<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1999
FILE NO. 1-15313
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
AMENDMENT NO. 2
----------------
HUTTIG BUILDING PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-0334550
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
LAKEVIEW CENTER, SUITE 400
14500 SOUTH OUTER FORTY ROAD
CHESTERFIELD, MISSOURI 63017
(Address of principal executive offices) (Zip Code)
(314) 216-2600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------
Securities to be registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- - - --------------------------------------- -------------------------------
Common Stock, par value $.01 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities to be registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
================================================================================
<PAGE>
[CRANE LETTERHEAD]
[Date]
Dear Shareholder:
The enclosed Information Statement sets forth information regarding Huttig
Building Products, Inc., the spin-off of Huttig common stock to Crane
shareholders on a tax-free basis and the acquisition by Huttig of Rugby USA,
Inc. immediately after the spin-off. With the spin-off Huttig will become a
separate public company, listed on the New York Stock Exchange. If you are a
holder of Crane common stock on , 1999, the record date for the spin-off,
you will receive one share of Huttig common stock for every 4.5 shares of Crane
common stock you own on that date. As soon as practicable after the spin-off, a
certificate for the number of whole shares of Huttig common stock that you
receive in the spin-off will be mailed to you.
Huttig's business is wholesale distribution of doors, windows, millwork
and other building products, which is substantially different from Crane's
manufacturing businesses. The separation of this distribution business from
Crane's manufacturing businesses should produce added value for Crane
shareholders because the market will be better able to see the strength of our
manufacturing businesses. Rugby USA is also a distributor of building products,
and the combination of Huttig and Rugby USA will produce a more effective
participant in the consolidation currently taking place in the building
products distribution industry.
The Information Statement contains important information about Huttig's
organization, business and strategies, including financial information, as well
as business and financial information concerning Rugby USA. We urge you to read
it carefully and to keep it for future reference.
You are not required to take any action to participate in the spin-off. We
are not soliciting your proxy, because shareholder approval of the spin-off is
not required.
Sincerely,
R. S. Evans
Chairman and Chief Executive Officer
<PAGE>
PRELIMINARY INFORMATION STATEMENT DATED , 1999 -- FOR INFORMATION ONLY
INFORMATION STATEMENT
----------------
CRANE CO.'S SPIN-OFF
OF
HUTTIG BUILDING PRODUCTS, INC.
----------------
You are being furnished with this Information Statement in connection with
the spin-off by Crane Co. of all of the outstanding common stock of Huttig
Building Products, Inc. to stockholders of Crane and the subsequent acquisition
by Huttig of Rugby USA, Inc. Huttig is in the business of distributing and
manufacturing building products and comprises the substantial majority of
Crane's Wholesale Distribution segment. Rugby USA, a U.S. subsidiary of Rugby, a
U.K. company, is also a distributor of building products.
Crane will accomplish the spin-off by distributing all issued and
outstanding shares of Huttig common stock to holders of Crane common stock.
Crane will distribute one share of Huttig common stock for every 4.5 Crane
shares held as of the close of business on , 1999. The actual number of
Huttig shares to be distributed will depend on the number of Crane shares
outstanding on that date. Assuming Huttig completes the acquisition of Rugby USA
immediately following the spin-off, Rugby would then hold approximately 32% of
the combined company's common stock and the former stockholders of Crane would
hold approximately 68% of the combined company's stock.
OWNING SHARES OF HUTTIG COMMON STOCK WILL ENTAIL RISKS. PLEASE READ "RISK
FACTORS" BEGINNING ON PAGE 9.
NO VOTE OF CRANE STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE SPIN-OFF
OR THE ACQUISITION. YOU ARE NOT BEING ASKED FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND HUTTIG OR CRANE A PROXY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
----------------
The date of this Information Statement is , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY ................................................................................ 3
RISK FACTORS ........................................................................... 9
CAUTIONARY STATEMENT ................................................................... 13
BUSINESS OF COMBINED COMPANY ........................................................... 13
BUSINESS OF HUTTIG ..................................................................... 13
Overview ............................................................................ 13
Industry Trends ..................................................................... 14
Strategy ............................................................................ 15
Products ............................................................................ 16
Purchasing .......................................................................... 17
Sales and Marketing ................................................................. 17
Customers ........................................................................... 17
Competition ......................................................................... 18
Facilities .......................................................................... 18
Tradenames .......................................................................... 18
Employees ........................................................................... 19
Seasonality ......................................................................... 19
Backlog ............................................................................. 19
Legal Proceedings ................................................................... 19
Environmental ....................................................................... 19
BUSINESS OF RUGBY USA .................................................................. 19
HUTTIG HISTORICAL SELECTED FINANCIAL DATA .............................................. 21
HUTTIG MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION ................................................................... 22
HUTTIG UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION .................... 26
CREDIT FACILITES ....................................................................... 33
THE SPIN-OFF ........................................................................... 33
Reasons for the Spin-Off ............................................................. 33
Manner of Effecting the Spin-Off ..................................................... 33
Results of the Spin-Off .............................................................. 34
Certain Federal Income Tax Consequences of the Spin-Off .............................. 34
Listing and Trading of Huttig Common Stock ........................................... 35
ARRANGEMENTS WITH CRANE RELATING TO THE SPIN-OFF ....................................... 36
Distribution Agreement ............................................................... 36
Employee Matters Agreement ........................................................... 38
Tax Allocation Agreement ............................................................. 40
THE ACQUISITION TRANSACTIONS ........................................................... 40
Share Exchange Agreement ............................................................ 40
The Registration Rights Agreement ................................................... 43
Transition Services Agreement ....................................................... 45
MANAGEMENT ............................................................................. 47
Directors ............................................................................ 47
Committees of the Board of Directors ................................................. 48
Compensation of Directors ............................................................ 49
Executive Officers ................................................................... 49
BENEFICIAL OWNERSHIP OF HUTTIG COMMON STOCK BY DIRECTORS AND MANAGEMENT ................ 51
PRINCIPAL STOCKHOLDERS OF HUTTIG ....................................................... 52
COMPENSATION OF EXECUTIVE OFFICERS ..................................................... 53
Summary Compensation Table ........................................................... 53
Option Grants In Last Fiscal Year .................................................... 54
Aggregate Option Exercises In Last Fiscal Year and Fiscal Year-End Option Values ..... 55
Retirement Benefits .................................................................. 55
Other Agreements and Information ..................................................... 56
DESCRIPTION OF HUTTIG CAPITAL STOCK .................................................... 57
Common Stock ......................................................................... 57
Preferred Stock ...................................................................... 57
Rights Plan .......................................................................... 57
Certain Provisions of Huttig's Governing Documents ................................... 60
Anti-takeover Legislation ............................................................ 60
Transfer Agent and Registrar ......................................................... 61
LIABILITY AND INDEMNIFICATION OF HUTTIG OFFICERS AND DIRECTORS ......................... 61
Elimination of Liability ............................................................. 61
Indemnification of Officers and Directors ............................................ 61
WHERE YOU CAN FIND MORE INFORMATION .................................................... 62
INDEX TO FINANCIAL STATEMENTS .......................................................... F-1
</TABLE>
2
<PAGE>
SUMMARY
This summary highlights selected information from this document, but does
not contain all the details concerning the spin-off or the acquisition,
including information that may be important to you. To better understand Huttig,
Rugby USA, the spin-off and the acquisition, you should carefully review this
entire Information Statement and the documents it refers to. See "Where You Can
Find More Information" on page 62.
OVERVIEW OF THE TRANSACTIONS AND THE COMPANIES
In this Information Statement:
o Crane Co. and its subsidiaries and divisions are referred to as "Crane"
o Huttig Building Products, Inc. and its subsidiaries and divisions are
referred to as "Huttig"
o The Rugby Group PLC and its subsidiaries and divisions are referred to as
"Rugby"
o Rugby USA, Inc. and its subsidiaries and divisions are referred to as
"Rugby USA"
o The company formed by the combination of Huttig and Rugby USA is referred
to as the "combined company"
Huttig is being spun off to Crane's stockholders as a new public company
that will be known as "Huttig Building Products, Inc." after the spin-off.
Subject to certain conditions, Huttig would then acquire Rugby USA from Rugby
in exchange for shares of Huttig common stock. See "The Spin-Off" and "The
Acquisition Transactions" beginning on pages 33 and 40, respectively, for
further information on these transactions.
Huttig is a distributor of building materials used principally in new
residential construction and in home improvement, remodeling and repair work.
Its products are distributed through 45 distribution centers serving 41 states
principally to building materials dealers (who, in turn, supply the end-user),
directly to professional builders and large contractors, and to home centers,
national buying groups and industrial and manufactured housing builders.
Huttig's American Pine Products manufacturing facility, located in Prineville,
Oregon, produces softwood moldings. Approximately 20% of its sales are to
Huttig's distribution centers.
Huttig's growth strategy is to provide the residential construction
business with differentiated building products and excellent service and to
enhance Huttig's profitability through increased efficiencies. Huttig plans to
execute this strategy through acquisitions that allow it to expand
geographically, consolidate in existing markets or broaden its customer base,
and by focusing on customer service, capitalizing on the size of its
distribution center network and reducing its transaction costs.
Rugby USA is also a distributor of building materials to the new
residential construction and home improvement markets, selling principally to
building materials dealers, home centers and national buying groups. At the
time of the exchange, Rugby USA will have 31 distribution centers serving 34
states. Rugby USA's strategy is to operate a streamlined, effective and highly
responsive distribution business, based on efficient processes at the branch
level combined with strong centralized support.
For further information on Huttig and Rugby USA, see "Business of Huttig"
beginning on page 13 and "Business of Rugby USA" beginning on page 19.
Following these transactions, Huttig will:
o be a separate public company, initially owned approximately 68% by
former Crane stockholders and approximately 32% by Rugby;
o own and operate the business of Huttig and the acquired distribution
centers of Rugby USA; and
3
<PAGE>
o have total assets of approximately $340.3 million and initial
long-term debt of approximately $101.2 million (on a pro forma basis
assuming the spin-off and acquisition occurred on September 30,
1999).
The combined company will be one of the largest domestic distributors of
building materials. Through its combination with Rugby USA, Huttig expects to
enhance its ability to leverage its size to achieve economies of scale in
administrative functions, to negotiate beneficial purchasing terms and to
improve its systems. These benefits are expected to be further leveraged
through the consolidation of overlapping distribution centers in certain
geographic areas. Also, in addition to expanding Huttig's presence in Eastern
United States markets generally, Rugby USA would add significantly to Huttig's
markets in the Midwest, particularly in Indiana and Missouri.
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
<TABLE>
<CAPTION>
<S> <C>
Why is Huttig being spun off by Crane? o Huttig is being spun off for the following reasons:
o The spin-off is necessary to effect Huttig's
acquisition of Rugby USA and should allow Huttig
to pursue more effectively its acquisition strategy
by, among other things, providing it the flexibility to
use its stock as currency to purchase other potential
acquisition targets.
o The growth and management strategies of Huttig's
distribution business are not fully aligned with the
other businesses of Crane. Separation of its business
from Crane will allow Huttig to better position its
own strategic objectives in its area of expertise,
which should result in enhanced growth.
o The spin-off will enable Huttig to have direct access
to capital markets. Depending upon market conditions,
Huttig may raise equity capital to retire some or all
of its outstanding debt. With certain exceptions, the
Registration Rights Agreement with Rugby prohibits
Huttig from publicly offering any newly issued shares
of common stock until the earlier of the date on which
Rugby disposes of 50 percent of the Huttig common stock
received in the exchange and two years after the
completion of the exchange.
o The spin-off will allow Huttig to recruit, retain and
motivate key employees by providing them with
stock-based compensation incentives directly tied to
the success of Huttig's business.
Will Crane complete the spin-off even o Yes. The spin-off will occur on , 1999. After the
if the acquisition of Rugby USA cannot spin-off, Huttig will complete the acquisition of Rugby
be completed? USA if all of the pre-conditions in the Share Exchange
Agreement with Rugby have been satisfied.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
When will the acquisition of Rugby USA o Huttig expects the acquisition to occur immediately
take place? after the spin-off is completed. However, Huttig and
Rugby generally have until January 31, 2000 to
complete the acquisition under the Share Exchange
Agreement.
What will I receive in the spin-off? o Crane will distribute one share of Huttig common
stock for every 4.5 shares of Crane common stock
owned as of , 1999. As soon as practicable
after the spin-off, the distribution agent will mail to
you a certificate representing the whole shares of
Huttig common stock that you receive in the spin-off.
You will continue to own your Crane common stock.
o Each share of Huttig common stock will be distributed
with one preferred share purchase right.
How will you treat fractional shares? o If you are otherwise entitled to receive a fractional
share of Huttig common stock you will receive cash
instead of the fractional share. Fractional shares will
be aggregated and sold by the distribution agent,
which will distribute to you your portion of the cash
proceeds promptly after the spin-off. No interest will
be paid on any cash distributed instead of fractional
shares.
What do I have to do to participate in o Nothing. No Crane stockholder vote is required for
the spin-off? the spin-off.
How many Huttig shares will be o When the spin-off and acquisition are completed,
outstanding after the spin-off and the Huttig expects that there will be approximately 21.6
acquisition of Rugby USA? million Huttig shares outstanding, approximately 68%
of which will be held by former Crane stockholders
and approximately 32% of which will be held by
Rugby.
What is Huttig's dividend policy? o Huttig currently anticipates that no cash dividends
will be paid on Huttig common stock in the foreseeable
future in order to conserve cash for use in Huttig's
business, for possible future acquisitions and for
debt reduction. It is expected that Huttig will
periodically re-evaluate this dividend policy taking
into account its operating results, capital needs and
other factors.
How will Huttig common stock trade? o Huttig has applied to list its common stock on the
New York Stock Exchange under the symbol "HBP"
and expects that regular trading will begin on
, 1999. A temporary form of interim
trading called "when-issued trading" may occur for
Huttig common stock on or before , 1999
and continue through , 1999. A when-issued
listing can be identified by the "wi" letters next
to Huttig common stock on the New York Stock Exchange
Composite Tape.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
If when-issued trading develops, you may buy or sell
Huttig common stock in advance of the ,
1999 spin-off. When-issued trading occurs in order to
develop an orderly market and trading price for
Huttig common stock after the spin-off.
o Crane common stock will continue to trade on a
regular basis and may also trade on a when-issued
basis, reflecting an assumed post-spin-off value for
Crane common stock. When-issued trading in Crane
common stock, if available, could last from on or
before , 1999 through , 1999. If
this occurs, an additional listing for Crane common
stock, followed by the "wi" letters, will appear on the
New York Stock Exchange Composite Tape.
Is the spin-off taxable for United States o No. Crane has requested a tax ruling from the
federal income tax purposes? Internal Revenue Service stating in principle that the
spin-off will be tax-free to Crane and to Crane's
stockholders. See "Risk Factors" and "The Spin-Off --
Certain Federal Income Tax Consequences of the
Spin-Off." Receipt of a favorable tax ruling is a
condition to the spin-off.
Can you explain the purposes and effects o The preferred share purchase rights that will
of the rights plan? accompany each share of Huttig's common stock are
designed to assure that all of Huttig's stockholders
receive fair and equal treatment in the event of any
unsolicited proposal to acquire control of Huttig and
to guard against takeover tactics that are not in the
best interests of all stockholders. The rights will be
exercisable only if a person or group (other than
Huttig, any employee benefit plan of Huttig, certain
Crane charitable funds, including The Crane Fund,
and Rugby, within certain limits) acquires 20% or
more of Huttig's common stock (an "acquiring
person") or announces a tender offer the soncummation
of which would result in ownership by a person or group
of 20% or more of the Huttig common stock. Each right
will entitle stockholders to buy one one-hundredth of
a share of Huttig junior participating preferred stock
at an exercise price of $ per share. In specified
circumstances after the rights become exercisable,
however, the rights will entitle stockholders other
than the acquiring person to receive upon exercise
shares of Huttig common stock having a market value of
two times the exercise price of the right. Accordingly,
the rights could make the acquisition of control of
Huttig in a transaction not approved by Huttig's board
of directors more difficult.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Will Huttig be related to Crane in any o The board of directors of Huttig consists of six
way after the spin-off? directors, five of whom currently serve as directors of
Crane. Mr. R. S. Evans, Chairman and Chief
Executive Officer of Crane, is the Chairman of
Huttig. After completion of the acquisition of Rugby
USA, individuals serving as directors of Crane would
constitute five of the nine directors of Huttig.
o Crane's largest stockholder, The Crane Fund, will also
be Huttig's largest stockholder immediately after the
spin-off, holding approximately 11.8% of Huttig's
outstanding common stock. The current trustees of
The Crane Fund are officers of Crane. After the
acquisition of Rugby USA, Rugby would be Huttig's
largest stockholder and The Crane Fund would hold
only approximately 8.0% of Huttig's outstanding
common stock. See "Principal Stockholders of
Huttig."
o Huttig and Crane have entered into the following
agreements described under "Arrangements with
Crane Relating to the Spin-Off":
o A Distribution Agreement, which provides for the
actions required to separate Huttig's businesses
from other businesses of Crane and governs various
relationships and circumstances that may arise
between Huttig and Crane after the spin-off.
o An Employee Matters Agreement, which addresses
issues between Crane and Huttig about employees,
pension and other employee benefit plans and other
compensation arrangements for current and former
employees of Huttig.
o A Tax Allocation Agreement dividing certain U.S.
federal, state, local and non-U.S. tax liabilities
between Crane and Huttig.
o Crane will not own any Huttig common stock after
the spin-off.
Are there any risks entailed in owning o Yes. Stockholders should consider carefully the
Huttig common stock? matters discussed in the section of this Information
Statement called "Risk Factors."
Who will serve on the Huttig Board of o The Huttig board of directors consists of the following
Directors? individuals, all of whom are currently directors of
Crane other than Mr. Kulpa: Mr. E. Thayer Bigelow,
Jr., Mr. R. S. Evans, Mr. Richard S. Forte, Mr. Dorsey
R. Gardner, Mr. Barry J. Kulpa, and Mr. James L. L.
Tullis. Upon completion of the acquisition, the board
of directors would be expanded to nine members and
three designees of Rugby would become members of
the board. See "Management -- Directors."
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Who will run Huttig? o It is expected that Huttig senior management after
the spin-off will be the same persons who are
currently serving as executive officers of Huttig,
except that upon completion of the acquisition of
Rugby USA, Mr. Stephen C. Brown, currently the
President of Rugby USA, would be appointed as
Chief Operating Officer of Huttig. Mr. R.S. Evans,
Chairman and Chief Executive Officer of Crane, will
continue to be the Chairman of Huttig. "See
Management -- Executive Officers."
</TABLE>
WHO CAN HELP ANSWER YOUR QUESTIONS
Stockholders of Crane with questions relating to the spin-off should contact:
Beacon Hill Partners, Inc.
90 Broad Street
New York, New York 10004
(212) 843-8500
The distribution agent for Huttig common stock in the spin-off and the
transfer agent and registrar for Huttig common stock after the spin-off is:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield, New Jersey 07660
(201) 296-4000
-------------------------------
8
<PAGE>
RISK FACTORS
o IF HUTTIG ACQUIRES RUGBY USA, POTENTIAL DIFFICULTIES IN COMBINING THE
OPERATIONS OF THE COMPANIES COULD HAVE A MATERIAL ADVERSE EFFECT ON
HUTTIG'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Huttig and Rugby USA have previously operated separately. The proposed
management team of the combined company does not have experience with the
combined business of Huttig and Rugby USA. The combined company may not be able
to integrate the operations of Huttig and Rugby USA without a loss of key
employees, customers or suppliers; loss of revenues; increase in operating or
other costs; or other difficulties. In addition, the combined company may not be
able to realize the operating efficiencies and other benefits sought from the
spin-off and the acquisition.
o CYCLICALITY AND SEASONALITY IN THE NEW RESIDENTIAL CONSTRUCTION AND HOME
IMPROVEMENT INDUSTRY COULD HAVE A MATERIAL ADVERSE EFFECT ON HUTTIG'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Huttig's and Rugby USA's sales depend heavily on the strength of the
national and local new residential construction and home improvement and
remodeling markets. The strength of these markets depends on new housing starts
and residential renovation projects, which are a function of many factors beyond
Huttig's control, including interest rates, employment levels, availability of
credit, prices of commodity wood products and consumer confidence.
Future downturns in the markets that Huttig and, if the Rugby USA
acquisition is completed, the combined company, serves could have a material
adverse effect on Huttig's operating results or financial condition. In
addition, because these markets are sensitive to cyclical changes in the economy
in general, future downturns in the economy could have a material adverse effect
on Huttig's financial condition and results of operations.
Huttig's first quarter and, to a lesser extent, its fourth quarter, are
typically adversely affected by winter construction cycles and weather patterns
in colder climates as the level of activity in the new construction and home
improvement markets decreases. Because much of Huttig's overhead and expense
remains relatively fixed throughout the year, its profits also tend to be lower
during the first and fourth quarters. Rugby USA's sales and profits are subject
to similar seasonal fluctuation. The effects of winter weather patterns on
Huttig's business are offset somewhat by the increase in residential
construction activity during the same period in the deep South, Southwest and
Southern California markets in which Huttig participates. It is expected that
these seasonal variations will continue in the future.
o COMPETITION IN THE BUILDING PRODUCTS DISTRIBUTION INDUSTRY COULD RESULT IN
LOWER SALES AND PRICES, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON
HUTTIG'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The building products distribution industry is highly competitive. The
principal competitive factors in this industry are:
o availability of product;
o service and delivery capabilities;
o ability to assist with problem-solving;
o relationships with customers; and
o breadth of product offerings.
Also, financial stability and geographic coverage are important to manufacturers
in choosing distributors for their products.
Huttig's competition varies by product line, customer classification and
geographic market. It competes with many local, regional and, in certain markets
and product categories, national building products distributors and dealers.
Huttig also competes with major product manufacturers with national distribution
capability. To a limited extent in certain markets, Huttig competes with the
large home center chains for the business of smaller contractors. There can be
no assurance that competition from these large home center chains will not, in
the future, include competition for the business of larger contractors. Rugby
USA's competitors and competitive environment are similar to Huttig's, except
that Rugby USA generally does not compete with home centers or otherwise in the
market for direct sales to builders and contractors.
9
<PAGE>
Some of Huttig's competitors have greater financial and other resources.
This will continue to be the case after the acquisition of Rugby USA. Because
they have greater resources, they may be able to withstand sales or price
decreases better than Huttig can. There can be no assurance that Huttig will be
able to respond effectively to the competitive pressures in its industry.
o HUTTIG'S PLANNED PURSUIT OF ACQUISITIONS INVOLVES RISKS THAT MAY HAVE AN
ADVERSE EFFECT ON HUTTIG'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
As part of its growth strategy, Huttig plans to pursue additional
acquisitions. Other than the acquisition of Rugby USA, Huttig has no present
intention to make any specific acquisitions. If Huttig is not correct when it
assesses the value, strengths, weaknesses, liabilities and potential
profitability of acquisition candidates or it is not successful in integrating
the operations of the acquired businesses, it could have a material adverse
effect on Huttig's financial condition and results of operation. Huttig also may
not be successful finding desirable acquisition candidates or completing
acquisitions with candidates that it identifies. Depending upon the size of a
particular transaction or the magnitude of Huttig's acquisition activity in the
aggregate, future acquisitions could require additional equity capital, further
borrowings and/or the consent of Huttig's lenders. Future acquisitions that
Huttig finances through issuing equity securities could be dilutive to then
current stockholders. There can be no assurances that Huttig's lenders will
consent to any capital raising or acquisition transactions.
o HAVING NO OPERATING HISTORY AS A STAND-ALONE COMPANY MAKES IT IMPOSSIBLE TO
PREDICT HUTTIG'S PROFITABILITY AFTER THE SPIN-OFF.
Huttig has historically relied on Crane for certain financial and
administrative services, such as treasury, legal, tax, insurance and employee
benefit plan administration. Following the spin-off, Huttig will incur the
additional costs of performing these functions itself, as well as the additional
expenses associated with the management of a public company. While Huttig has
been profitable as part of Crane, there can be no assurance that, as a
stand-alone company, its future profits will be comparable to historical results
before the spin-off. See "Huttig Unaudited Pro Forma Condensed Combined
Financial Information."
o IF HUTTIG CANNOT ATTRACT AND RETAIN KEY PERSONNEL IT COULD HAVE A MATERIAL
ADVERSE EFFECT ON ITS FUTURE SUCCESS.
Huttig's future success depends to a significant extent upon the
continued service of its executive officers and other key management and
technical personnel and on its ability to continue to attract, retain and
motivate qualified personnel. The combined company's future success will also
depend in significant part upon its ability to retain key management and
employees of Rugby USA. The loss of the services of one or more key employees or
Huttig's failure to attract, retain and motivate qualified personnel could have
a material adverse effect on Huttig's financial condition and results of
operations.
o ANY INABILITY TO OBTAIN THE PRODUCTS THAT HUTTIG DISTRIBUTES COULD HAVE A
MATERIAL ADVERSE EFFECT ON ITS FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Huttig distributes building products that are manufactured by a number of
major suppliers. As is customary in this industry, Huttig's contracts with its
suppliers are terminable without cause on short notice. Although Huttig believes
that its relationships with its suppliers are strong and that it would have
access to similar products from competing suppliers, any disruption in its
sources of supply, particularly of the most commonly sold items, could have a
material adverse effect on its financial condition and results of operations.
Rugby USA also does not have long-term contracts with its suppliers. Supply
shortages may occur as a result of unanticipated demand or production
difficulties. When shortages occur, building material suppliers often allocate
products among distributors. Future shortages may occur from time to time and
may have a short-term material adverse effect on Huttig's or the combined
company's financial condition and results of operations.
o HUTTIG'S FINANCIAL PERFORMANCE IS INFLUENCED BY THE FLUCTUATION IN PRICES OF
COMMODITY WOOD PRODUCTS THAT HUTTIG BUYS AND THEN RESELLS.
10
<PAGE>
In parts of Huttig's business, such as the softwood molding manufacturing
operation and certain of its distribution centers, Huttig is subject to periodic
fluctuations in the prices of wood commodities. Huttig's profitability is
influenced by these fluctuations due to the change in wood commodity prices
between the time it buys them and the time it resells them. The profitability of
certain of Rugby USA's distribution centers is also affected by these
fluctuations. There can be no assurance that an inability to manage these
fluctuations would not have a material adverse effect on Huttig's financial
condition and results of operations.
o BECAUSE THERE HAS BEEN NO PRIOR MARKET FOR HUTTIG'S COMMON STOCK, IT IS
IMPOSSIBLE TO PREDICT THE PRICES AT WHICH HUTTIG COMMON STOCK WILL TRADE
IN THE OPEN MARKET.
