improved by such
acquired or constructed property (or improvement
thereon);
b. the principal amount of the Debt secured by any
such Lien shall:
(1) at no time exceed an amount equal to the fair
market value (as determined in good faith by
the Parent) of such property at the time of
such acquisition or construction; and
(2) not be increased beyond the amount secured at
the date of such acquisition or of completion
of that construction; and
c. any such Lien shall be created contemporaneously
with, or within 180 days after, the acquisition or
construction of such property;
8. any Lien existing on property of a Person immediately
prior to its being consolidated with or merged into the
Parent or a Subsidiary or its becoming a Subsidiary, or
any Lien existing on any property acquired by the
Borrower or any Subsidiary at the time such property is
so acquired (whether or not the Debt secured thereby
shall have been assumed), provided that:
a. no such Lien shall have been created or assumed
in contemplation of such consolidation or merger
or such Person's becoming a Subsidiary or such
acquisition of property;
b. each such Lien shall extend solely to the item or
items of property so acquired and, if required by
the terms of the instrument originally creating
such Lien, other property which is an improvement
to or is acquired for specific use in connection
with such acquired property; and
<PAGE> 26
c. the principal amount of Debt secured by any
such Lien shall not be increased beyond the
amount secured at the date of such
consolidation, merger or acquisition, or of
such Person becoming a Subsidiary;
9. any Lien renewing, extending or refunding any Lien
permitted by paragraphs (g), or (h) of this clause 17.2,
provided that:
a. the principal amount of Debt secured by such
Lien immediately prior to such extension,
renewal or refunding is not increased or the
maturity thereof reduced;
b. such Lien is not extended to any other
property; and
c. immediately after such extension, renewal or
refunding no Default or Event of Default
would exist; and
10. other Liens to secure Debt incurred after the date of
first drawing under this Agreement permitted by clause
17.3(c).
C. FINANCIAL UNDERTAKINGS
1. (CONSOLIDATED NET WORTH) The Parent will at all times
ensure that:
a. Consolidated Net Worth is not less than:
(1) US$250 million for the year
ending 31 March 1999;
(2) US$275 million for the year
ending 31 March 2000;
(3) US$300 million for the year
ending 31 March 2001; and
(4) US$320 million for each year
after that.
2. (INCURRENCE OF FUNDED DEBT) The Parent will not, and
will not permit any Subsidiary to, directly or
indirectly, create, incur, assume, guarantee, or
otherwise become directly or indirectly liable with
respect to, any Funded Debt, unless on the date the
Parent or such Subsidiary becomes liable with respect to
any such Debt and immediately after giving effect
thereto and the concurrent retirement of any other Debt,
a. no Default or Event of Default exists, and
b. the ratio of Consolidated Funded Debt to
Consolidated Funded Capitalization does not
exceed:
(1) 60% in the year ending 31 March
1999; and
(2) 55% for each year after that.
For the purposes of this clause 17.3(b), any Person
becoming a Subsidiary after the date hereof shall be
deemed, at the time it becomes a Subsidiary, to have
incurred all of its then outstanding Debt, and any
Person extending, renewing or refunding any Debt shall
be deemed to have incurred such Debt at the time of such
extension, renewal or refunding.
3. (SECURED DEBT) The Parent will not at any time permit
the aggregate amount of Secured Debt of the Parent and
its Subsidiaries (excluding Debt owing to the Parent or
a Wholly-Owned Subsidiary) to exceed 20% of Consolidated
Net Worth.
<PAGE> 27
4. (EBIT) EBIT will not be less than twice Net Interest
Charges in any year ending 31 March.
D. TERM OF UNDERTAKINGS
Each undertaking in this clause continues from the date of this
Agreement until the Secured Money is fully and finally repaid.
XVIII. INFORMATION AS TO BORROWER
A. FINANCIAL AND BUSINESS INFORMATION
The Parent shall deliver to the Lender the following:
1. (QUARTERLY STATEMENTS) Within 60 days after the end of
each quarterly fiscal period in each fiscal year of the
Parent (other than the last quarterly fiscal period of
each such fiscal year) a copy of,
a. a consolidated balance sheet of the Parent
and its Subsidiaries as at the end of such
quarter, and
b. consolidated statements of income, changes
in shareholders' equity and cash flows of
the Parent and its Subsidiaries, for such
quarter and (in the case of the second and
third quarters) for the portion of the
fiscal year ending with such quarter,
setting forth in each case in comparative form the
figures for the corresponding periods in the previous
fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial
statements generally, and certified by a Senior
Financial Officer as fairly presenting, in all material
respects, the financial position of the companies being
reported on and their results of operations and cash
flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time
period specified above of copies of the Parent's
Quarterly Report on Form 10-Q prepared in compliance
with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to
satisfy the requirements of this clause 18.1(a);
2. (ANNUAL STATEMENTS) Within 105 days after the end of
each fiscal year of the Parent a copy of:
a. a consolidated balance sheet of the Parent
and its Subsidiaries, as at the end of such
year; and
b. consolidated statements of income, changes
in shareholders' equity and cash flows of
the Parent and its Subsidiaries, for such
year,
setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP, and
accompanied by an opinion thereon of independent
certified public accountants of recognised national
standing, which opinion shall state that such financial
statements present fairly, in all material respects, the
financial position of the companies being reported upon
and their results of operations and cash flows and have
been prepared in conformity with GAAP, and that the
examination of such accountants in connection with such
financial statements has been made in accordance with
generally accepted auditing standards, and that such
audit provides a reasonable basis for such opinion in
the circumstances, and provided that the delivery within
the time period specified
<PAGE> 28
above of the Parent's Annual Report on Form 10-K for
such fiscal year (together with the Parent's annual
report to shareholders, if any, prepared pursuant to
Rule 14a-3 under the Exchange Act) prepared in
accordance with the requirements therefor and filed with
the Securities and Exchange Commission shall be deemed
to satisfy the requirements of this clause 18.1(b).
3. (SEC AND OTHER REPORTS) Promptly upon their becoming
available, one copy of:
a. each financial statement, report, notice or
proxy statement sent by an Obligor or any
Subsidiary to public securities holders
generally; and
b. each regular or periodic report, each
registration statement (without exhibits
except as expressly requested by the
Lender), and each prospectus and all
amendments thereto filed by the Parent or
any Subsidiary with the Securities and
Exchange Commission and of all press
releases and other statements made available
generally by any Obligor or any Subsidiary
to the public concerning developments that
are material.
4. (NOTICE OF DEFAULT OR EVENT OF DEFAULT) The Parent will
promptly notify the Lender of:
a. the existence of any Default or Event of
Default;
b. the commencement of any litigation,
arbitration or administrative proceeding of
the nature described in clause 16.1(h); and
c. the occurrence of any event which will or
could reasonably be expected to have a
Material Adverse Effect.
5. (REQUESTED INFORMATION) Such other information relating
to the business, operations and condition, (financial or
otherwise) of any Obligor or any Subsidiary as from time
to time may be reasonably requested by the Lender.
B. OFFICER'S CERTIFICATE
Each set of financial statements delivered to the Lender pursuant to
clause 18.1(a) or 18.1(b) shall be accompanied by a certificate of a
Senior Financial Officer setting forth:
1. (COVENANT COMPLIANCE) the information (including
detailed calculations) required in order to establish
whether the Obligors were in compliance with the
requirements of paragraphs (a), (b), (c) and (d) of
clause 17.3, during the quarterly or annual period
covered by the statements then being furnished
(including with respect to each such paragraph, where
applicable, the calculations of the maximum or minimum
amount, ratio or percentage, as the case may be,
permissible under the terms of such paragraphs, and the
calculation of the amount, ratio or percentage then in
existence); and
2. (EVENT OF DEFAULT) a statement that such officer has
reviewed the relevant terms hereof and has made, or
caused to be made, under his or her supervision, a
review of the transactions and conditions of the
Obligors and each Subsidiary from the beginning of the
quarterly or annual period covered by the statements
then being furnished to the date of the certificate and
that such review shall not have disclosed the existence
during such period of any condition or event that
constitutes a Default or an Event of Default or, if any
such condition or event existed or exists (including any
such event or condition resulting from the failure of
any Obligor or any Subsidiary to comply with any
Environmental Law), specifying the nature and period of
existence thereof and what action each Obligor shall
have taken or proposes to take with respect thereto.
<PAGE> 29
XIX. EVENTS OF DEFAULT
A. EVENTS OF DEFAULT
Each of the following is an Event of Default whether or not it is in
the control of any Obligor.
1. (NON-PAYMENT OF PRINCIPAL) The Borrower fails to pay an
amount of principal payable by it under this Agreement
when due.
2. (NON-PAYMENT OF INTEREST) The Borrower fails to pay any
amount, other than an amount described in paragraph (a),
payable by it under this Agreement and does not remedy
that failure within 5 Business Days after the same
becomes due and payable.
3. (OTHER DEFAULT) Any Obligor defaults in the performance
of or compliance with any term contained herein (other
than those referred to in paragraphs (a) or (b) of this
clause 19.1) and such default is not remedied within 30
days of an Obligor receiving written notice of such
default from the Lender (any such written notice to be
identified as a "notice of default" and to refer
specifically to this paragraph (c) of clause 19.1).
4. (MISREPRESENTATION) Any representation or warranty made
in writing by or on behalf of any Obligor or by any
officer of any Obligor in this Agreement or in any
writing furnished in connection with the transactions
contemplated hereby proves to have been false or
incorrect in any material respect on the date as of
which made but if the Lender determines that the
circumstances underlying that misrepresentation are
capable of being rectified so that the Lender does not
suffer any adverse effect, it shall not be an Event of
Default if those circumstances are rectified within 30
days after written notice from the Lender to an Obligor
requiring rectification.
5. (CROSS DEFAULT)
(i) The Parent or any Subsidiary is in default
in the payment of any Debt that is
outstanding in an aggregate principal amount
of at least US$10,000,000 beyond any period
of grace provided with respect thereto and
such Debt is not paid within 3 Business
Days; or
(ii) Debt exceeding US$10,000,000 of the Parent
or any Subsidiary has become, or has been
declared (or one or more Persons are
entitled to declare such Debt to be), due
and payable before its stated maturity and
such Debt is not paid within 3 Business
Days.
6. (INSOLVENCY) Any Obligor:
a. is generally not paying, or admits in
writing its inability to pay, its debts as
they become due;
b. files, or consents by answer or otherwise to
the filing against it of, a petition for
relief or reorganization or arrangement or
any other petition in bankruptcy, for
liquidation or to take advantage of any
bankruptcy, insolvency, reorganization,
moratorium or other similar law of any
jurisdiction;
c. makes an assignment for the benefit of its
creditors;
d. consents to the appointment of a custodian,
receiver, receiver and manager, trustee or
other officer with similar powers with
respect to it or with respect to any
substantial part of its property;
<PAGE> 30
e. consents to the appointment of an
administrator;
f. is adjudicated as insolvent or to be
liquidated; or
(vi) takes corporate action for the purpose of
any of the foregoing.
7. (RECEIVER)
(i) A court or Governmental Authority of
competent jurisdiction enters an order
appointing, without consent by the Parent or
any of its Subsidiaries, a custodian,
receiver, receiver and manager, trustee or
other officer with similar powers with
respect to it or with respect to any
substantial part of its property, or
constituting an order for relief or
approving a petition for relief or
reorganization or any other petition in
bankruptcy or for liquidation or to take
advantage of any bankruptcy or insolvency
law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of
the Parent or any of its Subsidiaries, or
any such petition shall be filed against the
Parent or any of its Subsidiaries (other
than a frivolous or vexatious petition) and
such petition shall not be dismissed or
cancelled within 60 days: or
(ii) an administrator of the Parent or any
Subsidiary is appointed; or
(iii) a receiver, receiver and manager,
administrative receiver or similar officer
is appointed to all or any substantial part
of its assets in respect of Debt that is
outstanding in an aggregate principal amount
of at least US$10,000,000 and that officer
is not removed within 5 days of his
appointment,
8. (JUDGMENT) A final judgment or judgments for the payment
of money aggregating in excess of US$10,000,000 are
rendered against one or more of the Parent and its
Subsidiaries and which judgments are not, within 60 days
after entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within 60 days
after the expiration of such stay.
9. (VITIATION OF DOCUMENTS)
a. Any material provision of this Agreement
ceases for any reason to be in full force
and effect or becomes void, voidable or
unenforceable;
b. any law suspends, varies, terminates or
excuses performance by an Obligor of any of
its material obligations under this
Agreement or purports to do any of the same;
c. it becomes impossible or unlawful for an
Obligor to perform any of its material
obligations under this Agreement or for the
Lender to exercise all or any of its rights,
powers and remedies under this Agreement; or
d. an Obligor alleges that this Agreement has
been affected as described in this
paragraph.
10. (OWNERSHIP OF BORROWER) The Borrower ceases to be
directly or indirectly fully owned and controlled by the
Parent.
11. (FINANCIAL UNDERTAKINGS) There is at any time a breach
of any financial undertaking in clause 17.3 or the
Parent fails to deliver a certificate as required by
clause 18.2 within 7 days of receipt of written notice
from the Lender of failure to provide such certificate.
<PAGE> 31
12. (AUTHORISATION) Any Authorisation necessary or advisable
from any person for or in connection with the execution,
delivery, performance by any Obligor, validity or
enforceability of this Agreement is not granted or
ceases to be in full force and effect for any reason or
is modified or amended in a manner which, in the
reasonable opinion of the Lender, might have a Material
Adverse Effect.
13. (MATERIAL CHANGE) A change occurs in the financial
condition of the Parent or any of its Subsidiaries which
has a Material Adverse Effect.
B. CONSEQUENCES
In addition to any other rights provided by law or this Agreement,
at any time after an Event of Default (whether or not it is
continuing) the Lender may do all or either of the following:
1. by notice to the Borrower declare the Secured Money
immediately due and payable, and the Borrower will
immediately pay the Secured Money; and
2. by notice to the Borrower cancel the Commitment.
XX. GUARANTEE
A. INTERPRETATION
Unless the context requires otherwise, in this clause a reference
to:
1. ANY PERSON includes any other Guarantor and the
Borrower; and
2. ANY DOCUMENT OR AGREEMENT includes this Agreement.
B. GUARANTEE
The Guarantors jointly and severally unconditionally and irrevocably
guarantee the due and punctual payment of the Secured Money. Each
Guarantor enters into this Agreement for valuable consideration
which includes the Lender entering into this Agreement at its
request.
C. PAYMENT
1. On demand from time to time each Guarantor shall pay an
amount equal to the Secured Money then due and payable
in the same manner and currency which the Borrower is
(or would have been but for its Liquidation) required to
pay the Secured Money under the relevant Transaction
Document.
2. A demand need only specify the amount owing. It need not
specify the basis of calculation of that amount.
C. [3. It is not necessary to make demand on the Borrower
before making demand on each Guarantor under this
clause.]
