<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1999.
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
STRATEGIC INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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DELAWARE 51-0305292
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
c/o U.S. INDUSTRIES, INC. 08830
101 WOOD AVENUE SOUTH (ZIP CODE)
ISELIN, N.J.
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (732) 767-0700
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS TO BE REGISTERED EACH CLASS IS TO BE REGISTERED
------------------------------------ ------------------------------
<S> <C>
Common stock, par value $0.01 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
________________________________________________________________________________
<PAGE>
STRATEGIC INDUSTRIES, INC.
INFORMATION REQUIRED IN INFORMATION STATEMENT
ITEM 1. BUSINESS
The registrant, Strategic Industries, Inc., a Delaware corporation, is
presently an indirect wholly-owned subsidiary of U.S. Industries, Inc.
The information required by this item is contained in the sections entitled
'Summary,' 'The Spin-off' and 'Business' of the Information Statement.*
ITEM 2. FINANCIAL INFORMATION
The information required by this item is contained in the sections entitled
'Summary,' 'Capitalization,' 'Selected Combined Financial Data,' 'Unaudited Pro
Forma Combined Condensed Financial Data' and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' of the Information
Statement.*
ITEM 3. PROPERTIES
The information required by this item is contained in the section entitled
'Business' of the Information Statement.*
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in the sections entitled
'Executive Compensation' and 'Security Ownership of Certain Beneficial Owners of
Common Stock' of the Information Statement.*
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item is contained in the sections entitled
'Management -- Directors' and 'Management -- Executive Officers' of the
Information Statement.*
ITEM 6. EXECUTIVE COMPENSATION
The information required by this item is contained in the section
'Executive Compensation' of the Information Statement.*
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in the section entitled
'The Spin-off -- Agreements between Strategic and USI and Relationship after the
Spin-off' of the Information Statement.*
ITEM 8. LEGAL PROCEEDINGS
The information required by this item is contained in the section entitled
'Business -- Legal Proceedings' of the Information Statement.*
- ------------
* Incorporated by reference.
1
<PAGE>
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The information required by this item is contained in the sections entitled
'The Spin-off -- Manner of Effecting the Spin-off,' 'The Spin-off -- Results of
the Spin-off,' 'Projected Ownership of Our Stock Immediately After the Spin-off'
and 'Description of Capital Stock' of the Information Statement.*
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The information required by this item is contained in the sections entitled
'Description of Capital Stock,' 'Rights Plan' and 'Purposes and Effects of
Certain Provisions of Certificate of Incorporation, By-Laws and Delaware
Statutory Law' of the Information Statement.*
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The information required by this item is contained in the sections entitled
'Purposes and Effects of Certain Provisions of the Certificate of Incorporation,
By-Laws and Delaware Statutory Law' and 'Limitation on Liability and
Indemnification of Officers and Directors' of the Information Statement.*
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is identified in 'Index to Combined
Financial Statements' of the Information Statement.*
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
1. See Index to Combined Financial Statements on page F-1 of the Information
Statement.*
2. Financial Statement Schedules:
II. Valuation and Qualifying Accounts
All Schedules, other than that indicated above, are inapplicable, and are
therefore omitted.
(b) Exhibits
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Information Statement (attached to this Registration
2.1 -- Statement as Annex A)
3.1 -- Amended and Restated Certificate of Incorporation of
Strategic (attached to Exhibit 2.1 as Annex A)
3.2 -- Amended and Restated By-Laws of Strategic
**3.3 -- Rights Agreement, dated , 1999, between Strategic
and , as Rights Agent
**4.1 -- Specimen form of certificate evidencing Strategic common
stock
**10.1 -- Spin-off Agreement, dated , 1999, between USI and
Strategic
**10.2 -- Indemnification Agreement, dated , 1999, between
USI and Strategic
**10.3 -- Tax Sharing and Indemnification Agreement dated ,
1999, between USI and Strategic
**10.4 -- Corporate Transition Agreement, dated , 1999, between
USI and Strategic
10.5(a) -- Interim Employment Agreement of John G. Raos, dated May 18, 1999
(b) -- Employment Agreement of John G. Raos, dated May 18, 1999
(c) -- Employment Agreement of Peter J. Statile, dated June 1, 1999
(d) -- Employment Agreement of Steven C. Barre, dated July 1, 1999
(e) -- Employment Agreement of Gary K. Meuchel, dated July 1, 1999
(f) -- Employment Agreement of Peter F. Reilly, dated July 1, 1999
**10.6 -- Strategic Industries, Inc. Value Creation Plan
**10.7 -- Strategic Industries, Inc. Stock Incentive Plan (attached to
Exhibit 2.1 as Annex B)
**21.1 -- Subsidiaries of Strategic
**27.1 -- Financial Data Schedule
</TABLE>
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** To be filed by amendment.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
STRATEGIC INDUSTRIES, INC.
By: /s/ STEVEN C. BARRE
.................................
Name: Steven C. Barre
Title: Vice President, General
Counsel and Secretary
September 30, 1999
3
<PAGE>
EXHIBIT 2.1
<PAGE>
[LETTERHEAD OF U.S. INDUSTRIES, INC.]
, 1999
Dear USI Stockholder:
I am pleased to enclose a copy of the information statement describing
Strategic Industries, Inc., the company through which USI intends to spin-off
the USI diversified group to our stockholders. When the spin-off is completed,
Strategic will be a New York Stock Exchange-listed company entirely separate
from USI. It will own and operate our present consumer products, precision
engineered products and automotive products companies.
You will receive one share of Strategic common stock for every ten shares
of USI common stock you hold at the close of business on , 1999.
You will not be required to make any payment or take any other action to receive
your Strategic common stock. [We have received a tax ruling confirming that the
receipt of Strategic common stock in the spin-off will be tax-free to our
stockholders for U.S. tax purposes.]
The spin-off is conditioned upon completion of the new financing
arrangements for Strategic described in the information statement. Subject to
this, the spin-off is expected to occur, and regular way NYSE trading in
Strategic common stock is expected to commence, on , 1999.
Our Board of Directors approved the spin-off following a full review of
various alternatives to improve company performance. The Board concluded that
repositioning USI from a wide-ranging conglomerate to a company focused on three
large building products businesses -- USI Bath and Plumbing, Lighting
Corporation of America, and USI Hardware and Tools -- would achieve greater
shareholder value over time.
The spin-off will also enable us to strengthen our balance sheet. Strategic
will pay us approximately $600 million principally to retire intercompany debt.
We will use these proceeds to reduce our own debt, make acquisitions for our
ongoing businesses and continue repurchasing our shares.
Following the spin-off, we believe the diversified companies will be better
able to develop along an independent strategic path with increased senior
management attention. We would like to thank John Raos and others of his team
who are leaving USI for their many contributions to our company and wish them
tremendous success in their future endeavors at Strategic Industries.
Sincerely,
David H. Clarke
Chairman and Chief Executive Officer
<PAGE>
ANNEX A
PRELIMINARY COPY, DATED SEPTEMBER 30, 1999
- SUBJECT TO COMPLETION OR AMENDMENT -
INFORMATION STATEMENT
STRATEGIC INDUSTRIES, INC.
COMMON STOCK
(INCLUDING ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
[LOGO]
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You should consider
carefully the risk
factors beginning on
page 8 of this
information statement.
The spin-off does not
require approval by USI
stockholders. Therefore,
USI is not asking you
for a proxy and requests
that you do not send USI
a proxy.
This information
statement is not an
offer to sell, or a
solicitation of an offer
to buy, any of our
securities or those of
USI.
We have prepared this information statement to provide
you with information regarding the proposed spin-off to U.S.
Industries, Inc. stockholders of all of our shares of common
stock. At the time of the spin-off, we will own and operate
the diversified businesses of USI.
If you are a USI stockholder at the close of business
on , 1999, you will receive one share of our
common stock for every ten shares of USI common stock you
hold at that time (together with cash instead of any
fraction of a share to which you would be entitled). The
spin-off will take effect on , 1999 and certificates
for our shares will be mailed to you on or about ,
1999. You will not be required to make any payment for the
shares of our common stock that you will receive in the
spin-off.
If you have any questions regarding the spin-off, you
may call ChaseMellon Shareholder Services L.L.C., telephone
number .
</TABLE>
No public market currently exists for our common stock. However, we are
seeking to list our common stock on the New York Stock Exchange. If the shares
are accepted for listing on the New York Stock Exchange, we expect that a
'when-issued' market will develop on or shortly before the record date for
the spin-off and regular way trading will begin on the first business day
after the effective date of the spin-off.
Proposed New York Stock Exchange Trading Symbol
'STG'
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OUR COMMON STOCK, OR DETERMINED IF THIS
INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
We first mailed this information statement to USI stockholders on
, 1999.
<PAGE>
TABLE OF CONTENTS
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PAGE
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Questions and Answers about the
Spin-off............................ ii
Expected Timetable for the Spin-off... iii
Forward-Looking Statements............ iv
Summary............................... 1
Risk Factors.......................... 8
The Spin-off.......................... 12
Capitalization........................ 17
Selected Combined Financial Data...... 18
Unaudited Pro Forma Combined Condensed
Financial Data...................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 34
Management............................ 41
Executive Compensation................ 43
Projected Ownership of Our Stock
Immediately after the Spin-off...... 50
Description of Capital Stock.......... 51
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PAGE
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Rights Plan........................... 52
Purposes and Effects of Certain
Provisions of Certificate of
Incorporation, By-Laws and Delaware
Statutory Law....................... 55
Limitation on Liability and
Indemnification of Officers
and Directors....................... 58
Additional Information................ 59
Index to Combined Financial
Statements.......................... F-1
ANNEXES
A Amended and Restated Certificate of
Incorporation...................... A-1
B Strategic Industries, Inc. Stock
Incentive Plan..................... B-1
C Material Federal Income Tax
Consequences of Awards and Material
Federal Income, Estate and Gift Tax
Consequences Relating to the
Transfer of Options Under Our Stock
Incentive Plan..................... C-1
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i
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF
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WHAT IS THE SPIN-OFF? USI intends to pay a dividend to its stockholders consisting of all of our shares
of common stock. The dividend is known as a spin-off. At the time of the spin-
off, we will own and operate the diversified businesses of USI.
<S> <C>
WHAT WILL I RECEIVE IN For every ten shares of USI stock that you hold at the close of business on
THE SPIN-OFF? , 1999, you will receive one share of our common stock. You will
receive cash (net of applicable fees) instead of any fraction of a share to which
you would be entitled. You will receive these automatically without any required
payment or other action on your part. [Under our direct registration program,
unless you give us instructions to do otherwise, your ownership of our common
stock will be recorded electronically on our books and records rather than
evidenced by a physical stock certificate.]
WHEN WILL THE SPIN-OFF The spin-off will be completed as soon as possible after the conditions to the
OCCUR? spin-off are met. These conditions include:
USI's receipt of a tax ruling from the Internal Revenue Service to the effect
that the spin-off will be tax-free to USI's stockholders and to USI for
federal income tax purposes, and
completion of financing.
DO I HAVE TO PAY TAXES USI is seeking a tax ruling to the effect that the spin-off will be tax-free to
ON THE RECEIPT OF USI stockholders and to USI for federal income tax purposes, except with respect
STRATEGIC COMMON to cash received instead of fractional shares. To review the material federal
STOCK? income tax consequences in greater detail, see page .
WILL STRATEGIC COMMON We do not expect to pay cash dividends on our stock for the foreseeable future.
STOCK PAY DIVIDENDS?
WILL MY STRATEGIC Yes, we anticipate that our common stock will be traded on the NYSE under the
COMMON STOCK BE LISTED symbol 'STG,' subject to official notice of issuance.
ON THE NEW YORK STOCK
EXCHANGE?
WHAT WILL HAPPEN TO USI will continue to own and operate its other businesses -- including bath and
USI AND MY EXISTING plumbing, lighting and hardware. USI stock will continue to trade on the NYSE
USI COMMON STOCK? under the symbol 'USI.' The spin-off will not affect the number of outstanding
shares of USI stock or any rights of USI stockholders.
WHAT WILL HAPPEN TO Beginning on or about , 1999, and continuing through , 1999,
THE TRADING OF USI AND you will only be able to sell your USI stock with due bills for our stock. This
STRATEGIC COMMON means that you will give up your right to receive our stock if you sell your USI
STOCK? stock during this time and you will have to deliver the certificate for our stock
to the buyer of your USI stock once you receive our stock certificate.
Beginning on , 1999, we expect that regular way trading in our stock will
begin on the NYSE.
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ii
<PAGE>
EXPECTED TIMETABLE FOR THE SPIN-OFF
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[day], [date], 1999........... 'When-issued' trading in our common stock commences on the
NYSE.
[day], [date], 1999........... USI common stock commences trading with due bills attached
on the NYSE.
[day], [date], 1999........... Spin-off record date for holders of USI common stock (5:00
p.m. New York time).
[day], [date], 1999........... Spin-off effective date for holders of USI common stock.
Regular way trading in our common stock commences on the
NYSE.
[day], [date], 1999........... Ex-entitlement date for the stock dividend for USI common
stock trading on the NYSE.
[day], [date], 1999........... Settlement date for 'when-issued' trading in our common
stock on the NYSE.
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iii
<PAGE>
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this information statement.
Forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements. Forward-looking statements are statements, other than statements of
historical facts, that address activities, events or developments that we expect
or anticipate will or may occur in the future, including such items as business
strategy and measures to implement strategy, competitive strengths, objectives,
goals, growth of our business and operations, plans and references to future
success.
Forward-looking statements also include any other statements that include
words such as 'anticipate,' 'believe,' 'plan,' 'estimate,' 'intend' and other
similar expressions.
Forward-looking statements are based on certain assumptions and analyses we
have made in light of our experience and our perception of historical trends,
current conditions, expected future developments and other factors that we
believe are appropriate. Whether actual results and developments will conform
with our expectations and predictions is subject to a number of risks and
uncertainties, including, among others noted in this information statement, the
following:
interest rates,
foreign currency exchange rates,
instability in domestic and foreign markets,
consumer spending patterns,
availability of consumer and commercial credit,
levels of automotive production,
the effect of changes in domestic and foreign laws and regulations
(including government subsidies, tariffs and international trade
regulations),
product initiatives and other actions taken by competitors,
changes in raw material costs and our suppliers' continuing ability
to fulfill our purchasing requirements, and
Year 2000 issues.
All of the forward-looking statements made in this information statement
are qualified by these cautionary statements, and we cannot assure you that the
results or developments we have anticipated will be realized. Even if the
results and developments in our forward-looking statements are substantially
realized, we cannot assure you that they will have the expected consequences to,
or effects on us, or our business or operations.
iv
<PAGE>
SUMMARY
This summary highlights selected information from this information
statement, but does not contain all details concerning the spin-off of our
common stock to USI stockholders, including information that may be important to
you. To better understand the spin-off and our business and financial position,
you should carefully review this entire document. References to 'Strategic,'
'we,' 'us' or 'our' mean Strategic Industries, Inc. and its subsidiaries and
assume the spin-off has already occurred. References to 'USI' mean U.S.
Industries, Inc. and its subsidiaries (excluding, if the reference is to a date
or period of time after the spin-off, Strategic and its subsidiaries).
References to 'fiscal' are to the applicable fiscal year ended September 30.
THE COMPANY
Strategic Industries, Inc. operates and manages a diversified group of
businesses on a decentralized basis, with a corporate management team providing
strategic direction and financial support. Our operating companies are divided
into three business groups: Consumer Products, Precision Engineered Products and
Automotive Interior Products. In fiscal 1998, we had net sales of $888.5 million
and operating income of $25.2 million (after deducting goodwill impairment,
restructuring and other related charges totalling $71.1 million).
We believe our businesses generally have leading positions in niche
markets, high quality products, attractive operating margins compared to their
peers and experienced management. Our products are used in a variety of markets
by a broad range of end-users in the U.S. and internationally. We believe the
business trends that affect our operating companies and the markets we serve
vary. As a result, we believe our diversity reduces our exposure to any single
market.
The following table presents the operating companies in each of our
business groups.
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CONSUMER PRODUCTS
Rexair Manufactures Rainbow'r' premium vacuum cleaners for sale
through an extensive independent direct sales network
EJ Footwear Manufactures Georgia Boot'r' western, work and outdoor
sporting boots and Lehigh'r' industrial safety footwear
Native Textiles Manufactures warp knit fabrics used in lingerie and
activewear
BiltBest Windows Manufactures windows and patio doors
SCF Industries Manufactures folding and stacking chairs as a licensee of
the Samsonite'r' brand name
PRECISION ENGINEERED PRODUCTS
Huron Manufactures precision metal products used in automobiles
Bearing Inspection Inspects and overhauls aircraft engine bearings and other
aircraft components
FSM Manufactures flat shadow masks, a component of color
television picture tubes
Jade Technologies Manufactures customized leadframes for the semiconductor
industry (an approximately 75%-owned Singapore public
company)
AUTOMOTIVE INTERIOR PRODUCTS
Garden State Tanning Manufactures premium automotive leather
Leon Plastics Manufactures molded plastic parts and assemblies for
automotive interiors
</TABLE>
We also own approximately 20% of the equity of United Pacific Industries
Limited, a company listed on the Stock Exchange of Hong Kong. United Pacific
manufactures voltage converters and other electronic components. This equity
interest is included in the Precision Engineered Products Group.
1
<PAGE>
BUSINESS STRATEGY
Our objective is to build our equity value by consistently focusing on
reducing our debt and increasing profitability and cash flow. Key elements of
our business strategy are described below.
DEBT REDUCTION. Historically, our operating companies have generated
significant cash flow. We intend to use a substantial portion of any
available cash flow to reduce our debt. In addition, we will
regularly evaluate our businesses to determine whether our debt
reduction strategy should be accelerated through selected
dispositions.
GROWTH INITIATIVES. We will seek to build upon our niche positions
through internal and external growth in targeted markets. We will
selectively commit capital to extend our markets, develop new
products and expand manufacturing capabilities. We will also consider
complementary acquisitions to augment these initiatives. For example,
in fiscal 1998, to enhance its product offering and foster increased
sales, Rexair introduced a redesigned product line and increased
efforts to expand its independent direct sales network in the United
States and abroad. Recently, we also invested in a new facility for
Bearing Inspection to support future growth and acquired Atech
Turbine Components to complement Bearing Inspection's operations.
COST REDUCTION AND MARGIN EXPANSION. We will seek to reduce costs and
improve operating margins at each of our individual businesses
through process improvements and by focusing on higher margin
products and markets. For example, our continuous productivity
improvement techniques have reduced operating costs at Huron and Leon
Plastics, and we intend to apply these techniques where appropriate
to other operating companies. Ongoing programs also include the
continued rationalization of manufacturing operations and increased
use of foreign sources of supply at EJ Footwear. In addition Garden
State is implementing process changes to increase hide-cutting yields
and is focusing on higher margin products.
DECENTRALIZED MANAGEMENT WITH PERFORMANCE-BASED INCENTIVES. Our
operating companies will be managed on a decentralized basis by
experienced executives. The chief executive officers of our operating
companies average over 15 years in their industries. Incentive
compensation for senior executives at our operating companies will
depend on reaching short and long-term operating goals linked to the
executives' respective businesses. Our corporate management team will
supply strategic direction and financial support to the operating
companies. They have extensive experience in senior management
positions within multi-industry public companies including Hanson PLC
and USI. Their compensation under our value creation plan will depend
upon reaching operating goals linked to our overall performance. Both
our corporate management team and our operating company management
will have significant personal equity interests in us, principally
in the form of stock options.
ADDRESS AND TELEPHONE NUMBER
We are a Delaware corporation. Our principal executive offices will be
located at and our telephone number at that address will be
.
2
<PAGE>
THE SPIN-OFF
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Company Doing the U.S. Industries, Inc., a Delaware corporation.
Spin-off..............
Company Resulting from
the Spin-off.......... Strategic Industries, Inc., a Delaware corporation.
Conditions to the Completion of the spin-off is subject to the following
Spin-off.............. conditions:
USI's receipt of a tax ruling from the Internal Revenue
Service to the effect that the spin-off will be tax-free to
USI's stockholders and to USI for federal income tax
purposes;
Availability of proceeds under our new credit facility and
an offering of senior subordinated notes into the
institutional debt market.
We expect to use approximately $586.7 million of proceeds of
the new credit facility and the offering of senior
subordinated notes to repay existing indebtedness and
accrued interest owed by our businesses to subsidiaries of
USI, to repay other existing indebtedness, to pay expenses
incurred in the spin-off and to pay a dividend of
approximately $35.5 million to USI. The undrawn portion of
the new credit facility will be available for working
capital and to pay any spin-off adjustments that may be
required to be paid by our subsidiaries to subsidiaries of
USI. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources' and 'The Spin-off -- Agreements between Strategic
and USI and Relationship after the Spin-off.'
Spin-off Ratio.......... One share of our common stock for every ten shares of USI
common stock held of record on the spin-off record date.
Spin-off Record Date.... , 1999 (5:00 p.m. New York time).
Spin-off Effective , 1999. The dividend agent will commence mailing our common
Date.................. stock certificates on this date.
Trading in USI Common
Stock
from the Spin-off
Record Date up to and
Including the Spin-off
Effective Date........ During this period, USI stock will trade on the NYSE with
due bills attached. The due bills will entitle a purchaser
of USI stock during this period to receive one share of our
stock for every ten shares purchased. If the spin-off
conditions are not satisfied and the spin-off is not
completed, the due bills will become null and void.
Our Outstanding Stock... Based on approximately 88 million shares of USI common stock
outstanding at the close of business on , 1999,
approximately 8.8 million shares of our stock will be
distributed in the spin-off. These shares will constitute
all of our capital stock that will be outstanding
immediately following the spin-off. After the spin-off, we
will recommend the issuance to our executive officers and
other key employees of a total of shares of our
common stock, which will be subject to certain restrictions.
In addition, we will issue a total of shares of our
common stock to our non-employee directors. After taking
into account these issuances, we will have shares of
common stock outstanding. After the spin-off, we will also
recommend the issuance to our executive officers and other
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3
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key employees of options to purchase the total number of
shares of our common stock determined by dividing $
million by the fair market value of our common stock on the
date of grant (up to a maximum of shares). See
'Executive Compensation -- Stock Incentive Plan.'
Interests in Fractions
of Shares............. Fractions of shares of our common stock will not be issued
in the spin-off. Instead, fractions of shares will be
aggregated by the dividend agent and sold on the NYSE. The
net cash proceeds of these sales will be paid ratably to USI
stockholders otherwise entitled to fractions of shares. See
'The Spin-off -- Fractions of Shares.'
[Direct Registration.... Upon completion of the spin-off, we will issue the
appropriate share of our common stock to you through direct
registration rather than issuing a physical stock
certificate unless you give specific instructions to do
otherwise. See 'The Spin-off -- Direct Registration of Our
Common Stock.']
Dividend Agent.......... The dividend agent is ChaseMellon Shareholder Services
L.L.C. Its address and telephone number are:
Material Federal Income
Tax Consequences to
USI Stockholders...... It is a condition to the spin-off that USI receives a tax
ruling from the Internal Revenue Service to the effect that,
for federal income tax purposes, the spin-off will qualify
as a tax-free distribution to the stockholders of USI under
Section 355 of the Internal Revenue Code. Therefore, you
will not incur federal income tax upon the receipt of our
common stock in the spin-off, except with respect to cash
received instead of a fraction of a share. See 'The
Spin-off -- Material Federal Income Tax Consequences.'
Trading Market and
Symbol for Our Common
Stock................. We are seeking to list our common stock on the NYSE under
the proposed symbol 'STG.' Prior to the spin-off, we do not
expect there to be any public trading market for our common
stock except that our common stock is expected to trade on a
'when-issued' basis on the NYSE beginning on , 1999,
for settlement on , 1999. If the spin-off is not
completed, all 'when-issued' trading in our common stock
will be null and void. If the spin-off is completed, we
expect that 'regular way' trading in our common stock on the
NYSE will commence at 9:30 a.m. New York time, on ,
1999, subject to official notice of issuance. See 'Risk
Factors -- There Is No Trading History For Our Common Stock
and We Do Not Expect to Pay Dividends' and 'The
Spin-off -- Listing and Trading of Our Common Stock.'
Transfer Agent and
Registrar for the
Common Stock..........
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4
<PAGE>
<TABLE>
<S> <C>
Agreements between
Strategic
and USI and
Relationship after the
Spin-off.............. After the spin-off, we and USI will operate independently of
each other as separate public companies. Neither we nor USI
will own each other's stock (except, in the near-term, for a
limited number of shares held in employee benefit plan
trusts). All directors, executives and employees of USI who
join us will cease to be directors, executives or employees
of USI. See 'The Spin-off -- Agreements between Strategic
and USI and Relationship after the Spin-off.'
</TABLE>
5
<PAGE>
SUMMARY COMBINED FINANCIAL DATA
The historical summary combined financial data set forth below for each of
the fiscal years in the three-year period ended September 30, 1998 are derived
from our audited combined financial statements included elsewhere in this
information statement. The historical summary combined financial data for the
nine months ended June 30, 1999 and 1998 are unaudited but, in our opinion, have
been prepared on a basis consistent with that of each of the fiscal years in the
three-year period ended September 30, 1998 (except for normal year-end
adjustments). The interim financial data include all adjustments that management
considers necessary for a fair presentation of interim results. Historical
financial information may not be indicative of our future performance as an
independent company. Furthermore, the historical financial data presented below
do not reflect certain pro forma adjustments giving effect to the spin-off which
are reflected in 'Unaudited Pro Forma Combined Condensed Financial Data.' The
information set forth below should also be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Combined Financial Statements and notes. See 'Index to
Combined Financial Statements.' We have not presented data about historical
earnings per share or dividends because the capital structure of our businesses
prior to the spin-off is not indicative of our capital structure following the
spin-off.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------------ -------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $737.7 $807.9 $888.5 $663.8 $651.0
Cost of products sold.......................... 521.9 575.8 669.5 488.7 494.4
Selling, general and administrative expenses... 105.8 112.8 124.2 94.3 94.6
Goodwill impairment and restructuring
charges(A)................................... -- -- 62.8 59.1 1.1
Operating income(A)(B)......................... 101.2 108.9 25.2 16.6 54.3
Net income (loss).............................. 39.9 49.4 (22.3)(C) (22.0)(D) 19.3 (E)
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents...................... $ 3.3 $ 8.4 $ 12.4 $ 12.3 $ 8.7
Working capital................................ 156.2 159.8 195.1 217.8 193.9
Total assets................................... 563.4 584.2 644.6 632.5 625.4
Total debt(F).................................. 411.1 364.8 344.4 357.0 537.3
Invested capital (deficit)..................... 23.1 82.1 126.0 142.9 (65.1)
OTHER DATA:
Capital expenditures........................... 9.8 17.7 27.3 21.8 20.4
Depreciation and amortization.................. 19.2 19.2 23.3 17.6 18.7
</TABLE>
- ------------
(A) In fiscal 1998, in addition to the goodwill impairment and restructuring
charges, we incurred $8.3 million ($1.7 million of which was incurred
through the nine months ended June 30, 1998) of other related charges which
were included in cost of products sold and selling, general and
administrative expenses. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and Note 4 to the Combined
Financial Statements.
(B) Operating income (loss) in fiscal 1997 and 1998, and for the nine months
ended June 30, 1998 and 1999 included $1.7 million, $(2.4) million,
$0.2 million and $(6.2) million, respectively, of equity earnings (loss)
from our investment in United Pacific. Fiscal 1998 equity (loss) of $(2.4)
million includes a charge of $4.0 million associated with an impairment of
a United Pacific subsidiary. The equity (loss) in the nine months ended
June 30, 1999 of $(6.2) million includes a write-down of $5.5 million.
(C) After an income tax benefit of $6.5 million, the $71.1 million of charges
detailed above reduced net income for fiscal 1998 by $64.6 million.
(D) After an income tax benefit of $2.3 million, the $60.8 million of charges
detailed above reduced net income for the nine months ended June 30, 1998
by $58.5 million.
(E) After an income tax benefit of $0.4 million the $1.1 million of
restructuring charges reduced net income for the nine months ended
June 30, 1999 by $0.7 million.
(F) Amounts primarily represent intercompany notes and interest payable to
affiliates.
6
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following summary unaudited pro forma combined condensed financial data
reflect the spin-off as if it occurred as of October 1, 1997 for the year ended
September 30, 1998 and the nine months ended June 30, 1998 and as of October 1,
1998 for the nine months ended June 30, 1999 for pro forma combined condensed
statement of operations data purposes and as of June 30, 1999 for pro forma
combined condensed balance sheet data purposes. The unaudited pro forma combined
condensed financial data reflect our expected capitalization as a result of the
spin-off, the incurrence of a total of approximately $586.7 million of
indebtedness under the new credit facility and the senior subordinated notes and
interest expense (including amortization of capitalized costs) relating to such
borrowings. The unaudited pro forma combined condensed financial data do not
include $10.4 million of expected non-recurring legal, investment banking and
other advisory costs related to the spin-off which will be expensed by us at the
time of the receipt of a favorable tax ruling from the Internal Revenue Service
with regard to the spin-off. These data do not necessarily reflect our results
of operations or financial position had the spin-off actually been completed as
of the dates shown. Also, these data are not necessarily indicative of our
future results of operations or future financial position. See 'Capitalization'
and 'Unaudited Pro Forma Combined Condensed Financial Data.'
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30,
FISCAL YEAR ENDED -------------------
SEPTEMBER 30, 1998 1998 1999
------------------ ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS DATA:
Net sales.............................................. $ 888.5 $663.8 $651.0
Operating income....................................... 19.0 (A) 11.9 (B) 52.1 (C)
Interest expense....................................... 61.0 45.8 45.8
Net (loss) income...................................... (49.6)(A) (42.7)(B) 3.4 (C)
Basic and diluted (loss) earnings per share(D)......... (5.64) (4.85) 0.39
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1999
----------------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C>
PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 8.7
Working capital........................................ 193.9
Total assets........................................... 600.6
Total debt............................................. 600.0
Total liabilities...................................... 751.1
Stockholders' equity (deficit)......................... (150.5)
Book value (deficit) per share(D)...................... (17.10)
</TABLE>
- ------------
(A) Pro forma operating income for fiscal 1998 includes goodwill impairment and
restructuring charges of $62.8 million and other related charges of $8.3
million. After an income tax benefit of $6.5 million, these charges reduced
pro forma net income for fiscal 1998 by $64.6 million ($7.34 per share).
(B) Pro forma operating income for the nine months ended June 30, 1998 includes
goodwill impairment and restructuring charges of $59.1 million and other
related charges of $1.7 million. After an income tax benefit of $2.3
million, these charges reduced pro forma net income for the nine months
ended June 30, 1998 by $58.5 million ($6.65 per share).
(C) Pro forma operating income for the nine months ended June 30, 1999 includes
restructuring charges of $1.1 million. After an income tax benefit of $0.4
million, these charges reduced pro forma net income for the nine months
ended June 30, 1999 by $0.7 million ($0.08 per share).
(D) Pro forma basic and diluted (loss) earnings and book value (deficit) per
share have been determined assuming that 8.8 million shares of our common
stock will be issued in the spin-off.
7
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors relating to the
ownership of common stock in our company.
WE WILL HAVE SUBSTANTIAL INDEBTEDNESS
As of June 30, 1999, after giving pro forma effect to the spin-off,
including our expected initial borrowings under the new credit facility and our
issuance of the senior subordinated notes, we would have had combined
indebtedness of approximately $600.0 million and stockholders' deficit of
approximately $150.5 million. After giving pro forma effect to the additional
interest expense and other costs of the spin-off, we would have incurred a $5.64
loss per share in fiscal 1998 instead of an actual loss per share of $2.53, and
a $4.85 loss per share for the nine months ended June 30, 1998 instead of an
actual loss per share of $2.50 and we would have had earnings per share of $0.39
for the nine months ended June 30, 1999 instead of actual earnings per share of
$2.19. See 'Capitalization' and 'Unaudited Pro Forma Combined Condensed
Financial Data.' The new credit facility will require us to repay $
million principal amount of term loans on or before . Accordingly, our
excess cash flow from operations (after capital expenditures) during this period
will be dedicated in substantial part to meeting debt service and amortization
requirements, thereby reducing the availability of our cash flow to fund working
capital, capital expenditures and other general corporate purposes. Our ability
to generate cash available for the repayment of debt will depend upon numerous
business factors, many of which are outside our control. See 'Forward-Looking
Statements.'
We believe that our cash flow from operations, available cash and available
borrowings under our new credit facility will be adequate to meet our liquidity
needs for at least the next twelve months. We cannot assure you, however, that
our business will generate sufficient cash flow from operations or that future
borrowings will be available to us under the new credit facility in an amount
sufficient to enable us to pay our debt or to fund other liquidity needs. To the
extent that cash flow from operations is insufficient to cover our working
capital, capital expenditure and debt service requirements, we, in order to pay
such expenses, may seek to obtain funds from additional borrowings, sell a
portion of our businesses, engage in sale/leaseback transactions and/or raise
equity capital. We cannot assure you of the availability or accessibility of
these or other similar transactions, or that these or other similar transactions
could be accomplished on terms favorable to us. We cannot assure you that we
will be able to refinance any of our indebtedness on commercially reasonable
terms or at all.
In addition, the new credit facility and the indenture governing the senior
subordinated notes will contain covenants restricting, among other things, our
ability to incur additional indebtedness and create liens. These restrictions
could have important consequences to us. For example, they could:
increase our vulnerability to general adverse economic and industry
conditions;
limit our flexibility in planning for, or reacting to, changes in our
businesses and the industries in which we operate;
place us at a competitive disadvantage compared to our competitors
that have less debt; and/or
limit, along with the financial and other restrictive covenants of
our indebtedness, among other things, our ability to borrow
additional funds.
See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- New Credit Facility
and Senior Subordinated Notes.'
THERE IS NO TRADING HISTORY FOR OUR COMMON STOCK AND WE DO NOT EXPECT TO PAY
DIVIDENDS
Although we are seeking to list our common stock on the New York Stock
Exchange, there is no existing market for our common stock. We cannot assure you
as to the trading prices for our common stock either in the 'when issued' market
or after 'regular way' trading begins. Until our common stock is fully
distributed and an orderly market develops, the trading prices for our common
stock may be adversely affected by the sale of a substantial number of shares.
Prices for our common stock may also be influenced by the depth and liquidity of
the market for our common stock, investor perceptions
8
<PAGE>
about us and our businesses, our future financial results, the absence of cash
dividends on our common stock and general economic and market conditions.
We do not expect to pay cash dividends on our common stock for the
foreseeable future. We will be restricted from paying dividends under the terms
of our new credit facility and the senior subordinated notes.
OUR BUSINESSES OPERATE IN HIGHLY COMPETITIVE MARKETS AND COMPETE WITH MANY
LARGER AND BETTER CAPITALIZED COMPANIES
Generally, our operating companies are subject to competition from a
substantial number of regional, national and international competitors, many of
which have greater financial, manufacturing, engineering and other resources
than our operating companies. Many of these competitors can be expected to
continue to improve the design and performance of their products and to
introduce new products with competitive price and performance characteristics.
Many of our subsidiaries' products are not protected by any proprietary rights
such as patents. Although we believe that our operating companies have certain
advantages over their competitors, realizing and maintaining such advantages
will require continued and, in some cases, increased investment by our operating
companies in manufacturing, research and development, quality standards,
marketing and customer service and support. We cannot assure you that our
operating companies will have sufficient resources to continue to make such
investments or that they will be successful in maintaining such advantages.
Failure to make such investments or to maintain such advantages could have a
material adverse effect on our business, financial condition and results of
operations.
THERE ARE NUMEROUS RISKS ASSOCIATED WITH CONDUCTING OPERATIONS IN INTERNATIONAL
MARKETS
Our operating companies manufacture and assemble products at numerous
facilities, some of which are located outside the United States. We also obtain
components and finished goods from suppliers located outside the United States.
Although we have not experienced significant problems conducting operations in
or obtaining supplies from these areas, changes in local economic or political
conditions could affect our manufacturing, assembly and distribution
capabilities and have a material adverse effect on our business, financial
condition and results of operations. Additional risks inherent in our
international business activities generally include unexpected changes in
regulatory requirements, tariffs and other trade barriers, changes in local
economic or political conditions, longer accounts receivable payment cycles,
difficulties in managing international operations, potentially adverse tax
consequences, restrictions on repatriation of earnings and the burdens of
complying with a wide variety of foreign laws. In fiscal 1998, we derived
approximately 38% of our net sales from customers outside the United States. At
September 30, 1998, we held $117.0 million of assets outside of the United
States. We intend to continue to expand our operations outside the United States
and to enter additional international markets. With respect to our foreign sales
that are U.S. dollar-denominated, decreases in the value of foreign currencies
relative to the U.S. dollar have in the past, and could in the future, make our
products less price competitive.
Decreases in the value of foreign currencies relative to the U.S. dollar
could result in losses from foreign currency conversions. We make limited use of
derivative products in order to hedge our foreign exchange exposure. We also
borrow in foreign currencies to effectively hedge a portion of our net
investment in our foreign subsidiaries.
WE ARE DEPENDENT ON CERTAIN INDUSTRIES
A significant portion of our sales are made to customers in the automotive
and consumer electronics industries. These industries are cyclical in nature and
subject to changes in general economic conditions. Economic downturns and the
likely resulting declines in automotive and consumer electronics sales,
generally, may have a material adverse effect on our net sales and operating
income.
9
<PAGE>
SALES BY REXAIR ARE DEPENDENT ON AN INDEPENDENT DISTRIBUTION NETWORK AND THE
AVAILABILITY OF CONSUMER CREDIT
Rexair's sales are directly dependent on the efforts of independent
distributors. Growth in future sales volume will require growth in the number of
distributors and sales representatives and/or increased productivity by them. As
is typical of most direct selling businesses, Rexair experiences a high level of
turnover in its independent distribution network from year to year which
requires the replacement of outgoing members in order to maintain its overall
distribution network. Sales levels and distributor and sales representative
retention levels are affected by changes in the level of distributor and sales
representative motivation. This in turn can be affected by a number of factors
such as new legislation or regulations affecting direct selling activities,
general economic conditions including levels of unemployment (which, when low,
adversely affects recruitment), and the perception of Rexair's products or of
direct selling businesses generally. Historically, Rexair has experienced
periodic increases and decreases in the number of distributors and sales
representatives; however, we cannot predict the timing or degree of these
changes. We estimate that over 60% of the purchases of Rexair products in the
United States are financed either through independent consumer finance companies
or, to a lesser extent, through the distributors. Accordingly, the inability to
maintain or increase its distribution network or the unavailability of consumer
credit could have a material adverse effect on Rexair's business, financial
condition and results of operations.
WE FACE ENVIRONMENTAL REGULATION OF OUR OPERATIONS
Our businesses are subject to a variety of federal, state, local and
foreign governmental regulations relating to the use, transportation, storage,
discharge, emission or disposal of hazardous substances and wastes, remediation
of contamination associated with releases of hazardous substances at our
facilities and at off-site disposal locations, and worker health and safety.
These regulations are complex, change frequently and have tended to become more
stringent over time.
Based on our experience to date, we believe that the future cost of
compliance with existing environmental regulations and the future cost of
necessary investigation or remediation of contamination will not have a material
adverse effect on our business, financial condition or results of operations.
Nevertheless, future events, such as discovery of unknown contamination,
compliance with more stringent regulations, or more vigorous enforcement
policies by regulatory agencies or stricter or different interpretations of
existing regulations, could require us to make material expenditures. See
'Business -- Governmental Regulation.'
AN INCREASE IN THE PRICE OF RAW MATERIALS COULD ADVERSELY AFFECT OUR OPERATIONS
Our operating companies purchase most of the raw materials for their
products on the open market, and as such, our cost of products sold may be
affected by changes in the market price of such raw materials. We do not
generally engage in commodity hedging transactions for raw materials.
Significant increases in the prices of our operating companies' products due to
increases in the cost of raw materials could have a negative effect on demand
for their respective products and on profitability as well as a material adverse
effect on our business, financial condition and results of operations.
FAILURE BY US OR CERTAIN THIRD PARTIES TO BE YEAR 2000 COMPLIANT POSES CERTAIN
RISKS
The inability of our information systems to process dates on or after
January 1, 2000 could have serious adverse effects on us. Our business
operations are also dependent on the Year 2000 readiness of our customers and
suppliers.
We engaged outside technology consultants to review the Year 2000 readiness
of our operating companies. We developed our Year 2000 plans based on this
review. We cannot assure you that our Year 2000 plans will be effective, that
our estimates about the timing and cost of completing our plans will be accurate
or that our customers and third party suppliers will timely resolve any or all
Year 2000 problems with their systems. Any failure by us, our customers or our
suppliers to timely resolve Year 2000 issues could have a material adverse
effect on our business, financial condition and results of
10
<PAGE>
operations. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Readiness Disclosure.'
WE HAVE NO OPERATING HISTORY AS AN INDEPENDENT PUBLIC COMPANY AND ARE DEPENDENT
ON KEY PERSONNEL
We do not have an operating history as an independent public company. Our
businesses have historically relied on USI for certain administrative services
and financial support. After the spin-off, this will no longer be the case.
Our success as an independent public company depends to a significant
extent on the continued services of our senior management and other members of
management. We could be adversely affected if any of these persons were
unwilling or unable to continue in our employ.
WE WILL BE SUBJECT TO CERTAIN PROVISIONS THAT COULD DELAY OR PREVENT A CHANGE OF
CONTROL
Prior to the spin-off we will enter into a rights agreement under which
preferred stock purchase rights will attach to our presently outstanding shares
of common stock and to all shares of common stock to be issued afterwards
(including common stock that will trade on a 'when issued' basis) until the
rights expire. The rights may cause substantial dilution to a person or group
that acquires 15% or more of our common stock unless the rights are first
redeemed by our board of directors. Unless earlier redeemed, the rights will
expire at the close of business on the date of our annual meeting of
stockholders in 2001 and the rights agreement will not be extended or renewed
beyond this date without the approval of our independent directors. In addition,
our certificate of incorporation and by-laws and Delaware statutory law contain
several provisions that could have the effect of delaying or preventing our
change of control in a transaction not approved by our board of directors.
Accordingly, our stockholders could be prevented from realizing a premium on
their shares if such a transaction was not approved by our board of directors.
Our agreements with our executive officers and certain other key employees may
have the effect of making a change of control more expensive. See 'Executive
Compensation,' 'Rights Plan,' and 'Purposes and Effects of Certain Provisions of
Certificate of Incorporation, By-Laws and Delaware Statutory Law.'
11
<PAGE>
THE SPIN-OFF
MANNER OF EFFECTING THE SPIN-OFF
The spin-off will be effected by a stock dividend paid to holders of record
of USI common stock. The spin-off ratio will be one share of our common stock
for every ten shares of USI common stock outstanding on the spin-off record
date. USI stockholders will not be required to pay for shares of our common
stock received in the spin-off or to surrender or exchange USI common stock in
order to receive shares of our common stock. All shares of our common stock
received by USI stockholders in connection with the spin-off will be fully paid
and non-assessable. USI stockholders do not have any appraisal rights in
connection with the spin-off.
During the period beginning on or about , 1999 and continuing through
, 1999, USI common stock will trade on the NYSE with due bills
attached. The due bills will entitle a purchaser of USI common stock during this
period to receive one share of our common stock for each ten shares purchased.
If the spin-off is not completed, all due bills attaching to USI common stock
will become null and void.
In order to be entitled to receive shares of our common stock in the
spin-off, USI stockholders must be holders of record of USI common stock at 5:00
p.m. New York time on the spin-off effective date, which is expected to be
, 1999.
The dividend agent is ChaseMellon Shareholder Services L.L.C. [We have a
direct registration (book entry) program with respect to ownership of our common
stock. Upon completion of the spin-off, we will issue the appropriate shares of
our common stock to you through direct registration rather than issuing a
physical stock certificate unless you give specific instructions to do
otherwise. See ' -- Direct Registration of Our Common Stock.']
FRACTIONS OF SHARES
No certificates representing fractions of shares will be issued as part of
the spin-off. Instead of receiving a fraction of a share, each USI shareholder
of record on the spin-off effective date who would otherwise be entitled to
receive a fraction of a share will receive cash. As soon as practicable after
the spin-off effective date, ChaseMellon will aggregate and sell all fractions
of shares of our common stock on the NYSE at then prevailing market prices and
distribute the aggregate proceeds (net of fees) ratably to stockholders entitled
to them. See ' -- Material Federal Income Tax Consequences' below for a
discussion of the federal income tax treatment of the sale of interests in
fractions of shares.
RESULTS OF THE SPIN-OFF
Following the spin-off, we will be a separate, publicly-traded company that
holds the USI diversified businesses. Immediately after the spin-off, based on
the number of outstanding shares of USI common stock and the number of record
holders on , 1999, we expect to have approximately 8.8 million shares of
common stock outstanding, held by approximately record holders
(excluding shares of our common stock that we anticipate will be
issued, subject to certain restrictions, to executive officers and other key
employees, and shares of our common stock that will be issued to our
non-employee directors, after the spin-off effective date as described under
'Executive Compensation'). The actual number of shares of our common stock to be
issued will be determined as of the spin-off effective date.
Following the spin-off, USI will continue to own and operate its other
businesses -- including bath and plumbing, lighting and hardware. The spin-off
will not affect the number of outstanding shares of USI common stock or any
rights of USI stockholders.
12
<PAGE>
LISTING AND TRADING OF OUR COMMON STOCK
Our common stock has been authorized for listing on the NYSE under the
symbol 'STG', subject to official notice of issuance. Prior to the spin-off, we
do not expect any public trading market for our common stock to exist except
that, beginning on , 1999, our common stock is expected to trade on a
'when-issued' basis on the NYSE for settlement when our common stock is issued
on , 1999. The term 'when-issued' means trading in shares prior to the
time certificates are actually available or issued. If the spin-off conditions
are not satisfied and the stock dividend is not paid, all such 'when-issued'
trading will become null and void. If the spin-off conditions are satisfied and
the stock dividend is paid on the spin-off effective date, it is expected that
'regular way' trading in our common stock on the NYSE will commence at 9:30 a.m.
New York time on , 1999, subject to official notice of issuance.
The shares of our common stock issued to USI stockholders will be freely
transferable, except for shares received by persons who may be deemed to be our
'affiliates' under the Securities Act. Persons who may be deemed to be our
affiliates after the spin-off generally include individuals or entities that
control, are controlled by, or are under common control with us and may include
certain of our officers and directors. Persons who are our affiliates will be
permitted to sell their shares of our common stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as the exemptions afforded
by Section 4(1) of the Securities Act and Rule 144 under the Securities Act
(with the exemption under Rule 144 not available until 90 days after the date of
this information statement).
Certain USI subsidiaries, including certain of the subsidiaries to be
transferred to us, presently maintain tax-qualified profit-sharing and savings
plans that hold, among other assets, USI common stock. Certain of our
subsidiaries will continue to maintain these plans or establish new plans to
which liabilities and assets, including USI common stock, will be transferred in
connection with the spin-off. Based upon their ownership of USI common stock on
the spin-off record date after giving effect to these transfers, USI plans and
our plans are expected to hold approximately [53,200] and [62,648] shares of our
common stock, respectively, and our plans are expected to hold approximately
[626,480] shares of USI common stock. The trustees of the USI plans presently
intend to dispose of all of our common stock acquired in the spin-off. We expect
that participants in our plans will be permitted to redirect any investments in
USI common stock to other permitted investments under such plans for a period of
time. However, after such time, the trustees of our plans intend to dispose of
all USI common stock held in our plans and invest the net proceeds of such
dispositions in shares of our common stock, subject to the exercise of the
trustee's fiduciary duties under applicable law. The dispositions will be made
on behalf of participating employees and subject to the exercise of the
trustees' fiduciary duties under applicable law. The timing of dispositions and
acquisitions will be determined by plan administrators and trustees or by their
independent institutional investment managers, subject to their exercise of
fiduciary duties under applicable law. We and USI cannot predict the timing of
dispositions and acquisitions, but we expect that they will occur during the
first few months following the spin-off. Dispositions are expected to be made,
to the extent practicable by exchanges of our common stock and USI common stock
between plans at prices based upon publicly-reported trading prices and also by
open market sales. See 'Projected Ownership of Our Stock Immediately after the
Spin-off.'
For a discussion of certain uncertainties that should be considered when
trading in our common stock, see 'Risk Factors -- There is No Trading History
for Our Common Stock and We Do Not Expect to Pay Dividends.'
[DIRECT REGISTRATION OF OUR COMMON STOCK
We will have a direct registration (book entry) program with respect to
record ownership of our common stock. Direct registration is a service that
allows shares to be owned, reported and transferred electronically without
having a physical stock certificate issued. Persons who acquire shares of our
common stock will not receive a physical stock certificate (unless certificates
are requested); rather, ownership of the shares is recorded in the names of such
persons electronically on our books and records. Direct registration is intended
to alleviate problems relating to stolen, misplaced or lost stock certificates
and to reduce the paperwork relating to the transfer of ownership of our common
stock.
13
<PAGE>
Under direct registration, the voting, dividend and other rights and benefits of
holders of our common stock remain the same as with holders of certificates.
Upon completion of the spin-off, we will mail you a statement confirming
the issuance to you of the appropriate shares of our common stock through direct
registration, rather than issuing a physical stock certificate unless you give
specific instructions to do so. The mailing will explain how to obtain a
physical certificate, if you wish.
The requirements for transferring book entry shares are the same as for
shares represented by a physical stock certificate except that, with direct
registration, there is no certificate to surrender. Our common stock owned
through the direct registration program may be sold and transferred through a
stock broker or through , the
transfer agent for our common stock.
In order to utilize the services of a stock broker, you must first add the
appropriate stock broker information to the direct registration account
maintained by the transfer agent. Thereafter you may by telephone transfer our
common stock to a brokerage account at such stock broker and then may sell or
transfer such shares by giving instructions to the broker.
Alternatively, shares of our common stock owned through direct registration
may be sold or transferred through the services of the transfer agent. Sales
will be made through the transfer agent when practicable, but at least once each
week. The transfer agent cannot accept instructions to sell shares on a specific
day or at a specific price. The price per share will be the average price per
share of all of our common stock sold during the period by the transfer agent
for holders of book entry shares.]
AGREEMENTS BETWEEN STRATEGIC AND USI AND RELATIONSHIP AFTER THE SPIN-OFF
After the spin-off, we and USI will operate independently of each other as
separate public companies. Neither we nor USI will have any beneficial stock
ownership interest in the other (although employee benefits plan trusts
sponsored by us and USI and/or certain of our or their subsidiaries will, in the
near term, hold certain of the other company's shares). All directors,
executives and employees of USI who join us will cease to be directors,
executives or employees of USI.
We will enter into agreements with USI providing for the transfer of the
USI diversified businesses to us prior to the spin-off. We will also enter into
agreements with USI that will define our responsibilities regarding the
following:
indemnification against certain liabilities, including liabilities
for taxes; and
corporate transitional matters, including the transfer of assets and
liabilities under employee benefit plans.
These agreements will be negotiated before the spin-off and thus will be
negotiated between affiliated parties. Accordingly, we cannot assure you that
any of these agreements, or that any of the transactions provided for in these
agreements, will be effected on terms at least as favorable to us or to USI as
could have been obtained from unaffiliated third parties.
Following the spin-off, additional or modified agreements, arrangements and
transactions may be entered into by us and USI. Any such future agreements,
arrangements and transactions will be determined through arm's-length
negotiation between the parties.
The following is a summary of certain agreements, arrangements and
transactions to be entered into between us and USI and our and its respective
subsidiaries. Certain of these agreements will be filed as exhibits to this
information statement, and the following descriptions are qualified in their
entirety by reference to such exhibits.
Agreements to Effect the Transfer of the Diversified Businesses of USI. The
assets and liabilities of USI's diversified businesses will be transferred by
USI and its subsidiaries to us. The transfer will be subject to a post spin-off
adjustment, if any. We and USI will each agree to execute and deliver such
further assignments, documents of transfer, deeds and instruments as may be
necessary for the more effective implementation of such transfers.
Some assignments and transfers may require prior consent by third parties
and various filings or recordings with governmental entities. Some permits or
licenses may require reapplication by us, and reissuance in our name. If consent
to the assignment or reissuance of any contract, license or permit being
transferred is not obtained, we and USI will develop alternative approaches so
that, to the
14
<PAGE>
maximum extent possible, we will receive the benefits of the contract, license
or permit and will discharge the duties and bear the costs and risks under the
contract, license or permit. We will bear the risk that the alternative
arrangements will not provide us with the full benefits of the contract, license
or permit. We and USI, however, believe that all necessary consents and
reissuances that are material to us will be obtained.
Indemnification Agreement. In connection with the spin-off, we will enter
into an indemnification agreement with USI. Under the agreement, subject to
certain exceptions, we will agree to indemnify USI against all liabilities,
litigation and claims arising out of USI's diversified businesses (including
liabilities for claims relating to or arising out of the assets, businesses and
operations previously conducted by these businesses or their predecessors,
subject to certain exceptions). USI will agree to indemnify us against (1) all
liabilities, litigation and claims arising out of all USI operations other than
the diversified businesses, (2) liabilities (including liabilities under the
Securities Exchange Act of 1934) for statements included in this information
statement and (3) certain other liabilities. Neither we nor USI will be entitled
to a recovery to the extent any liability is covered by proceeds received by it
from any third-party insurance policy. In circumstances in which the potential
liability is joint, we and USI will share responsibility for the liability on a
mutually agreed basis consistent with the principles established in the
indemnification agreement.
The indemnification agreement will set forth procedures for notification
and payment of claims, use and preservation of records and resolution of
disputes. Liability for tax-related matters will be governed by the tax sharing
and indemnification agreement described below.
Tax Sharing and Indemnification Agreement. We will enter into a tax sharing
and indemnification agreement with USI that will govern the allocation between
us of federal, state, local and foreign tax liabilities and related tax matters,
such as the preparation and filing of tax returns and the conduct of audits and
other tax proceedings, for taxable periods before and after the spin-off.
In general, the tax sharing agreement will provide that (i) USI will be
responsible for, and will indemnify us and our subsidiaries against, tax
liabilities for taxable periods ending on or prior to, the date of the spin-off
and (ii) we will be responsible for, and will indemnify USI and its subsidiaries
against, tax liabilities for taxable periods beginning on or after the date of
the spin-off.
In addition, USI will be liable for, and will indemnify us and our
subsidiaries against, all tax liabilities incurred by us or our subsidiaries as
a result of any event, action, or failure to act, wholly or partially within the
control of USI or any of its subsidiaries, including any event, action or
failure to act that results in a breach of any representation made to the
Internal Revenue Service in connection with the ruling request, or any other
event related to the acquisition of USI stock, resulting in taxes imposed on us
or any of our subsidiaries with respect to any action taken pursuant to the
spin-off or any related transaction. We will be liable for, and will indemnify
USI and its subsidiaries against, all tax liabilities incurred by USI or any of
its subsidiaries as a result of any event, action, or failure to act wholly or
partially within our control or the control of any of our subsidiaries,
including any event, action or failure to act that results in a breach of any
representation made to the Internal Revenue Service in connection with the
ruling request, or any other event related to the acquisition of our stock,
resulting in taxes imposed on USI or any of its subsidiaries with respect to any
action taken pursuant to the spin-off or any related transaction.
Corporate Transition Agreement. We expect to enter into an agreement with
USI providing for the transfer of certain corporate assets (including
corporate-sponsored employee benefit plans) and related obligations by USI to us
and our subsidiaries, and for the reimbursement by us of USI for certain
expenses incurred in connection with our formation and related matters. Upon
completion of the spin-off and satisfaction of certain conditions, we would
assume sponsorship of and all responsibility for benefit liabilities under each
of the plans with respect to our employees, including the retirement plan
described under 'Executive Compensation.' Following the completion of the
spin-off, assets attributable to our employees under plans maintained or
sponsored by USI would be transferred from the master trusts maintained with
respect to such plans to mirror trusts established by us. With respect to each
of our plans which is a 'welfare plan,' including workers' compensation, we will
be responsible for all claims by our employees and their dependents after
completion of the spin-off. With respect to
15
<PAGE>
each of our plans which is a nonqualified pension plan or bonus plan which is
not funded, we will generally assume liability and be responsible for all
benefits.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The spin-off is conditioned upon receipt by USI of a private letter ruling
from the Internal Revenue Service to the effect that, among other things, the
spin-off will qualify as a tax-free spin-off to USI's stockholders and USI under
Section 355 of the Internal Revenue Code. The following is a summary of the
material federal income tax consequences to USI's stockholders and USI expected
to result from the spin-off:
(1) A USI stockholder will not recognize any income, gain or loss as a
result of the spin-off except, as described below, in connection with the
receipt of cash, if any, instead of a fraction of a share of our common stock.
(2) A USI stockholder will apportion the tax basis for his USI stock on
which our common stock is distributed between the USI stock and our common stock
received in the spin-off (including any fraction of a share of our common stock
deemed received) in proportion to the relative fair market values of USI stock
and our common stock on the date of the spin-off.
(3) The holding period for our common stock received by a USI stockholder
in the spin-off will include the period during which he held the USI stock on
which our common stock is distributed, provided that the USI stock is held as a
capital asset by such holder on the date of the spin-off.
(4) A USI stockholder who receives cash instead of a fraction of a share of
our common stock will be treated as if he received a fraction of a share of our
common stock as part of the spin-off and then sold the fraction of a share
through the dividend agent. Accordingly, the USI stockholder will recognize gain
or loss equal to the difference between the cash so received and the portion of
the tax basis in our common stock that is allocable to the fraction of a share,
which gain or loss will be capital gain or loss, provided that the fraction of a
share was held as a capital asset at the time of the spin-off.
(5) USI will not recognize any gain or loss as a result of the spin-off.
Current Treasury regulations require each USI stockholder who receives our
common stock in the spin-off to attach to his or her federal income tax return
for the year in which the spin-off occurs a detailed statement setting forth
such data as may be appropriate in order to show the applicability of Section
355 of the Internal Revenue Code to the spin-off. USI will provide the
appropriate information to each stockholder of record as of the spin-off record
date.
Backup Withholding. Under the Internal Revenue Code, a USI stockholder may
be subject, under certain circumstances, to backup withholding at a rate of 31%
with respect to the amount of cash, if any, received instead of an interest in a
fraction of a share pursuant to the spin-off unless the holder provides proof of
an applicable exemption or correct taxpayer identification number, and otherwise
complies with applicable requirements of the backup withholding rules. Any
amounts withheld under the backup withholding rules are not additional tax and
may be refunded or credited against the holder's federal income tax liability,
provided the required information is furnished to the Internal Revenue Service.
The summary of federal income tax consequences set forth above may not be
applicable to stockholders who receive their shares of our common stock through
the exercise of employee stock options or otherwise as compensation or who are
otherwise subject to special treatment under the Internal Revenue Code. All
stockholders should consult their own tax advisors as to the particular tax
consequences to them, including the applicability and effect of state, local and
foreign tax laws.
REASONS FOR FURNISHING THIS INFORMATION STATEMENT
This information statement is being furnished by USI solely to provide
information to USI stockholders about, subject to the satisfaction of the
spin-off conditions, the receipt of our common stock pursuant to the spin-off.
It is not, and is not to be construed as, an inducement or encouragement to buy
or sell any of our securities or those of USI. The information contained in this
information statement is believed by us and USI to be accurate as of the date
set forth on its front cover. Changes may occur after that date, and neither we
nor USI will update the information except in the normal course of our
respective public disclosure practices.
16
<PAGE>
CAPITALIZATION
The following table, which is unaudited, sets forth, as of June 30, 1999,
our capitalization as adjusted to reflect the spin-off and the incurrence of
indebtedness under the new credit facility and the senior subordinated notes, as
if these transactions had occurred as of that date. This data should be read in
conjunction with 'Unaudited Pro Forma Combined Condensed Financial Data,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Combined Financial Statements and notes. See 'Index to
Combined Financial Statements.'
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
--------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
------ ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Long-Term Debt (including current portion):
New credit facility and senior subordinated notes.... $ -- $ 586.7 $ 586.7
Notes and interest payable to affiliates............. 506.8 (506.8) --
Other................................................ 30.5 (17.2) 13.3
------ ------- -------
Total long-term debt (including current
portion)...................................... $537.3 $ 62.7 $ 600.0
Stockholders' Equity (Deficit):
Common stock, 23,000,000 shares authorized, par value
$0.01 per share, 8,800,000 shares issued and
outstanding
(as adjusted)...................................... $ -- $ -- $--
Preferred stock, 2,000,000 shares authorized, none
issued and outstanding............................. -- -- --
Retained (deficit)................................... -- (150.5)(A) (150.5)
Invested capital (deficit)........................... (65.1) 65.1 (A) --
------ ------- -------
Total invested capital (deficit)/stockholders'
equity (deficit).............................. (65.1) (85.4) (150.5)
------ ------- -------
Total capitalization....................... $472.2 $ (22.7) $ 449.5
------ ------- -------
------ ------- -------
</TABLE>
- ------------
(A) To reflect the net effect on invested capital (deficit)/stockholders' equity
(deficit) of the following (in millions):
<TABLE>
<S> <C>
Net pension adjustment...................................... $ (39.5)
Non-recurring transaction costs............................. (10.4)
Dividend to USI............................................. (35.5)
-------
$ (85.4)
-------
-------
Adjustment to Retained (deficit)............................ $(150.5)
Adjustment to Invested capital (deficit).................... 65.1
-------
$ (85.4)
-------
-------
</TABLE>
For further discussion, please see 'Unaudited Pro Forma Combined Condensed
Financial Data -- Notes to Pro Forma Combined Condensed Balance Sheet.'
17
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The historical selected combined financial data of Strategic set forth
below for each of the years in the three-year period ended September 30, 1998
are derived from the audited combined financial statements of Strategic included
elsewhere in this information statement. The historical selected combined
financial data for the nine months ended June 30, 1999 and 1998 and the years
ended September 30, 1995 and 1994 are unaudited but, in our opinion, have been
prepared on a basis consistent with that for the three-year period ended
September 30, 1998 (except, in the case of interim financial data, for normal
year-end adjustments). The interim financial data include all adjustments that
management considers necessary for a fair presentation of interim results.
Historical financial information may not be indicative of our future performance
as an independent company. Furthermore, the historical financial data presented
below do not reflect certain pro forma adjustments giving effect to the spin-off
which are reflected in 'Unaudited Pro Forma Combined Condensed Financial Data.'
The information set forth below should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the Combined Financial Statements and notes thereto. See 'Index to Combined
Financial Statements.' Historical basic and diluted earnings per share and
dividend data have not been presented, as the capital structure of the
businesses that comprise Strategic prior to the spin-off is not indicative of
its capital structure following the spin-off.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................... $716.8 $714.9 $737.7 $807.9 $888.5 $663.8 $651.0
Cost of products sold....... 519.4 518.7 521.9 575.8 669.5 488.7 494.4
Selling, general and
administrative expenses... 107.0 103.9 105.8 112.8 124.2 94.3 94.6
Goodwill impairment and
restructuring
charges(A)................ -- -- -- -- 62.8 59.1 1.1
Operating income(A)(B)...... 83.7 83.8 101.2 108.9 25.2 16.6 54.3
Net income (loss)........... 34.4 30.2 39.9 49.4 (22.3)(C) (22.0)(D) 19.3 (E)
BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents... $ 5.1 $ 9.4 $ 3.3 $ 8.4 $ 12.4 $ 12.3 $ 8.7
Working capital............. 152.8 141.0 156.2 159.8 195.1 217.8 193.9
Total assets................ 534.9 530.5 563.4 584.2 644.6 632.5 625.4
Total debt(F)............... 379.6 404.5 411.1 364.8 344.4 357.0 537.3
Invested capital
(deficit)................. 46.4 8.1 23.1 82.1 126.0 142.9 (65.1)
OTHER DATA:
Capital expenditures........ 16.7 22.1 9.8 17.7 27.3 21.8 20.4
Depreciation and
amortization.............. 17.6 15.7 19.2 19.2 23.3 17.6 18.7
</TABLE>
- ------------
(A) In fiscal 1998, in addition to the goodwill impairment and restructuring
charges, we incurred $8.3 million ($1.7 million of which was incurred
through the nine months ended June 30, 1998) of other related charges which
were included in cost of products sold and selling, general and
administrative expenses. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and Note 4 to the Combined
Financial Statements.
(B) Operating income (loss) in fiscal 1997 and 1998, and for the nine months
ended June 30, 1998 and 1999 included $1.7 million, $(2.4) million,
$0.2 million and $(6.2) million, respectively, of equity earnings (loss)
from our investment in United Pacific. The fiscal 1998 equity loss of
$(2.4) million includes a charge of $4.0 million associated with an
impairment of a United Pacific subsidiary. The equity (loss) in the nine
months ended June 30, 1999 of $(6.2) million includes a write-down of
$5.5 million.
(C) After an income tax benefit of $6.5 million, the $71.1 million of charges
detailed above reduced net income for fiscal 1998 by $64.6 million.
(D) After an income tax benefit of $2.3 million, the $60.8 million of charges
detailed above reduced net income for the nine months ended June 30, 1998
by $58.5 million.
(E) After an income tax benefit of $0.4 million, the $1.1 million of
restructuring charges reduced net income for the nine months ended
June 30, 1999 by $0.7 million.
(F) Amounts primarily represent intercompany notes and interest payable to
affiliates.
18
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed financial data reflect
the spin-off as if it occurred as of June 30, 1999 for pro forma combined
condensed balance sheet purposes and as of October 1, 1997 for the year ended
September 30, 1998 and the nine months ended June 30, 1998 and as of October 1,
1998 for the nine months ended June 30, 1999 for pro forma combined condensed
statements of operations purposes. The unaudited pro forma combined condensed
financial data reflect our expected capitalization as a result of the spin-off,
the incurrence of indebtedness under the new credit facility and the senior
subordinated notes and interest expense (including amortization of capitalized
costs) relating to such borrowings. These data do not necessarily reflect our
results of operations or financial position had the indebtedness actually been
incurred and the spin-off actually been consummated as of such dates. Also,
these data are not necessarily indicative of our future results of operations or
future financial position.
The pro forma combined condensed financial data will be revised in the
definitive information statement to reflect the amount and other terms of
Strategic's indebtedness anticipated at that time in light of prevailing market
conditions.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------ ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 8.7 $ $ 8.7
Trade receivables, net................................. 129.7 129.7
Inventories............................................ 139.1 139.1
Deferred income taxes.................................. 2.4 2.4
Other current assets................................... 17.2 17.2
------ ------- -------
Total current assets.............................. 297.1 297.1
Property, plant and equipment, net.......................... 133.9 133.9
Deferred income taxes....................................... -- 19.4 (A) 19.4
Pension assets.............................................. 69.8 (61.0)(A) 8.8
Other assets................................................ 13.2 16.8 (B) 30.0
Goodwill, net............................................... 111.4 111.4
------ ------- -------
$625.4 $ (24.8) $ 600.6
------ ------- -------
------ ------- -------
LIABILITIES AND INVESTED CAPITAL (DEFICIT)/
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt................... $ 1.0 $ $ 1.0
Trade accounts payable................................. 44.3 44.3
Accrued expenses and other liabilities................. 50.3 50.3
Income taxes payable................................... 7.6 7.6
------ ------- -------
Total current liabilities......................... 103.2 103.2
Long-term debt.............................................. 29.5 569.5 (C) 599.0
Deferred income taxes....................................... 1.9 (1.9)(A) --
Other liabilities........................................... 49.1 (0.2)(A) 48.9
Notes and interest payable to affiliates.................... 506.8 (506.8)(C) --
------ ------- -------
Total liabilities................................. 690.5 60.6 751.1
------ ------- -------
Invested capital (deficit)/stockholders' equity (deficit)... (65.1) (85.4)(D) (150.5)
------ ------- -------
$625.4 $ (24.8) $ 600.6
------ ------- -------
------ ------- -------
</TABLE>
19
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET:
(A) To reflect the anticipated changes in net pension assets and the related
deferred tax balances resulting from the transfer of our employees from
pension plans and trusts maintained by USI to plans and trusts to be
maintained or established by us. This change is expected due to the
actuarial method of allocating assets and liabilities which results in a
portion of the net overfunding of the relevant plans being retained by USI.
After giving effect to this pro forma adjustment, the net pension obligation
will be $5.8 million, of which $14.6 million is classified in other
liabilities (long-term).
(B) To capitalize the cost of obtaining financing under the new credit facility
and senior subordinated notes, which will be amortized over their respective
terms. This does not include $10.4 million of expected non-recurring legal,
investment banking and other advisory costs relating to the spin-off which
will be expensed by us at the time of the receipt of a favorable tax ruling
from the Internal Revenue Service with regard to the spin-off.
(C) To reflect initial borrowings under the new credit facility and the proceeds
from the issuance of senior subordinated notes, estimated to total
$586.7 million, and repayment of notes payable to affiliates, including
accrued interest thereon. In addition, we anticipate the repayment of
$17.2 million of our Hong Kong dollar-denominated long-term debt. For
additional information concerning the expected terms of the new credit
facility and the senior subordinated notes, see 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- New Credit Facility and Senior Subordinated Notes.'