There has been no prior trading market for Huttig's common stock, and
there can be no guarantee as to the prices at which it will trade after
completion of the spin-off. Until Huttig common stock is fully distributed and
an orderly market develops, the trading prices for it may fluctuate
significantly. The prices at which shares of Huttig common stock trade will be
determined by the marketplace and may be influenced by many factors, including,
among other things, the following factors:
o the depth and liquidity of the market for Huttig common stock;
o investor perceptions of Huttig, its business and the industries in
which it operates and of the combined company if the acquisition of
Rugby USA is completed;
o Huttig's dividend policy;
o Huttig's or the combined company's financial results; and
o general economic and market conditions.
o IF SUBSTANTIAL VOLUMES OF THE HUTTIG COMMON STOCK RECEIVED IN THE SPIN-OFF
ARE RE-SOLD SOON AFTER THE SPIN-OFF, IT COULD CAUSE A DECREASE IN THE
MARKET PRICE OF HUTTIG COMMON STOCK.
Substantially all of the shares of Huttig common stock distributed in the
spin-off will be eligible for immediate resale in the public market. In
transactions similar to the spin-off, it is not unusual for a significant
redistribution of shares to occur during the first few weeks or even months
following completion of the transaction because of the differing objectives and
strategies of investors.
It can not be predicted whether substantial amounts of Huttig common
stock will be sold in the open market following the spin-off or what effect such
sales might have. A large volume of sales in the public market during this
period, or the perception that any redistribution has not been completed, could
have a material adverse effect on the market price of Huttig common stock.
o THE AVAILABILITY OF THE HUTTIG COMMON STOCK ACQUIRED BY RUGBY FOR FUTURE
SALE COULD HAVE A DAMPENING EFFECT ON THE MARKET PRICE OF HUTTIG'S COMMON
STOCK.
The market price of the Huttig common stock could be adversely affected
by the availability for public sale by Rugby of all of its shares of Huttig
common stock, which it may require Huttig to include in a registration statement
filed under the Securities Act of 1933 not later than four months after the
exchange. Thereafter, Rugby may require Huttig to include in additional
registration statements shares that were not sold in the initial registration.
See "Description of the Acquisition Transactions -- The Registration Rights
Agreement."
o FAILURE OF REPRESENTATIONS AND ASSUMPTIONS UNDERLYING THE IRS TAX RULING
COULD CAUSE THE SPIN-OFF NOT TO BE TAX-FREE TO CRANE OR TO CRANE'S
STOCKHOLDERS AND MAY GIVE RISE TO INDEMNIFICATION OBLIGATIONS ON HUTTIG'S
PART.
While a tax ruling relating to the qualification of a spin-off as a
tax-free distribution within the meaning of Section 355 of the Internal Revenue
Code generally is binding on the IRS, the continuing validity of a tax ruling is
subject to certain factual representations and assumptions. Neither Crane nor
Huttig is aware of any facts or circumstances that would cause the
representations and assumptions contained in the tax ruling request made by
Crane to be untrue.
If the spin-off were not to qualify as a tax-free distribution within the
meaning of
11
<PAGE>
Section 355 of the Code, Crane would recognize taxable gain equal to the excess
of the fair market value of the Huttig common stock distributed to Crane's
stockholders over Crane's tax basis in the Huttig common stock. In addition,
each Crane stockholder who receives the Huttig common stock in the spin-off
would generally be treated as receiving a taxable distribution in an amount
equal to the fair market value of the Huttig common stock.
If the spin-off qualified under Section 355 of the Code but was
disqualified as tax-free to Crane because of certain post-spin-off
circumstances, such as an acquisition of Huttig within two years after the
spin-off that, together with the spin-off, is treated as pursuant to a single
plan, Crane would recognize taxable gain but the spin-off would generally be
tax-free to each Crane stockholder.
The Tax Allocation Agreement provides that Huttig will be responsible for
any taxes imposed on Crane that would not have been payable but for the breach
by Huttig of any representation, warranty or obligation under the Tax Allocation
Agreement, the tax ruling request or the Distribution Agreement. For example,
under the Tax Allocation Agreement, unless Huttig receives an opinion of counsel
reasonably satisfactory to Crane or a new IRS ruling to the effect that the
action will not disqualify the spin-off from tax-free treatment, Huttig may not
for two years after the spin-off, among other things, be acquired by a third
party or repurchase more than 20% of the outstanding Huttig common stock. If any
of the taxes described above were to become payable by Huttig because it
breached one of these or its other representations or obligations, that payment
would have a material adverse effect on Huttig's financial position, results of
operations and cash flow and could exceed its net worth by a substantial amount.
See "Arrangements with Crane Relating to the Spin-Off-- Tax Allocation
Agreement." If, on the other hand, Huttig did not have sufficient financial
resources to pay some or all of the taxes imposed on Crane as a result of a
breach, the payment of some or all of the taxes by Crane could have a material
adverse effect on Crane's financial position, results of operations and cash
flow.
o IF HUTTIG OR THE COMBINED COMPANY IS NOT SUCCESSFUL IN MANAGING ITS YEAR
2000 TRANSITION IT COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Crane and Huttig are in the process of implementing plans to address
issues related to the impact of the Year 2000 on Huttig's business systems,
infrastructure and suppliers. The estimated costs associated with these efforts
continue to be evaluated based on actual experience.
While Huttig and Rugby USA each believes, based on available information,
that it will be able to manage its total Year 2000 transition without any
material adverse effect on its business, financial condition and results of
operations, there can be no assurance that this will be the case. In addition,
Huttig and Rugby USA's businesses may be adversely affected by the failure of
suppliers, customers and federal, state, local and foreign governments to
address Year 2000 issues affecting their systems.
See "Huttig Management's Discussion and Analysis of Results of Operations
and Financial Condition -- Year 2000."
o PROVISIONS OF HUTTIG'S GOVERNING DOCUMENTS, APPLICABLE LAW AND THE TAX
ALLOCATION AGREEMENT COULD HAVE THE EFFECT OF DELAYING OR PREVENTING A
CHANGE IN CONTROL OF HUTTIG, OR LIMITING CERTAIN OTHER ACTIONS OF HUTTIG,
WHICH MAY HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF HUTTIG'S COMMON
STOCK.
Huttig's Restated Certificate of Incorporation, Restated Bylaws and
Rights Agreement, and the General Corporation Law of the State of Delaware (the
"DGCL") contain provisions that could make the acquisition of control of Huttig
in a transaction not approved by Huttig's board of directors more difficult. See
"Description of Huttig Capital Stock -- Rights Plan," "-- Certain Provisions of
Huttig's Governing Documents," and "-- Anti-takeover Legislation." Certain tax
consequences described above may also discourage an acquisition of control of
Huttig for some period of time.
Huttig will be limited under the Tax Allocation Agreement in its ability
to engage in certain transactions during the two-year period after the spin-off.
The Tax Allocation Agreement provides that during that two-year period, Huttig
cannot liquidate, merge or
12
<PAGE>
consolidate with any other person without Crane's consent and that Huttig will
not enter into any transaction or make any change in its equity structure that
may adversely affect the tax-free nature of the spin-off. See "Arrangements
with Crane Relating to the Spin-Off -- Tax Allocation Agreement."
o COMPLIANCE WITH INCREASING ENVIRONMENTAL REGULATIONS AND THE EFFECTS OF
POTENTIAL ENVIRONMENTAL LIABILITIES COULD HAVE A MATERIAL ADVERSE EFFECT
ON HUTTIG'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Huttig and Rugby USA are subject to federal, state and local
environmental laws and regulations. Huttig has been identified as a potentially
responsible party in connection with the clean up of contamination at two sites.
In addition, some of Huttig's distribution centers are located in areas of
current or former industrial activity where environmental contamination may have
occurred, and for which Huttig, among others, could be held responsible. Huttig
does not believe that its contribution to the clean up of the two sites will be
material or that there are any material environmental liabilities at any of its
distribution center locations. Huttig and Rugby USA each believes that it is in
compliance with applicable laws and regulations regulating the discharge of
hazardous substances into the environment. However, there can be no assurance
that environmental liabilities of Huttig or the combined company will not have a
material adverse effect on Huttig's financial condition or results of
operations.
CAUTIONARY STATEMENT
You are cautioned that this document contains disclosures that are
forward-looking statements. All statements regarding Huttig's and the combined
company's expected future financial position, results of operations, cash flows,
dividends, financing plans, business strategy, budgets, projected costs or cost
savings, capital expenditures, competitive positions, growth opportunities,
plans and objectives of management for future operations and markets for stock
are forward-looking statements. In addition, forward-looking statements include
statements in which words such as "expect," "believe," "anticipate," "intend,"
"plans," "should," "opportunity" or similar expressions are used. Although it is
believed that the expectations reflected in such forward-looking statements are
based on reasonable assumptions, no assurance can be given that such
expectations will prove to have been correct, and actual results may differ
materially from those reflected in the forward-looking statements.
Factors that could cause Huttig's actual results to differ from the
expectations reflected in the forward-looking statements in this document
include those set forth in "Risk Factors" as well as those risks relating to
leverage and debt service requirements (including sensitivity to fluctuations in
interest rates) and general business and economic conditions.
Neither Huttig nor Crane has any intention of or obligation to update
forward-looking statements, even if new information, future events or other
circumstances make them incorrect or misleading.
BUSINESS OF THE COMBINED COMPANY
The combined company will be one of the largest domestic distributors of
building materials. Through its combination with Rugby USA, Huttig expects to
enhance its ability to leverage its size to achieve economies of scale in
administrative functions, to negotiate beneficial purchasing terms and to
improve its systems. These benefits are expected to be further leveraged through
the consolidation of overlapping distribution centers in certain geographic
areas. Also, in addition to expanding Huttig's presence in Eastern United States
markets generally, Rugby USA would add significantly to Huttig's markets in the
Midwest, particularly in Indiana and Missouri.
BUSINESS OF HUTTIG
OVERVIEW
Huttig is a distributor of building materials used principally in new
residential construction and in home improvement, remodeling and repair work.
Its products are distributed through 45 distribution centers serving 41 states,
principally to building materials dealers (who, in turn, supply the end-user),
directly to professional builders and large contractors, and to home centers,
national buying groups and industrial and manufactured housing builders.
Huttig's American Pine Products manufacturing
13
<PAGE>
facility, located in Prineville, Oregon, produces softwood moldings.
Approximately 20% of its sales are to Huttig's distribution centers.
Huttig's growth strategy is to provide the residential construction
business with differentiated building products and excellent service and to
enhance its profitability through increased efficiencies. Huttig plans to
execute this strategy through acquisitions that allow it to expand
geographically, consolidate in existing markets or broaden its customer base,
and by focusing on customer service, capitalizing on the size of its
distribution center network and reducing its transaction costs.
Huttig's products include doors, windows, moldings, specialty building
materials such as housewrap, stair parts and engineered wood products, and
lumber and other commodity building products. Products carried by a particular
distribution center vary by location. Many of Huttig's products, such as
pre-hung doors, pre-assembled windows, cut-to-length molding and lumber are
customized to customer specifications, resulting in higher margin value-added
business. In order to improve customer service, Huttig is focused on increasing
its product offerings with a greater depth of similar products and a broader
range of complementary products such as wall panels, trusses and engineered
floor systems.
To varying degrees in different markets, Huttig offers a number of
services to its customers, including assistance with project design and product
specifications, installation of products and coordination of job-site delivery
with whole house packages staged for delivery as needed by the contractor.
Huttig sells on open account terms to pre-approved customers at all locations.
Each distribution center is focused on meeting local market needs and
offering competitive prices. Inventory levels, merchandising and pricing are
tailored to local markets. Huttig's information system provides each
distribution center manager with real-time pricing, inventory availability and
margin analysis to facilitate this strategy. Huttig also supports its
distribution centers with centralized product management, credit and financial
controls, training and marketing programs and human resources expertise.
Huttig seeks to closely align its employee compensation structure with
its shareholders' interests. A significant part of the compensation of most of
Huttig's employees is based on the performance of individual distribution
centers. Huttig's management incentive compensation programs, in which all
executive officers and building center managers participate, are based on
increasing the after-tax rate of return on the assets employed in its business.
In addition, Huttig's stock-based compensation plans ensure that key employees
are focused on actions and strategies intended to increase shareholder value.
INDUSTRY TRENDS
The building materials distribution industry is characterized by its
substantial size, highly fragmented ownership structure and dependence on the
cyclical and seasonal home building industry.
New housing starts in the U.S. in 1998 approximated 1.7 million based on
data from F.W. Dodge, including 1.3 million single family residences.
Approximately 64% of single family new construction in 1998 occurred in markets
served by Huttig's distribution centers. According to the U.S. Department of
Commerce, total spending on U.S. new residential construction in 1998 was $214.0
billion and aggregate expenditures for residential repair and remodeling were an
additional $120.0 billion. Huttig believes that sales of windows, doors and
other millwork accounted for approximately $12.0 billion in 1998.
Prior to the 1970's, building materials were sold in both rural and
metropolitan markets largely by local dealers, such as lumberyards and hardware
stores. These dealers, who generally purchased their products from wholesale
distributors, sold building products directly to homeowners, contractors and
homebuilders. In the late 1970's and 1980's, the advent of home center chains
such as The Home Depot and Lowe's began to alter this distribution channel,
particularly in metropolitan markets, as these retailers started to displace
some local dealers. These mass merchandisers market a broad range of
competitively priced building materials to the homeowner and small home
improvement contractor. Also during this period, some building materials
manufacturers
14
<PAGE>
such as Georgia Pacific and Weyerhauser began selling their products directly to
home center chains and to local dealers as well. Accordingly, most wholesale
distributors have been diversifying their businesses by seeking to sell directly
to large contractors and homebuilders in selected markets and by providing home
centers with fill-in and specialty products. Also, as large homebuilding
companies seek to streamline the new residential construction process, building
materials distributors have increasing opportunities to provide higher margin
turnkey products and services.
The increasingly competitive environment faced by dealers also has
prompted a trend toward industry consolidation that Huttig believes offers
significant opportunities. Many distributors in the building materials industry
are small, privately-held companies that generally lack the purchasing power of
a larger entity and may also lack the broad lines of products and sophisticated
inventory management and control systems typically needed to operate a
multi-branch distribution network. These characteristics are also driving the
consolidation trend in favor of companies like Huttig that operate nationally
and have significant infrastructure in place.
STRATEGY
Huttig's strategy is to grow its business by providing the residential
construction industry with differentiated building products and excellent
service, and to enhance its profitability through increased efficiencies. To
execute this strategy, Huttig is focusing on four goals:
o Expansion through acquisition;
o Enhancing customer service;
o Leveraging its size; and
o Lowering transaction costs.
Expansion Through Acquisition. Huttig's acquisition strategy is to target
leading traditional regional building materials distributors whose acquisition
will allow Huttig to:
o enter new geographic markets;
o consolidate its presence in existing markets through
o increasing economies of scale in terms of delivery capabilities and
purchasing, or
o broadening its product offerings, including those that will enhance
its reputation as a value-added distributor of name-brand products;
or
o broaden its customer base, including by increasing direct sales to
builders and contractors.
Although Huttig has locations across most of the U.S., it does not have
distribution centers in Texas or the Rocky Mountain or Great Lakes regions.
Huttig also sees opportunity for greater market penetration in some of the
mid-Atlantic states. Value-added service capabilities, such as project design
assistance, installation of products and the ability to provide and co-ordinate
delivery of building materials for whole house construction, also influence the
selection of acquisition targets.
Enhancing Customer Service. Huttig is seeking to increase sales and
profitability through enhancing customer service in the following ways:
o Increasing the breadth of its product lines to provide more
"one-stop-shop" capabilities.
o Positioning itself to provide efficient outsourcing of value-added
services.
o Optimizing ease and responsiveness in the order-taking and delivery
process.
Leveraging Its Size. Huttig has established a centralized approach to
product management and administrative functions in order to capitalize on the
size of its U.S. distribution center network.
o Inventory levels, merchandising and pricing are tailored to local
markets, but vendor selection and purchase cost are negotiated
nationally from Huttig's headquarters. Huttig seeks to be a major
customer of its suppliers, enabling it to obtain beneficial pricing
and purchasing terms, ensure timely delivery of products and maintain
appropriate inventory availability. Management believes that further
opportunities to
15
<PAGE>
realize purchasing economies exist, which will be further enhanced
by the acquisition of Rugby USA, and Huttig intends to pursue such
opportunities.
o Huttig centralizes many administrative functions such as accounting
and finance, information technology, employee benefits, insurance,
human resources, legal and national account sales efforts, both to
achieve economies of scale and to permit distribution center managers
to focus on sales, service and profitability.
o The benefits of centralization are being further leveraged through
the consolidation of distribution centers with overlapping service
areas. Huttig plans to continue consolidation of locations in tandem
with its acquisition strategy.
Lowering Transaction Costs. Huttig is organizing to reduce transaction
costs through increased operating efficiencies. Utilization of Six Sigma, a
statistical and analytic process improvement technique to reduce inefficiencies,
has been employed beneficially in this effort.
o Huttig's centralization of product management and administrative
functions, and the consolidation of overlapping locations, are an
integral part of its efforts to increase operating efficiencies.
Huttig is also working to centralize logistics and transportation
functions.
o Another key effort Huttig is undertaking is the standardization of
processes and procedures at its distribution centers, which Huttig
believes will further enhance the ability of its managers to focus
on sales, service and profitability.
o Assisted by recent investment in technology through installation of
a wide area network and upgrades to its computer systems, Huttig
can provide administrative support to multiple distribution centers
from another center or to all centers from headquarters. Huttig's
information system provides its distribution center managers with
real-time pricing, inventory availability and margin analysis.
PRODUCTS
Each distribution center carries a variety of products that vary by
location. Huttig's principal products are doors, windows, moldings, specialty
building materials such as housewrap, stair parts and engineered wood products,
and lumber and other commodity building products.
The following table sets forth information regarding the percentage of
net sales represented by the specified categories of total products sold by
Huttig's distribution centers during each of the last two fiscal years. While it
is believed that the percentages included in the table generally indicate the
mix of Huttig's sales by category of product, the specific percentages are
affected year-to-year by changes in the prices of commodity wood products, as
well as changes in unit volumes sold.
1998 1997
---- ----
Doors .............................................. 37% 37%
Specialty Building Materials ....................... 20 21
Windows ............................................ 19 21
Moldings ........................................... 12 15
Lumber and Other Commodity Products ................ 12 6
Huttig's sales of doors were approximately $260.0 million in 1998 and
included both interior and exterior doors and pre-hung door units. Huttig sells
wood, steel and composite doors from various branded manufacturers such as
Therma-Tru (Registered Trademark) , Jeld-Wen (Registered Trademark) , Florida
Made, and Premdor, as well as providing value-priced unbranded products. The
pre-hanging of a door within its frame is a value-added service that Huttig
provides, allowing an installer to quickly place the unit in the house opening.
Coupled with pre-hanging, Huttig also assembles many exterior doors with added
sidelites and transoms, also value-added services and products. To meet the
increasing demand for pre-hung doors, Huttig invested $3.0 million in the past
year in state-of-the-art equipment, which allowed it to increase its capacity by
approximately 20%.
Sales of specialty building materials were $141.0 million in 1998.
Included in this category are products differentiated through branding or
value-added characteristics. Branded products include Tyvek (Registered
Trademark) housewrap, L. J. Smith Stair
16
<PAGE>
Systems and Simpson Strong-Tie (Registered Trademark) connectors. Also
included in specialty sales are trusses, wall panels and engineered wood
products such as floor systems assembled in Huttig's new facility in Topeka,
Kansas serving the eastern Kansas and western Missouri markets.
Window sales amounted to $133.0 million in 1998 and included shipments
of wood, vinyl-clad, vinyl and aluminum windows from branded manufacturers such
as Andersen (Registered Trademark) , Weather Shield and Marvin, as well as
unbranded products. Andersen (Registered Trademark) trademarked products, sold
to dealers through 13 of Huttig's distribution centers, accounted for a
significant majority of Huttig's 1998 sales of windows. Huttig is working to
expand the depth of its offerings of windows to include a wider range of
quality and price as part of the strategy to better serve the customer.
Molding sales, including door jams, door and window frames, and
decorative ceiling, chair and floor molding, were $89.0 million in 1998. The
vast majority of these sales were made by American Pine Products. Profitability
of this highly competitive, commodity-priced product depends upon efficient
plant operations, rapid inventory turnover and quick reaction to changing market
conditions. Moldings are a necessary complementary product line to doors and
windows as part of a house's millwork package.
Sales of lumber and other commodity building products were $85.0 million
in 1998. Growth of Huttig's lumber sales has resulted primarily from its
acquisition of Mallco Lumber Company in Phoenix in 1997 and Huttig's acquisition
of certain assets of and assumption of certain liabilities of Consolidated
Lumber Company, Inc. in Kansas City in 1998. These acquisitions reflect Huttig's
strategy to provide builders with the capability to purchase a house's framing
and millwork package of products from one source and have each component
delivered when needed. Other commodity building products include dry wall, metal
vents, siding, nails and other miscellaneous hardware.
PURCHASING
Huttig generally negotiates with its major vendors on a company-wide
basis to obtain favorable pricing, volume discounts and other beneficial
purchase terms. A majority of Huttig's purchases are made from suppliers
offering payment, discount and volume purchase programs. Distribution center
managers are responsible for inventory selection and ordering on terms
negotiated centrally. This approach allows Huttig's distribution centers to
remain responsive to local market demand, while still maximizing purchasing
leverage through volume orders. Distribution center managers are also
responsible for inventory management at their respective locations.
Huttig is a party to distribution agreements with certain vendors,
including Andersen (Registered Trademark) , on an exclusive or non-exclusive
basis, depending on the product and the territory involved. Huttig's
distributorships generally are terminable at any time by either party, in some
cases without notice, and otherwise on notice ranging up to 60 days.
SALES AND MARKETING
Each of Huttig's distribution centers tailors its product and service mix
to the local market and operates as a separate profit center. Huttig's marketing
programs center on fostering strong customer relationships and providing
superior service. This strategy is furthered by the high level of technical
knowledge and expertise of Huttig's personnel. Huttig focuses its marketing
efforts on the residential new housing and remodeling segments, with efforts
directed toward the commercial and industrial segments limited to a small
portion of its business. Certain of Huttig's suppliers advertise to the trade
and directly to the individual consumer through nationwide print and other
media.
Huttig's distribution center sales organization consists of outside field
sales personnel serving the customer on-site who report directly to their local
distribution center manager. They are supported by inside customer service
representatives at each branch. This sales force is compensated by commissions
determined on the basis of return on sales or total margin on sales.
CUSTOMERS
Huttig distributes products to a large number and variety of building
materials dealers, professional builders, large contractors, home centers,
national buying groups and others.
17
<PAGE>
Building materials dealers represent Huttig's single largest customer
group. Despite the advent of the home center chains and the trends toward
consolidation of dealers and increased direct participation in wholesale
distribution by some building materials manufacturers, Huttig believes that the
wholesale distribution business continues to provide opportunities for increased
sales. Huttig is targeting home centers for sales of fill-in and specialty
products. In addition, some manufacturers are seeking to outsource the marketing
function for their products, a role that Huttig, as a large, financially stable
distributor, is well-positioned to fill. Opportunities also exist for large
distributors with the necessary capabilities to perform increasing amounts of
services such as pre-hanging doors, thereby enabling Huttig to enhance the
value-added component of its business.
The percentage of Huttig's 1998 revenue attributable to various
categories of customers are as follows:
Dealers ................................................... 62%
Home Centers and Buying Groups ............................ 15
Builders and Contractors .................................. 13
Industrial and Manufactured Housing ....................... 10
COMPETITION
Huttig's competition varies by product line, customer classification and
geographic market. Huttig competes with many local and regional building product
distributors, and, in certain markets and product categories, with national
building product distributors and dealers. Huttig also competes with major
corporations with national distribution capability, such as Georgia-Pacific,
Weyerhaeuser and other product manufacturers that engage in direct sales;
however, it also acts as a distributor for certain products of these
manufacturers. Huttig sells products to large home center chains such as The
Home Depot and Lowe's and, to a limited extent in certain markets, competes with
them for business from smaller contractors. Competition from such large home
center chains may, in the future, include more competition for the business of
larger contractors.
Huttig believes that competition in the wholesale distribution business
is largely on the basis of product availability, service and delivery
capabilities and breadth of product offerings. Also, financial stability and
geographic coverage are important to manufacturers in choosing distributors for
their products. In the builder support business, Huttig's target customers
generally select building products distributors on the basis of service and
delivery, ability to assist with problem-solving, relationships and breadth of
product offerings. Huttig's relative size and financial position are
advantageous in obtaining and retaining distributorships for important products.
Huttig's relative size also permits it to attract experienced sales and service
personnel and gives it the resources to provide company-wide sales, product and
service training programs. By working closely with its customers and utilizing
its information technology, Huttig's branches are able to maintain appropriate
inventory levels and are well-positioned to deliver completed orders on time.
Huttig's American Pine Products softwood molding manufacturing business
competes on the basis of relative length of lead times to produce and deliver
product, service and geographic coverage.
FACILITIES
Huttig's headquarters are in Chesterfield, Missouri, in leased
facilities. Its manufacturing facility for softwood moldings is a
280,000-square foot facility owned by Huttig and located in Prineville, Oregon.
Approximately 53% of Huttig's 45 distribution centers are leased and the
remainder are owned. Warehouse space at Huttig's distribution centers
aggregates approximately 2.7 million square feet. The types of facilities at
these centers vary by location, from traditional wholesale distribution
warehouses that may have particular value-added service capabilities such as
pre-hung door operations, to classic lumber yards, and to builder support
facilities with broad product offerings and capabilities for a wide range of
value-added services. Huttig believes that its locations are well maintained
and generally adequate for their purposes.
TRADENAMES
Historically, Huttig has operated under various tradenames in the markets
it serves,
18
<PAGE>
retaining the name of an acquired business to preserve local identification. To
capitalize on its increasing national presence, Huttig has converted most
branch operations to the primary tradename "Huttig Building Products." Some
local branches continue to use historical tradenames as secondary tradenames to
maintain goodwill.