D. UNCONDITIONAL NATURE OF OBLIGATION
Neither this Agreement nor the obligations of any Guarantor under
this Agreement will be affected by anything which but for this
provision might operate to release, prejudicially affect or
discharge them or in any way relieve any Guarantor from any
obligation. This includes the following:
1. the grant to any person of any time, waiver or other
indulgence, or the discharge or release of any person;
<PAGE> 32
2. any transaction or arrangement that may take place
between the Lender and any person;
3. the Liquidation of any person;
4. the Lender becoming a party to or bound by any
compromise, moratorium, assignment of property, scheme
of arrangement, deed of company arrangement, composition
of debts or scheme of reconstruction by or relating to
any person;
5. the Lender exercising or delaying or refraining from
exercising or enforcing any document or agreement or any
right, power or remedy conferred on it by law or by any
document or agreement;
6. all or any part of any document or agreement held by the
Lender at any time or of any right, obligation, power or
remedy changing, ceasing or being transferred (this
includes amendment, variation, novation, replacement,
rescission, invalidity, extinguishment, repudiation,
avoidance, unenforceability, frustration, failure,
expiry, termination, loss, release, discharge,
abandonment or (assignment);
7. the taking or perfection of any document or agreement or
failure to take or perfect any document or agreement;
8. the failure by any person or the Lender to notify any
Guarantor of any default by any person under any
document or agreement or other circumstance;
9. the Lender obtaining a judgment against any person for
the payment of any Secured Money;
10. any legal limitation, disability, incapacity or other
circumstance relating to any person;
11. any change in any circumstance (including in the members
or constitution of any person);
12. any document or agreement is not executed by any person,
or is not valid or binding on any person; or
13. any increase in the Secured Money for any reason
(including as a result of anything referred to above),
whether with or without the consent of the Guarantors. Without
limitation, this Agreement binds a Guarantor even if it is, or has
become, the only Guarantor bound. None of the above paragraphs
limits the generality of any other.
E. PRINCIPAL AND INDEPENDENT OBLIGATION
This clause is a principal and independent obligation. Except for
stamp duty purposes, it is not ancillary or collateral to another
document, agreement, right or obligation.
F. NO MARSHALLING
The Lender is not obliged to marshal or appropriate in favour of any
Guarantor or to exercise, apply or recover:
1. any Lien, Guaranty, document or agreement held by the
Lender at any time; or
2. any of the funds or assets that the Lender may be
entitled to receive or have a claim on.
<PAGE> 33
G. NO COMPETITION
Until the Secured Money has been irrevocably paid and discharged in
full no Guarantor is entitled to, and no Guarantor shall:
1. be subrogated to the Lender or claim the benefit of any
Lien or Guaranty held by the Lender at any time;
2. upon the Liquidation of the Borrower, or any person who
gives a Guaranty or Lien in respect of any Secured Money
either directly or indirectly prove in, claim or receive
the benefit of, any distribution, dividend or payment;
or
3. have or claim any right of contribution or indemnity
from the Borrower, or any person who gives a Guaranty or
Lien in respect of any Secured Money.
The receipt of any distribution, dividend or other payment by the
Lender out of or relating to any Liquidation will not prejudice the
right of the Lender to recover the Secured Money by enforcement of
this Agreement.
H. SUSPENSE ACCOUNT
In the event of the Liquidation of the Borrower or any other person
(including any Guarantor) each Guarantor authorises the Lender to do
the following until the Lender has been paid the Secured Money in
full:
1. prove in respect of all moneys which the Guarantors have
paid the Lender under this Agreement; and
2. a. retain and carry to a suspense account; and
b. appropriate at the discretion of the Lender,
any dividend received in the Liquidation of the Borrower
or any other person and any other money received in
respect of the Secured Money.
I. RESCISSION OF PAYMENT
Whenever any of the following occurs for any reason (including under
any law relating to Liquidation, fiduciary obligations or the
protection of creditors):
1. all or part of any transaction of any nature (including
any payment or transfer) made during the term of this
Agreement which affects or relates in any way to the
Secured Money is void, set aside or voidable;
2. any claim that anything contemplated by paragraph (a) is
so upheld, conceded or compromised; or
3. the Lender is required to return or repay any money or
asset received by it under any such transaction or the
equivalent in value of that money or asset,
the Lender will immediately become entitled against each Guarantor
to all rights in respect of the Secured Money which it would have
had if all or the relevant part of the transaction or receipt had
not taken place. Each Guarantor shall indemnify the Lender against
any resulting loss, cost or expense. This clause continues after
this Agreement is discharged.
<PAGE> 34
J. INDEMNITY
If any Secured Money (including moneys which would have been Secured
Money if they were recoverable) is not recoverable from the Borrower
for any reason each Guarantor shall indemnify the Lender and shall
pay that money to the Lender on demand. The reason may include any
legal limitation, disability, incapacity or thing affecting the
Borrower or any failure to execute properly an agreement or
document.
This applies whether or not:
1. any transaction relating to the Secured Money was void
or illegal or has been subsequently avoided; or
2. any matter or fact relating to that transaction was or
ought to have been within the knowledge of the Lender.
K. CONTINUING GUARANTEE AND INDEMNITY
This clause:
1. is a continuing guarantee and indemnity;
2. will not be taken to be wholly or partially discharged
by the payment at any time of any Secured Money or by
any settlement of account or other matter or thing; and
3. remains in full force until the Secured Money has been
paid in full and the Guarantors have completely
performed their obligations under this Agreement.
L. VARIATIONS
This clause covers the Secured Money as varied from time to time
including as a result of:
1. any amendment to, or waiver under this Agreement; or
2. the provision of further accommodation to the Borrower,
and whether or not with the consent of or notice to the Guarantors.
This does not limit any other provision.
M. JUDGMENT
A judgment obtained against the Borrower will be conclusive against
each Guarantor.
N. CONDITIONS PRECEDENT
Any condition or condition precedent to the provision of financial
accommodation is for the benefit of the Lender and not the
Guarantors. Any waiver of or failure to satisfy such a condition or
condition precedent will be disregarded in determining whether an
amount is part of the Secured Money.
XXI. INTEREST ON OVERDUE AMOUNTS
A. ACCRUAL AND PAYMENT
1. (ACCRUAL) Interest accrues on each unpaid amount which
is due and payable by the Borrower or a Guarantor under
or in respect of this Agreement (including interest
payable under this clause):
a. on a daily basis up to the date of actual
payment from (and including) the due date;
b. both before and after judgment (as a
separate and independent obligation); and
c. at the rate provided in clause 21.2 (RATE).
<PAGE> 35
2. (PAYMENT) Each Obligor shall pay interest accrued under
this clause on demand from time to time and on the last
Business Day of each calendar quarter. That interest is
payable in the currency of the unpaid amount on which it
accrues and shall be compounded at such intervals as the
Lender considers appropriate.
B. RATE
The rate applicable under this clause is the sum of:
1. 2% per annum; and
2. the aggregate of the Margin and:
a. in the case of amounts denominated in US
dollars, LIBOR; and
b. in the case of amounts denominated in
Australian dollars, BBR,
calculated from time to time with reference to such
successive periods and on such dates as the Lender
considers appropriate.
XXII. INDEMNITIES
The Borrower shall indemnify the Lender against any loss, cost,
charge, liability or expense (including legal costs on a full
indemnity basis) the Lender (or any officer or employee of the
Lender) may sustain or incur as a direct or indirect result of:
1. any Event of Default or Default occurring;
2. any failure by the Borrower to draw down an Advance in
accordance with a Drawdown Notice or to make a
prepayment in accordance with a notice of prepayment; or
3. any prepayment made other than on the last day of a
Funding Period and in accordance with this Agreement
(including, any loss or expense incurred in liquidating
or redeploying funds from third parties to make or
maintain any Advance or in terminating or reversing any
arrangements entered into in connection with the funding
of any Advance and any loss of profits that the Lender
may suffer by reason of the early liquidation or
redeployment of such funds or the termination or
reversal of such arrangements).
XXIII. CURRENCY INDEMNITY
A. GENERAL
The Borrower shall indemnify the Lender against any deficiency which
arises whenever for any reason (including as a result of a judgment
or order or Liquidation):
(a) the Lender receives or recovers an amount in one
currency (the PAYMENT CURRENCY) in respect of an amount
denominated under this Agreement in another currency
(the DUE CURRENCY); and
(b) the amount actually received or recovered by the Lender
in accordance with its normal practice when it converts
the Payment Currency into the Due Currency is less than
the relevant amount of the Due Currency.
<PAGE> 36
B. REIMBURSEMENT
Where an amount to be reimbursed or indemnified against under this
Agreement is denominated in another currency, if the Lender so
requests, the Borrower shall reimburse or indemnify it against the
amount of US dollars which the Lender certifies that it used to buy
the relevant amount of the other currency under its normal
procedures. If the Lender does not so request, the Borrower shall
reimburse or indemnify it in the relevant currency.
XXIV. REVIEW EVENT
If, at any time after the date of this Agreement and for any reason,
whether or not within the control of a party, a Change of Control
occurs and at that time or at any time thereafter the Lender
determines, in its sole discretion, that it has reasonable grounds
for believing that an Obligor will not or may not (or will or may be
unable to) perform or comply with any one or more of its obligations
under this Agreement due to either:
1. changes made, or proposed to be made, to the business of
the Borrower or to the business of the Parent and its
Subsidiaries taken as a whole (whether by a single
transaction or a series of related or unrelated
transactions, whether at one time or over a period of
time and whether by disposal, acquisition or otherwise);
or
2. any change in the financial condition or operations of
an Obligor,
then the Lender may by notice to the Borrower cancel its Commitment
with immediate effect and/or declare the Secured Money to be, and
the Secured Money will be, due and payable within 60 days from the
date of that notice.
XXV. CONTROL ACCOUNTS
The accounts kept by the Lender constitute sufficient evidence,
unless proven wrong, of the amount at any time due from the Borrower
under this Agreement.
XXVI. EXPENSES
The Borrower shall reimburse the Lender for its reasonable expenses
in relation to:
1. the preparation, execution and completion of this
Agreement and any subsequent consent, approval, waiver
or amendment; and
2. any consent, waiver, variation, calculation, release or
discharge requested by the Borrower; and
3. following the occurrence of an Event of Default and
while that Event of Default subsists, any inspection or
valuation to be made or given by or to the Lender under
this Agreement and the actual enforcement of, or
preservation of rights, powers and remedies under this
Agreement.
XXVII. STAMP DUTIES
1. The Borrower shall pay all stamp, transaction,
registration and similar Taxes (including fines and
penalties) payable in relation to the execution,
delivery, performance or enforcement of this Agreement
or any payment or receipt or any other transaction
contemplated by this Agreement.
2. Those Taxes include financial institutions duty, debits
tax or other Taxes payable by return and Taxes passed on
to the Lender by a bank or financial institution.
3. The Borrower shall indemnify the Lender against any
liability resulting from delay or omission to pay those
Taxes except to the extent the liability results from
failure by the Lender to pay any Tax after having been
put in funds to do so by the Borrower.
<PAGE> 37
XXVIII. SET-OFF
1. If an Event of Default subsists the Lender may apply any
credit balance in any currency (whether or not matured)
in any account of the Borrower or a Guarantor with the
Lender towards satisfaction of any sum then due and
payable by it to the Lender under or in relation to this
Agreement. The Lender need not make the application.
2. The Lender may exchange currencies to make that
application.
XXIX. WAIVERS, REMEDIES CUMULATIVE
1. No failure to exercise and no delay in exercising any
right, power or remedy under this Agreement operates as
a waiver. Nor does any single or partial exercise of any
right, power or remedy preclude any other or further
exercise of that or any other right, power or remedy.
2. The rights, powers and remedies provided to the Lender
in this Agreement are in addition to, and do not exclude
or limit, any right, power or remedy provided by law.
XXX. SEVERABILITY OF PROVISIONS
Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction is ineffective as to that jurisdiction to the
extent of the prohibition or unenforceability. That does not
invalidate the remaining provisions of this Agreement nor affect the
validity or enforceability of that provision in any other
jurisdiction.
XXXI. SURVIVAL OF REPRESENTATIONS
All representations and warranties in this Agreement survive the
execution and delivery of this Agreement and the provision of
advances and accommodation.
XXXII. INDEMNITY AND REIMBURSEMENT OBLIGATIONS
Unless otherwise stated, each indemnity, reimbursement or similar
obligation in this Agreement:
1. is a continuing obligation;
2. is a separate and independent obligation;
3. is payable on demand; and
4. survives termination or discharge of this Agreement.
XXXIII. MORATORIUM LEGISLATION
To the full extent permitted by law all legislation which at any
time directly or indirectly:
1. lessens, varies or affects in favour of the Borrower or
a Guarantor any obligation under this Agreement; or
2. delays, prevents or prejudicially affects the exercise
by the Lender of any right, power or remedy conferred by
this Agreement, is excluded from this Agreement.
<PAGE> 38
XXXIV. CONSENTS AND OPINIONS
Except where expressly stated the Lender may give or withhold, or
give conditionally, approvals and consents, may be satisfied or
unsatisfied, may form opinions, and may exercise its rights, powers
and remedies at its absolute discretion.
XXXV. ASSIGNMENTS
A. ASSIGNMENT BY BORROWER AND GUARANTORS
The Borrower and any Guarantor may only assign or transfer any of
their rights or obligations under this Agreement with the prior
written consent of the Lender.
B. ASSIGNMENT BY LENDER
The Lender may assign or transfer all or any of its rights or
obligations under this Agreement at any time if:
1. the Parent has given its prior consent, which consent it
shall not withhold unreasonably;
2. in the case of a transfer of obligations, the transfer
is effected by a novation in form and substance
reasonably satisfactory to the Borrower.
C. DISCLOSURE
Subject to clause 35.2(a), the Lender may disclose to a proposed
assignee, transferee or sub-participant information which relates to
an Obligor or was furnished in connection with this Agreement if it
first obtains the consent of the Parent (who shall not unreasonably
withhold or delay that consent).
D. CHANGE OF LENDING OFFICE
The Lender may change its Lending Office if it first notifies and
consults with the Borrower.
E. NO INCREASED COSTS
Despite anything to the contrary in this Agreement, if the Lender
assigns its rights under this Agreement or changes its Lending
Office, the Borrower will not be required to pay or absorb with
respect to the assignee or new Lending Office any net increase in
the total amount of costs, Taxes, fees or charges which arise or may
arise as a result of or in connection with such assignment or new
Lending Office.
XXXVI. NOTICES
All notices, requests, demands, consents, approvals, agreements or
other communications to or by a party to this Agreement:
1. must be in writing;
2. must be signed by a Responsible Officer of the sender;
and
3. will be taken to be duly given or made:
a. (in the case of delivery in person or by
post, facsimile transmission or cable) when
delivered, received or left at the address
of the recipient shown in this Agreement or
to any other address which it may have
notified the sender; or
<PAGE> 39
b. (in the case of a telex) on receipt by the
sender of the answerback code of the
recipient at the end of transmission,
but if delivery or receipt is on a day on which business
is not generally carried on in the place to which the
communication is sent or is later than 4pm (local time),
it will be taken to have been duly given or made at the
commencement of business on the next day on which
business is generally carried on in that place;
4. must, in the case of notice to the Borrower or the
Parent be sent to:
World Trade Centre
Tower C
Level 4
Strawinskylaan 819
PO Box 819
1070 XX Amsterdam
The Netherlands
For the attention of: Don Cameron; and
5. must, in the case of notice to JHI, have a copy sent to
the Borrower at the address in paragraph (d) above.
XXXVII. RESPONSIBLE OFFICERS
Each Obligor irrevocably authorises the Lender to rely on a
certificate by a person purporting to be its director or secretary
as to the identity and signatures of its Responsible Officers. Each
Obligor warrants that those persons have been authorised to give
notices and communications under or in connection with this
Agreement.
Each Guarantor warrants that each Responsible Officer of the
Borrower is authorised to sign Drawdown Notices on behalf of each
Guarantor.
XXXVIII. FURTHER ASSURANCES
The Borrower will at its own expense and when requested by the
Lender from time to time to do so, promptly do, execute and deliver
all such other and further acts and instruments as are necessary or,
in the reasonable opinion of the Lender, desirable for more
satisfactorily giving effect to this Agreement and for more fully
vesting in the Lender all rights, remedies and powers conferred or
intended to be conferred by this Agreement and must cause any
relevant third parties to do, execute and deliver the same.