(D) To reflect the net effect on invested capital (deficit)/stockholders' equity
(deficit) of the following (in millions):
<TABLE>
<S> <C>
Net pension adjustment (A).................................. $(39.5)
Non-recurring transaction costs (B)......................... (10.4)
Dividend to USI............................................. (35.5)
------
$(85.4)
------
------
</TABLE>
20
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, 1998
---------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------ ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................ $ 888.5 $ 888.5
Operating costs and expenses:
Cost of products sold............................... 669.5 669.5
Selling, general and administrative expenses........ 124.2 8.0 (A) 137.2
5.0 (D)
Management fees and divisional overhead............. 6.8 (6.8)(A) --
Goodwill impairment and restructuring charges....... 62.8 62.8
------- ------ -------
Operating income......................................... 25.2 (6.2) 19.0
Interest expense to affiliates........................... 19.1 (19.1)(B) --
Interest expense......................................... 2.6 56.3 (B) 61.0
2.1 (C)
Interest income.......................................... (0.5) (0.5)
Other expense, net....................................... 0.7 0.7
------- ------ -------
Income before income taxes............................... 3.3 (45.5) (42.2)
Provisions for income taxes.............................. 25.6 (18.2)(E) 7.4
------- ------ -------
Net loss................................................. $ (22.3) $(27.3) $ (49.6)
------- ------ -------
------- ------ -------
Basic and diluted loss per share(F)...................... $ (2.53) $ (5.64)
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1998
------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------ ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................... $663.8 $663.8
Operating costs and expenses:
Cost of products sold.................................. 488.7 488.7
Selling, general and adminintrative expenses........... 94.3 $ 6.0 (A) 104.1
3.8 (D)
Management fees and divisional overhead................ 5.1 (5.1)(A) --
Goodwill impairment and restructuring charges.......... 59.1 59.1
------ ------ ------
Operating income............................................ 16.6 (4.7) 11.9
Interest expense to affiliates.............................. 14.2 (14.2)(B) --
Interest expense............................................ 1.8 42.4 (B) 45.8
1.6 (C)
Interest income............................................. (0.4) (0.4)
Other expense, net.......................................... 0.9 0.9
------ ------ ------
Income before income taxes.................................. 0.1 (34.5) (34.4)
Provision for income taxes.................................. 22.1 (13.8)(E) 8.3
------ ------ ------
Net income.................................................. $(22.0) $(20.7) $(42.7)
------ ------ ------
------ ------ ------
Basic and diluted earnings per share(F)..................... $(2.50) $(4.85)
------ ------
------ ------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1999
------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------ ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................... $651.0 $651.0
Operating costs and expenses:
Cost of products sold.................................. 494.4 494.4
Selling, general and administrative expenses........... 94.6 6.6 (A) 103.4
2.2 (D)
Management fees and divisional overhead................ 6.6 (6.6)(A) --
Goodwill impairment and restructuring charges.......... 1.1 1.1
------ ------ ------
Operating income............................................ 54.3 (2.2) 52.1
Interest expense to affiliates.............................. 20.3 (20.3)(B) --
Interest expense............................................ 1.2 43.0 (B) 45.8
1.6 (C)
Interest income............................................. (0.4) (0.4)
Other expense, net.......................................... 1.0 1.0
------ ------ ------
Income before income taxes.................................. 32.2 (26.5) 5.7
Provisions for income taxes................................. 12.9 (10.6)(E) 2.3
------ ------ ------
Net income.................................................. $ 19.3 $(15.9) $ 3.4
------ ------ ------
------ ------ ------
Basic and diluted earnings per share(F)..................... $ 2.19 $ 0.39
------ ------
------ ------
</TABLE>
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS:
(A) To eliminate management fees allocated from USI and divisional overhead,
and to record estimated selling, general and administrative expenses that
we expect to incur following the spin-off, including management and
director compensation. Until the spin-off, USI will provide management,
treasury, accounting, legal, insurance, employee benefits and tax services
for which we will be charged a management fee based on the percentage that
our net sales represent of USI's total net sales. While we believe that the
amounts allocated from USI are reasonable, they may not be indicative of
our ongoing costs as a separate public entity.
(B) To reflect interest expense on initial borrowings under the new credit
facility and senior subordinated notes at an assumed weighted average
interest rate of 10% per year and eliminate interest cost on notes payable
to affiliates. For each 1/8% change in the assumed interest rates, pro
forma interest expense would change by approximately $0.8 million per year.
(C) To amortize the cost of obtaining new financing ($16.8 million) over the
terms of the new credit facility and senior subordinated notes.
(D) To reflect the anticipated change in net periodic pension cost resulting
from the transfer of our employees from pension plans and trusts maintained
by USI to new plans and trusts to be maintained or established by us. This
change is expected due to the actuarial method of allocating assets and
liabilities which results in a portion of the net overfunding of the
relevant plans will be retained by USI.
(E) To reflect tax effects of above adjustments (A through D) at a tax rate of
40% (inclusive of federal, state and local taxes).
(F) Basic and diluted earnings (loss) per share have been determined assuming
that 8.8 million shares of our common stock will be issued upon the
spin-off.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We operate and manage a diverse group of businesses on a decentralized
basis, with a corporate management team providing strategic direction and
financial support. Our operating companies are divided into three business
groups: Consumer Products, Precision Engineered Products and Automotive Interior
Products.
The following table presents, for each of the last five fiscal years and
the nine months ended June 30, 1998 and 1999, net sales and operating income
(loss) of the three business groups under the ownership of USI and USI's
predecessor. The historical net sales and operating income (loss) data for the
three business groups for fiscal 1994 and 1995 and the nine months ended
June 30, 1998 and 1999 are unaudited but, in our opinion, have been prepared on
a basis consistent with that of fiscal 1996, 1997 and 1998 (except, in the case
of interim financial data, for normal year-end adjustments). This historical
financial information may not be indicative of our future financial performance
as an independent company and does not reflect the pro forma adjustments giving
effect to the spin-off presented in 'Unaudited Pro Forma Combined Condensed
Financial Data.'
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
--------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(IN MILLIONS)
-------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES
Consumer Products..... $389.8 $402.9 $413.1 $409.1 $410.7 $308.1 $270.7
Precision Engineered
Products............ 63.4 68.8 73.9 89.2 138.1 97.8 142.5
Automotive Interior
Products............ 263.6 243.2 250.7 309.6 339.7 257.9 237.8
------ ------ ------ ------ ------ ------ ------
Total net
sales.......... $716.8 $714.9 $737.7 $807.9 $888.5 $663.8 $651.0
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
OPERATING INCOME
Consumer Products..... $ 61.3 $ 68.6 $ 80.6 $ 80.7 $ 48.5 (A) $ 46.0 (C) $ 27.0 (E)
Precision Engineered
Products............ 7.0 9.7 12.3 19.4 (B) 28.0 (B) 22.6 (D) 22.5 (D)
Automotive Interior
Products............ 22.1 14.0 17.1 19.2 (44.5)(A) (46.9)(C) 11.4
------ ------ ------ ------ ------ ------ ------
90.4 92.3 110.0 119.3 32.0 21.7 60.9
Management fees and
divisional
overhead............ (6.7) (8.5) (8.8) (10.4) (6.8) (5.1) (6.6)
------ ------ ------ ------ ------ ------ ------
Total operating
income......... $ 83.7 $ 83.8 $101.2 $108.9 $ 25.2 $ 16.6 $ 54.3
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
</TABLE>
- ------------
(A) In fiscal 1998, operating income includes goodwill impairment and
restructuring charges of $62.8 million and other related charges of
$8.3 million. See Note 4 to the Combined Financial Statements. Consumer
Products' operating income gives affect to $15.7 million of these charges
and Automotive Interior Products' operating income gives affect to
$55.4 million of these charges.
(B) In fiscal 1997 and 1998, operating income of Precision Engineered Products
included $1.7 million and $(2.4) million, respectively, of equity earnings
(loss) from our investment in United Pacific. The fiscal 1998 equity loss of
$(2.4) million includes a charge of $4.0 million associated with an
impairment of a United Pacific subsidiary.
(C) In the nine months ended June 30, 1998, operating income includes goodwill
impairment and restructuring charges of $59.1 million and other related
charges of $1.7 million. Consumer Products' operating income gives affect to
$5.3 million of these charges and Automotive Interior Products' operating
income gives affect to $55.5 million of these charges.
(D) In the nine months ended June 30, 1998 and 1999, operating income of
Precision Engineered Products includes $0.2 million and $(6.2) million,
respectively, of equity earnings (loss) from our investment in United
Pacific. The loss in the nine months ended June 30, 1999 of $(6.2) million
includes a write-down of $5.5 million.
(E) In the nine months ended June 30, 1999, Consumer Products' operating income
gives affect to net restructuring charges of $1.1 million and other related
charges of $0.9.
23
<PAGE>
General. Net sales increased from $716.8 million in fiscal 1994 to
$888.5 million in fiscal 1998, while operating income decreased from
$83.7 million in fiscal 1994 to $25.2 million in fiscal 1998. Excluding goodwill
impairment, restructuring and other related charges of $71.1 million, operating
income increased by $12.6 million from fiscal 1994 to fiscal 1998. Over this
five-year period, a number of industry and company-specific developments have
influenced the financial performance of our operating companies, both positively
and negatively. During fiscal 1998 and the first nine months of fiscal 1999,
several of our operating companies, including Rexair, EJ Footwear and Garden
State, have initiated strategic actions to address specific issues that have
affected profitability.
Consumer Products. Net sales increased from $389.8 million in fiscal 1994
to $410.7 million in fiscal 1998, while operating income decreased from $61.3
million in fiscal 1994 to $48.5 million in fiscal 1998. Excluding restructuring
and other related charges of $15.7 million, operating income increased by
$2.9 million from fiscal 1994 to fiscal 1998. Changes in net sales and operating
income in the 1994 through 1998 fiscal periods were principally attributable to
Rexair and EJ Footwear.
During this period Rexair increased its emphasis on international
growth, with international net sales rising from 42% of total net
unit sales in fiscal 1994 to 58% in fiscal 1997. Rexair's
extraordinarily strong sales in several Central and Eastern European
countries in fiscal 1996 and 1997 were primarily responsible for the
increase in the group's operating income from $68.6 million in fiscal
1995 to $80.6 million in fiscal 1996 and $80.7 million in fiscal
1997. Sales in these countries declined substantially during fiscal
1998 due in part to severe flooding in June 1997, which disrupted
Rexair's distribution network, and the strength of the U.S. dollar
against local currencies, which significantly increased local product
prices. Sales in these countries have not recovered to previous
levels and in fiscal 1998 international sales declined to 51% of
Rexair's total unit sales. In the second half of fiscal 1998, Rexair
reorganized and strengthened its international operations by adding
management resources. Rexair's results in fiscal 1998 and the first
nine months of fiscal 1999 were also adversely affected by
difficulties in introducing its first new product line in eight years
as well as difficulties encountered by Rexair's distributors in
recruiting and retaining sales representatives during a period of low
domestic unemployment. Rexair has resolved the issues relating to the
new product introduction and has significantly increased its
promotion of recruitment initiatives by its domestic distributors.
Since fiscal 1994, EJ Footwear has experienced a gradual decline in
net sales and operating income (excluding the effect of non-recurring
items) due to competition in the footwear industry. In response,
EJ Footwear has increased its purchases of finished goods
manufactured abroad and has continued initiatives to reduce
production and administrative costs. In addition, it replaced its
infant's and children's footwear manufacturing operations with
products purchased from offshore suppliers. This resulted in
restructuring and other related charges of approximately
$2.6 million in the third quarter of fiscal 1999.
Precision Engineered Products. Net sales and operating income grew from
$63.4 million and $7.0 million, respectively, in fiscal 1994 to $138.1 million
and $28.0 million, respectively, in fiscal 1998. Changes in net sales and
operating income in the 1994 through 1998 fiscal periods were principally
attributable to Huron and Bearing Inspection, as well as during the fiscal 1998
period, FSM, which was acquired in May 1998.
Huron has increased its net sales and operating income by developing
strategic supplier relationships in the automotive industry.
Bearing Inspection's net sales and operating income have
significantly increased as a result of continued growth in the market
for overhauled bearings and an increase in Bearing Inspection's share
of the market due to strategic alliances with major domestic and
international airlines. The acquisition of Atech in January 1999 has
allowed Bearing Inspection to expand into the business of
refurbishing the 'hot sections' of turbo-prop engines.
24
<PAGE>
The net sales and operating income of this group have also been aided
by the acquisition of the flat shadow mask business of Philips
Components in May 1998 and Jade's acquisition of the integrated
circuit leadframe business of Philips Semiconductors in January 1998.
Automotive Interior Products. Net sales increased from $263.6 million in
fiscal 1994 to $339.7 million in fiscal 1998, while operating income declined
from $22.1 million in fiscal 1994 to a loss of $44.5 million in fiscal 1998.
Excluding goodwill impairment charges of $55.4 million, operating income
decreased by $11.2 million from fiscal 1994 to fiscal 1998. Changes in net sales
and operating income in the 1994 through 1998 fiscal periods were attributable
to both Garden State and Leon Plastics.
Over the past several years, Garden State's net sales have continued
to benefit from the increased use of leather interiors in cars, light
trucks and sport utility vehicles. The group demonstrated profit
improvement during fiscal 1995 through 1997 as operating income rose
from $14.0 million to $19.2 million, reflecting increased sales
volumes at Garden State and improved operating margins at Leon
Plastics. However, the group's profitability between fiscal 1994 and
1995 was affected by the U.S. Government's threatened trade sanctions
against Japanese automobile manufacturers, which represent a
significant portion of Garden State's sales base. Results declined in
fiscal 1998 at Garden State due to poor hide-cutting yields, price
concessions in the automobile industry and reduced scrap leather
prices and at Leon Plastics due to the end of a major program. In the
first nine months of fiscal 1999, Garden State improved profitability
by phasing out a low margin customer and implementing process changes
to improve hide-cutting yields and to reduce the amount of excess
scrap leather.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO NINE MONTHS ENDED JUNE 30, 1998
Net Sales and Operating Income
We had total net sales of $651.0 million and total operating income of
$54.3 million for the nine months ended June 30, 1999. Net sales decreased $12.8
million (2%) while operating income increased $37.7 million (227%) from the
comparable period of fiscal 1998. Operating income in the nine months ended
June 30, 1999 and 1998 included goodwill impairment and restructuring charges
totaling $1.1 million and $59.1 million, respectively, as discussed below.
Excluding these charges from both periods, operating income for the nine months
ended June 30, 1999 decreased $20.3 million (27%) from the comparable period of
the prior year. Operating income for the nine months ended June 30, 1999
included unusual costs relating to the closure of an unprofitable window
operation at BiltBest ($6.1 million) and a write-down of our United Pacific
investment ($5.5 million).
Consumer Products had net sales of $270.7 million and operating income of
$27.0 million for the nine months ended June 30, 1999, reflecting decreases of
$37.4 million (12%) and $19.0 million (41%), respectively, from the comparable
period of fiscal 1998. Operating income for the nine months ended June 30, 1999
and 1998 included restructuring charges totalling $1.1 million and $3.7 million,
respectively, as discussed below. Excluding these charges from both periods,
operating income for the nine months ended June 30, 1999 decreased $21.6 million
(43%) from the comparable period of the prior year. Operating income for the
nine months ended June 30, 1999 includes unusual costs of $6.1 million relating
to the closure of an unprofitable window operation at BiltBest and $0.9 million
to write-off excess and obsolete infant and children's footwear. The primary
contributors to the decline in net sales were Rexair (13%) and Native Textiles
(34%). The primary contributors to the decline in operating income were Rexair,
EJ Footwear and the closure of a BiltBest window operation. As more fully
discussed in ' -- Overview' above, Rexair's results reflected difficulties
associated with the introduction of its new product line and the recruitment of
dealers by its distributors. Native Textiles' net sales were reduced by the exit
from its unprofitable lace business in the fourth quarter of fiscal 1998. EJ
Footwear's operating income decreased due to competitive conditions in the
market for safety shoes, loss of a key customer for certain lines of infant's
and children's footwear and the write-off of excess and obsolete inventory noted
above. Comparability of EJ Footwear's operating income was also affected by a
$3.9 million favorable settlement of environmental obligations in the 1998
period.
25
<PAGE>
Precision Engineered Products had net sales of $142.5 million and operating
income of $22.5 million for the nine months ended June 30, 1999. Net sales
increased $44.7 million (46%) while operating income decreased $0.1 million
(0.4%) from the comparable period of fiscal 1998. Results for the nine months
ended June 30, 1999 reflect the positive impact of the full period inclusion of
FSM, acquired in May 1998, which accounted for $38.5 million of the change in
sales. However, operating income was reduced by a $5.5 million write-down of our
United Pacific investment.
Automotive Interior Products had net sales of $237.8 million and operating
income of $11.4 million for the nine months ended June 30, 1999. Net sales
decreased $20.1 million (8%) while operating income increased $58.3 million from
the comparable period of fiscal 1998. Operating loss for the nine months ended
June 30, 1998 included goodwill impairment and restructuring charges $55.4
million as discussed below. Excluding these charges, operating income for the
nine months ended June 30, 1999 increased $2.9 million (34%) from the comparable
period of the prior year. An 11% decrease in Garden State's net sales reflected
management's decision to phase out a low margin customer. The increase in
operating income reflected improved sales (8% increase) and margins (operating
margins improved from 3% to 7%) at Leon and, at Garden State, reduced goodwill
amortization of $1.5 million and other costs, partially offset by lower prices
for scrap leather as average prices declined approximately 19% from the
comparable period of the prior fiscal year, due in part, to poor economic
conditions in Asia.
Goodwill Impairment, Restructuring and Other Related Charges
During the quarter ended June 30, 1999 we announced the closure of our
infant and children's footwear manufacturing facility and recorded a
restructuring charge of $1.7 million which was comprised of the costs of
terminating 110 employees and the write-off of impaired assets. Offsetting the
restructuring charge was the reversal of $0.6 million of restructuring accruals
established at Rexair and Native Textiles during fiscal 1998 that were deemed no
longer necessary.
We also recorded other charges during the nine months ended June 30, 1999.
These included $0.9 million of excess and obsolete inventory related to the
closure of our infant and children's footwear manufacturing facility, $5.5
million related to the write-down of our investment in United Pacific and $6.1
million related to the closure of an unprofitable window operation.
After an income tax benefit of $5.3 million, the $13.6 million of net
charges described above reduced net income for the nine months ended June 30,
1999 by $8.3 million.
During the nine months ended June 30, 1998 we recorded goodwill impairment
charges of $55.0 related to Garden State and other restructuring charges
totalling $4.1 million primarily related to the closure of an EJ Footwear
manufacturing facility and a reduction in the work force at Rexair.
In addition to the $59.1 million of goodwill impairment and restructuring
charges, we incurred $1.7 million of inventory obsolescence and other costs
related to the elimination of product lines and the reduction of manufacturing
and warehouse facilities of our restructured operations.
After an income tax benefit of $2.3 million, the $60.8 million of charges
described above reduced net income by $58.5 million.
See also 'Fiscal 1998 Compared to Fiscal 1997 -- Goodwill Impairment,
Restructuring and Other Related Charges' for a discussion of these charges for
fiscal 1998.
Interest and Taxes
Interest expense was $21.5 million for the nine months ended June 30, 1999,
a $5.5 million (34%) increase from the comparable period of fiscal 1998. The
increase reflects higher levels of outstanding notes payable to affiliates.
Interest income was $0.4 million in both periods.
The provision for income taxes was $12.9 million on pre-tax income of $32.2
million (a 40% effective rate) for the nine months ended June 30, 1999 compared
to $22.1 million on pre-tax income of $0.1 million for the nine months ended
June 30, 1998. The decrease in the effective tax rate is primarily attributable
to non-deductible goodwill and foreign losses with no associated tax benefits in
the nine months ended June 30, 1998.
26
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997
Net Sales and Operating Income
We had total net sales of $888.5 million in fiscal 1998, reflecting an
increase of $80.6 million (10%) from fiscal 1997. Our operating income in fiscal
1998 was $25.2 million compared to $108.9 million in fiscal 1997, reflecting a
decrease of $83.7 million (77%). Operating income in fiscal 1998 included
goodwill impairment, restructuring and other related charges totalling $71.1
million, which are discussed below. Excluding these items, operating income in
fiscal 1998 would have been $96.3 million, a decrease of $12.6 million (12%)
from fiscal 1997. Operating income in fiscal 1998 also included unusual costs of
$4.0 million relating to a write-down of our United Pacific investment.
Consumer Products had sales of $410.7 million and operating income of $48.5
million in fiscal 1998, an increase of $1.6 million (0.4%) in net sales and a
decrease of $32.2 million (40%) in operating income from fiscal 1997. Operating
income in fiscal 1998 included restructuring and other related charges of $15.7
million discussed below. Excluding these charges, operating income would have
been $64.2 million, a decrease of $16.5 million (20%) from fiscal 1997. Rexair's
sales declined by 20% and its results reflected the disruption of its Central
and Eastern European distribution network, the strength of the U.S. dollar, and
difficulties associated with the new product introduction and the recruiting and
retention of sales representatives.
Precision Engineered Products had net sales of $138.1 million and operating
income of $28.0 million, reflecting increases of $48.9 million (55%) and $8.6
million (44%), respectively, from fiscal 1997. Operating income in fiscal 1998
included unusual costs of $4.0 million relating to a write-down of our United
Pacific investment. The results reflected the first time contributions of FSM,
which was acquired in May 1998, and the integrated circuit leadframe operation
acquired in January 1998. These two acquisitions contributed substantially all
of the sales growth of Precision Engineered Products.
Automotive Interior Products had net sales of $339.7 million and an
operating loss of $44.5 million in fiscal 1998, an increase of $30.1 million
(10%) in net sales and a decrease of $63.7 million (332%) in operating income
from 1997. Operating income in fiscal 1998 included goodwill impairment,
restructuring and other related charges of $55.4 million discussed below.
Excluding these charges, operating income would have been $10.9 million, a
decrease of $8.3 million (43%) from fiscal 1997. Net sales increased at Garden
State by 16% on strong sales of automobile models using its leather products.
However, Garden State's operating income declined 23% due to price concessions,
poor hide-cutting yields and reduced scrap leather prices. Sales declined by 14%
and operating income decreased by 79% at Leon Plastics due to the end of a major
program.
Goodwill Impairment, Restructuring and Other Related Charges
In June 1998, USI reviewed its long-term strategy and reviewed each
operating company's performance and future prospects. As a result, USI adopted a
plan to improve efficiency and enhance competitiveness at some of its
operations, including some now held by Strategic. In addition, due to
indications of impairment, USI evaluated the recoverability of certain
long-lived assets, primarily goodwill at Garden State. In arriving at the fair
value of Garden State, USI considered a number of factors including: (1) annual
price concessions in the automotive industry and Garden State's inability to
reduce costs due to antiquated facilities and equipment, (2) a dramatic decline
in scrap leather prices attributable to the Asian economic crisis, (3) capital
investment that would be required to make Garden State a lower cost
manufacturer, (4) Garden State's long-term financial plan and (5) analysis of
values for similar companies. In determining the amount of the impairment, USI
compared the net book values to the estimated fair values of Garden State. Based
on the above, USI determined that an impairment to goodwill of $55.0 million was
necessary which will reduce future goodwill amortization by $2.1 million a year.
The restructuring plan included the closing of an EJ Footwear manufacturing
facility and Native Textiles' exit from its lace manufacturing business. The
production and distribution activities of the footwear facility were either
outsourced or consolidated into existing facilities. The restructuring plan
included a reduction in the work force of approximately 500 employees throughout
the Consumer Products Group including salaried and administrative employees at
the restructured facilities as well as
27
<PAGE>
other administrative and executive employees. As of September 30, 1998,
approximately 300 employees had been terminated. In certain cases, severance and
related benefits will be paid subsequent to the termination date.
The restructuring is not anticipated to have a significant impact on the
ongoing operations during the periods that manufacturing is transitioned from
the facilities to be closed. The expected benefits from the restructuring are
primarily reduced depreciation, reduced fixed costs associated with leased
facilities and reduced compensation costs. The final anticipated benefit will be
approximately $1.0 million per year, which will be realized subsequent to the
completion of the restructuring plan. We expect that approximately 100% of the
annual benefit will be realized in fiscal 1999 and thereafter.
The principal components of the goodwill impairment and restructuring
charges are:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Impairment of goodwill...................................... $55.0
Lease obligations and impairment of equipment............... 1.6
Severance and related costs................................. 6.2
-----
Total.................................................. $62.8
-----
-----
Cash charges................................................ $ 6.4
Non-cash charges............................................ 56.4
-----
Total.................................................. $62.8
-----
-----
</TABLE>
Cash charges of $1.5 million were paid prior to September 30, 1998. By
June 30, 1999 amounts paid totalled $4.2 million. Additionally, $0.6 million of
such charges were reversed during the nine months ended June 30, 1999 due to
revision of estimates and amounts paid which were less than originally
anticipated. This reversal is included in Goodwill impairment and
restructuring charges. The remaining cash charges will be paid by
September 30, 1999, or through the respective lease termination dates.
In addition to the $62.8 million of goodwill impairment and restructuring
charges, we incurred $8.3 million of inventory obsolescence and other costs
related to the elimination of product lines and the reduction of manufacturing
and warehouse facilities at our restructured operations. These costs are
reflected in cost of products sold and selling, general and administrative
expenses.
After an income tax benefit of $6.5 million, the $71.1 million of charges
detailed above reduced net income for fiscal 1998 by $64.6 million.
Interest and Taxes
Interest expense was $21.7 million for fiscal 1998, a $3.3 million (13%)
decrease from fiscal 1997. The decrease reflects lower levels of outstanding
notes payable to affiliates. Interest income was $0.5 million in both fiscal
1998 and 1997.
The provision for income taxes was $25.6 million on pre-tax income of $3.3
million for fiscal 1998 compared to $35.3 million on pre-tax income of $84.7
million (a 42% effective rate) for fiscal 1997. The fiscal 1998 provision
included the impact of nondeductible goodwill impairment and other non-recurring
charges. Excluding these items, the effective rate would have been approximately
43%.
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales and Operating Income
We had total net sales of $807.9 million and total operating income of
$108.9 million in fiscal 1997, reflecting increases of $70.2 million (10%) and
$7.7 million (8%), respectively, from fiscal 1996.
Consumer Products had net sales of $409.1 million and operating income of
$80.7 million, reflecting a decrease of $4.0 million (1%) and an increase of
$0.1 million (0.1%), respectively, from fiscal 1996. The decrease in net sales
was primarily due to decreases at EJ Footwear (8%) and Rexair (3%) partially
offset by increased sales at Native Textiles (3%). The increase in operating
income primarily
28
<PAGE>
reflected an increase at Native Textiles, offset by small decreases at EJ
Footwear and Rexair. Native Textiles benefitted from improved knit fabric sales
of 11% and better manufacturing performance.
Precision Engineered Products had net sales of $89.2 million and operating
income of $19.4 million, reflecting increases of $15.3 million (21%) and $7.1
million (58%), respectively. Each of the operations showed improved performance.
Automotive Interior Products had sales of $309.6 million and operating
income of $19.2 million, increases of $58.9 million (24%) and $2.1 million
(12%), respectively, from fiscal 1996. Net sales at Garden State increased 30%
primarily due to a significant increase in volume while operating income only
increased 4% due to lower margins. Garden State's profit margins decreased
approximately 20% due to highly competitive market conditions, a decline in the
quality of hides available in the marketplace, reduced hide cutting yields and
lower scrap leather prices.
Gain on Sale of Subsidiary Stock
In January 1997, an initial public offering of 25% of the shares of Jade
Technologies was completed. Jade sold 8 million shares generating cash proceeds
of approximately $3.8 million. We recorded a gain of approximately $0.8 million
($0.7 million after provision for deferred income taxes) in connection with the
sale. Immediately after the transaction, we owned approximately 75% of the
outstanding shares of Jade.
Interest and Taxes
Interest expense was $25.0 million for fiscal 1997, a $7.1 million (22%)
decrease from the prior fiscal year. The decrease reflects lower levels of
outstanding notes payable to affiliates. Interest income was $0.5 million and
$0.2 million for fiscal 1997 and 1996, respectively.
The provision for income taxes was $35.3 million on pre-tax income of $84.7
million (a 42% effective rate) for fiscal 1997 compared to a $28.4 million
provision on pre-tax income of $68.3 million (a 42% effective rate) for fiscal
1996.
LIQUIDITY AND CAPITAL RESOURCES
Prior to and during the nine months ended June 30, 1999, we financed our
operations and capital and other expenditures from a combination of cash
generated from operations and notes and invested capital provided by USI or its
affiliates. This arrangement will continue to be in effect until the
consummation of the spin-off, after which we expect to meet all cash
requirements through internally-generated funds and borrowings under the new
credit facility and other available sources.
Our ability to generate cash available for the repayment of debt will
depend upon numerous business factors, including conditions in the U.S. and
world economies, the level of demand for our products, changes in raw material
costs, the level of capital expenditures and working capital requirements.
Excess cash flow from operations (after capital expenditures) is expected to
satisfy our amortization requirements under the new credit facility after the
spin-off. If our excess cash flow from operations (after capital expenditures),
together with any net disposition proceeds realized by us, is insufficient to
satisfy debt amortization requirements under the new credit facility, we will be
required to renegotiate the terms of, or refinance, the new credit facility. See
' -- New Credit Facility and Senior Subordinated Notes' below and 'Risk
Factors -- We Will Have Substantial Indebtedness.'
NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO NINE MONTHS ENDED JUNE 30, 1998
Operating activities provided cash of $35.5 million for the nine months
ended June 30, 1999, compared with $12.7 million for the nine months ended
June 30, 1998. The increase was primarily due to lower working capital
requirements at Garden State combined with cash provided by operations of newly
acquired companies.
Investing activities used cash of $24.4 million for the nine months ended
June 30, 1999, compared with $74.9 million for the nine months ended June 30,
1998. The fiscal 1999 period included net cash used for the acquisition of
Atech, as well as capital expenditures. The fiscal 1998 period included cash
29
<PAGE>
used in the acquisition of the Philips leadframe business and an additional
equity interest in United Pacific, as well as capital expenditures.
Financing activities used net cash of $17.7 million for the nine months
ended June 30, 1999, compared with cash provided of $64.5 million for the nine
months ended June 30, 1998. Financing activities during both periods principally
resulted from intercompany transactions with USI. During the fiscal 1998 period,
third party financing was principally used to finance the acquisitions of the
Philips leadframe business and an additional equity interest in United Pacific.
FISCAL 1998 COMPARED TO FISCAL 1997
Operating activities provided cash of $35.3 million in fiscal 1998,
compared with $56.0 million in fiscal 1997. The decrease was due to reduced cash
flow from Rexair and Leon Plastics, partially offset by cash provided by
operations of newly acquired FSM.
Investing activities used net cash of $80.0 million in fiscal 1998,
compared with $14.4 million in fiscal 1997. Fiscal 1998 included net cash used
in acquisitions of the Philips leadframe operations and FSM, and an additional
equity interest in United Pacific. In addition, net cash used for capital
expenditures included capital used for the new product introduction at Rexair.
Fiscal 1997 included net cash used for capital expenditures, partially offset by
proceeds from the sale of a minority interest in Jade.
Financing activities provided $49.2 million in fiscal 1998, and used net
cash of $35.7 million in fiscal 1997. Financing activities during both periods
principally resulted from intercompany transactions with USI. During the fiscal
1998 period, third party financing was principally used to finance the
acquisitions of the Philips leadframe business and an additional equity
investment in United Pacific.
NEW CREDIT FACILITY AND SENIOR SUBORDINATED NOTES
New Credit Facility. USI has entered into commitment letters with lenders
in which such lenders have, subject to the satisfaction of certain conditions,
agreed to provide us financing at or about the time of the spin-off. At such
time, we will enter into a new credit facility with Bank of America as
administrative agent and a syndicate of lenders. The new credit facility will
consist of three term loans ranging from six to eight years and a six year
revolving credit line.
All of our obligations under the new credit facility will be
unconditionally guaranteed by each of our existing and each subsequently
acquired or organized domestic subsidiaries. The new credit facility and the
related guarantees will be secured by substantially all of our assets and the
assets of each guarantor.
Borrowings under the new credit facility will bear interest at a floating
rate based upon, at our option, (1) the applicable margin plus the base rate (as
such terms are defined in the new credit facility) in effect from time to time,
or (2) the applicable margin plus the eurodollar rate (as such term is defined
in the new credit facility), adjusted for maximum reserves. The applicable
margin in each case will be determined in accordance with a performance pricing
grid. In addition to paying interest on outstanding principal under the new
credit facility, we will be required to pay a commitment fee to the lenders on
the unused portion of the revolving credit line in an amount to be determined in
accordance with the performance pricing grid.
Each of the term loans will be subject to scheduled quarterly amortization
of principal. Advances made under the revolving credit facility will be due and
payable in full at maturity. The new credit facility will contain mandatory
prepayment provisions, subject to certain exceptions to be agreed upon.
It is expected that the new credit facility will contain representations
and warranties, covenants (including a maximum ratio of consolidated
indebtedness to consolidated EBITDA, a minimum ratio of consolidated EBITDA to
consolidated interest expense and specified minimum levels of consolidated
EBITDA, as such terms are defined in the facility) and limitations on incurrence
of liens, incurrence of debt, voluntary prepayment of debt, modification of
equity interests and agreements, issuance of equity interests, payment of
dividends, transactions with affiliates, capital expenditures, loans, advances
and investments), events of default and other provisions customary for credit
facilities of this type. We will pay the lenders certain facility, syndication
and administration fees, reimburse certain expenses and provide certain
indemnities, in each case which are customary for credit facilities of this
type.
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Senior Subordinated Notes. At or about the time of the spin-off, we intend
to offer senior subordinated notes to the institutional debt market. The net
proceeds of the offering will be primarily used to repay existing intercompany
indebtedness to USI. It is anticipated that the senior subordinated notes will
mature 10 years after the date of issuance, will be subordinated to all of our
obligations under the new credit facility, and will rank equal to or senior in
right of payment to all of our subordinated debt. The senior subordinated notes
are expected to be unsecured and will have no mandatory redemption or sinking
fund payments. We expect to have the option to redeem the senior subordinated
notes in whole or in part, after the fifth year, at redemption prices to be
determined. In addition, it is expected that upon a change of control, as
defined in the indenture that will govern the senior subordinated notes, each
holder of the notes will have the right to require us to repurchase all or any
part of such holder's notes at a repurchase price in cash equal to 101% of the
aggregate principal amount thereof plus accrued interest. Furthermore, we
anticipate that the indenture governing the senior subordinated notes will
contain covenants which, among other things, will limit our ability and that of
our subsidiaries to incur debt, merge or consolidate, sell, lease or transfer
assets, make dividend payments and engage in transactions with affiliates.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of doing business, we are exposed to the risks
associated with changes in interest rates and currency exchange rates. To limit
the risks from such fluctuations, USI has in the past entered into and we
anticipate in the future entering into various hedging transactions that have
been authorized pursuant to our policies and procedures. See Note 2 to the
Combined Financial Statements. We do not engage in such transactions for trading
purposes.
We utilize foreign currency-denominated borrowings to effectively hedge a
portion of our net investments in subsidiaries in foreign countries. At
September 30, 1998 these borrowings were denominated in Dutch guilders and Hong
Kong dollars. We estimate that a 10% change in the relevant currency exchange
rates would have an impact of $3.1 million on the fair value of these
borrowings. This quantification of our exposure to the market risk of foreign
exchange sensitive financial instruments does not take into account the
offsetting impact of our underlying investment exposures.
We are also exposed to foreign currency exchange risk related to our
international operations and our U.S. businesses which import or export goods.
We have made limited use of financial instruments to manage this risk.
EFFECT OF INFLATION
Because of the relatively low levels of inflation experienced in our
principal markets, inflation did not have a material impact on our results of
operations in fiscal 1996, 1997 or 1998 or the nine months ended June 30, 1998
or 1999.
YEAR 2000 READINESS DISCLOSURE
Many computer systems and other equipment with embedded technology use only
two digits to define the applicable year and may recognize a date using '00' as
the year 1900 rather than the year 2000. This could result in failures or
miscalculations causing disruptions of normal business activities and operations
(the 'Year 2000 issue').
We are actively addressing the Year 2000 issue. Our compliance program is
led by information technology staff at each operating company, with assistance
from manufacturing staff and outside technology consultants where necessary.
Progress is being monitored by each operating company president and reported to
management. We engaged outside technology consultants at various operating
locations to provide independent reviews of Year 2000 readiness and to augment
the efforts of local Year 2000 teams or provide expertise in certain areas.
Our Year 2000 efforts focus on three areas: information technology ('IT')
related systems and processes, such as operating systems, applications and
programs; embedded logic ('non-IT') systems and processes, such as manufacturing
machinery, telecommunications equipment and security devices; and compliance
efforts of third parties (such as customers, suppliers and service providers).
Within each
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of the IT and non-IT areas, the project spans four phases for both critical and
non-critical systems: assessment of programs and devices to identify those that
are affected by the Year 2000 issue; development of remediation strategies;
testing such strategies; and implementing the solutions. Critical systems are
those systems (both IT and non-IT) that would have a severe impact on our
business and revenue if not made Year 2000 ready.
We are presently evaluating each of our critical and principal customers,
suppliers, service providers and other business associates to determine each of
such party's Year 2000 readiness status. These critical and principal third
parties have either material system interfaces or other material relationships
that an operating company is dependent upon. The evaluation of each third party
includes a request for a Year 2000 readiness certification. Then, depending upon
each party's response, evaluation procedures may be expanded to include
obtaining Year 2000 disclosures contained in SEC filings of those third parties,
where available; testing interfaced systems; holding face-to-face discussions
with third parties; and developing and refining contingency plans to address the
possibility of a third party failure to complete their year 2000 initiatives on
a timely basis. We anticipate that this evaluation will be ongoing through the
remainder of 1999.
To date, 56% of all third parties and 90% of all critical and principal
third parties queried for information relating to Year 2000 compliance have
responded, of which 17% of all third parties and 14% of critical and principal
third parties indicated that they were not currently compliant. Each operating
company has developed contingency plans to address those third parties that
either indicated that they were not compliant, or who did not respond.
We have completed an assessment of our critical IT and non-IT systems and,
as a result, the operating companies have decided to modify, upgrade or replace
portions of their systems. The development of these remediation strategies is
complete. Most operating companies have fully tested and implemented the
solutions and are Year 2000 compliant. The remaining operating companies are
approximately 70% complete and expect to complete the testing and implementation
phases by December 1999.
Year 2000 costs for computer equipment, software and outside consultants
incurred through June 30, 1999 are approximately $2.1 million, of which $1.1
million was expensed and $1.0 million was capitalized. Estimated future costs to
complete the Year 2000 program are $1.6 million, of which $0.6 million are
expected to be expensed as incurred and the remaining $1.0 million are expected
to be capitalized. These costs have been, and will continue to be, funded by USI
through the date of the spin-off, after which they will be funded from operating
cash flow and amounts available under the new credit facility. Most of the costs
are for new systems and improved functionality. These costs include
approximately $0.5 million of internal payroll costs for employees who are
involved in the Year 2000 program.
We have developed contingency plans to address the possibility of our
failure or that of third parties to complete our or their Year 2000 initiatives
on a timely basis. We will continue to make further refinements to the
contingency plans based on our ongoing evaluation of our readiness as well as
the status of compliance of third parties. Such contingency plans may include
using alternative processes, such as manual procedures to substitute for
non-compliant systems; arranging for alternate suppliers and service providers;
increasing inventory levels; and developing procedures internally and in
conjunction with significant third parties to address compliance issues as they
arise.
No amount of preparation and testing can guarantee Year 2000 compliance.
However, we believe we are taking appropriate preventive measures and will be
successful in avoiding any material adverse effect on our operations or
financial condition. Nevertheless, we recognize that failing to resolve our Year
2000 issues on a timely basis would, in a worst case scenario, significantly
limit our ability to manufacture and distribute products and process daily
business transactions for a period of time, especially if such failure is
coupled with third party or infrastructure failures. Similarly, we could be
significantly affected by the failure of one or more significant suppliers,
customers or components of the infrastructure to conduct their respective
operations without interruption after 1999. Because of the difficulty of
assessing the Year 2000 compliance of such third parties, we consider the
potential disruptions caused by such parties to present the most reasonably
likely worst-case scenarios. Adverse
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effects on us could include business disruption, increased costs, loss of sales
and other similar ramifications.
The costs of our Year 2000 initiatives, the dates on which we believe that
we will complete such activities and our evaluation of third-party effects are
estimates and subject to change. Actual results could differ from those
currently anticipated. Factors that could cause such differences include, but
are not limited to, the availability of key Year 2000 personnel, our ability to
respond to unforeseen Year 2000 complications, the readiness of third parties,
the accuracy of third party assurances regarding Year 2000 compliance, our
ability to monitor progress and provide oversight to Year 2000 initiatives in
the periods leading up to and subsequent to the spin-off and similar
uncertainties.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their sovereign currencies and
a single European currency. During a transition period from January 1, 1999
through December 31, 2001, legacy sovereign currencies will continue to be in
use; however, the value of such currencies will be set at fixed and irrevocable
conversion rates to the Euro. Beginning in January 2002, new Euro-denominated
bills and coins will be issued and the legacy currencies will be withdrawn from
circulation. We are addressing issues raised by the conversion to the Euro, such
as assessing whether cross-border price transparency will limit our flexibility
to charge different prices for similar products and adapting its information
technology systems. Our efforts to adapt systems differ at our various European
operations. Our significant European operations have formulated plans to
accommodate all Euro-denominated transactions and conversion conventions by
January 1, 2002. We anticipate that its costs in connection with the Euro
conversion will not be material. We do not anticipate that the conversion from
the legacy currencies to the Euro would have a material adverse impact on our
financial condition or results of operations. To date there have not been, and
we do not anticipate there being, any material adverse impact on our financial
condition or result of operations as a result of the introduction of the Euro.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, which is required to be adopted beginning in fiscal
2001. This statement will require us to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. We do not anticipate that the
adoption of the new statement will have a significant effect our earnings or
financial position.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information, which is effective for years beginning after
December 15, 1997. This statement establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. We will adopt the new requirements
retroactively in fiscal 1999. We do not anticipate that the adoption of this
statement will have a significant effect on our reported segments.
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BUSINESS
GENERAL
We operate and manage a diversified group of businesses on a decentralized
basis, with a corporate management team providing strategic direction and
financial support. Our operating companies are divided into three business
groups: Consumer Products, Precision Engineered Products and Automotive Interior
Products. In fiscal 1998, we had net sales of $888.5 million and operating
income of $25.2 million (after deducting goodwill impairment, restructuring and
other related charges totalling $71.1 million).
We believe our businesses generally have leading positions in niche
markets, high quality products, attractive operating margins compared to their
peers and experienced management. Our products are used in a variety of markets
by a broad range of end-users in the U.S. and internationally. We believe the
business trends that affect our operating companies and the markets we serve
vary. As a result, we believe our diversity reduces our exposure to any single
market.
The following table presents the operating companies in each of our
business groups.
<TABLE>
<S> <C>
CONSUMER PRODUCTS
Rexair Manufactures Rainbow'r' premium vacuum cleaners for sale
through an extensive independent direct sales network
EJ Footwear Manufactures Georgia Boot'r' western, work and outdoor
sporting boots and Lehigh'r' industrial safety footwear
Native Textiles Manufactures warp knit fabrics used in lingerie and
activewear
BiltBest Windows Manufactures windows and patio doors
SCF Industries Manufactures folding and stacking chairs as a licensee of
the Samsonite'r' brand name
PRECISION ENGINEERED PRODUCTS
Huron Manufactures precision metal products used in automobiles
Bearing Inspection Inspects and overhauls aircraft engine bearings and other
aircraft components
FSM Manufactures flat shadow masks, a component of color
television picture tubes
Jade Technologies Manufactures customized leadframes for the semiconductor
industry (an approximately 75%-owned Singapore public
company)
AUTOMOTIVE INTERIOR PRODUCTS
Garden State Tanning Manufactures premium automotive leather
Leon Plastics Manufactures molded plastic parts and assemblies for
automotive interiors
</TABLE>
We also own approximately 20% of the equity of United Pacific Industries
Limited, a company listed on the Stock Exchange of Hong Kong. United Pacific
manufactures voltage converters and other electronic components. This equity
interest is included in the Precision Engineered Products Group.
BUSINESS STRATEGY
Our objective is to build our equity value by consistently focusing on
reducing our debt and increasing profitability and cash flow. Key elements of
our business strategy are described below.
DEBT REDUCTION. Historically, our operating companies have generated
significant cash flow. We intend to use a substantial portion of any
available cash flow to reduce our debt. In addition, we will
regularly evaluate our businesses to determine whether our debt
reduction strategy should be accelerated through selected
dispositions.
GROWTH INITIATIVES. We will seek to build upon our niche positions
through internal and external growth in targeted markets. We will
selectively commit capital to extend our markets, develop new
products and expand manufacturing capabilities. We will also consider
complementary acquisitions to augment these initiatives. For example,
in fiscal 1998, to enhance its product offering and foster increased
sales, Rexair introduced a redesigned
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product line and increased efforts to expand its independent direct
sales network in the United States and abroad. Recently, we also
invested in a new facility for Bearing Inspection to support future
growth and acquired Atech Turbine Components to complement Bearing
Inspection's operations.
COST REDUCTION AND MARGIN EXPANSION. We will seek to reduce costs and
improve operating margins at each of our individual businesses
through process improvements and by focusing on higher margin
products and markets. For example, our continuous productivity
improvement techniques have reduced operating costs at Huron and Leon
Plastics, and we intend to apply these techniques where appropriate
to other operating companies. Ongoing programs also include the
continued rationalization of manufacturing operations and increased
use of foreign sources of supply at EJ Footwear. In addition, Garden
State is implementing process changes to increase hide-cutting yields
and is focusing on higher margin products.
DECENTRALIZED MANAGEMENT WITH PERFORMANCE BASED INCENTIVES. Our
operating companies will be managed on a decentralized basis by
experienced executives. The chief executive officers of our operating
companies average over 15 years in their industries. Incentive
compensation for senior executives at our operating companies will
depend on reaching short and long-term operating goals linked to the
executives' respective businesses. Our corporate management team will
supply strategic direction and financial support to the operating
companies. They have extensive experience in senior management
positions within multi-industry public companies including Hanson PLC
and USI. Their compensation under our annual bonus and long-term
deferred compensation plans will depend upon reaching operating goals
linked to our overall performance. Both our corporate management team
and our operating company management will have significant personal
equity interests in us, principally in the form of stock options.
CONSUMER PRODUCTS GROUP
Our Consumer Products Group designs, manufactures and markets a wide
variety of products serving numerous, diverse end markets. Several companies in
this group sell products which generate attractive margins as compared with
those of their peers and strong cash flows. The companies in this group are
engaged in the manufacture and distribution of premium vacuum cleaners,
footwear, textiles for apparel, folding chairs, windows and patio doors. In
fiscal 1998, the Consumer Products Group had net sales of $410.7 million and
operating income of $48.5 million, after deducting restructuring and other
related charges of $15.7 million. These amounts represented 46% of our net sales
and 152% of our operating income before management fees charged by USI and
divisional overhead in fiscal 1998.
REXAIR. Rexair, founded in 1933, is a leading manufacturer of premium
vacuum cleaner systems. Rexair markets its Rainbow'r' vacuum cleaner system
through an extensive network of independent distributors. Rexair products are
sold to consumers by direct sale throughout the United States and Canada and
over 70 other countries.
In 1998, Rexair introduced a redesigned vacuum cleaner system, the
Rainbow'r' e SERIES'TM', a full-service cleaning system that collects dirt
particles by means of a combination water filtration and separator system. This
new product line offers updated styling and improved filtration through the
addition of High Efficiency Particulate Arresting (HEPA) filters to the system.
Rexair believes this system provides a technologically superior alternative to
traditional vacuum cleaners. The full system has optional accessories including
a motorized power nozzle; the RainbowMate'r', a motorized, hand-held attachment
for cleaning upholstery, stairs and other hard-to-reach areas; and the
AquaMate'r' carpet shampooing attachment.
Rexair distributes the Rainbow'r' and its accessories through a network of
over 1,000 independent authorized distributors and subdistributors, which
together employ over 10,000 full and part-time sales representatives. Sales to
consumers are made through in-home demonstrations by sales representatives and
are typically arranged by referrals from other consumers. We estimate that over
60% of the purchases of Rexair products in the United States are financed either
by independent consumer finance companies or, to a lesser extent, by the
distributors. Rexair supports the distribution network with
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training about product features and sales techniques and sponsors sales
incentive and recruitment programs.
In fiscal 1998, sales in the United States and Canada accounted for
approximately 49% of Rexair's total unit sales. The remaining sales were spread
over a number of foreign markets, with significant sales made in Portugal,
Austria, Japan and Poland. In the domestic market, the vacuum cleaner industry
is mature and highly competitive. Rexair's most significant competitors in the
premium segment of the domestic vacuum cleaner industry are the Kirby division
of Scott-Fetzer (a subsidiary of Berkshire Hathaway Inc.), Electrolux, Inc.
(U.S.A.) and, to a lesser extent, Health-Mor (Filter Queen vacuum cleaners).
Competition in direct sales of vacuum cleaners is based primarily on the
quality of the product and on sales technique and personnel, as well as
marketing and distribution approaches. Management believes that Rexair does not
compete on the basis of price. Rexair also experiences competition in recruiting
its distributors. In addition, its distributors experience competition in
recruiting and retaining sales representatives.
Rexair manufactures the Rainbow'r' system at its facility in Cadillac,
Michigan. It purchases motors and other components from third-party vendors.
Rexair considers its suppliers to be reliable.
Rexair's strategy focuses on providing premier quality products, supported
by strong customer service, through effective marketing techniques. It seeks to
achieve growth by increasing its distribution network through ongoing recruiting
efforts.
EJ FOOTWEAR. EJ Footwear, founded in 1890, is a designer, manufacturer and
marketer of work, hiking, hunting and western boots and children's footwear. Its
products are sold in niche markets under well-known specialty brand names,
including Georgia Boot'r', Lehigh'r', Northlake'r', Durango'r' and Baby Deer'r'.
EJ Footwear operates five companies:
Georgia Boot produces boots in the mid-range price segment of the
industry and markets its products to sporting goods stores, and farm and
ranch stores. It competes with Wolverine, Carolina, Timberland and Rocky.
Lehigh Safety Shoe is a direct service provider of occupational safety
footwear. Lehigh utilizes a nationwide network of shoemobiles, shoe
centers, independent distributors and on-site commissary locations to sell
directly to industrial and commercial facilities. It competes with Iron-Age
and Hy-Test.
Durango Boot markets a diversified line of western and farm and ranch
boots primarily to farm, ranch and independent western stores. It competes
with Justin, Wolverine, Acme and Laredo.
Trimfoot sells infant's and children's footwear through various
distribution channels offering extensive product lines. It competes with
Step-N-Stride, Carter's, Capezio and Goldbug.
Empire Footwear supplies domestic department stores, catalog merchants
and mass merchants with imported footwear products, primarily on a private
label basis as well as under the Northlake'r' brand name.
EJ Footwear seeks to maintain its competitive position in the markets it
serves by offering comfortable, technologically advanced products at moderate
price points. EJ Footwear has a modern distribution center located in Endicott,
New York, as well as two domestic manufacturing facilities located in
Blairsville, Georgia and Franklin, Tennessee. To improve operating efficiencies
and margins, EJ Footwear recently introduced several initiatives to refocus its
strategic orientation. These initiatives include rationalizing its manufacturing
facilities and sourcing specific products from the Far East and the Dominican
Republic through long-standing supplier relationships.
NATIVE TEXTILES. Native Textiles, founded in 1929, is a leading supplier of
warp knit fabrics to domestic apparel manufacturers in both the activewear and
intimate apparel markets. It also commission-dyes lace and other specialty
fabrics for third parties. Native's customers include Nike, Champion, Adidas and
W.L. Gore (the maker of Gore-Tex) in the activewear market, and Playtex, Hanes,
Bali, Warner and Fruit of the Loom in the intimate apparel market.
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Native employs sales representatives in New York City and Los Angeles and
also distributes its products through non-company selling agents. Its
manufacturing facilities are located in Glens Falls, New York. Its competitors
include Guilford Mills, Inc. and Fab Industries.
BILTBEST WINDOWS. BiltBest, founded in 1947, manufactures and distributes
wood windows, aluminum-clad windows and patio doors. BiltBest, located in Ste.
Genevieve, Missouri, primarily sells its products to lumber yards, building
products dealers and manufactured housing companies in the mid-western United
States. It competes with regional and national window companies by offering
quality products at moderate price points.
SCF INDUSTRIES. SCF, formed in 1997, manufactures folding and stacking
chairs as a licensee of the Samsonite'r' name. The Samsonite'r' brand name has
been in use for over 80 years and has been associated with folding chairs since
the 1940's. SCF's current license agreement for the brand name extends to 2012.
SCF has a strong position in selling folding chairs to the party rental market.
It also sells its products to office product wholesalers. Key competitors
include Krueger, Bevis, ABCO and Office Star.
PRECISION ENGINEERED PRODUCTS GROUP
Our Precision Engineered Products Group serves specialized markets
requiring high-quality, value-added products and services designed to meet
exacting standards and customer specifications. To satisfy these precise
standards, our companies provide significant design, engineering and
manufacturing expertise as well as tailored technical support. Substantially all
of the products and services provided by this group are critical to our
customers. We expect to expand these businesses through both organic growth and
by making selected complementary acquisitions in this fragmented market. The
group has a significant international presence, with approximately 33% and 15%
of fiscal 1998 net sales generated in Europe and Asia, respectively. The group
had annual net sales of $138.1 million and operating income of $28.0 million in
fiscal 1998. This group represented 16% of our net sales and 88% of our
operating income before management fees charged by USI and divisional overhead
in fiscal 1998.
HURON. Huron, founded in 1943, is a manufacturer of value-added precision
machined products for the automotive industry. Products include screw machined
parts, tubular assemblies, dowels, fittings, shafts and air-conditioning and
fuel manifolds. Huron's manufacturing facilities are strategically located in
Port Huron, Michigan and Lexington, Michigan near its principal customers. Huron
has developed strategic supplier relationships with domestic and foreign
automobile manufacturers and their suppliers. Huron's largest customers are
Visteon (a Tier I supplier to Ford), Ford and Chrysler. Huron is a long-term
supplier to several Ford divisions, and has supplied Ford with virtually all of
its brake bolt requirements for light trucks and sports utility vehicles since
1976.
Industry over-capacity has resulted in consolidation among original
equipment manufacturers and their supplier base. In order to address these
market conditions and the impact of price concessions sought by manufacturers,
Huron seeks to introduce new and efficient products and processes to maintain a
low-cost position in the market. Huron has a well-developed continuous process
improvement program that has been in place since 1995. Huron also provides a
high degree of engineering and logistical support to its key customers to
further Huron's goal of maintaining and improving its competitive position with
them. The market for the manufacture of machined automotive components is
fragmented. Many of our competitors are small and privately owned. Key
competitors include Master Automatic, Black River Manufacturing and Horizon.
BEARING INSPECTION. Bearing Inspection, founded in 1955, inspects and
overhauls jet aircraft engine bearings for customers located worldwide. In
January 1999, Bearing Inspection acquired Atech Turbine Components, allowing
Bearing Inspection to expand into the business of refurbishing the 'hot
sections' of turbo-prop engines. These companies offer fleet operators
cost-effective alternatives to the purchase of new parts from original equipment
manufacturers.
The demand for jet and turbo-prop engine overhaul products and services
reflects the number of engine hours flown by the commercial airline industry.
Our customers include international, domestic and regional carriers and
independent engine overhaul companies. Bearing Inspection has recently moved
into a larger, ISO9002 accredited facility in Los Almitos, California and
continues to operate its Atech facility located in Worcester, Massachusetts.
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Bearing Inspection's primary competitors are the MRC Bearings division of
AB SKF (Sweden), the PBC division of Timken, the SNR Bearing, USA division of
SNR (France) and FAG Bearings Corp, a division of FAG Group (Germany). These
companies manufacture new bearings and also have bearing overhaul operations.
Bearing Inspection believes that it is the only major independent overhauler of
aircraft engine bearings. Our growth strategy includes expansion of our
strategic relationships with engine manufacturers and further marketing
initiatives with international air carriers.
FSM EUROPE BV. FSM, founded in 1967, is located in Sittard, The
Netherlands. USI acquired FSM from Philips Components B.V. in May 1998. FSM
manufactures flat shadow masks, a component in color television picture tubes. A
flat shadow mask is the screen within a picture tube that directs the colors
emitted by each of the blue, red and green color guns. In connection with the
acquisition from Phillips, FSM entered into a long-term contract to supply
Philips, with a specified number of flat shadow masks annually. This contract,
denominated in U.S. dollars, expires in May 2004, presently accounts for
substantially all of FSM's sales, and is subject to annual price adjustments
based on world market prices.
JADE TECHNOLOGIES SINGAPORE LTD. Jade, founded in 1981, is a public company
based in Singapore. The shares of Jade are listed on the Stock Exchange of
Singapore Dealing and Automated Quotation system. We own approximately 75% of
Jade's shares, with the remainder being owned by the public. Jade manufactures
stamped and plated integrated circuit leadframes. A leadframe is a customized
product that holds a semiconductor chip and acts as the electrical connection
between the chip and a circuit board. In January 1998, Jade acquired the
leadframe business of Philips Semiconductors B.V., which is located in Sittard,
The Netherlands.
Jade sells primarily to electronics manufacturers with all sales
denominated in U.S. dollars. The leadframe industry is competitive, with
competition based on delivery lead-times, price and quality. Jade has a
long-term contract to supply Philips Semiconductors B.V., its largest customer,
with a specified number of leadframes annually. This contract expires in January
2001 and is subject to annual price adjustments based on world market prices.
AUTOMOTIVE INTERIOR PRODUCTS GROUP
Our Automotive Interior Products Group provides specialty products to the
automotive market. The companies within this group have developed many
'strategic supplier' relationships with leading automotive original equipment
manufacturers and Tier 1 suppliers and provide strong product and customer
support. The group had fiscal 1998 net sales of $339.7 million and operating
loss of $44.5 million, after deducting goodwill impairment, restructuring and
other related charges of $55.4 million. This group represented 38% of our net
sales in fiscal 1998.
Our strategy is to be a leading manufacturer and supplier of high quality
products, supported by superior customer service and a strong design team. We
seek to maximize our profitability by focusing on profit margins and
implementing continuous process improvement programs in these companies to
reduce costs while optimizing quality and delivery capabilities.
GARDEN STATE TANNING. Garden State, founded in 1933, is a leading
manufacturer and marketer of high quality leather upholstery products in various
colors, patterns and grains, primarily for installation as automotive seating
and trim. Garden State has earned a reputation within the automotive industry
for producing high quality products. Among Garden State's customers for finished
leather are Toyota (including Lexus), Ford, General Motors, BMW, Mazda and Honda
(including Acura) or their Tier I suppliers. Garden State believes it is
positioned to benefit from the current trend of increasing demand for leather
interiors in the automobile industry. This trend is particularly strong within
the light truck and sport utility vehicle segments of the automobile market.
Garden State has received many customer awards for product, service and
cost reduction achievements. Recently it was designated by Toyota Motor
Corporation as one of only five 'Superior Suppliers' worldwide. Garden State
produces cut leather 'sets' that are shipped to customers' facilities where they
are sewn and attached to automobile seats and other vehicle parts. In addition,
Garden State generates operating income through the sale of byproducts (i.e.,
split hides and scrap leather). Hides comprise approximately one-half of Garden
State's costs of production, and Garden State procures approximately one-half of
its hides from the largest U.S. supplier of hides, with whom it has a long
standing relationship. The balance is purchased from various other suppliers.
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Garden State has three primary manufacturing facilities located in
Williamsport, Maryland, Fleetwood, Pennsylvania and Reading, Pennsylvania along
with cutting facilities in Adrian, Michigan and Saltillo, Mexico. All of Garden
State's facilities are ISO9002/QS9000 accredited.
Major manufacturers in the worldwide automotive leather industry include
Garden State and two of its major competitors, Eagle Ottawa Leather Corporation
and Seton Corporation. Garden State is focused on increasing profitability by
providing high quality products, improving production yields and streamlining
operations.
LEON PLASTICS. Leon Plastics, founded in 1958, manufactures molded plastic
parts and assemblies for the automotive industry. Its products range from
plastic console and instrument panel components to functional components such as
the complete rear door panel for the Ford Ranger pickup truck. Among Leon
Plastics' customers are Ford, Chrysler, General Motors, Nissan and/or their
Tier I suppliers.
Leon Plastics operates manufacturing facilities in Grand Rapids, Michigan
and Grand Island, Nebraska. Leon Plastics has an industry-wide reputation for
its expertise in molding flexible vinyl over foam to fabricate cushioned trim
components with high quality characteristics. We believe that Leon Plastics'
extensive product knowledge and innovative engineering allow it to shorten the
overall product development cycle.
Key competitors at the Tier I level include Lear, Plastech, JCI/Becker
Group and Woodbridge.
EQUITY INTERESTS
We own approximately 20% of the equity of United Pacific Industries, a
limited liability company incorporated in Bermuda and listed on the Stock
Exchange of Hong Kong. United Pacific is an investment holding company whose
subsidiaries are engaged in the manufacture of voltage converters as component
parts for low voltage consumption electronic products, rechargeable batteries
and other electronic components and toy products. This investment is accounted
for using the equity method of accounting within our Precision Engineered
Products Group.
RAW MATERIALS COSTS
Most of our businesses are dependent, to varying degrees, on the
availability of raw materials, including plastics, hides, copper, nickel,
certain grades of steel, wood, glass and corrugated packaging materials. The
impact of raw material price increases on the operating income of our businesses
depends on their ability to pass along cost increases to our customers. Although
raw material shortages or price increases from time to time may have an adverse
effect on the results of operations of our individual businesses, we do not
believe that these factors are material to us on a consolidated basis.
EMPLOYEES
At September 30, 1998, we had approximately 5,000 employees (excluding
employees of United Pacific and Jade). Approximately 48% of our employees were
represented by unions. We believe that the relations of our operating
subsidiaries with employees and unions are generally good.
GOVERNMENTAL REGULATION
Our operating units are subject to numerous federal, state, local and
foreign laws and regulations concerning such matters as zoning, health and
safety and protection of the environment. We believe that our operating units
are currently operating in substantial compliance with, or under approved
variances from such various federal, state, local and foreign laws and
regulations.
Approximately five present and former operating sites, or portions thereof
are the subject of investigations, monitoring or remediation under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
('CERCLA'), the federal Resource Conservation and Recovery Act or comparable
state statutes or agreements with third parties. These proceedings are in
various stages ranging from monitoring at two sites to implementation of the
clean-up or remediation of the other sites. We do not believe that any of these
proceedings will have a material adverse effect on our business or financial
condition or will otherwise interfere with our operations at these sites.
A number of our present and former operating units have been named as
potentially responsible parties at seven off-site disposal sites under CERCLA or
comparable state statutes in a number of federal and state proceedings. We are
not currently utilizing any of these sites for our disposal needs. In each of
these matters our operating units are working with the governmental agencies
involved and
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other potentially responsible parties to address the environmental claims in a
responsible and appropriate manner and the cleanup effort at each site is in the
advanced stages of remediation or monitoring. Under CERCLA and other similar
statutes, any generator of hazardous waste sent to a hazardous waste disposal
site is potentially responsible for all clean-up, remediation and response costs
required for such site, irrespective of the amount of waste which the generator
sent to the site. We do not believe that any of the pending proceedings will
have a material adverse effect on our business or financial condition.
In the past, our subsidiaries have made significant capital and maintenance
expenditures to comply with zoning, water, air and solid and hazardous waste
regulations. While the amount of expenditures in future years will depend on
legal and technological developments which cannot be predicted at this time,
these expenditures may progressively increase as regulations become more
stringent. Future costs for compliance cannot be predicted with precision and
there can be no certainty with respect to any costs we may be forced to incur in
connection with historical on-site or off-site waste disposal.
Laws and regulations protecting the environment have become more stringent
in recent years, and may in certain circumstances impose 'strict liability,'
rendering a person liable for environmental damage without regard to negligence
or fault on the part of such person. In addition, we cannot predict whether
modifications of existing laws or regulations or the adoption of new laws or
regulations, or presently unidentified environmental conditions or unanticipated
enforcement actions, particularly with respect to environmental standards, could
require material capital expenditures or otherwise have a material adverse
effect on our business or financial condition.
At September 30, 1998, we had accrued approximately $3.7 million for
various known environmental-related liabilities. We believe that the range of
liability for such matters is between $1.5 million and $4.5 million. We cannot
predict whether future developments in laws and regulations concerning
environmental protection will affect our earnings or cash flow in a materially
adverse manner or whether our operating units will be successful in meeting
future demands of regulatory agencies in a manner which will not have a material
adverse effect on our business or financial condition.
PATENTS AND TRADEMARKS
Our subsidiaries have numerous United States and foreign patents, patent
applications, registered trademarks and trade names, and licenses. Certain of
the trademarks and trade names, some of which are described above, are of
material importance to our businesses, including our Rainbow'r', Georgia
Boot'r', Durango'r', Lehigh'r' and BiltBest'r' trademarks. The Samsonite'r'
trademark is used under a license that extends to 2012. None of our other
material trademarks are of limited duration. Although protection of our patents
and related technologies are important components of our business strategy, none
of the individual patents is material to our business as a whole.
PROPERTIES
Our operating subsidiaries own or lease approximately 45 plants and other
properties. None of the individual properties is considered to have a value that
is significant in relation to our assets as a whole. We believe that our
properties are well maintained and are in good operating condition. The
properties are deemed to be suitable and adequate for our present needs. We
believe that we have additional capacity available at most of our production
facilities and that we could significantly increase production without
substantial capital expenditures.
LEGAL PROCEEDINGS
Various of our subsidiaries are defendants in ordinary, routine litigation
incidental to present and former operations. Even if we do not prevail, we do
not expect that the outcome of these proceedings, either individually or in the
aggregate, will have a material adverse effect upon our business or financial
condition.
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MANAGEMENT
DIRECTORS
After the spin-off, our board of directors will consist of six persons, who
will be divided into three equal classes each having a three-year term. The two
executive officers who are expected to serve as directors after the spin-off are
presented below. [We will name our additional directors in an amendment to this
filing.]
<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
John G. Raos......................... Chairman and Chief Executive Officer
Peter J. Statile..................... Executive Vice President -- Operations
</TABLE>
John G. Raos, 50, has served as President and Chief Operating Officer of
USI and as a director of USI since USI's demerger from Hanson PLC in 1995. For
the balance of the past five years, Mr. Raos served as President and Chief
Operating Officer of Hanson Industries, the U.S. arm of Hanson, and was a
director of Hanson.
Peter J. Statile, 43, has served as President and CEO of Hanson North
America, Inc. and as an associate director of Hanson PLC from 1998 to 1999. For
the balance of the past five years, he served Hanson's U.S. group as Vice
President -- Corporate Controller and subsequently as Executive Vice
President -- Chief Financial Officer.
COMMITTEES
After the spin-off, our board of directors is expected to establish and
designate a compensation committee and an audit committee. Directors who are
also our officers or employees will not be permitted to serve on either
committee. The functions of these standing committees will be as follows:
Compensation Committee. The compensation committee will set the
compensation of all executive officers subject to the terms of their
employment agreements and administer and make awards under our stock
incentive plan and other incentive plans. The committee will also review
the competitiveness of management compensation and benefit programs and
principal employee relations policies and procedures. All of the members of
the compensation committee are intended to be 'disinterested' within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, and
'outside directors' within the meaning of Section 162(m) of the Internal
Revenue Code ('Code Section 162(m)').
Audit Committee. The audit committee will be responsible for matters
relating to accounting policies and practices, financial reporting and
internal controls. It will recommend to our board of directors the
appointment of a firm of independent accountants to audit our financial
statements and will review with representatives of the independent
accountants the scope of the audit of our financial statements, results of
audits, audited financial statements, audit costs and recommendations with
respect to internal controls and financial matters. It will also review
non-audit services rendered by our independent accountants and will
periodically meet with or receive reports from our principal financial and
accounting officers.
FEES
Non-employee directors will receive an annual cash retainer of $9,000 plus
$1,000 for each board and $500 for each committee meeting attended and
reimbursement of all reasonable expenses incurred in connection with such
meetings. We will pay the premiums on directors' and officers' liability and
travel accident insurance policies insuring directors. Each non-employee
director will also receive initial and annual stock grants and stock option
grants. See Executive Compensation--Stock Incentive Plan.
EXECUTIVE OFFICERS
The following individuals are expected to serve as our executive officers
at the time of the spin-off. Our board of directors may appoint additional
executive officers from time to time.
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<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
John G. Raos Chairman and Chief Executive Officer
Peter J. Statile Executive Vice President -- Operations
Steven C. Barre Vice President, General Counsel and Secretary
Gary K. Meuchel Vice President -- Human Resources
Peter F. Reilly Vice President, Chief Financial Officer and
Treasurer
Robert J. Vander Meulen Corporate Controller
</TABLE>
For biographical information concerning Messrs. Raos and Statile, see
' -- Directors' above.
Steven C. Barre, 39, has served as Associate General Counsel of USI since
1995. For the balance of the past five years, Mr. Barre served as Associate
General Counsel of Hanson Industries.
Gary K. Meuchel, 45, has served since 1997 as Vice President -- Human
Resources of Lighting Corporation of America, which is a USI subsidiary. For the
balance of the past five years, Mr. Meuchel served as Vice President -- Human
Resources of Progress Lighting Inc., another subsidiary of USI.
Peter F. Reilly, 35, has served as Treasurer of USI since 1997. Earlier in
his career at USI, he served as Assistant Treasurer and subsequently as a Group
Controller. For the balance of the past five years, he served as a financial
advisor to Hanson Industries and, previously, as Assistant Treasurer of Marine
Harvest International, Inc., a public company engaged in the farming and
distribution of seafood products.
Robert J. Vander Meulen, 36, has served as Director of Audit and Internal
Control of USI since 1999. Earlier in his career at USI, he served as Assistant
Corporate Controller and subsequently as Assistant Treasurer. For the balance of
the past five years, Mr. Vander Meulen served as Director of Financial Analysis
of Hanson Industries and, previously, as an Audit Senior Manager for Ernst &
Young LLP.
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EXECUTIVE COMPENSATION
The following is a description of the executive compensation arrangements
and benefit plans adopted or expected to be adopted by us, some of which are
substantially similar to those in effect at USI. After completion of the
spin-off, none of our officers will participate in any USI benefit plans, except
to the extent they are entitled to exercise any vested USI stock options
pursuant to such plans for a period of 90 days following the spin-off or in the
case of Mr. Raos, the later of January 15, 2000 or 90 days following the
spin-off. For information regarding our assumption of certain liabilities and
assets of the USI plans, see 'The Spin-off -- Agreements between Strategic and
USI and Relationship after the Spin-off -- Corporate Transition Agreement.'
EMPLOYMENT AGREEMENTS
The following is a summary of the employment agreements of each of the
individuals who is expected to become one of our five most highly compensated
executive officers after the spin-off.
The employment agreements provide for Messrs. Raos, Statile, Barre, Meuchel
and Reilly to serve, commencing on the date of the spin-off (the 'Commencement
Date'), respectively, as our Chairman, Chief Executive Officer and Director; as
Executive Vice President -- Operations and Director; as Vice President, General
Counsel and Secretary; as Vice President -- Human Resources; and as Vice
President, Chief Financial Officer and Treasurer. Unless terminated earlier as
discussed below, the term of employment under each agreement will expire on the
second (or, in the case of Mr. Raos, the third) anniversary of the Commencement
Date subject to automatic extension for additional two (or, in the case of Mr.