EMPLOYEES
At December 31, 1998, Huttig employed 2,328 persons, of which
approximately 300 were represented by unions. Huttig has not experienced any
strikes or other work interruptions in recent years and has maintained generally
favorable relations with its employees. The following table shows the
approximate breakdown by job function of Huttig's employees:
Distribution centers ............................. 1,574
Manufacturing .................................... 443
Field sales ...................................... 234
Officers and corporate administrative ............ 77
SEASONALITY
Huttig's first quarter and, to a lesser extent, its fourth quarter, are
typically adversely affected by winter construction cycles and weather patterns
in colder climates as the level of activity in both the new construction and
home improvement markets decreases. The effects of winter weather patterns on
Huttig's business are offset somewhat by the increase in residential
construction activity during the same period in the deep South, Southwest and
Southern California markets in which Huttig participates. Huttig also closely
monitors operating expenses and inventory levels during seasonally affected
periods and, to the extent possible, controls variable operating costs to
minimize seasonal effects on profitability.
BACKLOG
Huttig's customers generally order products on an as-needed basis. As a
result, virtually all product shipments in a given fiscal quarter result from
orders received in that quarter. Consequently, order backlog represents only a
very small percentage of the product sales that Huttig anticipates in a given
quarter and is not indicative of its actual sales for any future period.
LEGAL PROCEEDINGS
Huttig is involved in various lawsuits, claims and proceedings arising in
the ordinary course of its business. While the outcome of any lawsuits, claims
or proceedings cannot be predicted, Huttig does not believe that the disposition
of any pending matters will have a material adverse effect on its financial
condition or liquidity.
ENVIRONMENTAL
Huttig is subject to federal, state and local environmental laws and
regulations. Huttig has been identified as a potentially responsible party in
connection with the clean up of contamination at two sites. In addition, some of
Huttig's distribution centers are located in areas of current or former
industrial activity where environmental contamination may have occurred, and for
which Huttig, among others, could be held responsible. Huttig does not believe
that its contribution to the clean up of the two sites will be material or that
there are any material environmental liabilities at any of its distribution
center locations. Huttig also believes that it is in compliance with applicable
laws and regulations regulating the discharge of hazardous substances into the
environment.
BUSINESS OF RUGBY USA
Rugby USA, like Huttig, is a distributor of building materials to the new
residential construction and home improvement markets, selling principally to
building materials dealers, home centers and national buying groups. At the time
of the exchange, Rugby USA will have 31 distribution centers serving 34 states.
Rugby USA's strategy is to operate a streamlined, effective and responsive
distribution business, based on efficient processes at the branch level combined
with strong centralized support.
Rugby USA's products include doors, windows, moldings, roofing,
insulation, lumber, kitchen cabinets and other products. Products vary by
location. Rugby USA actively seeks to provide value-added services to its
customers, such as pre-hanging doors. The following table sets forth information
regarding the percentage of net sales represented by the specified categories of
total products sold by the Rugby USA distribution centers being acquired by
Huttig during each of the last two fiscal years:
19
<PAGE>
1998 1997
---- ----
Doors ........................................................ 20% 19%
Specialty Building Materials ................................. 37 39
Windows ...................................................... 10 10
Moldings ..................................................... 8 7
Lumber and Other Commodity Products .......................... 25 25
Rugby USA's sales of doors at the 31 distribution centers were $95
million in 1998, including branded doors from manufacturers, principally
Premdor, as well as unbranded products. Sales of specialty building materials
were $168 million in 1998. These included branded products such as Simpson
Strong-Tie connectors, Typar housewrap, and Owens Corning roofing and
insulation. Also included in specialty sales are various kitchen cabinets, vinyl
siding, decking, ventilation and fencing. Window sales were $45 million in 1998
and included branded windows such as Andersen (Registered Trademark) and
Caradco, as well as unbranded products. Molding sales were $36 million in 1998.
Sales of lumber and other commodity building products such as hardwood plywood,
MDF, particle board and LAUAN were $115 million in 1998.
The percentage of 1998 revenue attributable to various categories of
customers for the 31 Rugby USA distribution centers is as follows:
Dealers .................................................... 81%
Home Centers and Buying Groups ............................. 15
Industrial/Manufactured Housing ............................ 4
Similar to Huttig, Rugby USA has established centralized purchasing and
administrative services, and has concentrated inventory selection and management
at the branch level. Rugby USA's marketing programs focus on customer service
and value-added services.
Rugby USA's competitors and competitive environment are similar to
Huttig's, except that Rugby USA generally does not compete with home centers or
otherwise in the market for direct sales to builders and contractors. Rugby
USA's business is also affected by seasonal variations similar to Huttig's.
Rugby USA is headquartered in Alpharetta, Georgia in leased facilities.
Approximately 50% of the 31 Rugby USA distribution centers Huttig will acquire
are leased, and the remainder are owned. All 31 of these facilities are
traditional wholesale distribution warehouses, some of which have value-added
capabilities such as pre-hanging doors. As of December 31, 1998, Rugby USA
employed 1,090 persons in the distribution centers being acquired as follows:
Distribution centers......................... ............. 834
Field sales ............................................... 191
Corporate administrative .................................. 65
20
<PAGE>
HUTTIG HISTORICAL SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data of Huttig.
The Statement of Income Data set forth below for each of the three years in the
period ended December 31, 1998 and the Balance Sheet Data at December 31, 1998
and 1997 are derived from the audited consolidated financial statements and
notes thereto included elsewhere in this Information Statement. The Statement of
Income Data set forth below for each of the two years in the period ended
December 31, 1995 and the Balance Sheet Data at December 31, 1996, 1995 and 1994
are derived from audited consolidated financial statements of Huttig not
included in this Information Statement. The Statement of Income Data set forth
below for the nine month periods ended September 30, 1999 and 1998 and the
Balance Sheet Data at September 30, 1999 are derived from the unaudited
condensed financial statements included elsewhere in this Information Statement.
The Balance Sheet Data at September 30, 1998 is derived from unaudited condensed
financial statements not included in this Information Statement. The historical
selected financial data may not necessarily be indicative of Huttig's past or
future performance as a separate, stand-alone company. Such historical data
should be read in conjunction with "Huttig Management's Discussion and Analysis
of Results of Operations and Financial Condition" and Huttig's financial
statements and notes thereto included elsewhere in this Information Statement.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales ................ $594,914 $521,849 $707,450 $625,503 $595,089 $570,856 $598,665
Depreciation and
amortization ........... 4,860 3,925 5,586 4,409 4,929 5,228 5,234
Operating profit ......... 19,541 18,960 26,971 19,842 22,105 18,889 19,500
Interest expense, net .... 5,789 4,892 6,870 4,467 200 352 402
Income before taxes ...... 13,528 14,103 21,851 14,814 20,757 20,094 20,082
Provision for income
taxes .................. 5,075 5,159 8,255 5,759 8,469 8,243 8,225
Net income ............... 8,453 8,944 13,596 9,055 12,288 11,851 11,857
Net income per share(basic
and diluted) ........... 8,453 8,944 13,596 9,055 12,288 11,851 11,857
Balance Sheet Data
(at end of period):
Assets ................... 217,720 204,559 218,462 153,950 206,430 191,535 185,527
Long-term debt: Note
Payable--Parent ....... 92,182 93,940 93,940 67,100 -- -- --
Other long-term debt .... 1,189 1,449 1,379 1,715 2,074 2,540 4,911
</TABLE>
21
<PAGE>
HUTTIG MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
GENERAL
The building products industry and Huttig are affected by various factors
including general economic conditions, the level of new residential building and
home improvement activity, weather conditions, interest rates, employment
levels, and the availability of credit. See "Risk Factors."
Huttig has experienced improvement in its results of operations since 1994, with
revenue growing from $598.7 million in 1994 to $707.5 million in 1998. $107.7
million of this revenue growth has been accomplished due to acquisitions
completed since 1993. Additionally, Huttig's operating profit has increased from
$19.5 million in 1994 to $27.0 million in 1998, a compounded annual growth rate
of 8.4%.
These trends are reflected in a 6.2% compounded annual growth rate in gross
margin, which resulted from the $11.7 million contribution of acquired
businesses and $8.8 million from the sales of higher margin products at existing
branches. Gross profit as a percentage of revenue has grown from 13.2% in 1994
to 14.2% in 1998. Operating profit as a percentage of revenue has increased from
3.3% in 1994 to 3.8% in 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Revenue increased 14.0% from $521.8 million in the first nine months of 1998 to
$594.9 million in the comparable period of 1999. $47.1 million of this increase
was due to the 1998 mid-year acquisitions of Consolidated Lumber Company and
Number One Supply and the balance to same-branch sales growth of 5.2%.
Gross profit grew $6.3 million to $78.8 million in the first nine months of
1999. $4.3 million resulted from the acquisitions discussed above and $2.0
million from the increase in same-branch sales. Gross profit as a percentage of
sales on a same-branch basis declined 0.3% over the 1998 period.
Selling, general and administrative expense increased $4.8 million or 9.7% from
the comparable prior period, to $54.4 million, primarily as a result of
acquisitions (a $3.7 million increase). On a same-branch basis, excluding
acquisitions, these expenses increased only 2.4%, and therefore in the first
nine months of 1999 were 9.3% of sales compared to 9.5% in the same period last
year.
As a result of the contribution from the acquisitions, operating profit in the
first nine months of 1999 was $19.5 million, or $.6 million higher than the
same period last year.
Interest expense increased $0.9 million as the result of higher borrowings.
Net income decreased $0.5 million for the first nine months of 1999 compared to
the same period in 1998, with the operating profit gain being offset by higher
borrowing costs.
FISCAL 1998 COMPARED TO FISCAL 1997
Revenue increased 13.1% from $625.5 million in 1997 to $707.5 million in 1998.
$32.5 million of this increase was due to the mid-1997 acquisition of MALLCO
Lumber Co. and $43.0 million was due to the mid-1998 acquisitions of Number One
Supply and of certain assets and assumption of certain liabilities of
Consolidated Lumber Company, Inc. Same-branch sales grew $6.5 million or 1.1%
in 1998.
Gross profit in 1998 grew $18.1 million, or 21.9%, from the prior year and
gross profit margins improved to 14.2% from 13.2%. Total gross profit increased
$9.4 million as a result of the acquisitions, and $8.7 million from same store
sales increases as margins increased due to an improved product mix including a
greater percentage of value-added products, primarily an increase in pre-hung
doors.
Selling, general and administrative expenses increased $9.7 million or 16.8%,
to $67.9 million in 1998 from $58.2 million in 1997. This was primarily because
of the $5.0 million effect of acquisitions, but also due to an increase in
compensation expense. This caused these expenses as a percentage of sales to
increase from 9.3% in 1997 to 9.6% in 1998.
Because the gross profit margin increase was greater than the related increase
in expenses,
22
<PAGE>
operating profit margins increased as a percentage of sales to 3.8% in 1998
from 3.2% in 1997. Operating profit totaled $27.0 million in 1998, a 35.9%
increase from $19.8 million in 1997.
Interest expense increased $2.4 million in 1998 compared to 1997 as result of
higher borrowings.
Net income increased 50.1% from $9.1 million in 1997 to $13.6 million in 1998
and net income as a percentage of sales increased from 1.4% in 1997 to 1.9% in
1998.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenue increased 5.1% from $595.1 million in 1996 to $625.5 million in 1997
due to the benefit of the sales contribution of the MALLCO Lumber acquisition
in July 1997.
Gross profit declined $0.8 million or 1.0% in 1997 compared to 1996, because of
an increase in raw materials costs for Huttig's molding manufacturing
operations and the inability to increase selling prices due to competition from
importers.
Selling, general and administrative expense increased $2.0 million or 3.5% from
$56.2 million in 1996 to $58.2 million in 1997, due to $1.1 million from the
acquisition noted above and expenses for repair of several older facilities. As
a percentage of sales, these expenses decreased marginally to 9.3% in 1997 from
9.4% in the prior period. Operating income decreased 10.2% from $22.1 million
in 1996 to $19.8 million in 1997.
Interest expense increased $4.3 million in 1997 compared to 1996 as result of
higher borrowings.
Net income decreased 26.3% from $12.3 million in 1996 to $9.1 million in 1997
and net income as a percentage of sales decreased from 2.1% in 1996 to 1.4% in
1997.
LIQUIDITY AND CAPITAL RESOURCES
Huttig has depended primarily on the cash generated from its own operations to
finance its needs. The combination of income from operations and cash
generation from improved working capital management has been used to finance
capital expenditures and seasonal working capital needs. Huttig's working
capital requirements are generally greatest in the first eight months of the
year and Huttig generates cash from working capital reductions in the last four
months of the year. A continuing management focus to improve inventory turnover
and accounts receivable and accounts payable days outstanding resulted in
reduced working capital needs. Inventory turns increased to 10.1 in 1998 from
8.1 in 1997 and 7.3 in 1996 resulting in a positive effect on cash flow of
$12.4 million over the two years. To the extent internal funds generated were
insufficient, Huttig borrowed from Crane Co. and to the extent cash generated
by Huttig was greater than current requirements, the cash was returned to
Crane. In particular, Huttig historically has borrowed from Crane to finance
acquisitions, but has typically been able to generate cash sufficient to
finance all other needs. In 1998, capital expenditures of $5.8 million and
acquisition costs aggregating $44.9 million were financed through $34.2 million
in cash generated from operations, with the remainder through borrowings from
Crane.
At September 30, 1999, Huttig had commitments for approximately $2.9 million of
capital improvements. No single commitment exceeded $260,000. The commitments
are primarily for machinery for productivity improvements, transportation
equipment replacement and equipment related to information systems
improvements.
In the future, Huttig will finance seasonal working capital requirements and
acquisitions through cash from operations and the credit facility. $100 million
of the proceeds from the credit facility is expected to be used to repay
indebtedness to Crane and Rugby in connection with the spin-off and the
exchange.
EFFECTS OF INFLATION
In 1997, raw material price increases had a negative impact on Huttig's results
of operations as it was unable to pass along these added costs to customers
through sales price increases due to increased competition from imports.
However, as Huttig continues to grow, its manufacturing operations decrease as
a percentage of its overall business and any impact of inflation is lessened.
Furthermore, management believes that, to the extent
23
<PAGE>
inflation affects its costs in the future and competitive conditions permit,
Huttig can offset these increased costs by increasing sales prices.
YEAR 2000
The Year 2000 Issue relates to most computer software programs using two
digits, rather than four, to define the applicable year for dates. Any of
Huttig's information technology (IT) and non-information technology (non-IT)
systems may recognize a date using "00" as the year 1900, rather than the year
2000. This could result in system failures or miscalculations, causing
disruptions in operations, including the inability to process transactions and
engage in similar normal business activities within Huttig and with third
parties.
Huttig has implemented a year 2000 program for its IT and non-IT systems
consisting of four phases: 1) awareness, formation, planning and management; 2)
inventory, analysis, compliance testing, prioritization and planning; 3)
implementation and validation; and 4) Year 2000 compliance. Huttig's senior
management receive regular updates on the status of Huttig's Year 2000 program.
Huttig's Year 2000 program was initiated in 1997. As of this date, all
mission-critical systems, including IT and non-IT systems have been evaluated,
tested and validated. Both internal and independent external resources,
including hardware and software suppliers, have been used in this effort, and
Huttig has relied significantly upon information from other third-party
providers. To the extent that these efforts can affect compliance, Huttig
believes that all such systems are now compliant.
In addition to mission-critical systems, Huttig has identified twenty
significant third parties, including customers and suppliers, who could have a
material effect on Huttig's operations should those parties fail to remediate
their own Year 2000 issues. Based upon the information provided by all of these
third parties, no problems have been identified. However, Huttig continues to
collect and update information on a daily basis. Huttig plans to continue to
track third-party activities through the end of 1999. There can be no absolute
assurance that any third party systems or products are Year 2000 compliant or
that such third parties will not have a material adverse effect on Huttig.
Year 2000 costs incurred to date are approximately $1.4 million, of which $0.6
million was expensed and approximately $0.8 million was capitalized for various
software and hardware expenditures in connection with replacing non-compliant
systems. No future costs are anticipated for completion of the Year 2000
program. Year 2000 funding has been provided by normal operating cash flows of
the business. No other information technology projects have been or are being
delayed by this program.
Thorough validation of Y2K compliance of mission-critical systems was performed
by internal staff with the assistance of the providers of the hardware and
software systems. A testing and validation protocol was utilized to fully
confirm compliance. The protocol was composed of a variety of test scenarios
including setting system dates ahead, performing routine procedures and
carefully reviewing results to validate proper functioning of the systems. In
all cases Huttig believes mission-critical systems are Y2K ready.
Huttig believes that completed modifications and conversions of its software
and hardware systems and its efforts to verify the readiness and compliance of
material third parties will allow it to have a smooth transition into the Year
2000. To further ensure a smooth transition, a contingency plan is under
development to monitor all year-end activities. The plan encompasses internal
systems as well as key suppliers and will include specific actions to be taken
to identify and resolve issues should any occur.
Overall, the success of the Year 2000 compliance program depends on the work
done by a number of technical experts, successful software modifications
performed by third parties, and other factors. A deficiency with respect to any
of these factors could cause a failure in Huttig's Year 2000 program, in whole
or in part. The failure to correct a material Year 2000 program could result in
an interruption in, or a failure of, certain normal business activities or
operations, which could have a material adverse effect on Huttig's results of
operations, liquidity or financial condition. Due to the inherent uncertainty
in the Year 2000 problem, particularly in regard to third party vendor and
customer Year 2000 readiness, Huttig is unable
24
<PAGE>
to determine at this time whether the consequences of any Year 2000 disruptions
or failures will have a material adverse effect on Huttig's results of
operations, liquidity or financial condition. However, based on current
information, the most reasonably likely worst case scenario would involve the
temporary disruption of Huttig's ability to fulfill customer orders and no
material adverse effect on Huttig's financial condition is expected from this
specific scenario.
MARKET RISK DISCLOSURE
Huttig currently has no floating rate indebtedness, holds no derivative
instruments and does not generate significant income from non-U.S. sources.
Accordingly, changes in interest rates and currency exchange rates do not
generally have a direct effect on Huttig's financial position. Huttig is
subject to periodic fluctuations in the price of wood commodities.
Profitability is influenced by these fluctuations as prices change between the
time Huttig buys and sells the wood. In addition, to the extent changes in
interest rates affect the housing and remodeling market, Huttig would be
affected by such changes.
25
<PAGE>
HUTTIG UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Financial
Information has been prepared to reflect the spin-off, gives effect to Huttig's
acquisition of certain assets and assumption of certain liabilities of
Consolidated Lumber Company, Inc. and the pending acquisition of Rugby USA by
Huttig. This pro forma financial information is based on the historical
financial statements of Huttig, Rugby USA and Consolidated Lumber Company, Inc.
included elsewhere in this Information Statement, giving effect to such
acquisitions under the purchase method of accounting and the assumptions and
adjustments (which management believes are reasonable) described in the
accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Information. The pro forma adjustments set forth in the following Unaudited Pro
Forma Condensed Combined Financial Information are estimated and may differ from
the actual adjustments when they become known, however no material differences
are anticipated. The Unaudited Pro Forma Condensed Combined Financial
Information should be read in conjunction with the notes thereto, "Huttig
Management's Discussion and Analysis of Results of Operations and Financial
Condition" and the audited consolidated financial statements of Huttig, Rugby
USA and Consolidated Lumber Company, Inc. included elsewhere in this Information
Statement.
The Huttig unaudited pro forma condensed combined statements of income
have been prepared on the basis that the spin-off and the acquisition of Rugby
USA by Huttig, including the initial borrowings under the Huttig credit
agreement and the application of a portion of the proceeds of said borrowings to
repay certain indebtedness to Crane and Rugby, and the acquisition of certain
assets and assumption of certain liabilities of Consolidated Lumber Company,
Inc., had occurred at January 1, 1998. The Huttig unaudited pro forma condensed
combined balance sheet has been prepared on the basis that the spin-off, Rugby
USA acquisition and the borrowings had occurred on September 30, 1999. The pro
forma adjustments as described in the notes to the unaudited pro forma condensed
combined financial information are based on currently available information and
contain adjustments that management believes are reasonable. The pro forma
adjustments do not reflect any operating efficiencies and cost savings that may
be achieved with respect to the combined companies, nor do they reflect any
additional expenses that Huttig may incur as a separate, stand-alone public
company after the spin-off. This pro forma information is provided for
comparative purposes only and does not necessarily represent what the financial
position or results of operations would have actually been if the transactions
had in fact occurred on such date or at the beginning of such period or to be
indicative of the financial results or results of operations for any future date
or period. Additionally, the value of the equity used to acquire Rugby USA and
the purchase accounting adjustments made in connection with the development of
the pro forma condensed combined financial information are preliminary and have
been made solely for purposes of developing such pro forma condensed combined
financial information. The value of the equity used to acquire Rugby USA, which
will comprise 32% of the outstanding shares of the combined entity (exclusive of
the shares of restricted stock issued to Huttig's Chief Executive Officer), was
based upon trading multiples of comparable publicly traded companies and
resulted in an estimated market capitalization of $140 million. Huttig expects
the acquisition to occur immediately after the spin-off is completed. When the
spin-off and acquisition are completed, approximately 32% of the Huttig shares
will be held by Rugby. The value of the equity used to acquire Rugby USA, $44.8
million, which was estimated for purposes of this condensed consolidated
financial information, will be adjusted to reflect the market price of the
Huttig common stock when trading commences. There can be no assurance that the
acquisition of Rugby USA will be completed or that the value of the equity used
to acquire Rugby USA will not change significantly.
26
<PAGE>
HUTTIG UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
CONSOLIDATED
LUMBER RUGBY PRO FORMA PRO
HUTTIG COMPANY (a) USA ADJUSTMENTS FORMA
----------- ------------- ----------- -------------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales .............................. $707,450 $31,253 $600,209 $ (144,279)(c) $1,194,633
Cost of sales .......................... 606,993 22,850 475,456 (104,447)(c) 1,000,852
Selling, general and administrative 67,900 6,664 103,436 (33,838)(c) 144,162
Depreciation and amortization .......... 5,586 239 5,189 (4,823)(b) 6,191
-------- ------- -------- ----------- ----------
Operating profit ....................... 26,971 1,500 16,128 (1,171) 43,428
Interest expense, net .................. 6,870 -- 9,787 (7,790) (d) 8,867
Miscellaneous income, net .............. 1,750 73 -- -- 1,823
-------- ------- -------- ----------- ----------
Income before taxes .................... 21,851 1,573 6,341 6,619 36,384
Provision for income taxes ............. 8,255 594 2,885 2,515 (e) 14,249
-------- ------- -------- ----------- ----------
Income from continuing
operations ............................ $ 13,596 $ 979 $ 3,456 $ 4,104 $ 22,135
======== ======= ======== =========== ==========
Basic and diluted income from
continuing operations per share ....... $ 13,596 $ 1.02
Average basic and diluted shares
outstanding ........................... 1 21,600(f)
</TABLE>
See Notes to Huttig Unaudited Pro Forma Condensed Combined
Financial Information.
27
<PAGE>
HUTTIG UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL
-------------------------- PRO FORMA
HUTTIG RUGBY USA ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales ................................... $ 594,914 $474,763 $ (128,687)(c) $ 940,990
Cost of sales ............................... 516,085 381,558 (99,704)(c) 797,939
Selling, general and administrative ......... 54,428 73,794 (23,688)(c) 104,534
Depreciation and amortization ............... 4,860 4,469 (4,907)(b) 4,422
--------- -------- ----------- ---------
Operating profit ............................ 19,541 14,942 (388) 34,095
Interest expense, net ....................... 5,789 1,113 (279) (d) 6,623
Miscellaneous expense, net .................. 224 224
--------- -------- ----------- ---------
Income before taxes ......................... 13,528 13,829 (109) 27,248
Provision for income taxes .................. 5,075 5,887 (42) (e) 10,920
--------- -------- ----------- ---------
Income from continuing operations ........... $ 8,453 $ 7,942 $ (67) $ 16,328
========= ======== =========== =========
Basic and diluted income from continuing
operations per share ....................... $ 8,453 $ .76
Average basic and diluted shares
outstanding ................................ 1 21,600(f)
</TABLE>
See Notes to Huttig Unaudited Pro Forma Condensed Combined
Financial Information.
28
<PAGE>
HUTTIG UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL
------------------------
PRO FORMA
HUTTIG RUGBY USA ADJUSTMENTS PRO FORMA
---------- ----------- ------------------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash ........................................ $ 4,003 $ 8,285 $ (12,288)(g) $ --
Accounts receivable (net) ................... 78,459 60,296 (2,949)(m) 135,806
Inventories ................................. 52,720 55,134 -- 107,854
Other current assets ........................ 612 40,885 (35,054)(c) 6,443
-------- -------- ----------- --------
Total current assets ...................... 135,794 164,600 (50,291) 250,103
Other assets ................................. 42,738 7,605 (6,605)(h) 43,738
Deferred taxes ............................... -- -- 7,284 (p) 7,284
Property, plant and equipment -- net ......... 39,188 24,178 (24,178) (i) 39,188
-------- -------- ----------- --------
Total assets .............................. $217,720 $196,383 $ (73,790) $340,313
======== ======== =========== ========
Liabilities and Equity
Current Liabilities:
Loans and current maturities of
long-term debt ............................ $ 255 $ -- -- $ 255
Accounts payable ............................ 50,396 30,080 1,000 (o) 81,476
Payable to parent ........................... 13,382 -- (13,382)(j) --
Accrued liabilities ......................... 15,913 31,778 (21,251)(n) 26,440
-------- -------- ----------- --------
Total current liabilities ................. 79,946 61,858 (33,633) 108,171
Deferred taxes ............................... 563 1,565 (2,128)(p) --
Long-term debt ............................... 1,189 -- 100,000 (k) 101,189
Note payable to parent ....................... 92,182 -- (92,182)(j) --
Postretirement benefits ...................... 7,657 -- -- 7,657
Deferred credit .............................. -- -- 8,752 (q) 8,752
Equity ....................................... 36,183 132,960 (54,599)(l) 114,544
-------- -------- ----------- --------
Total liabilities and equity .............. $217,720 $196,383 $ (73,790) $340,313
======== ======== =========== ========
</TABLE>
See Notes to Huttig Unaudited Pro Forma Condensed Combined
Financial Information.
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(DOLLAR AMOUNTS IN THOUSANDS)
(a) This column reflects the historical results of operations related to the
net assets acquired from Consolidated Lumber Company, Inc. prior to the
July 1, 1998 acquisition date.
(b) This adjustment reflects the amortization of goodwill resulting from the
Consolidated Lumber Company, Inc. acquisition, reduction in depreciation
and amortization related to Rugby USA assets not acquired (see Note (c)
below), and the reduction in depreciation and amortization expense
resulting from the negative goodwill related to the Rugby USA proposed
acquisition as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
<S> <C> <C>
Amortization of Consolidated Lumber Company, Inc.
goodwill ................................................. $ 949 $ --
Amortization of Rugby USA deferred credit (see Note (i))... (583) (438)
Rugby USA depreciation and amortization of assets
not acquired (see Note (c) below)......................... (1,095) (821)
Rugby USA depreciation and amortization ................... (4,094) (3,648)
-------- --------
Net decrease in depreciation and amortization ............. $ (4,823) $ (4,907)
======== ========
</TABLE>
(c) Certain assets of Rugby USA will be distributed to its shareholder prior
to the acquisition by Huttig. These adjustments reflect the reductions of
assets from the September 30, 1999 pro forma condensed combined balance
sheet and the elimination of the income associated with these assets from
the pro forma condensed combined statements of income for the year ended
December 31, 1998 and the nine months ended September 30, 1999.