XXXIX. JURISDICTION
A. JURISDICTION
With respect to any legal action or proceedings relating to this
Agreement (each, a RELEVANT ACTION), each of the Guarantors and the
Borrower irrevocably:
1. submits to and accepts, for itself and in respect of its
assets, generally and unconditionally the non-exclusive
jurisdiction of any of the courts of Australia or any of
its states or territories selected by the Lender;
<PAGE> 40
2. waives any objection to the venue and any claim that the
Relevant Action has been brought in an inconvenient
forum; and
3. consents to the service of process out of any of those
courts by the mailing of copies of process by registered
or certified airmail postage prepaid to it at its
address for service of notices under clause 36 or to its
process agent at its address provided in the following
sub-clause, in which case such service will be taken to
have been effected on receipt.
Nothing in this Agreement affects the right to serve process in any
other manner permitted by law.
B. PROCESS AGENTS
1. Each of the Parent and the Borrower irrevocably:
a. nominates as its agent to receive service of
process or other documents in any Relevant
Action:
James Hardie Aust. Investco Pty Ltd
65 York Street
Sydney NSW 2000
Fax: 9262 4394
Attention: Company Secretary
b. agrees that service on that agent or any
other person appointed under paragraph (b)
will be sufficient service on it.
2. Each of the Borrower and the Parent shall ensure each
process agent remains authorised to accept service on
its behalf. If any process agent ceases to have an
office in the place specified, each of the Borrower and
the Parent shall ensure that there is another person in
that place acceptable to the Lender to receive process
on its behalf. It shall promptly notify the Lender of
the appointment of that other person.
3. JHI accepts its appointment by the Parent and the
Borrower as agent to receive service of process or other
documents in any Relevant Action.
XL. GOVERNING LAW
This Agreement is governed by the laws of New South Wales.
XLI. COUNTERPARTS
This Agreement may be executed in any number of counterparts. All
counterparts together will be taken to constitute one instrument.
XLII. CONFIDENTIAL INFORMATION
1. For the purposes of this clause, CONFIDENTIAL
INFORMATION means information delivered to the Lender by
or on behalf of the Parent or any Subsidiary in
connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary
in nature and that was clearly marked or labelled or
otherwise adequately identified when received by the
Lender as being confidential information of the Parent
or such Subsidiary, provided that such term does not
include information that:
a. was publicly known or otherwise known to the
Lender prior to the time of such disclosure;
b. subsequently becomes publicly known through
no act or omission by the Lender or any
person acting on its behalf;
<PAGE> 41
c. otherwise becomes known to the Lender other
than through disclosure by the Parent or any
Subsidiary; or
d. constitutes financial statements delivered
to the Lender under clause 18.1 that are
otherwise publicly available.
2. The Lender will maintain the confidentiality of such
Confidential Information in accordance with procedures
adopted by it in good faith to protect confidential
information of third parties delivered to it, provided
that the Lender may deliver or disclose Confidential
Information to:
a. its directors, officers, employees, agents,
attorneys and affiliates (to the extent such
disclosure reasonably relates to the
administration of this Agreement);
b. the Lender's financial advisors and other
professional advisors who agree to hold
confidential the Confidential Information
substantially in accordance with the terms
of this clause 42;
c. a proposed assignee, transferee or
sub-participant in accordance with clause
35.3;
d. any United States federal or state
regulatory authority having jurisdiction
over the Lender;
e. the National Association of Insurance
Commissioners or any similar organization,
or any nationally recognized rating agency
that requires access to information about
the Lender; or
f. any other Person to which such delivery or
disclosure may be necessary or appropriate:
(1) to effect compliance with any
law, rule, regulation or order
applicable to the Lender;
(2) in response to any subpoena or
other legal process;
(3) in connection with any
litigation to which the Lender
is a party; or
(4) if an Event of Default has
occurred and is subsisting, to
the extent the Lender may
reasonably determine such
delivery and disclosure to be
necessary or appropriate in the
enforcement or for the
protection of the rights and
remedies under this Agreement.
EXECUTED as an agreement.
Each attorney executing this Agreement states that he has no notice of
revocation or suspension of his power of attorney.
THE BORROWER
SIGNED on behalf of )
JAMES HARDIE FINANCE B.V. )
by its attorney in the presence of: )
_____________________________________________
_____________________________________________
_____________________________________________
Signature
_____________________________________________
_____________________________________________
Witness Print name
_____________________________________________
Print name
<PAGE> 42
THE GUARANTORS
SIGNED on behalf of )
JAMES HARDIE N.V. )
by its attorney in the presence of: )
_____________________________________________
Signature
_____________________________________________
_____________________________________________
Witness Print name
_____________________________________________
Print name
SIGNED on behalf of )
JAMES HARDIE AUST. INVESTCO PTY LTD )
by its attorney in the presence of: )
_____________________________________________
Signature
_____________________________________________
Witness Print name
_____________________________________________
Print name
THE LENDER
SIGNED on behalf of )
)
)
by its attorney in the presence of: )
_____________________________________________
Signature
_____________________________________________
_____________________________________________
Witness Print name
_____________________________________________
Print name
<PAGE> 43
ANNEXURE A
DRAWDOWN NOTICE
To:
_________________JAMES HARDIE FINANCE B.V. - DRAWDOWN NOTICE NO. [*]
We refer to the Loan Agreement dated [*] 1998 (the LOAN AGREEMENT).
Under clause 3 of the Loan Agreement we give you irrevocable notice as follows:
(1) we wish to draw on [*] 19[*] (the DRAWDOWN DATE);
[NOTE: DATE IS TO BE A BUSINESS DAY.]
(2) the total Original Dollar Amount to be drawn is [*];
[NOTE: AMOUNT TO COMPLY WITH THE LIMITS IN CLAUSE 4.]
(3) particulars of [each/the] Loan are as follows:
ORIGINAL DOLLAR AMOUNT FUNDING
[CURRENCY] (STATED IN [*] DOLLARS) PERIOD
---------- ----------------------- -------
[NOTE: AMOUNTS TO COMPLY WITH CLAUSE 5 AND LENGTH OF FUNDING PERIOD
TO COMPLY WITH CLAUSE 7.]
(5) we request that the proceeds be remitted to account number [*] at
[*];
[NOTE: THE ACCOUNT(S) TO BE COMPLETED ONLY IF FUNDS NOT REQUIRED IN
REPAYMENT OF PREVIOUS LOAN(S).]
(6) we represent and warrant on behalf of the Borrower that:
(a) [(except as disclosed in paragraph (c)] the
representations and warranties in paragraphs
(a),(b),(c),(d)(i),(e),(f),(g),(i),(j),(k), (l) and (n)
of clause 16.1 of the Loan Agreement are true as though
they had been made at the date of this Drawdown Notice
and the Drawdown Date specified above in respect of the
facts and circumstances then subsisting; [and]
(b) [(except as disclosed in paragraph (c)] no Event of
Default [or Default] subsists or will result from the
drawing; [and]
[(c) details of the exceptions to paragraphs (a) and (b) are
as follows: [*], and we [have taken/propose] the
following remedial action [*];]
[NOTE: INCLUSION OF A STATEMENT UNDER PARAGRAPH (C) SHALL NOT
PREJUDICE THE CONDITIONS PRECEDENT IN THE AGREEMENT.]
Definitions in the Loan Agreement apply in this Drawdown Notice.
On behalf of JAMES HARDIE FINANCE B.V.
By: ______________________ [Responsible Officer]
DATED: _______________, 19[*]
<PAGE> 44
ANNEXURE B
VERIFICATION CERTIFICATE
To:
_________________________________ LOAN AGREEMENT
I [*] am a [director] of [*] Limited (the COMPANY).
I refer to the Loan Agreement (the LOAN AGREEMENT) dated [*] 1998 between James
Hardie Finance B.V. as Borrower, James Hardie N.V. and James Hardie Aust.
Investco Pty Ltd as Guarantors and ____________________ as Lender.
Definitions in the Loan Agreement apply in this Certificate.
I CERTIFY as follows.
1. Attached to this Certificate are complete and up to date copies of:
(a) the memorandum and articles of association of the
Company (marked A);
(b) a duly stamped power of attorney granted by the Company
for the execution of the Loan Agreement (marked B). That
power of attorney has not been revoked or suspended by
the Company and remains in full force and effect; and
(c) extracts of minutes of a meeting of the directors of the
Company approving execution of the Loan Agreement to
which it is expressed to be a party, appointing
attorneys for that purpose and appointing Responsible
Officers of the Company for the purpose of this
Agreement (marked C). Those resolutions have not been
amended, modified or revoked and are in full force and
effect.
2. The following are signatures of the Responsible Officers of the
Company and the persons who have been authorised to sign the Loan
Agreement and to give notices and communications under or in
connection with the Loan Agreement.
RESPONSIBLE OFFICERS
NAME POSITION SIGNATURE
---- -------- ---------
* *
* *
* *
<PAGE> 45
SIGNATORIES
NAME POSITION SIGNATURE
---- -------- ---------
* *
* *
* *
Signed:__________________________
Director
__________________________
Print name
DATED: _________________, 1998
<PAGE> 46
ANNEXURE C
FORM OF EXTENSION LETTER
Date: [*]
To:
We refer to the US$ Loan Agreement (the "Agreement") dated [ ] 1998
made between ourselves, James Hardie Finance B.V. and James Hardie Aust.
Investco Pty Ltd and James Hardie N.V. as Guarantors and yourselves as Lender.
We request that the Final Maturity Date in respect of the Agreement be extended
to a date 182 days after the next Review Date under the Agreement.
The next Review Date is [SPECIFY]. The extended Final Maturity Date would be
[SPECIFY].
Signed for and on behalf of James Hardie Finance B.V. by:
Responsible Officer
Signed for James Hardie N.V. by:
Responsible Officer
We agree to extend our Final Maturity Date in respect of the Facility to
[SPECIFY DATE].
Signed for Lender by:
Responsible Officer
<PAGE> 47
SCHEDULE 1
US DOLLAR PAYMENTS
BANK:
ACCOUNT NUMBER:
CHIPS U.I.D.:
REFERENCE:
<PAGE> 1
JAMES HARDIE AUST. INVESTCO PTY LTD
(Borrower)
JAMES HARDIE FINANCE B.V.
(Arranger)
JAMES HARDIE N.V.
and
JAMES HARDIE FINANCE B.V.
(Guarantors)
and
(Lender)
================================================================================
REVOLVING LOAN AGREEMENT
================================================================================
(C) Allen Allen & Hemsley
Sydney
REF: AGM 1312903 MXK
<PAGE> 2
================================================================================
TABLE OF CONTENTS
================================================================================
<TABLE>
<S> <C>
1. DEFINITIONS AND INTERPRETATION 1
1.1 Definitions 1
1.2 Interpretation 7
1.3 Document or agreement 8
1.4 Determination, statement and certificate 9
2. PURPOSE 9
3. DRAWDOWN NOTICES 9
4. LOAN FACILITY 9
4.1 Advance of Loan 9
4.2 Repayment 9
4.3 Continuation of Loan 9
5. AMOUNT OF LOANS 9
6. REVIEW OF FACILITY 10
7. SELECTION OF FUNDING PERIODS 10
8. INTEREST 10
8.1 Notification of rates and amounts 10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
8.2 Interest rate 10
8.3 Basis of calculation of interest 10
8.4 Payment of interest 11
9. FEES 11
9.1 Establishment Fee 11
9.2 Facility Fee 11
10. CANCELLATION OF COMMITMENT 11
10.1 During Availability Period 11
10.2 At end of Availability Period 11
11. PREPAYMENTS 12
11.1 Voluntary prepayments 12
11.2 Interest 12
11.3 Limitation on prepayments 12
12. PAYMENTS 12
12.1 Manner 12
12.2 Payment to be made on Business Day 12
13. TAXATION 12
13.1 Additional payments 12
13.2 Reimbursement 13
14. CHANGES IN LAW 13
14.1 Increased costs 13
14.2 Minimisation 14
14.3 Illegality 14
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
15. CONDITIONS PRECEDENT 14
15.1 Conditions precedent to Drawdown Notice 14
15.2 Conditions precedent to each Loan 15
16. REPRESENTATIONS AND WARRANTIES 15
16.1 Representations and warranties 15
16.2 Reliance on representations and warranties 17
17. UNDERTAKINGS 17
17.1 General undertakings 17
17.2 Liens 18
17.3 Financial undertakings 20
17.4 Term of undertakings 21
18. INFORMATION AS TO BORROWER 21
18.1 Financial and business information 21
18.2 Officer's certificate 22
19. EVENTS OF DEFAULT 23
19.1 Events of Default 23
19.2 Consequences 25
20. GUARANTEE 25
20.1 Interpretation 25
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
20.2 Guarantee 25
20.3 Payment 26
20.4 Unconditional nature of obligation 26
20.5 Principal and independent obligation 27
20.6 No marshalling 27
20.7 No competition 27
20.8 Suspense account 27
20.9 Rescission of payment 28
20.10 Indemnity 28
20.11 Continuing guarantee and indemnity 28
20.12 Variations 28
20.13 Judgment 29
20.14 Conditions precedent 29
21. INTEREST ON OVERDUE AMOUNTS 29
21.1 Accrual and payment 29
21.2 Rate 29
22. INDEMNITIES 29
23. CURRENCY INDEMNITY 30
23.1 General 30
23.2 Reimbursement 30
24. REVIEW EVENT 30
25. CONTROL ACCOUNTS 30
26. EXPENSES 31
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
27. STAMP DUTIES 31
28. SET-OFF 31
29. WAIVERS, REMEDIES CUMULATIVE 31
30. SEVERABILITY OF PROVISIONS 31
31. SURVIVAL OF REPRESENTATIONS 32
32. INDEMNITY AND REIMBURSEMENT OBLIGATIONS 32
33. MORATORIUM LEGISLATION 32
34. CONSENTS AND OPINIONS 32
35. ASSIGNMENTS 32
35.1 Assignment by Borrower and Guarantors 32
35.2 Assignment by Lender 32
35.3 Disclosure 33
35.4 Change of Lending Office 33
35.5 No increased costs 33
36. NOTICES 33
37. RESPONSIBLE OFFICERS 34
38. FURTHER ASSURANCES 34
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
39. JURISDICTION 34
39.1 Jurisdiction 34
39.2 Process agents 34
40. GOVERNING LAW 35
41. COUNTERPARTS 35
42. CONFIDENTIAL INFORMATION 35
</TABLE>
<PAGE> 8
================================================================================
REVOLVING LOAN AGREEMENT
================================================================================
AGREEMENT dated _______________ 1998 between:
1. JAMES HARDIE AUST. INVESTCO PTY LTD (ACN 084 175 584) incorporated in
South Australia of 65 York Street, Sydney, (the BORROWER);
2. JAMES HARDIE FINANCE B.V. incorporated in The Netherlands, with
statutory seat at Amsterdam, The Netherlands of Postbus 75084, 1070 AB
Amsterdam, Tripolis 300, Burgerweeshuispad 301, The Netherlands (the
ARRANGER);
3. JAMES HARDIE N.V. incorporated in The Netherlands, with statutory seat
at Amsterdam, The Netherlands of Postbus 75084, 1070 AB Amsterdam,
Tripolis 300, Burgerweeshuispad 301, The Netherlands (the PARENT); and
4. (the LENDER).
RECITAL
The Arranger, the Borrower and the Parent have requested the Lender to provide
the Borrower with a facility under which loans of up to may be made
available to the Borrower.
IT IS AGREED as follows.