Raos, three) year terms on each applicable anniversary unless either party gives
at least 90 days' prior written notice of non-extension.
The employment agreements provide that we will pay Messrs. Raos, Statile,
Barre, Meuchel and Reilly annual base salaries at rates of not less than
$500,000, $250,000, $180,000, $165,000 and $200,000, respectively. Commencing
with fiscal 2000, each executive will be eligible to receive an annual cash
bonus, with a target bonus potential equal to at least 100%, 70%, 55%, 55% and
65% of his base salary, respectively, based on the achievement of a performance
target established by the Compensation Committee under a bonus plan qualifying
the bonuses as 'performance-based' for purposes of Code Section 162(m). Mr.
Statile's employment agreement also provides that he will be entitled to receive
a special bonus in the amount of $50,000, which will be paid on the later of
30 days following the Commencement Date or January 15, 2000 (the 'Special
Bonus').
Mr. Raos and Mr. Statile acknowledge in their employment agreements their
intention to purchase our common stock after the Commencement Date. In the case
of Mr. Raos, he acknowledges his intention to purchase the lesser of (i)
$1,000,000 worth of our common stock or (ii) 0.5% of our issued and outstanding
common stock on the day after the Commencement Date, within the 120 day period
following the Commencement Date. In the case of Mr. Statile, he acknowledges his
intention to purchase the lesser of (i) $250,000 worth of our common stock or
(ii) 0.125% of our issued and outstanding common stock on the day after the
Commencement Date, within the 365 day period following the Commencement Date.
In addition, we have agreed to recommend to the Compensation Committee of
our Board of Directors that (i) within 90 days after the Commencement Date,
Messrs. Raos and Reilly be granted awards of and shares of our
restricted common stock, respectively, to replace the shares of restricted USI
common stock which were forfeited upon ceasing employment with USI (and in the
case of Mr. Reilly, the Compensation Committee is required to recommend that
such shares of restricted common stock vest over a period not to exceed 5
years), and (ii) Messrs. Raos, Statile, Barre, Meuchel and Reilly receive grants
of stock options to purchase a number of shares of our common stock with a value
in the aggregate of $3,500,000, $1,500,000, $720,000, $660,000 and $1,100,000,
respectively (the total number of options will be granted in three successive
grants made during each of the three fifteen day periods following the
Commencement Date with each grant determined by dividing one third of the
foregoing amounts by the fair market value on the date of grant ). The
recommended exercise price of the stock options is to be equal to the fair
market value of the common stock on the date of grant. We also will recommend
that the options vest in equal installments on each of the first four
anniversaries of
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October 1, 1999, in each case subject to (i) full acceleration upon a Change in
Control of us (as defined in each employment agreement) and (ii) except with
respect to Mr. Raos, vesting of the portion of the options which would have
vested on the next vesting date, and with respect to Mr. Raos, vesting of all
outstanding options, following the date of termination upon any termination
other than by us for Cause (as defined in each employment agreement) or a
voluntary termination by the executive without Good Reason (as defined in each
employment agreement). The employment agreement for Mr. Raos provides that we do
not intend to recommend to the Compensation Committee that any additional stock
options or restricted stock be granted to Mr. Raos for two years after the
Commencement Date.
The executives will be entitled to participate in all pension, retirement,
savings, welfare and other employee benefit plans and arrangements and fringe
benefits and perquisites that we maintain from time to time for comparable level
executives. The employment agreement for Mr. Raos also provides that Mr. Raos
will have coverage and benefits at least equal in the aggregate and fringe
benefits and perquisites of at least equal value to those provided to him by USI
in accordance with the provisions of his employment agreement with USI in effect
immediately before the Commencement Date. To the extent the executives currently
participate in any long-term incentive plan sponsored by USI or its subsidiaries
(the 'USI LTIP') and any supplemental executive retirement plan sponsored by USI
or its subsidiaries (the 'USI SERP'), each executive's account balance in the
USI LTIP and benefit accruals under the USI SERP will be transferred to similar
arrangements with us.
The employment agreements provide that if the executive's employment with
us is terminated by reason of death or disability, the executive or his legal
representative will receive, in addition to accrued compensation, the prorated
target annual bonus of the executive for the fiscal year of the executive's
death or disability, payment on a monthly basis of, in the case of Mr. Raos, 12
months, in the case of Mr. Statile, 6 months, and, in the case of Messrs. Barre,
Meuchel and Reilly, 3 months of base salary (subject in the case of a
termination due to disability to offset by the amount the executive receives
under any long-term disability program maintained by us), payment of spouses'
and dependents' COBRA coverage premiums for no more than 3 years and any other
benefits owing to the executive under the then applicable employee benefit, long
term incentive and equity plans of Strategic.
The employment agreements with Messrs. Raos and Statile provide that if the
executive's employment with us is terminated (1) by us other than for Cause (as
defined in each employment agreement), (2) by the executive for Good Reason (as
defined in each employment agreement), (3) in the case of Mr. Raos for any or no
reason within two years after a Change in Control of us (as defined in his
employment agreement), or in the case of Mr. Statile, during the 30 day period
commencing 6 months after a Change in Control of us (as defined in his
employment agreement), or (4) as a result of our giving notice of non-extension
at the end of any employment term, then the executive will be entitled to
receive accrued compensation and certain payments and amounts. Payments to Mr.
Statile are subject to the execution of a release of claims by him and, in the
case of the amounts and benefits described in (a)(2), (3) and (4) below, only if
termination is after a Change in Control of us (as defined in his employment
agreement). The payments and benefits to be made in that situation are: (a) a
lump sum equal to three (or, in the case of Mr. Statile, two) times (1) base
salary, (2) the highest annual bonus paid or payable to the executive by us for
any of the previous three completed fiscal years, (3) the value of an additional
year of service and compensation credit for qualified and nonqualified pension
plan purposes, and (4) the value of our maximum contribution under any type of
qualified or nonqualified 401(k) plan, (b) our payment of the premiums for the
executive and his dependents' health coverage for three years (or in the case of
Mr. Statile, for two years), (c) any other amounts or benefits due under any
employee benefit, long-term incentive or equity plans and programs in which the
executive participates at that time in accordance with such plans and (d) in the
case of Mr. Statile, if not vested in a tax-qualified defined benefit plan
maintained by us, a pro rata payment based upon his then accrued benefit under
our qualified pension plan (all such payments being collectively referred to as
the 'Severance Payment').
In addition, if the Severance Payment to either of the executives under his
employment agreement, together with other amounts paid to the executive, exceeds
certain threshold amounts and results from a change in ownership as defined in
Section 280G(b)(2) of the Internal Revenue Code, the employment
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agreement provides that the executive will receive an additional amount to cover
the federal excise tax and any interest or penalties with respect thereto on a
'grossed up' basis.
The employment agreements provide that if the executive is terminated for
Cause (as defined in the employment agreement) or voluntarily resigns without
Good Reason (as defined in the employment agreement) (which right the executive
has on 60 days notice), the executive will only receive accrued compensation
through the date of termination and unreimbursed business expenses.
The employment agreements with Messrs. Barre, Meuchel and Reilly provide
for substantially similar provisions on termination as those provided for in Mr.
Statile's employment agreement except that (i) payment of the two times base
salary will be made to the executive in installments if termination occurs prior
to a Change in Control of us and (ii) the executive may only resign and collect
severance based purely on the Change in Control of us during a 30-day window
after the first anniversary of the Change in Control.
The employment agreements also will provide for (i) indemnification of the
executives for actions in their corporate capacity and directors and officers
liability insurance, (ii) with regard to Messrs. Raos and Statile, coverage in
most instances for legal fees incurred in enforcing their rights under their
respective employment agreements and (iii) with regard to Messrs. Statile,
Barre, Meuchel and Reilly, confidentiality provisions applicable to the period
during and after the employment term and a provision prohibiting the
solicitation of our employees during the employment term and for a period of two
years afterwards.
VALUE CREATION PLAN
On , 1999 our board of directors and USI, as our sole stockholder,
adopted the Strategic Industries, Inc. Value Creation Plan (the 'VCP'). The
purpose of the VCP is to attract, retain and motivate key employees by providing
performance-based awards payable on a current and a deferred basis to key
employees who are selected to participate by the Compensation Committee. The
following summary of the VCP is intended only as a summary and is qualified in
its entirety by reference to the VCP, which has been filed as an exhibit to the
Registration Statement of which this Information Statement is a part.
Participants in the VCP will be eligible to receive a performance award
('Performance Award') based on attainment of specified performance goals to be
established by the Compensation Committee. These performance goals will be based
on one or more of the following criteria selected by the Compensation Committee:
(i) the attainment of certain target levels of, or a specified increase in, our
enterprise value or value creation targets (or that of any of our subsidiaries,
divisions or other operational units); (ii) the attainment of certain target
levels of, or a percentage increase in, our after-tax or pre-tax profits
including, without limitation, that attributable to our continuing and/or other
operations (or that of any of our subsidiaries, divisions, or other operational
units), (iii) the attainment of certain target levels of, or a specified
increase in, our operational cash flow (or that of any of our subsidiaries,
divisions or other operational units), (iv) the attainment of a certain level of
reduction of, or other specified objectives with regard to limiting the level of
increase in, all or a portion of our bank debt or other of our long-term or
short-term public or private debt or other similar financial obligations,
(v) the attainment of a specified percentage increase in earnings per share or
earnings per share from our continuing operations (or that of any of our
subsidiaries, divisions or other operational units), (vi) the attainment of
certain target levels of, or a specified percentage increase in, our net sales,
net income or earnings before income tax or other exclusions (or that of any of
our subsidiaries, divisions, or other operational units); (vii) the attainment
of certain target levels of, or a specified increase in, our return on capital
employed or return on invested capital (or that of any of our subsidiaries,
divisions or other operational units); (viii) the attainment of certain target
levels of, or a percentage increase in, our after-tax or pre-tax return on
stockholder equity (or that of any of our subsidiaries, divisions or other
operational units); (ix) the attainment of certain target levels in the fair
market value of our shares of common stock; and (x) the growth in the value of
an investment in our common stock assuming the reinvestment of dividends. The
Performance Awards may, in the Compensation Committee's discretion, be paid in
cash or in Common Stock (as permitted under another plan) and such awards may be
paid on a current basis when earned or deferred, subject to such conditions as
determined by the Committee.
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It is expected that the Compensation Committee will set, for fiscal 2000,
the performance goals applicable to all participants and the individual levels
for participation as a percentage of base pay. We contemplate that under the
VCP, the Compensation Committee will make Performance Awards based, in part, on
the level of our earnings before interest and taxes as compared to our cost of
capital and, in part, on the incremental year-by-year changes in these levels.
Further, it is expected that a portion of the Performance Awards earned for any
performance period will be deferred, subject to reduction in the amount deferred
if continued specified performance levels are not achieved in subsequent years.
Payment of amounts after the first annual meeting of shareholders occurring
more than twelve (12) months after the spin-off is conditioned on future
stockholder approval. No participant may receive or be credited with a
Performance Award based on the achievement of performance goals for any
performance period (which period may be one to three years) that exceeds
$3,000,000. Performance periods may overlap and the payments in any one year, as
long as from different performance periods, may exceed such amount.
It is expected that, upon the taking of certain corporate action following
the spin-off, compensation paid under the VCP for fiscal year 2000 and
thereafter to participants who are 'covered employees' as defined in Code
Section 162(m) and the applicable regulations thereunder will qualify as
tax-deductible pursuant to the performance-based compensation exception provided
by Code Section 162(m).
STOCK INCENTIVE PLAN
On , 1999, our board of directors and USI, as our sole stockholder,
approved the Strategic Industries, Inc. Stock Incentive Plan (the 'SIP'). The
following description of the SIP is qualified in its entirety by reference to
the SIP, which has been filed as an exhibit to the registration statement of
which this information statement is a part.
Purpose. The purpose of the SIP is to enhance our profitability and value
for the benefit of our stockholders by enabling us (i) to offer our employees
and our affiliates stock options, restricted stock and other stock-based awards,
thereby creating a means to raise the level of stock ownership by employees in
order to attract, retain and award such individuals and strengthen the mutuality
of interests between our employees and stockholders and (ii) to pay non-employee
directors a portion of their annual retainer fee in the form of shares of our
common stock and stock options and to make certain other awards of our common
stock and grants of stock options to non-employee directors thereby attracting,
retaining and rewarding such non-employee directors, and strengthening the
mutuality of interests between our non-employee directors and stockholders. It
is estimated that we and our affiliates will have approximately employees and
we will have four non-employee directors who will be eligible for participation
in the SIP.
Administration. The provisions of the SIP, as applied to eligible
employees, will be administered and interpreted by a committee of the board,
which will consist of two or more non-employee directors, each of whom is
intended to be a non-employee director as defined in Rule 16b-3 and an outside
director as defined under Code Section 162(m) (the 'Committee'). With respect to
awards to non-employee directors, the SIP will be administered by the board and
references to the Committee below will be deemed to refer to the board. Awards
under the SIP may not be made on or after the tenth anniversary of approval
thereof, but awards granted prior to such date may extend beyond that date.
Available Shares. The aggregate number of shares of our common stock
subject to awards under the SIP may not exceed shares. The maximum
number of shares of common stock with respect to which any stock option which
may be granted under the SIP during any of our fiscal years to any individual
will be 500,000 shares and of Restricted Stock subject to performance goals will
be 100,000 shares. The maximum number of shares of common stock subject to other
stock-based awards which may be granted under the SIP for any fiscal year to any
individual will not exceed 200,000 shares; provided that the foregoing limit
does not apply to other stock-based awards used to make payments under any other
of our plans or those of our subsidiaries.
In general, upon the cancellation or expiration of an award, the unissued
shares of common stock subject to such awards will again be available for awards
under the SIP, but will not be available for the individual limits.
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Options. Under the SIP, the Committee may grant non-qualified stock options
and incentive stock options ('ISOs') to purchase shares of our common stock. The
Committee will determine the number of shares of common stock subject to each
option, the term of each option (which may not exceed ten years (or five years
in the case of an ISO granted to a 10% or greater shareholder), the exercise
price (which must equal 100% or, in the case of an ISO granted to a 10% or
greater shareholder, 110% of the fair market value of our common stock at the
time of grant), the time or times at which the option may be exercised and the
other material terms of each option. Payment of the exercise price may be made
(i) in cash or by check, bank draft or money order, (ii) the delivery of
irrevocable instructions to a broker to deliver promptly to us an amount equal
to the purchase price, or (iii) on such other terms and conditions as may be
acceptable to the Committee.
The SIP will authorize the Committee, if it decides in its sole discretion,
to permit 'reloads' of options exercised, including, without limitation,
permitting reloads under which options are granted for the same number of shares
as were used to pay the exercise price or withholding. The Committee may also at
any time offer to buy out a recipient's option subject to such terms and
conditions as the Committee may determine.
Restricted Stock. The Committee may also award shares of restricted stock
to replace the restricted shares of USI common stock forfeited upon an employee
ceasing employment with USI (a 'Former USI Employee'). The Committee will
determine the Former USI Employees eligible for such awards and the terms and
conditions of such awards, including, without limitation, the timing of such
awards, the number of shares awarded, the vesting schedule and the right to
acceleration thereof. The Committee may condition the grant or vesting of
Restricted Stock upon the attainment of any of the performance goals specified
above for the Value Creation Plan or upon such other factors as the Committee
may determine, in its sole discretion. Upon the award of any shares of
restricted stock, the recipient will have all rights of a stockholder with
respect to the shares, including voting, tender and dividend rights, subject to
the conditions and restrictions generally applicable to restricted stock or
specifically set forth in the recipient's restricted stock award agreement.
Recipients of restricted stock must enter into a restricted stock award
agreement with Strategic, in such form as the Committee determines, which
shall state the restrictions to which the shares are subject and the date or
dates on which such restrictions will lapse.
Other Stock-Based Awards. The Committee may also grant other stock-based
awards under the SIP to eligible employees that are payable in, valued in whole
or in part by reference to, or otherwise based on or related to shares of our
common stock, including but not limited to shares of common stock in payment of
the amounts due under an incentive or performance plan sponsored or maintained
by us or any of our subsidiaries and stock appreciation rights (either
separately or in tandem with stock options and stock equivalent units). Subject
to the provisions of the SIP, the Committee will have the authority to determine
the recipients to whom and the time or times at which such awards will be made,
the number of shares of common stock to be awarded pursuant to or referenced by
such award and all other conditions of the awards. The Committee may also
provide for the grant of such awards upon the completion of a specified
performance period and/or achievement of performance goals. The performance
criteria that may be selected by the Committee are the same as those described
above for the Value Creation Plan. Other performance goals may be used to the
extent such goals satisfy the requirements of Code Section 162(m) or the award
is not intended to satisfy the requirements of Code Section 162(m).
Non-Employee Director Awards. Upon the date the non-employee director
begins service as a non-employee director of the Board (even if previously an
employee director), except as provided in the next sentence, the non-employee
director will receive an award of shares of common stock equal to $20,000
divided by the fair market value of the common stock on the date of grant and
a grant of non-qualified stock options to purchase the aggregate number of
shares of common stock determined by dividing $50,000 by the fair market value
of the common stock on the date of grant. For non-employee directors who begin
service within 15 days after the Commencement Date, the common stock awards will
be made within 90 days after the Commencement Date, and the stock options will
be granted in three successive grants made during each of the three fifteen
days periods following the Commencement Date, on the same dates as the grants to
executive officers described in Post Spin-Off Awards, below.
In addition, on the first day of the month following Strategic's annual
meeting of stockholders in each fiscal year each non-employee director will
receive (1) an award of common stock determined by dividing $9,000 by the fair
market value of the common stock on the date of grant and (2) non-qualified
stock options to purchase the number of shares of common stock determined by
dividing $25,000 by the
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<PAGE>
fair market value of the common stock on the date of grant. Non-employee
director options generally will vest 6 months following the date of grant or, if
earlier, upon death or disability and vested options will generally be
exercisable for a period of three years after the termination of directorship,
but in no event beyond the expiration of the ten year term. The Committee may
grant additional awards to non-employee directors and the Board may amend the
SIP to change the awards described above.
Change in Control. Unless determined otherwise by the Committee at the time
of grant, upon a Change in Control of Strategic (as defined in the SIP), except
as provided in this paragraph, all conditions, restrictions and limitations in
effect with respect to the exercise of any option or any restricted stock award
will immediately lapse and no other conditions will be applied. However, no
acceleration of exercisability shall occur with regard to certain options that
the Committee determines in good faith prior to a Change in Control will be
honored or assumed or new rights substituted therefor by a participant's
employer immediately following the Change in Control, unless the Committee
determines otherwise. The award agreement issued in connection with an other
stock-based award will determine the effect of a Change in Control on such
award. Further, if the transaction constituting a Change in Control is to be
treated as a 'pooling of interests' for financial reporting purposes, then there
shall be no acceleration of exercisability, vesting or lapse of the applicable
restriction period to the extent Strategic's independent public accountants
determine in good faith that such acceleration would preclude 'pooling of
interests' accounting.
Amendment and Termination. The Board may at any time amend any or all of
the provisions of the SIP, or suspend or terminate it entirely, retroactively or
otherwise, except that unless otherwise required by law or specially provided in
the SIP, the rights of a participant with respect to awards granted prior to
such amendment, suspension or termination, may not be impaired without the
consent of such participant. In addition, without the approval of the
stockholders of Strategic in accordance with Delaware law, to the extent
required under Code Section 162(m) or to the extent applicable to ISOs, Section
422 of the Internal Revenue Code, no amendment may be made which would: (1)
increase the aggregate number of shares of our common stock that may be issued;
(2) increase the maximum individual participant limitations for a fiscal year;
(3) change the classification of employees eligible to receive awards; (4)
extend the maximum option term; or (5) require stockholder approval in order for
the SIP to continue to comply with the applicable provisions of Code Section
162(m) or, to the extent applicable to ISOs, Section 422 of the Internal Revenue
Code. The board may amend the provisions of the Plan applicable to non-employee
director awards to provide for additional or different awards to non-employee
directors or to effect any other amendment deemed appropriate.
Nontransferability. Awards granted under the SIP generally will be
nontransferable, except that the Committee may, in its sole discretion and
subject to certain limitations, permit the transfer of nonqualified stock
options at the time of grant or thereafter to certain 'family members' of the
recipient.
Federal Income Tax Consequences. For information concerning the federal
income tax consequences of Awards and related matters, please see Annex C.
Post Spin-off Awards. Following completion of the spin-off, the
Compensation Committee is expected (1) to award, without consideration (other
than par value, if required by applicable law), an aggregate of shares
of restricted common stock to executive officers and other key employees to
replace the shares of restricted USI common stock which will be forfeited upon
ceasing employment with USI; and (2) to grant executives officers and other key
employees options to purchase the aggregate number of shares of Common Stock as
shall be determined by dividing a specified value (referred to in this paragraph
as 'value') by the fair market value (as defined in the SIP) of the common
stock on the date of grant. Five individuals (including the Chief Executive
Officer) expected to be among the five most highly compensated executives
officers in fiscal 2000 are expected to receive restricted stock awards (to be
made within 90 days following the Commencement Date) and/or option grants (with
the total number of options to be granted in three successive grants made during
each of the three fifteen day periods following the Commencement Date), as
follows: Mr. Raos - grants of stock options with an aggregate value of
$3,500,000 and shares of restricted common stock; Mr. Statile -
grants of stock options with an aggregate value of $1,500,000;
Mr. Barre - grants of stock options with an aggregate value of $720,000;
Mr. Meuchel - grants of stock options with an aggregate value of $660,000;
and Mr. Reilly - grants of stock
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options with an aggregate value of $1,100,000 and shares of restricted
common stock. With respect to all executive officers and other key employees
of Strategic as a group, the Committee is expected to award an aggregate of
shares of restricted common stock and grant stock options with
an aggregate value of $ million (exercisable for a maximum
f shares).
RETIREMENT PROGRAM
We anticipate adopting a tax-qualified retirement program to provide
pension benefits to our executive officers and corporate office employees.
Certain of our subsidiaries sponsor their own pension benefit plans.
Substantially all full-time U.S. employees who are at least 21 years old and
have completed at least one year of service with us or USI's subsidiaries will
be eligible to participate in the retirement program or retirement programs of
the operating company by which they are employed (each of our subsidiaries will
provide their own retirement programs and plans to their employees). Employees
will become vested in their benefits under the retirement programs after five
years of service, reflecting service with USI or its subsidiaries. Normal
retirement typically will be the later of age 65 or five years of service;
however, employees who work beyond their normal retirement age will continue to
accrue benefits.
It is anticipated that we will also adopt a non-qualified, unfunded,
deferred compensation plan to be known as the Strategic Industries, Inc.
Supplemental Retirement Plan (the 'SRP'). Certain of our subsidiaries also
sponsor non-qualified, unfunded deferred compensation plans for their employees.
The purpose of the SRP will be to maintain, as a minimum level of benefits,
benefits which were provided while employed by USI, including any benefits in
excess of the Internal Revenue Code Sections 415 and 401(a)(17) limitations. The
defined terms in this paragraph will have the same meanings as in the SRP, the
retirement plan or as stated herein.
Under our retirement program, comprised of a tax qualified pension plan and
the SRP, the annual retirement benefits of our executive officers will equal the
greater of (i) the product of (a) 2.67% of an employee's final average earnings
minus 2% of such employee's social security benefit, multiplied by the number of
years of credited service (to a maximum of 25). All defined terms have the same
meanings as in the retirement plan or SRP or as stated herein. The following
table shows the estimated annual retirement benefits that would be payable under
the retirement program to our executive officers, assuming retirement at age 65
on the basis of a straight-life annuity. The table includes benefits payable
from the tax qualified retirement plan and the SRP.
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------------------
FINAL AVERAGE 10 15 20 25 30 35 40
------------- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
$ 100,000........... $ 23,200 $ 34,800 $ 46,400 $ 58,000 $ 58,000 $ 58,000 $ 58,000
200,000........... 49,900 74,850 99,800 124,750 124,750 124,750 124,750
300,000........... 76,600 114,900 153,200 191,500 191,500 191,500 191,500
400,000........... 103,300 154,950 206,600 258,250 258,250 258,250 258,250
500,000........... 130,000 195,000 260,000 325,000 325,000 325,000 325,000
600,000........... 156,700 235,050 313,400 391,750 391,750 391,750 391,750
700,000........... 183,400 275,100 366,800 458,500 458,500 458,500 458,500
800,000........... 210,100 315,150 420,200 525,250 525,250 525,250 525,250
900,000........... 236,800 355,200 473,600 592,000 592,000 592,000 592,000
1,000,000........... 263,500 395,250 527,000 658,750 658,750 658,750 658,750
</TABLE>
The following persons expected to become our five highest paid executive
officers after the spin-off will be credited with the indicated years of service
as of the spin-off under the USI retirement plan, rounded to the nearest
one-tenth of a year: Mr. Raos - years; Mr. Statile - years; Mr. Barre -
years; Mr. Meuchel - years; and Mr. Reilly - years. Other of our officers
will also be credited with their indicated years of service as recognized under
the USI Retirement Plan as of the spin-off.
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PROJECTED OWNERSHIP OF OUR STOCK IMMEDIATELY AFTER THE SPIN-OFF
The following table sets forth the projected beneficial ownership of our
common stock immediately after the spin-off by each of our directors, the
executive officers who are expected to be our five most highly compensated
executive officers in fiscal 1999 and all directors and executive officers as a
group. The projections are based upon available information concerning these
individuals' ownership of USI common stock at , 1999. The projections
also assume the issuance of shares of restricted common stock under
the SIP and a total of shares of common stock to our non-employee
directors but do not take into account (1) any shares of USI common stock
acquired pursuant to the exercise of options previously granted under USI
compensation programs but not exercised as of , 1999 or (2) any shares
of our common stock that may be issued upon the exercise of stock options
expected to be granted to executive officers and other key employees pursuant to
the SIP after the spin-off. See 'Executive Compensation -- Stock Incentive
Plan.'
<TABLE>
<CAPTION>
NUMBER OF SHARES PROJECTED
TO BE BENEFICIALLY % OF SHARES
NAME OWNED OUTSTANDING
- ---- ----- -----------
<S> <C> <C>
John G. Raos......................................
Peter J. Statile..................................
[Other directors].................................
Steven C. Barre...................................
Gary K. Meuchel...................................
Peter F. Reilly...................................
All directors and executive officers as a group
( persons).....................................
</TABLE>
Based upon information available to USI concerning the ownership of USI
common stock at 1999, no person is projected to own beneficially more
than 5% of the outstanding common stock on the date of the spin-off except as
follows: .
For information concerning the projected beneficial ownership of our common
stock by our and USI's employee benefit plan trusts, see 'The
Spin-off -- Listing and Trading of Our Common Stock.'
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Under our certificate of incorporation that will be in effect at the time
of the spin-off, the form of which is attached as Annex A to this information
statement, we will have authority to issue a total of 25,000,000 shares of all
classes of stock, of which 2,000,000 may be shares of preferred stock, par value
$0.01 per share, and 23,000,000 may be shares of common stock, par value $0.01
per share.
Based on the number of shares of USI common stock outstanding as of
, 1999 and the dividend ratio, it is expected that shares of
our common stock will be distributed to USI stockholders in the spin-off. All of
these shares will be fully paid and non-assessable. The common stock to be
distributed will constitute all the shares of our capital stock that will be
outstanding immediately after the spin-off. After giving effect to recommended
awards of shares of restricted common stock to executive officers and
other key employees and the issuance of a total of shares of common stock
to non-employee directors, the total expected number of outstanding shares of
common stock will be . In addition, shortly after the spin-off, we
will recommend the issuance to executive officers and other key employees of
options to purchase the aggregate number of shares of common stock as shall be
determined by dividing $ million by the fair market value of our common stock
on the date of grant (up to a maximum of shares); the number of shares
expected to be outstanding excludes any shares that may be issued upon exercise
of such options. See 'Executive Compensation -- Stock Incentive Plan.'
COMMON STOCK
Holders of our common stock are entitled to one vote for each share on all
matters voted on by stockholders. Holders of common stock do not have cumulative
voting rights in the election of directors. The first annual meeting of
stockholders is expected to be held during calendar 2000.
Holders of our common stock do not have subscription, redemption or
conversion privileges. Subject to the preferences or other rights of any
preferred stock that we may issue from time to time, holders of our common stock
are entitled to participate ratably in dividends on our common stock as declared
by our board of directors. Holders of our common stock are entitled to share
ratably in all assets available for distribution to our stockholders in the
event of liquidation or dissolution, subject to distribution of the preferential
amount, if any, to be distributed to holders of preferred stock.
PREFERRED STOCK
The certificate of incorporation that will be in effect at the time of the
spin-off will authorize our board of directors, without any vote or action by
the holders of our common stock, to issue up to 2,000,000 shares of preferred
stock from time to time in one or more series. Our board is authorized to
determine the number of shares and designation of any series of preferred stock
and the dividend rights, dividend rate, conversion rights and terms, voting
rights (full or limited, if any), redemption rights and terms, liquidation
preferences and sinking fund terms of any series of preferred stock. Issuances
of preferred stock would be subject to the applicable rules of the NYSE or other
organizations on whose systems the stock of may then be quoted or listed.
Depending upon the terms of preferred stock established by our board of
directors, any or all series of preferred stock could have preference over our
common stock with respect to dividends and other distributions and upon
liquidation. Issuance of any such shares with voting powers, or issuance of
additional shares of our common stock, would dilute the voting power of our
outstanding common stock. Series A preferred stock is issuable under the
circumstances described in 'Rights Plan,' below. We have no other present plans
to issue any Preferred Stock.
NO PREEMPTIVE RIGHTS
No holder of any of our capital stock authorized at the time of the
spin-off will have any preemptive right to subscribe for or purchase any of our
securities of any class or kind.
TRANSFER AGENT AND REGISTRAR
will be the transfer agent and registrar for our common stock
commencing upon the date of the spin-off.
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<PAGE>
RIGHTS PLAN
Each share of our common stock to be issued from and after the date of this
information statement (including common stock that will trade on a 'when issued'
basis) will have attached to it one right issued pursuant to the rights
agreement until the rights expire. Each right entitles the registered holder to
purchase from us one one-hundredth (1/100) of a share of our series A preferred
stock at an initial price of $ per one one-hundredth (1/100) of a share
(the 'exercise price'). Unless earlier redeemed, the rights will expire (the
'Final Expiration Time') at (1) the Stated Expiration Time (i.e., at the close
of business on the one year anniversary of the spin-off) or (2) if the Rights
Distribution Date (as defined below) shall have occurred before the Stated
Expiration Time, the close of business on the one year anniversary of the Rights
Distribution Date, provided that our board of directors in office subsequent to
the spin-off does not extend or otherwise modify the rights. There can be no
assurance, however, as to whether or not our board of directors will so extend,
modify or redeem the rights.
The rights, unless earlier redeemed by our board of directors or extended
or modified as described above, will become exercisable by each record holder
thereof, other than the Acquiring Person (as defined below), upon the close of
business on the day (the 'Rights Distribution Date') which is the earlier of
(1) the tenth day following a public announcement that a person or group of
affiliated or associated persons, with certain exceptions set forth below, has
acquired beneficial ownership of 15% or more of our outstanding voting stock (an
'Acquiring Person') and (2) the tenth business day (or such later date as may be
determined by our board of directors prior to such time as any person or group
of affiliated or associated persons becomes an Acquiring Person) after the date
of the commencement or announcement of a person's or group's intention to
commence a tender or exchange offer the consummation of which would result in
the ownership of 15% or more of our outstanding voting stock (even if no shares
are actually purchased pursuant to such offer). Before the rights distribution
date, the rights will not be exercisable, will not be represented by a separate
certificate, and will not be transferable apart from our common stock. An
Acquiring Person does not include (A) prior to the spin-off, USI, (B) us,
(C) any of our subsidiaries, (D) any of our employee benefit plans or employee
stock plans or those of any of our subsidiaries, or any trust or other entity
organized, appointed, established or holding our common stock for or pursuant to
the terms of any such plan (E) any person whose ownership of 15% or more of the
shares of our voting stock then outstanding results solely from its ownership of
15% or more of the USI common stock outstanding on the spin-off record date
provided such person is not an Acquiring Person within the meaning of the USI
rights plan, or (F) any person or group whose ownership of 15% or more of the
shares of our voting stock then outstanding results solely from (1) any action
or transaction or transactions approved by our board of directors before such
person or group became an Acquiring Person or (2) a reduction in the number of
issued and outstanding shares of our voting stock pursuant to a transaction or
transactions approved by our board of directors (provided that any person or
group that does not become an Acquiring Person by reason of clause (1) or
(2) above shall become an Acquiring Person upon acquisition of an additional 1%
of our voting stock unless such acquisition of additional voting stock will not
result in such person or group becoming an Acquiring Person by reason of such
clause (1) or (2)). For purposes of the foregoing, our outstanding voting stock
that trades on a 'when issued' basis on a national securities exchange (such as
the NYSE), on the National Association of Securities Dealers' Automated
Quotation System or otherwise.
The rights agreement provides that when a person or group of affiliated or
associated persons becomes an Acquiring Person (other than pursuant to a
Qualifying Tender Offer (as defined below)), the Acquiring Person's rights will
thereupon become null and void.
The rights agreement provides that until the Rights Distribution Date, the
rights will be transferred with and only with our common stock. Until the Rights
Distribution Date (or earlier redemption or expiration of the rights), our
common stock certificates will contain a legend incorporating the rights
agreement by reference. Until the Rights Distribution Date (or earlier
redemption or expiration of the rights), the surrender for transfer of any of
our common stock certificates will also constitute the transfer of the rights
associated with our common stock represented by such certificate. As soon as
practicable following the Rights Distribution Date, separate certificates
evidencing the rights ('rights certificates') will be mailed to holders of
record of our common stock as of the close of business on the
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Rights Distribution Date and such separate certificates alone will evidence the
rights from and after the Rights Distribution Date.
Our series A preferred stock is nonredeemable and, unless otherwise
provided in connection with the creation of a subsequent series of preferred
stock, subordinate to any other series of our preferred stock. Our series A
preferred stock may not be issued except upon exercise of rights. Each share of
our series A preferred stock will be entitled to receive when, as and if
declared, a quarterly dividend in an amount equal to the greater of $ per
share or times the cash dividends declared on our common stock. In
addition, our series A preferred stock is entitled to times any non-cash
dividends (other than dividends payable in equity securities) declared on our
common stock, in like kind. In the event of our liquidation, the holders of our
series A preferred stock will be entitled to receive a payment in an amount
equal to the greater of $ per one one-hundredth share or times the
payment made per share of our common stock. Each share of our series A preferred
stock will have votes, voting together with our common stock. In the event
of any merger, consolidation or other transaction in which our common stock is
changed, exchanged or converted, each share of series A preferred stock will be
entitled to receive times the amount received per share of our common
stock. The rights of our series A preferred stock as to dividends, liquidation
and voting are protected by anti-dilution provisions.
The number of shares of our series A preferred stock issuable upon exercise
of the rights is subject to certain adjustments from time to time in the event
of a stock dividend on, or a subdivision, combination or issuance of capital
stock in a reclassification of, our common stock. The exercise price for the
rights is subject to adjustment in certain circumstances, including certain
distributions of cash or other property to holders of our common stock.
Unless the rights are earlier redeemed, in the event that, at any time on
or after the Rights Distribution Date (except for any transaction approved by a
majority of the disinterested directors (as defined in the rights agreement)),
we were to be acquired in a merger or other business combination (in which any
shares of our common stock are changed or converted into or exchanged for other
securities or assets) or more than 50% of our assets or earning power and those
of our subsidiaries (taken as a whole) were to be sold or transferred in one or
a series of related transactions, the rights agreement provides that proper
provision will be made so that each holder of record of a right, other than the
Acquiring Person, will from and after that date have the right to receive, upon
payment of the exercise price, that number of shares of common stock of the
acquiring company having a market value at the time of such transaction equal to
two times the exercise price. In addition, unless the rights are earlier
redeemed, in the event that a person or group becomes the beneficial owner of
15% or more of our voting stock (other than pursuant to a tender or exchange
offer (a 'Qualifying Tender Offer') for all outstanding shares of our common
stock that is approved by our board of directors, after taking into account our
long-term value and all other factors they consider relevant), the rights
agreement provides that proper provision will be made so that each holder of
record of a right, other than the Acquiring Person, will thereafter have the
right to receive, upon payment of the exercise price, that number of shares of
our series A preferred stock having a market value at the time of the
transaction equal to two times the exercise price (such market value to be
determined with reference to the market value of our common stock as provided in
the rights agreement).
Fractions of shares of our series A preferred stock (other than fractions
which are integral multiples of one one-hundredth of a share) may, at our
election, be evidenced by depositary receipts. We may also issue cash in lieu of
fractional shares which are not integral multiples of one one-hundredth of a
share.
At any time on or prior to the close of business on the earlier of (1) the
tenth day after the time that a person has become an Acquiring Person (or such
later date as a majority of our board of directors and a majority of our
disinterested directors may determine) and (2) the Final Expiration Time, we may
redeem the rights in whole, but not in part, at a price of $.01 per right,
subject to adjustment (the 'Redemption Price'). The rights may be redeemed after
the time that any person has become an Acquiring Person (other than pursuant to
a Qualifying Tender Offer) only if approved by a majority of our disinterested
directors. Immediately upon the effective time of the action of our board
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<PAGE>
of directors authorizing redemption of the rights, the right to exercise the
rights will terminate and the only right of the holders of rights will be to
receive the Redemption Price.
For as long as the rights are then redeemable, we may, except with respect
to the Redemption Price or shortening the Final Expiration Time, amend the
rights in any manner, including an amendment to extend the time period in which
the rights may be redeemed. At any time when the rights are not then redeemable,
we may amend the rights in any manner that does not materially adversely affect
the interests of holders of the rights as such. Amendments to the rights
agreement from and after the time that any person becomes an Acquiring Person
(other than pursuant to a Qualifying Tender Offer) require the approval of a
majority of our disinterested directors (as provided in the rights agreement).
Until a right is exercised, the holder, as such, will have no rights as a
holder of common stock, including, without limitation, the right to vote or to
receive dividends. Holders of our common stock may, depending upon the
circumstances, recognize taxable income should the rights become exercisable or
upon the occurrence of certain events thereafter.
A copy of the rights agreement has been filed as an exhibit to the
registration statement of which this information statement forms a part. This
summary description of the rights does not purport to be complete and is
qualified in its entirety by reference to the rights agreement which is
incorporated in this summary description herein by reference.
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PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF
CERTIFICATE OF INCORPORATION,
BY-LAWS AND DELAWARE STATUTORY LAW
GENERAL
The provisions of our Certificate of Incorporation, our By-Laws and
Delaware statutory law described in this section may delay or make it more
difficult for someone to acquire us without the approval of our board. These
provisions could have the effect of discouraging third parties from making
acquisition proposals although such proposals, if made, might be considered
desirable by a majority of our stockholders. These provisions may also have the
effect of making it more difficult for third parties to cause the replacement of
our current management without the concurrence of our board.
A copy of the Certificate of Incorporation is attached to this Information
Statement as Appendix A and is incorporated herein by reference. The following
description of certain provisions of the Certificate of Incorporation and the
By-Laws is qualified in its entirety by reference to the Certificate of
Incorporation and the By-Laws.
CLASSIFIED BOARD OF DIRECTORS
The Certificate of Incorporation provides for our board, effective upon
completion of the spin-off, to be divided into three classes of directors
serving staggered three-year terms. As a result, approximately one third of our
board will be elected each year. See 'Management -- Directors.'
We believe a classified board will help to assure the continuity and
stability of our board, and our business strategies and policies as determined
by our board, because a majority of the directors at any given time will have
prior experience as our directors. This provision should also help to ensure
that our board, if confronted with an unsolicited proposal from a third party
that has acquired a block of our voting stock, will have sufficient time to
review the proposal and appropriate alternatives and to seek the best available
result for all stockholders.
This provision could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of our board until the
second annual stockholders' meeting following the date the acquiror obtains the
controlling stock interest, could have the effect of discouraging a potential
acquiror from making a tender offer or otherwise attempting to obtain control of
us and could thus increase the likelihood that incumbent directors will retain
their positions.
NUMBER OF DIRECTORS; REMOVAL; VACANCIES
The Certificate of Incorporation and the By-Laws provide that the number of
directors shall not be less than three nor more than 11 and, except as may be
provided in the terms of any series of preferred stock created by resolutions of
the board, shall be determined from time to time exclusively by a vote of a
majority of our board then in office. The Certificate of Incorporation also
provides that our board shall have the exclusive right, except as may be
provided in the terms of any series of preferred stock created by resolutions of
the board, to fill vacancies, including vacancies created by expansion of our
board. Furthermore, except as may be provided in the terms of any preferred
stock created by resolution of our board with respect to the election of
directors by the holders of such series, directors may be removed by
stockholders only for cause and only by the affirmative vote of at least 66 2/3%
of the voting power of all of the shares of our capital stock then entitled to
vote generally in the election of directors, voting together as a single class.
These provisions, in conjunction with the provision of the Certificate of
Incorporation authorizing our board to fill vacant directorships, could prevent
stockholders from removing incumbent directors without cause and filling the
resulting vacancies with their own nominees.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Certificate of Incorporation provides that, except as may be provided
in the terms of any series of preferred stock created by resolution of our
board, stockholder action can be taken only at an annual or special meeting of
stockholders and cannot be taken by written consent in lieu of a meeting. The
55
<PAGE>
Certificate of Incorporation also provides that special meetings of the
stockholders can only be called by the Chairman of the Board or by the Secretary
pursuant to a resolution approved by a majority of our board then in office.
Stockholders are not permitted to call a special meeting of stockholders.
ADVANCE NOTICE FOR RAISING BUSINESS OR MAKING NOMINATIONS AT MEETINGS
The By-Laws establish an advance notice procedure with regard to
stockholder proposals and nominations of individuals for election to the Board
of Directors. In general, notice of a stockholder proposal or a director
nomination for an annual meeting must be delivered to us at our executive
offices 120 days or more before the date of the anniversary of the last annual
stockholders' meeting (unless the meeting is to be held more than 60 days in
advance of such anniversary date, in which event the stockholder proposal or
director nomination shall be delivered to us no later than the close of business
on the 15th day following the day on which notice of the meeting was given) and
must contain specified information and conform to certain requirements, as set
forth in the By-Laws. Notice of a director nomination for a special meeting must
be received by us no later than the 15th day following the day on which notice
of the date of a special meeting of stockholders was given. If the presiding
officer at any stockholders' meeting determines that a stockholder proposal or
director nomination was not made in accordance with the By-Laws, we may
disregard such proposal or nomination.
The notice of any nomination for election as a director must set forth the
name, date of birth, business and residence address of the person or persons to
be nominated; the business experience during the past five years of such person
or persons; whether such person or persons are or have ever been at any time
directors, officers or owners of 5% or more of any class of capital stock,
partnership interests or other equity interest of any corporation, partnership
or other entity; any directorships held by such person or persons in any company
with a class of securities registered pursuant to Section 12 of the Exchange Act
or subject to the requirements of Section 15(d) of such Act or any company
registered as an investment company under the Investment Company Act of 1940, as
amended; and whether, in the last five years, such person or persons are or have
been convicted in a criminal proceeding or have been subject to a judgment,
order, finding or decree of any federal, state or other governmental entity,
concerning any violation of federal, state or other law, or any proceeding in
bankruptcy, which conviction, order, finding, decree or proceeding may be
material to an evaluation of the ability or integrity of the nominee; and the
consent of each such person to serve as a director if elected. The person
submitting the notice of nomination, and any person acting in concert with such
person, must provide their names and business addresses, the name and address
under which they appear on our books (if they so appear), and the class and
number of shares of our capital stock that are beneficially owned by them.
AMENDMENTS TO BY-LAWS
The Certificate of Incorporation provides that our board or the holders of
at least 66 2/3% of the voting power of all shares of our capital stock then
entitled to vote generally in the election of directors, voting together as a
single class, have the power to amend or repeal our By-Laws.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
Any proposal to amend, alter, change or repeal any provision of the
Certificate of Incorporation, except as may be provided in the terms of any
preferred stock created by resolution of our board and which relate to such
series of preferred stock, generally requires approval by the affirmative vote
of both a majority of the members of our board then in office and a majority
vote of the voting power of all of the shares of our capital stock entitled to
vote generally in the election of directors, voting together as a single class.
However, any proposal to amend, alter, change or repeal the provisions of the
Certificate of Incorporation relating to (1) the classification of our board,
(2) removal of Directors, (3) the prohibition of stockholder action by written
consent or stockholder calls for special meetings, (4) amendment of By-Laws, or
(5) amendment of the Certificate of Incorporation requires approval by the
affirmative vote of 66 2/3% of the voting power of all of the shares of our
capital stock entitled to vote generally in the election of directors, voting
together as a single class.
56
<PAGE>
PREFERRED STOCK AND ADDITIONAL COMMON STOCK
Under the Certificate of Incorporation, our board will have the authority
to provide by resolution for the issuance of shares of one or more series of
preferred stock. Our board is authorized to fix by resolution the terms and
conditions of each such other series. See 'Description of Capital Stock --
Preferred Stock.'
We believe that the availability of our preferred stock, in each case
issuable in series, and additional shares of common stock could facilitate
certain financings and acquisitions and provide a means for meeting other
corporate needs which might arise. The authorized shares of our preferred stock,
as well as authorized but unissued shares of common stock will be available for
issuance without further action by our stockholders, unless stockholder action
is required by applicable law or the rules of any stock exchange on which any
series of our stock may then be listed, or except as may be provided in the
terms of any preferred stock created by resolution of our board.
These provisions give our board the power to approve the issuance of a
series of preferred stock, or additional shares of common stock, that could,
depending on its terms, either impede or facilitate the completion of a merger,
tender offer or other takeover attempt. For example, the issuance of new shares
of preferred stock might impede a business combination if the terms of those
shares include voting rights which would enable a holder to block business
combinations or, alternatively, might facilitate a business combination if those
shares have general voting rights sufficient to cause an applicable percentage
vote requirement to be satisfied.
Moreover, the series A preferred stock is issuable under the circumstances
provided for in the rights agreement upon exercise of the rights. See 'Rights
Plan.'
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 of the Delaware General Corporations Loans (the 'DGCL'),
provides that, subject to certain exceptions specified therein, an 'interested
stockholder' of a Delaware corporation may not engage in any business
combination with the corporation for a three-year period following the time that
such stockholder becomes an 'interested stockholder' unless (1) prior to such
time, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
'interested stockholder', (2) upon consummation of the transaction which
resulted in the stockholder becoming an 'interested stockholder,' the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares), or
(3) at or subsequent to such time, the business combination is approved by the
board of directors of the corporation and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the 'interested stockholder.'
Except as otherwise specified in Section 203, an 'interested stockholder' is
defined to include (1) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the
relevant date and (2) the affiliates and associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an 'interested stockholder' to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Certificate of Incorporation does not exclude us from the
restrictions imposed under Section 203. The provisions of Section 203 may
encourage companies interested in acquiring us to negotiate in advance with our
board, since the stockholder approval requirement would be avoided if a majority
of the directors then in office approve either the business combination or the
transaction which results in the stockholder becoming an interested stockholder.
These provisions also may have the effect of preventing changes in our
management. It is possible that such provisions could make it more difficult to
accomplish transactions which stockholders may otherwise deem to be in their
best interests.
57
<PAGE>
LIMITATION ON LIABILITY AND
INDEMNIFICATION OF OFFICERS AND DIRECTORS
LIMITATION ON LIABILITY OF DIRECTORS
Pursuant to authority conferred by Section 102 of the DGCL, Article VII of
our Certificate of Incorporation eliminates the personal liability of our
directors to us or our stockholders for monetary damages for breach of fiduciary
duty, including without limitation directors serving on committees of the board
of directors. Directors remain liable for:
(1) any breach of the duty of loyalty to us or our stockholders,
(2) any act or omission not in good faith or which involves
intentional misconduct or a knowing violation of law,
(3) any violation of Section 174 of the DGCL, which proscribes the
payment of dividends and stock purchases or redemptions under certain
circumstances, and
(4) any transaction from which directors derive an improper personal
benefit.
Article VII further provides that any future repeal or amendment of its
terms will not adversely affect any rights of directors existing thereunder with
respect to acts or omissions occurring prior to such repeal or amendment.
Article VII also incorporates any future amendments to Delaware law which
further eliminate or limit the liability of directors.
INDEMNIFICATION AND INSURANCE
In accordance with Section 145 of the DGCL, which provides for the
indemnification of directors and officers under certain circumstances, Article
XIV of our By-Laws grants our directors and officers a right to indemnification,
to the fullest extent permitted by law, for all expenses, liabilities and losses
relating to civil, criminal, administrative or investigative proceedings to
which they are a party (1) by reason of the fact that they are or were our
directors or officers or (2) by reason of the fact that, while they are or were
our directors or officers, they are or were serving at our request as directors,
officers, members, employees, fiduciaries or agents of another corporation,
partnership, joint venture, trust or enterprise. Article IV further permits us
to indemnify other employees and agents to the fullest extent permitted by law,
for all expenses, liabilities and losses relating to civil, criminal,
administrative or investigative proceedings to which they are a party by reason
of their employment or agency relationship. Article XIV further provides for the
mandatory advancement of expenses incurred by present officers and directors in
defending such proceedings in advance of their final disposition upon delivery
to us by the indemnitee of an undertaking to repay all amounts so advanced if it
is ultimately determined that such indemnitee is not entitled to be indemnified
under Article XIV. Article XIV further provides that expenses incurred by our
former directors or officers or other employees or agents in defending such
proceedings may be paid in advance of their final disposition upon such terms
and conditions, if any, as we deem appropriate. We may not indemnify or make
advance payments to any person in connection with proceedings initiated against
us by such person without the authorization of our board of directors, except
with respect to compulsory counterclaims, cross-claims, third-party claims or in
connection with suits seeking to enforce rights to indemnification or
advancement of expenses as otherwise ordered by a court of competent
jurisdiction.
In addition, in the event that any successor provisions or amendments to
the DGCL provide indemnification rights broader than permitted prior thereto,
Article XIV allows such broader indemnification rights to apply retroactively
with respect to any predating alleged action or inaction and also allows the
indemnification to continue after an indemnitee has ceased to be a director or
officer of the corporation and to inure to the benefit of the indemnitee's
heirs, executors and administrators.
Article XIV further provides that the right to indemnification is not
exclusive of any other right which any indemnitee may have or thereafter acquire
under any statute, the Certificate of Incorporation or By-Laws, any agreement or
vote of stockholders or disinterested directors or otherwise, and allows us to
indemnify and advance expenses to any person whom the corporation has the power
to indemnify under the DGCL or otherwise.
58
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted for directors and officers and controlling persons pursuant to
the foregoing provisions, we have been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Our By-Laws authorize us to purchase insurance for our directors, officers
and employees, and persons who serve at our request as directors, officers,
members, employees, fiduciaries or agents of other enterprises against any
expense, liability or loss incurred in such capacity, whether or not we would
have the power to indemnify such persons against such expense or liability under
the By-Laws. We intend to maintain insurance coverage for our officers and
directors as well as insurance coverage to reimburse us for potential costs of
its corporate indemnification of directors and officers.
ADDITIONAL INFORMATION
We have filed the registration statement with the Commission with respect
to the common stock. This information statement does not contain all of the
information set forth in the registration statement and the exhibits thereto, to
which reference is hereby made. This information statement describes the
material terms and conditions of each contract, agreement or other document
referred to herein or filed as an exhibit to the registration statement;
however, with respect to each such contract, agreement or other document,
reference is made to such exhibit for a more complete description of the matter
involved, and each description thereof contained in this information statement
shall be deemed qualified in its entirety by such reference. The registration
statement and the exhibits thereto filed by us with the Commission may be
inspected at the public reference facilities of the Commission listed below.
After the spin-off, we will be subject to the information requirements of
the Exchange Act and, in accordance therewith, will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at its principal offices at
450 Fifth Street, N.W., Washington, D.C. 10549, and at its regional offices at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material may be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. Materials that we file electronically with the Commission are available
at the Commission's website (http://www.sec.gov), which contains reports,
proxies and information statements and other information regarding issuers that
file electronically with the Commission. Application has been made to list our
common stock on the NYSE and, if and when such common stock commences trading on
the NYSE, such reports, proxy statements and other information concerning
Strategic will be available for inspection at the NYSE, 20 Broad Street, New
York, New York 10005.
------------------------
We intend to furnish our stockholders with annual reports containing
consolidated financial statements (beginning with fiscal 1999) audited by
independent accountants.
59
<PAGE>
STRATEGIC INDUSTRIES, INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
COMBINED FINANCIAL STATEMENTS ----
<S> <C>
Report of Ernst & Young LLP................................. F-2
Report of PricewaterhouseCoopers LLP........................ F-3
Combined Statements of Operations........................... F-4
Combined Balance Sheets..................................... F-5
Combined Statements of Cash Flows........................... F-6
Combined Statements of Changes in Invested Capital
(Deficit)................................................. F-7
Notes to Combined Financial Statements...................... F-8
Schedule II -- Valuation and Qualifying Accounts............ S-1
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
U.S. INDUSTRIES, INC.
We have audited the combined balance sheets of Strategic Industries, Inc.
(the 'Company') as of September 30, 1998 and 1997 and the related combined
statements of operations, cash flows, and changes in invested capital (deficit)
for each of the three years in the period ended September 30, 1998. Our audits
also included the financial statement schedule listed in the Index to Combined
Financial Statements. These financial statements and schedule are the
responsibility of the management of the Company. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits. We did not audit the financial statements of a subsidiary which
statements reflect 26% and 17% of combined total assets as of September 30, 1997
and 1998, respectively, and 26%, 30% and 32% of combined net sales for the years
ended September 30, 1996, 1997 and 1998, respectively. Those statements and
Schedule II information were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
this subsidiary, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the combined financial position of the Company at September 30, 1998 and 1997,
and the combined results of its operations and its cash flows for each of the
three years in the period ended September 30, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, based on our audits and
the report of other auditors, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
New York, New York
June 18, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Garden State Tanning, Inc.
(a wholly-owned subsidiary of
U.S. Industries, Inc.)
In our opinion, the consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of Garden State Tanning, Inc. (a
wholly-owned subsidiary of U.S. Industries, Inc.) and its subsidiary at
September 30, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 1998 (not
presented separately herein) in conformity with generally accepted accounting
principles. In addition, in our opinion, the Financial Statement Schedule II
(not presented separately herein), presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and Financial
Statement Schedule are the responsibility of the Company's 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
generally accepted auditing standards 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.
/s/ PRICEWATERHOUSECOOPERS LLP
Bloomfield Hills, Michigan
October 23, 1998
F-3
<PAGE>
STRATEGIC INDUSTRIES, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
---------------------------------------------------------
1996 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
Net sales..................................... $737.7 $807.9
Operating costs and expenses:
Cost of products sold.................... 521.9 575.8
Selling, general and administrative
expenses............................... 105.8 112.8
Management fees and divisional
overhead............................... 8.8 10.4
Goodwill impairment and restructuring
charges................................ -- --
------ ------
Operating income.............................. 101.2 108.9
Interest expense to Affiliates................ 31.7 24.0
Interest expense.............................. 0.4 1.0
Interest income............................... (0.2) (0.5)
Gain on sale of subsidiary shares............. -- (0.8)
Other expense, net............................ 1.0 0.5
------ ------
Income before income taxes.................... 68.3 84.7
Provision for income taxes.................... 28.4 35.3
------ ------
Net income (loss)............................. $ 39.9 $ 49.4
------ ------
------ ------
<CAPTION>
FOR THE NINE
FOR THE FISCAL YEARS ENDED MONTHS ENDED
SEPTEMBER 30, JUNE 30,
--------------------------- -----------------------------
1998 1998 1999
---- ---- ----
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Net sales..................................... $888.5 $663.8 $651.0
Operating costs and expenses:
Cost of products sold.................... 669.5 488.7 494.4
Selling, general and administrative
expenses............................... 124.2 94.3 94.6
Management fees and divisional
overhead............................... 6.8 5.1 6.6
Goodwill impairment and restructuring
charges................................ 62.8 59.1 1.1
------ ------ ------
Operating income.............................. 25.2 16.6 54.3
Interest expense to Affiliates................ 19.1 14.2 20.3
Interest expense.............................. 2.6 1.8 1.2
Interest income............................... (0.5) (0.4) (0.4)
Gain on sale of subsidiary shares............. -- -- --
Other expense, net............................ 0.7 0.9 1.0
------ ------ ------
Income before income taxes.................... 3.3 0.1 32.2
Provision for income taxes.................... 25.6 22.1 12.9
------ ------ ------
Net income (loss)............................. $(22.3) $(22.0) $ 19.3
------ ------ ------
------ ------ ------
</TABLE>
See notes to combined financial statements.
F-4
<PAGE>
STRATEGIC INDUSTRIES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT JUNE 30,
---------------- -----------
1997 1998 1999
---- ---- ----
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 8.4 $ 12.4 $ 8.7
Trade receivables, net................................. 104.2 146.5 129.7
Inventories............................................ 127.0 139.1 139.1
Deferred income taxes.................................. -- 2.4 2.4
Other current assets................................... 14.8 19.3 17.2
------ ------ ------
Total current assets.............................. 254.4 319.7 297.1
Property, plant and equipment, net.......................... 99.9 132.9 133.9
Pension assets.............................................. 57.0 62.9 69.8
Other assets................................................ 15.5 19.0 13.2
Goodwill, net............................................... 157.4 110.1 111.4
------ ------ ------
$584.2 $644.6 $625.4
------ ------ ------
------ ------ ------
LIABILITIES AND INVESTED CAPITAL (DEFICIT)
Current liabilities:
Current maturities of long-term debt................... $ 0.5 $ 2.1 $ 1.0
Trade accounts payable................................. 41.3 63.5 44.3
Accrued expenses and other liabilities................. 49.7 56.3 50.3
Deferred income taxes.................................. 1.6 -- --
Income taxes payable................................... 1.5 2.7 7.6
------ ------ ------
Total current liabilities......................... 94.6 124.6 103.2
Long-term debt.............................................. 12.0 30.1 29.5
Deferred income taxes....................................... 1.3 1.9 1.9
Other liabilities........................................... 41.9 49.8 49.1
Notes and interest payable to Affiliates.................... 352.3 312.2 506.8
------ ------ ------
Total liabilities................................. 502.1 518.6 690.5
Commitments and contingencies
Invested capital (deficit).................................. 82.1 126.0 (65.1)
------ ------ ------
$584.2 $644.6 $625.4
------ ------ ------
------ ------ ------
</TABLE>
See notes to combined financial statements.
F-5
<PAGE>
STRATEGIC INDUSTRIES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE FISCAL YEARS ENDED MONTHS ENDED
SEPTEMBER 30, JUNE 30,
--------------------------- ----------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)...................................... $ 39.9 $ 49.4 $(22.3) $(22.0) $ 19.3
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization..................... 19.2 19.2 23.3 17.6 18.7
Provision (benefit) for deferred income taxes..... 4.2 2.5 (1.0) -- --
Provision for doubtful accounts................... 2.4 (0.7) 4.2 0.9 0.3
Gain on sale of excess real estate................ -- (0.1) -- -- --
Gain on sale of subsidiary stock.................. -- (0.7) -- -- --
Gain on sale of property, plant and equipment..... 0.1 -- -- -- --
Goodwill impairment and restructuring charges..... -- -- 56.0 56.0 --
Equity in (income) loss of investee............... -- (1.7) 2.4 (0.2) 6.2
Changes in operating assets and liabilities, excluding
the effects of acquisitions and dispositions:
(Increase) decrease in trade receivables.......... (17.9) (0.7) (37.1) (15.2) 16.5
(Increase) decrease in inventories................ (2.4) (1.0) 2.7 (12.8) (0.1)
(Increase) decrease in other current assets....... (7.1) (0.7) (3.7) (1.0) 2.1
(Increase) decrease in other non-current assets... (4.4) (14.8) (11.3) (3.7) (7.1)
Increase (decrease) in trade accounts payable..... 7.6 (9.5) 18.8 1.3 (19.1)
Increase in income taxes payable.................. 0.4 (0.4) 1.2 2.0 4.9
(Decrease) increase in accrued expenses and other
liabilities.................................... (3.8) 11.4 5.7 (9.0) (5.7)
Increase (decrease) in other non-current
liabilities.................................... 2.5 2.4 (3.5) (1.0) (1.0)
Other, net........................................ -- 1.4 (0.1) (0.2) 0.5
------ ------ ------ ------ -------
Net cash provided by operating activities......... 40.7 56.0 35.3 12.7 35.5
Investing activities:
Proceeds from sale of subsidiary stock................. -- 3.8 -- -- --
Proceeds from sale of excess real estate............... -- 0.4 -- -- --
Acquisition of companies, net of cash acquired......... -- -- (46.7) (46.7) (6.2)
Purchase of investment................................. (13.5) (1.1) (7.0) (7.0) --
Proceeds from sales of investments..................... 2.1 -- -- -- --
Purchases of property, plant and equipment............. (9.8) (17.7) (27.3) (21.8) (20.4)
Proceeds from sales of property, plant and equipment... -- 0.2 2.0 0.7 2.5
Other, net............................................. -- -- (1.0) (0.1) (0.3)
------ ------ ------ ------ -------
Net cash used in investing activities............. (21.2) (14.4) (80.0) (74.9) (24.4)
Financing activities:
Proceeds from long-term debt........................... 7.0 12.0 22.4 22.4 0.1
Repayment of long-term debt............................ (0.5) (7.5) (1.0) (1.0) (1.9)
Proceeds from notes payable to Affiliates.............. -- 1.1 30.2 24.5 203.0
Repayment of notes payable to Affiliates............... -- -- (69.6) (68.0) (27.2)
Dividends to USI....................................... (13.6) -- -- -- (203.0)
Net transfers with USI................................. (18.3) (41.3) 67.2 86.6 11.3
------ ------ ------ ------ -------
Net cash (used in) provided by financing
activities..................................... (25.4) (35.7) 49.2 64.5 (17.7)
Effect of exchange rate changes on cash..................... (0.2) (0.8) (0.5) 1.6 2.9
------ ------ ------ ------ -------
Net (decrease) increase in cash and cash
equivalents.................................... (6.1) 5.1 4.0 3.9 (3.7)
Cash and cash equivalents at beginning of year.............. 9.4 3.3 8.4 8.4 12.4
------ ------ ------ ------ -------
Cash and cash equivalents at end of period.................. $ 3.3 $ 8.4 $ 12.4 $ 12.3 $ 8.7
------ ------ ------ ------ -------
------ ------ ------ ------ -------
</TABLE>
See notes to combined financial statements.
F-6
<PAGE>
STRATEGIC INDUSTRIES, INC.
COMBINED STATEMENTS OF CHANGES IN INVESTED CAPITAL (DEFICIT)
SEPTEMBER 30, 1996, 1997 AND 1998
AND THE NINE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
INVESTED
CAPITAL
(DEFICIT)
-------------
(IN MILLIONS)
<S> <C>
Balance at September 30, 1995............................... $ 8.1
Net income.................................................. 39.9
Dividends to USI............................................ (13.6)
Net transactions with Affiliates............................ (12.1)
Translation adjustment...................................... 1.0
Minimum pension liability adjustment........................ (0.2)
------
Balance at September 30, 1996............................... 23.1
Net income.................................................. 49.4
Net transactions with Affiliates............................ 10.0
Translation adjustment...................................... (1.0)
Minimum pension liability adjustment........................ 0.6
------
Balance at September 30, 1997............................... 82.1
Net loss.................................................... (23.5)
Net transactions with Affiliates............................ 73.3
Translation adjustment...................................... (1.9)
Minimum pension liability adjustment........................ (4.0)
------
Balance at September 30, 1998............................... 126.0
Net income (unaudited)...................................... 19.3
Dividends to USI (unaudited)................................ (203.0)
Net transactions with Affiliates (unaudited)................ (9.7)
Translation adjustment (unaudited).......................... 2.3
------
Balance at June 30, 1999 (unaudited)........................ $(65.1)
------
------
</TABLE>
See notes to combined financial statements.
F-7
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF COMPANY
The accompanying combined financial statements include the combined
operations, assets and liabilities of certain operations and other interests
currently owned, directly or indirectly, by U.S. Industries, Inc. ('USI').
In contemplation of the spin-off and distribution to its stockholders by
USI of the ownership in Strategic Industries, Inc. (the 'Company'), all the
issued and outstanding common stock or net operating assets of certain companies
and other assets and interests will be transferred to the Company (the 'Spin-off
Transactions'). At June 30, 1999, the Company had no separate legal status or
existence as a combined group. These financial statements are presented on a
going concern basis as if the Company had existed as a corporation separate from
USI during the periods presented and include the historical net assets and
results of operations directly related to the Company's operations. The combined
financial data for the nine months ended June 30, 1998 and 1999 are unaudited.
In the opinion of the Company they have been prepared on a basis consistent with
that for the three year period ended September 30, 1998. The interim financial
data include all adjustments that management considered necessary for a fair
presentation of interim results.
USI and certain subsidiaries of USI (referred to herein as 'Affiliates')
have provided certain corporate general and administrative services to the
Company including legal, finance, tax, risk management and employee benefits. A
portion of the related costs has been allocated to the Company based on the
percentage of the Company's sales to the consolidated sales of USI as management
fees. The Company's management believes such amounts are reasonable; however,
they may not be indicative of the Company's ongoing costs as a separate public
entity. Additionally, the direct costs attributable to division management are
included in management fees and divisional overhead in the accompanying combined
financial statements.
The Company, through its subsidiaries, manufactures and distributes a broad
range of products. The subsidiaries are grouped into three segments: Consumer
Products, Automotive Interior Products and Precision Engineered Products.
In January 1997, an initial public offering of 25% of the shares of the
Company's then wholly owned subsidiary Jade Technologies Singapore Ltd ('Jade'),
a manufacturer of leadframes for the electronics industry, was completed. Jade
sold 8 million shares generating cash proceeds of approximately $3.8 million.
The Company recorded a gain of $0.8 million ($0.7 million after provision for
deferred income taxes) in connection with the sale. Immediately after the
transaction, the Company owned approximately 75% of the outstanding shares of
Jade.
NOTE 2. ACCOUNTING POLICIES
Fiscal Year: The Company's fiscal year ends on the Saturday nearest to
September 30. All fiscal year data contained herein reflect results of
operations for the 52, 52 and 53 week periods ended on the Saturday nearest to
September 30, 1996, 1997 and 1998, respectively, but are presented as of such
date for convenience of reference. All interim June 30 data contained herein
reflect results of operations for the 40 and 39 week periods ending on the
Saturday nearest to June 30, 1998 and 1999, respectively, but are presented as
of such date for convenience of reference.
Principles of Combination: The combined financial statements include the
accounts of the Company and its subsidiaries. Intercompany accounts and
transactions are eliminated. Companies, which are 20% to 50% owned, are
accounted for using the equity method.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
F-8
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents: Cash equivalents represent short-term, highly liquid
investments, which have maturities of ninety days or less when purchased. Except
for certain cash balances owned by the Company, cash accounts have been
controlled on a centralized basis by an Affiliate. Accordingly, cash receipts
and disbursements have been made through Affiliates. The net results of cash
transactions between or on behalf of the Company, including intercompany
advances are included in the combined balance sheets in invested capital
(deficit).
Depreciation and Amortization:
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE NINE
YEARS ENDED MONTHS ENDED
SEPTEMBER 30, JUNE 30,
--------------------- -------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Depreciation..................................... $13.2 $13.3 $17.3 $13.2 $15.6
Amortization of goodwill......................... 5.4 5.4 5.5 4.1 2.9
Amortization of unearned restricted stock
of USI......................................... 0.6 0.5 0.5 0.3 0.2
----- ----- ----- ----- -----
$19.2 $19.2 $23.3 $17.6 $18.7
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
Trade Receivables and Concentrations of Credit Risk:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------
1997 1998
---- ----
(IN MILLIONS)
<S> <C> <C>
Trade receivables........................................... $108.3 $153.3
Allowance for doubtful accounts............................. (4.1) (6.8)
------ ------
$104.2 $146.5
------ ------
------ ------
</TABLE>
The Company operates in the United States and, to a lesser extent, in
Europe, Asia and Mexico. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral. Credit
losses have been within management's estimates. At September 30, 1997 and 1998
approximately 26.9% and 25.9%, respectively, of trade receivables were from four
customers in the automotive industry. Sales from these customers totaled 30.1%,
34.8% and 34.5% of the Company's sales in 1996, 1997 and 1998, respectively. The
Company may be impacted significantly by the economic stability of the
automotive industry or by the loss of one or more of these customers.
Inventories:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------- AT JUNE 30,
1997 1998 1999
---- ---- ----
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Finished products........................................ $ 61.7 $ 66.6 $ 66.8
In-process products...................................... 39.5 40.5 37.5
Raw materials............................................ 25.8 32.0 34.8
------ ------ ------
$127.0 $139.1 $139.1
------ ------ ------
------ ------ ------
</TABLE>
Inventories are valued at the lower of cost, determined under the first-in,
first-out method, or market.
F-9
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------- AT JUNE 30,
1997 1998 1999
---- ---- ----
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Land and buildings...................................... $ 61.7 $ 62.0 $ 64.0
Machinery, equipment and furniture...................... 178.9 221.9 233.4
Accumulated depreciation................................ (140.7) (151.0) (163.5)
------ ------ ------
$ 99.9 $132.9 $133.9
------ ------ ------
------ ------ ------
</TABLE>
Property, plant and equipment are stated on the basis of cost less
accumulated depreciation provided under the straight-line method.
In March 1998, the AICPA issued Statement of Position 98-1, Accounting For
the Costs of Computer Software Developed For or Obtained For Internal Use (the
'SOP'). The Company adopted the SOP on October 1, 1998. The SOP requires the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. The impact of
adopting this SOP was not material.
Goodwill: Goodwill represents the excess of the purchase price over the
fair value of net assets acquired. The Company reviews operating results and
other relevant facts every fiscal quarter for each of its businesses to
determine if there are indications that the carrying value of an enterprise may
be impaired. The fair value methodology is used by the Company to ascertain the
recoverability of the carrying value of an enterprise, when there are
indications of impairment. In the event that such fair value is below the
carrying value of an enterprise, for those companies with goodwill, the Company
first reduces goodwill and then other long-lived assets to the extent such
differential exists.