(d) Huttig expects to incur $100,000 of borrowings, the proceeds of which will
be used to pay off $68,000 of indebtedness to Crane and $32,000 of
indebtedness to Rugby. This adjustment reflects the receipt of the debt
proceeds, the payments of the parent company indebtedness, debt acquisition
costs of $1,000 and the reduction of interest expense. Interest was assumed
to be 8.5% per annum. An increase of 1/8 of a percentage point in the
interest rate would result in an increase of interest expense of $125. The
adjustment to interest expense is computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
<S> <C> <C>
Interest on $100 million of borrowings ......... $ 8,500 $ 6,375
Amortization of debt acquisition costs ......... 200 150
Huttig interest to Crane ....................... (6,703) (5,691)
Rugby USA interest to Rugby .................... (9,787) (1,113)
-------- --------
Net decrease in interest expense ............... $ (7,790) $ (279)
======== ========
</TABLE>
(e) This adjustment reflects the tax effect of the pro forma adjustments. The
tax effect was determined using an effective tax rate of 38% which
approximates the statutory federal rate adjusted for state taxes.
(f) Reflects 14.7 million shares to effect the spin-off and 6.9 million shares
for the Rugby USA acquisition.
30
<PAGE>
(g) This adjustment reflects the net decrease in Cash due to:
Proceeds from assumed borrowings ........... $ 100,000
Repayment of indebtedness to Crane ......... (68,000)
Repayment of indebtedness to Rugby ......... (32,000)
Remittance of Huttig cash balance at the
spin-off date to Crane .................... (4,003)
Remittance of Rugby USA cash balance at the
acquisition date to Rugby ................. (8,285)
---------
Net decrease in Cash ....................... $ (12,288)
=========
(h) Reflects the net decrease in Other assets due to:
<TABLE>
<CAPTION>
<S> <C>
Elimination of Rugby USA intangible assets ............................ $ (7,605)
Capitalization of debt acquisition costs related to the new borrowings 1,000
--------
Net decrease in Other assets .......................................... $ (6,605)
========
</TABLE>
(i) Reflects the net decrease to Property, plant and equipment due to the
application of negative goodwill from the Rugby USA acquisition which was
computed as shown below. The fair value of Rugby USA's net assets is
assumed to be the net book value. To the extent that the fair value of
Rugby USA's net assets was to increase or decrease, the excess of net
assets acquired over the value of equity issued would increase or decrease
by a like amount.
<TABLE>
<CAPTION>
<S> <C>
Net book value of Rugby USA net assets acquired ........................ $ 132,960
Plus tax liability retained by Rugby ................................... 21,251
Plus deferred tax asset recognized upon acquisition .................... 9,412
Less Rugby USA net assets retained by Rugby ............................ (35,054)
Less anticipated dividend to Rugby ..................................... (32,000)
Less Rugby USA Intangible assets (Other assets) ........................ (7,605)
Less elimination of note receivable from Rugby ......................... (2,949)
Less remittance of Rugby USA cash to Rugby ............................. (8,285)
---------
Estimated fair value of Rugby USA net assets acquired .................. 77,730
Assumed value of equity issued to acquire Rugby USA .................... 44,800
---------
Excess of net assets acquired over value of equity issued .............. 32,930
Deferred credit ........................................................ 8,752
---------
Application of negative goodwill from the Rugby USA acquisition ........ $ 24,178
=========
</TABLE>
The equity to be issued to acquire Rugby USA will represent approximately
32% of the outstanding Huttig common stock following the acquisition, and
accordingly the value of such equity is 32% of the estimated enterprise
value of $140 million, or $44.8 million. The estimate will be adjusted to
reflect the actual market price of the Huttig shares when trading
commences.
(j) Reflects the remittance of the Huttig cash balance at the spin-off
date to Crane and elimination of $105,564 (Payable to parent --
$13,382 and Note payable to parent -- $92,182) to be effected as
follows:
<TABLE>
<S> <C>
Repayment of indebtedness to Crane ................................. $ 68,000
Capital contribution by Crane ...................................... 33,561
Remittance of the Huttig cash balance at the spin-off date to Crane 4,003
--------
Total .............................................................. $105,564
========
</TABLE>
31
<PAGE>
In addition, Rugby USA will establish a note payable to Rugby through a
dividend. After the acquisition this note will be paid off with proceeds
from the assumed borrowing.
(k) Represents $100,000 in assumed borrowings.
(l) Represents the net change in Equity due to:
<TABLE>
<CAPTION>
<S> <C>
Capital contribution by Crane ........................................... $ 33,561
Assumed value of equity issued to acquire Rugby USA (see Note (i) above) 44,800
Elimination of Rugby USA historical equity .............................. (132,960)
----------
Net change in Equity .................................................... $ (54,599)
==========
</TABLE>
The pro forma book equity consists of the following:
Capital contribution by Crane ............................... $ 33,561
Assumed value of equity issued to acquire Rugby USA ......... 44,800
Huttig historical equity .................................... 36,183
--------
$114,544
========
(m) Reflects elimination of Rugby USA receivable of $2,949 from Rugby.
(n) Reflects the Rugby USA tax liabilities that by agreement will be retained
by Rugby.
(o) Reflects the payable arising from debt acquisition costs related to the
assumed borrowings.
(p) Reflects the net increase in deferred taxes due to:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax asset arising from the difference between the assigned values and
the tax bases of the assets and liabilities of Rugby USA ..................... $ 9,412
Reclassification of existing deferred tax liabilities ........................ (2,128)
--------
Increase in net deferred tax asset ........................................... $ 7,284
========
</TABLE>
(q) Reflects negative goodwill resulting from the Rugby USA acquisition (See
Note (i) above).
32
<PAGE>
CREDIT FACILITIES
Huttig expects to establish credit arrangements in connection with the
spin-off and acquisition of Rugby USA including a $30 million working capital
facility, a $20 million acquisitions facility and a $100 million facility to
fund debt repayments to Crane and Rugby. Such facilities are expected to
aggregate $100 million if Huttig does not acquire Rugby USA. Receipt of
commitments for the credit facilities satisfactory to Crane is a condition to
the spin-off.
THE SPIN-OFF
REASONS FOR THE SPIN-OFF
On , 1999, Crane's board of directors approved the spin-off of
Huttig. The Crane board of directors believes that the spin-off is in the best
interest of Crane's stockholders.
Huttig is being spun-off for the following reasons:
o The spin-off is necessary to effect the acquisition of Rugby USA and
should allow Huttig to pursue more effectively its acquisition
strategy by, among other things, providing it the flexibility to
use its stock as currency to purchase other potential acquisition
targets.
o The growth and management strategies of Huttig's distribution
business are not fully aligned with the other businesses of Crane.
Separation of Huttig's business from Crane will allow Huttig to
better position its own strategic objectives in its area of
expertise, which should result in enhanced growth.
o The spin-off will enable Huttig to have direct access to capital
markets. Depending upon market conditions, Huttig may raise equity
capital to retire some or all of its outstanding debt. With certain
exceptions, the Registration Rights Agreement with Rugby prohibits
Huttig from publicly offering any newly issued shares of common
stock until the earlier of the date on which Rugby disposed of 50
percent of the Huttig common stock received in the exchange and two
years after the completion of the exchange. See "The Acquisition
Transactions -- The Registration Rights Agreement."
o The spin-off will allow Huttig to recruit, retain and motivate key
employees by providing them with stock-based compensation
incentives directly tied to the success of Huttig's business.
MANNER OF EFFECTING THE SPIN-OFF
Crane will effect the spin-off by distributing all issued and
outstanding shares of Huttig common stock, together with accompanying preferred
share purchase rights, to holders of record of Crane common stock as of the
close of business on , 1999. The spin-off will be made on the basis of one
share of Huttig common stock for every 4.5 shares of Crane common stock held as
of the close of business on , 1999.
Prior to the spin-off, Crane will deliver all outstanding shares of
Huttig common stock to the distribution agent for distribution. As promptly as
practicable after the spin-off, the distribution agent will mail certificates
for whole shares of Huttig common stock to Crane stockholders of record on
, 1999.
If a stockholder owns fewer than 4.5 shares of Crane common stock or is
otherwise entitled to receive a fractional share of Huttig common stock, that
stockholder will receive cash instead of a fractional share of Huttig common
stock. The distribution agent will, promptly after the date of the spin-off,
aggregate all such fractional share interests in Huttig common stock with those
of other similarly situated stockholders and sell such fractional share
interests in Huttig common stock at then-prevailing prices. The distribution
agent will distribute the cash proceeds to stockholders entitled to such
proceeds pro rata based upon their fractional interests in Huttig common stock.
No interest will be paid on any cash distributed in lieu of fractional shares.
If you hold your shares of Crane common stock through a stockbroker,
bank or other nominee, you are not likely to be a stockholder of record.
Therefore, your receipt of Huttig common stock distributed in the spin-off will
depend on the arrangements between you and the nominee that is the record owner
and holder of your shares of Crane common stock. It is anticipated that
stockbrokers and banks will generally credit their customers' accounts with
Huttig common stock on or about , 1999. You should check
33
<PAGE>
directly with your stockbroker, bank or other nominee to confirm the particular
arrangements relating to your account.
No owner of Crane common stock will be required to pay any cash or other
consideration for shares of Huttig common stock received in the spin-off or to
surrender or exchange any shares of Crane common stock to receive shares of
Huttig common stock. The shares of Huttig common stock distributed in the
spin-off will be fully paid and nonassessable. The shares of Huttig common
stock will not be entitled to preemptive rights. See "Description of Huttig
Capital Stock."
Participants in the Crane Dividend Reinvestment and Stock Purchase Plan
will be credited with the number of shares (including fractional shares) of
Huttig common stock distributed in the spin-off in respect of the Crane common
stock held in their dividend reinvestment accounts. Shares of Huttig common
stock credited as a result of the spin-off to a participant in the Crane
Dividend Reinvestment and Stock Purchase Plan in respect of the Crane common
stock held in that participant's dividend reinvestment account will be
aggregated with shares of Huttig common stock distributed in the spin-off in
respect of Crane common stock held by that participant outside such account and
the distribution agent will mail, as promptly as practicable after the
spin-off, a certificate for the aggregage number of whole shares attributable
to such shareholder.
NO CONSIDERATION WILL BE PAID BY STOCKHOLDERS OF CRANE FOR THE SHARES OF
HUTTIG COMMON STOCK TO BE RECEIVED BY THEM IN THE SPIN-OFF, NOR WILL THEY BE
REQUIRED TO SURRENDER OR EXCHANGE SHARES OF CRANE COMMON STOCK OR TAKE ANY
OTHER ACTION IN ORDER TO RECEIVE HUTTIG COMMON STOCK.
RESULTS OF THE SPIN-OFF
After the spin-off, Huttig will be a separate public company. The number
and identity of its stockholders immediately after the spin-off will be the
same as the number and identity of Crane's stockholders at the close of
business on . Immediately after the spin-off, it is expected that Huttig
will have approximately holders of record of its common stock and
approximately shares of its common stock outstanding, based on the
number of record stockholders and issued and outstanding shares of Crane common
stock at the close of business on and on the distribution ratio of one
share of Huttig common stock for every 4.5 shares of Crane common stock owned
by a Crane stockholder at that time. After completion of the acquisition of
Rugby USA, it is expected that Huttig will have approximately 21.6 million
shares of common stock outstanding, approximately 68% of which will be held by
former Crane stockholders and approximately 32% of which will be held by Rugby.
The spin-off will not affect the number of outstanding shares of Crane
common stock or the rights attendant to those shares.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
The following is a summary of the material U.S. federal income tax
consequences of the spin-off. It is not intended to address the tax
consequences for every stockholder. In particular, this summary does not cover
state, local or non-U.S. income and other tax consequences. Accordingly,
stockholders are strongly encouraged to consult their individual tax advisors
for information on the tax consequences applicable to their individual
situations. In addition, stockholders residing outside of the United States are
encouraged to seek tax advice regarding the tax implications of the spin-off.
Crane has requested a tax ruling from the IRS. If granted, the tax
ruling will state that, among other things, the spin-off will qualify as a
tax-free distribution under Section 355 of the Internal Revenue Code. Receipt
of a favorable tax ruling is a condition to the spin-off. In accordance with
this tax ruling:
o No gain or loss will be recognized by Crane upon the spin-off of
Huttig common stock to Crane's stockholders.
o No gain or loss will be recognized by Crane's stockholders as a
result of their receipt of Huttig common stock in the spin-off
except to the extent that a stockholder receives cash in lieu of
any fractional share.
o A Crane stockholder who receives cash as a result of the sale of a
fractional share of Huttig common stock by the
34
<PAGE>
distribution agent on behalf of such stockholder will be treated as
having received the fractional share in the spin-off and then
having sold the fractional share. Accordingly, the stockholder will
recognize gain or loss equal to the difference between the cash
received and the amount of tax basis allocable (as described below)
to the fractional share. Such gain or loss will be capital gain or
loss if the fractional share would have been held by the
stockholder as a capital asset.
o A stockholder's tax basis in Crane common stock will be apportioned
between Crane common stock and Huttig common stock received in the
spin-off on the basis of the relative fair market values of the
shares at the time of the spin-off.
o The holding period of Huttig common stock received in the spin-off
will be the same as the holding period of Crane common stock with
respect to which Huttig common stock will be distributed, provided
that the stockholder holds the Crane common stock as a capital
asset on the date of the spin-off.
A tax ruling relating to the qualification of a spin-off as a tax-free
distribution within the meaning of Section 355 of the Internal Revenue Code
generally is binding on the IRS. However, the continuing validity of a tax
ruling is subject to certain factual representations and assumptions. Crane and
Huttig are not aware of any facts or circumstances that would cause the
representations and assumptions contained in the tax ruling request made by
Crane to be untrue.
If the spin-off were not to qualify as a tax-free distribution within
the meaning of Section 355 of the Code, Crane would recognize taxable gain
equal to the excess of the fair market value of the Huttig common stock
distributed to Crane's stockholders over Crane's tax basis in the Huttig common
stock. In addition, each Crane stockholder who receives Huttig common stock in
the spin-off would generally be treated as receiving a taxable distribution in
an amount equal to the fair market value of Huttig common stock. If the
spin-off qualified under Section 355 of the Code but was disqualified as
tax-free to Crane because of certain post-spin-off circumstances, such as an
acquisition of Huttig within two years after the spin-off that, together with
the spin-off, is treated as pursuant to a single plan, Crane would recognize
taxable gain but the spin-off would generally be tax-free to each Crane
stockholder. See "Risk Factors."
Promptly following the spin-off, Crane will send a letter to the holders
of Crane common stock who receive Huttig common stock in the spin-off that will
explain the allocation of tax basis between Crane common stock and Huttig
common stock.
THE FOREGOING IS ONLY A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE SPIN-OFF UNDER CURRENT LAW AND IS INTENDED FOR GENERAL
INFORMATION ONLY. EACH CRANE STOCKHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR
AS TO THE PARTICULAR CONSEQUENCES OF THE SPIN-OFF TO SUCH STOCKHOLDER,
INCLUDING THE APPLICATION OF STATE, LOCAL AND NON-U.S. TAX LAWS, AND AS TO
POSSIBLE CHANGES IN TAX LAW THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED
ABOVE.
The Tax Allocation Agreement provides that Huttig will be responsible
for any taxes imposed on Crane that would not have been payable but for the
breach by Huttig of any representation, warranty or obligation under the Tax
Allocation Agreement, the tax ruling request or the Distribution Agreement. See
"Arrangements with Crane Relating to the Spin-Off -- Tax Allocation Agreement."
LISTING AND TRADING OF HUTTIG COMMON STOCK
Currently, there is no public market for Huttig common stock. Huttig has
applied to have its common stock approved for listing on the New York Stock
Exchange under the trading symbol "HBP". It is expected that a when-issued
trading market for Huttig common stock will develop on or before the close of
business on , 1999. The prices at which Huttig common stock may trade on
a when-issued basis cannot be predicted. It is expected that the New York Stock
Exchange will determine that Crane common stock traded on or after , 1999,
the second trading day prior to the record date for the spin-off, may be traded
either "ex-distribution -- when issued" or "regular way" (with due bills
35
<PAGE>
attached). Crane common stock traded "ex-distribution -- when issued" will
entitle the buyer to receive only the underlying shares of Crane common stock.
Crane common stock traded "regular way" (with due bills attached) will have due
bills attached entitling the buyer to receive and requiring the seller to
deliver the shares of Huttig common stock to be issued in the spin-off as well
as the underlying shares of Crane common stock.
Beginning on the first New York Stock Exchange trading day after the
date of the spin-off, it is expected that trading of Crane common stock
"ex-distribution -- when issued" or "regular way" (with due bills attached)
will no longer be permitted and Crane common stock will trade "regular way"
only, entitling the buyer to receive only Crane common stock.
Until Huttig common stock is fully distributed and an orderly market
develops, the prices at which trading in Huttig common stock occurs may
fluctuate significantly and may be lower or higher than the price that would be
expected for a fully-distributed issue. The prices at which Huttig common stock
will trade following the spin-off will be determined by the marketplace and may
be influenced by many factors, including:
o the depth and liquidity of the market for Huttig common stock,
o investor perceptions of Huttig, its business and the industries in
which it operates and of the combined company if the acquisition of
Rugby USA is completed,
o Huttig's dividend policy,
o Huttig's or the combined company's financial results, and
o general economic and market conditions.
Substantially all of the shares of Huttig common stock distributed in
the spin-off will be eligible for immediate resale in the public market. In
transactions similar to the spin-off, it is not unusual for a significant
redistribution of shares to occur during the first few weeks or even months
following completion of the transaction. Huttig is not able to predict whether
substantial amounts of Huttig common stock will be sold in the open market
following the spin-off or what effect these sales may have on prices at which
Huttig common stock may trade. Sales of substantial amounts of Huttig common
stock in the public market during this period, or the perception that any
redistribution has not been completed, could materially adversely affect the
market price of Huttig common stock.
Generally, Huttig common stock distributed in the spin-off will be
freely transferable, except for securities received by persons deemed to be
Huttig "affiliates" under the Securities Act of 1933. Persons who may be deemed
to be Huttig affiliates after the spin-off generally include individuals or
entities that control, are controlled by, or are under common control with
Huttig, including Huttig directors and executive officers. Persons who are
Huttig affiliates will be permitted to sell their shares of Huttig common stock
received in the spin-off only pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements of
the Securities Act, such as in accordance with the requirements of Rule 144
under the Securities Act.
ARRANGEMENTS WITH CRANE RELATING TO THE SPIN-OFF
For the purpose of governing certain of the relationships between Crane
and Huttig relating to the spin-off and to provide for an orderly transition
and for other matters, Crane and Huttig have entered into the agreements
described below, copies of which have been filed as exhibits to the
Registration Statement of which this Information Statement is a part. The
following summaries of the material terms of these agreements are qualified by
reference to the agreements as so filed.
DISTRIBUTION AGREEMENT
Huttig and Crane will enter into a Distribution Agreement that provides
for the actions required to effect the spin-off.
The Distribution Agreement provides that on or prior to the
effectiveness of the spin-off, Crane will deliver to the distribution agent a
certificate or certificates representing all of the outstanding shares of
Huttig common stock. Crane will instruct the distribution agent to distribute
on the date of the spin-off or as soon
36
<PAGE>
thereafter as practicable one share of Huttig common stock for every 4.5 shares
of Crane common stock held by holders of record of Crane common stock as of
, 1999. As promptly as practicable after the spin-off, the distribution
agent will mail certificates for whole shares of Huttig common stock to Crane
stockholders of record on , 1999.
If a stockholder owns fewer than 4.5 shares of Crane common stock or is
otherwise entitled to receive a fractional share of Huttig common stock, that
stockholder will receive cash instead of a fractional share of Huttig common
stock. The distribution agent will, promptly after the date of the spin-off,
aggregate all such fractional share interests in Huttig common stock with those
of other similarly situated stockholders and sell such fractional share
interests in Huttig common stock at then-prevailing prices. The distribution
agent will distribute the cash proceeds to stockholders entitled to such
proceeds pro rata based upon their fractional interests in Huttig common stock.
No interest will be paid on any cash distributed in lieu of fractional shares.
The Distribution Agreement also provides that, after the spin-of, Crane
will continue to have all rights in and to the name "Crane" and all related
corporate symbols and logos and Huttig will have all rights in and to the name
"Huttig" and all related corporate symbols and logos.
The Distribution Agreement provides generally that all assets and
liabilities of Huttig and the building products business conducted by Huttig
will be vested solely in Huttig after the spin-off. Crane will have no interest
in the assets of the building products business and will have no obligation
with respect to the liabilities of the building products business after the
spin-off. Similarly, Huttig will have no interest in the assets of Crane's
other businesses and will have no obligation with respect to the liabilities of
Crane's other businesses after the spin-off.
The Distribution Agreement provides that, prior to the spin-off, Huttig
will pay to Crane from time to time, and specifically on the day prior to the
spin-off, Huttig's net cash balances on hand in reduction of intercompany
indebtedness. Also prior to the spin-off, Huttig will arrange for the credit
facilities, and on the day prior to the spin-off will issue a note to Crane in a
principal amount, expected to be $68 million, equal to 68% of the funds
available to be borrowed by Huttig under the credit facilities arranged to repay
debt to Crane and Rugby. The Distribution Agreement also provides that if Crane
advances funds to Huttig to fund acquisitions, Huttig will from time to time
prior to the spin-off issue notes in the principal amount of such advances up to
$15 million in the aggregate. Any such notes will be repaid with proceeds from
the acquisitions facility expected to be entered into in connection with the
spin-off.
The Distribution Agreement also provides that at the time of the
spin-off:
o intercompany receivables, payables and other balances between Huttig
and Crane and/or an affiliate of Crane will be settled and
eliminated, except for the indebtedness evidenced by the notes
referred to in the preceding paragraph, and with other limited
exceptions related to the spin-off; and
o agreements, arrangements, commitments or understandings between
Huttig and Crane and/or an affiliate of Crane, other than ordinary
course business arrangements, generally will be terminated, except
spin-off related arrangements and agreements with third parties.
o Huttig will be responsible for obtaining and maintaining its own
insurance coverage and will no longer be an insured party under
Crane's insurance policies after the spin-off, except that Huttig will
have the continued right to (i) assert claims for insured incidents
occurring on or prior to the date of the spin-off under Crane's
"occurrence basis" policies with third-party insurers and (ii)
prosecute claims properly asserted with the insurance carrier prior to
the date of the spin-off under Crane's "claims made" basis policies
for insured incidents occurring on or prior to the date of the
spin-off.
The Distribution Agreement provides generally that all costs and
expenses incurred through the time of the spin-off in connection with the
spin-off, the preparation, execution and
37
<PAGE>
delivery of the agreements described in this section and the consummation of
the contemplated transactions will be charged to and paid by Crane, other than
(i) costs and expenses of Huttig's credit facilities and other financings and
(ii) costs and expenses to the extent attributable to the operation of Huttig's
business, which will be paid by Huttig. Except as otherwise expressly provided
in any agreement, all costs and expenses incurred subsequent to the spin-off
and in connection with implementation of the spin-off agreements will be paid
by the party for whose benefit the expenses are incurred. Any subsequent
expenses that cannot be allocated on that basis will be split equally between
Huttig and Crane.
The Distribution Agreement provides that the spin-off will not occur
until all of the following conditions are satisfied or waived by the Crane
board of directors:
o receipt of the tax ruling from the IRS;
o expiration or termination of all applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvement Acts of 1976 with
respect to the Rugby USA acquisition;
o receipt of financing commitments for Huttig's credit facility in
form and substance satisfactory to Crane;
o receipt of all material governmental consents required for the
spin-off and the exchange;
o the Form 10 registration statement having become effective under the
Exchange Act;
o Huttig common stock having been approved for listing on the NYSE;
o approval of the exchange by Rugby's shareholders; and
o no order having been entered and in effect that would prohibit or
make illegal the spin-off or the exchange.
Huttig is not aware of any required material consents except those otherwise
listed above as separate conditions. Satisfaction of each of the foregoing
conditions will not create any obligation on the part of Crane under the
Distribution Agreement to effect or seek to effect the spin-off or in any way
limit Crane's right to terminate the Distribution Agreement. However, Crane is
obligated under the share exchange agreement with Rugby to declare the
distribution within five days after all of the forgoing conditions have been
satisfied.
EMPLOYEE MATTERS AGREEMENT
Huttig and Crane will enter into an Employee Matters Agreement
concerning Huttig's employee benefits obligations, including both compensation
and benefits, with respect to its employees in connection with the spin-off.
Under the Employee Matters Agreement, Huttig assumes certain liabilities for
pension, welfare and other employee benefits with respect to its employees and
certain former employees who remain covered under one or more of its benefit
plans and arrangements and agrees to establish certain benefit plans for such
individuals. The Employee Matters Agreement does not alter or affect any
employee benefit plan currently sponsored or maintained by Huttig exclusively
for the benefit of its employees.
The Employee Matters Agreement does not preclude Huttig from
discontinuing or changing such plans, or establishing any new plans, at any
time after the spin-off. In addition, the Employee Matters Agreement represents
an agreement between Crane and Huttig and does not create or establish any
contract with, or other right or interest in, any employee of Crane or Huttig
or any other party with respect to employee benefits.
Retirement Plans. Effective prior to or immediately after the spin-off,
Huttig will establish its own qualified and non-qualified employee benefit
plans, which generally will be the same as Crane's plans as in effect at that
time, except that Huttig will not establish or maintain any qualified defined
benefit pension plan for its salaried or hourly employees. Benefits accrued by
Huttig salaried and hourly employees under the applicable Crane pension plans
will be frozen, and Huttig will have no liability, and Crane will have no
obligation to transfer assets, with respect to such benefits. Crane will retain
responsibility for funding and paying when due retirement benefits accrued by
Huttig employees under any Crane pension plan prior to the spin-off.
38
<PAGE>
Huttig employees who have accrued benefits under a Crane pension plan
will be fully vested in those benefits. In addition, both salaried and hourly
employees who have accrued benefits under a Crane pension plan will continue to
receive service credit for retirement benefit eligibility purposes under the
Crane pension plan for service with Huttig after the spin-off. However, Huttig
employees will accrue no further benefits under the Crane pension plan after
the spin-off.