I. DEFINITIONS AND INTERPRETATION
A. DEFINITIONS
The following definitions apply unless the context requires otherwise.
AUTHORISATION includes:
(a) any consent, authorisation, registration, filing, lodgement,
agreement, notarisation, certificate, permission, licence,
approval, authority or exemption from, by or with a Governmental
Authority; or
(b) in relation to anything which will be fully or partly prohibited
or restricted by law if a Governmental Authority intervenes or
acts in any way within a specified period after lodgement,
filing, registration or notification, the expiry of that period
without intervention or action.
AVAILABILITY PERIOD means the period commencing on the date of this
Agreement and ending on the Final Maturity Date or, if earlier, the date
on which the Commitment is cancelled.
<PAGE> 9
BBR for a period means:
(a) the average bid rate displayed at or about 10.20am (Sydney time)
on the first day of that period on the Reuters screen BBSY page
for a term equivalent to the period;
(b) if:
(i) for any reason that rate is not displayed for a term
equivalent to that period; or
(ii) the basis on which that rate is displayed is changed and
in the opinion of the Lender it ceases to reflect the
Lender's cost of funding to the same extent as at the
date of this Agreement,
then BBR will be the rate determined by the Lender to be the
average of the buying rates quoted to the Lender by Australia
and New Zealand Banking Group Limited, Commonwealth Bank of
Australia, National Australia Bank Limited and Westpac Banking
Corporation at or about 10.20am (Sydney time) on that date. The
buying rates must be for bills of exchange accepted by an
Australian bank and which have a term equivalent to the period;
or
(c) if at any time less than 3 of the banks referred to in paragraph
(b) provide quotations at the request of the Lender, BBR shall
be the rate certified by the Lender to be its cost of funds for
the relevant period.
Rates will be expressed as a yield per cent per annum to maturity.
BUSINESS DAY means a weekday on which banks are open in Amsterdam and
Sydney.
CAPITAL LEASE means, at any time, a lease with respect to which the
lessee is required concurrently to recognise the acquisition of an asset
and the incurrence of a liability in accordance with GAAP.
CAPITAL LEASE OBLIGATION means, with respect to any Person and a Capital
Lease, the amount of the obligation of such Person as the lessee under
such Capital Lease which would, in accordance with GAAP, appear as a
liability on a balance sheet of such Person.
CHANGE OF CONTROL means, after the date of the Reorganisation, a Person
acquiring control of the Parent who did not immediately after the date
of Reorganisation have the power to control the Parent, as the term
control is defined in AAS24.
COMMITMENT means $__________ as reduced or cancelled under this
Agreement.
CONFIDENTIAL INFORMATION is defined in clause 42.
CONSOLIDATED FUNDED CAPITALISATION means, at any time, the sum of
Consolidated Net Worth and Consolidated Funded Debt.
CONSOLIDATED FUNDED DEBT means, as of any date of determination, the
total of all Funded Debt of the Parent and its Subsidiaries outstanding
on such date, after eliminating all offsetting debits and credits
between any of the Parent and its Subsidiaries and all other items
required to be eliminated in the course of the preparation of
consolidated financial statements of the Parent and its Subsidiaries in
accordance with GAAP.
CONSOLIDATED NET WORTH means, at any time, the sum of:
(a) the par value (or value stated on the books of the corporation)
of the capital stock (but excluding treasury stock and capital
stock subscribed and unissued) of the Parent and its
Subsidiaries; and
(b) the amount of the paid-in capital and retained earnings of the
Parent and its Subsidiaries,
<PAGE> 10
in each case as such amounts would be shown on a consolidated balance
sheet of the Parent and its Subsidiaries as of such time prepared in
accordance with GAAP.
DEBT means, with respect to any Person, without duplication,
(a) its liabilities for borrowed money (including all liabilities in
respect of letters of credit, (excluding letters of credit and
performance guarantees posted in respect of payment of accounts
payable arising in the ordinary course of business) or
instruments serving a similar function issued or accepted for
its account by banks and other financial institutions);
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in
the ordinary course of business but including all liabilities
created or arising under any conditional sale or other title
retention agreement with respect to any such property);
(c) its Capital Lease Obligations;
(d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities);
and
(e) all Preferred Stock of Subsidiaries of such Person which is not
owned by such Person or a Wholly Owned Subsidiary of such
Person;
(f) any Guaranty of such Person with respect to liabilities of a
type described in any of paragraphs (a) to (e) of this
definition.
Debt of any Person shall include all obligations of such Person of the
character described in paragraphs (a) to (f) to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
DEFAULT means an event or condition the occurrence of existence of which
would, with the lapse of time or the giving of notice or both, become an
Event of Default.
DRAWDOWN DATE means the date on which any accommodation under this
Agreement is or is to be drawn.
DRAWDOWN NOTICE means a notice under clause 3.
EBIT means the operating profit of the Parent and its Subsidiaries
before adjustments for abnormal or exceptional items and income tax but
after adding back Net Interest Charges, determined in each case by
reference to the latest audited consolidated financial statements of the
Parent and its Subsidiaries delivered to the Lender under clause
18.1(b).
ENVIRONMENTAL LAWS means any and all United States Federal, state,
local, and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, concessions, grants, franchises,
licenses, agreements or governmental restrictions relating to pollution
and the protection of the environment or the release of any materials
into the environment, including those related to hazardous substances or
wastes, air emissions and discharges to waste or public systems.
ERISA means the Employee Retirement Income Security Act of 1974 of the
United States of America, as amended from time to time, and the rules
and regulations promulgated thereunder from time to time in effect.
<PAGE> 11
EVENT OF DEFAULT means any of the events specified in clause 19.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
EXCLUDED TAX means a Tax imposed by a jurisdiction on the net income of
the Lender because the Lender has a connection with that jurisdiction
but not a Tax:
(a) which is calculated by reference to the gross amount of a
payment derived by the Lender under this Agreement or another
document referred to in this Agreement (without the allowance of
a deduction); or
(b) which is imposed as a result of the Lender being considered to
have a connection with that jurisdiction solely as a result of
it being a party to this Agreement or a transaction contemplated
by this Agreement.
FINAL MATURITY DATE means, subject to clause 12.2, the date which is 3
years after the date of this Agreement or such later date as is agreed
under clause 6.
FUNDED DEBT means, with respect to any Person, all Debt of such Person
which by its terms or by the terms of any instrument or agreement
relating thereto matures, or which is otherwise payable or unpaid, one
year or more from the date of the creation thereof, and shall include as
of any date of determination the lowest average monthly balance
outstanding under the Borrower's or Arranger's revolving or standby
credit facilities in the 12 month period immediately preceding the date
of determination.
FUNDING PERIOD means a period for the fixing of interest rates for, and
the funding of, a Loan. That period commences on the Drawdown Date of
that Loan and has a duration specified in the Drawdown Notice in respect
of that Loan.
GAAP means:
(a) generally accepted accounting principles as in effect from time
to time in the United States of America; or
(b) in relation to a company incorporated in Australia, accounting
principles and practices applying by law or otherwise generally
accepted in Australia, consistently applied.
GOVERNMENTAL AUTHORITY means
(a) the government of:
(i) the United States of America or any State or other
political subdivision thereof; or
(ii) any jurisdiction in which the Parent or any Subsidiary
conducts all or any part of its business, or which
asserts jurisdiction over any properties of the Parent
or any Subsidiary; or
(iii) the jurisdiction of incorporation or domicile of the
Parent or any Subsidiary.
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any
such government.
GUARANTOR means:
(a) the Parent; or
(b) the Arranger.
GUARANTY means, with respect to any Person, any obligation (except the
endorsement in the ordinary course
<PAGE> 12
of business of negotiable instruments for deposit or collection) of such
Person guaranteeing or in effect guaranteeing any indebtedness, dividend
or other obligation of any other Person in any manner, whether directly
or indirectly, including obligations incurred through an agreement,
contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of
such indebtedness or obligation, or (ii) to maintain any working
capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make
available funds for the purchase or payment of such indebtedness
or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such
indebtedness or obligation of the ability of any other Person to
make payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or obligation
against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the
obligor under any Guaranty, the indebtedness or other obligations that
are the subject of such Guaranty shall be assumed to be direct
obligations of such obligor.
LENDING OFFICE means the office of the Lender described above or another
office designated by it as a Lending Office by notice to the Arranger.
LIEN means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such
Person under any conditional sale or other title retention agreement or
Capital Lease, upon or with respect to any property or asset of such
Person (including in the case of stock, stockholder agreements, voting
trust agreements and all similar arrangements).
LIQUIDATION includes receivership, compromise, arrangement,
amalgamation, administration, reconstruction, winding up, dissolution,
assignment for the benefit of creditors, bankruptcy or death.
LOAN means each loan lent or to be lent under this Agreement which has
the same Funding Period.
MARGIN means: [0.45]% per annum.
<PAGE> 13
MATERIAL ADVERSE EFFECT means a material adverse effect on:
(a) the business, operations, affairs, financial condition, assets
or properties of the Parent and its Subsidiaries taken as a
whole;
(b) the ability of the Borrower or a Guarantor to perform its
obligations under this Agreement; or
(c) the validity or enforceability of this Agreement;
MEMORANDUM means the Information Memorandum dated 7 August 1998
delivered by Warburg Dillon Read to the Lender.
NET INTEREST CHARGES means all continuing, regular or periodic costs,
charges and expenses (including interest, discount costs, charges and
expenses (including but not limited to interest, discount costs and any
and all fees associated with or incurred under any Debt) incurred by the
Parent and any of its Subsidiaries in effecting, servicing or
maintaining at any time its Debt, less interest income received by or
arising to the Parent or such Subsidiaries in the same period for which
such Net Interest Charges are being determined, in each case by
reference to the financial statements referred to in clause 18.1.
OBLIGOR means:
(a) the Borrower; or
(b) a Guarantor.
PERSON means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organisation, or a
government or agency or political subdivision thereof.
PREFERRED STOCK means any class of capital stock of a corporation that
is preferred over any other class of capital stock of such corporation
as to payment of dividends or the payment of any amount upon liquidation
or dissolution of such Person.
PRINCIPAL OUTSTANDING means the total principal amount of all
outstanding Loans.
PROMISSORY NOTE means any commercial paper or medium term note issued by
the Borrower under a deed poll dated within 6 months of the date of this
Agreement.
REORGANISATION means the reorganisation and capital restructuring of
certain companies owned, at the date of this Agreement, by James Hardie
Industries Limited, as described in pages A-7 to A-8 of the Memorandum.
RESPONSIBLE OFFICER means:
(a) in respect of an Obligor, any Senior Financial Officer and any
other officer of an Obligor with responsibility for the
administration of the relevant portion of this Agreement; and
(b) in respect of the Lender, any person whose title or acting title
includes the word MANAGER, DIRECTOR or PRESIDENT or cognate
expressions, or any secretary or director.
REVIEW DATE means each anniversary of the date of this Agreement, or if
that day is not a Business Day, the preceding Business Day.
SAME DAY FUNDS means immediately available Australian dollar funds.
SECURED DEBT means, with respect to any Person, any Debt of such Person
that is secured in any manner by any Lien on any property.
<PAGE> 14
SECURED MONEY means all money which the Borrower (whether alone or not)
is or at any time may become actually or contingently liable to pay to
or for the account of the Lender (whether alone or not) for any
reason whatever under or in connection with this Agreement.
It includes money by way of principal, interest, fees, costs,
indemnities, charges, duties or expenses or payment of liquidated or
unliquidated damages under or in connection with this Agreement, or as a
result of a breach of or default under or in connection with this
Agreement.
Where the Borrower would have been liable but for its Liquidation, it
will be taken still to be liable.
SENIOR FINANCIAL OFFICER means, in relation to an Obligor, the chief
financial officer, principal accounting officer, treasurer or
comptroller of that Obligor.
SUBSIDIARY means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns
sufficient equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such entity, and
any partnership or joint venture if more than a 50% interest in the
profits or capital thereof is owned by such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries (unless
such partnership can and does ordinarily take major business actions
without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any
reference to a SUBSIDIARY is a reference to a Subsidiary of the Parent.
SUBORDINATED DEBT means debt that is in any manner subordinated in right
of payment or security in any respect to the Secured Money.
TAX includes any tax, levy, impost, deduction, charge, rate, duty,
compulsory loan or withholding which is levied or imposed by a
Governmental Authority, and any related interest, penalty, charge, fee
or other amount.
UNDRAWN COMMITMENT means the Commitment less the total principal amount
of all outstanding Loans.
WHOLLY-OWNED SUBSIDIARY means, at any time, any Subsidiary, one hundred
percent (100%) of all of the equity interests (except directors'
qualifying shares) and voting interests of which are owned by any one or
more of the Parent and the Parent's other Wholly-Owned Subsidiaries at
such time.
YEAR 2000 PROBLEM means the risk that computer applications used by the
Parent and each Subsidiary may be unable to recognise and perform date
sensitive functions involving certain dates prior to and any date after
31 December 1999.
B. INTERPRETATION
Headings are for convenience only and do not affect interpretation. The
following rules apply unless the context requires otherwise.
1. The singular includes the plural and the converse.
2. A gender includes all genders.
3. Where a word or phrase is defined, its other grammatical forms
have a corresponding meaning.
4. A reference to a person, corporation, trust, partnership,
unincorporated body or other entity includes any of them.
<PAGE> 15
5. A reference to a clause, annexure or schedule is a reference to
a clause of, or annexure or schedule to, this Agreement.
6. A reference to a party to this Agreement or another agreement or
document includes the party's successors and permitted
substitutes or assigns.
7. A reference to legislation or to a provision of legislation
includes a modification or re-enactment of it, a legislative
provision substituted for it and a regulation or statutory
instrument issued under it.
8. A reference to WRITING includes a facsimile transmission and any
means of reproducing words in a tangible and permanently visible
form.
9. A reference to CONDUCT includes an omission, statement or
undertaking, whether or not in writing.
10. Mentioning anything after INCLUDE, INCLUDES or INCLUDING does
not limit what else might be included.
11. A reference to an ASSET or PROPERTY, unless otherwise
specifically limited, includes any real or personal property of
any kind, tangible or intangible, choate or inchoate.
12. An Event of Default SUBSISTS until it has been waived in writing
by the Lender or remedied.
13. A reference to an amount for which a person is CONTINGENTLY
LIABLE includes an amount which that person may become actually
or contingently liable to pay if a contingency occurs, whether
or not that liability will actually arise.
14. A reference to $ or DOLLARS is to Australian dollars, and a
reference to US$ is to United States dollars.
C. DOCUMENT OR AGREEMENT
A reference to:
1. an AGREEMENT includes a Lien, Guaranty, undertaking, deed,
agreement or legally enforceable arrangement whether or not in
writing; and
2. a DOCUMENT includes an agreement (as so defined) in writing or a
certificate, notice, instrument or document.
A reference to a specific agreement or document includes it as amended,
novated, supplemented or replaced from time to time, except to the
extent prohibited by this Agreement.
D. DETERMINATION, STATEMENT AND CERTIFICATE
Except where otherwise provided in this Agreement any determination,
statement or certificate by the Lender or a Responsible Officer of the
Lender provided for in this Agreement is sufficient evidence unless
proven wrong.
II. PURPOSE
The Borrower shall use the net proceeds of all Loans for general
corporate purposes.
III. DRAWDOWN NOTICES
For the Borrower to make a drawing, the Arranger shall give to the
Lender an irrevocable Drawdown Notice substantially in the form of
annexure A. That Drawdown Notice must be received by the Lender
<PAGE> 16
not later than 11am (Sydney time) 2 Business Days (or such shorter
period as the Lender may agree) before the proposed Drawdown Date (which
must be a Business Day).