The fair value methodology is applied to determine the recoverable value
for each business on a stand-alone basis using ranges of fair values obtained
from independent appraisers. In developing these ranges, the independent
appraisers consider (a) publicly available information, (b) financial
projections of each business based on management's best estimate, (c) the future
prospects of each business as discussed with senior operating and financial
management, (d) publicly available information regarding comparable publicly
traded companies in each industry, (e) market prices, capitalization and trading
multiples of comparable public companies and (f) other information deemed
relevant. In reviewing these valuations and considering the need to record a
charge for impairment of enterprise value and goodwill to the extent it is part
of the enterprise value, the Company also evaluates solicited and unsolicited
bids for the businesses of the Company.
Goodwill is amortized on a straight-line basis over the estimated future
periods to be benefitted (ranging from 20 to 40 years, primarily 40 years).
Accumulated amortization aggregated $65.1 million and $49.3 million at
September 30, 1997 and 1998, respectively. Amortization and adjustments to the
carrying value of goodwill amounted to $5.4 million, $5.4 million and $60.5
million for fiscal 1996, 1997 and 1998, respectively.
Accrued Expenses and Other Liabilities:
Accrued expenses and other liabilities (current) consist of the following:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------
1997 1998
---- ----
(IN MILLIONS)
<S> <C> <C>
Compensation related............................... $24.8 $22.7
Deferred revenue................................... 10.2 3.5
Other.............................................. 14.7 30.1
----- -----
$49.7 $56.3
----- -----
----- -----
</TABLE>
F-10
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency Translation: The functional currency of each of the
Company's foreign operations is the local currency. Assets and liabilities of
foreign subsidiaries are translated at the exchange rates in effect at the
balance sheet dates, while revenue, expenses and cash flows are translated at
average exchange rates for the period. Translation gains and losses are included
in invested capital (deficit).
Income Taxes: Deferred tax assets and liabilities are computed based on the
difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws. Deferred income tax expense or
benefit is based on the changes in the asset or liability from period to period.
Certain of the Company's United States earnings have been included in the
consolidated federal income tax return filed by USI. Pursuant to an informal tax
allocation agreement, the Company provided for income taxes as if it filed
separate income tax returns. Taxes currently payable have been included in
invested capital (deficit).
Upon completion of the anticipated spin-off, such operations would no
longer qualify to be members of the USI consolidated group and, accordingly,
will file the applicable income tax returns in the appropriate jurisdictions.
The Company and certain of its subsidiaries will enter into tax sharing and
indemnification agreements in which USI and certain of its subsidiaries
generally will agree to indemnify the Company and its subsidiaries for all
income tax liabilities in respect to periods prior to such spin-off.
Revenue Recognition: Revenue is recognized upon shipment of product to the
customer. Provisions are made for warranty and return costs at the time of sale.
Such provisions have not been material.
Advertising Costs: Advertising costs are expensed as incurred. Such amounts
totaled $2.0 million, $2.2 million and $2.3 million for fiscal 1996, 1997 and
1998, respectively.
Research and Development Costs: Research and development costs are expensed
as incurred. Such amounts totaled $1.5 million, $1.3 million and $0.9 million
for fiscal 1996, 1997 and 1998, respectively.
Fair Value of Financial Instruments: The fair value of all short-term
financial instruments approximate their carrying value due to their short
maturity. The fair value of the notes payable to Affiliates is also estimated to
approximate their carrying amount since it is contemplated that these notes will
be repaid at face value upon the completion of the spin-off and distribution.
The fair value of all other long-term financial instruments approximated
carrying value as they were based on terms that continue to be available to the
Company.
Derivative Financial Instruments: The Company uses foreign exchange forward
contracts on a limited basis to manage exposure to fluctuating foreign
currencies. The foreign currency forward contracts are marked to market at the
end of each period and any resulting gain or loss is recognized immediately in
income.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted beginning in fiscal 2001. This statement will require the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. Management does not anticipate that the adoption of the new statement
will have a significant effect on earnings or the financial position of the
Company.
Segment Reporting: In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information (Statement 131), which is
effective for years beginning after December 15, 1997. This statement
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected
F-11
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company will adopt the new
requirements retroactively in fiscal 1999. Management does not anticipate that
the adoption of this statement will have a significant effect on the Company's
reported segments.
Stock Based Compensation: The Company has not historically had stock based
compensation plans separate from USI. However, the Company expects to adopt its
own stock based compensation plan upon the spin-off. After the spin-off, the
Company will apply Accounting Principles Board Opinion No. 25, 'Accounting for
Stock Issued to Employees' and related interpretations in measuring compensation
costs for its stock options and will disclose pro forma net income and net
income per share as if compensation costs had been determined consistent with
the SFAS No. 123, 'Accounting for Stock-based Compensation'. The Company has no
stock options outstanding as of March 31, 1999.
Earnings Per Share: Historical earnings per share are not presented because
the Company was comprised of direct or indirect subsidiaries of the Parent.
NOTE 3. ACQUISITIONS
The pro forma effect of the acquisitions and the aggregate assets acquired
and liabilities assumed as detailed below are not material. These acquisitions
have been accounted for as purchases and their results of operations have been
included in the financial statements from the date of acquisition.
In July 1996, the Company acquired an equity interest in United Pacific
Industries Limited ('United Pacific'), a limited liability company incorporated
in Bermuda and listed on the Stock Exchange of Hong Kong. United Pacific
manufactures voltage converters, other electronic components and consumer
products. At September 30, 1998, the Company had beneficial ownership of
approximately 20% of United Pacific with a carrying value of approximately $18.1
million. The results of United Pacific are accounted for under the equity method
and are included in the Precision Engineered Products operations. At
September 30, 1998 and June 30, 1999, the market value of the Company's equity
investment in United Pacific was approximately $14.4 million and $9.6 million,
respectively.
In January 1998, the Company acquired certain semiconductor leadframe
assets from Philips Semi-Conductors B.V. for $15.8 million in cash. The acquired
operations facilities are located in the Netherlands. The results of these
acquired operations are included in the Precision Engineered Products
operations.
In May 1998, the Company purchased certain flat shadow mask assets from
Philips Components B.V. ('FSM') for $30.9 million, resulting in goodwill of
approximately $11.7 million. The Company and Philips have entered into a
multi-year supply agreement. The acquired operations are located in the
Netherlands. The results of FSM are included in the Precision Engineered
Products operations.
NOTE 4. GOODWILL IMPAIRMENT AND RESTRUCTURING CHARGES
In June 1998, USI reviewed its long-term strategy and reviewed each
operating company's performance and future prospects. As a result, USI adopted a
plan to improve efficiency and enhance competitiveness at some of its
operations, including some now held by the Company. In addition, due to
indications of impairment, USI evaluated the recoverability of certain of the
Company's long-lived assets, primarily goodwill at Garden State. In arriving at
the fair value of Garden State, USI considered a number of factors including:
(1) annual price concessions in the automotive industry and Garden State's
inability to reduce costs due to antiquated facilities and equipment, (2) a
dramatic decline in scrap leather prices attributable to the Asian economic
crisis, (3) the amount of capital investment that would be required to make
Garden State a lower cost manufacturer, (4) Garden State's long-term financial
plan and (5) analysis of values for similar companies. In determining the amount
of the impairment, USI compared the net book values to the estimated fair values
of Garden State. Based on
F-12
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the above, USI determined that an impairment to goodwill of $55.0 million was
necessary which will reduce future goodwill amortization by $2.1 million per
annum.
The restructuring plan included the closing of a manufacturing facility in
the footwear operation and the exit from the lace manufacturing business of the
textile operation. The production and distribution activities of the footwear
facility were either outsourced or consolidated into existing facilities. The
restructuring plan included a reduction in the work force by approximately 500
employees, which included salaried and administrative employees at the
restructured facilities as well as administrative and executive employees
throughout the Consumer Products Group. As of September 30, 1998 approximately
300 employees had been terminated. In certain cases severance and related
benefits will be paid subsequent to the termination date.
The restructuring is not anticipated to have a significant impact on the
ongoing operations during the periods that manufacturing is transitioned from
the facilities to be closed. The expected benefits from the restructuring are
primarily reduced depreciation; reduced fixed costs associated with leased
facilities and reduced compensation costs. The final anticipated benefit will be
approximately $1 million per year, which will be realized subsequent to the
completion of the restructuring plan. The Company expects that approximately
100% of the annual benefit will be realized in fiscal 1999 and thereafter.
The principal components of the goodwill impairment and restructuring
charges consist of:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Impairment of goodwill...................................... $55.0
Lease obligations and impairment of equipment............... 1.6
Severance and related costs................................. 6.2
-----
Total.................................................. $62.8
-----
-----
Cash charges................................................ $ 6.4
Non-cash charges............................................ 56.4
-----
Total.................................................. $62.8
-----
-----
</TABLE>
Cash charges of $1.5 million were paid prior to September 30, 1998. By
June 30, 1999 amounts paid totalled $4.2 million. Additionally, $0.6 million of
such charges were reversed during the nine months ended June 30, 1999 due to a
revision of estimates and amounts paid which were less than originally
anticipated. This reversal is included in goodwill impairment and
restructuring charges. The remaining cash charges will be paid by
September 30, 1999, or through the respective lease termination date.
In addition to the $62.8 million of goodwill impairment and restructuring
charges, in connection with the restructuring plan noted above, the Company
incurred inventory obsolescence and other related costs aggregating $8.3
million. These costs are reflected in cost of products sold and selling, general
and administrative expenses.
After an income tax benefit of $6.5 million, the $71.1 million of charges
detailed above reduced net income for fiscal 1998 by $64.6 million.
F-13
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------- AT JUNE 30,
1997 1998 1999
---- ---- ----
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Jade debt....................................... $12.0 $32.2 $30.5
Other........................................... 0.5 -- --
----- ----- -----
12.5 32.2 30.5
Less current maturities......................... 0.5 2.1 1.0
----- ----- -----
Long-term debt.................................. $12.0 $30.1 $29.5
----- ----- -----
----- ----- -----
</TABLE>
Principal payments on long-term debt for the next five years ended
September 30 are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
1999............................................ $ 2.1
2000............................................ 3.0
2001............................................ 20.2
2002............................................ 1.0
2003............................................ 5.9
-----
$32.2
-----
-----
</TABLE>
At September 30, 1998, the Company has unsecured notes and accrued interest
payable to Affiliates in the amount of $312.2 million which mature in fiscal
2005. Interest is payable annually at 6.5% per annum. During 1997, Affiliates
forgave $53.0 million of notes which was included within net transactions with
Affiliates in the Statement of Invested Capital (Deficit) for such period.
Interest paid during the nine months ended June 30, 1999 was
$20.4 million, including $20.3 million paid to an Affiliate. Interest paid was
$31.9 million, $25.0 million and $21.8 million for fiscal 1996, 1997 and 1998,
respectively, which included interest paid to an Affiliate of $31.7 million,
$24.0 million and $19.1 million, respectively.
At September 30, 1998, the Company had long-term indebtedness of
$14.2 million and $18.0 million denominated in Dutch guilders and Hong Kong
dollars, respectively (collectively 'Jade debt'). The interest rates on the Jade
debt range from 4.75% to 12.38%. A portion of the Jade debt is guaranteed by an
Affiliate with the remaining amount secured by the assets of the borrower. These
borrowings hedge a portion of the Company's net investments in a Dutch operating
company and a Hong Kong equity investment.
NOTE 6. PENSION PLANS
USI and its subsidiaries have noncontributory defined benefit pension plans
covering substantially all of its United States employees. The benefits under
these plans are based primarily on years of credited service and compensation as
defined under the respective plan provisions. USI's funding policy is to
contribute amounts to the plans sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974,
plus such additional amounts as USI may determine to be appropriate from time to
time. During fiscal 1998, certain plans of the Company were consolidated with
other USI plans with no changes to benefit formulas. Information regarding the
components of net periodic cost and the funded status of the USI plans with
respect solely to the Company's employees is not available for 1998.
F-14
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
USI and certain of its subsidiaries sponsor defined contribution plans
which provide defined benefits to union employees of the Company's subsidiaries.
Contributions relating to defined contribution plans are made based upon the
respective plans' provisions.
Net periodic pension cost for the Company's defined benefit plans covering
employees in the United States and the total contributions charged to pension
expense for defined contribution plans covering employees in the United States
are presented below. Net periodic income for the Company's plans which were
consolidated with other USI plans is included in the cost of participation in a
USI plan:
<TABLE>
<CAPTION>
FOR THE FISCAL
YEARS ENDED
SEPTEMBER 30,
-----------------------
1996 1997 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Defined benefit plans:
Service cost -- benefits earned during the period...... $ 4.2 $ 4.0 $ 1.9
Interest cost on projected benefit obligation.......... 9.3 8.9 2.1
Actual return on plan assets........................... (22.8) (52.2) 1.0
Net amortization and deferral.......................... 5.2 33.2 (3.2)
Gain due to curtailment................................ (1.4) (0.8) --
Cost of participation in a USI plan.................... -- -- (4.5)
------ ------ -----
Net periodic pension income for defined benefit plans....... (5.5) (6.9) (2.7)
Defined contribution plans.................................. 1.7 0.2 0.2
------ ------ -----
Net periodic pension income....................... $ (3.8) $ (6.7) $(2.5)
------ ------ -----
------ ------ -----
</TABLE>
Assumptions used in the accounting for the defined benefit plans were as
follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate............. 7.50% to 7.75% 7.00% to 7.50% 6.75%
Rates of increase in compensation levels... 4.50% to 7.75% 4.10% to 4.50% 4.5% to 5.75%
Expected long-term rate of return on
assets................................... 9% 9% 9%
</TABLE>
The change in the weighted average discount rate from a range of 7.0% to
7.5% for fiscal 1997 to 6.75% for fiscal 1998 and other actuarial assumptions
caused the projected benefit obligation at September 30, 1998 to increase by
approximately $14.0 million.
F-15
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status and amounts recognized in the combined balance sheets at
September 30, 1997 and 1998 for the Company's defined benefit pension plans are:
<TABLE>
<CAPTION>
1997 1998
----------------------------- -----------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
-------- ------------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation........... $(111.9) $(0.9) -$- $(23.2)
Nonvested benefit obligation........ (3.7) (0.3) -- (1.6)
------- ----- ----- ------
Accumulated benefit obligation........... $(115.6) $(1.2) -$- $(24.8)
------- ----- ----- ------
------- ----- ----- ------
Projected benefit obligation............. $(124.6) $(1.3) -$- $(24.9)
Plan assets at fair value................ 244.6 0.2 18.1
------- ----- ----- ------
Projected benefit obligation less than
(or in excess of) plan assets.......... 120.0 (1.1) -- (6.8)
Add (deduct):
Unrecognized prior service cost..... 2.9 0.3 -- 3.0
Unrecognized net (gain) loss........ (65.9) 0.1 -- 6.2
Unrecognized net asset at date of
adoption, net of amortization..... (6.1) -- -- (0.2)
Adjustment required to recognize
minimum liability................. -- (0.3) -- (9.0)
------- ----- ----- ------
Prepaid (accrued) pension costs.......... 50.9 (1.0) -- (6.8)
Prepaid cost of participation in a USI
plan................................... -- -- 54.3 --
------- ----- ----- ------
Total prepaid (accrued) pension costs.... $ 50.9 $(1.0) $54.3 $ (6.8)
------- ----- ----- ------
------- ----- ----- ------
</TABLE>
The Company's plan assets are included in a master trust managed by USI,
which principally invests in listed stocks and bonds, including common stock of
USI. USI's common stock included in plan assets was less than 2% of the master
trust's assets at September 30, 1997 and 1998, respectively.
The tables above set forth the historical components of net periodic
pension cost and a reconciliation of the funded status of the pension plans for
the employees associated with the Company and is not necessarily indicative of
the amounts to be recognized by the Company on a prospective basis.
F-16
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. POSTRETIREMENT PLANS
The Company provides health care and life insurance benefits to certain
groups of retirees.
The following table presents the unfunded status of the plans reconciled
with amounts recognized in the Company's combined balance sheets:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------
1997 1998
---- ----
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.............................................. $(3.6) $(4.3)
Fully eligible active plan participants............... (1.3) (0.9)
Other active plan participants........................ (3.5) (4.6)
----- -----
(8.4) (9.8)
Unrecognized prior service cost............................ 0.3 0.4
Unrecognized gain.......................................... (1.2) (0.4)
----- -----
$(9.3) $(9.8)
----- -----
----- -----
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
FOR THE FISCAL
YEARS ENDED
SEPTEMBER 30,
---------------------------
1996 1997 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost............................................ $ 0.3 $ 0.3 $ 0.3
Interest cost........................................... 0.6 0.6 0.6
------- ------- -------
Net periodic postretirement benefit cost................ $ 0.9 $ 0.9 $ 0.9
------- ------- -------
------- ------- -------
</TABLE>
The weighted average annual assumed rate of increase in the health care
cost trend rate ranged from 8.5% to 10.0% for fiscal 1998 and is assumed to
decrease 0.5% a year to 5.0% to 5.5%. The effect of increasing the assumed
health care cost trend rate by 1% in each year would increase the accumulated
post-retirement benefit obligation as of September 30, 1998 by $1.2 million and
the aggregate of service and interest components of net periodic post retirement
benefit for 1998 by less than $1.6 million.
The weighted average discount rate used was 7.75%, 7.50% and 6.75% at
September 30, 1996, 1997 and 1998, respectively.
The tables above set forth the historical components of net periodic post
retirement benefit cost and a reconciliation of the funded status of the post
retirement benefit plans for the employees associated with the Company and is
not necessarily indicative of the amounts to be recognized by the Company on a
prospective basis.
F-17
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. LEASES
Rental expense for operating leases was $4.2 million, $4.7 million and
$5.5 million for the fiscal years ended September 30, 1996, 1997 and 1998,
respectively.
Future minimum rental commitments under noncancellable operating leases as
of September 30, 1998 are:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
1999............................................ $ 7.7
2000............................................ 6.1
2001............................................ 4.7
2002............................................ 3.3
2003............................................ 2.4
Thereafter...................................... 9.1
-----
$33.3
-----
-----
</TABLE>
NOTE 9. INCOME TAXES
Income before income taxes consists of:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
ENDED SEPTEMBER 30,
--------------------
1996 1997 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
United States........................................... $66.8 $81.6 $1.1
Foreign................................................. 1.5 3.1 2.2
----- ----- ----
$68.3 $84.7 $3.3
----- ----- ----
----- ----- ----
</TABLE>
The provisions (benefit) for federal, foreign, and state income taxes
consist of:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
ENDED SEPTEMBER 30,
---------------------
1996 1997 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Current:
Federal........................................... $21.4 $27.3 $21.6
Foreign........................................... 0.5 1.0 3.0
State............................................. 2.9 3.7 2.1
----- ----- -----
24.8 32.0 26.7
Deferred.......................................... 3.6 3.3 (1.1)
----- ----- -----
$28.4 $35.3 $25.6
----- ----- -----
----- ----- -----
</TABLE>
F-18
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's effective income tax provision differs from the statutory
federal income tax provision as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
ENDED SEPTEMBER 30,
---------------------
1996 1997 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Statutory federal income tax provision................. $23.9 $29.6 $ 1.2
Foreign income tax differential........................ -- (0.6) 1.8
State income taxes (net of federal benefit)............ 1.9 2.4 1.4
Goodwill amortization.................................. 2.0 1.8 1.6
Goodwill impairment.................................... -- -- 19.3
Miscellaneous.......................................... 0.6 2.1 0.3
----- ----- -----
$28.4 $35.3 $25.6
----- ----- -----
----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------
1997 1998
---- ----
(IN MILLIONS)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment.......................... $ (5.7) $ (6.9)
Inventory.............................................. (3.0) (0.3)
Net pension assets..................................... (17.3) (17.1)
------ ------
Total deferred tax liabilities.................... (26.0) (24.3)
Deferred tax assets:
Accruals and allowances................................ 10.2 12.6
Postretirement benefits................................ 2.8 3.0
Deductible goodwill.................................... 10.1 9.2
------ ------
Total deferred tax assets......................... 23.1 24.8
------ ------
Net deferred tax (liability) asset................ $ (2.9) $ 0.5
------ ------
------ ------
</TABLE>
The classification of the deferred tax balances is:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------
1997 1998
---- ----
(IN MILLIONS)
<S> <C> <C>
Current asset............................................... $ 1.4 $ 2.7
Current liability........................................... (3.0) (0.3)
------ ------
(1.6) 2.4
Noncurrent asset............................................ 21.7 22.1
Noncurrent liability........................................ (23.0) (24.0)
------ ------
(1.3) (1.9)
------ ------
Net deferred tax (liability) asset.......................... $ (2.9) $ 0.5
------ ------
------ ------
</TABLE>
NOTE 10. STOCK COMPENSATION PLANS
Certain key employees of the Company participate in stock incentive plans
of USI that provide for awards of restricted stock and options to purchase USI
common stock at prices equal to the fair value of the underlying shares at the
date of grant. The compensation expense related to the award of USI restricted
stock to key employees of the Company was $0.6 million, $0.5 million and $0.5
milion for
F-19
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
fiscal 1996, 1997 and 1998, respectively, and is included in the combined
financial statements of the Company.
Options awarded to employees of the Company under the USI plans vest 25%
per year until fully vested after four years. In accordance with the Company's
options policy, those options of each effected employee which are next scheduled
to vest, will vest immediately upon the spin-off. Any options, which are not
vested at that point, will be forfeited. Any vested options which are not
exercised within 90 days of the spin-off, subject to retirement provisions
within the USI plans, will also be forfeited.
Restrictions on stock awarded to employees of the Company under the USI
plans lapse either in tranches periodically throughout a seven-year period or at
the expiration of the seven-year period. Upon the spin-off, the restrictions
will lapse for the next scheduled tranche or on a portion of the awards
proportionate to the period of time which has passed since the date of grant.
Any shares on which restrictions have not lapsed as of the spin-off date will be
forfeited.
Under USI's compensation plans, the independent directors, officers and
employees may be granted options to purchase USI's stock at no less than the
fair market value of the date of the option grant. The Company has adopted the
disclosure-only provisions of SFAS 123. Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation cost for USI's
stock option plan been determined based on the fair market value at the grant
date for awards in fiscal 1998, 1997 and 1996, consistent with the provision of
SFAS 123, the Company's net income (loss) would have been adjusted to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
------------------------------------
1996 1997 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Net income (loss) -- as reported............... $ 39.9 $49.4 $(22.3)
Net income (loss) -- pro forma................. 39.9 49.2 (22.5)
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years. The fair
value for these options was estimated at the date of grant using the
Black-Scholes model with the following assumptions:
<TABLE>
<CAPTION>
USI PLANS
---------
<S> <C> <C>
Expected dividend yield at date of grant:
1998............................................... 1%
1997 and 1996...................................... 0%
Expected stock price volatility:
1998............................................... 40%
1997 and 1996...................................... 36%
Risk-free interest rate:
1998............................................... 5.42%
1997............................................... 5.85%
1996............................................... 5.89%
Expected life of options................................ 4 years
</TABLE>
The weighted-average fair value of options, calculated using the
Black-Scholes option pricing model, granted during 1996, 1997 and 1998 is $4.23,
$6.69 and $6.95, respectively.
F-20
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option activity and related information
for the years ended September 30 follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of
year........................... 1,130,455 $ 8.75 1,213,719 $ 9.09 1,206,277 $10.38
Granted.......................... 104,648 12.69 145,973 20.60 13,500 24.04
Exercised........................ (18,571) 8.75 (76,515) 8.96 (383,476) 9.32
Non-exercised.................... (2,813) 10.33 (76,900) 10.77 (31,640) 13.35
--------- ------ --------- ------ --------- ------
Outstanding -- end of year....... 1,213,719 $ 9.09 1,206,277 $10.38 804,661 $11.00
--------- ------ --------- ------ --------- ------
--------- ------ --------- ------ --------- ------
Exercisable -- end of year....... 277,971 $ 8.75 512,154 $ 8.92 519,411 $ 9.67
--------- ------ --------- ------ --------- ------
--------- ------ --------- ------ --------- ------
</TABLE>
The following table summarizes the status of the stock options outstanding
and exercisable at September 30, 1998:
<TABLE>
<CAPTION>
STOCK OPTIONS
STOCK OPTIONS OUTSTANDING EXERCISABLE
---------------------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
RANGE OF EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- ------------------------ --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$8.75 to $10.33................... 650,776 6.69 $ 8.86 476,761 $ 8.83
$14.92 to $17.67.................. 32,213 8.01 16.39 14,607 16.31
$20.50 to $26.00.................. 121,672 8.27 21.02 28,043 20.60
------- ---- ------ ------- ------
Total............................. 804,661 7.22 $11.00 519,411 $ 9.67
------- ---- ------ ------- ------
------- ---- ------ ------- ------
</TABLE>
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company is subject to a wide range of environmental protection laws.
The Company has remedial and investigatory activities underway at approximately
five sites. In addition, the Company has been named as a Potentially Responsible
Party ('PRP') at seven 'Superfund' sites pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or comparable
statutes.
It is often difficult to estimate the future impact of environmental
matters, including potential liabilities. The Company accrues for losses
associated with environmental remediation obligations when such losses are
probable and reasonably estimable. This practice is followed whether the claims
are asserted or unasserted. Reserves for estimated losses from environmental
remediation are, depending on the site, based primarily upon internal or third
party environmental studies, and estimates as to the number, participation level
and financial viability of any other PRP's, the extent of contamination and the
nature of required remedial actions. Such accruals are adjusted as further
information develops or circumstances change. Costs of future expenditures for
environmental remediation obligations are not discounted to their present fair
value unless the aggregate amount of the obligation and the amount and timing of
the cash payments are fixed or readily determinable. Recoveries of environmental
remediation costs from other parties are recognized as assets when their receipt
is deemed probable. Management expects that the amount reserved will be paid out
over the periods of remediation for the applicable sites which range up to 30
years and that such reserves are adequate based on all current data. Each of the
sites in question is at various stages of investigation or remediation; however,
no information currently available reasonably suggests that projected
expenditures associated with remedial action or compliance with environmental
laws for any single site or for all sites in the aggregate, will have a material
adverse affect on the Company's financial condition, results of operations or
cash flows.
F-21
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
At September 30, 1998, the Company had accrued approximately $3.7 million
($0.5 million accrued as current liabilities; $3.2 million as non-current
liabilities) for various environmental related liabilities of which the Company
is aware. The Company believes that the range of liability for such matters is
between approximately $1.5 million and $4.5 million.
Also, certain of the Company's subsidiaries are defendants or plaintiffs in
lawsuits that have arisen in the normal course of business. While certain of
these matters involve substantial amounts, it is management's opinion, based on
the advice of counsel, that the ultimate resolution of such litigation and
environmental matters will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
NOTE 12. SEGMENT DATA
The Company's operations are classified into three business segments:
Consumer Products, Precision Engineered Products and Automotive Interior
Products. Net sales and operating income (loss) for each of the Company's
business segments were:
<TABLE>
<CAPTION>
FOR THE FISCAL
YEARS ENDED
SEPTEMBER 30,
------------------------
1996 1997 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Net Sales
Consumer Products.............................. $413.1 $409.1 $410.7
Precision Engineered Products.................. 73.9 89.2 138.1
Automotive Interior Products................... 250.7 309.6 339.7
------ ------ ------
Total Net Sales........................... $737.7 $807.9 $888.5
------ ------ ------
------ ------ ------
Operating Income (Loss)(1)
Consumer Products.............................. $ 80.6 $ 80.7 $ 48.5
Precision Engineered Products(2)............... 12.3 19.4 28.0
Automotive Interior Products................... 17.1 19.2 (44.5)
------ ------ ------
110.0 119.3 32.0
Management fees and divisional overhead........ (8.8) (10.4) (6.8)
------ ------ ------
Total Operating Income.................... $101.2 $108.9 $ 25.2
------ ------ ------
------ ------ ------
</TABLE>
- ------------
(1) Operating income for the year ended September 30, 1998 includes goodwill
impairment and restructuring charges of $62.8 million and other related
charges of approximately $8.3 million. Of these charges, $15.7 million
relates to Consumer Products and $55.4 million relates to Automotive
Interior Products.
(2) Fiscal 1997 and 1998 operating income for the Precision Engineered Products
segment includes $1.7 million and $(2.4) million, respectively, of equity
earnings (loss) from the Company's investment in United Pacific. The fiscal
1998 equity loss of $(2.4) million includes a charge of $4.0 million
associated with an impairment of a subsidiary of United Pacific.
F-22
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE FISCAL
YEARS ENDED
SEPTEMBER 30,
------------------------
1996 1997 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Identifiable Assets
Consumer Products...................................... $309.3 $324.3 $351.3
Precision Engineered Products.......................... 58.2 73.7 150.2
Automotive Interior Products........................... 191.2 186.2 143.0
------ ------ ------
558.7 584.2 644.5
Corporate.............................................. 4.7 -- 0.1
------ ------ ------
Total Identifiable Assets......................... $563.4 $584.2 $644.6
------ ------ ------
------ ------ ------
Depreciation and Goodwill Amortization
Consumer Products...................................... $ 8.9 $ 8.5 $ 9.8
Precision Engineered Products.......................... 2.7 3.1 6.4
Automotive Interior Products........................... 7.0 7.1 6.6
------ ------ ------
Total Depreciation and Goodwill Amortization...... $ 18.6 $ 18.7 $ 22.8
------ ------ ------
------ ------ ------
Capital Expenditures
Consumer Products...................................... $ 3.2 $ 5.8 $ 15.4
Precision Engineered Products.......................... 4.5 7.3 7.8
Automotive Interior Products........................... 2.1 4.6 4.1
------ ------ ------
Total Capital Expenditures........................ $ 9.8 $ 17.7 $ 27.3
------ ------ ------
------ ------ ------
</TABLE>
NOTE 13. GEOGRAPHIC AREAS FINANCIAL DATA
The Company's operations are conducted primarily in the United States, and
to a lesser extent, in other regions of the world. Exported sales represented
32%, 32% and 29% of the Company's total net sales for fiscal years 1996, 1997
and 1998, respectively.
Principal international markets served include Asia, Europe, South America,
and Canada. Export sales of U.S. operations were:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
------------------------
1996 1997 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Asia................................................ $ 89.1 $120.9 $152.8
Other............................................... 145.0 139.4 103.9
------ ------ ------
Total.......................................... $234.1 $260.3 $256.7
------ ------ ------
------ ------ ------
</TABLE>
F-23
<PAGE>
STRATEGIC INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents certain data by geographic areas:
<TABLE>
<CAPTION>
FOR THE FISCAL
YEARS ENDED
SEPTEMBER 30,
------------------------
1996 1997 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Net Sales
United States.......................................... $719.9 $771.9 $804.2
Foreign................................................ 17.8 36.0 84.3
Operating Income(1)
United States.......................................... 100.0 106.2 19.9
Foreign................................................ 1.2 2.7 5.3
Identifiable Assets
United States.......................................... 537.4 540.1 527.6
Foreign................................................ 26.0 44.1 117.0
</TABLE>
- ------------
(1) Operating income for the year ended September 30, 1998 includes goodwill
impairment and restructuring charges of $62.8 million and other related
charges of approximately $8.3 million. All of these charges and costs relate
to operating earnings within the United States.
NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial information for the fiscal years ended
September 30, 1997 and 1998 and the nine months ended June 30, 1999 is as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------------------------------------- --------------------------------------- ------------------
QUARTER ENDED DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
- ------------- ------- -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $192.3 $201.8 $209.5 $204.3 $215.6 $234.4 $213.8 $224.7 $220.7 $227.3
Gross profit......... 57.3 58.4 59.5 56.9 59.4 59.6 56.1 43.9 54.7 55.9
Net income (loss).... 11.4 12.9 12.8 12.3 14.8 14.4 (51.2) (0.3) 9.1 7.9
<CAPTION>
1999
-------
QUARTER ENDED JUNE 30
- ------------- -------
<S> <C>
Net sales............ $203.0
Gross profit......... 46.0
Net income (loss).... 2.3
</TABLE>
The results for the quarters ended June 30 and September 30, 1998 include
$59.1 million and $3.7 million of goodwill impairment and restructuring charges,
respectively, and other related charges of $1.7 million and $6.6 million,
respectively. The results for the quarter ended June 30, 1999 include $1.1
million of restructuring charges and other related charges of $0.9 million. All
periods presented are 13 weeks except for the quarter ended December 31, 1998,
which is 14 weeks.
NOTE 15. COMPREHENSIVE INCOME (UNAUDITED)
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, 'Reporting Comprehensive Income.' This statement establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. Reclassification of financial statements for prior
periods is required. Comprehensive income is net income and other items, which
may include foreign currency translation adjustments, minimum pensions liability
adjustments, and unrealized gains and losses on marketable securities classified
as available-for-sale. The Company's total comprehensive income was as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
--------------------
1998 1999
---- ----
<S> <C> <C>
Net (loss) income............................... $(22.0) $19.3
Foreign currency translation adjustment......... (2.2) 2.3
------ -----
Total comprehensive (loss) income.......... $(24.2) $21.6
------ -----
------ -----
</TABLE>
F-24
<PAGE>
SCHEDULE II
STRATEGIC INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
<S> <C> <C> <C> <C> <C>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------------- ------------ ---------- ---------- ---------- ----------
(IN MILLIONS)
Year ended September 30, 1996
Deducted from asset accounts:
Allowance for doubtful accounts... $3.1 $ 2.4 $ -- $(0.4) $5.1
Year ended September 30, 1997
Deducted from asset accounts:
Allowance for doubtful accounts... 5.1 (0.7) -- (0.3) 4.1
Year ended September 30, 1998
Deducted from asset accounts:
Allowance for doubtful accounts... 4.1 4.2 -- (1.4) 6.9
</TABLE>
S-1
<PAGE>
ANNEX A
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
STRATEGIC INDUSTRIES, INC.
Strategic Industries, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is Strategic Industries, Inc. (the
`Corporation'). The Corporation was originally incorporated under the name HKID
11 Inc. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on September 30, 1987. The
Certificate of Incorporation of the Corporation was previously amended on
April 4, 1988 and July 8, 1999. This Amended and Restated Certificate of
Incorporation restates and further amends the Certificate of Incorporation of
the Corporation, as heretofore amended, and has been adopted and approved in
accordance with the provisions of Sections 245 and 242 of the Delaware General
Corporation Law. Stockholder approval of this Amended and Restated Certificate
of Incorporation was effected by written consent in accordance with Section 228
of the Delaware General Corporation Law.
2. The text of the Certificate of Incorporation of the Corporation, as
heretofore amended, hereby is amended and restated to read in its entirety as
follows:
ARTICLE I
NAME
The name of the Corporation is Strategic Industries, Inc.
ARTICLE II
ADDRESS OF REGISTERED OFFICE;
NAME OF REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801. The name of its registered agent at
that address in the State of Delaware is The Corporation Trust Company.
ARTICLE III
PURPOSE AND POWERS
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may now or hereafter be organized under the Delaware
General Corporation Law (`Delaware Law'). It shall have all powers that may now
or hereafter be lawful for a corporation to exercise under Delaware Law.
ARTICLE IV
CAPITAL STOCK
SECTION 4.1 Total Number of Shares of Stock. The total number of shares of
capital stock of all classes that the Corporation shall have authority to issue
is 25,000,000 (Twenty-Five Million) shares. The authorized capital stock is
divided into 2,000,000 (Two Million) shares of preferred stock, of the par value
of $.01 each (the `Preferred Stock'), and 23,000,000 (Twenty-Three Million)
shares of common stock, of the par value of $.01 each (the `Common Stock').
SECTION 4.2 Preferred Stock. (a) The shares of Preferred Stock of the
Corporation may be issued from time to time in one or more series thereof, the
shares of each series to have such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating,
A-1
<PAGE>
optional or other special rights, and qualifications, limitations or
restrictions thereof, as are stated and expressed herein or in the resolution or
resolutions providing for the issue of such series, adopted by the board of
directors of the Corporation (the `Board of Directors') as hereinafter provided.
(b) Authority is hereby expressly granted to the Board of Directors,
subject to the provisions of this Article IV and to the limitations prescribed
by Delaware Law, to authorize the issue of one or more series of Preferred Stock
and with respect to each such series to fix by resolution or resolutions
providing for the issue of each series the voting powers, full or limited, if
any, of the shares of such series and the designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof. The authority of the Board of Directors
with respect to each series shall include, but not be limited to, the
determination or fixing of the following:
(i) the maximum number of shares to constitute such series (which may
subsequently be increased or decreased by resolutions of the Board of
Directors unless otherwise provided in the resolution providing for the
issue of such series), the distinctive designation thereof and the stated
value thereof if different than the par value thereof;
(ii) the dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the relation that such dividends
shall bear to the dividends payable on any other class or classes of stock
or any other series of any class of stock of the Corporation, and whether
such dividends shall be cumulative or noncumulative;
(iii) whether the shares of such series shall be subject to
redemption, in whole or in part, and if made subject to such redemption the
times, prices and other terms and conditions of such redemption, including
whether or not such redemption may occur at the option of the Corporation
or at the option of the holder or holders thereof or upon the happening of
a specified event;
(iv) the terms and amount of any sinking fund established for the
purchase or redemption of the shares of such series;
(v) whether or not the shares of such series shall be convertible into
or exchangeable for shares of any other class or classes of any stock or
any other series of any class of stock of the Corporation, and, if
provision is made for conversion or exchange, the times, prices, rates,
adjustments, and other terms and conditions of such conversion or exchange;
(vi) the extent, if any, to which the holders of shares of such series
shall be entitled to vote with respect to the election of directors or
otherwise;
(vii) the restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(viii) the rights of the holders of the shares of such series upon the
dissolution of, or upon the subsequent distribution of assets of, the
Corporation; and (ix) the manner in which any facts ascertainable outside
the resolution or resolutions providing for the issue of such series shall
operate upon the voting powers, designations, preferences, rights and
qualifications, limitations or restrictions of such series.
SECTION 4.3 Common Stock. The shares of Common Stock of the Corporation
shall be of one and the same class. The holders of Common Stock shall have one
vote per share of Common Stock on all matters on which holders of Common Stock
are entitled to vote.
ARTICLE V
BOARD OF DIRECTORS
SECTION 5.1 Powers of Board of Directors. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors, which shall consist of not fewer than three or more than eleven
members. In furtherance, and not in limitation, of the powers conferred by
Delaware Law, the Board of Directors is expressly authorized to:
(a) adopt, amend, alter, change or repeal the By-Laws of the
Corporation; provided, however, that no By-Laws hereafter adopted shall
invalidate any prior act of the directors that would have been valid if
such new By-Laws had not been adopted;
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(b) determine the rights, powers, duties, rules and procedures that
affect the power of the Board of Directors to manage and direct the
business and affairs of the Corporation, including the power to designate
and empower committees of the Board of Directors, to elect, appoint and
empower the officers and other agents of the Corporation, and to determine
the time and place of, and the notice requirements for, Board meetings, as
well as the quorum and voting requirements for, and the manner of taking,
Board action; and
(c) exercise all such powers and do all such acts as may be exercised
or done by the Corporation, subject to the provisions of Delaware Law, this
Certificate of Incorporation, and the By-Laws of the Corporation.
SECTION 5.2 Number of Directors. Except as may be provided in a resolution
or resolutions providing for any series of Preferred Stock pursuant to Article
IV hereof with respect to any directors elected by the holders of such series,
and subject to Section 5.1 of this Certificate of Incorporation, the number of
directors constituting the Board of Directors shall be determined from time to
time exclusively by a vote of a majority of the Board of Directors in office at
the time of such vote.
SECTION 5.3 Classified Board of Directors. The directors shall be divided
into three classes, with each class to be as nearly equal in number as
reasonably possible, and with the initial term of office of the first class of
directors to expire at the 2001 annual meeting of stockholders, the initial term
of office of the second class of directors to expire at the 2002 annual meeting
of stockholders and the initial term of office of the third class of directors
to expire at the 2003 annual meeting of stockholders, in each case upon the
election and qualification of their successors. Commencing with the 2001 annual
meeting of stockholders, directors elected to succeed those directors whose
terms have thereupon expired shall be elected to a term of office to expire at
the third succeeding annual meeting of stockholders after their election, and
upon the election and qualification of their successors. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain or attain the number of directors in each class as
nearly equal as reasonably possible, but in no case will a decrease in the
number of directors shorten the term of any incumbent director.
SECTION 5.4 Vacancies. Except as may be provided in a resolution or
resolutions providing for any series of Preferred Stock pursuant to Article IV
hereof with respect to any directors elected by the holders of such series, any
vacancies in the Board of Directors for any reason and any newly created
directorship resulting by reason of any increase in the number of directors may
be filled only by the Board of Directors, acting by a majority of the remaining
directors then in office, although less than a quorum, or by a sole remaining
director, and any directors so appointed shall hold office until the next
election of the class of which such directors have been chosen and until their
successors are elected and qualified.
SECTION 5.5 Removal of Directors. Except as may be provided in a resolution
or resolutions providing for any series of Preferred Stock pursuant to Article
IV hereof with respect to any directors elected by the holders of such series,
any director, or the entire Board of Directors, may be removed from office at
any time, but only for cause, and only by the affirmative vote of the holders of
at least 66 2/3% of the voting power of all of the shares of capital stock of
the Corporation then entitled to vote generally in the election of directors,
voting together as a single class.
ARTICLE VI
STOCKHOLDER ACTIONS AND MEETINGS OF STOCKHOLDERS
Except as may be provided in a resolution or resolutions providing for any
class or series of Preferred Stock pursuant to Article IV hereof, any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of such holders and may not
be effected by any written consent in lieu of a meeting by such holders. Special
meetings of stockholders of the Corporation may be called only by the Chairman
of the Board or by the Secretary upon direction of the Board of Directors
pursuant to a resolution adopted by a majority of the members of the Board of
Directors then in office. Elections of directors need not be by written ballot,
unless otherwise provided in the By-Laws. For purposes of all meetings of
stockholders, a
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quorum shall consist of a majority of the shares entitled to vote at such
meeting of stockholders, unless otherwise required by law.
ARTICLE VII
LIMITATION ON LIABILITY OF DIRECTORS
No person shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, including
without limitation directors serving on committees of the Board of Directors;
provided, however, that the foregoing shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware Law, or (iv) for any transaction from which the
director derived an improper personal benefit. If Delaware Law is amended
hereafter to authorize corporate action further eliminating or limited the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
Delaware Law, as so amended. Any amendment, repeal or modification of this
Article VII shall not adversely affect any right or protection of a director of
the Corporation existing hereunder with respect to any act or omission occurring
prior to such amendment, repeal or modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
The Board of Directors shall have the power to adopt, amend, alter, change
or repeal any By-Laws of the Corporation. In addition, the stockholders of the
Corporation may adopt, amend, alter, change or repeal any By-Laws of the
Corporation by the affirmative vote of the holders of at least 66 2/3% of the
voting power of all of the shares of capital stock of the Corporation then
entitled to vote generally in the election of directors, voting together as a
single class (notwithstanding the fact that a lesser percentage may be specified
by Delaware Law).
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation hereby reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation in any manner
permitted by Delaware Law and all rights and powers conferred upon stockholders,
directors, and officers herein are granted subject to this reservation. Except
as may be provided in a resolution or resolutions providing for any series of
Preferred Stock pursuant to Article IV hereof and that relate to such series of
Preferred Stock, any such amendment, alteration, change or repeal shall require
the affirmative vote of both (a) a majority of the members of the Board of
Directors then in office and (b) a majority of the voting power of all of the
shares of capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class; except that any
proposal to amend, alter, change or repeal the provisions of Articles 5.3,
Article 5.5, Article VI, Article VIII and this Article IX shall require the
affirmative vote of 66 2/3% of the voting power of all of the shares of capital
stock entitled to vote generally in the election of directors, voting together
as a single class.
ARTICLE X
SEVERABILITY
In the event that any provision of this Certificate of Incorporation
(including any provision within a single Section, paragraph or sentence) is held
by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable, the remaining provisions are severable and shall remain
enforceable to the full extent permitted by law.
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THE UNDERSIGNED, being the Vice President and Secretary of the Corporation,
for the purpose of amending and restating the Certificate of Incorporation of
the Corporation pursuant to Delaware Law, does make this Certificate, hereby
declaring and certifying that this is the act and deed of the Corporation and
that the facts herein stated are true, and accordingly have hereunto set my hand
as of .
.....................................
STEVEN C. BARRE,
Vice President and Secretary
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ANNEX B
STRATEGIC STOCK INCENTIVE PLAN*
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* To be provided in an amendment to this filing.
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ANNEX C
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF AWARDS AND
MATERIAL FEDERAL INCOME, ESTATE AND GIFT TAX CONSEQUENCES
RELATING TO THE TRANSFER OF OPTIONS
UNDER OUR STOCK INCENTIVE PLAN
The following discussions of the principal federal income tax consequences
with respect to options, restricted stock and non-employee director awards under
the SIP and the income, estate and gift tax consequences relating to the
transfer of options are based on statutory authority and judicial and
administrative interpretations as of the date of this information statement,
which are subject to change at any time (possibly with retroactive effect). The
discussions are limited to the U.S. tax consequences to individuals who are
citizens or residents of the U.S. other than those individuals who are taxed on
a residence basis in a foreign country. U.S. tax law is technical and complex
and the discussion below represents only a general summary.
THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY AND
DOES NOT PURPORT TO ADDRESS ALL THE TAX CONSIDERATIONS THAT MAY BE RELEVANT.
EACH RECIPIENT OF A GRANT IS URGED TO CONSULT HIS OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES TO SUCH GRANTEE OF THE GRANT AND THE DISPOSITION OF
COMMON STOCK.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF AWARDS
Options. No income will be recognized by the recipient at the time of the
grant of a non-qualified stock option.
On exercise of a non-qualified stock option (and provided the common stock
issued is not restricted stock), the amount by which the fair market value of
the common stock on the date of exercise exceeds the option exercise price will
be taxable to the recipient as ordinary income. The recipient's tax basis in the
shares of common stock received upon exercise of an option will be equal to the
amount of cash paid on exercise, plus the amount of ordinary income recognized
as a result of the receipt of such shares. The subsequent disposition of shares
acquired upon exercise of a non-qualified stock option will ordinarily result in
capital gain or loss. If the common stock received upon exercise of an option is
restricted stock, the rules described below with regard to restricted stock will
apply.
A recipient who is an officer or director of ours or a beneficial owner of
more than ten percent (10%) of any class of registered equity securities of ours
should consult with his or her tax advisor as to whether, as a result of
Section 16(b) of the Exchange Act and the rules and regulations thereunder that
are related thereto, the timing of income recognition is deferred for any period
following the exercise of an option (the 'Deferral Period'). If there is a
Deferral Period, absent a written election (pursuant to Section 83(b) of the
Internal Revenue Code) filed with the Internal Revenue Service within 30 days
after the date of transfer of the shares of common stock pursuant to the
exercise of the option to include in income, as of the transfer date, the excess
(on such date) of the fair market value of such shares over their exercise
price, recognition of income by the recipient could, in certain instances, be
deferred until the expiration of the Deferral Period.
The ordinary income recognized by employees with respect to the transfer of
shares upon exercise of an option under the SIP will be subject to both wage
withholding and employment taxes.
We will be generally be entitled, subject to the possible application of
Code Section 162(m) as discussed below and Section 280G of the Internal Revenue
Code as discussed below, to a deduction in connection with the recipient's
exercise of a stock option in an amount equal to the income recognized by the
recipient.
A recipient who is granted an ISO generally does not recognize any taxable
income at the time of the grant or exercise of the option. Similarly, we
generally are not entitled to any tax deduction at the time of the grant or
exercise of the ISO. The aggregate fair market value of common stock (determined
at the date of grant) with respect to which ISOs can be exercisable for the
first time by a recipient
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during any calendar year cannot exceed $100,000. Any excess will be treated as a
non-qualified stock option. If (i) the recipient makes no disposition of the
shares acquired pursuant to an ISO within two (2) years from the date of grant
or within one (1) year from the exercise of the option, and (ii) at all times
during the period beginning on the date of grant of the option and ending on the
day three (3) months before the date of such exercise, the recipient was an
employee of ours or any of our subsidiaries, any gain or loss recognized on a
subsequent disposition of the shares will be treated as a long-term capital gain
or loss. Under such circumstances, we will not be entitled to any deduction for
federal income tax purposes. If the recipient disposes of the shares before the
later of such dates or was not employed by us or any of our subsidiaries during
the entire applicable period, the recipient will have ordinary income equal to
the difference between the exercise price of the shares and the market value of
the shares on the date of exercise, and we will be entitled to a corresponding
tax deduction, subject to the application of Code Section 162(m) of the Code and
Section 280G of the Internal Revenue Code.
Restricted Stock. The recipient of a restricted stock award may elect under
Section 83(b) of the Internal Revenue Code, to include in ordinary income, as
compensation at the time restricted stock is first issued, the excess of the
fair market value of such shares at the time of issuance over the amount paid,
if any, by the employee for such shares. Unless an election under Section 83(b)
of the Internal Revenue Code is timely made (no later than the expiration of the
30 day period following the time of issuance), no taxable income will be
recognized by the recipient of a restricted stock award until such shares are no
longer subject to the restrictions or the risk of forfeiture (collectively, the
'Restrictions'). However, when the Restrictions lapse, the recipient will
recognize ordinary income in an amount equal to the excess of the fair market
value of the common stock on the date of lapse over the amount paid, if any, by
the recipient for such shares. The ordinary income recognized by a recipient
with respect to restricted stock awarded pursuant to the SIP will be subject to
both wage withholding and employment taxes.
If an election under Section 83(b) of the Internal Revenue Code is made,
dividends received on shares which are subject to Restrictions will be treated
as dividend income. If a recipient does not make an election under Section 83(b)
of the Internal Revenue Code, dividends received on the common stock prior to
the time the Restrictions on such shares lapse will be treated as additional
compensation, and not dividend income, for federal income tax purposes, and will
be subject to wage withholding and employment taxes.
In general, a deduction will be allowed to us for federal income tax
purposes (subject to the discussion above regarding Code Section 162(m) and the
discussion below) in an amount equal to the ordinary income recognized by a
recipient with respect to restricted stock awarded pursuant to the SIP.
If, subsequent to the lapse of Restrictions on his or her common stock, the
recipient sells such shares, the difference, if any, between the amount realized
from such sale and the tax basis of such shares to the holder will ordinarily
result in capital gain or loss. A recipient's tax basis in restricted stock
received pursuant to the SIP will be equal to the sum of the price paid for such
shares, if any, and the amount of ordinary income recognized by such recipient
of such shares on the lapse of Restrictions thereon.
If an election under Section 83(b) of the Internal Revenue Code is made
and, before the Restrictions on the shares lapse, the shares which are subject
to such election are resold to us or are forfeited, (i) no deduction would be
allowed to such recipient for the amount included in the income of such
recipient by reason of such election under Section 83(b) of the Internal Revenue
Code, and (ii) the recipient would recognize a loss in an amount equal to the
excess, if any, of the amount paid for such restricted stock over the amount
received by the recipient upon such resale or forfeiture (which loss would
ordinarily be a capital loss). In such event, we would be required to include in
its income the amount of any deduction previously allowable to it in connection
with the transfer of such shares.
Director's Common Stock Awards. The fair market value of an award of shares
of common stock will be includible in the non-employee director's income as
ordinary income at the time of the award, subject to the timely making of an
election under Section 83(b) of the Internal Revenue Code, as discussed above,
and will result in deferral of income recognition to the extent that as a result
of Section 16(b) of the Exchange Act the timing of recognition is deferred for a
period following the award. The recipient should consult with his or her tax
advisor with regard to the extent of such
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deferral. We will be entitled to a deduction for the value of such award when
the non-employee director recognizes income, but such amounts are not subject to
wage withholding or employment taxes by us.
Parachute Payments. In the event that the payment of any award under the
SIP is accelerated because of a change in ownership (as defined in
Section 280G(b)(2) of the Internal Revenue Code) and such payment of an award,
either alone or together with any other payments made to the recipient by us,
constitute parachute payments under Section 280G of the Internal Revenue Code,
then, subject to certain exceptions, a portion of such payments would be
nondeductible to us and the recipient would be subject to a 20% excise tax on
such portion of the payment.
Section 162(m) of the Code. Code Section 162(m) denies a deduction to any
corporation, whose common shares are publicly held, for compensation paid to
certain covered employees in a taxable year to the extent that such compensation
exceeds $1,000,000. Covered employees are a company's chief executive officer on
the last day of the taxable year and any other individual whose compensation is
required to be reported to shareholders under the Exchange Act by reason of
being among the four highest compensated officers for the taxable year and who
are employed on the last day of the taxable year. The amount of ordinary income
recognized by a recipient in the year of exercise of a stock option is
considered in determining whether a covered employee's compensation exceeds
$1,000,000. Compensation paid under certain qualified performance based
compensation arrangements, which (among other things) provide for compensation
based on pre-established performance goals established by a compensation
committee that is comprised solely of two or more outside directors and which is
disclosed to, and approved by, the majority of our stockholders, is not
considered in determining whether a covered employee's compensation exceeds
$1,000,000. It is intended that the options granted under the SIP (but not the
restricted stock), will satisfy the requirements of Code Section 162(m) so that
the awards will not be included in a covered employee's compensation for the
purposes of determining whether such covered recipient's compensation exceeds
$1,000,000; however the effect of Code Section 162(m) on the deductibility of
such covered employee compensation cannot be ascertained with certainty. As a
result, notwithstanding the foregoing discussion, no assurance can be given as
to the deductibility of the covered employee compensation under Code
Section 162(m).
MATERIAL FEDERAL INCOME, ESTATE AND GIFT TAX CONSEQUENCES RELATING TO THE
TRANSFER OF OPTIONS
Federal Income Taxation. The transfer of a non-qualified stock option by
the holder of a non-qualified stock option ('Optionee') to a permitted
transferee ('Permitted Transferee') will not cause the Optionee to recognize
taxable income or gain at the time of transfer. If and when the Permitted
Transferee subsequently exercises the non-qualified stock option, the Optionee
will recognize taxable income at that time in an amount equal to the excess, if
any, of the fair market value of the common shares received by the Permitted
Transferee on exercise (determined on the exercise date) over the exercise price
of the non-qualified stock option. The Permitted Transferee's tax basis with
respect to the shares received upon exercise of the non-qualified stock option
will be equal to the fair market value of the shares on the date that the
non-qualified stock option is exercised (i.e., the exercise price plus the
amount of income recognized by the Optionee).
Federal Gift and Estate Taxation. An Optionee's transfer of a non-qualified
stock option by gift will be subject to federal gift tax except to the extent it
is excludible by the gift tax annual exclusion of $10,000 per donee, is within
the combined federal estate and gift tax exception discussed below, or is to a
person's spouse. In addition, upon the death of a participant, the value of an
option that has not previously been 'transferred' will be includible in the
participant's gross estate for federal estate tax purposes. Transfers to spouses
are not subject to such taxes, and there is combined lifetime gift and estate
tax exclusion (known as the 'applicable exclusion amount'), which is $650,000
per person in 1999 and increases incrementally to $1,000,000 in 2006 under
current law).
In general, under IRS Revenue Ruling 98-21, the transfer to a family
member, for no consideration, of an option, is a completed gift on the later of
(1) the transfer or (2) the time when the donee's right to exercise the option
is no longer conditioned on the performance of services by the transferor. If
the option becomes exercisable in stages, each portion of the option that
becomes exercisable at a different time is treated as a separate option for the
purpose of applying this analysis.
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Pursuant to IRS Revenue Procedure 98-34, the Internal Revenue Service will
treat an option as properly valued for gift (and estate) tax purposes, provided
that the employee follows a generally recognized option pricing model, such as
the Black-Scholes model or an accepted version of the binomial model. The
selected model, however, must consider (as of the valuation date) the following
factors: (1) the option's exercise price; (2) the option's expected life;
(3) the current trading price of the underlying stock; (4) the expected
volatility of the underlying stock; (5) the expected dividends on the underlying
stock; and (6) the risk-free interest rate over the remaining option term. The
option pricing model must be applied properly and reasonable factors must be
used when applying the option pricing model. In addition, a discount to the
valuation produced by the option pricing model must not be considered in order
to rely on Revenue Procedure 98-34.
Reliance on Revenue Procedure 98-34 for valuing options is not mandatory,
but provides a 'safe harbor.' Moreover, to rely on IRS Revenue Procedure 98-34
for valuing options, the factors used in the valuation must be computed in the
manner described in that Revenue Procedure, including the option's expected
life, the expected volatility factor of the underlying stock, the expected
dividends on the underlying stock with respect to the option and the factor used
for determining a risk-free interest rate.
Employees who use the methodology described in IRS Revenue Procedure 98-34
to value their options should write 'FILED PURSUANT TO REV. PROC. 98-34' on the
applicable gift (or estate) tax return.
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STATEMENT OF DIFFERENCES
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The registered trademark symbol shall be expressed as..........'r'
<PAGE>
BY-LAWS
STRATEGIC INDUSTRIES, INC.
(a Delaware corporation)
ARTICLE I
Stockholders
SECTION 1. Annual Meetings. (a) All annual meetings of the
Stockholders for the election of directors shall be held at such place as shall
be designated from time to time by the Board of Directors and stated in the
notice of the meeting.
(b) Annual meetings of Stockholders shall be held on such date
and at such time as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. At the annual meeting, a
Board of Directors shall be elected or, during such time as the Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation") provides
for a classified Board of Directors, that class of directors the term of which
shall expire at the meeting shall be elected, and the Stockholders shall
transact such other business as may properly be brought before the meeting.
(c) Written notice of the annual meeting stating the place,
date, and hour of the meeting shall be given to each Stockholder entitled to
vote at such meeting not less than ten days nor more than sixty days prior to
the date of the meeting. A written waiver of any such notice signed by the
person entitled thereto, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a person at a meeting in person or
by proxy shall constitute a waiver of notice of such meeting, except when the
person attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
(d) The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
Stockholders, a complete list of the Stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
Stockholder and the number of shares registered in the name of each Stockholder.
Such list shall be open to the examination of any Stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any Stockholder who is
present. The stock ledger shall be the only evidence as to the Stockholders
entitled to examine
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the stock ledger, the list required by this section or the books of the
Corporation, or to vote in person or by proxy at any meeting of Stockholders.
SECTION 2. Special Meetings. (a) Special meetings of the
Stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation of the Corporation, shall be
called only by the Chairman of the Board or by the Secretary upon direction of
the Board of Directors pursuant to a resolution adopted by a majority of the
Directors then in office. Such request shall state the purpose or purposes of
the proposed meeting.
(b) Written notice of a special meeting stating the place,
date, and hour of the meeting and, in general terms, the purpose or purposes for
which the meeting is called, shall be given not less than ten days nor more than
sixty days prior to the date of the meeting, to each Stockholder entitled to
vote at such meeting. Special meetings may be held at such place as shall be
designated by the Board of Directors. Whenever the directors shall fail to fix
such place, the meeting shall be held at the principal executive offices of the
Corporation.
(c) Business transacted at any special meeting of
Stockholders, other than procedural matters and matters relating to the conduct
of the meeting, shall be limited to the purpose or purposes stated in the
notice.
SECTION 3. Quorums. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
Stockholders for the transaction of business except as otherwise provided by the
Delaware General Corporation Law ("Delaware Law") or by the Certificate of
Incorporation. Unless these By-Laws otherwise require, when a meeting is
adjourned to another time or place, whether or not a quorum is present, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each Stockholder of
record entitled to vote at the meeting. When a quorum is once present it is not
broken by the subsequent withdrawal of any Stockholder.
SECTION 4. Organization. Meetings of Stockholders shall be
presided over by the Chairman of the Board, if any, or if none or in the
Chairman's absence, by the President, if any, or if none or in the President's
absence, by the Executive Vice President, if any, or if none or in the Executive
Vice President's absence, by a chairman to be designated by the Chairman of the
Board. The Secretary of the Corporation, or in the Secretary's absence an
Assistant Secretary, shall act as Secretary of every meeting and keep the
minutes thereof, but if neither the Secretary nor an Assistant Secretary is
present, the presiding officer of the meeting shall appoint any person present
to act as secretary of the meeting. The order of business at all meetings of
stockholders shall be as determined by the Chairman of the meeting.
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SECTION 5. Voting; Proxies; Required Vote. (a) At each meeting
of Stockholders, every Stockholder shall be entitled to vote in person or by
proxy (but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period) and, unless Delaware Law or
the Certificate of Incorporation (including resolutions designating any class or
series of preferred stock pursuant to Article IV of the Certificate of
Incorporation) provides otherwise, shall have one vote for each share of stock
entitled to vote registered in the name of such Stockholder on the books of the
Corporation on the applicable record date fixed pursuant to these By-Laws.
Except as otherwise required by law or the Certificate of Incorporation, at all
elections of directors the voting may but need not be by ballot and a plurality
of the votes entitled to vote thereon that are cast shall elect directors.
Except as otherwise required by law or the Certificate of Incorporation, any
other action shall be authorized by a majority of the votes entitled to vote
thereon that are cast.
(b) Where a separate vote by a class or classes is required on
a matter by law or the Certificate of Incorporation, a majority of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum entitled to vote on that matter, and the
affirmative vote of the majority of shares of such class or classes entitled to
vote thereon that are cast shall be the act of such class, unless otherwise
provided in the Certificate of Incorporation.
SECTION 6. Inspector of Election. The Board of Directors, in
advance of any meeting, may, but need not, unless required by Delaware Law,
appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not so appointed, the
person presiding at the meeting may, but need not, unless required by Delaware
Law, appoint one or more inspectors. In case any person who may be appointed as
an inspector fails to appear or act, the vacancy may be filled by appointment
made by the directors in advance of the meeting or at the meeting by the person
presiding thereat. Each inspector, if any, before entering upon the discharge of
his or her duties, shall take and sign an oath faithfully to execute the duties
of inspector at such meeting with strict impartiality and according to the best
of his ability. The inspectors, if any, shall determine the number of shares of
stock outstanding and the voting power of each, the shares of stock represented
at the meeting, the existence of a quorum, and the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all Stockholders.
On request of the person presiding at the meeting, the inspector or inspectors,
if any, shall make a report in writing of any challenge, question or matter
determined by such inspector or inspectors and execute a certificate of any fact
found by such inspector or inspectors.
SECTION 7. Stockholder Proposals and Nominations. (a) No
proposal for a stockholder vote shall be submitted by a Stockholder (a
"Stockholder Proposal") to the Corporation's Stockholders unless the Stockholder
submitting such proposal (the "Proponent") shall have filed a written notice in
accordance with subsection (c) hereof setting forth with particularity (i) the
names and business addresses of the Proponent and all persons or entities
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(collectively, the "Persons") acting in concert with the Proponent; (ii) the
name and address of the Proponent and the Persons identified in clause (i), as
they appear on the Corporation's books (if they so appear); (iii) the class and
number of shares of the Corporation beneficially owned by the Proponent and the
Persons identified in clause (i); (iv) a description of the Stockholder Proposal
containing all material information relating thereto; and (v) such other
information as the Board of Directors reasonably determines is necessary or
appropriate to enable the Board of Directors and Stockholders of the Corporation
to consider the Stockholder Proposal. The presiding officer at any Stockholders'
meeting may determine that any Stockholder Proposal was not made in accordance
with the procedures prescribed in these By-Laws or is otherwise not in
accordance with law, and if it is so determined, such officer shall so declare
at the meeting and the Stockholder Proposal shall be disregarded.
(b) Only persons who are selected and recommended by the Board
of Directors or the committee of the Board of Directors designated to make
nominations (if any), or who are nominated by Stockholders in accordance with
the procedures set forth in this Section 7, shall be eligible for election, or
qualified to serve, as directors. Nominations of individuals for election to the
Board of Directors of the Corporation at any annual meeting or any special
meeting of Stockholders at which directors are to be elected may be made by any
Stockholder of the Corporation entitled to vote for the election of directors at
that meeting by compliance with the procedures set forth in this Section 7.
Nominations by Stockholders shall be made by written notice filed in accordance
with subsection (c) hereof (a "Nomination Notice"), which shall set forth (i) as
to each individual nominated, (A) the name, date of birth, business address and
residence address of such individual; (B) the business experience during the
past five years of such nominee, including his or her principal occupations and
employment during such period, the name and principal business of any
corporation or other organization in which such occupations and employment were
carried on, and such other information as to the nature of his or her
responsibilities and level of professional competence as may be sufficient to
permit assessment of his or her prior business experience; (C) whether the
nominee is or has ever been at any time a director, officer or owner of 5% or
more of any class of capital stock, partnership interests or other equity
interest of any corporation, partnership or other entity; (D) any directorships
held by such nominee in any company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or
subject to the requirements of Section 15(d) of such Act or any company
registered as an investment company under the Investment Company Act of 1940, as
amended; and (E) whether, in the last five years, such nominee has been
convicted in a criminal proceeding or has been subject to a judgment, order,
finding or decree of any federal, state or other governmental entity, concerning
any violation of federal, state or other law, or any proceeding in bankruptcy,
which conviction, order, finding, decree or proceeding may be material to an
evaluation of the ability or integrity of the nominee; and (ii) as to the Person
submitting the Nomination Notice and any Person acting in concert with such
Person, (x) the name and business address of such Person, (y) the name and
address of such Person as they appear on the Corporation's books (if they so
appear), and (z) the class and number of shares of the Corporation that are
beneficially owned by such Person. A written consent to being named in a proxy
statement as a nominee, and to serve as a director if elected, signed by the
nominee, shall be filed with any Nomination Notice. If the presiding officer at
any Stockholders' meeting determines that a nomination was
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not made in accordance with the procedures prescribed by these By-Laws, he shall
so declare to the meeting and the defective nomination shall be disregarded.
(c) Stockholder Proposals and Nomination Notices shall be
delivered to the Secretary at the principal executive office of the Corporation
120 days or more before the date of the anniversary of the last annual
Stockholders' meeting if such Stockholder Proposal or Nomination Notice is to be
submitted at an annual Stockholders' meeting, unless the meeting is to be held
more than 60 days in advance of such anniversary date, in which event the
Stockholder Proposal or Nomination Notice shall be delivered to the Secretary at
the principal executive office of the Corporation no later than the close of
business on the 15th day following the day on which notice of the meeting was
given. Nomination Notices shall be delivered to the Secretary at the principal
executive office of the Corporation no later than the close of business on the
15th day following the day on which notice of the date of a special meeting of
Stockholders was given if the Nomination Notice is to be submitted at a special
Stockholders' meeting.
ARTICLE II
Board of Directors
SECTION 1. General Powers. The business, property and affairs
of the Corporation shall be managed by, or under the direction of, the Board of
Directors.
SECTION 2. Qualification; Number; Term; Remuneration. (a) Each
director shall be at least 18 years of age. A director need not be a
Stockholder, a citizen of the United States, or a resident of the State of
Delaware. The number of directors constituting the entire Board shall be such
number as may be fixed from time to time by the Board of Directors, but shall be
not less than three or more than eleven. One of the directors shall be selected
by the Board of Directors to be its Chairman, who shall preside at meetings of
the Stockholders and the Board of Directors and shall have such other duties, if
any, as may from time to time be assigned by the Board of Directors. The use of
the phrase "entire Board" herein refers to the total number of directors which
the Corporation would have if there were no vacancies.
(b) Directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing Committees may be allowed like compensation for attending
Committee meetings.
SECTION 3. Quorum and Manner of Voting. Except as otherwise
provided by law, a majority of the entire Board of Directors shall constitute a
quorum. A majority of the directors present, whether or not a quorum is present,
may adjourn a meeting from time to time to another time and place without
notice. The vote of the majority of the directors present at a
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meeting at which a quorum is present shall be the act of the Board of Directors.
When a meeting is adjourned to another time or place, whether or not a quorum is
present, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Board of Directors may transact any business which might
have been transacted at the original meeting.
SECTION 4. Annual Meeting. At the next regular meeting
following the annual meeting of Stockholders, the newly elected Board of
Directors shall meet for the purpose of the election of officers and the
transaction of such other business as may properly come before the meeting.
SECTION 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times as the Board of Directors shall from time
to time by resolution determine. After the place and time of regular meetings of
the Board of Directors shall have been determined and notice thereof shall have
been once given to each member of the Board of Directors, regular meetings may
be held without further notice being given.
SECTION 6. Special Meetings. Notice of the date, time and
place of each special meeting shall be mailed by regular mail to each director
at his designated address at least six days before the meeting; or sent by
overnight courier to each director at his designated address at least two days
before the meeting (with delivery scheduled to occur no later than the day
before the meeting); or given orally by telephone or other means, or by
telegraph or telecopy, or by any other means comparable to any of the foregoing,
to each director at his designated address at least 24 hours before the meeting;
provided, however, that if less than five days' notice is provided and one third
of the members of the Board of Directors then in office object in writing prior
to or at the commencement of the meeting, such meeting shall be postponed until
five days after such notice was given pursuant to this sentence (or such shorter
period to which a majority of those who objected in writing agree), provided
that notice of such postponed meeting shall be given in accordance with this
Section 6. The notice of the special meeting shall state the general purpose of
the meeting, but other routine business may be conducted at the special meeting
without such matter being stated in the notice.
SECTION 7. Organization. At all meetings of the Board of
Directors, the Chairman or in the Chairman's absence or inability to act, a
chairman chosen by the directors, shall preside. The Secretary of the
Corporation shall act as secretary at all meetings of the Board of Directors
when present, and, in the Secretary's absence, the presiding officer may appoint
any person to act as Secretary.
SECTION 8. Resignation and Removal. Any director may resign at
any time upon written notice to the Corporation and such resignation shall take
effect upon receipt thereof by the Chairman or Secretary, unless otherwise
specified in the resignation. Directors may be removed only in the manner
provided in the Certificate of Incorporation.
SECTION 9. Vacancies. Unless otherwise provided in these
By-Laws or the Certificate of Incorporation, vacancies on the Board of
Directors, whether caused by
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resignation, death, disqualification, removal, an increase in the authorized
number of directors or otherwise, may be filled by the affirmative vote of a
majority of the remaining directors, although less than a quorum, or by a sole
remaining director.
SECTION 10. Preferred Directors. Notwithstanding anything else
contained herein, whenever the holders of one or more classes or series of
Preferred Stock shall have the right, voting separately as a class or series, to
elect directors, the election, term of office, filling of vacancies, removal and
other features of such directorships shall be governed by the terms of the
Certificate of Incorporation.