Huttig will establish a new qualified defined contribution plan for its
employees that will be substantially similar to the Crane 401(k) plan and will
incorporate a discretionary profit sharing contribution feature. Huttig also
intends to continue its 401(k) Target Plan for former bargaining employees of
Palmer G. Lewis Company, its American Pine Products 401(k) Profit Sharing Plan
and its Whittier-Ruhle Savings and Investment Plan. All of the account balances
of Huttig employees under the Crane 401(k) plan will be fully vested and a
corresponding amount of assets will be transferred from the Crane 401(k) plan
to one or more of the qualified defined contribution plans maintained by
Huttig.
Stock and Incentive Compensation Plans. In addition to the tax-qualified
retirement plans discussed above, Huttig will establish certain nonqualified
stock and incentive compensation plans and arrangements similar to those
currently offered by Crane. These plans and arrangements include the EVA
Incentive Compensation Plan, a Stock Incentive Plan providing for stock options
and awards of restricted stock and a Restricted Stock Plan for Non-Employee
Directors of Huttig. Huttig will assume liability for the account balances of
its employees under Crane's EVA Incentive Compensation Plan. The treatment of
awards or grants to Huttig employees under Crane's stock-based plans is
described below. Huttig further intends to establish an employee stock purchase
plan for its employees that will allow them to invest in Huttig's future growth
by purchasing Huttig stock at market prices.
Crane Stock Plans. Pursuant to the Employee Matters Agreement, each
outstanding stock option for Crane Common Stock granted under the Crane Stock
Option Plan as of the close of business on the date of the spin-off will be
adjusted to reflect the spin-off as described below. The number of shares of
Crane common stock subject to the option as of the date of the spin-off will be
multiplied by the Option Ratio (as defined below) and then rounded to the
nearest whole share. The per-share exercise price of the Crane option as of the
spin-off will be divided by the Option Ratio.
For purposes of the adjustments described above, the "Option Ratio"
means the amount obtained by dividing (a) the average of the high and low sales
prices of the Crane common stock, regular way, as listed on the NYSE on the
trading day immediately prior to the date of the spin-off by (b) the average of
the high and low sales prices of the Crane common stock, ex-distribution --
when issued, on the date of the spin-off.
Crane stock options held by Huttig employees will continue to vest in
accordance with their terms and will remain exercisable for 90 days after the
date of the spin-off. All unexercised Crane stock options held by Huttig
employees after such date will be forfeited.
Crane and Huttig have agreed with Mr. Kulpa that his shares of Crane
restricted stock will be treated in the following manner in connection with the
spin-off. His shares of time-based Crane restricted stock will be converted
into an economically equivalent number of shares of time-based Huttig
restricted stock, and the vesting schedule for both time-based grants will
remain unchanged. Mr. Kulpa's shares of performance-based Crane restricted
stock will be canceled. For information about the Crane restricted stock held
by Mr. Kulpa, see the Summary Compensation Table under "Compensation of
Executive Officers."
Health and Welfare Plans. As of the spin-off, Huttig generally will
assume all liabilities and responsibilities for providing health and welfare
benefits to its employees and retirees. However, during a transitional period,
Crane and Huttig may jointly participate in certain contracts, policies and
other administrative or indemnity arrangements with third parties to provide
health and welfare benefits applicable to their respective employees and
retirees.
With respect to postretirement medical and life insurance benefits,
Huttig presently intends
39
<PAGE>
to continue to pay 50% of any premium or cost of such coverage for its current
retirees between the ages of 55 and 65. For active employees who began working
with Huttig prior to 1992, Huttig intends to continue to offer the same
postretirement medical and life insurance benefits as are currently offered,
but Huttig will not pay any of the premium or cost of such coverage. For active
employees who began working with Huttig in 1992 or later, Huttig does not
intend to offer group postretirement medical and life insurance benefits.
TAX ALLOCATION AGREEMENT
Through the date of the spin-off, Huttig's results of operations have
been and will be included in Crane's consolidated U.S. federal income tax
returns. As part of the spin-off, Huttig and Crane will enter into a Tax
Allocation Agreement which provides, among other things, for the allocation
between Crane and Huttig of federal, state, local and non-U.S. tax liabilities
relating to Huttig's business.
The terms of the Tax Allocation Agreement provide that Huttig will pay
its allocable share of any taxes due with respect to consolidated tax returns
that Huttig files with Crane for all periods that commence prior to the
spin-off. Each of Huttig and Crane will be separately responsible for the
filing of tax returns and payment of all taxes for periods beginning after the
date of the spin-off. Under the Tax Allocation Agreement, Huttig is responsible
for any taxes imposed on Crane that would not have been payable but for the
breach by Huttig of any representation, warranty or obligation under the Tax
Allocation Agreement, the tax ruling request or the Distribution Agreement.
These representations, warranties and obligations relate to Huttig's continuing
satisfaction of certain statutory and judicial requirements necessary for the
spin-off to be tax-free to Huttig, Crane and its stockholders. In particular,
Huttig has represented generally that (1) during the two-year period following
the spin-off, Huttig will not enter into any transaction or make any change in
its equity structure that may cause the spin-off to be treated as part of a
plan pursuant to which one or more persons acquire Huttig stock representing a
50-percent or greater equity interest in Huttig, (2) it will not repurchase
outstanding Huttig common stock after the spin-off representing 20 percent or
more of the outstanding Huttig common stock, and (3) following the spin-off, it
will continue the active conduct of its businesses. Other representations and
obligations of Huttig in the Tax Allocation Agreement, ruling request and
Distribution Agreement are either unrelated to the tax-free status of the
spin-off or constitute statements of fact as to which there is no uncertainty.
The Tax Allocation Agreement provides that for a period of two years
after the spin-off, Huttig will not liquidate, merge or consolidate with any
other person without Crane's prior written consent. The Tax Allocation
Agreement also provides that during the same period, Huttig will not enter into
any transaction or make any change in its equity structure that may cause the
spin-off to be treated as part of a plan pursuant to which one or more persons
acquire Huttig stock representing a 50-percent or greater equity interst in
Huttig.
Although the Tax Allocation Agreement is binding between Crane and
Huttig, it is not binding on the Internal Revenue Service and does not affect
the liability of Huttig or its subsidiaries, or the liability of Crane and its
subsidiaries, to the IRS for all federal taxes of the consolidated group
relating to periods through the date of the spin-off.
THE ACQUISITION TRANSACTIONS
SHARE EXCHANGE AGREEMENT
Crane, Huttig and Rugby have entered into a Share Exchange Agreement
that provides that, as soon as practicable after the spin-off occurs, Rugby
will transfer to Huttig all of the outstanding capital stock of Rugby USA in
exchange for newly issued shares of Huttig common stock. As a result of this
exchange, Rugby USA will become a wholly owned subsidiary of Huttig. The number
of shares to be issued to Rugby will equal 32% of the Huttig common stock
outstanding, excluding, for purposes of calculating the 32%, the shares of
Huttig restricted stock that will be held by Mr. Kulpa. Following the closing,
Huttig will have the royalty-free exclusive right, when used in relation to
Huttig's lines of business as currently conducted, to operate in the United
States under the name "Rugby Building Products" for a period of two years.
40
<PAGE>
Certain Preliminary Actions
The Exchange Agreement provides that, prior to the exchange, Rugby USA
will dispose of a number of locations currently operated by Rugby USA. If those
assets have not been sold to a third party, Rugby USA will transfer them to a
subsidiary of Rugby immediately prior to the exchange. Rugby has agreed to
indemnify Huttig and Crane against any losses that either may incur that are
related to the transferred assets.
The Exchange Agreement provides that on the day prior to completion of
the spin-off, Huttig will pay to Crane, in reduction of outstanding
indebtedness, Huttig's net cash balance on hand at the close of business on
that day. On the day prior to the closing of the exchange, Rugby USA will
distribute to Rugby its net cash balance on hand at the close of business on
that day, less any amount then owing by Rugby USA under its existing working
capital line of credit, and will repay all outstanding indebtedness under that
line of credit.
Prior to the exchange, Rugby will also eliminate a Rugby USA receivable
from Rugby of up to $9 million in respect of the proceeds of a prior
disposition by Rugby USA, without affecting the net cash balances of Rugby USA.
The Exchange Agreement provides that Huttig will use its best efforts to
arrange financing to provide at closing:
o a working capital facility of $30 million or such other amount as
Huttig's board may determine;
o an acquisitions facility of $20 million or such other amount as
Huttig's board may determine; and
o a credit facility to fund the repayment of outstanding debt owed by
Huttig to Crane and by Rugby USA to Rugby in the maximum amount
that, taken together with the working capital and acquisitions
facilities, would be consistent with an NAIC-2 rating for Huttig's
indebtedness. The National Association of Insurance Commissioners
(NAIC) assigns a rating to every corporate security held by an
insurance company. An NAIC-2 rating is an investment grade rating
equivalent to a Standard & Poors rating of BBB+ to BBB-. This
repayment facility is expected to aggregate $100 million.
Transactions Simultaneous with the Exchange
The Exchange Agreement provides that, at the closing of the exchange,
Huttig will repay from the acquisitions facility any advances made by Crane to
fund asset acquisitions by Huttig from the date of the Exchange Agreement
through the closing of the exchange, but not more than $15 million in the
aggregate. At the closing of the exchange, Huttig will pay 68% of the proceeds
of the debt repayment facility to Crane and 32% of the proceeds of that
facility to Rugby. These debt repayments will satisfy all indebtedness between
Huttig and Crane, on the one hand, and Rugby USA and Rugby, on the other.
Representations, Warranties and Covenants of the Parties
The Exchange Agreement contains customary representations and warranties
of the parties, including without limitation:
o as to the due organization, qualification and capitalization of the
respective parties;
o that each party has the necessary corporate power and authority to
execute, deliver, and perform each party's obligations under the
Exchange Agreement and other agreements between the parties;
o that the execution, delivery and performance of each party's
obligations under the Exchange Agreement and other agreements will
not conflict with or violate any party's governing documents,
applicable laws, contracts or other agreements in a materially
adverse manner to that party;
o that no material governmental consents, approvals or permits are
required by each party for the execution, delivery and performance
of the Exchange Agreement, Registration Rights Agreement and
Transition Services Agreement, except those identified in the
Exchange Agreement;
41
<PAGE>
o that each of Huttig and Rugby USA are in possession of all material
permits necessary to operate their businesses and are not in
violation of any applicable law except where it could not
reasonably have a material adverse effect on that party;
o as to the financial statements of Huttig and Rugby USA included in
the Form 10;
o regarding certain of each party's assets, liabilities and obligations;
and
o that since September 30, 1999, there has not been any material
adverse effect on each of Huttig and Rugby USA, and that the
businesses of Huttig and Rugby USA have been conducted in the
ordinary course and in a manner consistent with past practices.
Huttig and Crane have also represented their compliance with federal
securities laws regarding any filings required in connection with the spin-off,
including the Form 10.
The Exchange Agreement also contains covenants of the parties,
including, without limitation, covenants that the businesses of Huttig and
Rugby USA will be conducted in the ordinary course consistent with past
practice until the closing of the exchange, including management of working
capital. The Exchange Agreement contains other covenants, including, without
limitation, a covenant by Rugby to convene a meeting of its shareholders for
purposes of voting on the exchange.
Rugby has also agreed that prior to the closing of the exchange, either
Rugby or Rugby USA shall pay Rugby USA's estimated U.S. federal and state
income taxes for the period beginning January 1, 1999 and ending on the date of
closing of the exchange. Rugby is required to pay to Huttig after the exchange
the amount, if any, by which the actual federal and state income taxes due by
Rugby USA for this period exceed the estimated tax payments made by Rugby or
Rugby USA prior to the closing of the exchange.
In the Exchange Agreement, Crane has agreed not to, and to cause Huttig
not to, directly or indirectly:
o encourage inquiries or proposals regarding a sale of Huttig or a
material portion of its assets;
o engage in negotiations concerning, or provide non-public information
to a third party relating to, a sale of Huttig or a material
portion of its assets; or
o agree to or approve a sale of Huttig or a material portion of its
assets.
These restrictions do not apply to an unsolicited proposal for a sale of
Huttig or a material portion of its assets that Crane's board of directors
determines is more favorable from a financial point of view to Crane and its
stockholders than the spin-off and the exchange.
Rugby has agreed to provisions with respect to Rugby USA that are
identical to those discussed in the preceding paragraph, except that the
restrictions also do not apply to the extent fiduciary obligations of the board
of directors of Rugby under applicable law require Rugby to take actions
otherwise restricted by the Exchange Agreement. In addition, Rugby is permitted
to disclose to its shareholders any information that is required to be
disclosed under applicable law.
Conditions to Closing
The obligations of the parties to the Exchange Agreement to effect the
spin-off and the exchange are subject to the satisfaction or waiver of certain
conditions, including, without limitation, receipt of the tax ruling from the
IRS, the SEC having declared the registration statement effective, Huttig's
common stock having been approved for listing on the NYSE, expiration or
termination of all applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvement Acts of 1976, receipt of commitments for the financing
described above and approval of Rugby's shareholders.
Termination
The Exchange Agreement may be terminated:
1. by the mutual written consent of (i) Crane and Rugby at any time
prior to the spin-off and (ii) Huttig and Rugby at any time prior to
the Exchange;
2. by any party to the Exchange Agreement if a final order restraining
or preventing
42
<PAGE>
the consummation of the transactions has been entered by a competent
governmental authority;
3. by any party to the Exchange Agreement if the exchange has not
occurred by January 31, 2000; provided, that a party may not
terminate the Exchange Agreement under this provision if the failure
of the exchange to have occurred results primarily from that party's
breach of its representations, warranties or covenants in the
Exchange Agreement; and provided further that no party may terminate
the Exchange Agreement solely pursuant to this provision if the
spin-off has been declared by the Crane board of directors;
4. by any party if the required vote in favor of the exchange by Rugby's
shareholders is not obtained;
5. by any party if any condition to that party's obligations becomes
incapable of being fulfilled before January 31, 2000 despite that
party's exercise of its reasonable best efforts to cause the
condition to be fulfilled;
6. by Crane or Huttig if (i) the Rugby board of directors withdraws or
changes, or resolves to withdraw or change, its approval or
recommendation of the Exchange Agreement or the exchange in a manner
adverse to Crane or Huttig, (ii) the Rugby board of directors
recommends, or resolves to recommend, to the shareholders of Rugby a
sale to a third party of Rugby USA or a material portion of its
assets that it has determined is more favorable to Rugby and its
shareholders from a financial point of view, or (iii) Rugby has
entered into an agreement to consummate a transaction described in
clause (ii) of this sentence;
7. by Rugby, if the Rugby board of directors determines, based on
written advice of independent legal counsel, that failure to
terminate the Exchange Agreement would cause the Rugby board of
directors to breach its fiduciary duties or if an unsolicited
financially superior proposal for an acquisition of Rugby USA has
been made and Rugby or Rugby USA enters into an agreement to
consummate that acquisition;
8. by Crane or Huttig if (i) the Crane board of directors determines not
to consummate the spin-off, (ii) an unsolicited financially superior
proposal for an acquisition of Huttig has been made and (iii) Crane
or Huttig enters into an agreement to consummate that acquisition;
or
9. by Rugby, if (i) the Crane board of directors resolves not to
consummate the spin-off or (ii) Crane or Huttig enters into an
agreement to consummate a financially superior acquisition of
Huttig.
Expenses Following Certain Termination Events
Upon a termination of the Exchange Agreement, Crane will be obligated to
pay Rugby $5 million if:
o Crane or Huttig terminates the Exchange Agreement on the basis
provided in paragraph 8, above; or
o Rugby terminates the Exchange Agreement on a basis provided in
paragraph 9, above.
Upon a termination of the Exchange Agreement, Rugby will be obligated to
pay Crane $5 million if
o Crane or Huttig terminates the Exchange Agreement on a basis provided
in paragraph 6, above;
o Rugby terminates the Exchange Agreement on a basis provided in
paragraph 7, above; or
o Crane, Huttig or Rugby terminates the Exchange Agreement on the basis
provided in paragraph 4, above, and within six months of termination
for this reason Rugby shall have entered into an agreement relating to
a financially superior acquisition of Rugby USA or a material portion
of its assets.
THE REGISTRATION RIGHTS AGREEMENT
At the closing of the exchange, Huttig and Rugby will enter into a
Registration Rights Agreement that provides, among other things,
43
<PAGE>
that so long as the Huttig common stock owned by Rugby and received in the
exchange constitutes at least 30%, 20% and 10% of the outstanding Huttig common
stock, Rugby will be entitled to designate for nomination by the Huttig board
three, two or one director(s), respectively. So long as the Huttig common stock
owned by Rugby and received in the exchange constitutes 10% or more of the
outstanding Huttig common stock, Rugby is required to be present at all
meetings of the stockholders of Huttig and to vote its shares of Huttig common
stock in favor of the Huttig board's nominees for election to the Huttig board.
At the time the Exchange Agreement was executed, the Crane Fund agreed
with Rugby that, so long as the Huttig common stock owned by Rugby and received
in the exchange constitutes 10% or more of the outstanding Huttig common stock,
the Crane Fund would (i) be present at all meetings of the stockholders of
Huttig and (ii) vote its shares of Huttig common stock for the nominees
designated by Rugby as provided in the Registration Rights Agreement.
In the Registration Rights Agreement, Huttig has agreed not to grant
registration rights to any person that become exercisable before the second
anniversary of the date of the exchange or, if earlier, the date on which the
shares owned by Rugby and received in the exchange constitute less than 10% of
the outstanding common stock on the date of the exchange.
Initial Offering Rights
Under the Registration Rights Agreement, Rugby has the right to require
Huttig to file, no later than four months after the Exchange, a registration
statement on Form S-1 covering either the sale, in an underwritten offering, of
at least 50% of the shares of Huttig common stock received in the exchange, or
the distribution of all of the shares so received in exchange for debt
securities of Rugby.
If Rugby does not sell all the shares registered in the initial
underwritten offering, and provided that the unsold shares constitute more than
2% of the outstanding Huttig common stock as of the date of the exchange, Rugby
has the right to require Huttig to file an additional registration statement on
Form S-1 covering the sale by Rugby in an underwritten offering of at least the
shares of Huttig common stock not sold in the initial offering. Huttig has the
right to postpone the filing of this second registration statement for up to
120 days.
During the first two years after the exchange, or, if earlier, until the
date Rugby sells 50% of the Huttig common stock it received in the exchange,
Huttig may not publicly offer or sell any newly issued shares of Huttig common
stock. Notwithstanding the foregoing, Huttig may make public offers or sales
during the restriction period described in the preceding sentence (i) solely to
employees or directors of Huttig, (ii) pursuant to a dividend reinvestment plan
and (iii) in business combination transactions, none of which individually
exceeds $15 million, that would otherwise qualify as private placements and are
issued pursuant to a shelf registration statement on Form S-4.
During the first nine months after the exchange, or, if earlier, until
the date the initial underwritten offering described above is completed, Huttig
may not offer or sell in a private offering or pursuant to an acquisition shelf
registration in connection with a business transaction any newly issued shares
of Huttig common stock.
Shelf Registration Right
Pursuant to the Registration Rights Agreement, at any time after the
twelfth full calendar month after the exchange, Rugby has the right to require
Huttig to effect a shelf registration with respect to the Huttig common stock
owned by Rugby and received in the exchange. Huttig would be required to keep
that registration statement effective until the Huttig common stock owned by
Rugby and received in the exchange constitutes less than 10% of the outstanding
Huttig common stock. Rugby will be entitled to two underwritten offerings
and/or debt exchangeable for common stock offerings under the shelf
registration statement unless Rugby required Huttig to effect an additional
underwritten offering on Form S-1 as provided above; in that case, Rugby will
be entitled to only one underwritten offering or debt exchangeable for common
stock offering under the shelf registration statement. Any sale of Huttig
common stock by Rugby pursuant to the shelf registration in other than
44
<PAGE>
an underwritten offering may be made only by or through an investment banking
firm or firms as may be reasonably acceptable to Rugby and Huttig.
Notwithstanding the foregoing, Huttig will not be required to effect an
underwritten offering or debt exchangeable for common stock offering under the
shelf registration statement:
o unless Rugby proposes to offer or sell a number of shares having a
market value of at least $20 million;
o if (A) Huttig has effected (i) an underwritten offering or debt
exchangeable for common stock offering within the prior four month
period or (ii) three underwritten offerings and/or debt
exchangeable for common stock offerings on behalf of Rugby or (B)
Rugby has withdrawn a prior request for an underwritten offering or
debt exchangeable for common stock offering within the prior four
month period;
o during the period starting with the date 60 days prior to the filing
of, and ending on a date 90 days following the effective date of, a
registration statement filed by Huttig, other than (i) a
registration statement relating to a business combination
transaction, (ii) an offering solely to employees or directors or
(iii) pursuant to a dividend reinvestment plan; or
o for a period of up to 30 days if Huttig's board of directors
determines that a delay would be in the best interests of Huttig
and its stockholders; provided that no such delay shall occur more
than once within any twelve month period.
Huttig and its other stockholders have the right to participate in any
underwritten offering effected under the shelf registration statement described
above; provided, however, that shares requested to be registered by Rugby shall
have priority over other shares, if, in the opinion of the lead managing
underwriter, the amount of common stock to be included in the offering exceeds
the amount which can be sold without adversely affecting the distribution of
the shares being offered.
Incidental Registration Rights
During the five year period starting on the date of the exchange, Rugby
has the right to include shares of Huttig common stock that it received in the
exchange in any underwritten offering made by Huttig for its own account or for
the account of other stockholders exercising their demand registration rights.
This right does not apply to a registration relating to a business combination
transaction, an offering solely to employees or directors or pursuant to a
dividend reinvestment plan. Rugby's rights as described in this paragraph would
continue after the fifth anniversary of the exchange for so long as Rugby is
not eligible to sell shares pursuant to Rule 144(k) under the Securities Act.
If, in an underwritten offering in which Rugby participates by virtue of
its exercise of the rights described in the preceding paragraph, the managing
underwriter determines that the number of shares requested to be included
exceeds the number of shares that can be sold without adversely affecting the
distribution of the offered shares, Rugby has certain preferential rights over
other stockholders before the second anniversary of the exchange or, if
earlier, the date on which the shares owned by Rugby and received in the
exchange constitute less than 10% of the outstanding common stock on the date
of the exchange.
Expenses
Huttig is required to pay all registration expenses, except for
duplicative filing fees, which will be paid by Rugby, incurred in connection
with registrations pursuant to the Registration Rights Agreement. Rugby is
required to pay only its underwriting discounts, selling commissions, stock
transfer taxes and the fees and expenses of its legal counsel.
TRANSITION SERVICES AGREEMENT
At the closing of the exchange, Huttig and Rugby will enter into a
Transition Services Agreement under which Huttig will provide designated
services to Rugby USA's industrial businesses, which Rugby has agreed Rugby USA
will sell to a third party or transfer to Rugby prior to the exchange.
The Transition Services
Huttig will provide, or cause to be provided, any or all of the
following categories
45
<PAGE>
of transition services to Rugby USA's industrial businesses for a term of six
months from the completion of the exchange:
o general accounting;
o cash management;
o tax;
o payroll;
o human resources;
o information technology;
o transportation; and
o various miscellaneous services.
The aggregate fee for these services will be up to approximately $50,000 per
month for the first three months after the exchange and up to approximately
$100,000 per month thereafter.
Termination and Assignability
Rugby may terminate any or all of the services provided under the
Transition Services Agreement by giving Huttig fifteen days prior written
notice and payment for any unpaid services previously rendered by Huttig. The
Transition Services Agreement is freely assignable by Rugby in connection with
any transaction in which it disposes of all or substantially all of the
industrial business assets to a third party.
46
<PAGE>
MANAGEMENT
DIRECTORS
The Restated Certificate of Incorporation of Huttig provides for three
classes of directors whose initial terms of office will expire at the annual
meeting of stockholders to be held in 2000, 2001 and 2002, respectively. Huttig
expects to hold its first annual meeting of stockholders in April of 2000.
Successors to any directors whose terms have expired are elected to three-year
terms and hold office until their successors are elected and qualified.
The Huttig board of directors consists of the individuals named below. The
age, business experience during the past five years, directorships in other
companies and expected ownership of Huttig common stock (based on holdings of
Crane common stock as of October 22, 1999 and the terms of the spin-off) for
each of the directors are also set forth below.
<TABLE>
<CAPTION>
HUTTIG COMMON STOCK
EXPECTED TO BE
BENEFICIALLY OWNED (1)
-----------------------
<S> <C>
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2000
Dorsey R. Gardner .................................................................. 1,762
Age 57; President, Kelso Management Company, Inc., Boston, MA (investment
management). Other directorships: Crane Co., Filene's Basement Corp., Security
First Technologies, Inc.
James L. L. Tullis ................................................................. 203
Age 52; Chairman and Chief Executive Officer, Tullis-Dickerson & Co., Inc.,
Greenwich, CT (venture capital investments in the health care industry) since 1986.
Other directorships: Crane Co., PSS Worldmed, Inc.
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2001
E. Thayer Bigelow, Jr. ............................................................. 5,467
Age 58; Senior Advisor, Time Warner, Inc., New York, NY (a media and
entertainment company) since October 1998. Chief Executive Officer, Court TV,
New York, NY, an affiliate of Time Warner Entertainment LP (cable television
program services) March 1997 to October 1998. President and Chief Executive
Officer, Time Warner Cable Programming, Inc., Stamford, CT, a subsidiary of Time
Warner Entertainment LP (cable television program services), 1991 to 1997. Other
directorships: Crane Co., Lord Abbett & Co. Mutual Funds
Richard S. Forte ................................................................... 3,677
Age 55; President, Dawson Forte Cashmere Company, South Natick, MA (importer)
since January 1997. Chairman since January 1997 and, prior thereto, President,
Forte Cashmere Company, Inc. (importer and manufacturer). Other directorships:
Crane Co.
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2002
R. S. Evans ........................................................................ 572,416
Age 55; Chairman and Chief Executive Officer of Crane. Other directorships: Crane
Co., Fansteel, Inc., HBD Industries, Inc., Hexcel Corporation, Southdown
Corporation.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
HUTTIG COMMON STOCK
EXPECTED TO BE
BENEFICIALLY OWNED (1)
-----------------------
<S> <C>
Barry J. Kulpa ........................................................................ 169,174
Age 51; President, Huttig Sash & Door Company since October 1997. Senior Vice
President and Chief Operating Officer of Dal-Tile International (manufacturer and
distributor of ceramic tile), 1994 to 1997. Vice President and Chief Financial Officer
of David Weekley Homes (regional homebuilder), 1992 to 1994.