IV. LOAN FACILITY
A. ADVANCE OF LOAN
1. Subject to this Agreement, whenever the Arranger requests a Loan
the Lender will provide that Loan by 1pm on the relevant
Drawdown Date in Same Day Funds to the account of the Borrower
specified in the relevant Drawdown Notice.
2. The Lender will not be obliged to provide a Loan if immediately
following the provision of the Loan, the aggregate of:
a. the total Principal Outstanding; and
b. the aggregate amount paid by the Lender to purchase any
outstanding Promissory Notes in respect of which the
Lender will at that time be the registered holder,
would exceed the Commitment.
B. REPAYMENT
The Borrower shall repay each Loan on the last day of its Funding Period
except to the extent it is redrawn on that day.
C. CONTINUATION OF LOAN
If all or part of a Loan is to be redrawn on the last day of its Funding
Period, then on that day the Borrower and the Lender will not be obliged
to repay or provide the amount of the Loan which is being redrawn.
V. AMOUNT OF LOANS
The Arranger shall ensure that the amount of each Loan is a minimum of
$1,000,000 or the Undrawn Commitment unless the Lender agrees otherwise.
VI. REVIEW OF FACILITY
1. The Arranger may, not more than 75 Business Days and not less
than 45 Business Days prior to a Review Date request an
extension of the Final Maturity Date to a date falling 3 years
after that Review Date.
[2. The Arranger may not request that the Final Maturity Date extend
to a date more than 5 years after the date of this Agreement.]
3. A request by the Arranger shall be in writing in the form
provided for in annexure C and given to the Lender.
4. The Lender may at its discretion accept or decline any such
request.
5. If the Lender wishes to accept any such request then it shall
return its copy of the notice referred to in paragraph (a) above
as signed by it to the Arranger within 7 days of the Review
<PAGE> 17
Date, and the Final Maturity Date will then be extended to the date
specified in the notice.
VII. SELECTION OF FUNDING PERIODS
1. Subject to this clause, the Arranger may only select Funding
Periods of 1, 2, 3 or 6 months.
2. The Arranger may select any other period agreed by the Lender to
enable consolidation of Loans.
3. If a Funding Period ends on a day which is not a Business Day,
that Funding Period will be extended to the next Business Day in
the same calendar month or, if none, the preceding Business Day.
4. If a Funding Period of a number of months commences on a date in
a month and there is no corresponding date in the month in which
it is to end, it will end on the last Business Day of the latter
month.
5. No Funding Period may extend beyond the Final Maturity Date.
6. If the Arranger fails to select Funding Periods complying with
this clause the Lender may vary any Drawdown Notice to ensure
compliance.
VIII. INTEREST
A. NOTIFICATION OF RATES AND AMOUNTS
The Lender will notify the Arranger of the interest rates determined
under this clause as soon as they are ascertained. Failure to do so will
not affect the obligations of the Borrower in any way.
B. INTEREST RATE
Interest accrues from day to day on each Loan for each Funding Period at
the rate per annum determined by the Lender to be the sum of the Margin
and BBR for that Funding Period.
C. BASIS OF CALCULATION OF INTEREST
That interest will be calculated on the basis of the actual number of
days elapsed and a year of 365 days.
D. PAYMENT OF INTEREST
The Borrower shall pay that accrued interest on the last day of the
relevant Funding Period.
IX. FEES
A. ESTABLISHMENT FEE
On the date of first drawdown under this Agreement the Arranger shall
pay to the Lender an establishment fee of $[60,000].
B. FACILITY FEE
1. Subject to paragraph (2), a facility fee accrues at [0.25]% per
annum on the daily amount of the Commitment from the date of
this Agreement.
<PAGE> 18
2. The facility fee is calculated on the actual number of days
elapsed and on the basis of a year of 365 days.
3. The Borrower shall pay any accrued facility fee on the last
Business Day of each calendar quarter, commencing with a payment
on 31 December 1998.
[4. On cancellation of all or part of the Commitment, the Lender
shall refund to the Borrower any facility fee paid in such
cancelled Commitment in respect of the period after the date of
such cancellation.]
X. CANCELLATION OF COMMITMENT
A. DURING AVAILABILITY PERIOD
On giving not less than 30 days irrevocable notice to the Lender the
Borrower may cancel all or part of the Undrawn Commitment at any time
during the Availability Period. A partial cancellation must be in a
minimum of $5,000,000, unless the Lender agrees otherwise.
B. AT END OF AVAILABILITY PERIOD
At the close of business (Sydney time) on the last day of the
Availability Period the Commitment will be cancelled.
XI. PREPAYMENTS
A. VOLUNTARY PREPAYMENTS
1. Subject to this clause, if the Arranger gives at least 30 days'
prior notice to the Lender the Borrower may prepay all or part
of the Principal Outstanding. That notice is irrevocable. The
Borrower shall prepay in accordance with it.
2. Unless the Lender agrees otherwise, the Borrower may only prepay
a Loan on the last day of its Funding Period.
3. Unless the Lender agrees otherwise, prepayment of part only of a
Loan may only be made in a principal amount of a minimum of
$5,000,000.
B. INTEREST
When the Borrower prepays any amount it shall pay interest accrued on
that amount.
C. LIMITATION ON PREPAYMENTS
The Borrower may not prepay all or any part of the Principal Outstanding
except as set out in this Agreement.
XII. PAYMENTS
<PAGE> 19
A. MANNER
The Obligors shall make all payments under this Agreement in Same Day
Funds by 11am (Sydney time) on the due date to the account specified by
the Lender from time to time without set-off, counterclaim or other
deduction except any compulsory deduction for Taxation.
B. PAYMENT TO BE MADE ON BUSINESS DAY
Whenever any payment becomes due on a day which is not a Business Day,
the due date will be the preceding Business Day.
XIII. TAXATION
A. ADDITIONAL PAYMENTS
Whenever an Obligor is obliged to make a deduction in respect of Tax
from any payment under this Agreement it shall:
1. pay the amount deducted to the appropriate Governmental
Authority in accordance with applicable law and deliver to the
Lender official receipts evidencing payment of that amount; and
2. unless the Tax is an Excluded Tax, pay the Lender together with
such payment any additional amounts necessary to ensure that the
Lender receives when due a net amount (after payment of any
Taxes in respect of those additional amounts) in the relevant
currency equal to the full amount which it would have received
had a deduction not been made.
B. REIMBURSEMENT
1. Whenever:
a. an Obligor pays any additional amount under clause
13.1(b) (ADDITIONAL PAYMENTS) in respect of deducted
Tax; and
b. the Lender decides that it has received any clearly
identifiable relief for the deducted Tax in computing
its income Tax,
the Lender will promptly pay to the relevant Obligor the amount
of any consequent reduction in its income Tax, but only to the
extent that it determines that a payment to the relevant Obligor
can be made without prejudice to the retention of the relief.
2. Nothing in paragraph (a) interferes with the right of the Lender
to arrange its tax affairs in any manner it thinks fit. In
particular, the Lender need not claim any relief in respect of
deducted Tax in priority to any other relief available to it.
Nor need it disclose to an Obligor any information regarding its
tax affairs or tax computations.
XIV. CHANGES IN LAW
A. INCREASED COSTS
Whenever the Lender determines that:
1. the effective cost to the Lender or any of its holding companies
of making, funding or maintaining any Loan or the Commitment is
increased in any way;
2. any amount paid or payable to the Lender or received or
receivable by the Lender, or the effective return to the Lender
or any of its holding companies, under or in respect of this
<PAGE> 20
Agreement is reduced in any way;
3. the return of the Lender or any of its holding companies on the
capital which is or becomes directly or indirectly allocated by
the Lender or the holding company to any Loan or the Commitment
is reduced in any way; or
4. to the extent that any relevant law, official directive or
request relates to or affects the Commitment, any Loan or this
Agreement, the overall return on capital of the Lender or any of
its holding companies is reduced in any way,
5. a cost is imposed on the Lender or any of its holding companies
due to its provision or maintenance of the Commitment or any
Loan,
as a result of any change in, any making of, or any change in the
interpretation or application by any Governmental Authority of, any law,
official directive or request, then:
6. the Lender will promptly notify the Arranger; and
7. after the giving of 30 days' written notice by the Lender to the
Arranger of its intention to require compensation, from time to
time the Borrower shall pay the Lender the amount certified by a
Responsible Officer of the Lender to be necessary to compensate
the Lender or the relevant holding company (as the case may be)
for the increased cost or the reduction, such certificate to
include the basis on which such amount has been calculated.
Without limiting the above in any way, this clause applies:
8. to any law, official directive or request with respect to
Taxation (except an Excluded Tax) or reserve, liquidity, capital
adequacy, special deposit or similar requirements; and
9. to official directives or requests which do not have the force
of law where it is the practice of responsible bankers or
financial institutions in the country concerned to comply with
them.
B. MINIMISATION
1. (NO DEFENCE) If the Lender and (if applicable) its holding
company have acted in good faith it will not be a defence that
any cost, reduction or payment or loss of tax credit referred to
in clause 13.1 (ADDITIONAL PAYMENTS) or this clause could have
been avoided.
2. (MINIMISATION) The Lender will use reasonable endeavours to
minimise any cost, reduction or payment or loss of tax credit
referred to in this clause or the effect of any unlawfulness or
impracticability referred to in clause 14.3.
C. ILLEGALITY
If the making of any law or treaty, or a change in the interpretation or
application by any Governmental Authority of any law or treaty makes it
unlawful or impracticable for the Lender to make, fund or maintain the
advances required under this Agreement:
1. the Lender may terminate the Commitment by notice to the
Arranger;
2. if required by the law or treaty, or if necessary to prevent or
remedy a breach of the law or treaty, the Borrower shall prepay
the Principal Outstanding, together with all interest, fees and
<PAGE> 21
other amounts payable under this Agreement; and
3. the Borrower shall make the prepayment immediately or, if in the
opinion of the Lender delay in prepayment is permitted by, or
will not cause a breach of, the law or treaty, no later than the
latest permitted day.
XV. CONDITIONS PRECEDENT
A. CONDITIONS PRECEDENT TO DRAWDOWN NOTICE
The right of the Arranger to give a Drawdown Notice and the obligations
of the Lender under this Agreement are subject to the condition
precedent that the Lender receives in form and substance satisfactory to
the Lender:
1. (VERIFICATION CERTIFICATE) a certificate in relation to each
Obligor given by a director of the relevant Obligor
substantially in the form of annexure B with the attachments
referred to;
2. (LEGAL OPINIONs) legal opinions from De Brauw Blackstone
Westbroek P.C., Netherlands legal advisors to the Guarantors and
Allen Allen & Hemsley, Australian legal advisors to the Borrower
and the Parent; and
3. (REORGANISATION) evidence that the Reorganisation has occurred.
B. CONDITIONS PRECEDENT TO EACH LOAN
The obligations of the Lender to make available each Loan are subject to
the further conditions precedent that:
1. (REPRESENTATIONS TRUE)
a. the representations and warranties by each Obligor in
this Agreement are true as at the date of the first
Drawdown Notice and the first Drawdown Date; and
b. the representations and warranties by each Obligor in
paragraphs (a), (b), (c), (d)(i), (e), (f), (g), (i),
(j), (k), (l) and (n) of clause 16.1 are true as at the
date of each subsequent Drawdown Notice and the relevant
Drawdown Date,
as though they had been made at that date in respect of the
facts and circumstances then subsisting; and
2. (NO DEFAULT) no Event of Default or Default subsists at the date
of the relevant Drawdown Notice and the relevant Drawdown Date
or will result from the provision of the Loan.
XVI. REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES
Each Obligor makes the following representations and warranties.
1. (ORGANIZATION; POWER AND AUTHORITY) Each Obligor is a
corporation duly incorporated and validly existing under the
laws of The Netherlands in the case of the Guarantors, and South
Australia in the case of the Borrower.
2. (CORPORATE AUTHORIZATION, DOCUMENTS BINDING) This Agreement has
been duly authorized by all necessary corporate action on the
part of each Obligor, and this Agreement constitutes a legal,
valid and binding obligation of each Obligor enforceable against
each Obligor in accordance with its terms, except as such
enforceability may be limited by:
<PAGE> 22
a. applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the
enforcement of creditors' rights generally; and
b. general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity
or at law).
3. (COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC) The execution,
delivery and performance by each Obligor of this Agreement will
not:
a. contravene its Memorandum or Articles of Association or
other constituent documents;
b. result in the creation of any Lien in respect of any
property of any Obligor or any Subsidiary;
c. contravene any law to which any Obligor or any
Subsidiary is bound or by which any Obligor or any
Subsidiary or any of their respective properties may be
bound or affected;
d. conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree,
or ruling of any court, arbitrator or Governmental
Authority applicable to any Obligor or any Subsidiary;
e. violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to
any Obligor or any Subsidiary; or
f. result in the acceleration or cancellation of any
agreement or obligation in respect of Debt of the Parent
or any of its Subsidiaries.
4. (DISCLOSURE)
a. All information given to the Lender by it or with its
authority was, when given, true and correct in all
material respects as at the date of this Agreement or,
if later, when provided.
b. There is no fact known to any Obligor that could
reasonably be expected to have a Material Adverse Effect
that has not been set forth in this Agreement or in the
Memorandum or in the other documents, certificates and
other writings delivered to the Lender by or on behalf
of any Obligor specifically for use in connection with
the transactions.
5. (OWNERSHIP) After the Reorganisation has occurred, the Parent
will be the ultimate beneficial owner of the whole of the issued
share capital of the Borrower.
6. (FINANCIAL STATEMENTS)
a. The most recent financial statements of James Hardie
Industries Limited and its Subsidiaries (including in
each case the related schedules and notes) fairly
present in all material respects the consolidated
financial position of James Hardie Industries Limited
and its Subsidiaries as of the end of the financial
period to which they relate and have been prepared in
accordance with GAAP consistently applied throughout the
periods involved except as set forth in the notes
thereto (subject, in
<PAGE> 23
the case of any interim financial statements, to normal
year-end adjustments).
b. Since the date of delivery of those statements, there
has been no change in the financial condition,
operations, business or prospects of any Obligor or any
Subsidiary except changes that individually or in the
aggregate could not reasonably be expected to have a
Material Adverse Effect.
7. (AUTHORISATIONS ETC) All Authorisations necessary or advisable
in connection with the execution, delivery or performance by
each Obligor of this Agreement have been obtained and are in
full force and effect.
8. (LITIGATION) No litigation, arbitration, administrative
proceeding or other procedure for the resolution of disputes is
currently taking place, pending or to its knowledge, threatened
against it (including, in the case of the Parent its
Subsidiaries) or its business, assets or revenues involving a
claim or claims in an amount exceeding (whether alone or in
aggregate) US$5,000,000 and which could reasonably be expected
to have a Material Adverse Effect.
9. (LIENS) No Lien exists over any of the assets or resources of
any Obligor which is not permitted by clause 17.2.
10. (ENVIRONMENTAL MATTERS) The Parent and each of its Subsidiaries
has complied with all applicable Environmental Laws and the
terms and conditions of any Authorisation issued pursuant to an
Environmental Law, except where a failure to be in compliance
could not, individually or in aggregate, reasonably be expected
to effect in any way a Material Adverse Effect and as far as it
knows, there are no outstanding or threatened claims relating to
any breach of Environmental Law against it or any Subsidiary of
the Parent which could, individually or in aggregate, reasonably
be expected to have in any way a Material Adverse Effect.
11. (NO IMMUNITY) Neither it nor any of its assets or revenues has
any immunity from jurisdiction, suit, execution, attachment or
other legal process in any jurisdiction in which its assets are
located or it carries on business.