ARTICLE III
Committees
SECTION 1. Appointment; Powers. The Board of Directors may
designate one or more Committees, each Committee to consist of one or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any Committee, who may replace any absent
or disqualified member at any meeting of the Committee. In the absence or
disqualification of a member of a Committee, the member or members present at
any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such Committee, to the extent provided in the
resolution, shall, have and may exercise, to the extent permitted by Delaware
Law, the powers of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such Committee shall have the
power or authority to: (i) approve or adopt, or recommend to the stockholders,
any action or matter required to be submitted to the Stockholders for approval,
(ii) adopt, amend or repeal any By-Law or (iii) take any action that it is not
permitted to take pursuant to Delaware Law. Such Committee or Committees shall
have such name or names as may be determined from time to time by resolution
adopted by the Board of Directors.
SECTION 2. Procedures, Quorum and Manner of Acting. Each
Committee shall fix its own rules of procedure, and shall meet where and as
provided by such rules or by resolution of the Board of Directors. Except as
otherwise provided by law, the presence of a majority of the then appointed
members of a Committee shall constitute a quorum for the transaction of business
by that Committee, and in every case where a quorum is present the affirmative
vote of a majority of the members of the Committee present shall be the act of
the Committee. Each Committee shall keep minutes of its proceedings, and actions
taken by a Committee shall be reported to the Board of Directors.
SECTION 3. Termination. In the event any person shall cease to
be a director of the Corporation, such person shall simultaneously therewith
cease to be a member of any Committee appointed by the Board of Directors.
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ARTICLE IV
Officers
SECTION 1. Election and Qualifications. The Board of Directors
at its first meeting held after each annual meeting of Stockholders shall elect
the officers of the Corporation, which shall include a President and a
Secretary, and may include, by election or appointment, a Chairman of the Board,
one or more Vice-Presidents (any one or more of whom may be given an additional
designation of rank or function), a Treasurer and such Assistant Secretaries,
such Assistant Treasurers and such other officers as the Board of Directors may
from time to time deem proper. Each officer shall have such powers and duties as
may be prescribed by these By-Laws and as may be assigned by the Board of
Directors or the President. Any two or more offices may be held by the same
person.
SECTION 2. Term of Office and Remuneration. The term of office
of all officers shall be until their respective successors have been elected and
qualified or their earlier death, resignation or removal. The remuneration of
all officers of the Corporation may be fixed by the Board of Directors or in
such manner as the Board of Directors shall provide.
SECTION 3. Resignation; Removal. Any officer may resign at any
time upon written notice to the Corporation and such resignation shall take
effect upon receipt thereof by the President or Secretary, unless otherwise
specified in the resignation. Any officer shall be subject to removal, with or
without cause, at any time by the Board of Directors. Any vacancy in any office
shall be filled in such manner as the Board of Directors shall determine.
SECTION 4. Powers and Duties of Officers.
(a) The Chairman of the Board of Directors, if there be one,
shall be the chief executive officer of the Corporation and shall preside at all
meetings of the Stockholders and the Board of Directors and shall have general
management of and supervisory authority over the property, business and affairs
of the Corporation and its other officers. The Chairman of the Board may execute
and deliver in the name of the Corporation powers of attorney, contracts, bonds
and other obligations and instruments, and shall have such other authority and
perform such other duties as from time to time may be assigned by the Board of
Directors. The Chairman of the Board shall see that all orders and resolutions
of the Board of Directors are carried into effect and shall perform such
additional duties that usually pertain to the office of chief executive officer.
(b) If there be no Chairman of the Board, the President shall
be the chief executive officer and shall exercise the powers listed in (a)
above. Otherwise, the President may execute and deliver in the name of the
Corporation powers of attorney, contracts, bonds and other obligations and
instruments, and shall have such other authority and perform such other duties
as from time to time may be assigned by the Board of Directors or the Chairman
of the Board.
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(c) A Vice President may execute and deliver in the name of
the Corporation powers of attorney, contracts, bonds and other obligations and
instruments, and shall have such other authority and perform such other duties
as from time to time may be assigned by the Board of Directors, the Chairman of
the Board or the President.
(d) The Treasurer shall in general have all duties and
authority incident to the position of Treasurer and such other duties and
authority as may be assigned by the Board of Directors, the Chairman of the
Board or the President. The Treasurer shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by or at the direction
of the Board of Directors. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, the Chairman of the
Board or the President, and shall render, upon request, an account of all such
transactions.
(e) The Secretary shall in general have all the duties and
authority incident to the position of Secretary and such other duties and
authority as may be assigned by the Board of Directors, the Chairman of the
Board or the President. The Secretary shall attend all meetings of the Board of
Directors and all meetings of Stockholders and record all the proceedings
thereat in a book or books to be kept for that purpose. The Secretary shall
give, or cause to be given, notice of all meetings of the Stockholders and
special meetings of the Board of Directors. The Secretary shall have custody of
the seal of the Corporation and any officer of the Corporation shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by the signature of the Secretary or any other officer.
(f) The Corporate Controller, if there be one, shall be the
Corporation's principal accounting officer, and shall have all duties and
authority in connection with financial reporting and related matters that are
incident to such position.
(g) Any assistant officer shall have such duties and authority
as the officer such assistant officer assists and, in addition, such other
duties and authority as the Board of Directors, the Chairman of the Board or
President shall from time to time assign.
ARTICLE V
Contracts, Etc.
SECTION 1. Contracts. The Board of Directors may authorize any
person or persons, in the name and on behalf of the Corporation, to enter into
or execute and deliver any and all deeds, bonds, mortgages, contracts and other
obligations or instruments, and such authority may be general or confined to
specific instances. In addition, the officers may enter into, execute and
deliver such undertakings in the ordinary course of business, and authorize
other persons to enter into, execute and deliver such undertakings in the
ordinary course of
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business, in connection with the officers' exercise of their powers enumerated
in these By-Laws.
SECTION 2. Proxies; Powers of Attorney; Other Instruments. (a)
The Chairman of the Board, the President, any Vice President, the Treasurer or
any other person designated by any of them shall have the power and authority to
execute and deliver proxies, powers of attorney and other instruments on behalf
of the Corporation in connection with the execution of contracts, the purchase
of real or personal property, the rights and powers incident to the ownership of
stock by the Corporation and such other situations as the Chairman of the Board,
the President, such Vice President or the Treasurer shall approve (to the extent
in the ordinary course of business or, in other instances, as may be authorized
by the Board of Directors), such approval to be conclusively evidenced by the
execution of such proxy, power of attorney or other instrument on behalf of the
Corporation.
(b) The Chairman of the Board, the President, any Vice
President, the Treasurer or any other person to the extent authorized by proxy
or power of attorney executed and delivered by any of them on behalf of the
Corporation may vote any and all stock or other equity interest held by the
Corporation in any other corporation or other business entity, and may exercise
on behalf of the Corporation any and all of the rights and powers incident to
the ownership of such stock or other equity interest. The Board of Directors,
from time to time, may confer like powers upon any other person.
ARTICLE VI
Books and Records
SECTION 1. Location. The books and records of the Corporation
may be kept at such place or places as the Board of Directors or the respective
officers in charge thereof may from time to time determine. The record books
containing the names and addresses of all Stockholders, the number and class of
shares of stock held by each and the dates when they respectively became the
owners of record thereof shall be kept by the Secretary as prescribed in the
By-Laws or by such officer or agent as shall be designated by the Board of
Directors.
SECTION 2. Addresses of Stockholders. Notices of meetings and
all other corporate notices may be delivered personally or mailed to each
Stockholder at the Stockholder's address as it appears on the records of the
Corporation, and shall be deemed given when delivered personally or deposited in
the mails for mailing to such address.
SECTION 3. Fixing Date for Determination of Stockholders of
Record. (a) In order that the Corporation may determine the Stockholders
entitled to notice of or to vote at any meeting of Stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors and which record date shall not be more
than 60 days nor less than 10 days before the date of such meeting. If no record
date is fixed by the
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Board of Directors, the record date for determining Stockholders entitled to
notice of or to vote at a meeting of Stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of Stockholders of record entitled to
notice of or to vote at a meeting of Stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the
Stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the Stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action not contemplated by paragraph (a) of this Section 3, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted and which
record date shall be not more than 60 days prior to such action. If no record
date is fixed, the record date for determining Stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
ARTICLE VII
Certificates Representing Stock
SECTION 1. Certificates; Signatures. The shares of the Corporation shall be
represented by certificates, provided that the Board of Directors of the
Corporation may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate, signed by or in the name of the Corporation by
the Chairman or Vice-Chairman of the Board of Directors, or the President or any
Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, representing the number of shares
registered in certificate form. Any or all of the signatures on any such
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue. In furtherance and not in limitation of the foregoing, the Board of
Directors shall have authority to authorize a direct registration system whereby
the registration of the issuance and transfer of any or all of the shares of any
or all classes and series of capital stock of the Company may, to the extend
permitted by applicable law, be entered in the Company's stock records in
book-entry form without the issuance of certificates therefor.
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SECTION 2. Record Ownership. The names and addresses of the
holders of record of the shares of each class and series of the Corporation's
capital stock, together with the number of shares of each class and series held
by each record holder and the date of issue of such shares, shall be entered on
the books of the Corporation. The Corporation shall be entitled to treat the
holder of record of any share of stock as the holder in fact thereof, and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in any share on the part of any other person, whether or not it shall
have express or other notice thereof, except as required by Delaware Law. The
Board of Directors shall have power and authority to make all such rules and
regulations as it may deem expedient concerning the issue, transfer and
registration of certificates representing shares of the Corporation.
SECTION 3. Transfer of Record Ownership. Transfer of stock in
certificated form shall be made on the books of the Corporation only by
direction of the person named in the certificate or such person's attorney,
lawfully constituted in writing, and only upon the surrender of the certificate
therefor and a written assignment of the shares evidenced thereby, which
certificate shall be canceled before the new certificate is issued.
SECTION 4. Fractional Shares. The Corporation may, but shall
not be required to, issue certificates for fractions of a share where necessary
to effect authorized transactions, or the Corporation may pay in cash the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Corporation or of
its agent, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a Stockholder except as therein
provided.
SECTION 5. Lost, Stolen or Destroyed Certificates. The
Corporation may issue a new certificate in place of any certificate theretofore
issued by it, alleged to have been lost, stolen or destroyed, and the Board of
Directors may require the owner of any lost, stolen or destroyed certificate, or
his legal representative, to give the Corporation a bond sufficient to indemnify
the Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate.
SECTION 6. Transfer Agents; Registrants; Rules Respecting
Certificates. The Board of Directors may appoint, or authorize any officer or
officers to appoint, one or more transfer agents and one or more registrars. The
Board of Directors may make such further rules and regulations as it may deem
expedient concerning the issue, transfer and registration of stock certificates
of the Corporation.
ARTICLE VIII
Dividends
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Subject to the provisions of Delaware Law and the Certificate
of Incorporation, the Board of Directors shall have full power to declare and
pay dividends on the capital stock of the Corporation. Before payment of any
dividend, there may be set aside out of any funds of the Corporation available
for dividends such sum or sums as the Board of Directors from time to time, in
its absolute discretion, may determine for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
ARTICLE IX
Ratification
Any transaction, questioned in any lawsuit on the ground of
lack of authority, defective or irregular execution, adverse interest of
director, officer or Stockholder, non-disclosure, miscomputation, or the
application of improper principles or practices of accounting, may be ratified
before or after judgment, by the Board of Directors or by the requisite majority
of Stockholders, to the fullest extent permitted by Delaware Law, and if so
ratified shall have the same force and effect as if the questioned transaction
had been originally duly authorized. Such ratification shall be binding upon the
Corporation and its Stockholders and shall constitute a bar to any claim or
execution of any judgment in respect of such questioned transaction.
ARTICLE X
Corporate Seal
The corporate seal shall be in form of a circular inscription
which contains the words "Corporate Seal" and such additional information as the
officer inscribing such seal shall determine in such officer's sole discretion.
The corporate seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise displayed or it may be manually
inscribed.
ARTICLE XI
Fiscal Year
The fiscal year of the Corporation shall be fixed, and shall
be subject to change, by the Board of Directors. Unless otherwise fixed by the
Board of Directors, the fiscal year of the Corporation shall end on the Saturday
closest to September 30.
ARTICLE XII
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Waiver of Notice
Whenever notice is required to be given by these By-Laws or by
the Certificate of Incorporation or by law, a written waiver thereof, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XIII
Amendments
By-Laws may be adopted, amended or repealed by either the
Board of Directors or the affirmative vote of the holders of at least 66 2/3% of
the voting power of all shares of the Corporation's capital stock then entitled
to vote generally in the election of directors.
ARTICLE XIV
Indemnification
SECTION 1. Right to Indemnification. Each person who was or is
made a party or is threatened to be made a party to or is otherwise involved in
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact (a) that he or she is or was a director or officer of the Corporation, or
(b) that he or she, being at the time a director or officer of the Corporation,
is or was serving at the request of the Corporation as a director, officer,
member, employee, fiduciary or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (collectively, "another enterprise" or "other
enterprise"), shall be indemnified and held harmless by the Corporation to the
fullest extent permitted by Delaware Law as the same exists or may hereafter be
amended (but, in the case of any such amendment, with respect to alleged action
or inaction occurring prior to such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
permitted prior thereto), against all expense, liability and loss (including,
without limitation, attorneys' and other professionals' fees and expenses,
claims, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) ("Losses") actually and reasonably incurred or suffered by such
person in connection with such Proceeding. Without diminishing the scope of
indemnification provided by this Section 1, such persons shall also be entitled
to the further rights set forth below.
SECTION 2. Permissive Indemnification. Each person who was or
is made a party or is threatened to be made a party to or is otherwise involved
in any threatened, pending or completed Proceeding, by reason of the fact (a)
that he or she is or was an employee or agent of the Corporation or (b) that he
or she, not being at the time a director or officer of the Corporation, is or
was serving at the request of the Corporation as a director, officer, member,
employee, fiduciary or agent of another corporation or of another enterprise,
may be
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indemnified and held harmless by the Corporation to the fullest extent
permitted by Delaware law as the same exists or may hereafter be amended,
against all Losses actually and reasonably incurred or suffered by such person
in connection with such Proceeding.
SECTION 3. Authorization of Indemnification. Any
indemnification under this Article (unless ordered by a court) shall be made by
the Corporation only as authorized in the specific case upon a determination
that indemnification of a person is proper in the circumstances because such
person has met the applicable standards of conduct, if any, required by Delaware
Law. Such determination shall be made, with respect to a person who is a
director or officer of the Corporation at the time of such determination, in a
reasonably prompt manner (i) by the Board of Directors by a majority vote of
directors who were not parties to such action, suit or proceeding, whether or
not they constitute a quorum of the Board of Directors, (ii) by a committee of
such directors designated by majority vote of such directors, even though less
than a quorum, (iii) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, (iv) by the
Stockholders or (v) as Delaware Law may otherwise permit. To the extent,
however, that a present or former director or officer of the Corporation has
been successful on the merits or otherwise in defense of any Proceeding, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' and other professionals' fees) actually
and reasonably incurred by such person in connection therewith, without the
necessity of authorization in the specific case.
SECTION 4. Good Faith Defined. To the extent that Delaware Law
requires a determination that a person has acted in good faith before
indemnification is permitted under this Article, then, to the extent permitted
by law, for purposes of any determination under Section 3 of this Article, a
person shall be deemed to have acted in good faith if the action is based on (a)
the records or books of account of the Corporation or another enterprise, or on
information supplied to such person by the officers of the Corporation or
another enterprise in the course of their duties or on (b) the advice of legal
counsel for the Corporation or another enterprise, or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant, independent financial adviser, appraiser or other
expert selected with reasonable care by the Corporation or the other enterprise.
The provisions of this Section 4 shall not be deemed to be exclusive or to limit
in any way the circumstances in which a person may be deemed to have met any
applicable standard of conduct.
SECTION 5. Proceedings Initiated by Indemnified Persons;
Settlements.
(a) Notwithstanding any provisions of this Article to the
contrary, the Corporation shall not indemnify any person or make advance
payments in respect of Losses to any person pursuant to this Article in
connection with any Proceeding (or portion thereof) initiated against the
Corporation by such person unless such Proceeding (or portion thereof) is
authorized by the Board of Directors or its designee; provided, however, that
this prohibition shall not apply to a compulsory counterclaim, cross-claim or
third-party claim brought in any
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Proceeding or to the extent required by Section 7 of this Article in connection
with a suit to enforce a claim for indemnification or advancement of expenses
under this Article.
(b) Notwithstanding any provisions of this Article to the
contrary, the Corporation shall not be required to indemnify any person pursuant
to this Article in respect of amounts paid in settlement of any Proceeding
effected without the written consent of the Corporation. The Corporation shall
not unreasonably withhold or delay its consent to any proposed settlement.
SECTION 6. Expenses Payable In Advance. Expenses (including
attorneys' and other professionals' fees) reasonably incurred by a present
officer or director in defending any threatened or pending Proceeding shall be
paid by the Corporation in advance of the final disposition of such Proceeding
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation as authorized in this Article.
Expenses shall be reasonably documented by the officer or director and required
payments shall be made promptly by the Corporation. Expenses (including
attorneys' and other professionals' fees) reasonably incurred by former
directors and officers or other employees and agents in defending any threatened
or pending Proceeding may be so paid upon such terms and conditions, if any, as
the Corporation deems appropriate.
SECTION 7. Suits Seeking to Enforce Right to Indemnification or
Advancement of Expenses. If a claim under Section 1 or under the first sentence
of Section 6 of this Article is not paid in full by the Corporation within
thirty (30) days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
enforce his or her right to indemnification or advancement of expenses, as the
case may be, and if successful in whole or in part, the claimant shall be
entitled to be paid also the reasonable expenses (including attorney's and other
professionals' fees) of prosecuting such suit. It shall be a defense to any such
suit seeking to enforce a right to indemnification (but not to a suit seeking to
enforce a right to advancement of expenses) that the claimant has not met any
applicable standard of conduct required by Delaware Law for the Corporation to
indemnify such claimant, but the burden of proving such defense shall be on the
Corporation. In any suit brought by a claimant to enforce a right to
indemnification or to advancement of expenses under this Section 7, or brought
by the Corporation to recover an advancement of expenses to any person (whether
pursuant to an undertaking or otherwise), the burden of proving that the
claimant or other person to whom expenses were advanced is not entitled to be
indemnified or to such advancement of expenses, shall be on the Corporation.
SECTION 8. Non-exclusivity and Survival of Indemnification.
The indemnification and advancement of expenses provided by or granted pursuant
to this Article shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under the
Certificate of Incorporation, any By-Law, agreement, contract, vote of
Stockholders or of disinterested directors, or pursuant to the direction
(howsoever embodied) of any court of competent jurisdiction or otherwise. The
provisions of this Article shall not be deemed to preclude the indemnification
of any person
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who is not specified in Section 1 or 2 of this Article but whom the Corporation
has the power or obligation to indemnify under the provisions of Delaware Law,
or otherwise. The rights to indemnification conferred by this Article shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of such person and the heirs, executors, administrators and
other comparable legal representatives of such person. The rights conferred in
this Article shall be enforceable as contract rights, and shall continue to
exist after any rescission or restrictive modification hereof with respect to
events occurring prior thereto. No rights are conferred in this Article for the
benefit of any person (including, without limitation, officers, directors and
employees of subsidiaries of the Corporation) in any capacity other than as
explicitly set forth herein.
SECTION 9. Meaning of certain terms in connection with
Employee Benefit Plans, etc. For purposes of this Article, references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; references to "serving at the request of the Corporation" shall
include any service as a director, officer or employee of the Corporation which
imposes duties on, or involves services by, such director, officer or employee,
with respect to an employee benefit plan, its participants or beneficiaries; and
a person who has acted in good faith and in a manner reasonably believed to be
in the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article.
SECTION 10. Insurance. The Corporation may, but shall not be
required to, purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, member,
employee, fiduciary or agent of another enterprise against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Corporation
would have the power or the obligation to indemnify such person against such
liability under the provisions of this Article.
Dated: _________ ___, 1999.
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EXHIBIT 10.5(a)
INTERIM EMPLOYMENT AGREEMENT
INTERIM EMPLOYMENT AGREEMENT, dated as of May 18, 1999 (the
"Commencement Date") by and between U.S. Industries, Inc., a Delaware
corporation, with its principal United States office at 101 Wood Avenue South,
Iselin, New Jersey 08830, (the "Company") and John G. Raos, residing at 16
Castle Hill Way, Stuart, Florida 34966 ("Executive").
W I T N E S S E T H:
WHEREAS, Executive is currently employed as the President and
Chief Operating Officer of the Company pursuant to an employment agreement dated
February 22, 1995 (the "Old Employment Agreement");
WHEREAS, the Company intends to transfer all or a part of the
assets constituting USI's diversified segment (the "Diversified Segment"), and
other assets of the Company (such assets collectively "USI Diversified") to a
newly constituted wholly owned subsidiary of the Company ("Newco") and to
spinoff Newco to the shareholders of the Company (a spinoff of Newco including
at a minimum Bearing Inspection, Inc., Atech Turbine Components, Inc., Huron
Inc. and Rexair Inc. with Executive as Chairman and Chief Executive Officer of
Newco is referred to herein as the "Spinoff");
WHEREAS, the Company and Executive desire to enter into this
agreement (this "Agreement") as to the terms of his employment by the Company,
between the dates hereof and the Spinoff or the earlier termination of
Executive's employment as provided herein and to hereby supersede and replace
the Old Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
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1. Term of Employment. Except for earlier termination as
provided in Section 7 hereof, Executive's employment under this Agreement shall
be for a term (the "Employment Term") commencing on the Commencement Date and
terminating on the earliest to occur of the events specified in Section 7(a)
hereof.
2. Positions. (a) As of the Commencement Date, Executive shall
serve as President and Chief Operating Officer of the Company. It is the
intention of the parties that during the Employment Term, Executive shall also
serve on the Board of Directors of the Company (the "Board") without additional
compensation. Executive shall also serve, if requested by the Board, as an
executive officer and director of subsidiaries and a director of associated
companies of the Company and shall comply with the policy of the Compensation
Committee of the Company's Board (the "Compensation Committee") with regard to
retention or forfeiture of the director's fees. Effective September 15, 1999,
the Executive shall cease to be, and hereby resigns as, President and Chief
Operating Officer of the Company, but shall continue as a director and employee
of the Company for the remainder of the Employment Term. Executive shall be
elected Chairman and Chief Executive Officer of Newco on or before the Spinoff.
(b) Executive shall report directly to the Board or the Chief
Executive Officer of the Company and shall have such duties and authority,
consistent with his then position, as shall be determined from time to time by
the Board or the Chief Executive Officer of the Company provided that it is
recognized that Executive's primary responsibilities during the Employment Term
shall be with regard to the Spinoff.
(c) During the Employment Term, Executive shall devote
substantially all of his business time and efforts to the performance of his
duties hereunder; provided, however, that Executive shall be allowed, to the
extent that such activities do not materially interfere with the performance of
his duties and responsibilities hereunder, to manage his personal financial and
legal affairs and to serve on corporate, civic, or charitable boards or
committees. Notwithstanding the foregoing, the
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Executive shall not serve on any corporate board of directors if such service
would be inconsistent with his fiduciary responsibilities to the Company.
3. Base Salary. During the Employment Term, the Company shall
pay Executive a base salary at the annual rate of not less than $500,000. Base
salary shall be payable in accordance with the usual payroll practices of the
Company. Executive's Base Salary shall be subject to annual review by the Board
or the Compensation Committee during the Employment Term and may be increased,
but not decreased, from time to time by the Board or the Compensation Committee,
except that, prior to a Change in Control, as defined in Section 10 hereof, it
may be decreased proportionately in connection with an across the board decrease
applying to all senior executives of the Company. The base salary as determined
as aforesaid from time to time shall constitute "Base Salary" for purposes of
this Agreement; provided, however, for purposes of calculating amounts payable
upon termination of Executive's employment hereunder "Base Salary" shall be
deemed to be the Base Salary immediately prior to any decrease thereof in
connection with an across the board decrease.
4. Incentive Compensation. (a) Bonus. For each fiscal year or
portion thereof during the Employment Term, Executive shall continue to
participate in an incentive pay plan of the Company substantially similar to
that in effect immediately prior the Commencement Date that provides an
annualized cash target bonus opportunity equal to at least 100% of Base Salary.
(b) Restricted Stock. The Company shall recommend to the
Compensation Committee that, to the extent it has not already done so during May
1999, at its next meeting it award Executive, subject to his execution of a
Restricted Stock Agreement in the form customarily used by the Company for other
grants, 20,000 shares of restricted Company common stock ("Restricted Stock"),
which shall vest on such terms and conditions as set by the Compensation
Committee but which will in any event vest or be forfeited as provided in
Section 8 hereof and will vest upon a Change in Control.
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(c) Other Compensation. The Company may, upon recommendation
of the Compensation Committee, award to the Executive such other bonuses and
compensation as it deems appropriate and reasonable. Notwithstanding anything
else herein, other than the Restricted Stock provided for in Section 4(b) above,
the Company shall not be obligated to grant or recommend any other equity awards
for Executive during the Employment Term.
5. Employee Benefits and Vacation. (a) During the Employment
Term, Executive shall be entitled to participate in all pension, retirement,
savings, welfare and other employee benefit plans and arrangements and fringe
benefits and perquisites maintained by the Company from time to time for the
benefit of the senior executives of the Company in accordance with their
respective terms as in effect from time to time (other than any special
arrangement entered into by contract with an executive). Executive shall be
entitled to (i) coverage and benefits at least equal in the aggregate to the
benefits provided under the benefit plans and programs, including, without
limitation, any life insurance, medical insurance, disability, pension, savings,
incentive, retirement and other plans and programs, of the Company applicable to
Executive immediately prior to the Commencement Date and (ii) fringe benefits
and perquisites of at least equal value to those provided by the Company to the
Executive immediately prior to the Commencement Date.
(b) During the Employment Term, Executive shall be entitled to
vacation each year in accordance with the Company's policies in effect from time
to time, but in no event less than four (4) weeks paid vacation per calendar
year. The Executive shall also be entitled to such periods of sick leave as is
customarily provided by the Company for its senior executive employees.
6. Business Expenses. The Company shall reimburse Executive
for the travel, entertainment and other business expenses incurred by Executive
in the performance of his duties hereunder, in accordance with the Company's
policies as in effect from time to time.
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7. Termination. (a) The employment of Executive under this
Agreement shall terminate upon the occurrence of the earliest of the following
events:
(i) the death of the Executive;
(ii) the termination of the Executive's employment
by the Company due to the Executive's Disability pursuant to
Section 7(b) hereof;
(iii) the termination of the Executive's employment
by the Executive for Good Reason pursuant to Section 7(c)
hereof;
(iv) the termination of the Executive's employment
by the Company without Cause;
(v) the termination of employment by the Executive
without Good Reason upon sixty (60) days prior written notice;
(vi) the termination of employment by the Executive
with or without Good Reason during the period running from the
date of a Change in Control to twenty-four (24) months after
the date of such Change in Control (the "Change in Control
Protection Period"), provided that the foregoing commencement
date of such right to terminate employment pursuant to this
Section 7(a)(vi) shall be delayed until six (6) months after
the Change in Control if simultaneous with the Change in
Control the Company or the person or entity triggering the
Change in Control delivers to the Executive an irrevocable
direct pay letter of credit with regard to the amounts under
Section 8(c)(A)(i) and (ii) and satisfying the requirements of
Section 7(g) hereof (and further provided that the foregoing
shall in no way affect full vesting of Restricted Stock upon a
Change in Control);
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(vii) the termination of the Executive's employment
by the Company for Cause pursuant to Section 7(e);
(viii) A Spinoff occurring prior to September 30,
2000 (the "Outside Date"), an Abandoned Spinoff or a Sale
Event, in all cases prior to a Change in Control, where
(x) "Sale Event" shall mean that prior to the
earliest of the Spinoff, an Abandoned Spinoff
or the Outside Date, one or more closings occur
that results in more than seventy-five percent
(75%) of the assets constituting the
Diversified Segment as of the date hereof being
sold (or otherwise disposed of) to one or more
persons or entities and/or distributed to
shareholders through a dividend (but not
including the Spinoff or an event which would
be an Abandoned Spinoff); and
(y) "Abandoned Spinoff" shall mean that (A) no
Sale Event or Spinoff occurs prior to the
Outside Date, (B) the Company publicly
announces that its Board has abandoned the
Spinoff, (C) Bearing Inspection, Inc., Atech
Turbine Components, Inc., Huron Inc. or Rexair
Inc. is sold by the Company other than as part
of a Sale Event or the Company determines not
to include any of such companies in the
Spinoff, or (D) a transaction which would be a
Spinoff occurs except that Executive is not
Chairman and Chief Executive Officer of
Newco at such time and the reason therefor is
because Executive is incapable of performing
the duties of such position as a result of
physical or mental incapacity.
(b) Disability. If, by reason of the same or related physical
or mental reasons, Executive is unable to carry out his material duties pursuant
to this Agreement for more than six (6) months in any twelve (12) consecutive
month period, the Company may terminate Executive's employment for Disability
upon thirty (30) days prior written notice, by a Notice of
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Disability Termination, at any time thereafter during such twelve (12) month
period in which Executive is unable to carry out his duties as a result of the
same or related physical or mental illness. Such termination shall not be
effective if Executive returns to the full time performance of his material
duties within such thirty (30) day notice period.
(c) Termination for Good Reason. A Termination for Good Reason
means a termination by Executive by written notice given within ninety (90) days
after the occurrence of the Good Reason event unless such circumstances are
fully corrected prior to the date of termination specified in the Notice of
Termination for Good Reason (as defined in Section 7(d) hereof). For purposes of
this Agreement, "Good Reason" shall mean the occurrence or failure to cause the
occurrence, as the case may be, without Executive's express written consent, of
any of the following circumstances: (i) any material diminution of Executive's
then positions, duties or responsibilities hereunder (except in each case in
connection with the termination of Executive's employment for Cause or
Disability or as a result of Executive's death, or temporarily as a result of
Executive's illness or other absence or as otherwise provided in Section 2(a)
hereof), or the assignment to Executive of duties or responsibilities (other
than with regard to the Spinoff) that are inconsistent with Executive's then
position, (ii) removal of, or the nonreelection of, the Executive from the
positions with the Company specified herein except on or after September 15,
1999 and prior to a Change in Control; (iii) relocation of the Company's
executive offices to a location more than twenty-five (25) miles from their
locations on the Commencement Date; (iv) a failure by the Company, except as
otherwise specifically provided herein, (A) to continue any bonus plan, program
or arrangement in which Executive is entitled to participate on the Commencement
Date (the "Bonus Plans"), provided that any such Bonus Plans may be modified at
the Company's discretion from time to time but shall be deemed terminated if (x)
any such plan does not remain substantially in the form in effect prior to such
modification and (y) if plans providing Executive with substantially similar
benefits are not substituted therefor ("Substitute Plans"), or (B) to continue
Executive as a participant in the Bonus Plans and Substitute Plans on at least
the same basis as to potential amount of the bonus and substantially the same
level of criteria for achievability thereof as Executive participated in on the
Commencement Date; (v) any material breach by the Company of any provision of
this Agreement, including without limitation Section 11 hereof; (vi) Executive's
removal from
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the Board; (vii) failure of any successor to assume in a writing delivered to
Executive upon the assignee becoming such, the obligations of the Company
hereunder; or (viii) a failure of the Compensation Committee to grant the
Executive awards of Restricted Stock in accordance with Section 4(b).
(d) Notice of Termination for Good Reason. A Notice of
Termination for Good Reason shall mean a notice that shall indicate the specific
termination provision in Section 7(c) relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
Termination for Good Reason. The failure by Executive to set forth in the Notice
of Termination for Good Reason any facts or circumstances which contribute to
the showing of Good Reason shall not waive any right of Executive hereunder or
preclude Executive from asserting such fact or circumstance in enforcing his
rights hereunder. The Notice of Termination for Good Reason shall provide for a
date of termination not less than ten (10) nor more than sixty (60) days after
the date such Notice of Termination for Good Reason is given, provided that in
the case of the events set forth in Section 7(c)(ii) or (iii) the date may be
two (2) days after the giving of such notice.
(e) Cause. Subject to the notification provisions of Section
7(f) below, Executive's employment hereunder may be terminated by the Company
for Cause. For purposes of this Agreement, the term "Cause" shall be limited to
(i) willful misconduct by Executive with regard to the Company or its business
which has a material adverse effect on the Company; (ii) the refusal of
Executive to follow the proper written direction of the Board or the Chief
Executive Officer, provided that the foregoing refusal shall not be "Cause" if
Executive in good faith believes that such direction is illegal, unethical or
immoral and promptly so notifies the Board or the Chief Executive Officer; (iii)
the Executive being convicted of a felony (other than a felony involving a motor
vehicle) and either (x) exhausting all appeals without a reversal of the
conviction or (y) commencing a term of incarceration in a house of detention;
(iv) the breach by Executive of any fiduciary duty owed by Executive to the
Company which has a material adverse effect on the Company; or (v) Executive's
material fraud with regard to the Company.
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(f) Notice of Termination for Cause. A Notice of Termination
for Cause shall mean a notice that shall indicate the specific termination
provision in Section 7(e) relied upon and shall set forth in reasonable detail
the facts and circumstances which provide for a basis for Termination for Cause.
Further, a Notification for Cause shall be required to include a copy of a
resolution duly adopted by at least two-thirds of the entire membership of the
Board at a meeting of the Board which was called for the purpose of considering
such termination and which Executive and his representative had the right to
attend and address the Board, finding that, in the good faith opinion of the
Board, Executive engaged in conduct set forth in the definition of Cause herein
and specifying the particulars thereof in reasonable detail. The date of
termination for a Termination for Cause shall be the date indicated in the
Notice of Termination. Any purported Termination for Cause which is held by a
court not to have been based on the grounds set forth in this Agreement or not
to have followed the procedures set forth in this Agreement shall be deemed a
Termination by the Company without Cause.
(g) The irrevocable direct pay letter of credit required to be
delivered pursuant to Section 7(a)(vi) hereof shall be in amount equal to the
amount the Executive would be entitled to under Section 8(c)(A)(i) and (ii)
hereof if he were terminated without Cause upon the Change in Control (the
"Occurrence") and have an expiration date of no less than two (2) years after
the Occurrence. The Executive shall be entitled to draw on the letter of credit
upon presentation to the issuing bank of a demand for payment signed by the
Executive that states that (i) (A) a Good Reason event has occurred and the
Executive would be entitled to payment under Section 8(c) of this Agreement if
he elected to terminate employment for Good Reason or (B) six (6) months has
expired since the Occurrence or (C) the Executive is entitled to payment under
Section 8(c) of this Agreement and (ii) assuming the event set forth in (i)
entitled him to payment under Section 8(c) of this Agreement, the amount the
Company would be indebted to him at the time of presentation under Section
8(c)(A)(i) and (ii) if he then was eligible to receive payments under Section
8(c). There shall be no other requirements (including no requirement that the
Executive first makes demand upon the Company or that the Executive actually
terminates employment) with regard to payment of the letter of credit. To the
extent the letter of credit is not adequate to cover the amount owed to the
Executive by the Company under this Agreement, is not submitted
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by the Executive or is not paid by the issuing bank, the Company shall remain
liable to the Executive for the remainder owed the Executive pursuant to the
terms of this Agreement. To the extent any amount is paid under the letter of
credit it shall be a credit against any amounts the Company then or thereafter
would owe to the Executive under Section 8(c) of this Agreement. The letter of
credit shall be issued by a national money center bank with a rating of at least
A by Standard & Poors Ratings Services. The Company shall bear the cost of the
letter of credit.
8. Consequences of Termination of Employment. (a) Death. If
Executive's employment is terminated during the Employment Term by reason of
Executive's death, the employment period under this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement except for: (i) any compensation earned but not yet paid, including
and without limitation, any bonus if declared or earned but not yet paid for a
completed fiscal year, any amount of Base Salary earned but unpaid, any accrued
vacation pay payable pursuant to the Company's policies and any unreimbursed
business expenses payable pursuant to Section 6 (collectively "Accrued
Amounts"), which amounts shall be promptly paid in a lump sum to Executive's
estate; (ii) the product of (x) the target annual bonus for the fiscal year of
the Executive's death, multiplied by (y) a fraction, the numerator of which is
the number of days of the current fiscal year during which the Executive was
employed by the Company, and the denominator of which is 365, which bonus shall
be paid when bonuses for such period are paid to the other executives; (iii) any
other amounts or benefits owing to the Executive under the then applicable
employee benefit, long term incentive or equity plans and programs of the
Company, which shall be paid in accordance with such plans and programs,
provided that Executive shall be fully vested in his outstanding stock options
and Restricted Stock of the Company; (iv) payment on a monthly basis of twelve
(12) months of Base Salary, which shall be paid to Executive's spouse, or if she
shall predecease him, then to Executive's children (or their guardian if one is
appointed) in equal shares; and (v) payment of the spouse's and dependent's
COBRA coverage premiums to the extent, and so long as, they remain eligible for
COBRA coverage, but in no event more than three (3) years. Section 11 hereof
shall also continue to apply.
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(b) Disability. If Executive's employment is terminated by
reason of Executive's Disability, Executive shall be entitled to receive the
payments and benefits to which his representatives would be entitled in the
event of a termination of employment by reason of his death (other than life
insurance benefits), provided that the payment of Base Salary shall be reduced
by the projected amount he would receive under any long-term disability policy
or program maintained by the Company during the twelve (12) month period during
which Base Salary is being paid. Section 11 hereof shall also continue to apply.
(c) Termination by Executive for Good Reason or for any Reason
During the Change in Control Protection Period or Termination by the Company
without Cause. If (i) outside of the Change in Control Protection Period,
Executive terminates his employment hereunder for Good Reason during the
Employment Term, (ii) if a Change in Control occurs and during the Change in
Control Protection Period Executive terminates his employment for any reason, or
(iii) if Executive's employment with the Company is terminated by the Company
without Cause, Executive shall be entitled to receive (A) in a lump sum within
five (5) days after such termination (i) three times Base Salary, (ii) three
times the highest annual bonus paid or, if declared or earned but not yet paid
for a completed fiscal year, payable to Executive for any of the previous three
(3) completed fiscal years by the Company and (iii) any Accrued Amounts at the
date of termination; (B) any other amounts or benefits owing to Executive under
the then applicable employee benefit, long term incentive or equity plans and
programs of the Company, which shall be paid in accordance with such plans and
programs, provided that Executive shall be fully vested in his outstanding stock
options and Restricted Stock of the Company; (C) three years of additional
service and compensation credit (at his then compensation level) for pension
purposes under any defined benefit type qualified or nonqualified pension plan
or arrangement of the Company, which payments shall be made through and in
accordance with the terms of the nonqualified defined benefit pension
arrangement if any then exists, or, if not, in an actuarially equivalent lump
sum (using the actuarial factors then applying in the Company's defined benefit
plan covering Executive); (D) three (3) years of the maximum Company
contribution (assuming Executive deferred the maximum amount and continued to
earn his then current salary) under any type of qualified or nonqualified 401(k)
plan (payable at the end of each such year); and (E) payment by the Company of
the premiums for the Executive and his
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dependents' health coverage for three (3) years under the Company's health plans
which cover the senior executives of the Company or materially similar benefits.
Payments under (E) above may at the discretion of the Company be made by
continuing participation of Executive in the plan as a terminee, by paying the
applicable COBRA premium for Executive and his dependents, or by covering
Executive and his dependents under substitute arrangements, provided that, to
the extent Executive incurs tax that he would not have incurred as an active
employee as a result of the aforementioned coverage or the benefits provided
thereunder, he shall receive from the Company an additional payment in the
amount necessary so that he will have no additional cost for receiving such
items or any additional payment. In the circumstances described in each of (i)
through (iv) above, Section 11 hereof shall also continue to apply.
(d) Termination with Cause or Voluntary Resignation without
Good Reason. If Executive's employment hereunder is terminated (i) by the
Company for Cause, or (ii) by Executive without Good Reason outside of the
Change in Control Protection Period, the Executive shall be entitled to receive
only his Base Salary through the date of termination, any bonus that has been
declared or earned but not yet paid for a completed fiscal year, and any
unreimbursed business expenses payable pursuant to Section 6. All other benefits
(including, without limitation, restricted stock and options, and the vesting
thereof) due Executive following such termination of employment shall be
determined in accordance with the Company's plans and programs.
(e) Termination as a result of a Spinoff. If Executive's
employment hereunder is terminated as a result of a Spinoff, (i) the Executive
shall be entitled to receive his Accrued Amounts, except to the extent the
obligations with regard to them are assumed by Newco, (ii) the Executive shall
vest in his 1995 Restricted Stock grant, but forfeit all other Company
Restricted Stock grants, (iii) the Executive shall be treated as if he had a
Termination without Cause with regard to all his outstanding Company stock
options and vest in them, but the exercise period of such stock options shall
only extend to the later of January 15, 2000 or ninety (90) days after the
termination event (the "Stock Option Treatment") (iv) the Executive's benefit
accruals and Company obligations under the Long-Term Incentive Plan (the "LTIP")
and the Supplemental Executive Retirement
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Plan (the "SERP"), as well as any other employment related entitlements shall be
transferred to Newco and the Company shall have no further liability with regard
to such amounts and entitlements and (v) the Executive shall receive a fiscal
year 1999 bonus in accordance with the terms of the Annual Performance Incentive
Plan (but with no requirement of employment on the date of payment), provided
that, if the Spinoff occurs prior to the end of the 1999 fiscal year of the
Company, the Executive shall receive a pro rata bonus based on the number of
days during the fiscal year that he was employed by the Company and the bonus he
would have received if employed by the Company at the end of the fiscal year of
the Spinoff (the "1999 Bonus"). The Executive shall not be entitled to any other
amounts or benefits from the Company, except as may become due pursuant to
Section 11 hereof with regard to indemnification or the Special Tax Provisions
of Section 12 hereof or as required by law.
(f) Termination as a result of a Sale Event. If Executive's
employment hereunder is terminated as a result of a Sale Event, (i) the
Executive shall be entitled to receive his Accrued Amounts (ii) the Executive
shall vest in all of his Company Restricted Stock, (iii) the Executive shall be
entitled to the Stock Option Treatment, (iv) the Executive's benefit accruals
under the LTIP shall immediately vest and be paid to him in a lump sum within
ninety (90) days after the Sale Event and any LTIP contributions that thereafter
are made with regard to the 1999 Bonus shall be promptly paid out to him after
deposit, without in either case any regard to any requirement that he be
employed by the Company on a specified date, (v) the Executive shall receive the
1999 Bonus based on the date of the Sale Event as if it was the date of the
Spinoff, (vi) the Executive shall vest in his accrued benefit under the SERP and
it shall be paid out at Retirement in accordance with the term of the SERP (the
"SERP Treatment") and (vii) provided the Executive delivers and does not revoke
the Release referred to in Section 9(b) hereof and fulfills his obligations
under Section 13(b) hereof, the Executive shall be entitled to receive within
thirty (30) days after the Sale Event a lump sum incentive payment equal to
$1,500,000. The Executive shall not be entitled to any other amounts or benefits
from the Company, except as may become due pursuant to Section 11 hereof with
regard to indemnification or under the Special Tax Provision of Section 12
hereof or as required by law. The lump sum incentive payment shall not be
treated as compensation for purposes of any incentive or benefit plan or
arrangement.
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(g) Termination as a result of an Abandoned Spinoff. If
Executive's employment hereunder is terminated as a result of an Abandoned
Spinoff, (i) the Executive shall be entitled to receive his Accrued Amounts (ii)
provided the Executive delivers and does not revoke the Release referred to in
Section 9(b) hereof, the Executive shall fully vest in all of his Company
Restricted Stock, (iii) provided the Executive delivers and does not revoke the
Release referred to in Section 9(b) hereof, the Executive shall be entitled to
his Stock Option Treatment, (iv) provided the Executive delivers and does not
revoke the Release referred to in Section 9(b) hereof, the Executive shall be
entitled to the SERP Treatment, (v) provided the Executive delivers and does not
revoke the Release referred to in Section 9(b) hereof, the Executive's benefit
entitlements under the LTIP (taking into consideration the bonuses described in
clause (vi) below) shall immediately vest and shall be paid out to him in
accordance with the terms of the LTIP (without regard to the employment
requirement as a condition of payment) and (vi) the Executive shall be entitled
to the 1999 Bonus and, if the Abandoned Spinoff is during fiscal 2000, provided
the Executive delivers and does not revoke the Release referred to in Section
9(b) hereof, a pro rata fiscal 2000 bonus equal to the product of (x) the target
annual bonus for fiscal 2000 (one hundred percent (100%) of Base Salary),
multiplied by (y) a fraction, the numerator of which is the number of days of
the 2000 fiscal year prior to the Abandoned Spinoff, and the denominator of
which is 365, such pro rated fiscal year 2000 bonus to be paid out within ninety
(90) days of the Abandoned Spinoff. In addition, if prior to or within ninety
(90) days after an Abandoned Spinoff (other than as a result of reaching the
Outside Date), the Company has entered into a definitive agreement or agreements
to effect a sale or sales of assets which would result in the requirements of
Section 7(a)(viii)(x) being satisfied, upon the closing of such transactions
such that the above criteria is satisfied prior to the Outside Date, based on
such transactions and those that closed prior to the Abandoned Spinoff, the
Company shall pay to Executive the incentive payment provided for in Section
8(f)(vii) provided the Executive satisfies the conditions of such subsection.
The Executive shall not be entitled to any other amounts or benefits from the
Company, except as may become due pursuant to Section 11 hereof with regard to
indemnification or the Special Tax Provisions of Section 12 hereof or as
otherwise required by law.
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9. No Mitigation; No Set-Off. (a) In the event of any
termination of employment under Section 8, Executive shall be under no
obligation to seek other employment and there shall be no offset against any
amounts due Executive under this Agreement on account of any remuneration
attributable to any subsequent employment that Executive may obtain. Any amounts
due under Section 8 are in the nature of severance payments and are not in the
nature of a penalty. Such amounts are inclusive, and in lieu of, any amounts
payable under any other salary continuation or cash severance arrangement of the
Company and to the extent paid or provided under any other such arrangement
shall be offset from the amount due hereunder.
(b) The Release required by Sections 8(f) and 8(g) shall be a
release of the Company, its affiliates, officers, directors, employees, agents
and shareholders in the standard form used by the Company for senior executives
(but without release of any right of indemnifications or rights under this
Agreement, equity grants or benefit plans that by their terms are intended to
survive termination of Executive's employment).
10. Change in Control. For purposes of this Agreement, the
term "Change in Control" shall mean (i) any "person" as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 ("Act") (other
than the Company, any trustee or other fiduciary holding securities under any
employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of Common Stock of the Company), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing twenty-five percent (25%)
or more of the combined voting power of the Company's then outstanding
securities; (ii) during any period of two (2) consecutive years (not including
any period prior to the Commencement Date), individuals who at the beginning of
such period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii), or (iv) of this paragraph)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the two-year
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the Board;
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(iii) a merger or consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than fifty percent (50%) of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however, that a merger
or consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person acquires more than twenty-five percent
(25%) of the combined voting power of the Company's then outstanding securities
shall not constitute a Change in Control of the Company; or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or the sale or disposition by the Company of all or substantially all of
the Company's assets other than (x) the sale or disposition of all or
substantially all of the assets of the Company to a person or persons who
beneficially own, directly or indirectly, at least fifty percent (50%) or more
of the combined voting power of the outstanding voting securities of the Company
at the time of the sale or (y) pursuant to a spinoff type transaction, directly
or indirectly, of such assets to the stockholders of the Company. In no event
shall the Spinoff constitute a Change in Control for purposes of this Agreement.
11. Indemnification. (a) The Company agrees that if Executive
is made a party to or threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director or officer of
the Company and/or any affiliate of the Company, or is or was serving at the
request of any of such companies as a director, officer, member, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including, without limitation, service with respect
to employee benefit plans, whether or not the basis of such Proceeding is
alleged action in an official capacity as a director, officer, member, employee,
fiduciary or agent while serving as a director, officer, member, employee,
fiduciary or agent, he shall be indemnified and held harmless by the Company to
the fullest extent authorized by Delaware law (or, if other than the Company,
the law applicable to such company), as the same exists or may hereafter be
amended, against all Expenses incurred or suffered by Executive in connection
therewith, and
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such indemnification shall continue as to Executive even if Executive has ceased
to be an officer, director, member, fiduciary or agent, or is no longer employed
by the applicable company, and shall inure to the benefit of his heirs,
executors and administrators.
(b) As used in this Agreement, the term "Expenses" shall
include, without limitation, damages, losses, judgments, liabilities, fines,
penalties, excise taxes, settlements and costs, attorneys' fees, accountants'
fees, and disbursements and costs of attachment or similar bonds,
investigations, and any expenses of establishing a right to indemnification
under this Agreement.
(c) Expenses incurred by Executive in connection with any
Proceeding shall be paid by the Company in advance upon request of Executive and
the giving by the Executive of any undertakings required by applicable law.
(d) Executive shall give the Company notice of any claim made
against him for which indemnity will or could be sought under this Agreement. In
addition, Executive shall give the Company such information and cooperation as
it may reasonably require and as shall be within Executive's power and at such
times and places as are reasonably convenient for Executive.
(e) With respect to any Proceeding as to which Executive
notifies the Company of the commencement thereof:
(i) The Company will be entitled to
participate therein at its own expense; and
(ii) Except as otherwise provided below, to
the extent that it may wish, the Company will be entitled to assume
the defense thereof, with counsel reasonably satisfactory to
Executive. Executive also shall have the right to employ his own
counsel in such action, suit or proceeding and the fees and expenses
of such counsel shall be at the expense of the Company.
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(f) The Company shall not be liable to indemnify Executive
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any action or
claim in any manner which would impose any penalty or limitation on Executive
without Executive's written consent. Neither the Company nor Executive will
unreasonably withhold or delay their consent to any proposed settlement.
(g) The right to indemnification and the payment of expenses
incurred in defending a Proceeding in advance of its final disposition conferred
in this Section 11 shall not be exclusive of any other right which Executive may
have or hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the Company, agreement, vote of stockholders or
disinterested directors or otherwise.
(h) The Company agrees to obtain Officer and Director
liability insurance policies covering Executive and shall maintain at all times
during the Employment Term coverage under such policies in the aggregate with
regard to all officers and directors, including Executive, of an amount not less
than $20 million. The Company shall maintain for a six (6) year period
commencing on the date the Executive ceased to be an employee of the Company,
Officer and Director liability insurance coverage for events occurring during
the period the Executive was an employee or director of the Company in the same
aggregate amount and under the same terms as are maintained for its active
officers and directors. The phrase "in the same aggregate amount and under the
same terms" shall include the same level of self-insurance by the Company as
shall be maintained for active officers and directors.
12. Special Tax Provision. (a) Anything in this Agreement to
the contrary notwithstanding, in the event that any amount or benefit paid,
payable, or to be paid, or distributed, distributable, or to be distributed to
or with respect to Executive by the Company (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company, any
person whose actions result in a change of ownership covered by Internal Revenue
Code (the "Code") Section 280G(b)(2) or any person affiliated with the Company
or such person) as a result of a change in ownership of the Company or a
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direct or indirect parent thereof covered by Code Section 280G(b)(2)
(collectively, the "Covered Payments") is or becomes subject to the excise tax
imposed by or under Section 4999 of the Code (or any similar tax that may
hereafter be imposed), and/or any interest or penalties with respect to such
excise tax (such excise tax, together with such interest and penalties, is
hereinafter collectively referred to as the "Excise Tax"), the Company shall pay
to Executive an additional amount (the "Tax Reimbursement Payment") such that
after payment by Executive of all taxes (including, without limitation, any
interest or penalties and any Excise Tax imposed on or attributable to the Tax
Reimbursement Payment itself), Executive retains an amount of the Tax
Reimbursement Payment equal to the sum of (i) the amount of the Excise Tax
imposed upon the Covered Payments, and (ii) without duplication, an amount equal
to the product of (A) any deductions disallowed for federal, state or local
income or payroll tax purposes because of the inclusion of the Tax Reimbursement
Payment in Executive's adjusted gross income, and (B) the highest applicable
marginal rate of federal, state or local income taxation, respectively, for the
calendar year in which the Tax Reimbursement Payment is made or is to be made.
The intent of this Section 12 is that (a) the Executive, after paying his
Federal, state and local income and payroll tax, will be in the same position as
if he was not subject to the Excise Tax under Section 4999 of the Code and did
not receive the extra payments pursuant to this Section 12 and (b) that
Executive should never be "out-of-pocket" with respect to any tax or other
amount subject to this Section 12, whether payable to any taxing authority or
repayable to the Company, and this Section 12 shall be interpreted accordingly.
(b) Except as otherwise provided in Section 12(a), for
purposes of determining whether any of the Covered Payments will be subject to
the Excise Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as
"parachute payments" (within the meaning of Section 280G(b)(2) of the
Code) and such payments in excess of the Code Section 280G(b)(3) "base
amount" shall be treated as subject to the Excise Tax, unless, and
except to the extent that, the Company's independent certified public
accountants appointed prior to the change in ownership covered by Code
Section 280G(b)(2) or legal counsel (reasonably acceptable to
Executive) appointed by such public accountants (or, if the public
accountants decline such
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appointment and decline appointing such legal counsel, such
independent certified public accountants as promptly mutually agreed
on in good faith by the Company and the Executive) (the "Accountant"),
deliver a written opinion to Executive, reasonably satisfactory to
Executive's legal counsel, that Executive has a reasonable basis to
claim that the Covered Payments (in whole or in part) (A) do not
constitute "parachute payments", (B) represent reasonable compensation
for services actually rendered (within the meaning of Section
280G(b)(4) of the Code) in excess of the "base amount" allocable to
such reasonable compensation, or (C) such "parachute payments" are
otherwise not subject to such Excise Tax (with appropriate legal
authority, detailed analysis and explanation provided therein by the
Accountants); and
(ii) the value of any Covered Payments which
are non-cash benefits or deferred payments or benefits shall be
determined by the Accountant in accordance with the principles of
Section 280G of the Code.
(c) For purposes of determining the amount of the Tax
Reimbursement Payment, Executive shall be deemed:
(i) to pay federal, state, local income
and/or payroll taxes at the highest applicable marginal rate
of income taxation for the calendar year in which the Tax
Reimbursement Payment is made or is to be made, and
(ii) to have otherwise allowable deductions
for federal, state and local income and payroll tax purposes
at least equal to those disallowed due to the inclusion of the
Tax Reimbursement Payment in Executive's adjusted gross
income.
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(d)(i)(A) In the event that prior to the time the Executive
has filed any of his tax returns for the calendar year in which the change in
ownership event covered by Code Section 280G(b)(2) occurred, the Accountant
determines, for any reason whatever, the correct amount of the Tax Reimbursement
Payment to be less than the amount determined at the time the Tax Reimbursement
Payment was made, the Executive shall repay to the Company, at the time that the
amount of such reduction in Tax Reimbursement Payment is determined by the
Accountant, the portion of the prior Tax Reimbursement Payment attributable to
such reduction (including the portion of the Tax Reimbursement Payment
attributable to the Excise Tax and federal, state and local income and payroll
tax imposed on the portion of the Tax Reimbursement Payment being repaid by the
Executive, using the assumptions and methodology utilized to calculate the Tax
Reimbursement Payment (unless manifestly erroneous)), plus interest on the
amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code.
(B) In the event that the determination set forth in (A) above
is made by the Accountant after the filing by the Executive of any of his tax
returns for the calendar year in which the change in ownership event covered by
Code Section 280G(b)(2) occurred but prior to one (1) year after the occurrence
of such change in ownership, the Executive shall file at the request of the
Company an amended tax return in accordance with the Accountant's determination,
but no portion of the Tax Reimbursement Payment shall be required to be refunded
to the Company until actual refund or credit of such portion has been made to
the Executive, and interest payable to the Company shall not exceed the interest
received or credited to the Executive by such tax authority for the period it
held such portion (less any tax the Executive must pay on such interest and
which he is unable to deduct as a result of payment of the refund).
(C) In the event the Executive receives a refund pursuant to
(B) above and repays such amount to the Company, the Executive shall thereafter
file for refunds or credits by reason of the repayments to the Company.
(D) The Executive and the Company shall mutually agree upon
the course of action, if any, to be pursued (which shall be at the expense of
the Company) if the Executive's claim for refund or credit is denied.
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(ii) In the event that the Excise Tax is
later determined by the Accountants or the Internal Revenue Service to exceed
the amount taken into account hereunder at the time the Tax Reimbursement
Payment is made (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Tax Reimbursement Payment), the
Company shall make an additional Tax Reimbursement Payment in respect of such
excess (plus any interest or penalties payable with respect to such excess) once
the amount of such excess is finally determined.
(iii) In the event of any controversy with
the Internal Revenue Service (or other taxing authority) under this Section 12,
subject to subpart (i)(D) above, the Executive shall permit the Company to
control issues related to this Section 12 (at its expense), provided that such
issues do not potentially materially adversely affect the Executive, but the
Executive shall control any other issues. In the event the issues are
interrelated, the Executive and the Company shall in good faith cooperate so as
not to jeopardize resolution of either issue, but if the parties cannot agree
Executive shall make the final determination with regard to the issues. In the
event of any conference with any taxing authority as to the Excise Tax or
associated income taxes, the Executive shall permit the representative of the
Company to accompany him and the Executive and his representative shall
cooperate with the Company and its representative.
(iv) With regard to any initial filing for a
refund or any other action required pursuant to this Section 12 (other than by
mutual agreement) or, if not required, agreed to by the Company and the
Executive, the Executive shall cooperate fully with the Company, provided that
the foregoing shall not apply to actions that are provided herein to be at the
sole discretion of the Executive.
(e) The Tax Reimbursement Payment, or any portion thereof
payable by the Company shall be paid not later than the fifth (5th) day
following the determination by the Accountant and any payment made after such
fifth (5th) day shall bear interest at the rate provided in Section
1274(b)(2)(B) of the Code). The Company shall use its best efforts to cause the
Accountant to promptly deliver the initial determination required hereunder and,
if not delivered, within ninety (90) days after the
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change in ownership event covered by Section 280G(b)(2) of the Code, the Company
shall pay the Executive the Tax Reimbursement Payment set forth in an opinion
from counsel recognized as knowledgeable in the relevant areas selected by the
Executive, and reasonably acceptable to the Company, within five (5) days after
delivery of such opinion. The amount of such payment shall be subject to later
adjustment in accordance with the determination of the Accountant as provided
herein.
(f) The Company shall be responsible for all charges of the
Accountant and if (e) is applicable the reasonable charges for the opinion given
by Executive's counsel.
(g) The Company and the Executive shall mutually agree on and
promulgate further guidelines in accordance with this Section 12 to the extent,
if any, necessary to effect the reversal of excessive or shortfall Tax
Reimbursement Payments. The foregoing shall not in any way be inconsistent with
Section 12(d)(i)(D) hereof.
(h) In no event shall this provision apply with regard to any
change in ownership of Newco covered by Code Section 280G(b)(2) after the
Spinoff.
13. Other Provisions.
(a) Upon the Spinoff, Sale Event or Abandoned Spinoff,
Executive hereby resigns as an officer (if he has not already resigned pursuant
to Section 1 hereof), director and employee of the Company and its subsidiaries
and affiliates (other than, in the case of a Spinoff of Newco and those entities
that become part of Newco), as well as a fiduciary or trustee of any benefit
plan or similar arrangement of the Company and its subsidiaries and affiliates
(other than, in the case of a Spinoff, as a fiduciary or trustee of any benefit
plan or similar arrangement of Newco and those entities that became part of
Newco). Upon request of the Company at such time Executive shall execute such
documents as necessary to additionally document the foregoing.
(b) Executive shall fully cooperate with the Company in
connection with the Spinoff or Sale Event, provided, however, he shall not be
obligated to work for an acquirer after any Sale Event.
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(c) Executive agrees that upon a Spinoff, Sale Event or other
termination of employment he shall promptly return to the Company all Company
property or confidential information in his possession, except to the extent, in
the case of a Spinoff, where such property or information is transferred to
Newco. Executive further agrees that following a Spinoff, Sale Event or
termination, he will cooperate and provide information to the Company with
regard to matters arising during his period of employment with the Company or
its predecessors, including with regard to any litigation related to such
periods; provided that the Company shall reimburse him for his reasonable
out-of-pocket expenses incurred in connection therewith.
(d) Executive agrees that upon a Spinoff he will serve as
Chairman and Chief Executive Officer of Newco unless he is incapable of doing so
because of physical or mental incapacity. Refusal of the Executive to comply
with the foregoing sentence shall be deemed to be a voluntary resignation
without Good Reason by him under this Agreement and all equity plans and grants.
14. Legal and Other Fees and Expenses. In the event that a
claim for payment or benefits under this Agreement is disputed, the Company
shall pay all reasonable attorney, accountant and other professional fees and
reasonable expenses incurred by Executive in pursuing such claim, unless the
claim by the Executive is found to be frivolous by any court or arbitrator.
15. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey without
reference to principles of conflict of laws.
(b) Entire Agreement/Amendments. This Agreement and the
instruments contemplated herein, contain the entire understanding of the parties
with respect to the employment of Executive by the Company from and after the
Commencement Date and supersedes any prior agreements between the Company and
Executive with respect thereto, including the
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Old Employment Agreement, provided that: (i) any option or restricted stock
agreements executed by the Company and Executive and in effect prior to the
Commencement Date shall be superceded only to the extent the terms thereof are
modified herein and (ii) the provisions of Section 11 of the Old Employment
Agreement shall not be superceded as they relate to obligations of Hanson
Industries and Hanson PLC. This Agreement, however, is in addition to the
Employment Agreement being signed simultaneous herewith by the Company and the
Executive that will become effective upon the Spinoff. There are no
restrictions, agreements, promises, warranties, covenants or undertakings
between the parties with respect to the subject matter herein other than those
expressly set forth herein and therein. This Agreement may not be altered,
modified, or amended except by written instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
Any such waiver must be in writing and signed by Executive or an authorized
officer of the Company, as the case may be.
(d) Assignment. This Agreement shall not be assignable by
Executive. This Agreement shall be assignable by the Company only to an acquiror
of all or substantially all of the assets of the Company, provided such acquiror
promptly assumes all of the obligations hereunder of the Company in a writing
delivered to the Executive and otherwise complies with the provisions hereof
with regard to such assumption.
(e) Successors; Binding Agreement; Third Party Beneficiaries.
This Agreement shall inure to the benefit of and be binding upon the personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees legatees and permitted assignees of the parties hereto.
(f) Communications. For the purpose of this Agreement, notices
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given (i) when faxed or delivered, or (ii)
two (2)
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business days after being mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to the respective addresses
set forth on the initial page of this Agreement, provided that all notices to
the Company shall be directed to the attention of the Senior Vice President,
General Counsel and Secretary of the Company, or to such other address as any
party may have furnished to the other in writing in accordance herewith. Notice
of change of address shall be effective only upon receipt.
(g) Withholding Taxes. The Company may withhold from any and
all amounts payable under this Agreement such Federal, state and local taxes as
may be required to be withheld pursuant to any applicable law or regulation.
(h) Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of Executive's employment to the
extent necessary to the agreed preservation of such rights and obligations.
(i) Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
(j) Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the ____ day of May, 1999.
U.S. INDUSTRIES, INC.
By:
-----------------------------------
Name:
Title:
--------------------------------------
John G. Raos
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Exhibit 10.5(b)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May 18, 1999 by and between
U.S. Industries, Inc., a Delaware corporation, with its principal United States
office at 101 Wood Avenue South, Iselin, New Jersey 08830, ("USI") and John G.
Raos, residing at 16 Castle Hill Way, Stuart, Florida 34966 ("Executive").
W I T N E S S E T H:
WHEREAS, Executive is currently employed as the President and
Chief Operating Officer of USI;
WHEREAS, USI intends to transfer all or a part of the assets
constituting USI's diversified segment, and other assets of USI (such assets
collectively "USI Diversified") to a newly constituted wholly owned subsidiary
of USI (the "Company") and to spinoff the Company to the shareholders of USI (a
spinoff including at a minimum Bearing Inspection, Inc., Atech Turbine
Components, Inc., Huron Inc. and Rexair Inc. with Executive as Chairman and
Chief Executive Officer of the Company is referred to herein as the "Spinoff");
WHEREAS, effective as of the consummation of the Spinoff (the
"Commencement Date"), the Company desires to employ Executive as its Chairman
and Chief Executive Officer and the Executive is willing to serve in such
capacities;
WHEREAS, USI and Executive desire to enter into this agreement
(this "Agreement") as to the terms of his employment by the Company, under which
Executive's employment shall commence on the Commencement Date and which
Agreement will be assigned by USI to the Company upon or prior to consummation
of the spinoff.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
<PAGE>
1. Term of Employment. Except for earlier termination as
provided in Section 7 hereof, Executive's employment under this Agreement shall
be for a three-year term (the "Employment Term") commencing on the Commencement
Date; provided that if Executive is not physically or mentally capable of
performing the duties set forth in Section 2 herein on the Commencement Date or
Executive is not employed by USI or an affiliate of USI on the day immediately
prior to the Commencement Date this Agreement shall be null and void ab initio.
Subject to Section 7 hereof, the Employment Term shall be automatically extended
for additional terms of successive three (3) year periods unless the Company or
Executive gives written notice to the other at least ninety (90) days prior to
the expiration of the then current Employment Term of the termination of
Executive's employment hereunder at the end of such current Employment Term.
Notwithstanding the foregoing, this Agreement shall be null and void if the
Spinoff is not consummated on or prior to September 30, 2000.
2. Positions. (a) As of the Commencement Date, Executive shall
serve as Chairman and Chief Executive Officer of the Company. It is the
intention of the parties that during the Employment Term, Executive shall also
serve on the Board of Directors of the Company (the "Board") without additional
compensation. During the term of this Agreement, the Company shall recommend the
Executive for election as a director. Executive shall also serve, if requested
by the Board, as an executive officer and director of subsidiaries and a
director of associated companies of the Company and shall comply with the policy
of the Compensation Committee of the Company's Board (the "Compensation
Committee") with regard to retention or forfeiture of the director's fees.
(b) Executive shall report directly to the Board or other
managing body of the Company and shall have such duties and authority,
consistent with his position as Chairman and Chief Executive Officer of the
Company, as shall be determined from time to time by the Board, provided that
Executive shall, at all times during the Employment Term, have such authority
comparable to that of chief executive officers of United States public companies
the size of the Company.
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(c) During the Employment Term, Executive shall devote
substantially all of his business time and efforts to the performance of his
duties hereunder; provided, however, that Executive shall be allowed, to the
extent that such activities do not materially interfere with the performance of
his duties and responsibilities hereunder, to manage his personal financial and
legal affairs and to serve on corporate, civic, or charitable boards or
committees. Notwithstanding the foregoing, the Executive shall not serve on any
corporate board of directors if such service would be inconsistent with his
fiduciary responsibilities to the Company.
3. Base Salary. During the Employment Term, the Company shall
pay Executive a base salary at the annual rate of not less than $500,000. Base
salary shall be payable in accordance with the usual payroll practices of the
Company. Executive's Base Salary shall be subject to annual review by the Board
or the Compensation Committee during the Employment Term and may be increased,
but not decreased, from time to time by the Board or the Compensation Committee,
except that, prior to a Change in Control, as defined in Section 10 hereof, it
may be decreased proportionately in connection with an across the board decrease
applying to all senior executives of the Company. The base salary as determined
as aforesaid from time to time shall constitute "Base Salary" for purposes of
this Agreement.
4. Incentive Compensation. (a) Bonus. For each fiscal year or
portion thereof during the Employment Term, beginning with the first fiscal year
commencing after the Commencement Date, Executive shall, subject to shareholder
approval as and to the extent required by Section 162(m) of the Internal Revenue
Code of 1986, as amended ("Section 162(m)"), be eligible to participate in an
incentive pay plan of the Company that provides an annualized cash target bonus
opportunity equal to at least 100% of Base Salary.
(b) Equity. (i) Common Stock Purchase. The parties acknowledge
that the Executive has indicated that, within the one hundred twenty (120) day
period following the Commencement Date (the "120 Day Period"), the Executive
intends to purchase, at his own expense and in the open market, the number of
shares of Common Stock of the Company
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("Common Stock") equal to the lesser of: (i) the number of shares of Common
Stock with an aggregate value at the time of purchase equal to $1,000,000 or
(ii) 0.5 percent of the issued and outstanding Common Stock on the day after the
Commencement Date; provided that the 120 Day Period shall be extended day for
day to the extent that the Executive is restricted by legal constraints from
purchasing the required amount of such Common Stock during the last forty (40)
days during the 120 Day Period.
(ii) Options. Pursuant to a stock option plan satisfying the
requirements of Section 162(m), the Company shall, after the Commencement Date,
recommend to the Compensation Committee that the Executive be granted three
separate grants of nonqualified stock options (the "Options") to purchase the
number of shares of Common Stock determined for each grant by dividing
$1,166,666.67 by the fair market value of the Common Stock on the date of grant
as determined under the applicable stock option plan (the "Fair Market Value").
It shall be recommended that the first grant of options be made within the
fifteen (15) day period following the date regular way trading of the Common
Stock commences, excluding the period of when issued trading ("Regular Way
Trading"), the second grant of options be made after the fifteenth (15th) day
and before the thirtieth (30th) day following the commencement of Regular Way
Trading, and the third grant of options be made after the thirtieth (30th) day
and before the forty-fifth (45th) day following the commencement of Regular Way
Trading. The Company shall recommend that the Options shall have an exercise
price equal to the Fair Market Value. In addition, the Company shall recommend
that the Options shall have a duration of ten years; provided that in the event
of termination of employment, the remaining duration, as determined by the
Compensation Committee, shall be at least the lesser of (x) the remainder of the
ten (10) year term or (y) (A) three (3) years on death, Disability, termination
without Cause, termination for Good Reason, nonextension of the Employment Term
by the Company, termination during the Change in Control Protection Period, (B)
thirty (30) days if the termination is a voluntary resignation not covered by
(A) above and (C) the day before the date a Notice of Termination for Cause is
given to the Executive if the termination is a termination for Cause; and
further provided that such Options shall be subject to the provisions of the
stock option plan with regard to duration in the event of a corporate
transaction. The Company shall recommend that the stock option plan and/or the
grants thereunder shall provide that the Options shall become exercisable with
respect to 25% of such Options on
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each of the first four anniversaries of October 1, 1999, provided that Executive
is employed by the Company on such vesting date, and shall fully vest upon a
Change in Control, as defined in Section 10 hereof.