</TABLE>
- - - ----------------------
(1) As determined in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934. No director except Mr. R. S. Evans is expected to own more
than 1% of the outstanding shares of Huttig common stock. See "Beneficial
Ownership of Huttig Common Stock by Directors and Management."
Upon completion of the acquisition of Rugby USA, the Huttig board of
directors would be expanded to nine members, three of whom will be designees of
Rugby. Rugby's nominees are named below. The age, business experience during
the past five years, directorships in other companies and expected ownership of
Huttig common stock for each of Rugby's nominees are also set forth below.
HUTTIG COMMON STOCK
EXPECTED TO BE
BENEFICIALLY OWNED (1)
-----------------------
Director Whose Term Will Expire In 2000
[ ] ............................. [ ]
Director Whose Term Will Expire In 2001
[ ] ............................. [ ]
Director Whose Term Will Expire In 2002
[ ] ............................. [ ]
- - - ----------------------
(1) As determined in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934. Excludes 6,910,260 shares of Huttig common stock expected to
be owned by Rugby, which may be deemed to be beneficially owned by the
nominees named herein, each of whom is a director or executive officer of
Rugby. Each nominee expressly disclaims beneficial ownership of the
shares of Huttig common stock owned by Rugby. No Rugby nominee is
expected to own more than 1% of the outstanding shares of Huttig common
stock. See "Beneficial Ownership of Huttig Common Stock by Directors and
Management."
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has established an Audit Committee, an
Organization and Compensation Committee and an Executive Committee.
Executive Committee. The Executive Committee is empowered to act in lieu
of the full board of directors at any meeting at which it is not feasible for a
quorum of the full board of directors to meet. The Executive Committee can take
any action that could be taken by the board of directors except, among other
things, electing or removing officers of Huttig, amending the Restated
Certificate of Incorporation or Bylaws or approving a merger, consolidation or
sale of substantially all of Huttig's assets.
Audit Committee. The principal functions of the Audit Committee include:
o Reviewing with the board of directors and the independent
accountants matters relating to the quality of financial reporting
and internal accounting controls.
o Maintaining communication between the internal and external auditors
and the board of directors.
48
<PAGE>
o Reviewing and communicating to the board of directors the nature,
extent and results of the internal and external audit functions.
Organization and Compensation Committee. The Organization and
Compensation Committee will:
o Make recommendations to the board of directors concerning approval
of the compensation of officers and other key employees.
o Make recommendations to the board of directors concerning director
compensation.
o Administer Huttig's incentive compensation plans, including the EVA
Incentive Compensation Plan and Stock Incentive Plan and approval
of significant changes or additions to Huttig's compensation
policies and practices.
The memberships of committees are as follows: Executive Committee: R. S.
Evans, B. J. Kulpa and J. L. L. Tullis; Audit Committee: E.T. Bigelow, Jr.,
R. S. Forte and D. R. Gardner; Organization and Compensation Committee: E.T.
Bigelow, Jr. (Chairman), D. R. Gardner and J. L. L. Tullis.
COMPENSATION OF DIRECTORS
The standard retainer payable to each non-employee director is $10,000
per year. Mr. R. S. Evans will receive an annual fee of $100,000 for his
services as Chairman of the Board of Huttig. Pursuant to the Non-Employee
Director Restricted Stock Plan, non-employee directors receive, in lieu of
cash, shares of Huttig common stock with a market value equal to that portion
of the standard annual retainer which exceeds $5,000. All directors who are not
full-time employees of Huttig participate in the plan. The shares will be
issued each year after Huttig's annual meeting, will be forfeitable if the
director ceases to remain a director until Huttig's next annual meeting, except
in the case of death, disability or change in control, and may not be sold for
a period of five years or such earlier date as the director leaves the board.
Directors also receive $500 for each board meeting attended.
Non-employee members of the Executive Committee receive an annual retainer of
$2,000. Members of other committees receive $500 and chairmen receive $750 for
each committee meeting attended.
EXECUTIVE OFFICERS
Set forth below are the name, age, position and office to be held with
Huttig, and principal occupations and employment during the past five years of
those individuals who are expected to serve as Huttig's executive officers
immediately following the spin-off. Huttig's executive officers will be elected
to serve until they resign or are removed, or are otherwise disqualified to
serve, or until their successors are elected and qualified.
BARRY J. KULPA, age 51, has served as Huttig's President and Chief Executive
Officer since October of 1997. Prior to joining Huttig, Mr. Kulpa served as
Senior Vice President and Chief Operating Officer of Dal-Tile International
(manufacturer and distributor of ceramic tile) from 1994 to 1997. From 1992 to
1994, he was Vice President and Chief Financial Officer of David Weekley Homes
(regional homebuilder).
GREGORY D. LAMBERT, age 48, has served as Chief Financial Officer and Vice
President, Administration since January of 1999. Prior to joining Huttig, Mr.
Lambert served as Senior Vice President and Treasurer of Ames Department Store
(discount retailer) from 1996 to 1998. From 1994 to 1996, he was Vice President
of Strategic Planning for Homart Development, a shopping center developer. From
1980 to 1994, Mr. Lambert was the Director of Strategic Planning for May
Department Stores (retailer).
DAVID DEAN, age 56, has served as Controller of Huttig since August of 1992.
DAVID A. GIFFIN, age 50, has served as Regional Vice President since September
of 1998. Prior to that, Mr. Giffin was Vice President of Human Resources for
Huttig from 1991 to 1998.
HOWARD L. HATFIELD, age 55, became a Regional Vice President upon Huttig's
acquisition of Consolidated Lumber Company in July of 1998. Prior to joining
Huttig, he was President, Chief Executive Officer and owner of Consolidated
Lumber Company, Inc. from 1980 to 1998.
49
<PAGE>
CARL A. LILIEQUIST, age 45, became a Regional Vice President upon Huttig's
acquisition of PGL Building Products in July of 1988.
STOKES R. RITCHIE, age 48, has been a Regional Vice President since August of
1998. Prior to joining Huttig, Mr. Ritchie was Vice President of Sales and
Marketing of the Westex Division of LYDALL, Inc. (OEM automotive products
manufacturer) from 1996 to 1998. From 1994 to 1996, Mr. Ritchie was Vice
President, Sales and Marketing for American Woodmark Corporation.
If Huttig completes its acquisition of Rugby USA, the following individual
would be appointed by the Huttig board of directors as Chief Operating Officer
of Huttig:
STEPHEN C. BROWN, age 53, has served as the President and Chief Executive
Officer of Rugby Building Products, Inc. since April of 1997. Prior to joining
Rugby Building Products, Inc., Mr. Brown was President of Armor Bond (a
manufacturer and distributor of vinyl siding and accessories) from 1995 to
1997. From 1984 to 1995, Mr. Brown was President of MacMillan Bloedel Building
Materials, U.S. (a national wholesale distributor).
50
<PAGE>
BENEFICIAL OWNERSHIP OF HUTTIG COMMON STOCK BY DIRECTORS AND MANAGEMENT
To focus management attention on growth in shareholder value, Huttig
believes that officers and key employees should have a significant equity stake
in the Company. Huttig therefore plans to encourage its officers and key
employees to increase their ownership of and to hold common stock through the
Stock Incentive, Employee Stock Purchase and Savings and Investment Plans.
Directors will also receive 50% of their annual retainer in restricted stock
issued under the Non-Employee Director Restricted Stock Plan. The following
table sets forth the number of shares of Huttig common stock expected to be
beneficially owned, directly or indirectly, by the non-employee directors as a
group, the executive officers named in the Summary Compensation Table, all of
Huttig's directors and executive officers as a group and Huttig's other key
employees as a group, based on holdings as of October 22, 1999, but giving
effect to the spin-off and assuming that Huttig completes its acquisition of
Rugby USA as of October 22, 1999.
<TABLE>
<CAPTION>
% OF SHARES
SHARES OUTSTANDING AS OF (2)
UNDER SHARES IN ------------------------------
RESTRICTED STOCK OPTIONS COMPANY TOTAL SHARES IMMEDIATELY ASSUMING
SHARES STOCK EXERCISABLE SAVINGS PLAN BENEFICIALLY AFTER THER COMPLETION OF
OWNED PLANS(1) WITHIN 60 DAYS (401(K)) OWNED(2) SPIN-OFF THE ACQUISITION
------ ---------- --------------- ------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Non-Employee
Directors as a
Group (8 persons) (3) 466,078 560 -- 1,978 468,616 3.2% 2.2%
Barry J. Kulpa ........ -- 48,279 120,807 88 169,174 1.1 *
Carl A. Liliequist..... -- -- 72,094 1,576 73,760 * *
David A. Giffin ....... 17 -- 58,780 427 59,224 * *
David Dean ............ -- -- 3,897 233 4,130 * *
Other Executive
Officers (4
persons) ............. -- -- -- 116 116 * *
Sub-total -- Directors
and Executive Officers
as a Group (16
persons) ............. 466,095 48,839 255,578 4,418 774,930 5.2% 3.6%
Key Employees
(6 persons) .......... 183 -- 24,681 1,835 26,699 * *
Total ................. 466,278 48,839 280,259 6,253 801,629 5.4% 3.7%
</TABLE>
- - - ----------
* Represents holdings of less than 1%.
(1) Subject to forfeiture if established performance and/or service
conditions are not met.
(2) As determined in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934.
(3) Excludes 6,910,260 shares of Huttig common stock expected to be owned by
Rugby, which may be deemed to be beneficially owned by each of Messrs.
, and , each of whom is a director or executive officer of
Rugby. Each of the foregoing expressly disclaims beneficial ownership of
the shares of Huttig common stock owned by Rugby.
51
<PAGE>
PRINCIPAL STOCKHOLDERS OF HUTTIG
The following table sets forth the ownership of Huttig common stock by
each person expected to beneficially own more than 5% of Huttig common stock,
based on holdings as of October 22, 1999, but giving effect to the spin-off and
assuming that Huttig completes its acquisition of Rugby USA.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- - - ---------------- ------------------------- ------------------ ---------------
<S> <C> <C> <C>
Common Stock The Rugby Group PLC (1) 6,910,260 32.0%
Crown House
Rugby CV21 2DT
England
Common Stock The Crane Fund(2) 1,728,537 8.0%(3)
100 First Stamford Place
Stamford, CT 06902
</TABLE>
- - - ----------
(1) On November 8, 1999, the directors of Rugby unanimously recommended to
Rugby shareholders to accept the cash offer from RMC Group p.l.c. for all
of the issued share capital of Rugby. The address of RMC Group p.l.c. is
RMC House Coldharbour Lane, Thorpe, Eghan, Surrey TW20 8JD.
(2) The Crane Fund is a charitable trust managed by trustees appointed by the
board of directors of Crane Co. The incumbent trustees are: G.A. Dickoff,
A.I. duPont, J.R. Packard, M.L. Raithel and D.S. Smith, all of whom are
executive officers of Crane. Pursuant to the trust instrument, the shares
held by the trust shall be voted by the trustees as directed by the board
of directors of Crane, the distribution of the income of the trust for
its charitable purposes is subject to the control of the board of
directors of Crane and the shares may be sold by the trustees only upon
the direction of the board of directors of Crane. None of the directors
or the trustees has any direct beneficial interest in, and all disclaim
beneficial ownership of, shares held by The Crane Fund.
(3) If Huttig does not complete the acquisition of Rugby USA, the shares of
Huttig common stock beneficially owned by The Crane Fund would constitute
11.8% of the outstanding Huttig common stock.
52
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
Shown below is information concerning the annual and long-term
compensation for services rendered in all capacities to Huttig and its
subsidiaries for the year ended December 31, 1998 for Barry J. Kulpa, Huttig's
Chief Executive Officer, and the other three most highly compensated
individuals who serve as executive officers of Huttig and received at least
$100,000 in cash compensation for services to Huttig for the year 1998. The
compensation described in this table was paid by Huttig or an affiliate of
Huttig.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------------- -------------------------------------------------
OTHER RESTRICTED SECURITIES ALL (3)
ANNUAL STOCK UNDERLYING LTIP(2) OTHER
NAME AND BONUS (1) COMPENSATION AWARD (2) OPTIONS/ PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) ($) ($) ($) SARS (#) ($) ($)
- - - ---------------------------- ------ ------------ ----------- -------------- ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Barry J. Kulpa ............. 1998 250,000 130,671 7,625 272,813 36,000 -- 2,498
President and
Chief Executive
Officer
Carl A. Liliequist ......... 1998 147,188 166,031 -- -- 2,250 -- 5,339
Regional Vice
President
David A. Giffin ............ 1998 115,753 37,608 -- -- 750 -- 5,184
Regional Vice
President
David Dean ................. 1998 98,600 23,259 -- -- -- -- 3,912
Controller
</TABLE>
- - - ----------
(1) Represents the amounts paid to the named executives under Crane's EVA
Incentive Compensation Plan. After giving effect to such payments, the
named executives have credited to their accounts under such plan the
following amounts, which are subject to increase or decrease in future
years: Barry J. Kulpa, $87,114, Carl A. Liliequist, $297,127, David A.
Giffin, $ -0-, and David Dean, $ -0-. Under the program one-third of the
account balance in any year will be payable to the named executive. Under
the Employee Matters Agreement, Huttig will be responsible for the
account balances of the foregoing employees and the other Huttig
employees participating in this plan. See "Arrangements with Crane
Relating to the Spin-Off--Employee Matters Agreement."
(2) Shares of restricted stock issued under Crane's Restricted Stock Award
Plan that are subject to performance-based conditions on vesting are
classified as long-term incentive awards reportable in the column LTIP
Payouts of the Summary Compensation Table upon vesting. The shares of
common stock under the Restricted Stock Award Plan held by each of the
named executive officers and the aggregate value thereof at December 31,
1998 were as follows:
<TABLE>
<CAPTION>
RESTRICTED STOCK AWARD PLAN
-----------------------------
RESTRICTED AGGREGATE
STOCK HELD LTIP RESTRICTED AGGREGATE
# OF SHARES # OF SHARES SHARES HELD VALUE
------------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
Barry J. Kulpa ............. 7,500 15,000 22,500 $679,219
Carl A. Liliequist ......... -- -- -- --
David A. Giffin ............ -- -- -- --
David Dean ................. -- -- -- --
</TABLE>
The shares of restricted stock which are performance-based, listed under
the heading "LTIP", may lapse upon failure to achieve the performance
criteria and so the value presented above for such shares remains at-risk
to the executive. Dividends are paid on all restricted stock at the same
rate as other shares of Common Stock and are reported in the column Other
Annual Compensation of the Summary Compensation Table. Under the Employee
Matters Agreement,
53
<PAGE>
Huttig has agreed to grant Mr. Kulpa awards of restricted shares of Huttig
common stock having a value equivalent to the awards of Crane restricted
stock shown in the table above, which will be cancelled on the date of the
spin-off. See "Arrangements with Crane Relating to the Spin-Off --
Employee Matters Agreement."
(3) Amounts include Crane's matching contribution for eligible employees for
the purchase of common stock in Crane's Saving & Investment Plan (401(k))
and premiums for life insurance.
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information on grants to the named executive officers of
options to purchase shares of Crane common stock pursuant to the Crane Stock
Option Plan during the year ended December 31, 1998, which are reflected in the
Summary Compensation Table above. Huttig will replace each Crane option held by
Huttig employees with an economically equivalent Huttig option. See
"Arrangements with Crane Relating to the Spin-Off -- Employee Matters
Agreement."
<TABLE>
<CAPTION>
NUMBER OF % OF
SECURITIES TOTAL/OPTIONS/
UNDERLYING SARS
OPTIONS/ GRANTED TO EXERCISE OR GRANT DATE
SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED (1) FISCAL YEAR (1) $/SHARE (2) DATE VALUE ($) (3)
- - - ---------------------------- ------------- ----------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Barry J. Kulpa ............. 36,000 75% $ 36.37 04/20/2008 $396,360
Carl A. Liliequist ......... 2,250 5 36.37 04/20/2008 24,773
David A. Giffin ............ 750 2 36.37 04/20/2008 8,258
David Dean ................. -- -- -- -- --
</TABLE>
- - - ----------
(1) No SARs were granted.
(2) The exercise price of options granted under Crane's Stock Option Plan
were not and may not be less than 100% of the fair market value of the
shares on the date of grant. Options granted become exercisable 50% one
year, 75% two years and 100% three years after grant and expire, unless
exercised, 10 years after grant. If employment terminates, the optionee
generally may exercise the option only to the extent it could have been
exercised on the date his employment terminated and must be exercised
within three months thereof. In the event employment terminates by reason
of retirement, permanent disability or change in control, options become
fully exercisable. The exercise price may be paid by delivery of shares
owned for more than six months and income tax obligations related to
exercise may be satisfied by surrender of shares received upon exercise,
subject to certain conditions. Under the Employee Matters Agreement,
Huttig's stock options issued in exchange for Crane stock options will
have the same terms as the Crane stock options they replace except that
the exercise price and the number of shares will be adjusted based on the
relative market values of Crane common stock and Huttig common stock as
of the date of the spin-off.
(3) The amounts shown were calculated using a Black-Scholes option pricing
model which derives a value of $11.01 per share for each option granted.
The estimated values assume a risk-free rate of return of 5.60% based
upon the 100-year Treasury (adjusted for constant maturities) from the
Federal Reserve Statistical Release H.15(519), stock price volatility of
24.22%, a dividend payout ratio of .92% and an option duration of 5.29
years. The actual value, if any, that an executive may realize will
depend upon the excess of the stock price over the exercise price on the
date the option is exercised, and so the value realized by an executive
may be more or less than the value estimated by the Black-Scholes model.
54
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS(1) AT OPTIONS/SARS (1) AT
FISCAL YEAR-END (#) FISCAL YEAR-END ($)(2)
----------------------------- ----------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - - ---------------------------- -------------- -------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Barry J. Kulpa ............. -- -- 11,250 47,250 24,159 24,159
Carl A. Liliequist ......... -- -- 18,000 4,500 268,099 21,403
David A. Giffin ............ -- -- 15,749 1,876 252,339 10,711
David Dean ................. -- -- 750 750 5,608 5,608
</TABLE>
- - - ----------
(1) No SARs were held at December 31, 1998.
(2) Computed based upon the difference between aggregate fair market value at
December 31, 1998 and aggregate exercise price.
RETIREMENT BENEFITS
All of Huttig's officers, including the individuals identified in the
Summary Compensation Table, are participants in Crane's pension plan for
non-bargaining employees. Directors who are not employees do not participate in
the plan. Following the spin-off, Huttig's executives will participate in
retirement plans maintained by Huttig. See "Arrangements with Crane Relating to
the Spin-Off -- Employee Matters Agreement." Under the Crane pension plan,
eligibility for retirement benefits is subject to certain vesting requirements,
which include completion of five years of service where employment is
terminated prior to normal or other retirement or death, as determined by
applicable law and the plan. Benefit accruals continue for years of service
after age 65.
The annual pension benefits payable under the pension plan are equal to
1 2/3% per year of service of the participant's average annual compensation
during the five highest consecutive compensation years of the 10 years of
service immediately preceding retirement less 1 2/3% per years of service of the
participant's Social Security benefit. Compensation for purposes of the pension
plan is defined as total W-2 compensation less (i) the imputed income value of
group life insurance and auto allowance, (ii), income derived from
participation in Crane's Restricted Stock Award Plan and (iii) on or after
January 1, 1993, income derived from Crane's Stock Option Plan and a former
Crane's stock appreciation rights plan. In general, such covered compensation
for any year would be equivalent to the sum of the salary set forth in the
Summary Compensation Table for such years plus the bonus shown in the Table for
the immediately preceding year.
The table below sets forth the estimated annual benefit payable on
retirement at normal retirement age (age 65) under Crane's pension plan based
on benefit accruals through December 31, 1998 for specified salary and years of
service classifications, and assumes benefits to be paid in the form of a
single life annuity. The amounts have not been reduced by the Social Security
offset referred to above. Huttig's employees will not accrue any additional
pension benefits under the Crane pension plan after the spin-off. See
"Arrangements with Crane Relating to the Spin-Off -- Employee Matters
Agreement."
55
<PAGE>
YEARS OF SERVICE
<TABLE>
<CAPTION>
AVERAGE ANNUAL
COMPENSATION 10 20 25 30 35
- - - -------------------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$150,000............ $ 25,005 $ 50,010 $ 62,513 $ 75,015 $ 87,518
$175,000............ 29,173 58,345 72,931 87,518 102,104
$200,000............ 33,340 66,680 83,350 100,020 116,690
$225,000............ 37,508 75,015 93,769 112,523 131,276*
$235,000............ 39,175 78,349 97,936 117,524 136,111*
$250,000** ......... 41,675 83,350 104,188 125,025 145,863*
</TABLE>
- - - ----------------------
* Effective January 1, 1996, the actual retirement benefit at normal
retirement date payable pursuant to Section 235(a) of the Tax Equity and
Fiscal Responsibility Act of 1982 (and subsequent to 1986 at the age at
which unreduced Social Security benefits may commence pursuant to the Tax
Reform Act of 1986) may not exceed the lesser of $120,000 or 100% of the
officer's average compensation during his highest three consecutive
calendar years of earnings (the "Tax Act Limitation"). The Tax Act
Limitation may be adjusted annually for changes in the cost of living.
The 1998 limit was $130,000, and the limit remains at $130,000 for 1999.
The dollar limit is subject to further reduction to the extent that a
participant has fewer than 10 years of service with Crane or 10 years of
participation in the defined benefit plan.
** Between January 1, 1989 and December 31, 1993, for the purpose of
determining benefit accruals and benefit limitations under the pension
plan for all plan years beginning in 1989, a participant's compensation
is deemed to be limited to $200,000 indexed for inflation ($235,840 for
1993) ("Limitation"). However, in no event will the Limitation reduce any
participant's accrued benefit below his accrued benefit as of December
31, 1988. Commencing January 1, 1994, the compensation limit was further
reduced to $150,000 indexed for inflation in future years ("OBRA '93
Limitation"). As a result of the OBRA '93 limitation, the covered
compensation under Crane's pension plan for the foregoing individuals for
the years 1994 through 1996 was limited to $150,000, and was increased to
$160,000 for 1997, 1998 and 1999. In no event will the OBRA '93
Limitation reduce any participant's accrued benefit as of December 31,
1993.
OTHER AGREEMENTS AND INFORMATION
Huttig has entered into indemnification agreements with Barry J. Kulpa,
Gregory D. Lambert and each non-employee director of Huttig. The
Indemnification Agreements require Huttig to indemnify the officers or
directors to the full extent permitted by law against any and all expenses
(including advances thereof), judgments, fines, penalties and amounts paid in
settlement incurred in connection with any claim against such person arising
out of the fact that he was a director, officer, employee, trustee, agent or
fiduciary of Huttig or was serving as such for another entity at Huttig's
request, and to maintain directors and officers liability insurance coverage or
to the full extent permitted by law to indemnify such person for the lack of
insurance coverage. It is expected that similar indemnification agreements will
be entered into after the exchange with the directors to be designated by
Rugby.
Barry J. Kulpa has an agreement which, in the event of a change in
control of Huttig, provides for the continuation of his then current base
salary, incentive compensation and benefits for the three year period following
the change in control. Upon termination within three years after a change in
control, by Huttig without cause or by him with "Good Reason" (as defined in
the agreement), Mr. Kulpa is immediately entitled to a proportionate amount of
the greater of the last year's bonus or the average bonus paid in the last
three years, three times the sum of his annual salary and the average of the
last three years' bonuses, and all accrued deferred compensation and vacation
pay. Employee benefits, medical coverage and other welfare benefits also
continue until the end of the three year period. "Good Reason" under the
agreement includes, among other things, any action by Huttig which results in a
diminution of his position, authority, duties or responsibilities. The
agreement also provides that Mr. Kulpa may terminate his employment for any
reason during the 30 day period immediately following the first year after the
change of control, which shall be deemed
56
<PAGE>
"Good Reason" under the agreement. If it is determined that any economic
benefit or payment or distribution by Huttig to Mr. Kulpa pursuant to the
agreement or otherwise (including, but not limited to, any economic benefit
received by him by reason of the acceleration of rights under Huttig's
incentive plan) ("Payment"), is subject to the excise tax imposed by Section
4999 of the Internal Revenue Code, the agreement provides that Huttig shall
make additional cash payments to Mr. Kulpa such that after payment of all taxes
including any excise tax imposed on such payments, he will retain an amount
equal to the excise tax on all the Payments. The agreement is for a three-year
period, but is automatically renewed annually for a three-year period unless
Huttig gives notice that the period will not be extended.
DESCRIPTION OF HUTTIG CAPITAL STOCK
Huttig's Restated Certificate of Incorporation provides that its
authorized capital stock consists of (i) 50,000,000 shares of common stock,
$.01 par value, of which (based on the number of shares of Crane common stock
outstanding as of October 22, 1999) 14,684,303 shares will be issued to
stockholders of Crane in the spin-off and approximately 6,910,260 shares will
be issued to Rugby in the exchange, and (ii) 5,000,000 shares of preferred
stock, par value $.01 per share, of which 21,595 shares will be designated as
Series A Junior Participating Preferred Stock for issuance in connection with
the exercise of rights. See "-- Rights Plan."
COMMON STOCK
Each share of Huttig common stock will entitle its holder of record to
one vote in the election of directors and on all other matters to be voted on
by the stockholders. Holders of Huttig common stock will not have cumulative
voting rights. As a result, the holders of a majority of the shares of Huttig
common stock voting for the election of directors may elect all nominees
standing for election as directors.
Subject to the rights of holders of preferred stock, holders of Huttig
common stock will be entitled to receive such dividends, if any, as may be
declared from time to time by the board of directors in its discretion from
funds legally available for that use. It is currently anticipated that no cash
dividends will be paid on its common stock in the foreseeable future in order
to conserve cash for use in its business, possible future acquisitions and debt
reduction. Huttig's board of directors expects to periodically re-evaluate this
dividend policy taking into account Huttig's operating results, capital needs
and other factors.
Subject to the rights of holders of preferred stock, holders of Huttig
common stock will be entitled to share on a pro rata basis in any distribution
to stockholders upon the liquidation, dissolution or winding up of Huttig. No
holder of Huttig common stock will have any preemptive right to subscribe for
any Huttig common stock or other security.
PREFERRED STOCK
Huttig's board of directors, without further action by the stockholders,
may from time to time authorize the issuance of shares of preferred stock in
one or more series and, within certain limitations, fix the powers, preferences
and rights and the qualifications, limitations or restrictions thereof and the
number of shares constituting any series or designations of such series.