12. (RANKING) Its obligations under this Agreement rank pari passu
with all its other unsecured and unsubordinated obligations
other than those mandatorily preferred by law.
13. (FINANCIAL BENEFIT TO A RELATED PARTY) The execution of this
Agreement and the performance by it of its obligations or the
exercise of its rights under it, and without relying on any
provision of Division 4 or 5 of Part 3.2A of the Corporations
Law, other than section 243M do not and will not contravene
section 243H of the Corporations Law.
14. (OTHER DEFAULT) Neither the Parent nor any of its Subsidiaries
is in default under any law, Authorisation, agreement or
obligation binding upon it or applicable to its business, assets
or revenues which could reasonably be expected to have a
Material Adverse Effect.
B. RELIANCE ON REPRESENTATIONS AND WARRANTIES
Each Obligor acknowledges that the Lender has entered this Agreement in
reliance on the representations and warranties in this clause.
XVII. UNDERTAKINGS
A. GENERAL UNDERTAKINGS
Each Obligor undertakes to the Lender as follows.
1. (AUTHORISATIONS) Each Obligor will obtain, comply with and
maintain in full force and effect
<PAGE> 24
all Authorisations necessary or advisable in connection with the
execution, delivery and performance by it and the validity and
enforceability against it of this Agreement to the extent
necessary to ensure that non-compliance with such Authorisations
or failures to obtain or maintain in effect such Authorisations
could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
2. (NATURE OF BUSINESS) Neither the Parent nor any Subsidiary will
engage in any business if, as a result, the general nature of
the business, taken on a consolidated basis, which would then be
engaged in by the Parent and its Subsidiaries would be
substantially changed from the general nature of the business
engaged in by the Parent and its Subsidiaries on the date on
which the Reorganisation occurred.
3. (COMPLIANCE WITH LAWS) The Parent and each Subsidiary will
comply with all laws binding on it, except to the extent of any
noncompliance which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
4. (ENVIRONMENTAL COMPLIANCE) The Parent and each Subsidiary will:
a. obtain and maintain all Authorisations that are required
of it under all Environmental Laws other than those
which the failure to obtain or maintain, individually or
in the aggregate, could not reasonably be expected to
have, a Material Adverse Effect;
b. comply with all terms and conditions of all such
Authorisations and with all other limitations,
restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables
contained in all Environmental Laws or in any
regulation, ordinance or code applicable to it and any
plan, order, decree, judgment, injunction, notice, or
demand letter issued, entered, promulgated, or approved
thereunder directly applicable to it except to the
extent of any noncompliance which, individually or in
the aggregate, could not reasonably be expected to have
a Material Adverse Effect; and
c. operate all property owned or leased by it such that no
claim or obligation, including a clean-up obligation,
which individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect shall
arise under any Environmental Law, and if any claim is
made against it or any such obligation shall arise under
any Environmental Law, it shall at its own cost and
expense, timely satisfy such claim or obligation,
provided no such claim or obligation need be satisfied
for so long as:
(1) it is being contested in good faith by
appropriate proceedings promptly initiated and
diligently conducted; and
(2) such reserves or other appropriate provision,
if any, as shall be required by GAAP shall have
been made therefor.
5. (YEAR 2000 ISSUES) The Parent and each Subsidiary will continue
or commence reviewing the areas within its respective businesses
and operations which could be adversely affected by the
Year 2000 Problem, develop programmes to address any issues
identified by such review on a timely basis and notify the
Lender immediately it identifies such an issue that is likely to
have a Material Adverse Effect.
B. LIENS
<PAGE> 25
Each Obligor undertakes to the Lender that the Parent will not, and will
not permit any of its Subsidiaries to, directly or indirectly create,
incur, assume or permit to exist (upon the happening of a contingency or
otherwise) any Lien on or with respect to any property or asset
(including any document or instrument in respect of goods or accounts
receivable) of the Parent or any such Subsidiary, whether now owned or
held or hereafter acquired, or any income or profits therefrom, or
assign or otherwise convey any right to receive income or profits,
except:
1. Liens for taxes, assessments or other governmental charges which
are not yet due and payable or the payment of which is not at
the time required by law;
2. statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Liens, in
each case, incurred in the ordinary course of business for sums
not yet due and payable or sums which are being contested in
good faith;
3. Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business:
a. in connection with workers' compensation, unemployment
insurance and other types of social security or
retirement benefits; or
b. to secure (or to obtain letters of credit that secure)
the performance of tenders, statutory obligations,
surety bonds, appeal bonds, bids, leases (other than
Capital Leases), performance bonds, purchase,
construction or sales contracts and other similar
obligations,
in each case not incurred or made in connection with the
borrowing of money, the obtaining of advances or credit or the
payment of the deferred purchase price of property;
4. any attachment or judgment Lien, unless the judgment it secures
shall not, within 90 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall
not have been discharged within 90 days after the expiration of
any such stay;
5. leases or subleases granted to others, easements, rights-of-way,
restrictions and other similar charges or encumbrances, in each
case incidental to, and not interfering with, the ordinary
conduct of the business of the Parent or any of its
Subsidiaries, provided that such Liens do not, in the aggregate,
materially detract from the value of such property;
6. Liens on property or assets of the Parent or any of its
Subsidiaries securing Debt owing to the Parent or to any of its
Wholly-Owned Subsidiaries (other than the Borrower);
7. any Lien created to secure all or any part of the purchase
price, or to secure Debt incurred or assumed to pay all or any
part of the purchase price or cost of construction, of property
(or any improvement thereon) acquired or constructed by the
Parent or a Subsidiary after the first Drawdown Date, provided
that
a. any such Lien shall extend solely to the item or items
of such property (or improvement thereon) so acquired or
constructed and, if required by the terms of the
instrument originally creating such Lien, other property
(or improvement thereon) which is an improvement to or
is acquired for specific use in connection with such
acquired or constructed property (or improvement
thereon) or which is real property being improved by
such acquired or constructed property (or improvement
thereon);
b. the principal amount of the Debt secured by any such
Lien shall:
(1) at no time exceed an amount equal to the fair
market value (as determined in good faith by
the Parent) of such property at the time of
such acquisition or construction; and
<PAGE> 26
(2) not be increased beyond the amount secured at
the date of such acquisition or of completion
of that construction; and
c. any such Lien shall be created contemporaneously with,
or within 180 days after, the acquisition or
construction of such property;
8. any Lien existing on property of a Person immediately prior to
its being consolidated with or merged into the Parent or a
Subsidiary or its becoming a Subsidiary, or any Lien existing on
any property acquired by the Borrower or any Subsidiary at the
time such property is so acquired (whether or not the Debt
secured thereby shall have been assumed), provided that:
a. no such Lien shall have been created or assumed in
contemplation of such consolidation or merger or such
Person's becoming a Subsidiary or such acquisition of
property;
b. each such Lien shall extend solely to the item or items
of property so acquired and, if required by the terms of
the instrument originally creating such Lien, other
property which is an improvement to or is acquired for
specific use in connection with such acquired property;
and
c. the principal amount of Debt secured by any such Lien
shall not be increased beyond the amount secured at the
date of such consolidation merger or acquisition, or of
such Person becoming a Subsidiary.
9. any Lien renewing, extending or refunding any Lien permitted by
paragraphs (g) or (h) of this clause 17.2, provided that:
a. the principal amount of Debt secured by such Lien
immediately prior to such extension, renewal or
refunding is not increased or the maturity thereof
reduced;
b. such Lien is not extended to any other property; and
c. immediately after such extension, renewal or refunding
no Default or Event of Default would exist; and
10. other Liens to secure Debt incurred after the date of first
drawing under this Agreement permitted by clause 17.3(c).
C. FINANCIAL UNDERTAKINGS
1. (CONSOLIDATED NET WORTH) The Parent will at all times ensure that:
a. Consolidated Net Worth is not less than:
(1) US$250 million for the year ending 31 March
1999;
(2) US$275 million for the year ending 31 March
2000;
(3) US$300 million for the year ending 31 March
2001; and
(4) US$320 million for each year after that.
<PAGE> 27
2. (INCURRENCE OF FUNDED DEBT) The Parent will not, and will not
permit any Subsidiary to, directly or indirectly, create, incur,
assume, guarantee, or otherwise become directly or indirectly
liable with respect to, any Funded Debt, unless on the date the
Parent or such Subsidiary becomes liable with respect to any
such Debt and immediately after giving effect thereto and the
concurrent retirement of any other Debt,
a. no Default or Event of Default exists, and
b. the ratio of Consolidated Funded Debt to Consolidated
Funded Capitalization does not exceed:
(1) 60% in the year ending 31 March 1999; and
(2) 55% for each year after that.
For the purposes of this clause 17.3(b), any Person becoming a
Subsidiary after the date hereof shall be deemed, at the time it
becomes a Subsidiary, to have incurred all of its then
outstanding Debt, and any Person extending, renewing or
refunding any Debt shall be deemed to have incurred such Debt at
the time of such extension, renewal or refunding.
3. (SECURED DEBT) The Parent will not at any time permit the
aggregate amount of Secured Debt of the Parent and its
Subsidiaries (excluding Debt owing to the Parent or a
Wholly-Owned Subsidiary) to exceed 20% of Consolidated Net
Worth.
4. (EBIT) EBIT will not be less than twice Net Interest Charges in
any year ending 31 March.
D. TERM OF UNDERTAKINGS
Each undertaking in this clause continues from the date of this
Agreement until the Secured Money is fully and finally repaid.
XVIII. INFORMATION AS TO BORROWER
A. FINANCIAL AND BUSINESS INFORMATION
The Parent shall deliver to the Lender the following:
1. (QUARTERLY STATEMENTS) Within 60 days after the end of each
quarterly fiscal period in each fiscal year of the Parent (other
than the last quarterly fiscal period of each such fiscal year)
a copy of,
a. a consolidated balance sheet of the Parent and its
Subsidiaries as at the end of such quarter, and
b. consolidated statements of income, changes in
shareholders' equity and cash flows of the Parent and
its Subsidiaries, for such quarter and (in the case of
the second and third quarters) for the portion of the
fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for
the corresponding periods in the previous fiscal year, all in
reasonable detail, prepared in accordance with GAAP applicable
to quarterly financial statements generally, and certified by a
Senior Financial Officer as fairly presenting, in all material
respects, the financial position of the companies being reported
on and their results of operations and cash flows, subject to
changes resulting from year-end adjustments, provided that
delivery within the time period specified above of copies of the
Parent's Quarterly Report on Form 10-Q prepared in compliance
with the requirements therefor and filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements
of this clause 18.1(a).
<PAGE> 28
2. (ANNUAL STATEMENTS) Within 105 days after the end of each fiscal
year of the Parent a copy of:
a. a consolidated balance sheet of the Parent and its
Subsidiaries, as at the end of such year; and
b. consolidated statements of income, changes in
shareholders' equity and cash flows of the Parent and
its Subsidiaries, for such year,
setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP, and accompanied by an opinion thereon of
independent certified public accountants of recognised national
standing, which opinion shall state that such financial
statements present fairly, in all material respects, the
financial position of the companies being reported upon and
their results of operations and cash flows and have been
prepared in conformity with GAAP, and that the examination of
such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing
standards, and that such audit provides a reasonable basis for
such opinion in the circumstances, and provided that the
delivery within the time period specified above of the Parent's
Annual Report on Form 10-K for such fiscal year (together with
the Parent's annual report to shareholders, if any, prepared
pursuant to Rule 14a-3 under the Exchange Act) prepared in
accordance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy
the requirements of this clause 18.1(b).
3. (SEC AND OTHER REPORTS) Promptly upon their becoming available,
one copy of:
a. each financial statement, report, notice or proxy
statement sent by an Obligor or any Subsidiary to public
securities holders generally; and
b. each regular or periodic report, each registration
statement (without exhibits except as expressly
requested by the Lender), and each prospectus and all
amendments thereto filed by the Parent or any Subsidiary
with the Securities and Exchange Commission and of all
press releases and other statements made available
generally by any Obligor or any Subsidiary to the public
concerning developments that are material.
4. (NOTICE OF DEFAULT OR EVENT OF DEFAULT) The Parent will promptly
notify the Lender of:
a. the existence of any Default or Event of Default;
b. the commencement of any litigation, arbitration or
administrative proceeding of the nature described in
clause 16.1(h); and
c. the occurrence of any event which will or could
reasonably be expected to have a Material Adverse
Effect.
5. (REQUESTED INFORMATION) Such other information relating
to the business, operations and condition, (financial or
otherwise) of any Obligor or any Subsidiary as from time
to time may be reasonably requested by the Lender.
B. OFFICER'S CERTIFICATE
<PAGE> 29
Each set of financial statements delivered to the Lender pursuant to
clause 18.1(a) or 18.1(b) shall be accompanied by a certificate of a
Senior Financial Officer setting forth:
1. (COVENANT COMPLIANCE) the information (including detailed
calculations) required in order to establish whether the
Obligors were in compliance with the requirements of paragraphs
(a), (b), (c) and (d) of clause 17.3, during the quarterly or
annual period covered by the statements then being furnished
(including with respect to each such paragraph, where
applicable, the calculations of the maximum or minimum amount,
ratio or percentage, as the case may be, permissible under the
terms of such paragraphs, and the calculation of the amount,
ratio or percentage then in existence) and a calculation of the
ratio of Consolidated Funded Debt to EBIT for that period; and
2. (EVENT OF DEFAULT) a statement that such officer has reviewed
the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Obligors and each Subsidiary from the
beginning of the quarterly or annual period covered by the
statements then being furnished to the date of the certificate
and that such review shall not have disclosed the existence
during such period of any condition or event that constitutes a
Default or an Event of Default or, if any such condition or
event existed or exists (including any such event or condition
resulting from the failure of any Obligor or any Subsidiary to
comply with any Environmental Law), specifying the nature and
period of existence thereof and what action each Obligor shall
have taken or proposes to take with respect thereto.
XIX. EVENTS OF DEFAULT
A. EVENTS OF DEFAULT
Each of the following is an Event of Default whether or not it is in the
control of any Obligor.
1. (NON-PAYMENT OF PRINCIPAL) The Borrower fails to pay an amount
of principal payable by it under this Agreement when due.
2. (NON-PAYMENT OF INTEREST) The Borrower fails to pay any amount,
other than an amount described in paragraph (a), payable by it
under this Agreement and does not remedy that failure within 5
Business Days after the same becomes due and payable.
3. (OTHER DEFAULT) Any Obligor defaults in the performance of or
compliance with any term contained herein (other than those
referred to in paragraphs (a) or (b) of this clause 19.1) and
such default is not remedied within 30 days of an Obligor
receiving written notice of such default from the Lender (any
such written notice to be identified as a "notice of default"
and to refer specifically to this paragraph (c) of clause 19.1).
4. (MISREPRESENTATION) Any representation or warranty made in
writing by or on behalf of any Obligor or by any officer of any
Obligor in this Agreement or in any writing furnished in
connection with the transactions contemplated hereby proves to
have been false or incorrect in any material respect on the date
as of which made but if the Lender determines that the
circumstances underlying that misrepresentation are capable of
being rectified so that the Lender does not suffer any adverse
effect, it shall not be an Event of Default if those
circumstances are rectified within 30 days after written notice
from the Lender to an Obligor requiring rectification.
5. (CROSS DEFAULT)
(i) The Parent or any Subsidiary is in default in the
payment of any Debt that is outstanding in an aggregate
principal amount of at least US$10,000,000 beyond any
period of grace provided with respect thereto and such
Debt is not paid within 3 Business Days; or
<PAGE> 30
(ii) Debt exceeding US$10,000,000 of the Parent or any
Subsidiary has become, or has been declared (or one or
more Persons are entitled to declare such Debt to be),
due and payable before its stated maturity and such Debt
is not paid within 3 Business Days.