(iii) Restricted Stock. After the Commencement Date, the
Company shall recommend to the Compensation Committee that, on or prior to the
ninetieth (90th) business day after the Commencement Date, Executive be granted
the number of restricted shares (the "Restricted Stock") of Common Stock (the
"Company Restricted Stock") that Donaldson, Lufkin & Jenrette ("DLJ") determines
is required to provide the Executive with a Company Restricted Stock award with
an aggregate value that is equivalent to the aggregate value of the restricted
shares of USI common stock which were forfeited upon Executive ceasing
employment with USI (the "Forfeited USI Shares"). For purposes of determining
the number of shares of Company Restricted Stock to be granted pursuant to this
Section 4(b)(iii) the value of the Forfeited USI Shares shall be based on the
closing price of USI common stock reported on the New York Stock Exchange on the
day before the Dividend Record Date applicable to holders of USI common stock in
connection with the Spinoff and the value of the Common Stock shall be based on
the fair market value of the Common Stock as determined by DLJ in a report
issued to the Board of Directors of USI in connection with the final approval of
the Spinoff. The Company Restricted Stock award shall be subject to such terms
and conditions as specified by the Compensation Committee on the date of grant.
(c) Long Term Compensation/SERP Benefits. USI currently
maintains the Long Term Incentive Plan ("LTIP") and the Supplemental Executive
Retirement Plan (the "SERP"). Upon the Spinoff the Executive's account balance
in the LTIP and benefit accruals under the SERP shall be transferred to similar
arrangements with the Company. The Company shall have no obligation to put
additional amounts in or provide additional accruals under an LTIP or SERP type
plan and may continue them or discontinue them in the judgment of its
Compensation Committee or Board, but the Executive shall at all times be fully
vested in his transferred account balance benefit accruals thereunder and
earnings (if any) thereon.
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(d) Other Compensation. The Company may, upon recommendation
of the Compensation Committee, award to the Executive such other bonuses and
compensation as it deems appropriate and reasonable. Notwithstanding anything
else herein, the Executive recognizes that in view of the amount of Restricted
Stock and Options intended to be granted in accordance with Section 4(b), the
Company does not intend to recommend to the Compensation Committee that any
additional stock options or restricted stock be granted to the Executive for two
(2) years after the Commencement Date. The Company hereby acknowledges that the
preceding sentence does not limit the Executive's right to acquire an interest
in Common Stock pursuant to the terms of any deferred compensation or
tax-qualified retirement plan.
5. Employee Benefits and Vacation. (a) During the Employment
Term, Executive shall be entitled to participate in all pension, retirement,
savings, welfare and other employee benefit plans and arrangements and fringe
benefits and perquisites maintained by the Company from time to time for the
benefit of the senior executives of the Company in accordance with their
respective terms as in effect from time to time (other than any special
arrangement entered into by contract with an executive). Except as otherwise
determined by the Compensation Committee, Executive shall be entitled to (i)
coverage and benefits at least equal in the aggregate to the benefits provided
under the benefit plans and programs, including, without limitation, any life
insurance, medical insurance, disability, pension, savings, incentive,
retirement and other plans and programs, of USI applicable to Executive in
accordance with the provisions of any employment agreement between USI and the
Executive in effect immediately prior to the Commencement Date (the "USI
Employment Agreement") and (ii) fringe benefits and perquisites of at least
equal value to those provided by USI to the Executive pursuant to the USI
Employment Agreement.
(b) During the Employment Term, Executive shall be entitled to
vacation each year in accordance with the Company's policies in effect from time
to time, but in no event less than four (4) weeks paid vacation per calendar
year. The Executive shall also be entitled to such periods of sick leave as is
customarily provided by the Company for its senior executive employees.
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6. Business Expenses. The Company shall reimburse Executive
for the travel, entertainment and other business expenses incurred by Executive
in the performance of his duties hereunder, in accordance with the Company's
policies as in effect from time to time.
7. Termination. (a) The employment of Executive under this
Agreement shall terminate upon the occurrence of any of the following events:
(i) the death of the Executive;
(ii) the termination of the Executive's employment
by the Company due to the Executive's Disability pursuant to
Section 7(b) hereof;
(iii) the termination of the Executive's employment
by the Executive for Good Reason pursuant to Section 7(c)
hereof;
(iv) the termination of the Executive's employment
by the Company without Cause;
(v) the termination of employment by the Executive
without Good Reason upon sixty (60) days prior written notice;
(vi) the termination of employment by the Executive
with or without Good Reason during the period running from the
date of a Change in Control to twenty-four (24) months after
the date of such Change in Control (the "Change in Control
Protection Period"), provided that the foregoing commencement
date of such right to terminate employment pursuant to this
Section 7(a)(vi) shall be delayed until six (6) months after
the Change in Control if simultaneous with the Change in
Control the Company or the person or entity
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<PAGE>
triggering the Change in Control delivers to the Executive an
irrevocable direct pay letter of credit with regard to the
amounts under Section 8(c)(A)(i) and (ii) and satisfying the
requirements of Section 7(g) hereof;
(vii) the termination of the Executive's employment
by the Company for Cause pursuant to Section 7(e);
(viii) the retirement of the Executive by the Company
at or after his sixty-fifth birthday to the extent such
termination is specifically permitted as a stated exception
from applicable federal and state age discrimination laws
based on position and retirement benefits.
(b) Disability. If, by reason of the same or related physical
or mental reasons, Executive is unable to carry out his material duties pursuant
to this Agreement for more than six (6) months in any twelve (12) consecutive
month period, the Company may terminate Executive's employment for Disability
upon thirty (30) days prior written notice, by a Notice of Disability
Termination, at any time thereafter during such twelve (12) month period in
which Executive is unable to carry out his duties as a result of the same or
related physical or mental illness. Such termination shall not be effective if
Executive returns to the full time performance of his material duties within
such thirty (30) day notice period.
(c) Termination for Good Reason. A Termination for Good Reason
means a termination by Executive by written notice given within ninety (90) days
after the occurrence of the Good Reason event unless such circumstances are
fully corrected prior to the date of termination specified in the Notice of
Termination for Good Reason (as defined in Section 7(d) hereof). For purposes of
this Agreement, "Good Reason" shall mean the occurrence or failure to cause the
occurrence, as the case may be, without Executive's express written consent, of
any of the following circumstances: (i) any material diminution of Executive's
positions, duties or responsibilities hereunder (except in each case in
connection with the termination of Executive's employment for Cause or
Disability or as a result of Executive's death, or temporarily as a result of
Executive's illness or other absence), or the assignment to Executive of duties
or responsibilities that are inconsistent with Executive's position as Chairman
and
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Chief Executive Officer; (ii) removal of, or the nonreelection of, the Executive
from the positions with the Company specified herein; (iii) relocation of either
of the Company's Florida or New Jersey executive offices to a location more than
twenty-five (25) miles from, in the case of the New Jersey office, the location
of USI's executive offices in New Jersey on the Commencement Date or, in the
case of the Florida office, the location of the Executive's principal offices in
Florida on the Commencement Date; (iv) a failure by the Company (A) to continue
any bonus plan, program or arrangement in which Executive is entitled to
participate within thirty (30) days after the Commencement Date (the "Bonus
Plans"), provided that any such Bonus Plans may be modified at the Company's
discretion from time to time but shall be deemed terminated if (x) any such plan
does not remain substantially in the form in effect prior to such modification
and (y) if plans providing Executive with substantially similar benefits are not
substituted therefor ("Substitute Plans"), or (B) to continue Executive as a
participant in the Bonus Plans and Substitute Plans on at least the same basis
as to potential amount of the bonus as Executive participated in within thirty
(30) days after the Commencement Date; (v) any material breach by the Company of
any provision of this Agreement, including without limitation Section 11 hereof;
(vi) Executive's removal from or failure to be reelected to the Board; or (vii)
failure of any successor to assume in a writing delivered to Executive upon the
assignee becoming such, the obligations of the Company hereunder.
(d) Notice of Termination for Good Reason. A Notice of
Termination for Good Reason shall mean a notice that shall indicate the specific
termination provision in Section 7(c) relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
Termination for Good Reason. The failure by Executive to set forth in the Notice
of Termination for Good Reason any facts or circumstances which contribute to
the showing of Good Reason shall not waive any right of Executive hereunder or
preclude Executive from asserting such fact or circumstance in enforcing his
rights hereunder. The Notice of Termination for Good Reason shall provide for a
date of termination not less than ten (10) nor more than sixty (60) days after
the date such Notice of Termination for Good Reason is given, provided that in
the case of the events set forth in Section 7(c)(ii) or (iii) the date may be
two (2) days after the giving of such notice.
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(e) Cause. Subject to the notification provisions of Section
7(f) below, Executive's employment hereunder may be terminated by the Company
for Cause. For purposes of this Agreement, the term "Cause" shall be limited to
(i) willful misconduct by Executive with regard to the Company or its business
which has a material adverse effect on the Company; (ii) the refusal of
Executive to follow the proper written direction of the Board, provided that the
foregoing refusal shall not be "Cause" if Executive in good faith believes that
such direction is illegal, unethical or immoral and promptly so notifies the
Board; (iii) the Executive being convicted of a felony (other than a felony
involving a motor vehicle) and either (x) exhausting all appeals without a
reversal of the conviction or (y) commencing a term of incarceration in a house
of detention; (iv) the breach by Executive of any fiduciary duty owed by
Executive to the Company which has a material adverse effect on the Company; or
(v) Executive's material fraud with regard to the Company.
(f) Notice of Termination for Cause. A Notice of Termination
for Cause shall mean a notice that shall indicate the specific termination
provision in Section 7(e) relied upon and shall set forth in reasonable detail
the facts and circumstances which provide for a basis for Termination for Cause.
Further, a Notification for Cause shall be required to include a copy of a
resolution duly adopted by at least two-thirds of the entire membership of the
Board at a meeting of the Board which was called for the purpose of considering
such termination and which Executive and his representative had the right to
attend and address the Board, finding that, in the good faith opinion of the
Board, Executive engaged in conduct set forth in the definition of Cause herein
and specifying the particulars thereof in reasonable detail. The date of
termination for a Termination for Cause shall be the date indicated in the
Notice of Termination. Any purported Termination for Cause which is held by a
court not to have been based on the grounds set forth in this Agreement or not
to have followed the procedures set forth in this Agreement shall be deemed a
Termination by the Company without Cause.
(g) The irrevocable direct pay letter of credit required to be
delivered pursuant to Section 7(a)(vi) hereof shall be in amount equal to the
amount the Executive would be entitled to under Section 8(c)(A)(i) and (ii)
hereof if he were terminated without Cause upon the Change in Control (the
"Occurrence") and have an expiration date of no less than two (2) years
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after the Occurrence. The Executive shall be entitled to draw on the letter of
credit upon presentation to the issuing bank of a demand for payment signed by
the Executive that states that (i) (A) a Good Reason event has occurred and the
Executive would be entitled to payment under Section 8(c) of this Agreement if
he elected to terminate employment for Good Reason or (B) six (6) months has
expired since the Occurrence or (C) the Executive is entitled to payment under
Section 8(c) of this Agreement and (ii) assuming the event set forth in (i)
entitled him to payment under Section 8(c) of this Agreement, the amount the
Company would be indebted to him at the time of presentation under Section
8(c)(A)(i) and (ii) if he then was eligible to receive payments under Section
8(c). There shall be no other requirements (including no requirement that the
Executive first makes demand upon the Company or that the Executive actually
terminates employment) with regard to payment of the letter of credit. To the
extent the letter of credit is not adequate to cover the amount owed to the
Executive by the Company under this Agreement, is not submitted by the Executive
or is not paid by the issuing bank, the Company shall remain liable to the
Executive for the remainder owed the Executive pursuant to the terms of this
Agreement. To the extent any amount is paid under the letter of credit it shall
be a credit against any amounts the Company then or thereafter would owe to the
Executive under Section 8(c) of this Agreement. The letter of credit shall be
issued by a national money center bank with a rating of at least A by Standard &
Poor's Ratings Services. The Company shall bear the cost of the letter of
credit.
8. Consequences of Termination of Employment. (a) Death. If
Executive's employment is terminated during the Employment Term by reason of
Executive's death, the employment period under this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement except for: (i) any compensation earned but not yet paid, including
and without limitation, any bonus if declared or earned but not yet paid for a
completed fiscal year, any amount of Base Salary earned but unpaid, any accrued
vacation pay payable pursuant to the Company's policies and any unreimbursed
business expenses payable pursuant to Section 6 which amounts shall be promptly
paid in a lump sum to Executive's estate; (ii) the product of (x) the target
annual bonus for the fiscal year of the Executive's death, multiplied by (y) a
fraction, the numerator of which is the number of days of the current fiscal
year during which the Executive was employed by the Company, and the
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denominator of which is 365, which bonus shall be paid when bonuses for such
period are paid to the other executives; (iii) any other amounts or benefits
owing to the Executive under the then applicable employee benefit, long term
incentive or equity plans and programs of the Company, which shall be paid in
accordance with such plans and programs; (iv) payment on a monthly basis of
twelve (12) months of Base Salary, which shall be paid to Executive's spouse, or
if she shall predecease him, then to Executive's children (or their guardian if
one is appointed) in equal shares; and (v) payment of the spouse's and
dependent's COBRA coverage premiums to the extent, and so long as, they remain
eligible for COBRA coverage, but in no event more than three (3) years. Section
11 hereof shall also continue to apply.
(b) Disability. If Executive's employment is terminated by
reason of Executive's Disability, Executive shall be entitled to receive the
payments and benefits to which his representatives would be entitled in the
event of a termination of employment by reason of his death (other than life
insurance benefits), provided that the payment of Base Salary shall be reduced
by the projected amount he would receive under any long-term disability policy
or program maintained by the Company during the twelve (12) month period during
which Base Salary is being paid. Section 11 hereof shall also continue to apply.
(c) Termination by Executive for Good Reason or for any Reason
During the Change in Control Protection Period or Termination by the Company
without Cause or Nonextension of the Term by the Company. If (i) outside of the
Change in Control Protection Period, Executive terminates his employment
hereunder for Good Reason during the Employment Term, (ii) if a Change in
Control occurs and during the Change in Control Protection Period Executive
terminates his employment for any reason, (iii) if Executive's employment with
the Company is terminated by the Company without Cause or (iv) Executive's
employment with the Company terminates as a result of the Company giving notice
of nonextension of the Employment Term pursuant to Section 1 hereof, Executive
shall be entitled to receive (A) in a lump sum within five (5) days after such
termination (i) three times Base Salary, (ii) three times the highest annual
bonus paid or, if declared or earned but not yet paid for a completed fiscal
year, payable to Executive for any of the previous three (3) completed fiscal
years by the Company or USI, (iii) any unreimbursed business expenses payable
pursuant to Section 6, and (iv) any Base Salary, bonus if declared or earned but
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not yet paid for a completed fiscal year, vacation pay or other amounts earned
but not yet paid at the date of termination; (B) any other amounts or benefits
owing to Executive under the then applicable employee benefit, long term
incentive or equity plans and programs of the Company, which shall be paid in
accordance with such plans and programs; (C) three years of additional service
and compensation credit (at his then compensation level) for pension purposes
under any defined benefit type qualified or nonqualified pension plan or
arrangement of the Company, which payments shall be made through and in
accordance with the terms of the nonqualified defined benefit pension
arrangement if any then exists, or, if not, in an actuarially equivalent lump
sum (using the actuarial factors then applying in the Company's defined benefit
plan covering Executive); (D) three (3) years of the maximum Company
contribution (assuming Executive deferred the maximum amount and continued to
earn his then current salary) under any type of qualified or nonqualified 401(k)
plan (payable at the end of each such year); and (E) payment by the Company of
the premiums for the Executive and his dependents' health coverage for three (3)
years under the Company's health plans which cover the senior executives of the
Company or materially similar benefits. Payments under (E) above may at the
discretion of the Company be made by continuing participation of Executive in
the plan as a terminee, by paying the applicable COBRA premium for Executive and
his dependents, or by covering Executive and his dependents under substitute
arrangements, provided that, to the extent Executive incurs tax that he would
not have incurred as an active employee as a result of the aforementioned
coverage or the benefits provided thereunder, he shall receive from the Company
an additional payment in the amount necessary so that he will have no additional
cost for receiving such items or any additional payment. In the circumstances
described in each of (i) through (iv) above, Section 11 hereof shall also
continue to apply.
(d) Termination with Cause or Voluntary Resignation without
Good Reason or Retirement. If Executive's employment hereunder is terminated (i)
by the Company for Cause, (ii) by Executive without Good Reason outside of the
Change in Control Protection Period, or (iii) by the Company pursuant to Section
7(a)(viii) hereof, the Executive shall be entitled to receive only his Base
Salary through the date of termination, any bonus that has been declared or
earned but not yet paid for a completed fiscal year, and any unreimbursed
business expenses payable pursuant to Section 6. All other benefits (including,
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without limitation, restricted stock and options, and the vesting thereof) due
Executive following such termination of employment shall be determined in
accordance with the Company's plans and programs.
9. No Mitigation; No Set-Off. In the event of any termination
of employment under Section 8, Executive shall be under no obligation to seek
other employment and there shall be no offset against any amounts due Executive
under this Agreement on account of any remuneration attributable to any
subsequent employment that Executive may obtain. Any amounts due under Section 8
are in the nature of severance payments, or liquidated damages, or both, and are
not in the nature of a penalty. Such amounts are inclusive, and in lieu of, any
amounts payable under any other salary continuation or cash severance
arrangement of the Company and to the extent paid or provided under any other
such arrangement shall be offset from the amount due hereunder.
10. Change in Control. For purposes of this Agreement, the
term "Change in Control" shall mean (i) any "person" as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 ("Act") (other
than the Company, any trustee or other fiduciary holding securities under any
employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of Common Stock of the Company), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing twenty-five percent (25%)
or more of the combined voting power of the Company's then outstanding
securities; (ii) during any period of two (2) consecutive years (not including
any period prior to the Commencement Date), individuals who at the beginning of
such period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii), or (iv) of this paragraph)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the two-year
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the Board; (iii) a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result
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in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation;
provided, however, that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than twenty-five percent (25%) of the combined voting power of the
Company's then outstanding securities shall not constitute a Change in Control
of the Company; or (iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or the sale or disposition by the Company of
all or substantially all of the Company's assets other than (x) the sale or
disposition of all or substantially all of the assets of the Company to a person
or persons who beneficially own, directly or indirectly, at least fifty percent
(50%) or more of the combined voting power of the outstanding voting securities
of the Company at the time of the sale or (y) pursuant to a spinoff type
transaction, directly or indirectly, of such assets to the stockholders of the
Company. In no event shall the Spinoff in and of itself constitute a Change in
Control for purposes of this Agreement; provided, however, that the provisions
of this Section 10 shall be operative immediately after consummation of the
Spinoff.
11. Indemnification. (a) The Company agrees that if Executive
is made a party to or threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director or officer of
the Company and/or any affiliate of the Company, or is or was serving at the
request of any of such companies as a director, officer, member, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including, without limitation, service with respect
to employee benefit plans, whether or not the basis of such Proceeding is
alleged action in an official capacity as a director, officer, member, employee,
fiduciary or agent while serving as a director, officer, member, employee,
fiduciary or agent, he shall be indemnified and held harmless by the Company to
the fullest extent authorized by Delaware law (or, if other than the Company,
the law applicable to such company), as the same exists or may hereafter be
amended, against all Expenses incurred or suffered by Executive in connection
therewith, and
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such indemnification shall continue as to Executive even if Executive has ceased
to be an officer, director, member, fiduciary or agent, or is no longer employed
by the applicable company, and shall inure to the benefit of his heirs,
executors and administrators.
(b) As used in this Agreement, the term "Expenses" shall
include, without limitation, damages, losses, judgments, liabilities, fines,
penalties, excise taxes, settlements and costs, attorneys' fees, accountants'
fees, and disbursements and costs of attachment or similar bonds,
investigations, and any expenses of establishing a right to indemnification
under this Agreement.
(c) Expenses incurred by Executive in connection with any
Proceeding shall be paid by the Company in advance upon request of Executive and
the giving by the Executive of any undertakings required by applicable law.
(d) Executive shall give the Company notice of any claim made
against him for which indemnity will or could be sought under this Agreement. In
addition, Executive shall give the Company such information and cooperation as
it may reasonably require and as shall be within Executive's power and at such
times and places as are reasonably convenient for Executive.
(e) With respect to any Proceeding as to which Executive
notifies the Company of the commencement thereof:
(i) The Company will be entitled to participate
therein at its own expense; and
(ii) Except as otherwise provided below, to the
extent that it may wish, the Company will be entitled to assume the
defense thereof, with counsel reasonably satisfactory to Executive.
Executive also shall have the right to employ his own counsel in such
action, suit or proceeding and the fees and expenses of such counsel
shall be at the expense of the Company.
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(f) The Company shall not be liable to indemnify Executive
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any action or
claim in any manner which would impose any penalty or limitation on Executive
without Executive's written consent. Neither the Company nor Executive will
unreasonably withhold or delay their consent to any proposed settlement.
(g) The right to indemnification and the payment of expenses
incurred in defending a Proceeding in advance of its final disposition conferred
in this Section 11 shall not be exclusive of any other right which Executive may
have or hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the Company, agreement, vote of stockholders or
disinterested directors or otherwise.
(h) The Company agrees to obtain Officer and Director
liability insurance policies covering Executive and shall maintain at all times
during the Employment Term coverage under such policies in the aggregate with
regard to all officers and directors, including Executive, of an amount not less
than $20 million. The Company shall maintain for a six (6) year period
commencing on the date the Executive ceased to be an employee of the Company,
Officer and Director liability insurance coverage for events occurring during
the period the Executive was an employee or director of the Company in the same
aggregate amount and under the same terms as are maintained for its active
officers and directors. The phrase "in the same aggregate amount and under the
same terms" shall include the same level of self-insurance by the Company as
shall be maintained for active officers and directors.
12. Special Tax Provision. (a) Anything in this Agreement to
the contrary notwithstanding, in the event that any amount or benefit paid,
payable, or to be paid, or distributed, distributable, or to be distributed to
or with respect to Executive by the Company (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company, any
person whose actions result in a change of ownership covered by Internal Revenue
Code (the "Code") Section 280G(b)(2) or any person affiliated with the Company
or such person) as a result of a change in ownership of the Company or a
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direct or indirect parent thereof after the Spinoff covered by Code Section
280G(b)(2) (collectively, the "Covered Payments") is or becomes subject to the
excise tax imposed by or under Section 4999 of the Code (or any similar tax that
may hereafter be imposed), and/or any interest or penalties with respect to such
excise tax (such excise tax, together with such interest and penalties, is
hereinafter collectively referred to as the "Excise Tax"), the Company shall pay
to Executive an additional amount (the "Tax Reimbursement Payment") such that
after payment by Executive of all taxes (including, without limitation, any
interest or penalties and any Excise Tax imposed on or attributable to the Tax
Reimbursement Payment itself), Executive retains an amount of the Tax
Reimbursement Payment equal to the sum of (i) the amount of the Excise Tax
imposed upon the Covered Payments, and (ii) without duplication, an amount equal
to the product of (A) any deductions disallowed for federal, state or local
income or payroll tax purposes because of the inclusion of the Tax Reimbursement
Payment in Executive's adjusted gross income, and (B) the highest applicable
marginal rate of federal, state or local income taxation, respectively, for the
calendar year in which the Tax Reimbursement Payment is made or is to be made.
The intent of this Section 12 is that (a) the Executive, after paying his
Federal, state and local income and payroll tax, will be in the same position as
if he was not subject to the Excise Tax under Section 4999 of the Code and did
not receive the extra payments pursuant to this Section 12 and (b) that
Executive should never be "out-of-pocket" with respect to any tax or other
amount subject to this Section 12, whether payable to any taxing authority or
repayable to the Company, and this Section 12 shall be interpreted accordingly.
(b) Except as otherwise provided in Section 12(a), for
purposes of determining whether any of the Covered Payments will be subject to
the Excise Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as
"parachute payments" (within the meaning of Section 280G(b)(2) of the
Code) and such payments in excess of the Code Section 280G(b)(3) "base
amount" shall be treated as subject to the Excise Tax, unless, and
except to the extent that, the Company's independent certified public
accountants appointed prior to the change in ownership covered by Code
Section 280G(b)(2) or legal counsel (reasonably acceptable to
Executive) appointed by such public accountants (or, if the public
accountants decline such
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appointment and decline appointing such legal counsel, such
independent certified public accountants as promptly mutually agreed
on in good faith by the Company and the Executive) (the "Accountant"),
deliver a written opinion to Executive, reasonably satisfactory to
Executive's legal counsel, that Executive has a reasonable basis to
claim that the Covered Payments (in whole or in part) (A) do not
constitute "parachute payments", (B) represent reasonable compensation
for services actually rendered (within the meaning of Section
280G(b)(4) of the Code) in excess of the "base amount" allocable to
such reasonable compensation, or (C) such "parachute payments" are
otherwise not subject to such Excise Tax (with appropriate legal
authority, detailed analysis and explanation provided therein by the
Accountants); and
(ii) the value of any Covered Payments which are
non-cash benefits or deferred payments or benefits shall be determined
by the Accountant in accordance with the principles of Section 280G of
the Code.
(c) For purposes of determining the amount of the Tax
Reimbursement Payment, Executive shall be deemed:
(i) to pay federal, state, local income and/or
payroll taxes at the highest applicable marginal rate of
income taxation for the calendar year in which the Tax
Reimbursement Payment is made or is to be made, and
(ii) to have otherwise allowable deductions for
federal, state and local income and payroll tax purposes at
least equal to those disallowed due to the inclusion of the
Tax Reimbursement Payment in Executive's adjusted gross
income.
(d)(i)(A) In the event that prior to the time the Executive
has filed any of his tax returns for the calendar year in which the change in
ownership event covered by Code Section 280G(b)(2) occurred, the Accountant
determines, for any reason
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whatever, the correct amount of the Tax Reimbursement Payment to be less than
the amount determined at the time the Tax Reimbursement Payment was made, the
Executive shall repay to the Company, at the time that the amount of such
reduction in Tax Reimbursement Payment is determined by the Accountant, the
portion of the prior Tax Reimbursement Payment attributable to such reduction
(including the portion of the Tax Reimbursement Payment attributable to the
Excise Tax and federal, state and local income and payroll tax imposed on the
portion of the Tax Reimbursement Payment being repaid by the Executive, using
the assumptions and methodology utilized to calculate the Tax Reimbursement
Payment (unless manifestly erroneous)), plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code.
(B) In the event that the determination set
forth in (A) above is made by the Accountant after the filing by the Executive
of any of his tax returns for the calendar year in which the change in ownership
event covered by Code Section 280G(b)(2) occurred but prior to one (1) year
after the occurrence of such change in ownership, the Executive shall file at
the request of the Company an amended tax return in accordance with the
Accountant's determination, but no portion of the Tax Reimbursement Payment
shall be required to be refunded to the Company until actual refund or credit of
such portion has been made to the Executive, and interest payable to the Company
shall not exceed the interest received or credited to the Executive by such tax
authority for the period it held such portion (less any tax the Executive must
pay on such interest and which he is unable to deduct as a result of payment of
the refund).
(C) In the event the Executive receives a
refund pursuant to (B) above and repays such amount to the Company, the
Executive shall thereafter file for refunds or credits by reason of the
repayments to the Company.
(D) The Executive and the Company shall
mutually agree upon the course of action, if any, to be pursued (which shall be
at the expense of the Company) if the Executive's claim for refund or credit is
denied.
(ii) In the event that the Excise Tax is later
determined by the Accountants or the Internal Revenue Service to exceed the
amount taken into account hereunder at the time the Tax Reimbursement Payment is
made
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(including by reason of any payment the existence or amount of which cannot
be determined at the time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of such excess (plus any
interest or penalties payable with respect to such excess) once the amount of
such excess is finally determined.
(iii) In the event of any controversy with the
Internal Revenue Service (or other taxing authority) under this Section 12,
subject to subpart (i)(D) above, the Executive shall permit the Company to
control issues related to this Section 12 (at its expense), provided that such
issues do not potentially materially adversely affect the Executive, but the
Executive shall control any other issues. In the event the issues are
interrelated, the Executive and the Company shall in good faith cooperate so as
not to jeopardize resolution of either issue, but if the parties cannot agree
Executive shall make the final determination with regard to the issues. In the
event of any conference with any taxing authority as to the Excise Tax or
associated income taxes, the Executive shall permit the representative of the
Company to accompany him and the Executive and his representative shall
cooperate with the Company and its representative.
(iv) With regard to any initial filing for a refund
or any other action required pursuant to this Section 12 (other than by mutual
agreement) or, if not required, agreed to by the Company and the Executive, the
Executive shall cooperate fully with the Company, provided that the foregoing
shall not apply to actions that are provided herein to be at the sole discretion
of the Executive.
(e) The Tax Reimbursement Payment, or any portion thereof
payable by the Company shall be paid not later than the fifth (5th) day
following the determination by the Accountant and any payment made after such
fifth (5th) day shall bear interest at the rate provided in Section
1274(b)(2)(B) of the Code). The Company shall use its best efforts to cause the
Accountant to promptly deliver the initial determination required hereunder and,
if not delivered, within ninety (90) days after the change in ownership event
covered by Section 280G(b)(2) of the Code, the Company shall pay the Executive
the Tax Reimbursement Payment set forth in an opinion from counsel recognized as
knowledgeable in the relevant areas selected by the
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Executive, and reasonably acceptable to the Company, within five (5) days after
delivery of such opinion. The amount of such payment shall be subject to later
adjustment in accordance with the determination of the Accountant as provided
herein.
(f) The Company shall be responsible for all charges of the
Accountant and if (e) is applicable the reasonable charges for the opinion given
by Executive's counsel.
(g) The Company and the Executive shall mutually agree on and
promulgate further guidelines in accordance with this Section 12 to the extent,
if any, necessary to effect the reversal of excessive or shortfall Tax
Reimbursement Payments. The foregoing shall not in any way be inconsistent with
Section 12(d)(i)(D) hereof.
13. Legal and Other Fees and Expenses. In the event that a
claim for payment or benefits under this Agreement is disputed, the Company
shall pay all reasonable attorney, accountant and other professional fees and
reasonable expenses incurred by Executive in pursuing such claim, unless the
claim by the Executive is found to be frivolous by any court or arbitrator.
14. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey without
reference to principles of conflict of laws.
(b) Entire Agreement/Amendments. This Agreement and the
instruments contemplated herein, contain the entire understanding of the parties
with respect to the employment of Executive by the Company from and after the
Commencement Date and supersedes any prior agreements between the Company and
Executive with respect thereto. There are no restrictions, agreements, promises,
warranties, covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein and therein.
This Agreement may not be altered, modified, or amended except by written
instrument signed by the parties hereto.
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(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
Any such waiver must be in writing and signed by Executive or an authorized
officer of the Company, as the case may be.
(d) Assignment. This Agreement shall not be assignable by
Executive. This Agreement shall be assignable by the Company only to an acquirer
of all or substantially all of the assets of the Company, provided such acquirer
promptly assumes all of the obligations hereunder of the Company in a writing
delivered to the Executive and otherwise complies with the provisions hereof
with regard to such assumption. This Agreement may be assigned by USI to the
Company and upon assumption of the Agreement by the Company, USI shall be
released from any further obligations or liabilities hereunder.
(e) Successors; Binding Agreement; Third Party Beneficiaries.
This Agreement shall inure to the benefit of and be binding upon the personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees legatees and permitted assignees of the parties hereto.
(f) Communications. For the purpose of this Agreement, notices
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given (i) when faxed or delivered, or (ii)
two (2) business days after being mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the initial page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Senior
Vice President, General Counsel and Secretary of the Company, or to such other
address as any party may have furnished to the other in writing in accordance
herewith. Notice of change of address shall be effective only upon receipt.
(g) Withholding Taxes. The Company may withhold from any and
all amounts payable under this Agreement such Federal, state and local taxes as
may be required to be withheld pursuant to any applicable law or regulation.
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(h) Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of Executive's employment to the
extent necessary to the agreed preservation of such rights and obligations.
(i) Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
(j) Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the ____ day of May, 1999.
U.S. INDUSTRIES, INC.
By:
--------------------------------
Name:
Title:
------------------------------------
John G. Raos
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EXHIBIT 10.5(c)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of June 1, 1999, by and between,
Strategic Capital Management, Inc., a Delaware corporation, with its principal
United States office at 101 Wood Avenue South, Iselin, New Jersey 08830 (the
"Company"), and Peter J. Statile, residing at 37 Belfast Avenue, Staten Island,
New York 10306 ("Executive").
W I T N E S S E T H:
WHEREAS, U.S. Industries, Inc., a Delaware corporation, with its
principal United States office at 101 Wood Avenue South, Iselin, New Jersey
08830 ("USI") intends to transfer all or a part of the assets constituting USI's
diversified segment (the "Diversified Segment") and other assets of USI (such
assets collectively "USI Diversified") to a newly constituted wholly owned
subsidiary of USI ("Newco") and to spinoff Newco to the shareholders of USI (a
spinoff with John Raos as Chairman and Chief Executive Officer of Newco is
referred to herein as the "Spinoff");
WHEREAS, effective on June 1, 1999 (the "Commencement Date"), the
Company desires to employ the Executive as an executive of the Company;
WHEREAS, the Company and Executive desire to enter into this agreement
(the "Agreement") as to the terms of his employment by the Company and to embody
the terms of Executive's prospective employment by Newco subsequent to the
Spinoff;
WHEREAS, effective on the consummation of the Spinoff (the "Spinoff
Date"), Strategic Capital Management, Inc. and USI shall cause Newco to employ
the Executive as Executive Vice President - Operations and the Agreement will be
assigned to, and assumed by, Newco.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
<PAGE>
1. Term of Employment; Assignment to Newco. (a) Except for earlier
termination as provided in Section 7 hereof, Executive's employment under this
Agreement shall be for a two-year term (the "Employment Term") commencing on the
Commencement Date and ending two (2) years thereafter; provided that if the
Executive is not physically or mentally capable of performing the duties set
forth in Section 2 herein on the Commencement Date (as reasonably determined by
the Company in its sole discretion) this Agreement shall be null and void ab
initio. Subject to Section 7 hereof, the Employment Term shall be automatically
extended for additional terms of successive two (2) year periods unless the
Company or the Executive gives written notice to the other at least ninety (90)
days prior to the expiration of the then current Employment Term of the
termination of Executive's employment hereunder at the end of such current
Employment Term.
(b) On the Spinoff Date, this Agreement shall, without any further
action of the parties, be deemed assigned to and assumed by Newco, and USI and
Strategic Capital Management, Inc. shall be released from all obligations
hereunder (and USI shall be released from all obligations under the Guaranty
annexed hereto) except as set forth in Section 13 hereof and the Guaranty as it
applies to such Section. Unless the context otherwise clearly requires, subject
to Section 16(d), the term "Company" as used herein shall be deemed to refer to
Strategic Capital Management, Inc. prior to the Spinoff Date and Newco on and
after the Spinoff Date.
2. Positions. (a) Executive shall serve as Executive Vice President -
Operations of the Company. If requested by the Board of Directors of the Company
(the "Board") or the Chairman and so elected by the stockholders of the Company,
Executive shall also serve on the Board without additional compensation.
Executive shall also serve, if requested by the Board, the Chairman or the
President, as an executive officer and director of subsidiaries and a director
of associated companies of the Company and shall comply with the policy of the
Compensation Committee of the Company's Board (the "Compensation Committee")
with regard to retention or forfeiture of the director's fees.
(b) Executive shall report to any more senior officer of the Company
as designated by the Chairman or the President and, shall have such duties and
authority, consistent with his then position as shall be assigned to him from
time to time by the Board, the Chairman, the President or such other more senior
officer(s) of the Company.
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(c) During the Employment Term, Executive shall devote substantially
all of his business time and efforts to the performance of his duties hereunder;
provided, however, that Executive shall be allowed, to the extent that such
activities do not materially interfere with the performance of his duties and
responsibilities hereunder, to manage his personal financial and legal affairs
and to serve on corporate, civic, or charitable boards or committees
Notwithstanding the foregoing, the Executive shall only serve on corporate
boards of directors if approved in advance by the Board and shall not serve on
any corporate board of directors if such service would be inconsistent with his
fiduciary responsibilities to the Company, as determined by the Board.
3. Base Salary. During the Employment Term, the Company shall pay
Executive a base salary at the annual rate of not less than $250,000. Base
salary shall be payable in accordance with the usual payroll practices of the
Company. Executive's Base Salary shall be subject to annual review by the Board
or the Compensation Committee (commencing on the first day of the Company's 2001
fiscal year) during the Employment Term and may be increased, but not decreased,
from time to time by the Board or the Compensation Committee, except that, prior
to a Change in Control, as defined in Section 11 hereof, and after the Spinoff
Date, it may be decreased proportionately in connection with an across the board
decrease applying to all senior executives of the Company. The base salary as
determined as aforesaid from time to time shall constitute "Base Salary" for
purposes of this Agreement.
4. Incentive Compensation. (a) Bonus. Provided the Spinoff is
consummated, for each fiscal year or portion thereof during the Employment Term,
beginning October 1, 1999, Executive shall, subject to shareholder approval as
and to the extent required by Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), be eligible to participate in an incentive pay
plan of the Company that provides an annualized cash target bonus opportunity
equal to at least 70% of Base Salary.
(b) Long Term Compensation. For each fiscal year or portion thereof
during the Employment Term, after the Spinoff Date, Executive shall be eligible
to participate in any long-term incentive compensation plan generally made
available to senior executives of the Company in accordance with and subject to
the terms of such plan.
(c) Equity. (i) Options. Pursuant to a stock option plan satisfying
the requirements of Code Section 162(m), the Company shall, after the Spinoff
Date, recommend to the Compensation Committee that Executive be granted, three
separate grants of nonqualified stock options (the "Options") to purchase the
number of shares of Common Stock of the Company
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("Common Stock") determined for each grant by dividing $500,000 by the fair
market value of the Common Stock on the date of grant as determined under the
applicable stock option plan (the "Fair Market Value"). It shall be recommended
that the first grant of options be made within the fifteen (15) day period
following the date "regular way trading" of the Common Stock commences,
excluding the period of "when issued trading" ("Regular Way Trading"), the
second grant of options be made after the fifteenth (15th) day and before the
thirtieth (30th) day following the commencement of Regular Way Trading, and the
third grant of options be made after the thirtieth (30th) day and before
the forty-fifth (45th) day following the commencement of Regular Way Trading.
The Company shall recommend that the Options shall have an exercise price equal
to the Fair Market Value. It shall be recommended that the stock option grants
shall provide that the Options shall become exercisable with respect to 25% of
such Options on each of the first four anniversaries of October 1, 1999,
provided that Executive is employed by the Company on such vesting date, and
further provided that it shall be recommended that such Options shall fully vest
upon a Change in Control, as defined in Section 11 hereof, and that the next
tranche vest upon a termination event described in Section 7(a)(i), (ii), (iii)
or (iv).
(ii) Common Stock Purchase. The parties acknowledge that the Executive
has indicated that, within the one year period following the Spinoff Date,
assuming he is then employed by the Company, the Executive intends to purchase
the number of shares of Common Stock of the Com pany ("Common Stock") equal to
the lesser of: (x) the number of shares of Common Stock with an aggregate value
at the time of purchase of $250,000 or (y) 0.125 percent of the issued and
outstanding Common Stock on the day after the Spinoff Date; provided that the
one year period shall be extended day for day to the extent that the Executive
is restricted by legal constraints from purchasing the required amount of such
Common Stock and further provided that any shares of Common Stock of the Company
owned within any employee benefit plan qualified under Section 401(a) of the
Internal Revenue Code (referred to herein as "Tax Qualified") or any individual
retirement account may be counted towards such requirement.
(iii) Special Bonus. If the Spinoff occurs, Executive shall be
entitled to receive on the later of (x) thirty (30) days following the Spinoff
Date or (y) January 15, 2000, a special bonus for his efforts with regard to the
Spinoff, in the amount of fifty thousand dollars ($50,000) (the "Special
Bonus").
(d) Other Compensation. The Company may, upon recommendation of the
Compensation Committee, award to the Executive such other bonuses and
compensation as it deems appropriate and reasonable.
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5. Employee Benefits and Vacation. (a) During the portion of the
Employment Term prior to the Spinoff Date, Executive shall be entitled to
participate in welfare benefit plans and arrangements and car allowances and
other fringe benefits and perquisite programs substantially similar to those
provided to comparable executives of USI, but not in any pension or profit
sharing type plans. During the portion of the Employment Term effective on and
after the Spinoff, Executive shall be entitled to participate in all pension,
retirement, savings, welfare and other employee benefit plans and arrangements
and fringe benefits and perquisites generally maintained by the Company from
time to time for the benefit of senior executive officers of the Company in each
case in accordance with their respective terms as in effect from time to time
(other than any special arrangement entered into by contract with an executive)
and shall be given service credit under such plans from the Commencement Date
for all purposes under such plans and arrangements. Except as otherwise required
by the Employee Retirement Income Security Act of 1974, as amended or other
applicable law, or as provided in the prior sentence, Executive's employment
with USI, Hanson Industries, or their respective predecessors or any other prior
employer of Executive prior to the Spinoff Date shall not be used or otherwise
recognized for any purpose under any Company sponsored employee benefit plan or
program.
(b) During the Employment Term, Executive shall be entitled to
vacation each year in accordance with the Company's policies in effect from time
to time, but in no event less than four (4) weeks paid vacation per calendar
year. The Executive shall also be entitled to such periods of sick leave as is
customarily provided by the Company for its senior executive employees.
6. Business Expenses. The Company shall reimburse Executive for the
travel, entertainment and other business expenses incurred by Executive in the
performance of his duties hereunder, in accordance with the Company's policies
as in effect from time to time.
7. Termination. (a) The employment of Executive under this Agreement
shall terminate upon the earliest to occur of any of the following events:
(i) the death of the Executive;
(ii) the termination of the Executive's employment by the Company
due to the Executive's Disability pursuant to Section 7(b) hereof;
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(iii) the termination of the Executive's employment by the
Executive on or after the Spinoff Date in connection with events that
occur or occurred on or after the Spinoff Date for Good Reason
pursuant to Section 7(c) hereof;
(iv) the termination of the Executive's employment by the Company
without Cause;
(v) the termination of employment by the Executive without Good
Reason upon sixty (60) days prior written notice;
(vi) the termination of employment by the Executive with or
without Good Reason during the thirty (30) day period commencing six
(6) months after a Change in Control (such thirty (30) day period
being referred to herein as the "Change in Control Protection
Period"), provided that the Executive shall have a right to terminate
employment pursuant to this Section 7(a)(vi) and receive the amounts
under Section 8(c)(A)(i) and (ii) unless simultaneous with the Change
in Control, the Company or the person or entity triggering the Change
in Control delivers to the Executive an irrevocable direct pay letter
of credit with regard to the amounts under Section 8(c)(A)(i) and (ii)
and satisfying the requirements of Section 7(g) hereof;
(vii) the termination of the Executive's employment by the
Company for Cause pursuant to Section 7(e);
(viii) the retirement of the Executive by the Company at or after
his sixty-fifth birthday to the extent such termination is
specifically permitted as a stated exception from applicable federal
and state age discrimination laws based on position and retirement
benefits;
(ix) the occurrence of: (I) a Sale Event, (II) an Abandoned
Spinoff or (III) a Change in Control of USI. For purposes of this
Agreement: (x) "Sale Event" shall mean, prior to the Spinoff occurring
or being publicly announced as being abandoned by the Board of
Directors of USI and in both cases prior to June 30, 2000 (provided,
however, that this date shall be extended to September 30, 2000 if,
prior to June 30, 2000, USI receives a private letter ruling from the
Internal Revenue Service providing that the stock dividend that will
occur pursuant
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to the Spinoff will be a tax-free distribution and providing such
other relief and approvals as requested in the ruling (the "Outside
Date")) and prior to a Change in Control of USI, one or more closings
occur that result in more than 75% of the assets constituting the
Diversified Segment as of the date hereof being sold (or otherwise
disposed of) to one or more persons or entities and/or distributed to
shareholders through a dividend (but not including the Spinoff or an
event which would be an Abandoned Spinoff);
(y) "Abandoned Spinoff" shall mean, no Sale Event or Spinoff occurs
prior to the Outside Date, USI publicly announces that its Board has
abandoned the Spinoff or a transaction which would be a Spinoff occurs
except that John Raos is not Chairman and Chief Executive Officer of
Newco at such time; and
(z) "Change in Control of USI" shall mean a Change in Control (within
the meaning of Section 11 hereof but substituting USI for the Company)
prior to the earliest of the Spinoff, a Sale Event or an Abandoned
Spinoff (each of (a)(ix) (I),(II) or (III) referred to as a "Section
7(a)(ix) Event").
(b) Disability. If by reason of the same or related physical or mental
illness or incapacity, (i) the Executive is unable to carry out his material
duties pursuant to this Agreement for more than six (6) months in any twelve
(12) consecutive month period or (ii) the Chairman of USI determines in good
faith that that Executive will not be able to be a full time active executive of
the Company on the Spinoff Date and for a continuing period thereafter, the
Company may terminate Executive's employment for Disability. In the case of (i)
such termination shall be upon thirty (30) days written notice by a Notice of
Disability Termination, at any time thereafter during such twelve month period
while Executive is unable to carry out his duties as a result of the same or
related physical or mental illness or incapacity and, in the case of (ii)
immediately upon written notice at any time on or prior to the Spinoff Date. In
the case of (ii), the Agreement will not be assigned to, or assumed by, Newco
and the Executive shall be treated under Section 8(b) as if he was terminated
for a Disability immediately after the Spinoff Date. A Termination under (i)
shall not be effective if Executive returns to the full time performance of his
material duties within such thirty (30) day period.
(c) Termination for Good Reason. A Termination for Good Reason means a
termination by Executive by written notice given within ninety (90) days after
the occurrence of the Good Reason event, unless such circumstances are fully
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corrected prior to the date of termination specified in the Notice of
Termination for Good Reason (as defined in Section 7(d) hereof). For purposes of
this Agreement, "Good Reason" shall mean the occurrence or failure to cause the
occurrence, as the case may be, without Executive's express written consent, of
any of the following circumstances that occur on or after the Spinoff Date: (i)
any material diminution of Executive's positions, duties or responsibilities
hereunder (except in each case in connection with the termination of Executive's
employment for Cause or Disability or as a result of Executive's death, or
temporarily as a result of Executive's illness or other absence), or, after a
Change in Control, the assignment to Executive of duties or responsibilities
that are inconsistent with Executive's then position; (ii) removal of, or the
nonreelection of, the Executive from the officer positions, if any, with the
Company specified herein without election to a higher position; (iii) a
relocation of the Company's executive office in New Jersey to a location more
than both thirty-five (35) miles from Iselin, New Jersey and thirty-five (35)
miles from the Executive's residence at the time of relocation; (iv) after a
Change of Control, a failure by the Company (A) to continue any bonus plan,
program or arrangement in which Executive is entitled to participate immediately
prior to the Change of Control (the "Bonus Plans"), provided that any such Bonus
Plans may be modified at the Company's discretion from time to time but shall be
deemed terminated if (x) any such plan does not remain substantially in the form
in effect prior to such modification and (y) if plans providing Executive with
substantially similar benefits are not substituted therefor ("Substitute
Plans"), or (B) to continue Executive as a participant in the Bonus Plans and
Substitute Plans on at least the same basis as to potential amount of the bonus
as Executive participated in prior to any change in such plans or awards, in
accordance with the Bonus Plans and the Substitute Plans; (v) any material
breach by the Company of any provision of this Agreement, including without
limitation Section 13 hereof; (vi) if on the Board at the time of a Change in
Control, Executive's removal from or failure to be reelected to the Board
thereafter; (vii) a failure of any successor to assume in a writing delivered to
Executive upon the assignee becoming such, the obligations of the Company
hereunder; or (viii) a failure of the Company to grant stock options within
ninety (90) days after the Spinoff Date in an aggregate amount of exercise price
(which shall be fair market value at the time of grant) multiplied by number of
options of at least $1,500,000 and, as to other provisions materially in the
aggregate no less favorable to the Executive than the recommendations required
by Section 4(c)(ii) hereof.
(d) Notice of Termination for Good Reason. A Notice of Termination for
Good Reason shall mean a notice that shall indicate the specific termination
provision in Section 7(c) relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for Termination for Good
Reason. The failure by Executive to set forth in the Notice of
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Termination for Good Reason any facts or circumstances which contribute to the
showing of Good Reason shall not waive any right of Executive hereunder or
preclude Executive from asserting such fact or circumstance in enforcing his
rights hereunder. The Notice of Termination for Good Reason shall provide for a
date of termination not less than ten (10) nor more than sixty (60) days after
the date such Notice of Termination for Good Reason is given, provided that in
the case of the events set forth in Section 7(c)(ii) or (iii) the date may be
two (2) days after the giving of such notice.
(e) Cause. Subject to the notification provisions of Section 7(f)
below, Executive's employment hereunder may be terminated by the Company for
Cause. For purposes of this Agreement, the term "Cause" shall be limited to (i)
willful misconduct by Executive with regard to the Company or its business,
assets or employees; (ii) the refusal of Executive to follow the proper written
direction of the Board or a more senior officer of the Company, provided that
the foregoing refusal shall not be "Cause" if Executive in good faith believes
that such direction is illegal, unethical or immoral and promptly so notifies
the Board or the more senior officer (whichever is applicable); (iii)
substantial and continuing willful refusal by the Executive to attempt to
perform the duties required of him hereunder (other than any such failure
resulting from incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to the Executive by the Board or
a more senior officer of the Company which specifically identifies the manner in
which it is believed that the Executive has substantially and continually
refused to attempt to perform his duties hereunder; (iv) the Executive being
convicted of a felony (other than a felony involving a motor vehicle); (v) the
breach by Executive of any material fiduciary duty owed by Executive to the
Company; or (vi) Executive's dishonesty, misappropriation or fraud with regard
to the Company (other than good faith expense account disputes).
(f) Notice of Termination for Cause. A Notice of Termination for Cause
shall mean a notice that shall indicate the specific termination provision in
Section 7(e) relied upon and shall set forth in reasonable detail the facts and
circumstances which provide for a basis for Termination for Cause. The date of
termination for a Termination for Cause shall be the date indicated in the
Notice of Termination. Any purported Termination for Cause which is held by a
court not to have been based on the grounds set forth in this Agreement or not
to have followed the procedures set forth in this Agreement shall be deemed a
Termination by the Company without Cause.
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(g) The irrevocable direct pay letter of credit required to be
delivered pursuant to Section 7(a)(vi) hereof shall be in amount equal to the
amount the Executive would be entitled to under Section 8(c)(A)(i) and (ii)
hereof if he were terminated without Cause upon the Change in Control and have
an expiration date of no less than two (2) years after the Change in Control.
The Executive shall be entitled to draw on the letter of credit upon
presentation to the issuing bank of a demand for payment signed by the Executive
that states that (i) (A) a Good Reason event has occurred and the Executive
would be entitled to payment under Section 8(c) of this Agreement if he elected
to terminate employment for Good Reason or (B) six (6) months and not more than
six (6) months and thirty (30) days has expired since the Change in Control or
(C) the Executive is entitled to payment under Section 8(c) of this Agreement
and (ii) assuming the event set forth in (i) entitled him to payment under
Section 8(c) of this Agreement, the amount the Company would be indebted to him
at the time of presentation under Section 8(c)(A)(i) and (ii) if he then was
eligible to receive payments under Section 8(c). There shall be no other
requirements (including no requirement that the Executive first makes demand
upon the Company or that the Executive actually terminates employment) with
regard to payment of the letter of credit. To the extent the letter of credit is
not adequate to cover the amount owed to the Executive by the Company under this
Agreement, is not submitted by the Executive or is not paid by the issuing bank,
the Company shall remain liable to the Executive for the remainder owed the
Executive pursuant to the terms of this Agreement. To the extent any amount is
paid under the letter of credit it shall be a credit against any amounts the
Company then or thereafter would owe to the Executive under Section 8(c) of this
Agreement. The letter of credit shall be issued by a national money center bank
with a rating of at least A by Standard & Poor's Ratings Services. The Company
shall bear the cost of the letter of credit.
8. Consequences of Termination of Employment on or After the Spinoff.
(a) Death. If, Executive's employment is terminated during the Employment Term
on or after the Spinoff Date by reason of Executive's death, the employment
period under this Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement except for: (i) any
compensation earned but not yet paid, including and without limitation, any
bonus if declared or earned but not yet paid for a completed fiscal year, any
amount of Base Salary earned but unpaid, any accrued vacation pay payable
pursuant to the Company's policies, the Special Bonus to the extent earned but
not paid and any unreimbursed business expenses payable pursuant to Section 6
(collectively "Accrued Amounts") which amounts shall be promptly paid in a lump
sum to Executive's estate; (ii) the product of (x) the target annual bonus for
the fiscal year of the Executive's death, multiplied by (y) a fraction, the
numerator of which is the
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number of days of the current fiscal year during which the Executive was
employed by the Company, and the denominator of which is 365, which bonus shall
be paid when bonuses for such period are paid to the other executives; (iii)
subject to Sections 10 and 12, any other amounts or benefits owing to the
Executive under the then applicable employee benefit plans, long term incentive
plans or equity plans and programs of the Company which shall be paid in
accordance with such plans and programs; (iv) payment on a monthly basis of six
(6) months of Base Salary, which shall be paid to Executive's spouse, or if he
is not married to the Executive's estate or if she shall predecease him, then to
the Executive's children (or their guardian if one is appointed) in equal
shares; and (v) payment of the spouse's and dependent's COBRA coverage premiums
to the extent, and so long as, they remain eligible for COBRA coverage, but in
no event more than three (3) years.
(b) Disability. If, Executive's employment is terminated during the
Employment Term and on or after the Spinoff Date by reason of Executive's
Disability, Executive shall be entitled to receive the payments and benefits to
which his representatives would be entitled in the event of a termination of
employment by reason of his death (other than life insurance benefits), provided
that the payment of Base Salary shall be reduced by the projected amount he
would receive under any long-term disability policy or program maintained by the
Company during the six (6) month period during which Base Salary is being paid.
(c) Termination by Executive for Good Reason or for any Reason During
the Change in Control Protection Period or Termination by the Company without
Cause or Nonextension of the Term by the Company. If on or after the Spinoff
Date (i) outside of the Change in Control Protection Period, Executive
terminates his employment hereunder for Good Reason during the Employment Term,
(ii) if a Change in Control occurs and during the Change in Control Protection
Period Executive terminates his employment for any reason, (iii) Executive's
employment with the Company is terminated by the Company without Cause or (iv)
Executive's employment with the Company terminates as a result of the Company
giving notice of nonextension of the Employment Term pursuant to Section 1(a)
hereof, Executive shall be entitled to receive the Accrued Amounts and shall,
subject to Section 10(b) hereof, be entitled to receive, (A) in a lump sum
within ten (10) days after compliance with such Section 10(b), (i) two (2) times
Base Salary and (ii) if such termination is after a Change in Control, two (2)
times the highest annual bonus paid or, if declared or earned but not yet paid
for a completed fiscal year, payable to Executive for any of the previous three
(3) completed fiscal years by the Company (provided that, if this Section 8(c)
becomes applicable in reference to the bonus for the fiscal years ending on or
about September 30,
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2000 or 2001, the bonus to be used for the foregoing calculation shall be deemed
to be the higher of the respective bonus declared or earned for such year or
$175,000); (B) any other amounts or benefits owing to Executive under
the then applicable employee benefit, long term incentive or equity plans and
programs of the Company which shall be paid in accordance with such plans and
programs; (C) if not vested in a Company maintained Tax Qualified defined
benefit plan, a payment equal to the product of (i) the lump sum value of any
benefit accrued under such Tax Qualified defined benefit plan, if any, on the
date of termination (as determined in accordance with the provisions of such
plan as then in effect, including the applicable mortality factor, but utilizing
a lump sum discount rate equal to the plan's long-term investment rate of return
assumption for valuation purposes), and (ii) a fraction, the numerator of which
is equal to the number of full months worked by the Executive following the
Commencement Date and the denominator of which is sixty (60); (D) if such
termination is after a Change in Control, two (2) years of additional service
and compensation credit (at his then compensation level) for pension purposes
under any defined benefit type qualified or nonqualified pension plan or
arrangement of the Company, which payments shall be made through and in
accordance with the terms of the nonqualified defined benefit pension
arrangement if any then exists, or, if not, in an actuarially equivalent lump
sum (using the actuarial factors then applying in the Company's defined benefit
plan covering Executive); (E) if such termination is after a Change in Control,
two (2) years of the maximum Company contribution (assuming Executive deferred
the maximum amount and continued to earn his then current salary) under any type
of qualified or nonqualified 401(k) plan (payable at the end of each such year);
and (F) payment by the Company of the premiums for the Executive and his
dependents' health coverage for two (2) years under the Company's health plans
which cover the senior executives of the Company or materially similar benefits.
Payments under (F) above may at the discretion of the Company be made by
continuing participation of Executive in the plan as a terminee, by paying the
applicable COBRA premium for Executive and his dependents, or by covering
Executive and his dependents under substitute arrangements.
(d) Termination with Cause or Voluntary Resignation without Good
Reason or Retirement. If, Executive's employment hereunder is terminated on or
after the Spinoff Date (i) by the Company for Cause, (ii) by Executive without
Good Reason outside of the Change in Control Protection Period, or (iii) by the
Company pursuant to Section 7(a)(viii) hereof, the Executive shall be entitled
to receive only his Base Salary through the date of termination, the Special
Bonus if earned but unpaid and any unreimbursed business expenses payable
pursuant to Section 6 and, if the Executive has retired pursuant to the
Company's retirement programs, any bonus that has been declared or earned but
not yet paid for a completed fiscal year. All other benefits (including, without
limitation,
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options and the vesting thereof) due Executive following such termination of
employment shall be determined in accordance with the Company's plans and
programs.
9. Consequences of Termination of Employment Prior to the Spinoff
Date. (a) Death, Disability, Termination with Cause, Voluntary Resignation. If
Executive's employment hereunder is terminated prior to the Spinoff Date and
prior to a Section 7(a)(ix) Event (i) by reason of death, (ii) by reason of
Executive's Disability, (iii) by the Company for Cause, or (iv) by Executive,
the Executive shall be entitled to receive only his Base Salary through the date
of termination, any earned but unpaid bonus, if any, and any unreimbursed
business expenses payable pursuant to Section 6, provided that if such
termination is by Executive and occurs within fifteen (15) days after the
earlier of the Company notifying Executive in writing or issuing a formal public
announcement that the Spinoff will take place but at least one of Bearing
Inspection, Inc., Atech Turbine Components, Inc., Huron, Inc. or Rexair, Inc. is
not part of the Spinoff, Executive shall be treated as provided in (b) below.
All other benefits due Executive following such termination of employment shall
be determined in accordance with the Company's plans and programs.
(b) Termination by the Company without Cause or Occurrence of Section
7(a)(ix) Event. If (i) prior to the earlier to occur of a Section 7(a)(ix) Event
or Spinoff Date, Executive's employment hereunder is terminated by the Company
without Cause or (ii) Executive's employment hereunder is terminated as a result
of the occurrence of a Section 7(a)(ix) Event, the Executive shall, subject to
Sections 10 and 12, be entitled to receive (A) if such termination occurs prior
to January 1, 2000, in a lump sum within five (5) days after such termination,
an amount equal to six (6) month's Base Salary or (B) if such termination occurs
after December 31, 1999 and prior to the Outside Date, in a lump sum within five
(5) days after such termination, an amount equal to twelve (12) month's Base
Salary plus $14,583 per month for each complete month (and pro rata for any
partial month) of employment on or after October 1, 1999. In addition to the
foregoing, Executive shall be entitled to receive the amounts and benefits
described in Section 9(a) above.
10. (a) No Mitigation; Set-Off. In the event of any termination of
employment under Sections 8 or 9, Executive shall be under no obligation to seek
other employment and there shall be no offset against any amounts due Executive
under this Agreement on account of any remuneration attributable to any
subsequent employment that Executive may obtain. Any amounts due under Sections
8 and 9 are in the nature of severance payments and are not in the nature of a
penalty. Such amounts are inclusive,
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and in lieu of any, amounts payable under any other salary continuation or cash
severance arrangement of the Company and to the extent paid or provided under
any other such arrangement shall be offset from the amount due hereunder.
(b) Executive agrees that, as a condition to receiving the payments
and benefits provided under Sections 8(c) and 9(b) hereunder he will execute,
deliver and not revoke (within the time period permitted by applicable law) a
release of all claims of any kind whatsoever against the Company, its
affiliates, officers, directors, employees, agents and shareholders in the then
standard form being used by the Company for senior executives (but without
release of right of indemnification hereunder, equity grants, or benefit plans
that by their terms are intended to survive termination of his employment).
11. Change in Control. For purposes of this Agreement, the term
"Change in Control" shall mean the occurrence of any of the following on or
after the Spinoff Date (i) any "person" as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 ("Act") (other than the
Company, any trustee or other fiduciary holding securities under any employee
benefit plan of the Company, or any company owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of Common Stock of the Company), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Act), directly or indirectly, of securities
of the Company representing twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding securities; (ii) during any
period of two (2) consecutive years (not including any period prior to the
Spinoff Date), individuals who at the beginning of such period constitute the
Board, and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction described
in clause (i), (iii), or (iv) of this paragraph) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority of the Board; (iii) a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than fifty percent (50%) of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no person acquires more than twenty-five percent (25%) of the combined
voting power of the Company's then outstanding
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securities shall not constitute a Change in Control of the Company; or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or the sale or disposition by the Company of all or substantially all of
the Company's assets other than (x) the sale or disposition of all or
substantially all of the assets of the Company to a person or persons who
beneficially own, directly or indirectly, at least fifty percent (50%) or more
of the combined voting power of the outstanding voting securities of the Company
at the time of the sale or (y) pursuant to a spinoff type transaction, directly
or indirectly, of such assets to the stockholders of the Company. In no event
shall the Spinoff in and of itself constitute a Change in Control for purposes
of this Agreement.
12. Confidential Information and Non-Solicitation of the Company. (a)
(i) Executive acknowledges that as a result of his employment by the Company,
Executive will obtain secret and confidential information as to the Company and
its affiliates and the Company and its affiliates will suffer substantial
damage, which would be difficult to ascertain, if Executive should use such
confidential information and that because of the nature of the information that
will be known to Executive it is necessary for the Company and its affiliates to
be protected by the Confidentiality restrictions set forth herein.
(ii) Executive acknowledges that the retention of nonclerical
employees employed by the Company and its affiliates in which the Company and
its affiliates have invested training and depends on for the operation of their
businesses is important to the businesses of the Company and its affiliates,
that Executive will obtain unique information as to such employees as an
executive of the Company and will develop a unique relationship with such
persons as a result of being an executive of the Company and, therefore, it is
necessary for the Company and its affiliates to be protected from Executive's
Solicitation of such employees as set forth below.
(iii)Executive acknowledges that the provisions of this Agreement are
reasonable and necessary for the protection of the businesses of the Company and
its affiliates and that part of the compensation paid under this Agreement and
the agreement to pay severance in certain instances is in consideration for the
agreements in this Section 12.
(b) Solicitation shall mean: recruiting, soliciting or inducing, of
any nonclerical employee or employees of the Company or its affiliates to
terminate their employment with, or otherwise cease their relationship with, the
Company or its affiliates or hiring or assisting another person or entity to
hire any nonclerical employee of the Company or its affiliates or any person
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who within six (6) months before had been a nonclerical employee of the Company
or its affiliates and were recruited or solicited for such employment or other
retention while an employee of the Company, provided, however, that solicitation
shall not include any of the foregoing activities engaged in with the prior
written approval of the Chief Executive Officer of the Company.
(c) If any restriction set forth with regard to Solicitation is found
by any court of competent jurisdiction, or an arbitrator, to be unenforceable
because it extends for too long a period of time or over too great a range of
activities or in too broad a geographic area, it shall be interpreted to extend
over the maximum period of time, range of activities or geographic area as to
which it may be enforceable. If any provision of this Section 12 shall be
declared to be invalid or unenforceable, in whole or in part, as a result of the
foregoing, as a result of public policy or for any other reason, such invalidity
shall not affect the remaining provisions of this Section which shall remain in
full force and effect.
(d) During and after the Employment Term, Executive shall hold in a
fiduciary capacity for the benefit of the Company and its affiliates all secret
or confidential information, knowledge or data relating to the Company and its
affiliates, and their respective businesses, including any confidential
information as to customers of the Company and its affiliates, (i) obtained by
Executive during his employment by the Company and its affiliates and (ii) not
otherwise public knowledge or known within the applicable industry. Executive
shall not, without prior written consent of the Company, unless compelled
pursuant to the order of a court or other governmental or legal body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
In the event Executive is compelled by order of a court or other governmental or
legal body to communicate or divulge any such information, knowledge or data to
anyone other than the foregoing, he shall promptly notify the Company of any
such order and he shall cooperate fully with the Company in protecting such
information to the extent possible under applicable law.
(e) Upon termination of his employment with the Company and its
affiliates, or at any time as the Company may request, Executive will promptly
deliver to the Company, as requested, all documents (whether prepared by the
Company, an affiliate, Executive or a third party) relating to the Company, an
affiliate or any of their businesses or property which he may possess or have
under his direction or control other than documents provided to Executive in his
capacity as a participant in any employee benefit
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plan, policy or program of the Company or any agreement by and between Executive
and the Company with regard to Executive's employment or severance.
(f) Furthermore, in the event of any termination of Executive's
employment for any reason whatsoever, whether by the Company or by Executive and
whether or not for Cause, Good Reason or non-extension of the Employment Term,
Executive for two (2) years thereafter will not engage in Solicitation.
(g) In the event of a breach or potential breach of this Section 12,
Executive acknowledges that the Company and its affiliates will be caused
irreparable injury and that money damages may not be an adequate remedy and
agree that the Company and its affiliates shall be entitled to injunctive relief
(in addition to its other remedies at law) to have the provisions of this
Section 12 enforced. It is hereby acknowledged that the provisions of this
Section 12 are for the benefit of the Company and all of the affiliates of the
Company before and after the Spinoff Date and each such entity may enforce the
provisions of this Section 12 and only the applicable entity can waive the
rights hereunder with respect to its confidential information and employees.
(h) Furthermore, in the event of breach of this Section 12 by
Executive, while he is receiving amounts under Section 8(c) or 9(b) hereof,
Executive shall not be entitled to receive any future amounts pursuant to
Sections 8(c) or 9(b) hereof.
13. Indemnification. (a) The Company agrees that if Executive is made
a party to or threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that he is or was a director, employee or officer of the
Company and/or any affiliate of the Company, or is or was serving at the request
of any of such companies as a director, officer, member, employee, fiduciary or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including, without limitation, service with respect to employee
benefit plans, whether or not the basis of such Proceeding is alleged action in
an official capacity as a director, officer, member, employee, fiduciary or
agent while serving as a director, officer, member, employee, fiduciary or
agent, he shall be indemnified and held harmless by the Company to the fullest
extent authorized by Delaware law (or, if other than the Company, the law
applicable to such company), as the same exists or may hereafter be amended,
against all Expenses incurred or suffered by Executive in connection therewith,
and such indemnification shall continue as to Executive even if Executive has
ceased to be an officer, director, member, fiduciary or agent, or is no longer
employed
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by the applicable company, and shall inure to the benefit of his heirs,
executors and administrators. With respect to the obligations set forth in this
Section 13, the Company shall retain such obligations in respect of any act,
omission or circumstance that occurred on or prior to the Spinoff, and Newco
shall become liable hereunder with respect to any Proceeding which arises out of
or relates to events occurring after the Spinoff, except to the extent that the
liability relates to service with or for another assignee under Section 16(d)
hereof.
(b) As used in this Agreement, the term "Expenses" shall include,
without limitation, damages, losses, judgments, liabilities, fines, penalties,
excise taxes, settlements and costs, attorneys' fees, accountants' fees, and
disbursements and costs of attachment or similar bonds, investigations, and any
expenses of establishing a right to indemnification under this Agreement.
(c) Expenses incurred by Executive in connection with any Proceeding
shall be paid by the Company in advance upon request of Executive and the giving
by the Executive of any undertakings required by applicable law.
(d) Executive shall give the Company notice of any claim made against
him for which indemnity will or could be sought under this Agreement. In
addition, Executive shall give the Company such information and cooperation as
it may reasonably require and as shall be within Executive's power and at such
times and places as are reasonably convenient for Executive.
(e) With respect to any Proceeding as to which Executive notifies the
Company of the commencement thereof:
(i) The Company will be entitled to participate therein at its own
expense; and
(ii) Except as otherwise provided below, to the extent that it may
wish, the Company jointly with any other indemnifying party similarly notified
will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Executive. Executive also shall have the right to employ his own
counsel in such action, suit or proceeding and the fees and expenses of such
counsel shall be at the expense of the Company.
(f) The Company shall not be liable to indemnify Executive under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. The Company shall not settle any action or claim in
any manner
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which would impose any penalty or limitation on Executive without Executive's
written consent. Neither the Company nor Executive will unreasonably withhold or
delay their consent to any proposed settlement.
(g) The right to indemnification and the payment of expenses incurred
in defending a Proceeding in advance of its final disposition conferred in this
Section 13 shall not be exclusive of any other right which Executive may have or
hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the applicable company, agreement, vote of
stockholders or disinterested directors or otherwise.
(h) The Company agrees to obtain Officer and Director liability
insurance policies covering Executive and shall maintain at all times during the
Employment Term coverage under such policies in the aggregate with regard to all
officers and directors, including Executive, of an amount not less than $20
million. The Company shall maintain for a six (6) year period commencing on the
date the Executive ceased to be an employee of the Company, Officer and Director
liability insurance coverage for events occurring during the period the
Executive was an employee or director of the Company in the same aggregate
amount and under the same terms as are maintained for its active officers and
directors. The phrase "in the same aggregate amount and under the same terms"
shall include the same level of self-insurance by the Company as shall be
maintained for active officers and directors.