Satisfaction of any dividend preferences of outstanding preferred stock would
reduce the amount of funds available for the payment of dividends on Huttig
common stock. Holders of preferred stock would normally be entitled to receive
a preference payment in the event of the liquidation, dissolution or winding up
of Huttig before any payment is made to the holders of Huttig common stock.
Under certain circumstances, the issuance of preferred stock may render
more difficult or tend to discourage a change in control of Huttig. Although
Huttig currently has no plans to issue shares of preferred stock, the board of
directors, without stockholder approval, may issue preferred stock that could
adversely affect the rights of holders of shares of Huttig common stock. For a
description of the terms of the Series A Junior Participating Preferred Stock,
see "-- Rights Plan."
RIGHTS PLAN
It is expected that prior to the spin-off Huttig will issue one
preferred share purchase right for each share of Huttig common stock
distributed in the spin-off.
The rights are designed to assure that all of Huttig's stockholders
receive fair and equal treatment in the event of any unsolicited
57
<PAGE>
proposal to acquire control of Huttig and to guard against takeover tactics
that are not in the best interests of all stockholders. The rights could make
the acquisition of control of Huttig in a transaction not approved by Huttig's
board of directors more difficult.
Each right will entitle the registered holder to purchase from Huttig
one one-hundredth of a share of Series A Junior Participating Preferred Stock
at a price of $ per one one-hundredth of a Preferred Share, subject to
adjustment. The description and terms of the rights are set forth in a Rights
Agreement dated as of , 1999 between Huttig and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent.
Until the earlier to occur of:
o 10 days following a public announcement that a person or group of
affiliated or associated persons have acquired beneficial ownership
of 20% or more of Huttig's outstanding common stock (an "Acquiring
Person"); or
o 10 business days (or such later date as may be determined by
Huttig's board of directors before any person becomes an Acquiring
Person) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the
consummation of which would result in any person becoming an
Acquiring Person (the "Distribution Date"),
the rights will be evidenced, with respect to any of the common stock
certificates outstanding as of the record date, by such common stock
certificate with a copy of the summary of rights attached to it.
The Rights Agreement excludes from the definition of "Acquiring Person"
the Company, any employee benefit plan of the Company, certain Crane charitable
funds and Rugby. The exception for Rugby will be effective only for so long as
Rugby and affiliated and associated persons beneficially own no Huttig common
stock other than the Huttig common stock acquired pursuant to the Share
Exchange Agreement, except for shares received as a dividend or otherwise in
respect of the shares so acquired, and except that Rugby may acquire an
additional 1% of the outstanding shares.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the rights), the rights will be transferred
only with Huttig common stock. Until the Distribution Date (or earlier
redemption or expiration of the rights), new certificates for Huttig common
stock issued upon transfer or new issuance will contain a notation
incorporating the Rights Agreement by reference.
Until the Distribution Date (or earlier redemption or expiration of the
rights), the surrender for transfer of any certificates for Huttig common
stock, even without such notation or a copy of the summary of rights being
attached, will also constitute the transfer of the rights associated with
Huttig common stock represented by that certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the rights
will be mailed to holders of record of Huttig common stock as of the close of
business on the Distribution Date and those separate certificates alone will
evidence the rights.
The rights will not be exercisable until the Distribution Date. The
rights will expire at the close of business on , 2009, unless this date is
extended or unless Huttig earlier redeems or exchanges the rights, in each
case, as described below.
The purchase price payable, and the number of series A preferred shares
or other securities or property issuable, upon exercise of the rights will be
subject to adjustment from time to time to prevent dilution:
o in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the series A preferred shares;
o upon the grant to holders of the series A preferred shares of
certain rights or warrants to subscribe for or purchase series A
preferred shares at a price, or securities convertible into series
A preferred shares with a conversion price, less than the
then-current market price of the series A preferred shares; or
o upon the distribution to holders of the series A preferred shares of
evidence of indebtedness or assets (excluding regular periodic cash
dividends paid out of earnings or retained earnings or dividends
payable in series A preferred shares) or of subscription rights or
warrants (other than those referred to above).
58
<PAGE>
The number of outstanding rights and the number of one one-hundredths of
a series A preferred share issuable upon exercise of each right are also
subject to adjustment in the event of a split of Huttig common stock or a
dividend on Huttig common stock payable in shares of Huttig common stock or
subdivisions, consolidations or combinations of Huttig common stock occurring,
in any such case, prior to the Distribution Date.
Series A preferred shares purchasable upon exercise of the rights will
not be redeemable. Each series A preferred share will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per share but will be entitled
to an aggregate dividend of 100 times the dividend declared per share of Huttig
common stock. If Huttig is liquidated, the holders of the series A preferred
shares will be entitled to a minimum preferential liquidation payment of
$100.00 per share but will be entitled to an aggregate payment of 100 times the
payment made per share of Huttig common stock. Each series A preferred share
will have 100 votes, voting together with Huttig common stock. Finally, if
Huttig engages in a merger, consolidation, or any other transaction in which
shares of Huttig common stock are exchanged, each series A preferred share will
be entitled to receive 100 times the amount received per share of Huttig common
stock. These rights are protected by customary antidilution provisions.
Because of the nature of the series A preferred shares' dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
series A preferred share purchasable upon exercise of each right should
approximate the value of one share of Huttig common stock.
If any person or group of affiliated or associated persons becomes an
Acquiring Person, proper provision shall be made so that each holder of a
right, other than rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of shares of Huttig common stock having a market value of two times
the exercise price of the right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by that person or group of 50% or more of the
outstanding shares of Huttig common stock, the board of directors may exchange
the rights (other than rights owned by such person or group which will have
become void), in whole or in part, at an exchange ratio of one share of Huttig
common stock, or one one-hundredth of a series A preferred share, per right.
If Huttig is acquired in a merger or other business combination
transaction or 50% or more of Huttig's consolidated assets or earning power are
sold after a person or group has become an Acquiring Person, proper provision
will be made so that each holder of a right (other than rights that have become
void) will thereafter have the right to receive, upon the exercise of a right
at the then current exercise price of the right, that number of shares of
common stock of the acquiring company which at the time of that transaction
will have a market value of two times the exercise price of the right.
With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments require an adjustment of at least 1% in
the purchase price. No fractional series A preferred shares will be issued
(other than fractions which are integral multiples of one one-hundredth of a
series A preferred share, which may, at Huttig's election, be evidenced by
depository receipts) and, in lieu thereof, an adjustment in cash will be made
based on the market price of the series A preferred shares on the last trading
day prior to the date of exercise.
At any time before a person or group of affiliated or associated persons
becomes an Acquiring Person, the board of directors may redeem the rights in
whole, but not in part, at a price of $.01 per right. The redemption of the
rights may be made effective at such time, on such basis and with such
conditions as the board of directors in its sole discretion may establish.
Immediately upon any redemption of the rights, the right to exercise the rights
will terminate and the only rights of the holders of the rights will be to
receive the redemption price.
The terms of the rights may be amended by the board of directors without
the consent of the holders of the rights, except that from and after the time
that any person or group of affiliated or associated persons becomes an
Acquiring Person, no amendment may adversely affect the interests of the
holders of the rights.
Until a right is exercised, the holder of the right will have no rights
as a stockholder, including, without limitation, the right to vote or to
receive dividends.
59
<PAGE>
CERTAIN PROVISIONS OF HUTTIG'S GOVERNING DOCUMENTS
The following is a description of certain provisions of Huttig's
Restated Certificate of Incorporation and Bylaws. The description is qualified
in its entirety by reference to the full texts of those documents. Certain
provisions of Huttig's Certificate and Bylaws could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third
party from attempting to acquire, control of Huttig, without the approval of
Huttig's board of directors.
Classification of Directors. The Certificate and Bylaws provide that the
board of directors will consist of three classes of directors. The initial
members of the board of directors will be divided into three classes to serve as
follows: one class will initially hold office for a term to expire at the first
annual meeting of stockholders after their initial election; another class will
initially hold office for a term to expire at the second annual meeting of
stockholders after their initial election; and the third class will initially
hold office for a term to expire at the third annual meeting of stockholders
after their initial election. At each annual meeting of Huttig's stockholders,
only the election of directors of the class whose term is expiring will be voted
upon, and upon election each director will serve a three-year term. See
"Management -- Directors."
Right to Call a Special Meeting. The Certificate provides that special
meetings of the stockholders may only be called by the Chairman or by the board
pursuant to a resolution approved by a majority of the entire board.
Accordingly, stockholders will not have the right to call a special meeting of
the stockholders.
No Action by Consent. The Certificate provides that any action required
to be taken by stockholders must be effected at a duly called annual or special
meeting of stockholders and may not be effected by the written consent of
stockholders.
Fiduciary Duties of Directors. As permitted by the DGCL, Huttig's
Certificate includes a provision eliminating the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director except for liability:
o for any breach of the director's duty of loyalty to the corporation
or its stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o for unlawful payment of a dividend or an unlawful stock purchase or
redemption; or
o for any transaction from which the director derives an improper
personal benefit.
The Certificate further provides that, if the DGCL is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of directors shall be eliminated or
limited to the fullest extent so permitted. The Certificate also specifies that
no amendment to or repeal of the provisions shall apply to or have any effect
on the liability or alleged liability of any of Huttig's directors for or with
respect to any acts or omissions of such director occurring prior to the
amendment or repeal.
ANTI-TAKEOVER LEGISLATION
Because neither the Certificate nor the Bylaws contain a provision
expressly electing not to be covered by Section 203 of the DGCL, Huttig is
subject to this statutory anti-takeover provision. Section 203 provides that
any person who acquires 15% or more of a corporation's voting stock (thereby
becoming an "interested stockholder") may not engage in a "business
combination" with the corporation for a period of three years following the
time the person became an interested stockholder, unless:
o the board of directors of the corporation approved, prior to such
time, either the business combination or the transaction that
resulted in the person becoming an interested stockholder;
o upon consummation of the transaction that resulted in that person
becoming an interested stockholder, that person owns at least 85%
of the corporation's voting stock outstanding at the time the
transaction commenced (excluding shares owned by persons who are
directors and officers of that corporation and shares owned by
employee stock plans in which participants do not have
60
<PAGE>
the right to determine confidentially whether shares will be
tendered in a tender or exchange offer); or
o the business combination is approved by the board of directors and
authorized by the affirmative vote (at an annual or special meeting
and not by written consent) of at least 66 2/3% of the outstanding
shares of voting stock not owned by the interested stockholder.
In determining whether a stockholder is the "owner" of 15% or more of a
corporation's voting stock for purposes of Section 203, ownership is defined to
include the right, directly or indirectly, to acquire stock or to control the
voting or disposition of stock. A "business combination" is defined to include:
o mergers or consolidations of a corporation with an interested
stockholder;
o sales or other dispositions of ten percent or more of the assets of
a corporation with or to an interested stockholder;
o certain transactions resulting in the issuance or transfer to an
interested stockholder of any stock of a corporation or its
subsidiaries;
o certain transactions which would result in increasing the
proportionate share of the stock of a corporation or its
subsidiaries owned by an interested stockholder, and
o receipt by an interested stockholder of the benefit (except
proportionately as a stockholder) of any loans, advances,
guarantees, pledges or other financial benefits from, by or to a
corporation or any of its majority-owned subsidiaries.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Huttig common stock will be
ChaseMellon Shareholder Services, L.L.C.
LIABILITY AND INDEMNIFICATION OF HUTTIG OFFICERS AND DIRECTORS
ELIMINATION OF LIABILITY
As described above under "Description of Huttig Capital Stock -- Certain
Provisions of Huttig's Governing Documents -- Fiduciary Duties of Directors,"
Huttig's Restated Certificate of Incorporation eliminates, subject to certain
statutory limitations, the liability of its directors to the corporation or its
stockholders for monetary damages for breaches of fiduciary duty.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorney's
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of his or her being a director or officer of
the corporation, if it is determined that he or she acted in accordance with
the applicable standard of conduct set forth in such statutory provision.
The Huttig bylaws provide for mandatory indemnification to its directors
and officers and to persons serving at the Company's request in a similar
capacity with another corporation or other enterprise generally as provided in
the DGCL.
Huttig's bylaws also require the Company to indemnify or advance
expenses within 60 days of receipt of the written request for such
indemnification or advance from the director or officer. The costs and expenses
associated with the successful establishment in a court proceeding of the
director's or officer's right to indemnification or advancement of expenses is
also required to be indemnified by Huttig under its bylaws. The bylaws further
require Huttig to purchase and maintain directors' and officers' liability
insurance, provided that such insurance is available under terms which are
deemed acceptable by a majority vote of Huttig's board of directors.
Huttig also has entered into indemnification agreements with its
directors and certain executive officers. See "Compensation of Executive
Officers -- Other Agreements and Information."
Huttig also maintains insurance on behalf of any person who is or was a
Huttig director or officer, or is or was serving at Huttig's request as a
director, officer, employee or agent of another entity against any liability
asserted against such person and incurred by such person in any such
61
<PAGE>
capacity or arising out of his or her status as such, whether or not Huttig
would have the power to indemnify such person against such liability under the
DGCL. In addition, Crane has agreed in the Distribution Agreement to use its
reasonable best efforts to cover for a period of six years from the spin-off
under Crane's officers' and directors' liability insurance policies current
officers and directors of Crane who will be or become directors or officers of
Huttig with respect to claims arising from facts or events prior to the
spin-off.
WHERE YOU CAN FIND MORE INFORMATION
Huttig has filed a Registration Statement on Form 10 with the SEC with
respect to Huttig common stock. The Registration Statement and the exhibits to
it contain some information not appearing in this Information Statement. This
Information Statement provides a summary of the material terms of all of the
agreements and contracts appearing as exhibits to the Registration Statement.
You are encouraged to review the exhibits to the Registration Statement for a
more complete description of the contracts and agreements summarized in this
Information Statement.
You may access and read the Registration Statement and all of the
exhibits to it through the SEC's Internet site at www.sec.gov. This site
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. You may also read and
copy any document Huttig files at the SEC's public reference room located at
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Huttig's
SEC filings will also be available after the spin-off at the offices of the New
York Stock Exchange.
After the spin-off, Huttig will be required to file annual, quarterly
and special reports and other information with the SEC. Huttig will also be
subject to proxy solicitation requirements. Once filed, you can access this
information from the SEC in the manner set forth in the preceding paragraph.
62
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Huttig Financial Statements
Independent Auditors' Report ...................................................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1997 and unaudited
Consolidated Balance Sheets at September 30, 1999 ............................... F-3
Consolidated Statements of Income and Retained Earnings for the Years Ended
December 31, 1998, 1997 and 1996 and unaudited Consolidated Statements
of Income and Retained Earnings for the Nine Months Ended September 30,
1999 and 1998 ................................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996 and unaudited Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 ................................... F-5
Notes to Consolidated Financial Statements ........................................ F-6
Rugby USA Financial Statements
Report of Independent Accountants ................................................. F-15
Consolidated Balance Sheets at December 31, 1998 and 1997 and unaudited
Consolidated Balance Sheet at September 30, 1999 ................................ F-16
Consolidated Statements of Operations and Retained Earnings/Accumulated Deficit
for the Years Ended December 31, 1998, 1997 and 1996 and unaudited
Consolidated Statements of Operations and Retained Earnings/Accumulated
Deficit for the Nine Months Ended September 30, 1999 and 1998 ................... F-17
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998
and 1997 and unaudited Consolidated Statements of Cash Flow for the Nine
Months Ended September 30, 1999 and 1998 ........................................ F-18
Notes to Consolidated Financial Statements ........................................ F-19
Consolidated Lumber Company, Inc. Financial Statements
Report of Independent Auditors .................................................... F-29
Statement of Assets Acquired and Liabilities Assumed at December 31, 1997 ......... F-30
Statement of Revenues and Expenses Associated with Operations Acquired for the
Year Ended December 31, 1997 and unaudited Statement of Revenues and
Expenses Associated with Operations Acquired for the Six Months Ended June
30, 1998 and 1997 ............................................................... F-31
Notes to Financial Statements ..................................................... F-32
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholder of
Huttig Building Products, Inc.:
We have audited the accompanying consolidated balance sheets of Huttig Building
Products, Inc. (formerly Huttig Sash & Door Company) (an indirect wholly owned
subsidiary of Crane Co. through Crane International Holdings, a direct
subsidiary of Crane Co.) and its subsidiaries (the "Company") as of December
31, 1998 and 1997, and the related consolidated statements of income and
retained earnings and cash flows for each of the three years in the period
ended December 31, 1998. These consolidated financial statements 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 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 provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company at
December 31, 1998 and 1997, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
January 20, 1999
(June 21, 1999 as to Note 10)
F-2
<PAGE>
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
--------------------------- --------------
1998 1997 1999
------------ ------------ --------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ........................................................ $ 9,423 $ 2,210 $ 4,003
Accounts receivable, net .................................... 67,028 54,404 78,459
Receivable -- Parent ........................................ 17,098 5,624 --
Inventories ................................................. 43,130 36,406 52,720
Prepaid expenses ............................................ 585 575 612
--------- --------- --------
Total current assets ...................................... 137,264 99,219 135,794
--------- --------- --------
PROPERTY, PLANT AND EQUIPMENT -- At cost:
Land ........................................................ 7,335 7,678 7,324
Buildings and improvements .................................. 39,081 42,708 36,517
Machinery and equipment ..................................... 24,638 20,501 27,944
--------- --------- --------
Gross property, plant and equipment ....................... 71,054 70,887 71,785
Less accumulated depreciation ............................... 33,746 35,492 32,597
--------- --------- --------
Property, plant and equipment, net ........................ 37,308 35,395 39,188
--------- --------- --------
OTHER ASSETS:
Cost in excess of assets acquired, net ...................... 42,109 16,840 40,809
Other ....................................................... 1,677 1,609 1,929
Deferred income taxes ....................................... 104 887 --
--------- --------- --------
Total other assets ........................................ 43,890 19,336 42,738
--------- --------- --------
TOTAL ....................................................... $ 218,462 $ 153,950 $217,720
========= ========= ========
LIABILITIES AND SHAREHOLDER'S EQUITY CURRENT LIABILITIES:
Current maturities of long-term debt ........................ $ 319 $ 359 $ 255
Accounts payable -- trade and collections as agents ......... 54,424 33,815 50,396
Accrued payrolls ............................................ 11,109 9,900 10,092
Accrued liabilities ......................................... 8,533 6,452 5,821
Payable -- Parent ........................................... -- -- 13,382
--------- --------- --------
Total current liabilities ................................. 74,385 50,526 79,946
--------- --------- --------
LONG-TERM DEBT:
Notes payable -- Parent ..................................... 93,940 67,100 92,182
Other long-term debt ........................................ 1,379 1,715 1,189
--------- --------- --------
Total long-term debt ...................................... 95,319 68,815 93,371
--------- --------- --------
ACCRUED POSTRETIREMENT BENEFITS .............................. 7,303 6,750 7,657
--------- --------- --------
DEFERRED INCOME TAXES ........................................ -- -- 563
COMMITMENTS AND CONTINGENCIES (Note 6) .......................
SHAREHOLDER'S EQUITY:
Common stock -- No par value -- authorized, 3,000
shares; issued and outstanding, 1,000 shares .............. 10 10 10
Retained earnings ........................................... 41,445 27,849 36,173
--------- --------- --------
Total shareholder's equity ................................ 41,455 27,859 36,183
--------- --------- --------
TOTAL ........................................................ $ 218,462 $ 153,950 $217,720
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ -------------------------
1998 1997 1996 1999 1998
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
NET SALES .............................. $ 707,450 $ 625,503 $ 595,089 $594,914 $521,849
--------- --------- --------- -------- --------
OPERATING COSTS AND EXPENSES:
Cost of sales ......................... 606,993 543,097 511,892 516,085 449,334
Selling, general and administrative 67,900 58,155 56,163 54,428 49,630
Depreciation and amortization ......... 5,586 4,409 4,929 4,860 3,925
--------- --------- --------- -------- --------
Total operating costs and
expenses ........................... 680,479 605,661 572,984 575,373 502,889
--------- --------- --------- -------- --------
OPERATING PROFIT ....................... 26,971 19,842 22,105 19,541 18,960
--------- --------- --------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense -- Parent ............ (6,703) (4,285) -- (5,691) (4,761)
Interest expense -- net of interest
income of $3 and $18 in 1997
and 1996, respectively .............. (167) (182) (200) (98) (131)
Other miscellaneous, net .............. 1,750 (561) (1,148) (224) 35
--------- --------- --------- -------- --------
Total other expense, net ............ (5,120) (5,028) (1,348) (6,013) (4,857)
--------- --------- --------- -------- --------
INCOME BEFORE TAXES .................... 21,851 14,814 20,757 13,528 14,103
PROVISION FOR INCOME TAXES ............. 8,255 5,759 8,469 5,075 5,159
--------- --------- --------- -------- --------
NET INCOME ............................. 13,596 9,055 12,288 8,453 8,944
RETAINED EARNINGS, BEGINNING OF YEAR ... 27,849 148,734 136,446 41,445 27,849
DIVIDENDS PAID TO PARENT ............... -- 129,940 -- 13,725 --
--------- --------- --------- -------- --------
RETAINED EARNINGS, END OF YEAR ......... $ 41,445 $ 27,849 $ 148,734 $ 36,173 $ 36,793
========= ========= ========= ======== ========
NET INCOME PER SHARE
(basic and diluted) ................... $ 13,596 $ 9,055 $ 12,288 $ 8,453 $ 8,944
========= ========= ========= ======== ========
DIVIDENDS PER SHARE .................... $ -- $ 129,940 $ -- $ 13,725 $ --
========= ========= ========= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ---------------------------
1998 1997 1996 1999 1998
----------- --------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................. $ 13,596 $ 9,055 $ 12,288 $ 8,453 $ 8,944
Loss (gain) on disposal of capital assets .. (1,661) -- -- 224 --
Depreciation ............................... 3,540 3,372 3,642 2,631 2,607
Amortization ............................... 2,046 1,037 1,287 2,229 1,318
Deferred taxes ............................. (102) (202) (282) 667 94
Accrued postretirement benefits ............ 553 500 436 354 428
Changes in operating assets and
liabilities (exclusive of acquisitions):
Accounts receivable ...................... (1,864) (1,742) (1,731) (10,783) (10,860)
Inventories .............................. 2,081 10,297 (973) (8,969) 3,568
Other current assets ..................... 324 265 (149) (27) 136
Accounts payable ......................... 16,629 494 191 (4,028) 10,633
Accrued liabilities ...................... 2,812 (165) 2,494 (4,235) 1,301
Other .................................... (3,720) 175 189 (124) 131
--------- ----------- --------- --------- ---------
Total cash from operating activities ..... 34,234 23,086 17,392 (13,608) 18,300
--------- ----------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................... (5,765) (3,338) (2,515) (7,030) (3,199)
Cash used for acquisitions ................. (44,861) (12,050) (1,891) (45,096)
Proceeds from disposition of capital
assets ................................... 7,730 388 201 2,366 44
--------- ----------- --------- --------- ---------
Total cash from investing activities ..... (42,896) (15,000) (2,314) (6,555) (48,251)
--------- ----------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividend paid to Parent ............... -- (62,840) -- (13,725) --
Repayment of long-term debt ................ (376) (386) (514) (254) (281)
Proceeds from (payments to) Parent ......... 16,251 55,672 (15,670) 28,722 30,984
--------- ----------- --------- --------- ---------
Total cash from financing activities ..... 15,875 (7,554) (16,184) 14,743 30,703
--------- ----------- --------- --------- ---------
INCREASE (DECREASE) IN CASH ................. 7,213 532 (1,106) (5,420) 752
CASH, BEGINNING OF YEAR ..................... 2,210 1,678 2,784 9,423 2,210
--------- ----------- --------- --------- ---------
CASH, END OF YEAR ........................... $ 9,423 $ 2,210 $ 1,678 $ 4,003 $ 2,962
========= =========== ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid .............................. $ 6,860 $ 4,471 $ 220 $ 5,746 $ 4,281
========= =========== ========= ========= =========
Income taxes paid .......................... $ 4,466 $ 6,099 $ 10,009 $ 3,048 $ 2,614
========= =========== ========= ========= =========
NON-CASH FINANCING ACTIVITY:
Dividends paid to Parent ................... -- $ (129,940) -- (13,725) --
Issuance of note payable to Parent ......... -- 67,100 -- -- --
----------- ---------
Cash dividends paid to Parent ............ $ -- $ (62,840) $ -- (13,725) $ --
========= =========== ========= ========= =========
Liabilities assumed in connection with
asset acquisitions ....................... $ 4,224 $ 864 $ -- 506 4,224
========= =========== ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. ACCOUNTING POLICIES AND PROCEDURES
ORGANIZATION -- Huttig Building Products, Inc. (formerly Huttig Sash &
Door Company), an indirect wholly owned subsidiary of Crane Co. through Crane
International Holdings, a direct subsidiary of Crane Co. (the "Parent" or
"Crane"), and its subsidiaries (the "Company") is one of the largest nationwide
distributors of doors, windows, molding, trim and related building products in
the United States, and operates one finished lumber production plant. The
Company primarily sells its products for new residential construction and
renovation.
PRINCIPLES OF CONSOLIDATION -- The financial statements include the
accounts of Huttig Building Products, Inc. and its wholly owned subsidiaries,
CIPCO, Inc., which was formed January 2, 1997 and Rondel's, Inc., which was
acquired on March 31, 1993. All intercompany accounts and transactions have
been eliminated.
REVENUE RECOGNITION -- Revenues are recorded when title passes to the
customer, which occurs upon delivery of product, or when services are rendered.
USE OF ESTIMATES -- The preparation of the Company's financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from these
estimates.
INVENTORIES -- Inventories are stated at the lower of cost or market.
Approximately 68% and 83% of inventories were determined by using the LIFO
(last in, first out) method of inventory valuation as of December 31, 1998 and
1997, respectively; the remainder was determined by the FIFO (first in, first
out) method. Had the Company used the FIFO method of inventory valuation for
all inventories, net income would have been decreased by $2,632, $1,956 and
$735 in 1998, 1997 and 1996, respectively. During 1998, 1997, and 1996 LIFO
inventory quantities were reduced, resulting in a partial liquidation of the
LIFO bases, the effect of which increased net earnings by $1,922, $2,377, and
$1,605, respectively. The replacement cost would be higher than the LIFO
valuation by $15,368 in 1998 and $19,599 in 1997.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated
at cost. Depreciation was computed primarily by the straight-line method over
the estimated useful lives of the respective assets which range from three to
twenty-five years. Amortization expense on property under capital leases is
included in depreciation expense.
OTHER ASSETS -- Goodwill is being amortized on a straight-line basis over
fifteen to forty years. Other intangible assets are being amortized on a
straight-line basis over their estimated useful lives which range from two to
five years.