6. (INSOLVENCY) Any Obligor:
a. is generally not paying, or admits in writing its
inability to pay, its debts as they become due;
b. files, or consents by answer or otherwise to the filing
against it of, a petition for relief or reorganization
or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy,
insolvency, reorganization, moratorium or other similar
law of any jurisdiction;
c. makes an assignment for the benefit of its creditors;
d. consents to the appointment of a custodian, receiver,
receiver and manager, trustee or other officer with
similar powers with respect to it or with respect to any
substantial part of its property;
e. consents to the appointment of an administrator;
f. is adjudicated as insolvent or to be liquidated; or
(vi) takes corporate action for the purpose of any of the
foregoing.
7. (RECEIVER)
(i) A court or Governmental Authority of competent
jurisdiction enters an order appointing, without consent
by the Parent or any of its Subsidiaries, a custodian,
receiver, receiver and manager, trustee or other officer
with similar powers with respect to it or with respect
to any substantial part of its property, or constituting
an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or
for liquidation or to take advantage of any bankruptcy
or insolvency law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of the Parent or
any of its Subsidiaries, or any such petition shall be
filed against the Parent or any of its Subsidiaries
(other than a frivolous or vexatious petition) and such
petition shall not be dismissed or cancelled within 60
days: or
(ii) an administrator of the Parent or any Subsidiary is
appointed; or
(iii) a receiver, receiver and manager, administrative
receiver or similar officer is appointed to all or any
substantial part of its assets in respect of Debt that
is outstanding in an aggregate principal amount of at
least US$10,000,000 and that officer is not removed
within 5 days of his appointment,
8. (JUDGMENT) A final judgment or judgments for the payment of
money aggregating in excess of US$10,000,000 are rendered
against one or more of the Parent and its Subsidiaries and which
judgments are not, within 60 days after entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged
within 60 days after the expiration of such stay.
<PAGE> 31
9. (VITIATION OF DOCUMENTS)
a. Any material provision of this Agreement ceases for any
reason to be in full force and effect or becomes void,
voidable or unenforceable;
b. any law suspends, varies, terminates or excuses
performance by an Obligor of any of its material
obligations under this Agreement or purports to do any
of the same;
c. it becomes impossible or unlawful for an Obligor to
perform any of its material obligations under this
Agreement or for the Lender to exercise all or any of
its rights, powers and remedies under this Agreement; or
d. an Obligor alleges that this Agreement has been affected
as described in this paragraph.
10. (OWNERSHIP OF BORROWER) The Borrower ceases to be directly or
indirectly fully owned and controlled by the Parent.
11. (FINANCIAL UNDERTAKINGS) There is at any time a breach of any
financial undertaking in clause 17.3 or the Parent fails to
deliver a certificate as required by clause 18.2 within 7 days
of receipt of written notice from the Lender of failure to
provide such certificate.
12. (AUTHORISATION) Any Authorisation necessary or advisable from
any person for or in connection with the execution, delivery,
performance by any Obligor, validity or enforceability of this
Agreement is not granted or ceases to be in full force and
effect for any reason or is modified or amended in a manner
which, in the reasonable opinion of the Lender, might have a
Material Adverse Effect.
13. (MATERIAL CHANGE) A change occurs in the financial condition of
the Parent or any of its Subsidiaries which has a Material
Adverse Effect.
B. CONSEQUENCES
In addition to any other rights provided by law or this Agreement, at
any time after an Event of Default (whether or not it is continuing) the
Lender may do all or either of the following:
1. by notice to the Arranger declare the Secured Money immediately
due and payable, and the Borrower will immediately pay the
Secured Money; and
2. by notice to the Arranger cancel the Commitment.
XX. GUARANTEE
A. INTERPRETATION
Unless the context requires otherwise, in this clause a reference to:
1. ANY PERSON includes any other Guarantor and the Borrower; and
2. ANY DOCUMENT OR AGREEMENT includes this Agreement.
B. GUARANTEE
The Guarantors jointly and severally unconditionally and irrevocably
guarantee the due and punctual payment of the Secured Money. Each
Guarantor enters into this Agreement for valuable consideration which
includes the Lender entering into this Agreement at its request.
<PAGE> 32
C. PAYMENT
1. On demand from time to time each Guarantor shall pay an amount
equal to the Secured Money then due and payable in the same
manner and currency which the Borrower is (or would have been
but for its Liquidation) required to pay the Secured Money under
the relevant Transaction Document.
2. A demand need only specify the amount owing. It need not specify
the basis of calculation of that amount.
[3. It is not necessary to make demand on the Borrower before making
demand on each Guarantor under this clause.]
D. UNCONDITIONAL NATURE OF OBLIGATION
Neither this Agreement nor the obligations of any Guarantor under this
Agreement will be affected by anything which but for this provision
might operate to release, prejudicially affect or discharge them or in
any way relieve any Guarantor from any obligation. This includes the
following:
1. the grant to any person of any time, waiver or other indulgence,
or the discharge or release of any person;
2. any transaction or arrangement that may take place between the
Lender and any person;
3. the Liquidation of any person;
4. the Lender becoming a party to or bound by any compromise,
moratorium, assignment of property, scheme of arrangement, deed
of company arrangement, composition of debts or scheme of
reconstruction by or relating to any person;
5. the Lender exercising or delaying or refraining from exercising
or enforcing any document or agreement or any right, power or
remedy conferred on it by law or by any document or agreement;
6. all or any part of any document or agreement held by the Lender
at any time or of any right, obligation, power or remedy
changing, ceasing or being transferred (this includes amendment,
variation, novation, replacement, rescission, invalidity,
extinguishment, repudiation, avoidance, unenforceability,
frustration, failure, expiry, termination, loss, release,
discharge, abandonment or (assignment);
7. the taking or perfection of any document or agreement or failure
to take or perfect any document or agreement;
8. the failure by any person or the Lender to notify any Guarantor
of any default by any person under any document or agreement or
other circumstance;
9. the Lender obtaining a judgment against any person for the
payment of any Secured Money;
10. any legal limitation, disability, incapacity or other
circumstance relating to any person;
11. any change in any circumstance (including in the members or
constitution of any person);
12. any document or agreement is not executed by any person, or is
not valid or binding on any person; or
13. any increase in the Secured Money for any reason (including as a
result of anything referred to above),
<PAGE> 33
whether with or without the consent of the Guarantors. Without
limitation, this Agreement binds a Guarantor even if it is, or has
become, the only Guarantor bound. None of the above paragraphs limits
the generality of any other.
E. PRINCIPAL AND INDEPENDENT OBLIGATION
This clause is a principal and independent obligation. Except for stamp
duty purposes, it is not ancillary or collateral to another document,
agreement, right or obligation.
F. NO MARSHALLING
The Lender is not obliged to marshal or appropriate in favour of any
Guarantor or to exercise, apply or recover:
1. any Lien, Guaranty, document or agreement held by the Lender at
any time; or
2. any of the funds or assets that the Lender may be entitled to
receive or have a claim on.
G. NO COMPETITION
Until the Secured Money has been irrevocably paid and discharged in full
no Guarantor is entitled to, and no Guarantor shall:
1. be subrogated to the Lender or claim the benefit of any Lien or
Guaranty held by the Lender at any time;
2. upon the Liquidation of the Borrower, or any person who gives a
Guaranty or Lien in respect of any Secured Money either directly
or indirectly prove in, claim or receive the benefit of, any
distribution, dividend or payment; or
3. have or claim any right of contribution or indemnity from the
Borrower, or any person who gives a Guaranty or Lien in respect
of any Secured Money.
The receipt of any distribution, dividend or other payment by the Lender
out of or relating to any Liquidation will not prejudice the right of
the Lender to recover the Secured Money by enforcement of this
Agreement.
H. SUSPENSE ACCOUNT
In the event of the Liquidation of the Borrower or any other person
(including any Guarantor) each Guarantor authorises the Lender to do the
following until the Lender has been paid the Secured Money in full:
1. prove in respect of all moneys which the Guarantors have paid
the Lender under this Agreement; and
2. a. retain and carry to a suspense account; and
b. appropriate at the discretion of the Lender,
any dividend received in the Liquidation of the Borrower or any
other person and any other money received in respect of the
Secured Money.
I. RESCISSION OF PAYMENT
Whenever any of the following occurs for any reason (including under any
law relating to Liquidation, fiduciary obligations or the protection of
creditors):
<PAGE> 34
1. all or part of any transaction of any nature (including any
payment or transfer) made during the term of this Agreement
which affects or relates in any way to the Secured Money is
void, set aside or voidable;
2. any claim that anything contemplated by paragraph (a) is so
upheld, conceded or compromised; or
3. the Lender is required to return or repay any money or asset
received by it under any such transaction or the equivalent in
value of that money or asset,
the Lender will immediately become entitled against each Guarantor to
all rights in respect of the Secured Money which it would have had if
all or the relevant part of the transaction or receipt had not taken
place. Each Guarantor shall indemnify the Lender against any resulting
loss, cost or expense. This clause continues after this Agreement is
discharged.
J. INDEMNITY
If any Secured Money (including moneys which would have been Secured
Money if they were recoverable) is not recoverable from the Borrower for
any reason each Guarantor shall indemnify the Lender and shall pay that
money to the Lender on demand. The reason may include any legal
limitation, disability, incapacity or thing affecting the Borrower or
any failure to execute properly an agreement or document.
This applies whether or not:
1. any transaction relating to the Secured Money was void or
illegal or has been subsequently avoided; or
2. any matter or fact relating to that transaction was or ought to
have been within the knowledge of the Lender.
K. CONTINUING GUARANTEE AND INDEMNITY
This clause:
1. is a continuing guarantee and indemnity;
2. will not be taken to be wholly or partially discharged by the
payment at any time of any Secured Money or by any settlement of
account or other matter or thing; and
3. remains in full force until the Secured Money has been paid in
full and the Guarantors have completely performed their
obligations under this Agreement.
L. VARIATIONS
This clause covers the Secured Money as varied from time to time
including as a result of:
1. any amendment to, or waiver under this Agreement; or
2. the provision of further accommodation to the Borrower,
and whether or not with the consent of or notice to the Guarantors. This
does not limit any other provision.
<PAGE> 35
M. JUDGMENT
A judgment obtained against the Borrower will be conclusive against each
Guarantor.
N. CONDITIONS PRECEDENT
Any condition or condition precedent to the provision of financial
accommodation is for the benefit of the Lender and not the Guarantors.
Any waiver of or failure to satisfy such a condition or condition
precedent will be disregarded in determining whether an amount is part
of the Secured Money.
XXI. INTEREST ON OVERDUE AMOUNTS
A. ACCRUAL AND PAYMENT
1. (ACCRUAL) Interest accrues on each unpaid amount which is due
and payable by the Borrower or a Guarantor under or in respect
of this Agreement (including interest payable under this
clause):
a. on a daily basis up to the date of actual payment from
(and including) the due date;
b. both before and after judgment (as a separate and
independent obligation); and
c. at the rate provided in clause 21.2 (RATE).
2. (PAYMENT) Each Obligor shall pay interest accrued under this
clause on demand from time to time and on the last Business Day
of each calendar quarter. That interest is payable in the
currency of the unpaid amount on which it accrues and shall be
compounded at such intervals as the Lender considers
appropriate.
B. RATE
The rate applicable under this clause is the sum of:
1. 2% per annum; and
2. the aggregate of the Margin and BBR calculated from time to time
with reference to such successive periods and on such dates as
the Lender considers appropriate.
XXII. INDEMNITIES
The Borrower shall indemnify the Lender against any loss, cost, charge,
liability or expense (including legal costs on a full indemnity basis)
the Lender (or any officer or employee of the Lender) may sustain or
incur as a direct or indirect result of:
1. any Event of Default or Default occurring;
2. any failure by the Borrower to draw down an Advance in
accordance with a Drawdown Notice or to make a prepayment in
accordance with a notice of prepayment; or
3. any prepayment made other than on the last day of a Funding
Period and in accordance with this Agreement (including, any
loss or expense incurred in liquidating or redeploying funds
from third parties to make or maintain any Advance or in
terminating or reversing any arrangements entered into in
connection with the funding of any Advance and any loss of
profits that the Lender may suffer by reason of the early
liquidation or redeployment of such funds or the termination or
reversal of such arrangements).
XXIII. CURRENCY INDEMNITY
<PAGE> 36
A. GENERAL
The Borrower shall indemnify the Lender against any deficiency which
arises whenever for any reason (including as a result of a judgment or
order or Liquidation):
(a) the Lender receives or recovers an amount in one currency (the
PAYMENT CURRENCY) in respect of an amount denominated under this
Agreement in another currency (the DUE CURRENCY); and
(b) the amount actually received or recovered by the Lender in
accordance with its normal practice when it converts the Payment
Currency into the Due Currency is less than the relevant amount
of the Due Currency.
B. REIMBURSEMENT
Where an amount to be reimbursed or indemnified against under this
Agreement is denominated in another currency, if the Lender so requests,
the Borrower shall reimburse or indemnify it against the amount of
Australian dollars which the Lender certifies that it used to buy the
relevant amount of the other currency under its normal procedures. If
the Lender does not so request, the Borrower shall reimburse or
indemnify it in the relevant currency.
XXIV. REVIEW EVENT
If, at any time after the date of this Agreement and for any reason,
whether or not within the control of a party, a Change of Control occurs
and at that time or at any time thereafter the Lender determines, in its
sole discretion, that it has reasonable grounds for believing that an
Obligor will not or may not (or will or may be unable to) perform or
comply with any one or more of its obligations under this Agreement due
to either:
1. changes made, or proposed to be made, to the business of the
Borrower or to the business of the Parent and its Subsidiaries
taken as a whole (whether by a single transaction or a series of
related or unrelated transactions, whether at one time or over a
period of time and whether by disposal, acquisition or
otherwise); or
2. any change in the financial condition or operations of an
Obligor,
then the Lender may by notice to the Arranger cancel its Commitment with
immediate effect and/or declare the Secured Money to be, and the Secured
Money will be, due and payable within 60 days from the date of that
notice.
XXV. CONTROL ACCOUNTS
The accounts kept by the Lender constitute sufficient evidence, unless
proven wrong, of the amount at any time due from the Borrower under this
Agreement.
XXVI. EXPENSES
The Borrower shall reimburse the Lender for its reasonable expenses in
relation to:
1. the preparation, execution and completion of this Agreement and
any subsequent consent, approval, waiver or amendment; and
2. any consent, waiver, variation, calculation, release or
discharge requested by an Obligor; and
<PAGE> 37
3. following the occurrence of an Event of Default and while that
Event of Default subsists, any inspection or valuation to be
made or given by or to the Lender under this Agreement and the
actual enforcement of, or preservation of rights, powers and
remedies under this Agreement.
XXVII. STAMP DUTIES
1. The Borrower shall pay all stamp, transaction, registration and
similar Taxes (including fines and penalties) payable in
relation to the execution, delivery, performance or enforcement
of this Agreement or any payment or receipt or any other
transaction contemplated by this Agreement.
2. Those Taxes include financial institutions duty, debits tax or
other Taxes payable by return and Taxes passed on to the Lender
by a bank or financial institution.
3. The Borrower shall indemnify the Lender against any liability
resulting from delay or omission to pay those Taxes except to
the extent the liability results from failure by the Lender to
pay any Tax after having been put in funds to do so by the
Borrower.