(i) This Section 13 shall not create or expand any rights to
indemnification in favor of Executive with respect to service with USI, the
Company or their affiliates prior to the date hereof.
14. Special Tax Provision. (a) Anything in this Agreement to the
contrary notwithstanding, in the event that any amount or benefit paid, payable,
or to be paid, or distributed, distributable, or to be distributed to or with
respect to Executive by the Company (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
person whose actions result in a change of ownership covered by Section
280G(b)(2) of the Code or any person affiliated with the Company or such person)
as a result of a change in ownership of the Company or a direct or indirect
parent thereof after the Spinoff covered by Code Section 280G(b)(2)
(collectively, the "Covered Payments") is or becomes subject to the excise tax
imposed by or under Section 4999 of the Code (or any similar tax that may
hereafter be imposed), and/or any interest or penalties with respect to such
excise tax (such excise tax, together with such interest and penalties, is
hereinafter collectively referred to as the "Excise Tax"), the
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Company shall pay to Executive an additional amount (the "Tax Reimbursement
Payment") such that after payment by Executive of all taxes (including, without
limitation, any interest or penalties and any Excise Tax imposed on or
attributable to the Tax Reimbursement Payment itself), Executive retains an
amount of the Tax Reimbursement Payment equal to the sum of (i) the amount of
the Excise Tax imposed upon the Covered Payments, and (ii) without duplication,
an amount equal to the product of (A) any deductions disallowed for federal,
state or local income or payroll tax purposes because of the inclusion of the
Tax Reimbursement Payment in Executive's adjusted gross income, and (B) the
highest applicable marginal rate of federal, state or local income taxation,
respectively, for the calendar year in which the Tax Reimbursement Payment is
made or is to be made. The intent of this Section 14 is that (a) the Executive,
after paying his Federal, state and local income tax and any payroll taxes on
Executive, will be in the same position as if he was not subject to the Excise
Tax under Section 4999 of the Code and did not receive the extra payments
pursuant to this Section 14 and (b) that Executive should never be
"out-of-pocket" with respect to any tax or other amount subject to this Section
14, whether payable to any taxing authority or repayable to the Company, and
this Section 14 shall be interpreted accordingly.
(b) Except as otherwise provided in Section 14(a), for purposes of
determining whether any of the Covered Payments will be subject to the Excise
Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as "parachute payments"
(within the meaning of Section 280G(b)(2) of the Code) and such payments in
excess of the Code Section 280G(b)(3) "base amount" shall be treated as subject
to the Excise Tax, unless, and except to the extent that, the Company's
independent certified public accountants appointed prior to the change in
ownership covered by Code Section 280G(b)(2) or legal counsel (reasonably
acceptable to Executive) appointed by such public accountants (or, if the public
accountants decline such appointment and decline appointing such legal counsel,
such independent certified public accountants as promptly mutually agreed on in
good faith by the Company and the Executive) (the "Accountant"), deliver a
written opinion to Executive, reasonably satisfactory to Executive's legal
counsel, that Executive has a reasonable basis to claim that the Covered
Payments (in whole or in part) (A) do not constitute "parachute payments", (B)
represent reasonable compensation for services actually rendered (within the
meaning of Section 280G(b)(4) of the Code) in excess of the "base amount"
allocable to such reasonable compensation, or (C) such "parachute payments" are
otherwise not subject to such Excise Tax (with appropriate legal authority,
detailed analysis and explanation provided therein by the Accountants); and
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(ii) the value of any Covered Payments which are non-cash benefits or
deferred payments or benefits shall be determined by the Accountant in
accordance with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Tax Reimbursement
Payment, Executive shall be deemed:
(i) to pay federal, state, local income and/or payroll taxes at the
highest applicable marginal rate of income taxation for the calendar year in
which the Tax Reimbursement Payment is made or is to be made, and
(ii) to have otherwise allowable deductions for federal, state and
local income and payroll tax purposes at least equal to those disallowed due to
the inclusion of the Tax Reimbursement Payment in Executive's adjusted gross
income.
(d)(i)(A) In the event that prior to the time the Executive has filed
any of his tax returns for the calendar year in which the change in ownership
event covered by Code Section 280G(b)(2) occurred, the Accountant determines,
for any reason whatever, the correct amount of the Tax Reimbursement Payment to
be less than the amount determined at the time the Tax Reimbursement Payment was
made, the Executive shall repay to the Company, at the time that the amount of
such reduction in Tax Reimbursement Payment is determined by the Accountant, the
portion of the prior Tax Reimbursement Payment attributable to such reduction
(including the portion of the Tax Reimbursement Payment attributable to the
Excise Tax and federal, state and local income and payroll tax imposed on the
portion of the Tax Reimbursement Payment being repaid by the Executive, using
the assumptions and methodology utilized to calculate the Tax Reimbursement
Payment (unless manifestly erroneous)), plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code.
(B) In the event that the determination set forth in (A) above is made
by the Accountant after the filing by the Executive of any of his tax returns
for the calendar year in which the change in ownership event covered by Code
Section 280G(b)(2) occurred but prior to one (1) year after the occurrence of
such change in ownership, the Executive shall file at the request of the Company
an amended tax return in accordance with the Accountant's determination, but no
portion of the Tax Reimbursement Payment shall be required to be refunded to the
Company until actual refund or credit of such portion has been made to the
Executive,
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and interest payable to the Company shall not exceed the interest received or
credited to the Executive by such tax authority for the period it held such
portion (less any tax the Executive must pay on such interest and which he is
unable to deduct as a result of payment of the refund).
(C) In the event the Executive receives a refund pursuant to (B) above
and repays such amount to the Company, the Executive shall thereafter file for
refunds or credits by reason of the repayments to the Company.
(D) The Executive and the Company shall mutually agree upon the course
of action, if any, to be pursued (which shall be at the expense of the Company)
if the Executive's claim for refund or credit is denied.
(ii) In the event that the Excise Tax is later determined by the
Accountants or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Tax Reimbursement Payment is made (including
by reason of any payment the existence or amount of which cannot be determined
at the time of the Tax Reimbursement Payment), the Company shall make an
additional Tax Reimbursement Payment in respect of such excess (plus any
interest or penalties payable with respect to such excess) once the amount of
such excess is finally determined.
(iii) In the event of any controversy with the Internal Revenue
Service (or other taxing authority) under this Section 14, subject to subpart
(i)(D) above, the Executive shall permit the Company to control issues related
to this Section 14 (at its expense), provided that such issues do not
potentially materially adversely affect the Executive, but the Executive shall
control any other issues. In the event the issues are interrelated, the
Executive and the Company shall in good faith cooperate so as not to jeopardize
resolution of either issue, but if the parties cannot agree Executive shall make
the final determination with regard to the issues. In the event of any
conference with any taxing authority as to the Excise Tax or associated income
taxes, the Executive shall permit the representative of the Company to accompany
him and the Executive and his representative shall cooperate with the Company
and its representative.
(iv) With regard to any initial filing for a refund or any other
action required pursuant to this Section 14 (other than by mutual agreement) or,
if not required, agreed to by the Company and the Executive, the Executive shall
cooperate
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<PAGE>
fully with the Company, provided that the foregoing shall not apply to actions
that are provided herein to be at the sole discretion of the Executive.
(e) The Tax Reimbursement Payment, or any portion thereof, payable by
the Company shall be paid not later than the fifth (5th) day following the
determination by the Accountant and any payment made after such fifth (5th) day
shall bear interest at the rate provided in Code Section 1274(b)(2)(B). The
Company shall use its best efforts to cause the Accountant, to promptly deliver
the initial determination required hereunder and, if not delivered, within
ninety (90) days after the change in ownership event covered by Section
280G(b)(2) of the Code, the Company shall pay the Executive the Tax
Reimbursement Payment set forth in an opinion from counsel recognized as
knowledgeable in the relevant areas selected by the Executive, and reasonably
acceptable to the Company, within five (5) days after delivery of such opinion.
The amount of such payment shall be subject to later adjustment in accordance
with the determination of the Accountant as provided herein.
(f) The Company shall be responsible for all charges of the Accountant
and if (e) is applicable the reasonable charges for the opinion given by
Executive's counsel.
(g) The Company and the Executive shall mutually agree on and
promulgate further guidelines in accordance with this Section 14 to the extent,
if any, necessary to effect the reversal of excessive or shortfall Tax
Reimbursement Payments. The foregoing shall not in any way be inconsistent with
Section 14(d)(i)(D) hereof.
15. Legal and Other Fees and Expenses. In the event that a claim for
payment or benefits under this Agreement is disputed, the Company shall pay all
reasonable attorney, accountant and other professional fees and reasonable
expenses incurred by Executive in pursuing such claim, provided the Executive is
successful with regard to a material portion of his claim.
16. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey without reference to
principles of conflict of laws.
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(b) Entire Agreement/Amendments. This Agreement and the instruments
contemplated herein, contain the entire understanding of the parties with
respect to the employment of Executive by the Company from and after the
Commencement Date and supersedes any prior agreements between the Company and
Executive with respect thereto. There are no restrictions, agreements, promises,
warranties, covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein and therein.
This Agreement may not be altered, modified, or amended except by written
instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict adherence
to any term of this Agreement on any occasion shall not be considered a waiver
of such party's rights or deprive such party of the right thereafter to insist
upon strict adherence to that term or any other term of this Agreement. Any such
waiver must be in writing and signed by Executive or an authorized officer of
the Company, as the case may be.
(d) Assignment. This Agreement shall not be assignable by Executive.
This Agreement shall be assignable by the Company only (i) as contemplated in
Section 1(b), (ii) prior to the Spinoff to either an entity which is owned in
whole by USI or (iii) after the Spinoff to an acquirer of all or substantially
all of the assets of the Company, provided such acquirer promptly assumes all of
the obligations hereunder of the Company in a writing delivered to the Executive
and otherwise complies with the provisions hereof with regard to such
assumption. Upon such assignment and assumption, all obligations of the Company
herein, shall be the obligations the assignee entity or acquirer, as the case
may be. Executive acknowledges that he is aware that the Company contemplates
assigning this Agreement to Newco on or promptly after the Spinoff.
(e) Successors; Binding Agreement; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees legatees and permitted assignees of the parties hereto.
(f) Communications. For the purpose of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given (i) when faxed or delivered, or (ii) two
(2) business days after being mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed to
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the respective addresses set forth on the initial page of this Agreement,
provided that all notices to the Company shall be directed to the attention of
the Senior Vice President, General Counsel and Secretary of the Company, or to
such other address as any party may have furnished to the other in writing in
accordance herewith. Notice of change of address shall be effective only upon
receipt.
(g) Withholding Taxes. The Company may withhold from any and all
amounts payable under this Agreement such Federal, state and local taxes as may
be required to be withheld pursuant to any applicable law or regulation.
(h) Survivorship. The respective rights and obligations of the parties
hereunder, including without limitation Section 13 hereof, shall survive any
termination of Executive's employment to the extent necessary to the agreed
preservation of such rights and obligations.
(i) Counterparts. This Agreement may be signed in counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
(j) Headings. The headings of the sections contained in this Agreement
are for convenience only and shall not be deemed to control or affect the
meaning or construction of any provision of this Agreement.
(k) Executive's Representation. The Executive represents and warrants
to the Company that there is no legal impediment to him performing his
obligations under this Agreement and neither entering into this Agreement nor
performing his contemplated service hereunder will violate any agreement to
which he is a party or any other legal restriction.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
STRATEGIC CAPITAL MANAGEMENT, INC.
By:
-------------------------------
Name:
Title:
-------------------------------
Peter J. Statile
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GUARANTY
The undersigned entity, U.S. Industries, Inc. ("USI"), does hereby
agree to the terms contained herein, and guarantee the payment of the
obligations of Strategic Capital Management Inc. (the "Company") under the
employment agreement by and between Peter J. Statile and the Company, dated as
of June 1, 1999 (the "Employment Agreement") that become due prior to or upon
the earliest to occur of the Spinoff Date, a Sale Event, an Abandoned Spinoff
and a Change of Control of USI (all as defined in the Employment Agreement),
including the payments of any and all monies which the Company is obligated to
pay to Executive prior to the Spinoff Date in accordance with the terms of the
Employment Agreement, as well as the obligations under Section 13 of the
Employment Agreement. Upon the Spinoff, this Guaranty shall become of no further
force or effect except with regard to Section 13 of the Employment Agreement as
it applies to the period prior to the Spinoff and obligations for the period
prior to the Spinoff that remain unfulfilled as of the Spinoff Date. This is a
guaranty of payment and not collection.
U.S. Industries, Inc.
By
-----------------------------
Name:
--------------------------
Title:
-------------------------
Date:
-------------------------
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EXHIBIT 10.5(d)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 1, 1999, by and
between, U.S. Industries, Inc., a Delaware corporation, with its principal
United States office at 101 Wood Avenue South, Iselin, New Jersey 08830 ("USI"),
and Steven C. Barre, residing at 48 Oak Avenue, Metuchen, New Jersey 08840
("Executive").
W I T N E S S E T H:
--------------------
WHEREAS, Executive is currently employed as Associate General
Counsel of USI;
WHEREAS, USI intends to transfer all or a part of the assets
constituting USI's diversified segment (the "Diversified Segment") and other
assets of USI (such assets collectively "USI Diversified") to a newly
constituted wholly owned subsidiary of USI (the "Company") and to spinoff the
Company to the shareholders of USI (a spinoff with John Raos as Chairman and
Chief Executive Officer of the Company is referred to herein as the "Spinoff");
WHEREAS, effective on the consummation of the Spinoff (the
"Commencement Date"), the Company desires to employ the Executive as Vice
President, General Counsel and Secretary of the Company and the Executive is
willing to serve in such capacities;
WHEREAS, USI and the Executive desire to enter into this
agreement (the "Agreement") as to the terms of his employment by the Company,
under which the Executive's employment shall commence on the Commencement Date
and which Agreement will be assigned by USI to the Company upon or prior to
consummation of the Spinoff, and to embody the terms of Executive's prospective
employment by the Company subsequent to the Spinoff.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
1. Term of Employment. Except for earlier termination as
provided in Section 7 hereof, Executive's employment under this Agreement shall
be for a two-year term (the "Employment Term") commencing on the Commencement
Date and ending two (2) years thereafter; provided that if the Executive is not
physically or mentally capable of performing the duties set
<PAGE>
forth in Section 2 herein on the Commencement Date (as reasonably determined by
the Company in its sole discretion) this Agreement shall be null and void ab
initio. Subject to Section 7 hereof, the Employment Term shall be automatically
extended for additional terms of successive two (2) year periods unless the
Company or the Executive gives written notice to the other at least ninety (90)
days prior to the expiration of the then current Employment Term of the
termination of Executive's employment hereunder at the end of such current
Employment Term. Notwithstanding the foregoing, this Agreement shall be null and
void if the Spinoff is not consummated by June 30, 2000; provided, however, that
this date will be extended to September 30, 2000 if prior to June 30, 2000 USI
receives a private letter ruling from the Internal Revenue Service providing
that the stock dividends that will occur pursuant to the Spinoff will be a
tax-free distribution and providing such other relief and approvals as requested
in the ruling.
2. Positions. (a) Executive shall serve as Vice President,
General Counsel and Secretary of the Company. If requested by the Board of
Directors of the Company (the "Board") or the Chairman and so elected by the
stockholders of the Company, Executive shall also serve on the Board without
additional compensation. Executive shall also serve, if requested by the Board,
the Chairman or the President, as an executive officer and director of
subsidiaries and a director of associated companies of the Company and shall
comply with the policy of the Compensation Committee of the Company's Board (the
"Compensation Committee") with regard to retention or forfeiture of the
director's fees.
(b) Executive shall report to any more senior officer of the
Company as designated by the Chairman or the President and, shall have such
duties and authority, consistent with his then position as shall be assigned to
him from time to time by the Board, the Chairman, the President or such other
more senior officer(s) of the Company.
(c) During the Employment Term, Executive shall devote
substantially all of his business time and efforts to the performance of his
duties hereunder; provided, however, that Executive shall be allowed, to the
extent that such activities do not materially interfere with the performance of
his duties and responsibilities hereunder, to manage his personal financial and
legal affairs and to serve on corporate, civic, or charitable boards or
committees. Notwithstanding the foregoing, the Executive shall only serve on
corporate boards of directors if approved in advance by the Board and shall not
serve on any corporate board of directors if such service would be inconsistent
with his fiduciary responsibilities to the Company, as determined by the Board.
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3. Base Salary. During the Employment Term, the Company shall
pay Executive a base salary at the annual rate of not less than $180,000. Base
salary shall be payable in accordance with the usual payroll practices of the
Company. Executive's Base Salary shall be subject to annual review by the Board
or the Compensation Committee (commencing on the first day of the Company's 2001
fiscal year) during the Employment Term and may be increased, but not decreased,
from time to time by the Board or the Compensation Committee, except that, prior
to a Change in Control, as defined in Section 10 hereof, it may be decreased
proportionately in connection with an across the board decrease applying to all
senior executives of the Company. The base salary as determined as aforesaid
from time to time shall constitute "Base Salary" for purposes of this Agreement.
4. Incentive Compensation. (a) Bonus. For each fiscal year or
portion thereof during the Employment Term, Executive shall, subject to
shareholder approval as and to the extent required by Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), be eligible to
participate in an incentive pay plan of the Company that provides an annualized
cash target bonus opportunity equal to at least 55% of Base Salary.
(b) Equity. Pursuant to a stock option plan satisfying the
requirements of Code Section 162(m), the Company shall, after the Commencement
Date, recommend to the Compensation Committee that Executive be granted, three
separate grants of nonqualified stock options (the "Options") to purchase the
number of shares of Common Stock of the Company ("Common Stock") determined for
each grant by dividing $240,000 by the fair market value of the Common Stock on
the date of grant as determined under the applicable stock option plan (the
"Fair Market Value"). It shall be recommended that the first grant of options be
made within the fifteen (15) day period following the date "regular way trading"
of the Common Stock commences, excluding the period of "when issued trading"
("Regular Way Trading"), the second grant of options be made after the fifteenth
(15th) day and before the thirtieth (30th) day following the commencement of
Regular Way Trading, and the third grant of options be made after the thirtieth
(30th) day and before the forty-fifth (45th) day following the commencement of
Regular Way Trading. The Company shall recommend that the Options shall have an
exercise price equal to the Fair Market Value. It shall be recommended that the
stock option grants shall provide that the Options shall become exercisable with
respect to 25% of such Options on each of the first four anniversaries of
October 1, 1999, provided that Executive is employed by the Company on such
vesting date, and further provided that
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it shall be recommended that such Options shall fully vest upon a Change in
Control, as defined in Section 10 hereof, and that the next tranche vest upon a
termination event described in Section 7(a)(i), (ii), (iii) or (iv).
(c) Long Term Compensation/SERP Benefits. USI currently
maintains the Long Term Incentive Plan ("LTIP"). Upon the Spinoff the
Executive's account balance in the LTIP shall be transferred to similar
arrangements with the Company. The Company shall have no obligation to put
additional amounts in or provide additional accruals under an LTIP type plan and
may continue them or discontinue them in the judgment of its Compensation
Committee or Board, but the Executive shall at all times be fully vested in his
transferred account balance benefit accruals thereunder and earnings (if any)
thereon. For each fiscal year or portion thereof during the Employment Term,
after the Spinoff Date, Executive shall be eligible to participate in any
long-term incentive compensation plans or supplemental executive retirement
plans made available to vice presidents of the Company.
(d) Other Compensation. The Company may, upon recommendation
of the Compensation Committee, award to the Executive such other bonuses and
compensation as it deems appropriate and reasonable.
5. Employee Benefits and Vacation. (a) During the Employment
Term, Executive shall be entitled to participate in all pension, retirement,
savings, welfare and other employee benefit plans and arrangements and fringe
benefits and perquisites generally maintained by the Company from time to time
for the benefit of vice presidents of the Company in each case in accordance
with their respective terms as in effect from time to time (other than any
special arrangement entered into by contract with an executive) and, except as
otherwise determined by the Compensation Committee, the Executive's employment
with USI or any of its predecessors prior to the Commencement Date (as reflected
in USI's books and records) shall be recognized for all purposes under any
Company sponsored pension, retirement, savings, welfare and other employee
benefit plans or arrangements established within the six (6) month period
following the Commencement Date.
(b) During the Employment Term, Executive shall be entitled to
vacation each year in accordance with the Company's policies in effect from time
to time, but in no event less than four (4) weeks paid vacation per calendar
year. The Executive shall also be entitled to such periods of sick leave as is
customarily provided by the Company for its senior executive employees.
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6. Business Expenses. The Company shall reimburse Executive
for the travel, entertainment and other business expenses incurred by Executive
in the performance of his duties hereunder, in accordance with the Company's
policies as in effect from time to time.
7. Termination. (a) The employment of Executive under this
Agreement shall terminate upon the earliest to occur of any of the following
events:
(i) the death of the Executive;
(ii) the termination of the Executive's employment
by the Company due to the Executive's Disability pursuant to
Section 7(b) hereof;
(iii) the termination of the Executive's employment
by the Executive for Good Reason pursuant to Section 7(c)
hereof;
(iv) the termination of the Executive's employment
by the Company without Cause;
(v) the termination of employment by the Executive
without Good Reason upon sixty (60) days prior written notice;
(vi) the termination of employment by the Executive
with or without Good Reason during the thirty (30) day period
commencing one (1) year after a Change in Control (such thirty
(30) day period being referred to herein as the "Change in
Control Protection Period"), provided that the Executive shall
have a right to terminate employment pursuant to this Section
7(a)(vi) and receive the amounts under Section 8(c)(A)(i) and
(ii) unless simultaneous with the Change in Control, the
Company or the person or entity triggering the Change in
Control delivers to the Executive an irrevocable direct pay
letter of credit with regard to the amounts under Section
8(c)(A)(i) and (ii) and satisfying the requirements of
Section 7(g) hereof;
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(vii) the termination of the Executive's employment
by the Company for Cause pursuant to Section 7(e);
(viii) the retirement of the Executive by the Company
at or after his sixty-fifth birthday to the extent such
termination is specifically permitted as a stated exception
from applicable federal and state age discrimination laws
based on position and retirement benefits;
(b) Disability. If by reason of the same or related physical
or mental illness or incapacity, the Executive is unable to carry out his
material duties pursuant to this Agreement for more than six (6) months in any
twelve (12) consecutive month period, the Company may terminate Executive's
employment for Disability upon thirty (30) days written notice by a Notice of
Disability Termination, at any time thereafter during such twelve month period
while Executive is unable to carry out his duties as a result of the same or
related physical or mental illness or incapacity. Such termination shall not be
effective if Executive returns to the full time performance of his material
duties within such thirty (30) day notice period.
(c) Termination for Good Reason. A Termination for Good Reason
means a termination by Executive by written notice given within ninety (90) days
after the occurrence of the Good Reason event, unless such circumstances are
fully corrected prior to the date of termination specified in the Notice of
Termination for Good Reason (as defined in Section 7(d) hereof). For purposes of
this Agreement, "Good Reason" shall mean the occurrence or failure to cause the
occurrence, as the case may be, without Executive's express written consent, of
any of the following circumstances: (i) any material diminution of Executive's
positions, duties or responsibilities hereunder (except in each case in
connection with the termination of Executive's employment for Cause or
Disability or as a result of Executive's death, or temporarily as a result of
Executive's illness or other absence); (ii) removal of, or the nonreelection of,
the Executive from the officer positions, if any, with the Company specified
herein without election to a materially comparable or higher position; (iii) a
relocation of the Company's executive office in New Jersey to a location more
than both thirty-five (35) miles from Iselin, New Jersey and thirty-five (35)
miles from the Executive's residence at the time of relocation or a relocation
of Executive more than thirty-five (35) miles from the Company's executive
offices in New Jersey; provided, however, the foregoing shall not apply if such
executive offices are relocated to Florida and/or Executive is relocated to
Florida if Executive is given reasonable notice and if the Company reimburses
Executive for all reasonable expenses incurred by Executive in relocating (on a
fully grossed up basis such that on an after tax basis Executive shall have no
after tax cost for such relocation) with regard to relocation
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costs historically reimbursed by the Company (or USI before the Company has spun
off) with regard to relocation of senior executives (iv) after a Change of
Control, a failure by the Company (A) to continue any bonus plan, program or
arrangement in which Executive is entitled to participate immediately prior to
the Change of Control (the "Bonus Plans"), provided that any such Bonus Plans
may be modified at the Company's discretion from time to time but shall be
deemed terminated if (x) any such plan does not remain substantially in the form
in effect prior to such modification and (y) if plans providing Executive with
substantially similar benefits are not substituted therefor ("Substitute
Plans"), or (B) to continue Executive as a participant in the Bonus Plans and
Substitute Plans on at least the same basis as to potential amount of the bonus
as Executive participated in prior to any change in such plans or awards, in
accordance with the Bonus Plans and the Substitute Plans; (v) any material
breach by the Company of any provision of this Agreement, including without
limitation Section 12 hereof; (vi) a failure of any successor to assume in a
writing delivered to Executive upon the assignee becoming such, the obligations
of the Company hereunder; or (vii) a failure of the Company to grant stock
options within ninety (90) days after the Commencement Date in an aggregate
amount of exercise price (which shall be fair market value at the time of grant)
multiplied by number of options of at least $720,000 and, as to other provisions
materially in the aggregate no less favorable to the Executive than the
recommendations required by Section 4(b) hereof.
(d) Notice of Termination for Good Reason. A Notice of
Termination for Good Reason shall mean a notice that shall indicate the specific
termination provision in Section 7(c) relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
Termination for Good Reason. The failure by Executive to set forth in the Notice
of Termination for Good Reason any facts or circumstances which contribute to
the showing of Good Reason shall not waive any right of Executive hereunder or
preclude Executive from asserting such fact or circumstance in enforcing his
rights hereunder. The Notice of Termination for Good Reason shall provide for a
date of termination not less than ten (10) nor more than sixty (60) days after
the date such Notice of Termination for Good Reason is given, provided that in
the case of the events set forth in Section 7(c)(ii) or (iii) the date may be
two (2) days after the giving of such notice.
(e) Cause. Subject to the notification provisions of Section
7(f) below, Executive's employment hereunder may be terminated by the Company
for Cause. For purposes of this Agreement, the term "Cause" shall be limited to
(i) willful misconduct by Executive with regard to the Company or its business,
assets or employees; (ii) the refusal of Executive to follow the
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proper written direction of the Board or a more senior officer of the Company,
provided that the foregoing refusal shall not be "Cause" if Executive in good
faith believes that such direction is illegal, unethical or immoral and promptly
so notifies the Board or the more senior officer (whichever is applicable);
(iii) substantial and continuing willful refusal by the Executive to attempt to
perform the duties required of him hereunder (other than any such failure
resulting from incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to the Executive by the Board or
a more senior officer of the Company which specifically identifies the manner in
which it is believed that the Executive has substantially and continually
refused to attempt to perform his duties hereunder; (iv) the Executive being
convicted of a felony (other than a felony involving a motor vehicle); (v) the
breach by Executive of any material fiduciary duty owed by Executive to the
Company; or (vi) Executive's dishonesty, misappropriation or fraud with regard
to the Company (other than good faith expense account disputes).
(f) Notice of Termination for Cause. A Notice of Termination
for Cause shall mean a notice that shall indicate the specific termination
provision in Section 7(e) relied upon and shall set forth in reasonable detail
the facts and circumstances which provide for a basis for Termination for Cause.
The date of termination for a Termination for Cause shall be the date indicated
in the Notice of Termination. Any purported Termination for Cause which is held
by a court not to have been based on the grounds set forth in this Agreement or
not to have followed the procedures set forth in this Agreement shall be deemed
a Termination by the Company without Cause.
(g) The irrevocable direct pay letter of credit required to be
delivered pursuant to Section 7(a)(vi) hereof shall be in amount equal to the
amount the Executive would be entitled to under Section 8(c)(A)(i) and (ii)
hereof if he were terminated without Cause upon the Change in Control and have
an expiration date of no less than two (2) years after the Change in Control.
The Executive shall be entitled to draw on the letter of credit upon
presentation to the issuing bank of a demand for payment signed by the Executive
that states that (i) (A) a Good Reason event has occurred and the Executive
would be entitled to payment under Section 8(c) of this Agreement if he elected
to terminate employment for Good Reason or (B) one (1) year and not more than
one (1) year and thirty (30) days has expired since the Change in Control or (C)
the Executive is entitled to payment under Section 8(c) of this Agreement and
(ii) assuming the event set forth in (i) entitled him to payment under Section
8(c) of this Agreement, the amount the Company would be indebted to him at the
time of presentation under Section 8(c)(A)(i) and (ii) if he then was eligible
to receive payments under Section
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8(c). There shall be no other requirements (including no requirement that the
Executive first makes demand upon the Company or that the Executive actually
terminates employment) with regard to payment of the letter of credit. To the
extent the letter of credit is not adequate to cover the amount owed to the
Executive by the Company under this Agreement, is not submitted by the Executive
or is not paid by the issuing bank, the Company shall remain liable to the
Executive for the remainder owed the Executive pursuant to the terms of this
Agreement. To the extent any amount is paid under the letter of credit it shall
be a credit against any amounts the Company then or thereafter would owe to the
Executive under Section 8(c) of this Agreement. The letter of credit shall be
issued by a national money center bank with a rating of at least A by Standard &
Poor's Ratings Services. The Company shall bear the cost of the letter of
credit.
8. Consequences of Termination of Employment. (a) Death. If
Executive's employment is terminated during the Employment Term on or after the
Spinoff Date by reason of Executive's death, the employment period under this
Agreement shall terminate without further obligations to the Executive's legal
representatives under this Agreement except for: (i) any compensation earned but
not yet paid, including and without limitation, any bonus if declared or earned
but not yet paid for a completed fiscal year, any amount of Base Salary earned
but unpaid, any accrued vacation pay payable pursuant to the Company's policies,
and any unreimbursed business expenses payable pursuant to Section 6
(collectively "Accrued Amounts") which amounts shall be promptly paid in a lump
sum to Executive's estate; (ii) the product of (x) the target annual bonus for
the fiscal year of the Executive's death, multiplied by (y) a fraction, the
numerator of which is the number of days of the current fiscal year during which
the Executive was employed by the Company, and the denominator of which is 365,
which bonus shall be paid when bonuses for such period are paid to the other
executives; (iii) subject to Sections 9 and 11, any other amounts or benefits
owing to the Executive under the then applicable employee benefit plans, long
term incentive plans or equity plans and programs of the Company which shall be
paid in accordance with such plans and programs; (iv) payment on a monthly basis
of three (3) months of Base Salary, which shall be paid to Executive's spouse,
or if he is not married to the Executive's estate or if she shall predecease
him, then to the Executive's children (or their guardian if one is appointed) in
equal shares; and (v) payment of the spouse's and dependent's COBRA coverage
premiums to the extent, and so long as, they remain eligible for COBRA coverage,
but in no event more than three (3) years.
(b) Disability. If, Executive's employment is terminated by
reason of Executive's Disability, Executive shall be entitled to receive the
payments and benefits to which his representatives would be entitled in the
event of a termination of
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employment by reason of his death (other than life insurance benefits), provided
that the payment of Base Salary shall be reduced by the projected amount he
would receive under any long-term disability policy or program maintained by the
Company during the three (3) month period during which Base Salary is being
paid.
(c) Termination by Executive for Good Reason or for any Reason
During the Change in Control Protection Period or Termination by the Company
without Cause or Nonextension of the Term by the Company. If (i) outside of the
Change in Control Protection Period, Executive terminates his employment
hereunder for Good Reason during the Employment Term, (ii) if a Change in
Control occurs and during the Change in Control Protection Period Executive
terminates his employment for any reason, (iii) Executive's employment with the
Company is terminated by the Company without Cause or (iv) Executive's
employment with the Company terminates as a result of the Company giving notice
of nonextension of the Employment Term pursuant to Section 1(a) hereof,
Executive shall be entitled to receive the Accrued Amounts and shall, subject to
Sections 9(b) and 11(h) hereof, be entitled to receive, (A) (i) two (2) times
Base Salary, to be paid, if such termination is after a Change in Control, in
one lump sum within ten (10) days after compliance with Section 9(b) hereof, or
otherwise to be paid one (1) times Base Salary in a lump sum and one (1) times
Base Salary in twelve (12) equal monthly installments commencing one (1) month
after the aforementioned lump sum is paid and (ii) if such termination is after
a Change in Control, two (2) times the highest annual bonus paid or, if declared
or earned but not yet paid for a completed fiscal year, payable to Executive for
any of the previous two (2) completed fiscal years by the Company or USI; (B)
any Accrued Amounts at the date of termination; (C) any other amounts or
benefits owing to Executive under the then applicable employee benefit, long
term incentive or equity plans and programs of the Company which shall be paid
in accordance with such plans and programs; (D) if such termination is after a
Change in Control, two (2) years of additional service and compensation credit
(at his then compensation level) for pension purposes under any defined benefit
type qualified or nonqualified pension plan or arrangement of the Company, which
payments shall be made through and in accordance with the terms of the
nonqualified defined benefit pension arrangement if any then exists, or, if not,
in an actuarially equivalent lump sum (using the actuarial factors then applying
in the Company's defined benefit plan covering Executive); (E) if such
termination is after a Change in Control, two (2) years of the maximum Company
contribution (assuming Executive deferred the maximum amount and continued to
earn his then current salary) under any type of qualified or nonqualified 401(k)
plan (payable at the end of each such year); and (F) payment by the Company of
the premiums for the Executive and his dependents' health coverage for two (2)
years under the Company's health plans which cover the
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senior executives of the Company or materially similar benefits. Payments under
(F) above may at the discretion of the Company be made by continuing
participation of Executive in the plan as a terminee, by paying the applicable
COBRA premium for Executive and his dependents, or by covering Executive and his
dependents under substitute arrangements.
(d) Termination with Cause or Voluntary Resignation without
Good Reason or Retirement. If, Executive's employment hereunder is terminated
(i) by the Company for Cause, (ii) by Executive without Good Reason outside of
the Change in Control Protection Period, or (iii) by the Company pursuant to
Section 7(a)(viii) hereof, the Executive shall be entitled to receive only his
Base Salary through the date of termination and any unreimbursed business
expenses payable pursuant to Section 6 and, if the Executive has retired
pursuant to the Company's retirement programs, any bonus that has been declared
or earned but not yet paid for a completed fiscal year. All other benefits
(including, without limitation, options and the vesting thereof) due Executive
following such termination of employment shall be determined in accordance with
the Company's plans and programs.
9. (a) No Mitigation; Set-Off. In the event of any termination
of employment under Section 8, Executive shall be under no obligation to seek
other employment and there shall be no offset against any amounts due Executive
under this Agreement on account of any remuneration attributable to any
subsequent employment that Executive may obtain. Any amounts due under Sections
8 and 9 are in the nature of severance payments and are not in the nature of a
penalty. Such amounts are inclusive, and in lieu of any, amounts payable under
any other salary continuation or cash severance arrangement of the Company and
to the extent paid or provided under any other such arrangement shall be offset
from the amount due hereunder.
(b) Executive agrees that, as a condition to receiving the
payments and benefits provided under Section 8(c) hereunder he will execute,
deliver and not revoke (within the time period permitted by applicable law) a
release of all claims of any kind whatsoever against the Company, its
affiliates, officers, directors, employees, agents and shareholders in the then
standard form being used by the Company for senior executives (but without
release of right of indemnification hereunder, equity grants, or benefit plans
that by their terms are intended to survive termination of his employment).
10. Change in Control. For purposes of this Agreement, the
term "Change in Control" shall mean (i) any "person" as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 ("Act") (other
than the Company, any trustee or other fiduciary holding securities under any
employee benefit plan of the Company, or any company owned, directly or
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indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of Common Stock of the Company), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing twenty-five percent (25%)
or more of the combined voting power of the Company's then outstanding
securities; (ii) during any period of two (2) consecutive years (not including
any period prior to the Commencement Date), individuals who at the beginning of
such period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii), or (iv) of this paragraph)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the two-year
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the Board; (iii) a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however, that a merger
or consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person acquires more than twenty-five percent
(25%) of the combined voting power of the Company's then outstanding securities
shall not constitute a Change in Control of the Company; or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or the sale or disposition by the Company of all or substantially all of
the Company's assets other than (x) the sale or disposition of all or
substantially all of the assets of the Company to a person or persons who
beneficially own, directly or indirectly, at least fifty percent (50%) or more
of the combined voting power of the outstanding voting securities of the Company
at the time of the sale or (y) pursuant to a spinoff type transaction, directly
or indirectly, of such assets to the stockholders of the Company. In no event
shall the Spinoff in and of itself constitute a Change in Control for purposes
of this Agreement; provided, however, that the provisions of this Section 10
shall be operative immediately after consummation of the Spinoff.
11. Confidential Information and Non-Solicitation of the
Company. (a) (i) Executive acknowledges that as a result of his employment by
the Company, Executive will obtain secret and confidential information as to the
Company and its affiliates and the Company and its affiliates will suffer
substantial damage, which would be difficult to ascertain, if Executive should
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use such confidential information and that because of the nature of the
information that will be known to Executive it is necessary for the Company and
its affiliates to be protected by the Confidentiality restrictions set forth
herein.
(ii) Executive acknowledges that the retention of nonclerical
employees employed by the Company and its affiliates in which the Company and
its affiliates have invested training and depends on for the operation of their
businesses is important to the businesses of the Company and its affiliates,
that Executive will obtain unique information as to such employees as an
executive of the Company and will develop a unique relationship with such
persons as a result of being an executive of the Company and, therefore, it is
necessary for the Company and its affiliates to be protected from Executive's
Solicitation of such employees as set forth below.
(iii) Executive acknowledges that the provisions of this
Agreement are reasonable and necessary for the protection of the businesses of
the Company and its affiliates and that part of the compensation paid under this
Agreement and the agreement to pay severance in certain instances is in
consideration for the agreements in this Section 11.
(b) Solicitation shall mean: recruiting, soliciting or
inducing, of any nonclerical employee or employees of the Company or its
affiliates to terminate their employment with, or otherwise cease their
relationship with, the Company or its affiliates or hiring or assisting another
person or entity to hire any nonclerical employee of the Company or its
affiliates or any person who within six (6) months before had been a nonclerical
employee of the Company or its affiliates and were recruited or solicited for
such employment or other retention while an employee of the Company, provided,
however, that solicitation shall not include any of the foregoing activities
engaged in with the prior written approval of the Chief Executive Officer of the
Company.
(c) If any restriction set forth with regard to Solicitation
is found by any court of competent jurisdiction, or an arbitrator, to be
unenforceable because it extends for too long a period of time or over too great
a range of activities or in too broad a geographic area, it shall be interpreted
to extend over the maximum period of time, range of activities or geographic
area as to which it may be enforceable. If any provision of this Section 11
shall be declared to be invalid or unenforceable, in whole or in part, as a
result of the foregoing, as a result of public policy or for any other reason,
such invalidity shall not affect the remaining provisions of this Section which
shall remain in full force and effect.
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(d) During and after the Employment Term, Executive shall hold
in a fiduciary capacity for the benefit of the Company and its affiliates all
secret or confidential information, knowledge or data relating to the Company
and its affiliates, and their respective businesses, including any confidential
information as to customers of the Company and its affiliates, (i) obtained by
Executive during his employment by the Company and its affiliates and (ii) not
otherwise public knowledge or known within the applicable industry. Executive
shall not, without prior written consent of the Company, unless compelled
pursuant to the order of a court or other governmental or legal body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
In the event Executive is compelled by order of a court or other governmental or
legal body to communicate or divulge any such information, knowledge or data to
anyone other than the foregoing, he shall promptly notify the Company of any
such order and he shall cooperate fully with the Company in protecting such
information to the extent possible under applicable law.
(e) Upon termination of his employment with the Company and
its affiliates, or at any time as the Company may request, Executive will
promptly deliver to the Company, as requested, all documents (whether prepared
by the Company, an affiliate, Executive or a third party) relating to the
Company, an affiliate or any of their businesses or property which he may
possess or have under his direction or control other than documents provided to
Executive in his capacity as a participant in any employee benefit plan, policy
or program of the Company or any agreement by and between Executive and the
Company with regard to Executive's employment or severance.
(f) Furthermore, in the event of any termination of
Executive's employment for any reason whatsoever, whether by the Company or by
Executive and whether or not for Cause, Good Reason or non-extension of the
Employment Term, Executive for two (2) years thereafter will not engage in
Solicitation.
(g) In the event of a breach or potential breach of this
Section 11, Executive acknowledges that the Company and its affiliates will be
caused irreparable injury and that money damages may not be an adequate remedy
and agree that the Company and its affiliates shall be entitled to injunctive
relief (in addition to its other remedies at law) to have the provisions of this
Section 11 enforced. It is hereby acknowledged that the provisions of this
Section 11 are for the benefit of the Company and all of the
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affiliates of the Company before and after the Spinoff Date and each such entity
may enforce the provisions of this Section 11 and only the applicable entity can
waive the rights hereunder with respect to its confidential information and
employees.
(h) Furthermore, in the event of breach of this Section 11 by
Executive, while he is receiving amounts under Section 8(c) hereof, Executive
shall not be entitled to receive any future amounts pursuant to Section 8(c)
hereof.
12. Indemnification. (a) The Company agrees that if Executive
is made a party to or threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director, employee or
officer of the Company and/or any affiliate of the Company, or is or was serving
at the request of any of such companies as a director, officer, member,
employee, fiduciary or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including, without limitation, service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is alleged action in an official capacity as a director, officer, member,
employee, fiduciary or agent while serving as a director, officer, member,
employee, fiduciary or agent, he shall be indemnified and held harmless by the
Company to the fullest extent authorized by Delaware law (or, if other than the
Company, the law applicable to such company), as the same exists or may
hereafter be amended, against all Expenses incurred or suffered by Executive in
connection therewith, and such indemnification shall continue as to Executive
even if Executive has ceased to be an officer, director, member, fiduciary or
agent, or is no longer employed by the applicable company, and shall inure to
the benefit of his heirs, executors and administrators.
(b) As used in this Agreement, the term "Expenses" shall
include, without limitation, damages, losses, judgments, liabilities, fines,
penalties, excise taxes, settlements and costs, attorneys' fees, accountants'
fees, and disbursements and costs of attachment or similar bonds,
investigations, and any expenses of establishing a right to indemnification
under this Agreement.
(c) Expenses incurred by Executive in connection with any
Proceeding shall be paid by the Company in advance upon request of Executive and
the giving by the Executive of any undertakings required by applicable law.
(d) Executive shall give the Company notice of any claim made
against him for which indemnity will or could be sought under this Agreement. In
addition, Executive shall give the Company such information and cooperation as
it may reasonably require and as shall be within Executive's power and at such
times and places as are reasonably convenient for Executive.
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(e) With respect to any Proceeding as to which Executive
notifies the Company of the commencement thereof:
(i) The Company will be entitled to participate
therein at its own expense; and
(ii) Except as otherwise provided below, to the
extent that it may wish, the Company jointly with any other indemnifying party
similarly notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Executive. Executive also shall have the right to
employ his own counsel in such action, suit or proceeding and the fees and
expenses of such counsel shall be at the expense of the Company.
(f) The Company shall not be liable to indemnify Executive
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any action or
claim in any manner which would impose any penalty or limitation on Executive
without Executive's written consent. Neither the Company nor Executive will
unreasonably withhold or delay their consent to any proposed settlement.
(g) The right to indemnification and the payment of expenses
incurred in defending a Proceeding in advance of its final disposition conferred
in this Section 12 shall not be exclusive of any other right which Executive may
have or hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the applicable company, agreement, vote of
stockholders or disinterested directors or otherwise.
(h) The Company agrees to obtain Officer and Director
liability insurance policies covering Executive and shall maintain at all times
during the Employment Term coverage under such policies in the aggregate with
regard to all officers and directors, including Executive, of an amount not less
than the greater of: (i) the amount of coverage maintained by the Company for
the Chairman and Chief Executive Officer of the Company or (ii) $10 million. The
Company shall maintain for a six (6) year period commencing on the date the
Executive ceased to be an employee of the Company, Officer and Director
liability insurance coverage for events occurring during the period the
Executive was an employee or director of the Company in the same aggregate
amount and under the same terms as are maintained for its active officers and
directors. The phrase "in the same aggregate amount and under the same terms"
shall include the same level of self-insurance by the Company as shall be
maintained for active officers and directors.
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(i) This Section 12 shall not create or expand any rights to
indemnification in favor of Executive with respect to service with USI, the
Company or their affiliates prior to the date hereof.
13. Special Tax Provision. (a) Anything in this Agreement to
the contrary notwithstanding, in the event that any amount or benefit paid,
payable, or to be paid, or distributed, distributable, or to be distributed to
or with respect to Executive by the Company (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company, any
person whose actions result in a change of ownership covered by Section
280G(b)(2) of the Code or any person affiliated with the Company or such person)
as a result of a change in ownership of the Company or a direct or indirect
parent thereof after the Spinoff covered by Code Section 280G(b)(2)
(collectively, the "Covered Payments") is or becomes subject to the excise tax
imposed by or under Section 4999 of the Code (or any similar tax that may
hereafter be imposed), and/or any interest or penalties with respect to such
excise tax (such excise tax, together with such interest and penalties, is
hereinafter collectively referred to as the "Excise Tax"), the Company shall pay
to Executive an additional amount (the "Tax Reimbursement Payment") such that
after payment by Executive of all taxes (including, without limitation, any
interest or penalties and any Excise Tax imposed on or attributable to the Tax
Reimbursement Payment itself), Executive retains an amount of the Tax
Reimbursement Payment equal to the sum of (i) the amount of the Excise Tax
imposed upon the Covered Payments, and (ii) without duplication, an amount equal
to the product of (A) any deductions disallowed for federal, state or local
income or payroll tax purposes because of the inclusion of the Tax Reimbursement
Payment in Executive's adjusted gross income, and (B) the highest applicable
marginal rate of federal, state or local income taxation, respectively, for the
calendar year in which the Tax Reimbursement Payment is made or is to be made.
The intent of this Section 13 is that (a) the Executive, after paying his
Federal, state and local income tax and any payroll taxes on Executive, will be
in the same position as if he was not subject to the Excise Tax under Section
4999 of the Code and did not receive the extra payments pursuant to this Section
13 and (b) that Executive should never be "out-of-pocket" with respect to any
tax or other amount subject to this Section 13, whether payable to any taxing
authority or repayable to the Company, and this Section 13 shall be interpreted
accordingly.
(b) Except as otherwise provided in Section 13(a), for
purposes of determining whether any of the Covered Payments will be subject to
the Excise Tax and the amount of such Excise Tax,
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(i) such Covered Payments will be treated as
"parachute payments" (within the meaning of Section 280G(b)(2) of the Code) and
such payments in excess of the Code Section 280G(b)(3) "base amount" shall be
treated as subject to the Excise Tax, unless, and except to the extent that, the
Company's independent certified public accountants appointed prior to the change
in ownership covered by Code Section 280G(b)(2) or legal counsel (reasonably
acceptable to Executive) appointed by such public accountants (or, if the public
accountants decline such appointment and decline appointing such legal counsel,
such independent certified public accountants as promptly mutually agreed on in
good faith by the Company and the Executive) (the "Accountant"), deliver a
written opinion to Executive, reasonably satisfactory to Executive's legal
counsel, that Executive has a reasonable basis to claim that the Covered
Payments (in whole or in part) (A) do not constitute "parachute payments", (B)
represent reasonable compensation for services actually rendered (within the
meaning of Section 280G(b)(4) of the Code) in excess of the "base amount"
allocable to such reasonable compensation, or (C) such "parachute payments" are
otherwise not subject to such Excise Tax (with appropriate legal authority,
detailed analysis and explanation provided therein by the Accountants); and
(ii) the value of any Covered Payments which are non-cash
benefits or deferred payments or benefits shall be determined by the Accountant
in accordance with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Tax
Reimbursement Payment, Executive shall be deemed:
(i) to pay federal, state, local income and/or
payroll taxes at the highest applicable marginal rate of income taxation for the
calendar year in which the Tax Reimbursement Payment is made or is to be made,
and
(ii) to have otherwise allowable deductions for
federal, state and local income and payroll tax purposes at least equal to those
disallowed due to the inclusion of the Tax Reimbursement Payment in Executive's
adjusted gross income.
(d)(i)(A) In the event that prior to the time the Executive
has filed any of his tax returns for the calendar year in which the change in
ownership event covered by Code Section 280G(b)(2) occurred, the Accountant
determines, for any reason whatever, the correct amount of the Tax Reimbursement
Payment to be less than the amount determined at the time the Tax
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Reimbursement Payment was made, the Executive shall repay to the Company, at the
time that the amount of such reduction in Tax Reimbursement Payment is
determined by the Accountant, the portion of the prior Tax Reimbursement Payment
attributable to such reduction (including the portion of the Tax Reimbursement
Payment attributable to the Excise Tax and federal, state and local income and
payroll tax imposed on the portion of the Tax Reimbursement Payment being repaid
by the Executive, using the assumptions and methodology utilized to calculate
the Tax Reimbursement Payment (unless manifestly erroneous)), plus interest on
the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code.
(B) In the event that the determination set forth in (A) above
is made by the Accountant after the filing by the Executive of any of his tax
returns for the calendar year in which the change in ownership event covered by
Code Section 280G(b)(2) occurred but prior to one (1) year after the occurrence
of such change in ownership, the Executive shall file at the request of the
Company an amended tax return in accordance with the Accountant's determination,
but no portion of the Tax Reimbursement Payment shall be required to be refunded
to the Company until actual refund or credit of such portion has been made to
the Executive, and interest payable to the Company shall not exceed the interest
received or credited to the Executive by such tax authority for the period it
held such portion (less any tax the Executive must pay on such interest and
which he is unable to deduct as a result of payment of the refund).
(C) In the event the Executive receives a refund pursuant to
(B) above and repays such amount to the Company, the Executive shall thereafter
file for refunds or credits by reason of the repayments to the Company.
(D) The Executive and the Company shall mutually agree upon
the course of action, if any, to be pursued (which shall be at the expense of
the Company) if the Executive's claim for refund or credit is denied.
(ii) In the event that the Excise Tax is later
determined by the Accountants or the Internal Revenue Service to exceed the
amount taken into account hereunder at the time the Tax Reimbursement Payment is
made (including by reason of any payment the existence or amount of which cannot
be determined at the time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of such excess (plus any
interest or penalties payable with respect to such excess) once the amount of
such excess is finally determined.
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(iii) In the event of any controversy with the
Internal Revenue Service (or other taxing authority) under this Section 13,
subject to subpart (i)(D) above, the Executive shall permit the Company to
control issues related to this Section 13 (at its expense), provided that such
issues do not potentially materially adversely affect the Executive, but the
Executive shall control any other issues. In the event the issues are
interrelated, the Executive and the Company shall in good faith cooperate so as
not to jeopardize resolution of either issue, but if the parties cannot agree
Executive shall make the final determination with regard to the issues. In the
event of any conference with any taxing authority as to the Excise Tax or
associated income taxes, the Executive shall permit the representative of the
Company to accompany him and the Executive and his representative shall
cooperate with the Company and its representative.
(iv) With regard to any initial filing for a refund
or any other action required pursuant to this Section 13 (other than by mutual
agreement) or, if not required, agreed to by the Company and the Executive, the
Executive shall cooperate fully with the Company, provided that the foregoing
shall not apply to actions that are provided herein to be at the sole discretion
of the Executive.
(e) The Tax Reimbursement Payment, or any portion thereof,
payable by the Company shall be paid not later than the fifth (5th) day
following the determination by the Accountant and any payment made after such
fifth (5th) day shall bear interest at the rate provided in Code Section
1274(b)(2)(B). The Company shall use its best efforts to cause the Accountant,
to promptly deliver the initial determination required hereunder and, if not
delivered, within ninety (90) days after the change in ownership event covered
by Section 280G(b)(2) of the Code, the Company shall pay the Executive the Tax
Reimbursement Payment set forth in an opinion from counsel recognized as
knowledgeable in the relevant areas selected by the Executive, and reasonably
acceptable to the Company, within five (5) days after delivery of such opinion.
The amount of such payment shall be subject to later adjustment in accordance
with the determination of the Accountant as provided herein.
(f) The Company shall be responsible for all charges of the
Accountant and if (e) is applicable the reasonable charges for the opinion given
by Executive's counsel.
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(g) The Company and the Executive shall mutually agree on and
promulgate further guidelines in accordance with this Section 13 to the extent,
if any, necessary to effect the reversal of excessive or shortfall Tax
Reimbursement Payments. The foregoing shall not in any way be inconsistent with
Section 13(d)(i)(D) hereof.
14. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey without
reference to principles of conflict of laws.
(b) Entire Agreement/Amendments. This Agreement and the
instruments contemplated herein, contain the entire understanding of the parties
with respect to the employment of Executive by the Company from and after the
Commencement Date and supersedes any prior agreements between the Company and
Executive with respect thereto. There are no restrictions, agreements, promises,
warranties, covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein and therein.
This Agreement may not be altered, modified, or amended except by written
instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
Any such waiver must be in writing and signed by Executive or an authorized
officer of the Company, as the case may be.
(d) Assignment. This Agreement shall not be assignable by
Executive. This Agreement shall be assignable by the Company only to an acquirer
of all or substantially all of the assets of the Company, provided such acquirer
promptly assumes all of the obligations hereunder of the Company in a writing
delivered to the Executive and otherwise complies with the provisions hereof
with regard to such assumption. This Agreement may be assigned by USI to the
Company and upon assumption of the Agreement by the Company, USI shall be
released from any further obligations or liabilities hereunder.
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(e) Successors; Binding Agreement; Third Party Beneficiaries.
This Agreement shall inure to the benefit of and be binding upon the personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees legatees and permitted assignees of the parties hereto.
(f) Communications. For the purpose of this Agreement, notices
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given (i) when faxed or delivered, or (ii)
two (2) business days after being mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the initial page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the
Chairman and Chief Executive Officer of the Company or to such other address as
any party may have furnished to the other in writing in accordance herewith.
Notice of change of address shall be effective only upon receipt.
(g) Withholding Taxes. The Company may withhold from any and
all amounts payable under this Agreement such Federal, state and local taxes as
may be required to be withheld pursuant to any applicable law or regulation.
(h) Survivorship. The respective rights and obligations of the
parties hereunder, including without limitation Section 12 hereof, shall survive
any termination of Executive's employment to the extent necessary to the agreed
preservation of such rights and obligations.
(i) Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
(j) Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
(k) Executive's Representation. The Executive represents and
warrants to the Company that there is no legal impediment to him performing his
obligations under this Agreement and neither entering into this Agreement nor
performing his contemplated service hereunder will violate any agreement to
which he is a party or any other legal restriction.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
U.S. INDUSTRIES, INC.
By:
--------------------------------
Name:
Title:
-----------------------------------
Steven C. Barre
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Exhibit 10.5(e)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 1, 1999, by and
between, U.S. Industries, Inc., a Delaware corporation, with its principal
United States office at 101 Wood Avenue South, Iselin, New Jersey 08830 ("USI"),
and Gary K. Meuchel residing at 304 Greenview Ridge, Duncan, South Carolina
29334-9244 ("Executive").
W I T N E S S E T H:
WHEREAS, Executive is currently employed as Vice
President-Human Resources of Lighting Corporation of America, a subsidiary
of USI;
WHEREAS, USI intends to transfer all or a part of the assets
constituting USI's diversified segment (the "Diversified Segment") and other
assets of USI (such assets collectively "USI Diversified") to a newly
constituted wholly owned subsidiary of USI (the "Company") and to spinoff the
Company to the shareholders of USI (a spinoff with John Raos as Chairman and
Chief Executive Officer of the Company is referred to herein as the "Spinoff");
WHEREAS, effective on the consummation of the Spinoff (the
"Commencement Date"), the Company desires to employ the Executive as Vice
President-Human Resources of the Company at its principle executive offices to
be established in New Jersey and the Executive is willing to serve in such
capacities;
WHEREAS, USI and the Executive desire to enter into this
agreement (the "Agreement") as to the terms of his employment by the Company,
under which the Executive's employment shall commence on the Commencement Date
and which Agreement will be assigned by USI to the Company upon or prior to
consummation of the Spinoff, and to embody the terms of Executive's prospective
employment by the Company subsequent to the Spinoff.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
<PAGE>
1. Term of Employment. Except for earlier termination as
provided in Section 7 hereof, Executive's employment under this Agreement shall
be for a two-year term (the "Employment Term") commencing on the Commencement
Date and ending two (2) years thereafter; provided that if the Executive is not
physically or mentally capable of performing the duties set forth in Section 2
herein on the Commencement Date (as reasonably determined by the Company in its
sole discretion) this Agreement shall be null and void ab initio. Subject to
Section 7 hereof, the Employment Term shall be automatically extended for
additional terms of successive two (2) year periods unless the Company or the
Executive gives written notice to the other at least ninety (90) days prior to
the expiration of the then current Employment Term of the termination of
Executive's employment hereunder at the end of such current Employment Term.
Notwithstanding the foregoing, this Agreement shall be null and void if the
Spinoff is not consummated by June 30, 2000; provided, however, that this date
will be extended to September 30, 2000 if prior to June 30, 2000 USI receives a
private letter ruling from the Internal Revenue Service providing that the stock
dividends that will occur pursuant to the Spinoff will be a tax-free
distribution and providing such other relief and approvals as requested in the
ruling.
2. Positions. (a) Executive shall serve as Vice
President-Human Resources of the Company. If requested by the Board of Directors
of the Company (the "Board") or the Chairman and so elected by the stockholders
of the Company, Executive shall also serve on the Board without additional
compensation. Executive shall also serve, if requested by the Board, the
Chairman or the President, as an executive officer and director of subsidiaries
and a director of associated companies of the Company and shall comply with the
policy of the Compensation Committee of the Company's Board (the "Compensation
Committee") with regard to retention or forfeiture of the director's fees.
(b) Executive shall report to any more senior officer of the
Company as designated by the Chairman or the President and, shall have such
duties and authority, consistent with his then position as shall be assigned to
him from time to time by the Board, the Chairman, the President or such other
more senior officer(s) of the Company.
(c) During the Employment Term, Executive shall devote
substantially all of his business time and efforts to the performance of his
duties hereunder; provided, however, that Executive shall be allowed, to the
extent that such activities do not materially interfere with the performance of
his duties and responsibilities hereunder, to manage his personal financial and
legal affairs and to serve on corporate, civic, or charitable boards or
committees. Notwithstanding the foregoing, the Executive shall only serve on
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corporate boards of directors if approved in advance by the Board and shall not
serve on any corporate board of directors if such service would be inconsistent
with his fiduciary responsibilities to the Company, as determined by the Board.
3. Base Salary. During the Employment Term, the Company shall
pay Executive a base salary at the annual rate of not less than $165,000. Base
salary shall be payable in accordance with the usual payroll practices of the
Company. Executive's Base Salary shall be subject to annual review by the Board
or the Compensation Committee (commencing on the first day of the Company's 2001
fiscal year) during the Employment Term and may be increased, but not decreased,
from time to time by the Board or the Compensation Committee, except that, prior
to a Change in Control, as defined in Section 10 hereof, it may be decreased
proportionately in connection with an across the board decrease applying to all
senior executives of the Company. The base salary as determined as aforesaid
from time to time shall constitute "Base Salary" for purposes of this Agreement.
4. Incentive Compensation. (a) Bonus. For each fiscal year or
portion thereof during the Employment Term, Executive shall, subject to
shareholder approval as and to the extent required by Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), be eligible to
participate in an incentive pay plan of the Company that provides an annualized
cash target bonus opportunity equal to at least 55% of Base Salary.
(b) Equity. Pursuant to a stock option plan satisfying the
requirements of Code Section 162(m), the Company shall, after the Commencement
Date, recommend to the Compensation Committee that Executive be granted, three
separate grants of nonqualified stock options (the "Options") to purchase the
number of shares of Common Stock of the Company ("Common Stock") determined for
each grant by dividing $220,000 by the fair market value of the Common Stock on
the date of grant as determined under the applicable stock option plan (the
"Fair Market Value"). It shall be recommended that the first grant of options be
made within the fifteen (15) day period following the date "regular way trading"
of the Common Stock commences, excluding the period of "when issued trading"
("Regular Way Trading"), the second grant of options be made after the fifteenth
(15th) day and before the thirtieth (30th) day following the commencement of
Regular Way Trading, and the third grant of options be made after the thirtieth
(30th) day and before the forty-fifth (45th) day following the commencement of
Regular Way Trading. The Company shall recommend that the Options shall have an
exercise price equal to the Fair Market Value. It shall be recommended that the
stock option grants shall provide that the Options shall become exercisable with
respect to 25% of such Options on each of the first four
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anniversaries of October 1, 1999, provided that Executive is employed by the
Company on such vesting date, and further provided that it shall be recommended
that such Options shall fully vest upon a Change in Control, as defined in
Section 10 hereof, and that the next tranche vest upon a termination event
described in Section 7(a)(i), (ii), (iii) or (iv).
(c) Long Term Compensation/SERP Benefits. USI's subsidiary
Lighting Corporation of America currently maintains a Long Term Incentive Plan
("LTIP") and a Supplemental Executive Retirement Plan ("SERP"). Upon the Spinoff
the Executive's account balance in the LTIP and SERP shall be transferred to
similar arrangements with the Company. The Company shall have no obligation to
put additional amounts in or provide additional accruals under an LTIP or SERP
type plan and may continue them or discontinue them in the judgment of its
Compensation Committee or Board, but the Executive shall at all times be fully
vested in his transferred account balance benefit accruals thereunder and
earnings (if any) thereon. For each fiscal year or portion thereof during the
Employment Term, after the Spinoff Date, Executive shall be eligible to
participate in any long-term incentive compensation plans or supplemental
executive retirement plans made available to vice presidents of the Company.
(d) Other Compensation. The Company may, upon recommendation
of the Compensation Committee, award to the Executive such other bonuses and
compensation as it deems appropriate and reasonable.
5. Employee Benefits and Vacation. (a) During the Employment
Term, Executive shall be entitled to participate in all pension, retirement,
savings, welfare and other employee benefit plans and arrangements and fringe
benefits and perquisites generally maintained by the Company from time to time
for the benefit of vice presidents of the Company in each case in accordance
with their respective terms as in effect from time to time (other than any
special arrangement entered into by contract with an executive) and, except as
otherwise determined by the Compensation Committee, the Executive's employment
with USI (including its subsidiaries while subsidiaries) or any of its
predecessors prior to the Commencement Date (as reflected in USI's books and
records) shall be recognized for all purposes under any Company sponsored
pension, retirement, savings, welfare and other employee benefit plans or
arrangements established within the six (6) month period following the
Commencement Date.
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(b) During the Employment Term, Executive shall be entitled to
vacation each year in accordance with the Company's policies in effect from time
to time, but in no event less than four (4) weeks paid vacation per calendar
year. The Executive shall also be entitled to such periods of sick leave as is
customarily provided by the Company for its senior executive employees.
6. Business Expenses. The Company shall reimburse Executive
for the travel, entertainment and other business expenses incurred by Executive
in the performance of his duties hereunder, in accordance with the Company's
policies as in effect from time to time.
7. Termination. (a) The employment of Executive under this
Agreement shall terminate upon the earliest to occur of any of the following
events:
(i) the death of the Executive;
(ii) the termination of the Executive's employment
by the Company due to the Executive's Disability pursuant to
Section 7(b) hereof;
(iii) the termination of the Executive's employment
by the Executive for Good Reason pursuant to Section 7(c)
hereof;
(iv) the termination of the Executive's employment
by the Company without Cause;
(v) the termination of employment by the Executive
without Good Reason upon sixty (60) days prior written notice;
(vi) the termination of employment by the Executive
with or without Good Reason during the thirty (30) day period
commencing one (1) year after a Change in Control (such thirty
(30) day period being referred to herein as the "Change in
Control Protection Period"), provided that the Executive shall
have a right to terminate employment pursuant to this Section
7(a)(vi) and receive the amounts under Section 8(c)(A)(i) and
(ii) unless simultaneous with the Change in Control, the
Company or the person or entity triggering the Change in
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Control delivers to the Executive an irrevocable direct pay
letter of credit with regard to the amounts under Section
8(c)(A)(i) and (ii) and satisfying the requirements of Section
7(g) hereof;
(vii) the termination of the Executive's employment
by the Company for Cause pursuant to Section 7(e);
(viii) the retirement of the Executive by the Company
at or after his sixty-fifth birthday to the extent such
termination is specifically permitted as a stated exception
from applicable federal and state age discrimination laws
based on position and retirement benefits;
(b) Disability. If by reason of the same or related physical
or mental illness or incapacity, the Executive is unable to carry out his
material duties pursuant to this Agreement for more than six (6) months in any
twelve (12) consecutive month period, the Company may terminate Executive's
employment for Disability upon thirty (30) days written notice by a Notice of
Disability Termination, at any time thereafter during such twelve month period
while Executive is unable to carry out his duties as a result of the same or
related physical or mental illness or incapacity. Such termination shall not be
effective if Executive returns to the full time performance of his material
duties within such thirty (30) day notice period.
(c) Termination for Good Reason. A Termination for Good Reason
means a termination by Executive by written notice given within ninety (90) days
after the occurrence of the Good Reason event, unless such circumstances are
fully corrected prior to the date of termination specified in the Notice of
Termination for Good Reason (as defined in Section 7(d) hereof). For purposes of
this Agreement, "Good Reason" shall mean the occurrence or failure to cause the
occurrence, as the case may be, without Executive's express written consent, of
any of the following circumstances: (i) any material diminution of Executive's
positions, duties or responsibilities hereunder (except in each case in
connection with the termination of Executive's employment for Cause or
Disability or as a result of Executive's death, or temporarily as a result of
Executive's illness or other absence); (ii) removal of, or the nonreelection of,
the Executive from the officer positions, if any, with the Company specified
herein without election to a materially comparable or higher position; (iii) (A)
a relocation of the Company's executive office in New Jersey to a location more
than both thirty-five (35) miles from Iselin, New Jersey and thirty-five (35)
miles from the Executive's residence at the time of relocation or (B) relocation
of the Executive's office to a location more than thirty-five (35) miles from
the Company's executive offices in New
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<PAGE>
Jersey; (iv) after a Change of Control, a failure by the Company (A) to continue
any bonus plan, program or arrangement in which Executive is entitled to
participate immediately prior to the Change of Control (the "Bonus Plans"),
provided that any such Bonus Plans may be modified at the Company's discretion
from time to time but shall be deemed terminated if (x) any such plan does not
remain substantially in the form in effect prior to such modification and (y) if
plans providing Executive with substantially similar benefits are not
substituted therefor ("Substitute Plans"), or (B) to continue Executive as a
participant in the Bonus Plans and Substitute Plans on at least the same basis
as to potential amount of the bonus as Executive participated in prior to any
change in such plans or awards, in accordance with the Bonus Plans and the
Substitute Plans; (v) any material breach by the Company of any provision of
this Agreement, including without limitation Section 12 hereof; (vi) a failure
of any successor to assume in a writing delivered to Executive upon the assignee
becoming such, the obligations of the Company hereunder; or (vii) a failure of
the Company to grant stock options within ninety (90) days after the
Commencement Date in an aggregate amount of exercise price (which shall be fair
market value at the time of grant) multiplied by number of options of at least
$660,000 and, as to other provisions materially in the aggregate no less
favorable to the Executive than the recommendations required by Section 4(b)
hereof.
(d) Notice of Termination for Good Reason. A Notice of
Termination for Good Reason shall mean a notice that shall indicate the specific
termination provision in Section 7(c) relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
Termination for Good Reason. The failure by Executive to set forth in the Notice
of Termination for Good Reason any facts or circumstances which contribute to
the showing of Good Reason shall not waive any right of Executive hereunder or
preclude Executive from asserting such fact or circumstance in enforcing his
rights hereunder. The Notice of Termination for Good Reason shall provide for a
date of termination not less than ten (10) nor more than sixty (60) days after
the date such Notice of Termination for Good Reason is given, provided that in
the case of the events set forth in Section 7(c)(ii) or (iii) the date may be
two (2) days after the giving of such notice.
(e) Cause. Subject to the notification provisions of Section
7(f) below, Executive's employment hereunder may be terminated by the Company
for Cause. For purposes of this Agreement, the term "Cause" shall be limited to
(i) willful misconduct by Executive with regard to the Company or its business,
assets or employees; (ii) the refusal of Executive to follow the proper written
direction of the Board or a more senior officer of the Company, provided that
the foregoing refusal shall not be "Cause"
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if Executive in good faith believes that such direction is illegal, unethical or
immoral and promptly so notifies the Board or the more senior officer (whichever
is applicable); (iii) substantial and continuing willful refusal by the
Executive to attempt to perform the duties required of him hereunder (other than
any such failure resulting from incapacity due to physical or mental
illness) after a written demand for substantial performance is delivered to the
Executive by the Board or a more senior officer of the Company which
specifically identifies the manner in which it is believed that the Executive
has substantially and continually refused to attempt to perform his duties
hereunder; (iv) the Executive being convicted of a felony (other than a felony
involving a motor vehicle); (v) the breach by Executive of any material
fiduciary duty owed by Executive to the Company; or (vi) Executive's dishonesty,
misappropriation or fraud with regard to the Company (other than good faith
expense account disputes).
(f) Notice of Termination for Cause. A Notice of Termination
for Cause shall mean a notice that shall indicate the specific termination
provision in Section 7(e) relied upon and shall set forth in reasonable detail
the facts and circumstances which provide for a basis for Termination for Cause.
The date of termination for a Termination for Cause shall be the date indicated
in the Notice of Termination. Any purported Termination for Cause which is held
by a court not to have been based on the grounds set forth in this Agreement or
not to have followed the procedures set forth in this Agreement shall be deemed
a Termination by the Company without Cause.
(g) The irrevocable direct pay letter of credit required to be
delivered pursuant to Section 7(a)(vi) hereof shall be in amount equal to the
amount the Executive would be entitled to under Section 8(c)(A)(i) and (ii)
hereof if he were terminated without Cause upon the Change in Control and have
an expiration date of no less than two (2) years after the Change in Control.