XXVIII. SET-OFF
1. If an Event of Default subsists the Lender may apply any credit
balance in any currency (whether or not matured) in any account
of the Borrower or a Guarantor with the Lender towards
satisfaction of any sum then due and payable by it to the Lender
under or in relation to this Agreement. The Lender need not make
the application.
2. The Lender may exchange currencies to make that application.
XXIX. WAIVERS, REMEDIES CUMULATIVE
1. No failure to exercise and no delay in exercising any right,
power or remedy under this Agreement operates as a waiver. Nor
does any single or partial exercise of any right, power or
remedy preclude any other or further exercise of that or any
other right, power or remedy.
2. The rights, powers and remedies provided to the Lender in this
Agreement are in addition to, and do not exclude or limit, any
right, power or remedy provided by law.
XXX. SEVERABILITY OF PROVISIONS
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction is ineffective as to that jurisdiction to the extent of
the prohibition or unenforceability. That does not invalidate the
remaining provisions of this Agreement nor affect the validity or
enforceability of that provision in any other jurisdiction.
XXXI. SURVIVAL OF REPRESENTATIONS
All representations and warranties in this Agreement survive the
execution and delivery of this Agreement and the provision of advances
and accommodation.
XXXII. INDEMNITY AND REIMBURSEMENT OBLIGATIONS
Unless otherwise stated, each indemnity, reimbursement or similar
obligation in this Agreement:
1. is a continuing obligation;
2. is a separate and independent obligation;
3. is payable on demand; and
4. survives termination or discharge of this Agreement.
<PAGE> 38
XXXIII. MORATORIUM LEGISLATION
To the full extent permitted by law all legislation which at any time
directly or indirectly:
1. lessens, varies or affects in favour of the Borrower or a
Guarantor any obligation under this Agreement; or
2. delays, prevents or prejudicially affects the exercise by the
Lender of any right, power or remedy conferred by this
Agreement,
is excluded from this Agreement.
XXXIV. CONSENTS AND OPINIONS
Except where expressly stated the Lender may give or withhold, or give
conditionally, approvals and consents, may be satisfied or unsatisfied,
may form opinions, and may exercise its rights, powers and remedies at
its absolute discretion.
XXXV. ASSIGNMENTS
A. ASSIGNMENT BY BORROWER AND GUARANTORS
The Borrower and any Guarantor may only assign or transfer any of their
rights or obligations under this Agreement with the prior written
consent of the Lender.
B. ASSIGNMENT BY LENDER
The Lender may assign or transfer all or any of its rights or
obligations under this Agreement at any time if:
1. the Parent has given its prior consent, which consent it shall
not withhold unreasonably;
2. in the case of a transfer of obligations, the transfer is
effected by a novation in form and substance reasonably
satisfactory to the Arranger.
C. DISCLOSURE
Subject to clause 35.2(a), the Lender may disclose to a proposed
assignee, transferee or sub-participant information which relates to an
Obligor or was furnished in connection with this Agreement if it first
obtains the consent of the Parent (who shall not unreasonably withhold
or delay that consent).
D. CHANGE OF LENDING OFFICE
The Lender may change its Lending Office if it first notifies and
consults with the Arranger.
E. NO INCREASED COSTS
Despite anything to the contrary in this Agreement, if the Lender
assigns its rights under this Agreement or changes its Lending Office,
the Borrower will not be required to pay or absorb with respect to the
assignee or new Lending Office any net increase in the total amount of
costs, Taxes, fees or charges which arise or may arise as a result of or
in connection with such assignment or new Lending Office.
<PAGE> 39
XXXVI. NOTICES
All notices, requests, demands, consents, approvals, agreements or other
communications to or by a party to this Agreement:
1. must be in writing;
2. must be signed by a Responsible Officer of the sender;
3. will be taken to be duly given or made:
a. (in the case of delivery in person or by post, facsimile
transmission or cable) when delivered, received or left
at the address of the recipient shown in this Agreement
or to any other address which it may have notified the
sender; or
b. (in the case of a telex) on receipt by the sender of the
answerback code of the recipient at the end of
transmission,
but if delivery or receipt is on a day on which business is not
generally carried on in the place to which the communication is
sent or is later than 4pm (local time), it will be taken to have
been duly given or made at the commencement of business on the
next day on which business is generally carried on in that
place;
4. must, in the case of a notice to the Arranger or the Parent be
sent to:
World Trade Centre
Tower C
4th Floor
Strawinskylaan 819
Po Box 819
1070 XX Amsterdam
The Netherlands
For the attention of: Don Cameron; and
5. must, in the case of notice to the Borrower, have a copy sent to
the Arranger at the address in paragraph (d) above.
XXXVII. RESPONSIBLE OFFICERS
Each Obligor irrevocably authorises the Lender to rely on a certificate
by a person purporting to be its director or secretary as to the
identity and signatures of its Responsible Officers. Each Obligor
warrants that those persons have been authorised to give notices and
communications under or in connection with this Agreement.
Each of the Parent and the Borrower warrants that each Responsible
Officer of the Arranger is authorised to sign Drawdown Notices and to
give and receive notices as contemplated in this Agreement on behalf of
it.
XXXVIII. FURTHER ASSURANCES
The Borrower will at its own expense and when requested by the Lender
from time to time to do so, promptly do, execute and deliver all such
other and further acts and instruments as are necessary or, in the
reasonable opinion of the Lender, desirable for more satisfactorily
giving effect to this Agreement and for more fully vesting in the Lender
all rights, remedies and powers conferred or intended to be conferred by
this Agreement and must cause any relevant third parties to do, execute
and deliver the same.
XXXIX. JURISDICTION
<PAGE> 40
A. JURISDICTION
With respect to any legal action or proceedings relating to this
Agreement (each, a RELEVANT ACTION), each of the Guarantors and the
Borrower irrevocably:
1. submits to and accepts, for itself and in respect of its assets,
generally and unconditionally the non-exclusive jurisdiction of
any of the courts of Australia or any of its states or
territories selected by the Lender;
2. waives any objection to the venue and any claim that the
Relevant Action has been brought in an inconvenient forum; and
3. consents to the service of process out of any of those courts by
the mailing of copies of process by registered or certified
airmail postage prepaid to it at its address for service of
notices under clause 36 or to its process agent at its address
provided in the following sub-clause, in which case such service
will be taken to have been effected on receipt.
Nothing in this Agreement affects the right to serve process in any
other manner permitted by law.
B. PROCESS AGENTS
1. Each Guarantor irrevocably:
a. nominates as its agent to receive service of process or
other documents in any Relevant Action:
James Hardie Aust. Investco Pty Ltd
65 York Street
Sydney NSW 2000
Fax: 9262 4394
Attention: Company Secretary
b. agrees that service on that agent or any other person
appointed under paragraph (b) will be sufficient service
on it.
2. Each Guarantor shall ensure each process agent remains
authorised to accept service on its behalf. If any process agent
ceases to have an office in the place specified, each Guarantor
shall ensure that there is another person in that place
acceptable to the Lender to receive process on its behalf. It
shall promptly notify the Lender of the appointment of that
other person.
3. The Borrower accepts its appointment by each Guarantor as agent
to receive service of process or other documents in any Relevant
Action.
XL. GOVERNING LAW
This Agreement is governed by the laws of New South Wales.
XLI. COUNTERPARTS
This Agreement may be executed in any number of counterparts. All
counterparts together will be taken to constitute one instrument.
<PAGE> 41
XLII. CONFIDENTIAL INFORMATION
1. For the purposes of this clause, CONFIDENTIAL INFORMATION means
information delivered to the Lender by or on behalf of the
Parent or any Subsidiary in connection with the transactions
contemplated by or otherwise pursuant to this Agreement that is
proprietary in nature and that was clearly marked or labelled or
otherwise adequately identified when received by the Lender as
being confidential information of the Parent or such Subsidiary,
provided that such term does not include information that:
a. was publicly known or otherwise known to the Lender
prior to the time of such disclosure;
b. subsequently becomes publicly known through no act or
omission by the Lender or any person acting on its
behalf;
c. otherwise becomes known to the Lender other than through
disclosure by the Parent or any Subsidiary; or
d. constitutes financial statements delivered to the Lender
under clause 18.1 that are otherwise publicly available.
2. The Lender will maintain the confidentiality of such
Confidential Information in accordance with procedures adopted
by it in good faith to protect confidential information of third
parties delivered to it, provided that the Lender may deliver or
disclose Confidential Information to:
a. its directors, officers, employees, agents, attorneys
and affiliates (to the extent such disclosure reasonably
relates to the administration of this Agreement);
b. the Lender's financial advisors and other professional
advisors who agree to hold confidential the Confidential
Information substantially in accordance with the terms
of this clause 42;
c. a proposed assignee, transferee or sub-participant in
accordance with clause 35.3;
d. any United States federal or state regulatory authority
having jurisdiction over the Lender;
e. the National Association of Insurance Commissioners or
any similar organization, or any nationally recognized
rating agency that requires access to information about
the Lender; or
f. any other Person to which such delivery or disclosure
may be necessary or appropriate:
(1) to effect compliance with any law, rule,
regulation or order applicable to the Lender;
(2) in response to any subpoena or other legal
process;
(3) in connection with any litigation to which the
Lender is a party; or
(4) if an Event of Default has occurred and is
subsisting, to the extent the Lender may
reasonably determine such delivery and
disclosure to be necessary or appropriate in the
enforcement or for the protection of the rights
and remedies under this Agreement.
EXECUTED as an agreement.
<PAGE> 42
Each attorney executing this Agreement states that he has no notice of
revocation or suspension of his power of attorney.
THE BORROWER
SIGNED on behalf of )
JAMES HARDIE AUST. INVESTCO )
PTY LTD by its attorney in the )
presence of: )
- -------------------------------------------
Signature
- -------------------------------------------
- -------------------------------------------
Witness Print name
- -------------------------------------------
Print name
THE GUARANTORS
SIGNED on behalf of )
JAMES HARDIE N.V. )
by its attorney in the presence of: )
- -------------------------------------------
Signature
- -------------------------------------------
- -------------------------------------------
Witness Print name
- -------------------------------------------
Print name
SIGNED on behalf of )
JAMES HARDIE FINANCE B.V. )
by its attorney in the presence of: )
- -------------------------------------------
Signature
- -------------------------------------------
- -------------------------------------------
Witness Print name
- -------------------------------------------
- -------------------------------------------
<PAGE> 43
- -------------------------------------------
Print name
THE LENDER
SIGNED on behalf of )
)
by its attorney in the presence of: )
- -------------------------------------------
Signature
- -------------------------------------------
- -------------------------------------------
Witness Print name
- -------------------------------------------
Print name
<PAGE> 44
ANNEXURE A
DRAWDOWN NOTICE
To:
________ JAMES HARDIE AUST. INVESTCO PTY LTD - DRAWDOWN NOTICE NO. [*]
We refer to the Loan Agreement dated [*] 1998 (the LOAN AGREEMENT).
Under clause 3 of the Loan Agreement we give you irrevocable notice as follows:
(1) the Borrower wishes to draw on [*] 19[*] (the DRAWDOWN DATE); [NOTE:
DATE IS TO BE A BUSINESS DAY.]
(2) the total principal amount to be drawn is [*]; [NOTE: AMOUNT TO COMPLY
WITH THE LIMITS IN CLAUSE 4.]
(3) particulars of [each/the] Loan are as follows:
PRINCIPAL AMOUNT FUNDING PERIOD
[NOTE: AMOUNTS TO COMPLY WITH CLAUSE 5 AND LENGTH OF FUNDING PERIOD TO
COMPLY WITH CLAUSE 7.]
(5) we request that the proceeds be remitted to account number [*] at [*];
[NOTE: THE ACCOUNT(S) TO BE COMPLETED ONLY IF FUNDS NOT REQUIRED IN REPAYMENT OF
PREVIOUS LOAN(S).]
(6) we represent and warrant on behalf of the Borrower that:
(a) [(except as disclosed in paragraph (c)] the representations and
warranties in paragraphs (a), (b), (c), (d)(i), (e), (f), (g),
(i), (j), (k), (l) and (n) of clause 16.1 of the Loan Agreement
are true as though they had been made at the date of this
Drawdown Notice and the Drawdown Date specified above in respect
of the facts and circumstances then subsisting; [and]
(b) [(except as disclosed in paragraph (c)] no Event of Default [or
Default] subsists or will result from the drawing; [and]
[(c) details of the exceptions to paragraphs (a) and (b) are as
follows: [*], and we [have taken/propose] the following remedial
action [*];]
[NOTE: INCLUSION OF A STATEMENT UNDER PARAGRAPH (C) SHALL NOT PREJUDICE THE
CONDITIONS PRECEDENT IN THE AGREEMENT.]
Definitions in the Loan Agreement apply in this Drawdown Notice.
On behalf of JAMES HARDIE FINANCE B.V.
By: [Responsible Officer]
DATED 19[*]
<PAGE> 45
ANNEXURE B
VERIFICATION CERTIFICATE
To:
________________________________ LOAN AGREEMENT
I [*] am a [director] of [*] Limited (the COMPANY).
I refer to the Loan Agreement (the LOAN AGREEMENT) dated [*] 1998 between James
Hardie Aust. Investco Pty Limited as Borrower, James Hardie Finance B.V. as
Arranger and Guarantor and James Hardie N.V. as Guarantor and as
Lender.
Definitions in the Loan Agreement apply in this Certificate.
I CERTIFY as follows.
1. Attached to this Certificate are complete and up to date copies of:
(a) the memorandum and articles of association of the Company
(marked A);
(b) a duly stamped power of attorney granted by the Company for the
execution of the Loan Agreement (marked B). That power of
attorney has not been revoked or suspended by the Company and
remains in full force and effect; and
(c) extracts of minutes of a meeting of the directors of the Company
approving execution of the Loan Agreement to which it is
expressed to be a party, appointing attorneys for that purpose
and appointing Responsible Officers of the Company for the
purpose of this Agreement (marked C). Those resolutions have not
been amended, modified or revoked and are in full force and
effect.
2. The following are signatures of the Responsible Officers of the Company
and the persons who have been authorised to sign the Loan Agreement and
to give notices and communications under or in connection with the Loan
Agreement.
RESPONSIBLE OFFICERS
NAME POSITION SIGNATURE
* *
* *
* *
<PAGE> 46
SIGNATORIES
NAME POSITION SIGNATURE
* *
* *
* *
Signed:
---------------------------------
Director
---------------------------------
Print name
DATED 1998
<PAGE> 47
ANNEXURE C
FORM OF EXTENSION LETTER
Date: [*]
To:
We refer to the $[*] Loan Agreement (the "Agreement") dated [ ] 1998 made
between ourselves as Arranger, James Hardie Aust Investco Pty Ltd as Borrower,
ourselves and James Hardie N.V. as Guarantors and yourselves as Lender.
We request that the Final Maturity Date in respect of the Agreement be extended
to a date 3 years after the next Review Date under the Agreement.
The next Review Date is [SPECIFY]. The extended Final Maturity Date would be
[SPECIFY].
Signed for and on behalf of James Hardie Finance B.V. by:
Responsible Officer
Signed for James Hardie N.V. by:
Responsible Officer
We agree to extend our Final Maturity Date in respect of the Facility to
[SPECIFY DATE].
Signed for Lender by:
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form F-1 (File
No. 333-63649) of our report dated May 12, 1998, on our audits of the
consolidated financial statements of James Hardie N.V. and Subsidiaries as of
March 31, 1997 and 1998, and for the three years in the period ended March 31,
1998. We also consent to the reference to our firm under the caption "Experts".
Sydney, Australia
March 2, 1999
/s/ PricewaterhouseCoopers
- ---------------------------------
PricewaterhouseCoopers