The Executive shall be entitled to draw on the letter of credit upon
presentation to the issuing bank of a demand for payment signed by the Executive
that states that (i) (A) a Good Reason event has occurred and the Executive
would be entitled to payment under Section 8(c) of this Agreement if he elected
to terminate employment for Good Reason or (B) one (1) year and not more than
one (1) year and thirty (30) days has expired since the Change in Control or (C)
the Executive is entitled to payment under Section 8(c) of this Agreement and
(ii) assuming the event set forth in (i) entitled him to payment under Section
8(c) of this Agreement, the amount the Company would be indebted to him at the
time of presentation under Section 8(c)(A)(i) and (ii) if he then was eligible
to receive payments under Section 8(c). There shall be no other requirements
(including no requirement that the Executive first makes demand upon the Company
or that
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the Executive actually terminates employment) with regard to payment of
the letter of credit. To the extent the letter of credit is not adequate to
cover the amount owed to the Executive by the Company under this Agreement, is
not submitted by the Executive or is not paid by the issuing bank, the Company
shall remain liable to the Executive for the remainder owed the Executive
pursuant to the terms of this Agreement. To the extent any amount is paid under
the letter of credit it shall be a credit against any amounts the Company then
or thereafter would owe to the Executive under Section 8(c) of this Agreement.
The letter of credit shall be issued by a national money center bank with a
rating of at least A by Standard & Poors Ratings Services. The Company shall
bear the cost of the letter of credit.
8. Consequences of Termination of Employment. (a) Death. If
Executive's employment is terminated during the Employment Term on or after the
Spinoff Date by reason of Executive's death, the employment period under this
Agreement shall terminate without further obligations to the Executive's legal
representatives under this Agreement except for: (i) any compensation earned but
not yet paid, including and without limitation, any bonus if declared or earned
but not yet paid for a completed fiscal year, any amount of Base Salary earned
but unpaid, any accrued vacation pay payable pursuant to the Company's policies,
and any unreimbursed business expenses payable pursuant to Section 6
(collectively "Accrued Amounts") which amounts shall be promptly paid in a lump
sum to Executive's estate; (ii) the product of (x) the target annual bonus for
the fiscal year of the Executive's death, multiplied by (y) a fraction, the
numerator of which is the number of days of the current fiscal year during which
the Executive was employed by the Company, and the denominator of which is 365,
which bonus shall be paid when bonuses for such period are paid to the other
executives; (iii) subject to Sections 9 and 11, any other amounts or benefits
owing to the Executive under the then applicable employee benefit plans, long
term incentive plans or equity plans and programs of the Company which shall be
paid in accordance with such plans and programs; (iv) payment on a monthly basis
of three (3) months of Base Salary, which shall be paid to Executive's spouse,
or if he is not married to the Executive's estate or if she shall predecease
him, then to the Executive's children (or their guardian if one is appointed) in
equal shares; and (v) payment of the spouse's and dependent's COBRA coverage
premiums to the extent, and so long as, they remain eligible for COBRA coverage,
but in no event more than three (3) years.
(b) Disability. If, Executive's employment is terminated by
reason of Executive's Disability, Executive shall be entitled to receive the
payments and benefits to which his representatives would be entitled in the
event of a termination of employment by reason of his death (other than life
insurance benefits), provided that the payment of Base Salary shall be reduced
by the
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projected amount he would receive under any long-term disability policy
or program maintained by the Company during the three (3) month period during
which Base Salary is being paid.
(c) Termination by Executive for Good Reason or for any Reason
During the Change in Control Protection Period or Termination by the Company
without Cause or Nonextension of the Term by the Company. If (i) outside of the
Change in Control Protection Period, Executive terminates his employment
hereunder for Good Reason during the Employment Term, (ii) if a Change in
Control occurs and during the Change in Control Protection Period Executive
terminates his employment for any reason, (iii) Executive's employment with the
Company is terminated by the Company without Cause or (iv) Executive's
employment with the Company terminates as a result of the Company giving notice
of nonextension of the Employment Term pursuant to Section 1(a) hereof,
Executive shall be entitled to receive the Accrued Amounts and shall, subject to
Sections 9(b) and 11(h) hereof, be entitled to receive, (A) (i) two (2) times
Base Salary, to be paid, if such termination is after a Change in Control, in
one lump sum within ten (10) days after compliance with Section 9(b)
hereof, or otherwise to be paid one (1) times Base Salary in a lump sum and one
(1) times Base Salary in twelve (12) equal monthly installments commencing one
(1) month after the aforementioned lump sum is paid and (ii) if such termination
is after a Change in Control, two (2) times the highest annual bonus paid or, if
declared or earned but not yet paid for a completed fiscal year, payable to
Executive for any of the previous two (2) completed fiscal years by the Company
or USI; (B) any Accrued Amounts at the date of termination; (C) any other
amounts or benefits owing to Executive under the then applicable employee
benefit, long term incentive or equity plans and programs of the Company which
shall be paid in accordance with such plans and programs; (D) if such
termination is after a Change in Control, two (2) years of additional service
and compensation credit (at his then compensation level) for pension purposes
under any defined benefit type qualified or nonqualified pension plan or
arrangement of the Company, which payments shall be made through and in
accordance with the terms of the nonqualified defined benefit pension
arrangement if any then exists, or, if not, in an actuarially equivalent lump
sum (using the actuarial factors then applying in the Company's defined benefit
plan covering Executive); (E) if such termination is after a Change in Control,
two (2) years of the maximum Company contribution (assuming Executive deferred
the maximum amount and continued to earn his then current salary) under any type
of qualified or nonqualified 401(k) plan (payable at the end of each such year);
and (F) payment by the Company of the premiums for the Executive and his
dependents' health coverage for two (2) years under the Company's health plans
which cover the senior executives of the Company or materially similar benefits.
Payments under (F) above may at the discretion of the Company be
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made by continuing participation of Executive in the plan as a terminee, by
paying the applicable COBRA premium for Executive and his dependents, or by
covering Executive and his dependents under substitute arrangements.
(d) Termination with Cause or Voluntary Resignation without
Good Reason or Retirement. If, Executive's employment hereunder is terminated
(i) by the Company for Cause, (ii) by Executive without Good Reason outside of
the Change in Control Protection Period, or (iii) by the Company pursuant to
Section 7(a)(viii) hereof, the Executive shall be entitled to receive only his
Base Salary through the date of termination and any unreimbursed business
expenses payable pursuant to Section 6 and, if the Executive has retired
pursuant to the Company's retirement programs, any bonus that has been declared
or earned but not yet paid for a completed fiscal year. All other benefits
(including, without limitation, options and the vesting thereof) due Executive
following such termination of employment shall be determined in accordance with
the Company's plans and programs.
9. (a) No Mitigation; Set-Off. In the event of any termination
of employment under Section 8, Executive shall be under no obligation to seek
other employment and there shall be no offset against any amounts due Executive
under this Agreement on account of any remuneration attributable to any
subsequent employment that Executive may obtain. Any amounts due under Sections
8 and 9 are in the nature of severance payments and are not in the nature of a
penalty. Such amounts are inclusive, and in lieu of any, amounts payable under
any other salary continuation or cash severance arrangement of the Company and
to the extent paid or provided under any other such arrangement shall be offset
from the amount due hereunder.
(b) Executive agrees that, as a condition to receiving the
payments and benefits provided under Section 8(c) hereunder he will execute,
deliver and not revoke (within the time period permitted by applicable law) a
release of all claims of any kind whatsoever against the Company, its
affiliates, officers, directors, employees, agents and shareholders in the then
standard form being used by the Company for senior executives (but without
release of right of indemnification hereunder, equity grants, or benefit plans
that by their terms are intended to survive termination of his employment).
10. Change in Control. For purposes of this Agreement, the
term "Change in Control" shall mean (i) any "person" as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 ("Act") (other
than the Company, any trustee or other fiduciary holding securities under any
employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of Common Stock of the
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Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act), directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the Company's
then outstanding securities; (ii) during any period of two (2) consecutive years
(not including any period prior to the Commencement Date), individuals who at
the beginning of such period constitute the Board, and any new director (other
than a director designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (i), (iii), or (iv) of
this paragraph) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the
two-year period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority of the Board;
(iii) a merger or consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than fifty percent (50%) of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however, that a merger
or consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person acquires more than twenty-five percent
(25%) of the combined voting power of the Company's then outstanding securities
shall not constitute a Change in Control of the Company; or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or the sale or disposition by the Company of all or substantially all of
the Company's assets other than (x) the sale or disposition of all or
substantially all of the assets of the Company to a person or persons who
beneficially own, directly or indirectly, at least fifty percent (50%) or more
of the combined voting power of the outstanding voting securities of the Company
at the time of the sale or (y) pursuant to a spinoff type transaction, directly
or indirectly, of such assets to the stockholders of the Company. In no event
shall the Spinoff in and of itself constitute a Change in Control for purposes
of this Agreement; provided, however, that the provisions of this Section 10
shall be operative immediately after consummation of the Spinoff.
11. Confidential Information and Non-Solicitation of the
Company. (a) (i) Executive acknowledges that as a result of his employment by
the Company, Executive will obtain secret and confidential information as to the
Company and its affiliates and the Company and its affiliates will suffer
substantial damage, which would be difficult to ascertain, if Executive should
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use such confidential information and that because of the nature of the
information that will be known to Executive it is necessary for the Company and
its affiliates to be protected by the Confidentiality restrictions set forth
herein.
(ii) Executive acknowledges that the retention of nonclerical
employees employed by the Company and its affiliates in which the Company and
its affiliates have invested training and depends on for the operation of their
businesses is important to the businesses of the Company and its affiliates,
that Executive will obtain unique information as to such employees as an
executive of the Company and will develop a unique relationship with such
persons as a result of being an executive of the Company and, therefore, it is
necessary for the Company and its affiliates to be protected from Executive's
Solicitation of such employees as set forth below.
(iii) Executive acknowledges that the provisions of this
Agreement are reasonable and necessary for the protection of the businesses of
the Company and its affiliates and that part of the compensation paid under this
Agreement and the agreement to pay severance in certain instances is in
consideration for the agreements in this Section 11.
(b) Solicitation shall mean: recruiting, soliciting or
inducing, of any nonclerical employee or employees of the Company or its
affiliates to terminate their employment with, or otherwise cease their
relationship with, the Company or its affiliates or hiring or assisting another
person or entity to hire any nonclerical employee of the Company or its
affiliates or any person who within six (6) months before had been a nonclerical
employee of the Company or its affiliates and were recruited or solicited for
such employment or other retention while an employee of the Company, provided,
however, that solicitation shall not include any of the foregoing activities
engaged in with the prior written approval of the Chief Executive Officer of the
Company.
(c) If any restriction set forth with regard to Solicitation
is found by any court of competent jurisdiction, or an arbitrator, to be
unenforceable because it extends for too long a period of time or over too great
a range of activities or in too broad a geographic area, it shall be interpreted
to extend over the maximum period of time, range of activities or geographic
area as to which it may be enforceable. If any provision of this Section 11
shall be declared to be invalid or unenforceable, in whole or in part, as a
result of the foregoing, as a result of public policy or for any other reason,
such invalidity shall not affect the remaining provisions of this Section which
shall remain in full force and effect.
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(d) During and after the Employment Term, Executive shall hold
in a fiduciary capacity for the benefit of the Company and its affiliates all
secret or confidential information, knowledge or data relating to the Company
and its affiliates, and their respective businesses, including any confidential
information as to customers of the Company and its affiliates, (i) obtained by
Executive during his employment by the Company and its affiliates and (ii) not
otherwise public knowledge or known within the applicable industry. Executive
shall not, without prior written consent of the Company, unless compelled
pursuant to the order of a court or other governmental or legal body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
In the event Executive is compelled by order of a court or other governmental or
legal body to communicate or divulge any such information, knowledge or data to
anyone other than the foregoing, he shall promptly notify the Company of any
such order and he shall cooperate fully with the Company in protecting such
information to the extent possible under applicable law.
(e) Upon termination of his employment with the Company and
its affiliates, or at any time as the Company may request, Executive will
promptly deliver to the Company, as requested, all documents (whether prepared
by the Company, an affiliate, Executive or a third party) relating to the
Company, an affiliate or any of their businesses or property which he may
possess or have under his direction or control other than documents provided to
Executive in his capacity as a participant in any employee benefit plan, policy
or program of the Company or any agreement by and between Executive and the
Company with regard to Executive's employment or severance.
(f) Furthermore, in the event of any termination of
Executive's employment for any reason whatsoever, whether by the Company or by
Executive and whether or not for Cause, Good Reason or non-extension of the
Employment Term, Executive for two (2) years thereafter will not engage in
Solicitation.
(g) In the event of a breach or potential breach of this
Section 11, Executive acknowledges that the Company and its affiliates will be
caused irreparable injury and that money damages may not be an adequate remedy
and agree that the Company and its affiliates shall be entitled to injunctive
relief (in addition to its other remedies at law) to have the provisions of this
Section 11 enforced. It is hereby acknowledged that the provisions of this
Section 11 are for the benefit of the Company and all of the
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affiliates of the Company before and after the Spinoff Date and each such entity
may enforce the provisions of this Section 11 and only the applicable entity can
waive the rights hereunder with respect to its confidential information and
employees.
(h) Furthermore, in the event of breach of this Section 11 by
Executive, while he is receiving amounts under Section 8(c) hereof, Executive
shall not be entitled to receive any future amounts pursuant to Section 8(c)
hereof.
12. Indemnification. (a) The Company agrees that if Executive
is made a party to or threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director, employee or
officer of the Company and/or any affiliate of the Company, or is or was serving
at the request of any of such companies as a director, officer, member,
employee, fiduciary or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including, without limitation, service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is alleged action in an official capacity as a director, officer, member,
employee, fiduciary or agent while serving as a director, officer, member,
employee, fiduciary or agent, he shall be indemnified and held harmless by the
Company to the fullest extent authorized by Delaware law (or, if other than the
Company, the law applicable to such company), as the same exists or may
hereafter be amended, against all Expenses incurred or suffered by Executive in
connection therewith, and such indemnification shall continue as to Executive
even if Executive has ceased to be an officer, director, member, fiduciary or
agent, or is no longer employed by the applicable company, and shall inure to
the benefit of his heirs, executors and administrators.
(b) As used in this Agreement, the term "Expenses" shall
include, without limitation, damages, losses, judgments, liabilities, fines,
penalties, excise taxes, settlements and costs, attorneys' fees, accountants'
fees, and disbursements and costs of attachment or similar bonds,
investigations, and any expenses of establishing a right to indemnification
under this Agreement.
(c) Expenses incurred by Executive in connection with any
Proceeding shall be paid by the Company in advance upon request of Executive and
the giving by the Executive of any undertakings required by applicable law.
(d) Executive shall give the Company notice of any claim made
against him for which indemnity will or could be sought under this Agreement. In
addition, Executive shall give the Company such information and cooperation as
it may reasonably require and as shall be within Executive's power and at such
times and places as are reasonably convenient for Executive.
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(e) With respect to any Proceeding as to which Executive
notifies the Company of the commencement thereof:
(i) The Company will be entitled to participate
therein at its own expense; and
(ii) Except as otherwise provided below, to the
extent that it may wish, the Company jointly with any other indemnifying party
similarly notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Executive. Executive also shall have the right to
employ his own counsel in such action, suit or proceeding and the fees and
expenses of such counsel shall be at the expense of the Company.
(f) The Company shall not be liable to indemnify Executive
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any action or
claim in any manner which would impose any penalty or limitation on Executive
without Executive's written consent. Neither the Company nor Executive will
unreasonably withhold or delay their consent to any proposed settlement.
(g) The right to indemnification and the payment of expenses
incurred in defending a Proceeding in advance of its final disposition conferred
in this Section 12 shall not be exclusive of any other right which Executive may
have or hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the applicable company, agreement, vote of
stockholders or disinterested directors or otherwise.
(h) The Company agrees to obtain Officer and Director
liability insurance policies covering Executive and shall maintain at all times
during the Employment Term coverage under such policies in the aggregate with
regard to all officers and directors, including Executive, of an amount not less
than the greater of: (i) the amount of coverage maintained by the Company for
the Chairman and Chief Executive Officer of the Company or (ii) $10 million. The
Company shall maintain for a six (6) year period commencing on the date the
Executive ceased to be an employee of the Company, Officer and Director
liability insurance coverage for events occurring during the period the
Executive was an employee or director of the Company in the same aggregate
amount and under the same terms as are maintained for its active officers and
directors. The phrase "in the same aggregate amount and under the same terms"
shall include the same level of self-insurance by the Company as shall be
maintained for active officers and directors.
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(i) This Section 12 shall not create or expand any rights to
indemnification in favor of Executive with respect to service with USI, the
Company or their affiliates prior to the date hereof.
13. Special Tax Provision. (a) Anything in this Agreement to
the contrary notwithstanding, in the event that any amount or benefit paid,
payable, or to be paid, or distributed, distributable, or to be distributed to
or with respect to Executive by the Company (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company, any
person whose actions result in a change of ownership covered by Section
280G(b)(2) of the Code or any person affiliated with the Company or such person)
as a result of a change in ownership of the Company or a direct or indirect
parent thereof after the Spinoff covered by Code Section 280G(b)(2)
(collectively, the "Covered Payments") is or becomes subject to the excise tax
imposed by or under Section 4999 of the Code (or any similar tax that may
hereafter be imposed), and/or any interest or penalties with respect to such
excise tax (such excise tax, together with such interest and penalties, is
hereinafter collectively referred to as the "Excise Tax"), the Company shall pay
to Executive an additional amount (the "Tax Reimbursement Payment") such that
after payment by Executive of all taxes (including, without limitation, any
interest or penalties and any Excise Tax imposed on or attributable to the Tax
Reimbursement Payment itself), Executive retains an amount of the Tax
Reimbursement Payment equal to the sum of (i) the amount of the Excise Tax
imposed upon the Covered Payments, and (ii) without duplication, an amount equal
to the product of (A) any deductions disallowed for federal, state or local
income or payroll tax purposes because of the inclusion of the Tax Reimbursement
Payment in Executive's adjusted gross income, and (B) the highest applicable
marginal rate of federal, state or local income taxation, respectively, for the
calendar year in which the Tax Reimbursement Payment is made or is to be made.
The intent of this Section 13 is that (a) the Executive, after paying his
Federal, state and local income tax and any payroll taxes on Executive, will be
in the same position as if he was not subject to the Excise Tax under Section
4999 of the Code and did not receive the extra payments pursuant to this Section
13 and (b) that Executive should never be "out-of-pocket" with respect to any
tax or other amount subject to this Section 13, whether payable to any taxing
authority or repayable to the Company, and this Section 13 shall be interpreted
accordingly.
(b) Except as otherwise provided in Section 13(a), for
purposes of determining whether any of the Covered Payments will be subject to
the Excise Tax and the amount of such Excise Tax,
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(i) such Covered Payments will be treated as
"parachute payments" (within the meaning of Section 280G(b)(2) of the Code) and
such payments in excess of the Code Section 280G(b)(3) "base amount" shall be
treated as subject to the Excise Tax, unless, and except to the extent that, the
Company's independent certified public accountants appointed prior to the change
in ownership covered by Code Section 280G(b)(2) or legal counsel (reasonably
acceptable to Executive) appointed by such public accountants (or, if the public
accountants decline such appointment and decline appointing such legal counsel,
such independent certified public accountants as promptly mutually agreed on in
good faith by the Company and the Executive) (the "Accountant"), deliver a
written opinion to Executive, reasonably satisfactory to Executive's legal
counsel, that Executive has a reasonable basis to claim that the Covered
Payments (in whole or in part) (A) do not constitute "parachute payments", (B)
represent reasonable compensation for services actually rendered (within the
meaning of Section 280G(b)(4) of the Code) in excess of the "base amount"
allocable to such reasonable compensation, or (C) such "parachute payments" are
otherwise not subject to such Excise Tax (with appropriate legal authority,
detailed analysis and explanation provided therein by the Accountants); and
(ii) the value of any Covered Payments which are
non-cash benefits or deferred payments or benefits shall be determined by the
Accountant in accordance with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Tax
Reimbursement Payment, Executive shall be deemed:
(i) to pay federal, state, local income and/or
payroll taxes at the highest applicable marginal rate of income taxation for the
calendar year in which the Tax Reimbursement Payment is made or is to be made,
and
(ii) to have otherwise allowable deductions for
federal, state and local income and payroll tax purposes at least equal to those
disallowed due to the inclusion of the Tax Reimbursement Payment in Executive's
adjusted gross income.
(d)(i)(A) In the event that prior to the time the Executive
has filed any of his tax returns for the calendar year in which the change in
ownership event covered by Code Section 280G(b)(2) occurred, the Accountant
determines, for any reason whatever, the correct amount of the Tax Reimbursement
Payment to be less than the amount determined at the time the Tax
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Reimbursement Payment was made, the Executive shall repay to the Company, at the
time that the amount of such reduction in Tax Reimbursement Payment is
determined by the Accountant, the portion of the prior Tax Reimbursement Payment
attributable to such reduction (including the portion of the Tax Reimbursement
Payment attributable to the Excise Tax and federal, state and local income and
payroll tax imposed on the portion of the Tax Reimbursement Payment being repaid
by the Executive, using the assumptions and methodology utilized to calculate
the Tax Reimbursement Payment (unless manifestly erroneous)), plus interest on
the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code.
(B) In the event that the determination set forth in (A) above
is made by the Accountant after the filing by the Executive of any of his tax
returns for the calendar year in which the change in ownership event covered by
Code Section 280G(b)(2) occurred but prior to one (1) year after the occurrence
of such change in ownership, the Executive shall file at the request of the
Company an amended tax return in accordance with the Accountant's determination,
but no portion of the Tax Reimbursement Payment shall be required to be refunded
to the Company until actual refund or credit of such portion has been made to
the Executive, and interest payable to the Company shall not exceed the interest
received or credited to the Executive by such tax authority for the period it
held such portion (less any tax the Executive must pay on such interest and
which he is unable to deduct as a result of payment of the refund).
(C) In the event the Executive receives a refund pursuant to
(B) above and repays such amount to the Company, the Executive shall thereafter
file for refunds or credits by reason of the repayments to the Company.
(D) The Executive and the Company shall mutually agree upon
the course of action, if any, to be pursued (which shall be at the expense of
the Company) if the Executive's claim for refund or credit is denied.
(ii) In the event that the Excise Tax is later
determined by the Accountants or the Internal Revenue Service to exceed the
amount taken into account hereunder at the time the Tax Reimbursement Payment is
made (including by reason of any payment the existence or amount of which cannot
be determined at the time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of such excess (plus any
interest or penalties payable with respect to such excess) once the amount of
such excess is finally determined.
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(iii) In the event of any controversy with the
Internal Revenue Service (or other taxing authority) under this Section 13,
subject to subpart (i)(D) above, the Executive shall permit the Company to
control issues related to this Section 13 (at its expense), provided that such
issues do not potentially materially adversely affect the Executive, but the
Executive shall control any other issues. In the event the issues are
interrelated, the Executive and the Company shall in good faith cooperate so as
not to jeopardize resolution of either issue, but if the parties cannot agree
Executive shall make the final determination with regard to the issues. In the
event of any conference with any taxing authority as to the Excise Tax or
associated income taxes, the Executive shall permit the representative of the
Company to accompany him and the Executive and his representative shall
cooperate with the Company and its representative.
(iv) With regard to any initial filing for a refund
or any other action required pursuant to this Section 13 (other than by mutual
agreement) or, if not required, agreed to by the Company and the Executive, the
Executive shall cooperate fully with the Company, provided that the foregoing
shall not apply to actions that are provided herein to be at the sole discretion
of the Executive.
(e) The Tax Reimbursement Payment, or any portion thereof,
payable by the Company shall be paid not later than the fifth (5th) day
following the determination by the Accountant and any payment made after such
fifth (5th) day shall bear interest at the rate provided in Code Section
1274(b)(2)(B). The Company shall use its best efforts to cause the Accountant,
to promptly deliver the initial determination required hereunder and, if not
delivered, within ninety (90) days after the change in ownership event covered
by Section 280G(b)(2) of the Code, the Company shall pay the Executive the Tax
Reimbursement Payment set forth in an opinion from counsel recognized as
knowledgeable in the relevant areas selected by the Executive, and reasonably
acceptable to the Company, within five (5) days after delivery of such opinion.
The amount of such payment shall be subject to later adjustment in accordance
with the determination of the Accountant as provided herein.
(f) The Company shall be responsible for all charges of the
Accountant and if (e) is applicable the reasonable charges for the opinion given
by Executive's counsel.
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(g) The Company and the Executive shall mutually agree on and
promulgate further guidelines in accordance with this Section 13 to the extent,
if any, necessary to effect the reversal of excessive or shortfall Tax
Reimbursement Payments. The foregoing shall not in any way be inconsistent with
Section 13(d)(i)(D) hereof.
14. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey without
reference to principles of conflict of laws.
(b) Entire Agreement/Amendments. This Agreement and the
instruments contemplated herein, contain the entire understanding of the parties
with respect to the employment of Executive by the Company from and after the
Commencement Date and supersedes any prior agreements between the Company or its
subsidiaries and Executive with respect thereto. There are no restrictions,
agreements, promises, warranties, covenants or undertakings between the parties
with respect to the subject matter herein other than those expressly set forth
herein and therein. This Agreement may not be altered, modified, or amended
except by written instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
Any such waiver must be in writing and signed by Executive or an authorized
officer of the Company, as the case may be.
(d) Assignment. This Agreement shall not be assignable by
Executive. This Agreement shall be assignable by the Company only to an acquirer
of all or substantially all of the assets of the Company, provided such acquirer
promptly assumes all of the obligations hereunder of the Company in a writing
delivered to the Executive and otherwise complies with the provisions hereof
with regard to such assumption. This Agreement may be assigned by USI to the
Company and upon assumption of the Agreement by the Company, USI shall be
released from any further obligations or liabilities hereunder.
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(e) Successors; Binding Agreement; Third Party Beneficiaries.
This Agreement shall inure to the benefit of and be binding upon the personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees legatees and permitted assignees of the parties hereto.
(f) Communications. For the purpose of this Agreement, notices
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given (i) when faxed or delivered, or (ii)
two (2) business days after being mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the initial page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the
Chairman and Chief Executive Officer of the Company or to such other address as
any party may have furnished to the other in writing in accordance herewith.
Notice of change of address shall be effective only upon receipt.
(g) Withholding Taxes. The Company may withhold from any and
all amounts payable under this Agreement such Federal, state and local taxes as
may be required to be withheld pursuant to any applicable law or regulation.
(h) Survivorship. The respective rights and obligations of the
parties hereunder, including without limitation Section 12 hereof, shall survive
any termination of Executive's employment to the extent necessary to the agreed
preservation of such rights and obligations.
(i) Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
(j) Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
(k) Executive's Representation. The Executive represents and
warrants to the Company that there is no legal impediment to him performing his
obligations under this Agreement and neither entering into this Agreement nor
performing his contemplated service hereunder will violate any agreement to
which he is a party or any other legal restriction.
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(l) Relocation of Executive. Executive shall be relocated in
accordance with the terms of the Prescolite Relocation Policy.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
U.S. INDUSTRIES, INC.
By:
--------------------------------
Name:
Title:
-----------------------------------
Gary K. Meuchel
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Exhibit 10.5(f)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 1, 1999, by and
between, U.S. Industries, Inc., a Delaware corporation, with its principal
United States office at 101 Wood Avenue South, Iselin, New Jersey 08830 ("USI"),
and Peter F. Reilly, residing at 11 Blackwell Avenue, Morristown, New Jersey
07960 ("Executive").
W I T N E S S E T H:
WHEREAS, Executive is currently employed as Treasurer of USI;
WHEREAS, USI intends to transfer all or a part of the assets
constituting USI's diversified segment (the "Diversified Segment") and other
assets of USI (such assets collectively "USI Diversified") to a newly
constituted wholly owned subsidiary of USI (the "Company") and to spinoff the
Company to the shareholders of USI (a spinoff with John Raos as Chairman and
Chief Executive Officer of the Company is referred to herein as the "Spinoff");
WHEREAS, effective on the consummation of the Spinoff (the
"Commencement Date"), the Company desires to employ the Executive as Vice
President, Chief Financial Officer and Treasurer of the Company and the
Executive is willing to serve in such capacities;
WHEREAS, USI and the Executive desire to enter into this
agreement (the "Agreement") as to the terms of his employment by the Company,
under which the Executive's employment shall commence on the Commencement Date
and which Agreement will be assigned by USI to the Company upon or prior to
consummation of the spinoff, and to embody the terms of Executive's prospective
employment by the Company subsequent to the Spinoff.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
<PAGE>
1. Term of Employment. Except for earlier termination as
provided in Section 7 hereof, Executive's employment under this Agreement shall
be for a two-year term (the "Employment Term") commencing on the Commencement
Date and ending two (2) years thereafter; provided that if the Executive is not
physically or mentally capable of performing the duties set forth in Section 2
herein on the Commencement Date (as reasonably determined by the Company in its
sole discretion) this Agreement shall be null and void ab initio. Subject to
Section 7 hereof, the Employment Term shall be automatically extended for
additional terms of successive two (2) year periods unless the Company or the
Executive gives written notice to the other at least ninety (90) days prior to
the expiration of the then current Employment Term of the termination of
Executive's employment hereunder at the end of such current Employment Term.
Notwithstanding the foregoing, this Agreement shall be null and void if the
Spinoff is not consummated by June 30, 2000; provided, however, that this date
will be extended to September 30, 2000 if prior to June 30, 2000 USI receives a
private letter ruling from the Internal Revenue Service providing that the stock
dividends that will occur pursuant to the Spinoff will be a tax-free
distribution and providing such other relief and approvals as requested in the
ruling.
2. Positions. (a) Executive shall serve as Vice President,
Chief Financial Officer and Treasurer of the Company. If requested by the Board
of Directors of the Company (the "Board") or the Chairman and so elected by the
stockholders of the Company, Executive shall also serve on the Board without
additional compensation. Executive shall also serve, if requested by the Board,
the Chairman or the President, as an executive officer and director of
subsidiaries and a director of associated companies of the Company and shall
comply with the policy of the Compensation Committee of the Company's Board (the
"Compensation Committee") with regard to retention or forfeiture of the
director's fees.
(b) Executive shall report to any more senior officer of the
Company as designated by the Chairman or the President and, shall have such
duties and authority, consistent with his then position as shall be assigned to
him from time to time by the Board, the Chairman, the President or such other
more senior officer(s) of the Company.
(c) During the Employment Term, Executive shall devote
substantially all of his business time and efforts to the performance of his
duties hereunder; provided, however, that Executive shall be allowed, to the
extent that such activities do not materially interfere with the performance of
his duties and responsibilities hereunder, to manage his personal financial and
legal affairs and to serve on corporate, civic, or charitable boards or
committees. Notwithstanding the foregoing, the Executive shall only serve on
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corporate boards of directors if approved in advance by the Board and shall not
serve on any corporate board of directors if such service would be inconsistent
with his fiduciary responsibilities to the Company, as determined by the Board.
3. Base Salary. During the Employment Term, the Company shall
pay Executive a base salary at the annual rate of not less than $200,000. Base
salary shall be payable in accordance with the usual payroll practices of the
Company. Executive's Base Salary shall be subject to annual review by the Board
or the Compensation Committee (commencing on the first day of the Company's 2001
fiscal year) during the Employment Term and may be increased, but not decreased,
from time to time by the Board or the Compensation Committee, except that, prior
to a Change in Control, as defined in Section 10 hereof, it may be decreased
proportionately in connection with an across the board decrease applying to all
senior executives of the Company. The base salary as determined as aforesaid
from time to time shall constitute "Base Salary" for purposes of this Agreement.
4. Incentive Compensation. (a) Bonus. For each fiscal year or
portion thereof during the Employment Term, Executive shall, subject to
shareholder approval as and to the extent required by Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), be eligible to
participate in an incentive pay plan of the Company that provides an annualized
cash target bonus opportunity equal to at least 65% of Base Salary.
(b) Equity. (i) Options. Pursuant to a stock option plan
satisfying the requirements of Code Section 162(m), the Company shall, after the
Commencement Date, recommend to the Compensation Committee that Executive be
granted, three separate grants of nonqualified stock options (the "Options") to
purchase the number of shares of Common Stock of the Company ("Common Stock")
determined for each grant by dividing $366,666.66 by the fair market value of
the Common Stock on the date of grant as determined under the applicable stock
option plan (the "Fair Market Value"). It shall be recommended that the first
grant of options be made within the fifteen (15) day period following the date
"regular way trading" of the Common Stock commences, excluding the period of
"when issued trading" ("Regular Way Trading"), the second grant of options be
made after the fifteenth (15th) day and before the thirtieth (30th) day
following the commencement of Regular Way Trading, and the third grant of
options be made after the thirtieth (30th) day and before the forty-fifth
(45th) day following the commencement of Regular Way Trading. The Company shall
recommend that the Options shall have an exercise price equal to the Fair Market
Value. It shall be recommended that the stock option grants shall provide that
the Options shall become exercisable with respect to 25% of such Options on each
of the first four
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anniversaries of October 1, 1999, provided that Executive is employed by the
Company on such vesting date, and further provided that it shall be recommended
that such Options shall fully vest upon a Change in Control, as defined in
Section 10 hereof, and that the next tranche vest upon a termination event
described in Section 7(a)(i), (ii), (iii) or (iv).
(ii) Restricted Stock. After the Commencement Date,
the Company shall recommend to the Compensation Committee that, on or prior to
the ninetieth (90th) business day after the Commencement Date, Executive be
granted the number of restricted shares (the "Restricted Stock") of Common Stock
(the "Company Restricted Stock") that Donaldson, Lufkin & Jenrette ("DLJ")
determines is required to provide the Executive with a Company Restricted Stock
award with an aggregate value that is equivalent to the aggregate value of the
restricted shares of USI common stock which were forfeited upon Executive
ceasing employment with USI (the "Forfeited USI Shares"). For purposes of
determining the number of shares of Company Restricted Stock to be granted
pursuant to this Section 4(b)(ii) the value of the Forfeited USI Shares shall be
based on the closing price of USI common stock reported on the New York Stock
Exchange on the day before the Dividend Record Date applicable to holders of USI
common stock in connection with the Spinoff and the value of the Common Stock
shall be based on the fair market value of the Common Stock as determined by DLJ
in a report issued to the Board of Directors of USI in connection with the final
approval of the Spinoff. The Company Restricted Stock award shall be subject to
such terms and conditions as specified by the Compensation Committee on the date
of grant, provided that the Company shall recommend that the Company Restricted
Stock vest over a period not to exceed five (5) years.
(c) Long Term Compensation/SERP Benefits. USI currently
maintains the Long Term Incentive Plan ("LTIP") and the Supplemental Executive
Retirement Plan (the "SERP"). Upon the Spinoff the Executive's account balance
in the LTIP and benefit accruals under the SERP shall be transferred to similar
arrangements with the Company. The Company shall have no obligation to put
additional amounts in or provide additional accruals under an LTIP or SERP type
plan and may continue them or discontinue them in the judgment of its
Compensation Committee or Board, but the Executive shall at all times be fully
vested in his transferred account balance benefit accruals thereunder and
earnings (if any) thereon. For each fiscal year or portion thereof during the
Employment Term, after the Spinoff Date, Executive shall be eligible to
participate in any long-term incentive compensation plans or supplemental
executive retirement plans made available to senior executives of the Company
serving as vice presidents.
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(d) Other Compensation. The Company may, upon recommendation
of the Compensation Committee, award to the Executive such other bonuses and
compensation as it deems appropriate and reasonable.
5. Employee Benefits and Vacation. (a) During the Employment
Term, Executive shall be entitled to participate in all pension, retirement,
savings, welfare and other employee benefit plans and arrangements and fringe
benefits and perquisites generally maintained by the Company from time to time
for the benefit of senior executives of the Company serving as vice presidents
in each case in accordance with their respective terms as in effect from time to
time (other than any special arrangement entered into by contract with an
executive) and, except as otherwise determined by the Compensation Committee,
the Executive's employment with USI or any of its predecessors prior to the
Commencement Date (as reflected in USI's books and records) shall be recognized
for all purposes under any Company sponsored pension, retirement, savings,
welfare and other employee benefit plans or arrangements established within the
six (6) month period following the Commencement Date.
(b) During the Employment Term, Executive shall be entitled to
vacation each year in accordance with the Company's policies in effect from time
to time, but in no event less than four (4) weeks paid vacation per calendar
year. The Executive shall also be entitled to such periods of sick leave as is
customarily provided by the Company for its senior executive employees.
6. Business Expenses. The Company shall reimburse Executive
for the travel, entertainment and other business expenses incurred by Executive
in the performance of his duties hereunder, in accordance with the Company's
policies as in effect from time to time.
7. Termination. (a) The employment of Executive under this
Agreement shall terminate upon the earliest to occur of any of the following
events:
(i) the death of the Executive;
(ii) the termination of the Executive's employment
by the Company due to the Executive's Disability pursuant to
Section 7(b) hereof;
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(iii) the termination of the Executive's employment
by the Executive for Good Reason pursuant to Section 7(c)
hereof;
(iv) the termination of the Executive's employment
by the Company without Cause;
(v) the termination of employment by the Executive
without Good Reason upon sixty (60) days prior written notice;
(vi) the termination of employment by the Executive
with or without Good Reason during the thirty (30) day period
commencing one (1) year after a Change in Control (such thirty
(30) day period being referred to herein as the "Change in
Control Protection Period"), provided that the Executive shall
have a right to terminate employment pursuant to this Section
7(a)(vi) and receive the amounts under Section 8(c)(A)(i) and
(ii) unless simultaneous with the Change in Control, the
Company or the person or entity triggering the Change in
Control delivers to the Executive an irrevocable direct pay
letter of credit with regard to the amounts under Section
8(c)(A)(i) and (ii) and satisfying the requirements of Section
7(g) hereof;
(vii) the termination of the Executive's employment
by the Company for Cause pursuant to Section 7(e);
(viii) the retirement of the Executive by the Company
at or after his sixty-fifth birthday to the extent such
termination is specifically permitted as a stated exception
from applicable federal and state age discrimination laws
based on position and retirement benefits;
(b) Disability. If by reason of the same or related physical
or mental illness or incapacity, the Executive is unable to carry out his
material duties pursuant to this Agreement for more than six (6) months in any
twelve (12) consecutive month period, the Company may terminate Executive's
employment for Disability upon thirty (30) days written notice by a Notice of
Disability Termination, at any time thereafter during such twelve month period
while Executive is unable to carry out his duties as a result of the same or
related physical or mental illness or incapacity. Such termination shall not be
effective if Executive returns to the full time performance of his material
duties within such thirty (30) day notice period.
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(c) Termination for Good Reason. A Termination for Good Reason
means a termination by Executive by written notice given within ninety (90) days
after the occurrence of the Good Reason event, unless such circumstances are
fully corrected prior to the date of termination specified in the Notice of
Termination for Good Reason (as defined in Section 7(d) hereof). For purposes of
this Agreement, "Good Reason" shall mean the occurrence or failure to cause the
occurrence, as the case may be, without Executive's express written consent, of
any of the following circumstances: (i) any material diminution of Executive's
positions, duties or responsibilities hereunder (except in each case in
connection with the termination of Executive's employment for Cause or
Disability or as a result of Executive's death, or temporarily as a result of
Executive's illness or other absence); (ii) removal of, or the nonreelection of,
the Executive from the officer positions, if any, with the Company specified
herein without election to a materially comparable or higher position (provided,
however, removal from the position of Treasurer shall not be a violation of this
subsection (ii) or (i) above); (iii) a relocation of the Company's executive
office in New Jersey to a location more than both thirty-five (35) miles from
Iselin, New Jersey and thirty-five (35) miles from the Executive's residence at
the time of relocation or relocation of the Executive's office to a location
more than thirty-five (35) miles from the Company's executive office in New
Jersey; (iv) after a Change of Control, a failure by the Company (A) to continue
any bonus plan, program or arrangement in which Executive is entitled to
participate immediately prior to the Change of Control (the "Bonus Plans"),
provided that any such Bonus Plans may be modified at the Company's discretion
from time to time but shall be deemed terminated if (x) any such plan does not
remain substantially in the form in effect prior to such modification and (y) if
plans providing Executive with substantially similar benefits are not
substituted therefor ("Substitute Plans"), or (B) to continue Executive as a
participant in the Bonus Plans and Substitute Plans on at least the same basis
as to potential amount of the bonus as Executive participated in prior to any
change in such plans or awards, in accordance with the Bonus Plans and the
Substitute Plans; (v) any material breach by the Company of any provision of
this Agreement, including without limitation Section 12 hereof; (vi) a failure
of any successor to assume in a writing delivered to Executive upon the assignee
becoming such, the obligations of the Company hereunder; or (vii) a failure of
the Company to grant stock options within ninety (90) days after the
Commencement Date in an aggregate amount of exercise price (which shall be fair
market value at the time of grant) multiplied by number of options of at least
$1,100,000 and, as to other provisions materially in the aggregate no less
favorable to the Executive than the recommendations required by Section 4(b)
hereof.
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(d) Notice of Termination for Good Reason. A Notice of
Termination for Good Reason shall mean a notice that shall indicate the specific
termination provision in Section 7(c) relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
Termination for Good Reason. The failure by Executive to set forth in the Notice
of Termination for Good Reason any facts or circumstances which contribute to
the showing of Good Reason shall not waive any right of Executive hereunder or
preclude Executive from asserting such fact or circumstance in enforcing his
rights hereunder. The Notice of Termination for Good Reason shall provide for a
date of termination not less than ten (10) nor more than sixty (60) days after
the date such Notice of Termination for Good Reason is given, provided that in
the case of the events set forth in Section 7(c)(ii) or (iii) the date may be
two (2) days after the giving of such notice.
(e) Cause. Subject to the notification provisions of Section
7(f) below, Executive's employment hereunder may be terminated by the Company
for Cause. For purposes of this Agreement, the term "Cause" shall be limited to
(i) willful misconduct by Executive with regard to the Company or its business,
assets or employees; (ii) the refusal of Executive to follow the proper written
direction of the Board or a more senior officer of the Company, provided that
the foregoing refusal shall not be "Cause" if Executive in good faith believes
that such direction is illegal, unethical or immoral and promptly so notifies
the Board or the more senior officer (whichever is applicable); (iii)
substantial and continuing willful refusal by the Executive to attempt to
perform the duties required of him hereunder (other than any such failure
resulting from incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to the Executive by the Board or
a more senior officer of the Company which specifically identifies the manner in
which it is believed that the Executive has substantially and continually
refused to attempt to perform his duties hereunder; (iv) the Executive being
convicted of a felony (other than a felony involving a motor vehicle); (v) the
breach by Executive of any material fiduciary duty owed by Executive to the
Company; or (vi) Executive's dishonesty, misappropriation or fraud with regard
to the Company (other than good faith expense account disputes).
(f) Notice of Termination for Cause. A Notice of Termination
for Cause shall mean a notice that shall indicate the specific termination
provision in Section 7(e) relied upon and shall set forth in reasonable detail
the facts and circumstances which provide for a basis for Termination for Cause.
The date of termination for a Termination for Cause shall be the date indicated
in the Notice of Termination. Any purported Termination for Cause which is held
by a court not to have been based on
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the grounds set forth in this Agreement or not to have followed the procedures
set forth in this Agreement shall be deemed a Termination by the Company without
Cause.
(g) The irrevocable direct pay letter of credit required to be
delivered pursuant to Section 7(a)(vi) hereof shall be in amount equal to the
amount the Executive would be entitled to under Section 8(c)(A)(i) and (ii)
hereof if he were terminated without Cause upon the Change in Control and have
an expiration date of no less than two (2) years after the Change in Control.
The Executive shall be entitled to draw on the letter of credit upon
presentation to the issuing bank of a demand for payment signed by the Executive
that states that (i) (A) a Good Reason event has occurred and the Executive
would be entitled to payment under Section 8(c) of this Agreement if he elected
to terminate employment for Good Reason or (B) one (1) year and not more than
one (1) year and thirty (30) days has expired since the Change in Control or (C)
the Executive is entitled to payment under Section 8(c) of this Agreement and
(ii) assuming the event set forth in (i) entitled him to payment under Section
8(c) of this Agreement, the amount the Company would be indebted to him at the
time of presentation under Section 8(c)(A)(i) and (ii) if he then was eligible
to receive payments under Section 8(c). There shall be no other requirements
(including no requirement that the Executive first makes demand upon the Company
or that the Executive actually terminates employment) with regard to payment of
the letter of credit. To the extent the letter of credit is not adequate to
cover the amount owed to the Executive by the Company under this Agreement, is
not submitted by the Executive or is not paid by the issuing bank, the Company
shall remain liable to the Executive for the remainder owed the Executive
pursuant to the terms of this Agreement. To the extent any amount is paid under
the letter of credit it shall be a credit against any amounts the Company then
or thereafter would owe to the Executive under Section 8(c) of this Agreement.
The letter of credit shall be issued by a national money center bank with a
rating of at least A by Standard & Poor's Ratings Services. The Company shall
bear the cost of the letter of credit.
8. Consequences of Termination of Employment. (a) Death. If,
Executive's employment is terminated during the Employment Term on or after the
Commencement Date by reason of Executive's death, the employment period under
this Agreement shall terminate without further obligations to the Executive's
legal representatives under this Agreement except for: (i) any compensation
earned but not yet paid, including and without limitation, any bonus if declared
or earned but not yet paid for a completed fiscal year, any amount of Base
Salary earned but unpaid, any accrued vacation pay payable pursuant to the
Company's policies, and any unreimbursed business expenses payable pursuant to
Section 6 (collectively "Accrued Amounts") which amounts
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shall be promptly paid in a lump sum to Executive's estate; (ii) the product of
(x) the target annual bonus for the fiscal year of the Executive's death,
multiplied by (y) a fraction, the numerator of which is the number of days of
the current fiscal year during which the Executive was employed by the Company,
and the denominator of which is 365, which bonus shall be paid when bonuses for
such period are paid to the other executives; (iii) subject to Sections 9 and
11, any other amounts or benefits owing to the Executive under the then
applicable employee benefit plans, long term incentive plans or equity plans and
programs of the Company which shall be paid in accordance with such plans and
programs; (iv) payment on a monthly basis of three (3) months of Base Salary,
which shall be paid to Executive's spouse, or if he is not married to the
Executive's estate or if she shall predecease him, then to the Executive's
children (or their guardian if one is appointed) in equal shares; and (v)
payment of the spouse's and dependent's COBRA coverage premiums to the extent,
and so long as, they remain eligible for COBRA coverage, but in no event more
than three (3) years.
(b) Disability. If, Executive's employment is terminated by
reason of Executive's Disability, Executive shall be entitled to receive the
payments and benefits to which his representatives would be entitled in the
event of a termination of employment by reason of his death (other than life
insurance benefits), provided that the payment of Base Salary shall be reduced
by the projected amount he would receive under any long-term disability policy
or program maintained by the Company during the three (3) month period during
which Base Salary is being paid.
(c) Termination by Executive for Good Reason or for any Reason
During the Change in Control Protection Period or Termination by the Company
without Cause or Nonextension of the Term by the Company. If (i) outside of the
Change in Control Protection Period, Executive terminates his employment
hereunder for Good Reason during the Employment Term, (ii) if a Change in
Control occurs and during the Change in Control Protection Period Executive
terminates his employment for any reason, (iii) Executive's employment with the
Company is terminated by the Company without Cause or (iv) Executive's
employment with the Company terminates as a result of the Company giving notice
of nonextension of the Employment Term pursuant to Section 1(a) hereof,
Executive shall be entitled to receive the Accrued Amounts and shall, subject to
Sections 9(b) and 11(h) hereof, be entitled to receive, (A)(i) two (2) times
Base Salary, to be paid, if such termination is after a Change in Control, in
one lump sum within ten (10) days after compliance with Section 9(b) hereof, or
otherwise to be paid one (1) times Base Salary in a lump sum and one (1) times
Base Salary in twelve (12) equal monthly installments commencing one (1) month
after the aforementioned lump sum is paid and (ii) if such
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termination is after a Change in Control, two (2) times the highest annual bonus
paid or, if declared or earned but not yet paid for a completed fiscal year,
payable to Executive for any of the previous two (2) completed fiscal years by
the Company or USI; (B) any Accrued Amounts at the date of termination; (C) any
other amounts or benefits owing to Executive under the then applicable employee
benefit, long term incentive or equity plans and programs of the Company which
shall be paid in accordance with such plans and programs; (D) if such
termination is after a Change in Control, two (2) years of additional service
and compensation credit (at his then compensation level) for pension purposes
under any defined benefit type qualified or nonqualified pension plan or
arrangement of the Company, which payments shall be made through and in
accordance with the terms of the nonqualified defined benefit pension
arrangement if any then exists, or, if not, in an actuarially equivalent lump
sum (using the actuarial factors then applying in the Company's defined benefit
plan covering Executive); (E) if such termination is after a Change in Control,
two (2) years of the maximum Company contribution (assuming Executive deferred
the maximum amount and continued to earn his then current salary) under any type
of qualified or nonqualified 401(k) plan (payable at the end of each such year);
and (F) payment by the Company of the premiums for the Executive and his
dependents' health coverage for two (2) years under the Company's health plans
which cover the senior executives of the Company or materially similar benefits.
Payments under (F) above may at the discretion of the Company be made by
continuing participation of Executive in the plan as a terminee, by paying the
applicable COBRA premium for Executive and his dependents, or by covering
Executive and his dependents under substitute arrangements.
(d) Termination with Cause or Voluntary Resignation without
Good Reason or Retirement. If, Executive's employment hereunder is terminated
(i) by the Company for Cause, (ii) by Executive without Good Reason outside of
the Change in Control Protection Period, or (iii) by the Company pursuant to
Section 7(a)(viii) hereof, the Executive shall be entitled to receive only his
Base Salary through the date of termination and any unreimbursed business
expenses payable pursuant to Section 6 and, if the Executive has retired
pursuant to the Company's retirement programs, any bonus that has been declared
or earned but not yet paid for a completed fiscal year. All other benefits
(including, without limitation, options and the vesting thereof) due Executive
following such termination of employment shall be determined in accordance with
the Company's plans and programs.
9. (a) No Mitigation; Set-Off. In the event of any termination
of employment under Section 8, Executive shall be under no obligation to seek
other employment and there shall be no offset against any amounts due Executive
under
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this Agreement on account of any remuneration attributable to any subsequent
employment that Executive may obtain. Any amounts due under Sections 8 and 9 are
in the nature of severance payments and are not in the nature of a penalty. Such
amounts are inclusive, and in lieu of any, amounts payable under any other
salary continuation or cash severance arrangement of the Company and to the
extent paid or provided under any other such arrangement shall be offset from
the amount due hereunder.
(b) Executive agrees that, as a condition to
receiving the payments and benefits provided under Section 8(c) hereunder he
will execute, deliver and not revoke (within the time period permitted by
applicable law) a release of all claims of any kind whatsoever against the
Company, its affiliates, officers, directors, employees, agents and shareholders
in the then standard form being used by the Company for senior executives (but
without release of right of indemnification hereunder, equity grants, or benefit
plans that by their terms are intended to survive termination of his
employment).
10. Change in Control. For purposes of this Agreement, the
term "Change in Control" shall mean (i) any "person" as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 ("Act") (other
than the Company, any trustee or other fiduciary holding securities under any
employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of Common Stock of the Company), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing twenty-five percent (25%)
or more of the combined voting power of the Company's then outstanding
securities; (ii) during any period of two (2) consecutive years (not including
any period prior to the Commencement Date), individuals who at the beginning of
such period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii), or (iv) of this paragraph)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the two-year
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the Board; (iii) a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however, that a merger
or consolidation
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effected to implement a recapitalization of the Company (or similar transaction)
in which no person acquires more than twenty-five percent (25%) of the combined
voting power of the Company's then outstanding securities shall not constitute a
Change in Control of the Company; or (iv) the stockholders of the Company
approve a plan of complete liquidation of the Company or the sale or disposition
by the Company of all or substantially all of the Company's assets other than
(x) the sale or disposition of all or substantially all of the assets of the
Company to a person or persons who beneficially own, directly or indirectly, at
least fifty percent (50%) or more of the combined voting power of the
outstanding voting securities of the Company at the time of the sale or (y)
pursuant to a spinoff type transaction, directly or indirectly, of such assets
to the stockholders of the Company. In no event shall the Spinoff in and of
itself constitute a Change in Control for purposes of this Agreement; provided,
however, that the provisions of this Section 10 shall be operative immediately
after consummation of the Spinoff.
11. Confidential Information and Non-Solicitation of the
Company. (a) (i) Executive acknowledges that as a result of his employment by
the Company, Executive will obtain secret and confidential information as to the
Company and its affiliates and the Company and its affiliates will suffer
substantial damage, which would be difficult to ascertain, if Executive should
use such confidential information other than in the performance of his duties
hereunder and that because of the nature of the information that will be known
to Executive it is necessary for the Company and its affiliates to be protected
by the Confidentiality restrictions set forth herein.
(ii) Executive acknowledges that the retention of nonclerical
employees employed by the Company and its affiliates in which the Company and
its affiliates have invested training and depends on for the operation of their
businesses is important to the businesses of the Company and its affiliates,
that Executive will obtain unique information as to such employees as an
executive of the Company and will develop a unique relationship with such
persons as a result of being an executive of the Company and, therefore, it is
necessary for the Company and its affiliates to be protected from Executive's
Solicitation of such employees as set forth below.
(iii) Executive acknowledges that the provisions of this
Agreement are reasonable and necessary for the protection of the businesses of
the Company and its affiliates and that part of the compensation paid under this
Agreement and the agreement to pay severance in certain instances is in
consideration for the agreements in this Section 11.
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(b) Solicitation shall mean: recruiting, soliciting or
inducing, of any nonclerical employee or employees of the Company or its
affiliates to terminate their employment with, or otherwise cease their
relationship with, the Company or its affiliates or hiring or assisting another
person or entity to hire any nonclerical employee of the Company or its
affiliates or any person who within six (6) months before had been a nonclerical
employee of the Company or its affiliates and were recruited or solicited for
such employment or other retention while an employee of the Company, provided,
however, that solicitation shall not include any of the foregoing activities
engaged in with the prior written approval of the Chief Executive Officer of the
Company.
(c) If any restriction set forth with regard to Solicitation
is found by any court of competent jurisdiction, or an arbitrator, to be
unenforceable because it extends for too long a period of time or over too great
a range of activities or in too broad a geographic area, it shall be interpreted
to extend over the maximum period of time, range of activities or geographic
area as to which it may be enforceable. If any provision of this Section 11
shall be declared to be invalid or unenforceable, in whole or in part, as a
result of the foregoing, as a result of public policy or for any other reason,
such invalidity shall not affect the remaining provisions of this Section which
shall remain in full force and effect.
(d) During and after the Employment Term, Executive shall hold
in a fiduciary capacity for the benefit of the Company and its affiliates all
secret or confidential information, knowledge or data relating to the Company
and its affiliates, and their respective businesses, including any confidential
information as to customers of the Company and its affiliates, (i) obtained by
Executive during his employment by the Company and its affiliates and (ii) not
otherwise public knowledge or known within the applicable industry. Executive
shall not, without prior written consent of the Company, unless compelled
pursuant to the order of a court or other governmental or legal body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
In the event Executive is compelled by order of a court or other governmental or
legal body to communicate or divulge any such information, knowledge or data to
anyone other than the foregoing, he shall promptly notify the Company of any
such order and he shall cooperate fully with the Company in protecting such
information to the extent possible under applicable law. The Company shall
reimburse the Executive for his reasonable expenses, if any, incurred in
connection with such cooperation.
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(e) Upon termination of his employment with the Company and
its affiliates, or at any time as the Company may request, Executive will
promptly deliver to the Company, as requested, all documents (whether prepared
by the Company, an affiliate, Executive or a third party) relating to the
Company, an affiliate or any of their businesses or property which he may
possess or have under his direction or control other than documents provided to
Executive in his capacity as a participant in any employee benefit plan, policy
or program of the Company or any agreement by and between Executive and the
Company with regard to Executive's employment or severance.
(f) Furthermore, in the event of any termination of
Executive's employment for any reason whatsoever, whether by the Company or by
Executive and whether or not for Cause, Good Reason or non-extension of the
Employment Term, Executive for two (2) years thereafter will not engage in
Solicitation.
(g) In the event of a breach or potential breach of this
Section 11, Executive acknowledges that the Company and its affiliates will be
caused irreparable injury and that money damages may not be an adequate remedy
and agree that the Company and its affiliates shall be entitled to injunctive
relief (in addition to its other remedies at law) to have the provisions of this
Section 11 enforced. It is hereby acknowledged that the provisions of this
Section 11 are for the benefit of the Company and all of the affiliates of the
Company before and after the Spinoff Date and each such entity may enforce the
provisions of this Section 11 and only the applicable entity can waive the
rights hereunder with respect to its confidential information and employees.
(h) Furthermore, in the event of breach of this Section 11 by
Executive, while he is receiving amounts under Section 8(c) hereof, Executive
shall not be entitled to receive any future amounts pursuant to Section 8(c)
hereof.
12. Indemnification. (a) The Company agrees that if Executive
is made a party to or threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director, employee or
officer of the Company and/or any affiliate of the Company, or is or was serving
at the request of any of such companies as a director, officer, member,
employee, fiduciary or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including, without limitation, service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is alleged action in an official capacity as a director, officer, member,
employee, fiduciary or agent while serving as
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a director, officer, member, employee, fiduciary or agent, he shall be
indemnified and held harmless by the Company to the fullest extent authorized by
Delaware law (or, if other than the Company, the law applicable to such
company), as the same exists or may hereafter be amended, against all Expenses
incurred or suffered by Executive in connection therewith, and such
indemnification shall continue as to Executive even if Executive has ceased to
be an officer, director, member, fiduciary or agent, or is no longer employed by
the applicable company, and shall inure to the benefit of his heirs, executors
and administrators.
(b) As used in this Agreement, the term "Expenses" shall
include, without limitation, damages, losses, judgments, liabilities, fines,
penalties, excise taxes, settlements and costs, attorneys' fees, accountants'
fees, and disbursements and costs of attachment or similar bonds,
investigations, and any expenses of establishing a right to indemnification
under this Agreement.
(c) Expenses incurred by Executive in connection with any
Proceeding shall be paid by the Company in advance upon request of Executive and
the giving by the Executive of any undertakings required by applicable law.
(d) Executive shall give the Company notice of any claim made
against him for which indemnity will or could be sought under this Agreement. In
addition, Executive shall give the Company such information and cooperation as
it may reasonably require and as shall be within Executive's power and at such
times and places as are reasonably convenient for Executive.
(e) With respect to any Proceeding as to which Executive
notifies the Company of the commencement thereof:
(i) The Company will be entitled to participate
therein at its own expense; and
(ii) Except as otherwise provided below, to the
extent that it may wish, the Company jointly with any other indemnifying party
similarly notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Executive. Executive also shall have the right to
employ his own counsel in such action, suit or proceeding and the fees and
expenses of such counsel shall be at the expense of the Company.
(f) The Company shall not be liable to indemnify Executive
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any action or
claim in any manner
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which would impose any penalty or limitation on Executive without Executive's
written consent. Neither the Company nor Executive will unreasonably withhold or
delay their consent to any proposed settlement.
(g) The right to indemnification and the payment of expenses
incurred in defending a Proceeding in advance of its final disposition conferred
in this Section 12 shall not be exclusive of any other right which Executive may
have or hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the applicable company, agreement, vote of
stockholders or disinterested directors or otherwise.
(h) The Company agrees to obtain Officer and Director
liability insurance policies covering Executive and shall maintain at all times
during the Employment Term coverage under such policies in the aggregate with
regard to all officers and directors, including Executive, of an amount not less
than the greater of: (i) the amount of coverage maintained by the Company for
the Chairman and Chief Executive Officer of the Company or (ii) $10 million. The
Company shall maintain for a six (6) year period commencing on the date the
Executive ceased to be an employee of the Company, Officer and Director
liability insurance coverage for events occurring during the period the
Executive was an employee or director of the Company in the same aggregate
amount and under the same terms as are maintained for its active officers and
directors. The phrase "in the same aggregate amount and under the same terms"
shall include the same level of self-insurance by the Company as shall be
maintained for active officers and directors.
(i) This Section 12 shall not create or expand any rights to
indemnification in favor of Executive with respect to service with USI, the
Company or their affiliates prior to the date hereof.
13. Special Tax Provision. (a) Anything in this Agreement to
the contrary notwithstanding, in the event that any amount or benefit paid,
payable, or to be paid, or distributed, distributable, or to be distributed to
or with respect to Executive by the Company (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company, any
person whose actions result in a change of ownership covered by Section
280G(b)(2) of the Code or any person affiliated with the Company or such person)
as a result of a change in ownership of the Company or a direct or indirect
parent thereof after the Spinoff covered by Code Section 280G(b)(2)
(collectively, the "Covered Payments") is or becomes subject to the excise tax
imposed by or under Section 4999 of the Code (or any similar tax that may
hereafter be imposed), and/or any interest or penalties with respect to such
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excise tax (such excise tax, together with such interest and penalties, is
hereinafter collectively referred to as the "Excise Tax"), the Company shall pay
to Executive an additional amount (the "Tax Reimbursement Payment") such that
after payment by Executive of all taxes (including, without limitation, any
interest or penalties and any Excise Tax imposed on or attributable to the Tax
Reimbursement Payment itself), Executive retains an amount of the Tax
Reimbursement Payment equal to the sum of (i) the amount of the Excise Tax
imposed upon the Covered Payments, and (ii) without duplication, an amount equal
to the product of (A) any deductions disallowed for federal, state or local
income or payroll tax purposes because of the inclusion of the Tax Reimbursement
Payment in Executive's adjusted gross income, and (B) the highest applicable
marginal rate of federal, state or local income taxation, respectively, for the
calendar year in which the Tax Reimbursement Payment is made or is to be made.
The intent of this Section 13 is that (a) the Executive, after paying his
Federal, state and local income tax and any payroll taxes on Executive, will be
in the same position as if he was not subject to the Excise Tax under Section
4999 of the Code and did not receive the extra payments pursuant to this Section
13 and (b) that Executive should never be "out-of-pocket" with respect to any
tax or other amount subject to this Section 13, whether payable to any taxing
authority or repayable to the Company, and this Section 13 shall be interpreted
accordingly.
(b) Except as otherwise provided in Section 13(a), for
purposes of determining whether any of the Covered Payments will be subject to
the Excise Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as
"parachute payments" (within the meaning of Section 280G(b)(2) of the Code) and
such payments in excess of the Code Section 280G(b)(3) "base amount" shall be
treated as subject to the Excise Tax, unless, and except to the extent that, the
Company's independent certified public accountants appointed prior to the change
in ownership covered by Code Section 280G(b)(2) or legal counsel (reasonably
acceptable to Executive) appointed by such public accountants (or, if the public
accountants decline such appointment and decline appointing such legal counsel,
such independent certified public accountants as promptly mutually agreed on in
good faith by the Company and the Executive) (the "Accountant"), deliver a
written opinion to Executive, reasonably satisfactory to Executive's legal
counsel, that Executive has a reasonable basis to claim that the Covered
Payments (in whole or in part) (A) do not constitute "parachute payments", (B)
represent reasonable compensation for services actually rendered (within the
meaning of Section 280G(b)(4) of the Code) in excess of the "base amount"
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allocable to such reasonable compensation, or (C) such "parachute payments" are
otherwise not subject to such Excise Tax (with appropriate legal authority,
detailed analysis and explanation provided therein by the Accountants); and
(ii) the value of any Covered Payments which are
non-cash benefits or deferred payments or benefits shall be determined by the
Accountant in accordance with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Tax
Reimbursement Payment, Executive shall be deemed:
(i) to pay federal, state, local income and/or
payroll taxes at the highest applicable marginal rate of income taxation for the
calendar year in which the Tax Reimbursement Payment is made or is to be made,
and
(ii) to have otherwise allowable deductions for
federal, state and local income and payroll tax purposes at least equal to those
disallowed due to the inclusion of the Tax Reimbursement Payment in Executive's
adjusted gross income.
(d)(i)(A) In the event that prior to the time the Executive
has filed any of his tax returns for the calendar year in which the change in
ownership event covered by Code Section 280G(b)(2) occurred, the Accountant
determines, for any reason whatever, the correct amount of the Tax Reimbursement
Payment to be less than the amount determined at the time the Tax Reimbursement
Payment was made, the Executive shall repay to the Company, at the time that the
amount of such reduction in Tax Reimbursement Payment is determined by the
Accountant, the portion of the prior Tax Reimbursement Payment attributable to
such reduction (including the portion of the Tax Reimbursement Payment
attributable to the Excise Tax and federal, state and local income and payroll
tax imposed on the portion of the Tax Reimbursement Payment being repaid by the
Executive, using the assumptions and methodology utilized to calculate the Tax
Reimbursement Payment (unless manifestly erroneous)), plus interest on the
amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code.
(B) In the event that the determination set forth in (A) above
is made by the Accountant after the filing by the Executive of any of his tax
returns for the calendar year in which the change in ownership event covered by
Code Section
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280G(b)(2) occurred but prior to one (1) year after the occurrence of such
change in ownership, the Executive shall file at the request of the Company an
amended tax return in accordance with the Accountant's determination, but no
portion of the Tax Reimbursement Payment shall be required to be refunded to the
Company until actual refund or credit of such portion has been made to the
Executive, and interest payable to the Company shall not exceed the interest
received or credited to the Executive by such tax authority for the period it
held such portion (less any tax the Executive must pay on such interest and
which he is unable to deduct as a result of payment of the refund).
(C) In the event the Executive receives a refund pursuant to
(B) above and repays such amount to the Company, the Executive shall thereafter
file for refunds or credits by reason of the repayments to the Company.
(D) The Executive and the Company shall mutually agree upon
the course of action, if any, to be pursued (which shall be at the expense of
the Company) if the Executive's claim for refund or credit is denied.
(ii) In the event that the Excise Tax is later
determined by the Accountants or the Internal Revenue Service to exceed the
amount taken into account hereunder at the time the Tax Reimbursement Payment is
made (including by reason of any payment the existence or amount of which cannot
be determined at the time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of such excess (plus any
interest or penalties payable with respect to such excess) once the amount of
such excess is finally determined.
(iii) In the event of any controversy with the
Internal Revenue Service (or other taxing authority) under this Section 13,
subject to subpart (i)(D) above, the Executive shall permit the Company to
control issues related to this Section 13 (at its expense), provided that such
issues do not potentially materially adversely affect the Executive, but the
Executive shall control any other issues. In the event the issues are
interrelated, the Executive and the Company shall in good faith cooperate so as
not to jeopardize resolution of either issue, but if the parties cannot agree
Executive shall make the final determination with regard to the issues. In the
event of any conference with any taxing authority as to the Excise Tax or
associated income taxes, the Executive shall permit the representative of the
Company to accompany him and the Executive and his representative shall
cooperate with the Company and its representative.
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(iv) With regard to any initial filing for a refund
or any other action required pursuant to this Section 13 (other than by mutual
agreement) or, if not required, agreed to by the Company and the Executive, the
Executive shall cooperate fully with the Company, provided that the foregoing
shall not apply to actions that are provided herein to be at the sole discretion
of the Executive.
(e) The Tax Reimbursement Payment, or any portion thereof,
payable by the Company shall be paid not later than the fifth (5th) day
following the determination by the Accountant and any payment made after such
fifth (5th) day shall bear interest at the rate provided in Code Section
1274(b)(2)(B). The Company shall use its best efforts to cause the Accountant,
to promptly deliver the initial determination required hereunder and, if not
delivered, within ninety (90) days after the change in ownership event covered
by Section 280G(b)(2) of the Code, the Company shall pay the Executive the Tax
Reimbursement Payment set forth in an opinion from counsel recognized as
knowledgeable in the relevant areas selected by the Executive, and reasonably
acceptable to the Company, within five (5) days after delivery of such opinion.
The amount of such payment shall be subject to later adjustment in accordance
with the determination of the Accountant as provided herein.
(f) The Company shall be responsible for all charges of the
Accountant and if (e) is applicable the reasonable charges for the opinion given
by Executive's counsel.
(g) The Company and the Executive shall mutually agree on and
promulgate further guidelines in accordance with this Section 13 to the extent,
if any, necessary to effect the reversal of excessive or shortfall Tax
Reimbursement Payments. The foregoing shall not in any way be inconsistent with
Section 13(d)(i)(D) hereof.
14. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey without
reference to principles of conflict of laws.
(b) Entire Agreement/Amendments. This Agreement and the
instruments contemplated herein, contain the entire understanding of the parties
with respect to the employment of Executive by the Company from and after the
Commencement
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Date and supersedes any prior agreements between the Company and the Executive
with respect thereto. There are no restrictions, agreements, promises,
warranties, covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein and therein.
This Agreement may not be altered, modified, or amended except by written
instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
Any such waiver must be in writing and signed by the Executive or an authorized
officer of the Company, as the case may be.
(d) Assignment. This Agreement shall not be assignable by the
Executive. This Agreement shall be assignable by the Company only to an acquirer
of all or substantially all of the assets of the Company, provided such acquirer
promptly assumes all of the obligations hereunder of the Company in a writing
delivered to the Executive and otherwise complies with the provisions hereof
with regard to such assumption. This Agreement may be assigned by USI to the
Company and upon assumption of the Agreement by the Company, USI shall be
released from any further obligations or liabilities hereunder.
(e) Successors; Binding Agreement; Third Party Beneficiaries.
This Agreement shall inure to the benefit of and be binding upon the personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees legatees and permitted assignees of the parties hereto.
(f) Communications. For the purpose of this Agreement, notices
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given (i) when faxed or delivered, or (ii)
two (2) business days after being mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the initial page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Senior
Vice President, General Counsel and Secretary of the Company, or to such other
address as any party may have furnished to the other in writing in accordance
herewith. Notice of change of address shall be effective only upon receipt.
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(g) Withholding Taxes. The Company may withhold from any and
all amounts payable under this Agreement such Federal, state and local taxes as
may be required to be withheld pursuant to any applicable law or regulation.
(h) Survivorship. The respective rights and obligations of the
parties hereunder, including without limitation Section 12 hereof, shall survive
any termination of Executive's employment to the extent necessary to the agreed
preservation of such rights and obligations.
(i) Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
(j) Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
(k) Executive's Representation. The Executive represents and
warrants to the Company that there is no legal impediment to him performing his
obligations under this Agreement and neither entering into this Agreement nor
performing his contemplated service hereunder will violate any agreement to
which he is a party or any other legal restriction.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
U.S. INDUSTRIES, INC.
By:
-----------------------------
Name:
Title:
-----------------------------------
Peter F. Reilly
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