VALUATION OF LONG-LIVED ASSETS -- The Company periodically evaluates the
carrying value of long-lived assets, including goodwill and other intangible
assets, when events and circumstances warrant such a review. The carrying value
of a long-lived asset is considered impaired when the anticipated undiscounted
cash flow from such asset is separately identifiable and is less than its
carrying value. In that event, a loss is recognized based on the amount by
which the carrying value exceeds the fair market value of the long-lived asset.
Fair market value is determined primarily using the anticipated cash flows
discounted at a rate commensurate with the risk involved.
PARENT COMPANY SERVICES -- Crane supplies the Company certain shared
services including insurance, legal, tax and treasury functions. The costs
associated with these services are charged through the intercompany account to
the Company based upon specific identification.
F-6
<PAGE>
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES -- The Company is included in the federal income tax return
of its Parent. The Company is charged its proportionate share of federal income
taxes determined as if it filed a separate federal income tax return. Income
tax payments represent payments of intercompany balances. Income tax expense is
based on reported earnings before income taxes. Deferred income taxes reflect
the impact of temporary differences between assets and liabilities recognized
for financial reporting purposes and such amounts recognized for tax purposes
using currently enacted tax rates.
RECENT ACCOUNTING PRONOUNCEMENTS -- During 1998, the Company adopted
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting
Comprehensive Income, and Statement of Financial Accounting Standards No. 131
("SFAS 131"), Disclosures about Segments of an Enterprise and Related
Information.
SFAS 130 established standards for reporting and display of comprehensive
income in a full set of financial statements. In addition to displaying an
amount for net income (loss), the Company is now required to display other
comprehensive income (loss), which includes other changes in equity (deficit).
SFAS 130 had no effect on the Company's financial statements for the years
ended December 31, 1996, 1997 and 1998.
SFAS 131 established standards for the way that public business
enterprises report information about operating segments in annual financial
statements and also established standards for related disclosures about
products and services, geographic areas, and major customers. Management has
considered the requirements of SFAS 131 and, as discussed in Note 8, believes
the Company operates in one business segment.
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
133"), Accounting for Derivative Instruments and Hedging Activities, was
released. SFAS 133, as amended by SFAS 137, is effective for all fiscal years
beginning after June 15, 2000. The Company has historically made no use of
derivative instruments and financial hedges and believes there will be no
impact of the new accounting pronouncement on the financial statements.
RECLASSIFICATIONS -- Certain prior year amounts have been reclassified to
conform to the current year presentation.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- The unaudited
interim consolidated financial statements as of September 30, 1999 and for the
nine-month periods then ended were prepared in condensed format, in accordance
with the SEC rules and regulations for interim financial statements. In the
opinion of management, the interim financial statements reflect all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation. The accounting principles applied in preparation of the interim
financial statements are consistent with those applied in the annual financial
statements. Results of operations for the nine-month period ended September 30,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999.
2. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The Company has defined benefit pension plans covering substantially all
salaried and hourly employees not covered by collective bargaining agreements.
The plans generally provide benefit payments using a formula based on length of
service and final average compensation, except for some hourly employees for
whom the benefits are a fixed amount per year of service. The Company's policy
is to fund at least the minimum amount required by the applicable regulations.
The Company's defined benefit plans for hourly and salaried employees are
part of the Parent's defined benefit plans. The liabilities of the Company for
such plans are recorded through the receivable-Parent balance. As a result, the
Company is charged its proportionate share of the total
F-7
<PAGE>
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
expense for the plans. Pension expense related to the Company's defined benefit
pension plans was $1,224, $1,013 and $970 in 1998, 1997 and 1996, respectively.
The Company also participates in several multi-employer pension plans which
provide benefits to certain employees under collective bargaining agreements.
Total contributions to these plans were $468 in 1998, $454 in 1997 and $480 in
1996.
In addition to providing pension benefits, certain health care and life
insurance benefits are provided for a majority of employees. Employees hired
before January 1, 1992 become eligible for these benefits if they meet minimum
age and service requirements. The Company does not prefund those benefits and
has the right to modify or terminate benefits.
The following table sets forth the amounts recognized in the Company's
balance sheet at December 31, for company sponsored post-retirement benefits:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year ......... $ 6,750 $ 6,250
Service cost .................................... 248 236
Interest cost ................................... 500 447
Actuarial gain .................................. (12) (52)
Benefits paid ................................... (183) (131)
-------- --------
Benefit obligation at end of year ............. $ 7,303 $ 6,750
======== ========
Funded status .................................... $ (7,303) $ (6,750)
Unrecognized actuarial loss ...................... 242 667
-------- --------
Accrued benefit cost .......................... $ (7,061) $ (6,083)
======== ========
Discount rate .................................... 6.75% 7.25% 7.50%
Components of net periodic benefit cost:
Service cost .................................... $ 248 $ 236 $ 214
Interest cost ................................. 500 447 497
Recognized actuarial gain ....................... (12) (52) (124)
-------- -------- -------
Net periodic benefit cost ..................... $ 736 $ 631 $ 587
======== ======== =======
</TABLE>
The cost of covered healthcare benefits was assumed to increase 8.5% for
1998, and then to decrease gradually to 4.75% by 2005 and remain at that level
thereafter. In 1997, the cost of covered healthcare benefits was assumed to
increase 9.4%, and then to decrease gradually to 5% by 2007 and remain at that
level thereafter.
<TABLE>
<CAPTION>
1 PERCENTAGE 1 PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost components ......... $120 $104
Effect on postretirement benefit obligation ..................... 375 329
</TABLE>
F-8
<PAGE>
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTS RECEIVABLE
Receivables are carried at net realizable value.
A summary of the allowance for doubtful accounts, cash discounts, returns
and allowances activity at December 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Balance at beginning of year $1,459 $1,912 $1,946
Provisions 1,171 847 920
Deductions 1,098 1,300 954
------ ------ ------
Balance at end of year $1,532 $1,459 $1,912
====== ====== ======
</TABLE>
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Notes payable -- Parent ........................... $93,940 $67,100
Industrial revenue bond ........................... 429 588
Capital lease obligations (see Note 6) ............ 1,269 1,486
------- -------
Total long-term debt ........................... 95,638 69,174
Less current portion .............................. 319 359
------- -------
Long-term debt -- net of current portion .......... $95,319 $68,815
======= =======
</TABLE>
The notes payable -- Parent bears interest at a weighted average rate of
8.09%. Interest payments are due quarterly through June 30, 2003. Accrued
intercompany interest of $1,941 and $1,434 at December 31, 1998 and 1997,
respectively, is included in receivable-Parent.
The industrial revenue bond bears interest at a rate of 6.46%, based on
63% of the Bank's preferred lending rate which was 10.25% at December 31, 1997
and principal payments of $39 are made quarterly until 2001. The bond is
collateralized by property with a net book value of $1,908 and $1,988 at
December 31, 1998 and 1997, respectively.
At December 31, 1998, the principal amounts of long-term debt repayments
required for future years were $319 in 1999, $263 in 2000, $228 in 2001,
$67,221 in 2002, and $26,962 in 2003.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of investments and short-term debt approximates the
fair value. Long-term debt rates currently available to the Company for debt
with similar terms and remaining maturities are used to estimate the fair value
for debt issues that are not quoted on an exchange. The estimated fair value of
long-term debt at December 31, 1998 approximates the carrying value of $95,638.
F-9
<PAGE>
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its vehicles, equipment and warehouse and
manufacturing facilities under capital and operating leases with various terms.
Certain leases contain renewal or purchase options. Future minimum payments, by
year, and in the aggregate, under these leases with initial or remaining terms
of one year or more consisted of the following at December 31, 1998:
<TABLE>
<CAPTION>
MINIMUM
CAPITAL OPERATING SUBLEASE
LEASES LEASES INCOME NET
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
1999 .................................... $ 216 $ 5,373 $ 1,360 $ 4,229
2000 .................................... 204 4,595 966 3,833
2001 .................................... 204 3,961 652 3,513
2002 .................................... 204 2,907 599 2,512
2003 .................................... 161 1,546 457 1,250
Thereafter .............................. 554 844 17 1,381
------- -------- ------- --------
Total minimum lease payments ......... $ 1,543 $ 19,226 $ 4,051 $ 16,718
======== ======= ========
Interest ................................ 274
-------
Present value ........................... $ 1,269
=======
</TABLE>
The present value of the $1,269 above includes $161 due within one year.
The weighted average interest rate for capital leases is 9.2%. These
obligations mature in varying amounts through 2007. Rental expense for all
operating leases was $6,672, $5,778, and $5,572 for 1998, 1997 and 1996,
respectively.
The cost of assets capitalized under leases is as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Land, buildings and improvements .......... $ 3,966 $ 3,966
Machinery and equipment ................... -- 126
------- -------
Cost of leased assets .................. 3,966 4,092
Less accumulated depreciation ............. 2,696 2,582
------- -------
Cost of leased assets -- net ........... $ 1,270 $ 1,510
======= =======
</TABLE>
LITIGATION -- As of December 31, 1998, the Company is involved in various
claims and legal actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters will not have a
material effect on the Company's financial condition and results of operations.
The Company is involved in two remediation actions to clean up hazardous wastes
as required by federal and state laws. Estimated future environmental
remediation costs of $500 at December 31, 1998 and $143 at December 31, 1997
were fully accrued.
The Company, through its Parent, has established insurance programs to
cover product and general liability losses. These programs have deductible
amounts before coverage begins. The Company does not deem its deductible
exposure to be material.
F-10
<PAGE>
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
A reconciliation between income taxes based on the application of the
statutory federal income tax rate to income taxes as set forth in the
consolidated statements of income and retained earnings follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Income before taxes ................................. $ 21,851 $ 14,814 $ 20,757
========= ========= =========
Statutory federal tax at 35% ........................ $ 7,648 $ 5,185 $ 7,265
Increase resulting from:
State and local income taxes ....................... 411 280 943
Nondeductible goodwill and other expenses .......... 196 294 261
--------- --------- ---------
Provision for income taxes .......................... $ 8,255 $ 5,759 $ 8,469
========= ========= =========
Percentage of income before taxes ................... 37.8% 38.9% 40.8%
========= ========= =========
</TABLE>
Deferred income taxes at December 31 are comprised of the following:
<TABLE>
<CAPTION>
1998 1997
-------------------------- -------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Depreciation .................................. $ -- $ 698 $ -- $ 646
Difference between book and tax basis ......... -- 838 -- 865
Inventory related ............................. -- 273 -- 372
Insurance related ............................. 1,301 -- 1,203 --
Employee benefits related ..................... 3,113 -- 4,039 --
Other ......................................... 1,552 -- 696 --
------- ------- ------- -------
Total ...................................... $ 5,966 $ 1,809 $ 5,938 $ 1,883
======= ======= ======= =======
</TABLE>
At December 31, 1998 and 1997, net current deferred tax assets of $4,053
and $3,168, respectively, were included in receivable-Parent. Net non-current
deferred tax assets of $104 and $887 at December 31, 1998 and 1997,
respectively, were included in deferred income taxes. The provision for income
taxes is composed of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Current:
U.S. Federal tax ............ $7,708 $5,499 $7,256
State and local tax ......... 649 464 1,495
------ ------ ------
Total current ............. 8,357 5,961 8,751
------ ------ ------
Deferred:
U.S. Federal tax ............ (86) (170) (238)
State and local tax ......... (16) (32) (44)
------ ------ ------
Total deferred ............ (102) (202) (282)
------ ------ ------
Total income tax ............ $8,255 $5,759 $8,469
====== ====== ======
</TABLE>
F-11
<PAGE>
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SALES BY PRODUCT
The Company operates in one business segment, the distribution of building
materials used principally in new residential construction and in home
improvement, remodeling and repair work. The Company derives substantially all
of its revenues from domestic customers. The following table presents, for the
periods indicated, the Company's sales by product.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Doors ........................................ $259,943 $232,502 $214,957
Specialty Building Materials ................. 140,871 133,746 128,169
Windows ...................................... 132,991 128,195 128,126
Moldings ..................................... 88,641 93,907 102,159
Lumber and Other Commodity Products .......... 85,004 37,152 21,678
-------- -------- --------
Total sales ................................. $707,450 $625,503 $595,089
======== ======== ========
</TABLE>
9. ACQUISITIONS
Costs in excess of net assets acquired at December 31, 1998 and 1997
consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Costs in excess of net assets acquired $48,412 $21,629
Accumulated amortization 6,303 4,789
------- -------
Total - net $42,109 $16,840
======= =======
</TABLE>
During 1998, the Company completed two acquisitions. In June, the Company
acquired Number One Supply, a building products distribution business based in
Baltimore, Maryland and Raleigh, North Carolina, for a total cost of $4,900. In
July, the Company acquired certain net assets of Consolidated Lumber Company,
Inc., a wholesale distributor of lumber and millwork products in the greater
Kansas City, Missouri area for a total cost of approximately $40,000. In
connection with the acquisition of Consolidated Lumber Company, Inc., the
Company recorded $26,200 of goodwill which will be amortized using the
straight-line basis over 15 years.
During July 1997, the Company completed one acquisition at a total cost
of $12,100. The Company acquired MALLCO Lumber & Building Materials Inc., a
leading wholesale distributor of lumber, doors and engineered wood products
serving Arizona and the surrounding region.
All acquisitions were accounted for by the purchase method. The results
of operations for all acquisitions have been included in the financial
statements from their respective dates of purchase. The following unaudited pro
forma financial information presents the combined results of operations of the
Company and Number One Supply and Consolidated Lumber, Inc. as if the
acquisitions had taken place at the beginning of 1998. The pro forma amounts
give effect to certain adjustments including the amortization of goodwill and
intangibles, decreased interest expense and income tax effects. This pro forma
information does not necessarily reflect the results of operations as it would
have been if the businesses had been managed by the Company during these periods
and is not indicative of results that may be obtained in the future. Pro forma
1998 results are as follows: net sales of $744,658 and net income of $14,682.
Pro Forma 1997 results are as follows: net sales of $706,993 and net income of
$12,751.
10. PARENT COMPANY
On April 15, 1999, the Company issued dividends of $13,725. On June 21,
1999, Crane's Board of Directors authorized management to develop a plan for
the possible spin-off of the Company to Crane shareholders on a tax-free basis.
F-12
<PAGE>
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS (UNAUDITED)
On October 18, 1999, the Company's Board of Directors approved the
acquisition of Rugby USA, Inc. The acquisition will be accomplished as follows:
The Company plans to obtain financing commitments adequate to provide for
a working capital facility of approximately $30 million, an acquisition facility
of approximately $20 million and a debt repayment facility for intercompany debt
expected to be $100 million. After Crane declares the dividend of the Company
stock to its shareholders, and one day prior to the date on which the spin-off
is consummated, the Company will pay all cash balances to Crane for the
reduction of all intercompany debt except for the Note Payable to Crane. Crane
will contribute capital adequate to reduce the Note Payable to Crane to 68% of
the actual amount of the debt repayment facility of the Company and Rugby USA,
Inc. combined, plus any amounts (up to $15 million) that Crane has advanced to
the Company between the date of the Share Exchange Agreement and the day prior
to the date the spin-off is consummated. As soon as practicable after the
spin-off of the Company, the following actions will take place simultaneously.
The Company will issue new stock, which will constitute 32% of the Company's
stock (exclusive of the restricted shares issued to the Company's Chief
Executive Officer), in exchange for 100% of the stock of Rugby USA, Inc. The
Company shall pay 68% of the debt repayment facility to Crane and 32% to The
Rugby Group PLC for the repayment of debt owed by the Company to Crane and Rugby
USA, Inc. to its parent company.
As part of the spin-off, the Company will establish its own pension and
other post-retirement plans with equivalent benefits to the plans in which its
employees currently participate, except that there will be no defined benefit
pension plan for salaried or hourly employees. Benefits accrued by Company
employees will be frozen, and the Company will have no liability and Crane will
have no obligation to transfer assets with respect to those benefits. Crane will
maintain responsibility for funding and paying when due retirement benefits
accrued by Company employees prior to the spin-off. In addition, several of the
Company's officers participate in the Stock Option Plan and in the Restricted
Stock Award Plan of Crane. The Company has established a stock incentive plan
with similar features to the two Crane plans. The Company has also established a
Non-employee Director Restricted Stock Plan similar to Crane's where
non-employee directors receive a portion of their retainer in stock with certain
restrictions. The Company also plans to establish an employee stock purchase
plan that will allow employees to purchase Company stock at market prices.
F-13
<PAGE>
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected consolidated financial
information of Huttig on a quarterly basis for the first three quarters of 1999
and each quarter of 1998 and 1997. Huttig's business is seasonal and
particularly sensitive to weather conditions. Interim amounts are therefore
subject to significant fluctuations.
<TABLE>
<CAPTION>
NET COST OF DEPRECIATION AND OPERATING NET
QUARTER SALES SALES AMORTIZATION PROFIT INCOME
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1999
First $174,775 $153,887 $1,623 $ 3,987 $ 1,232
Second 205,979 176,436 1,649 7,810 3,288
Third 214,160 185,762 1,588 7,744 3,933
-------- -------- ------ ------- -------
$594,914 $516,085 $4,860 $19,541 $ 8,453
======== ======== ====== ======= =======
1998
First $146,858 $127,575 $1,129 $ 2,953 $ 966
Second 172,782 150,148 1,097 5,581 2,612
Third 202,209 171,484 1,699 10,638 5,312
Fourth 185,601 157,786 1,661 7,799 4,706
-------- -------- ------ ------- -------
$707,450 $606,993 $5,586 $26,971 $13,596
======== ======== ====== ======= =======
1997
First $133,657 $116,999 $1,073 $ 1,944 $ 1,000
Second 153,140 133,093 1,053 4,760 1,838
Third 176,045 152,419 1,140 7,213 3,487
Fourth 162,661 140,586 1,143 5,925 2,730
-------- -------- ------ ------- -------
$625,503 $543,097 $4,409 $19,842 $ 9,055
======== ======== ====== ======= =======
</TABLE>
F-14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholder of Rugby USA, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and retained earnings/accumulated deficit
and of cash flows present fairly, in all material respects, the financial
position of Rugby USA, Inc. (the "Company"), a wholly-owned subsidiary of The
Rugby Group PLC, and its subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles. These financial statements 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
financial 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.
As discussed in Note 13, the Company sold Pioneer Plastics and adopted a plan
to distribute and sell certain other identified net assets. Further, the plan
provides for all of the equity shares in the Company to be exchanged for equity
shares in a newly-registered company as soon as practicable following the
public distribution of its shares by its parent.
PricewaterhouseCoopers LLP
Atlanta, Georgia
January 31, 1999, except for Note 13, as to
which the date is October 19, 1999
F-15
<PAGE>
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998 1997
-------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash ...................................................... $ 8,285 $ 15,355 $ 7,431
Accounts receivable, net .................................. 57,347 44,654 35,804
Receivable from parent .................................... 2,949 -- --
Inventories ............................................... 55,134 47,726 47,834
Prepaid income taxes ...................................... -- 3,486 849
Deferred income taxes ..................................... 703 703 1,005
Other assets .............................................. 5,128 984 7,002
Net assets held for sale and distribution ................. 35,054 107,240 106,670
--------- --------- ---------
Total current assets .................................... 164,600 220,148 206,595
Deferred income taxes ..................................... -- -- 516
Property and equipment, net ............................... 24,178 25,948 27,026
Intangible assets ......................................... 7,605 8,007 8,566
--------- --------- ---------
Total assets ............................................ $ 196,383 $ 254,103 $ 242,703
========= ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt ......................... $ -- $ 6,073 $ 308
Accounts payable .......................................... 30,080 24,902 20,252
Accrued liabilities ....................................... 10,527 8,450 8,865
Income tax payable ........................................ 21,251 -- --
--------- --------- ---------
Total current liabilities ............................... 61,858 39,425 29,425
Long-term debt ............................................. -- 121,527 137,534
Deferred income taxes ...................................... 1,565 1,565 --
--------- --------- ---------
Total liabilities ....................................... 63,423 162,517 166,959
--------- --------- ---------
Commitments and contingencies
Stockholder's equity
Common stock, Class A, $50 par value, authorized 1 million
shares; 10 shares issued and outstanding ................ 1 1 1
Common stock, Class B, $50 par value, authorized 10 million
shares; 500,000 shares issued and outstanding ........... 25,000 25,000 25,000
Common stock, Class C, $50 par value, authorized 10 million
shares; 625,000 shares issued and outstanding ........... 31,250 31,250 31,250
Additional paid-in-capital ................................ 20,250 20,250 20,250
Retained earnings (accumulated deficit) ................... 56,459 15,085 (757)
--------- --------- ---------
Total stockholder's equity .............................. 132,960 91,586 75,744
--------- --------- ---------
Total liabilities and stockholder's equity .............. $ 196,383 $ 254,103 $ 242,703
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-16
<PAGE>
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS/ACCUMULATED DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- -------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales ........................................ $474,763 $441,809 $600,209 $ 622,762 $ 630,965
Cost of goods sold ............................... 381,558 351,870 475,456 507,785 512,828
-------- -------- -------- --------- ---------
Gross profit .................................. 93,205 89,939 124,753 114,977 118,137
Operating expenses ............................... 78,263 81,195 108,625 117,073 125,051
-------- -------- -------- --------- ---------
Income (loss) from operations ................. 14,942 8,744 16,128 (2,096) (6,914)
Interest expense, net ............................ 1,113 7,304 9,787 10,114 10,452
-------- -------- -------- --------- ---------
Income (loss) before income taxes ............. 13,829 1,440 6,341 (12,210) (17,366)
(Expense) benefit for income taxes ............... (5,887) (655) (2,885) 4,345 6,414
-------- -------- -------- --------- ---------
Income (loss) before discontinued
operations ................................... 7,942 785 3,456 (7,865) (10,952)
Discontinued operations
Income from discontinued operations less
applicable income taxes of $320, $6,504,
$8,551, $8,413 and $5,256 respectively......... 481 9,639 12,386 12,173 7,384
Gain on sale, less applicable income taxes of
$24,550........................................ 32,951 -- -- -- --
-------- -------- -------- --------- ---------
Net income (loss) ................................ 41,374 10,424 15,842 4,308 (3,568)
Retained earnings (accumulated deficit) at
beginning of year ............................... 15,085 (757) (757) (5,065) (1,497)
-------- -------- -------- --------- ---------
Retained earnings (accumulated deficit) at end
of year ......................................... $ 56,459 $ 9,667 $ 15,085 $ (757) $ (5,065)
======== ======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-17
<PAGE>
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------- -------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities ...............................
Net income (loss) ................................. $ 41,374 $ 10,424 $ 15,842 $ 4,308 $ (3,568)
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities
Depreciation and amortization ................ 4,469 10,745 10,249 11,356 12,348
Loss (gain) on sale of property and
equipment ................................... 154 (52) (183) 132 5,463
Gain on sale of discontinued operations (57,501) -- -- -- --
Provision for bad debt ....................... 300 530 253 964 1,288
Provision for inventory ...................... 100 15 141 1,436 2,875
Changes in operating assets and liabilities
Accounts receivable ............................ (9,644) (23,439) (9,103) 5,041 (8,088)
Accounts receivable, affilliate ................ (2,949) -- -- -- --
Inventories .................................... (7,508) (1,938) 525 (253) (8,730)
Prepaid and other assets ....................... (4,007) (1,866) 3,381 (3,242) (72)
Assets held for distribution and sale .......... (13,580) (5,174) (7,283) (4,488) 9,445
Accounts payable and accrued liabilities ....... 28,506 5,026 4,235 (4,014) (4,896)
Deferred income taxes .......................... -- 95 2,383 2,732 (4,391)
Other .......................................... -- -- -- (506) --
---------- --------- --------- -------- --------
Net cash (used in) provided by
operating activities ...................... (20,286) (5,634) 20,440 13,466 1,674
---------- --------- --------- -------- --------
Investing activities
Purchase of property, plant and equipment ......... (3,525) (2,677) (5,079) (4,334) (6,214)
Proceeds from sale of property, plant and
equipment ....................................... 1,895 820 2,805 1,661 3,339
Proceeds from disposal of a business .............. 142,446 -- -- -- --
---------- --------- --------- -------- --------
Net cash provided by (used in)
investing activities ...................... 140,816 (1,857) (2,274) (2,673) (2,875)
---------- --------- --------- -------- --------
Financing activities Repayment of debt ............. (127,600) 131 (10,242) (8,707) 6,546
---------- --------- --------- -------- --------
Net cash (used in) provided by financing
activities ................................ (127,600) 131 (10,242) (8,707) 6,546
---------- --------- --------- -------- --------
Net (decrease) increase in cash .................... (7,070) (7,360) 7,924 2,086 5,345
Cash at the beginning of the year .................. 15,355 7,431 7,431 5,345 --
---------- --------- --------- -------- --------
Cash at the end of the year ........................ $ 8,285 $ 71 $ 15,355 $ 7,431 $ 5,345
========== ========= ========= ======== ========
Cash paid during the year for
Interest .......................................... $ 1,339 $ 7,508 $ 12,940 $ 13,431 $ 14,035
Federal and state income taxes, net of refunds..... 8,162 7,776 9,457 3,762 961
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-18
<PAGE>
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS
Rugby USA, Inc. ("RUSA" or "the Company"), a Georgia Corporation, is a
wholly-owned subsidiary of The Rugby Group PLC ("Rugby" or "Parent"), a United
Kingdom corporation and through its wholly-owned subsidiary, Rubgy Building
Products, Inc. ("RBP"), is principally in the building supply distribution
business.
RUSA, through its Pioneer Plastics Corporation subsidiary ("Pioneer"),
manufactured high and low pressure laminates, saturated papers and specialty
resins and distributed these laminates to customers, which include RBP. As
discussed in Note 13, Pioneer was sold on February 18, 1999.
2. SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of RUSA and its wholly-owned subsidiaries RBP,
Pioneer, and Paramount Manufacturing, Inc. (whose operations ceased in November
1996 and assets were subsequently sold in September 1997). All significant
intercompany accounts and transactions have been eliminated in consolidation.
CASH -- Cash and cash equivalents consist of deposits with banks and
financial institutions which are unrestricted as to withdrawal or use, and
which have original maturities of three months or less.
REVENUE RECOGNITION -- Revenue is recorded at the time title to products
is passed to customers, which occurs when products are shipped to customers.
Provisions are made on a regular basis to establish reserves for returns,
discounts and rebates using historical and current data. All trade receivables
are unsecured.
INVENTORIES -- Inventories are stated at the lower of cost or market.
Substantially all of the Company's inventory cost is determined using the
last-in, first-out ("LIFO") method of valuing inventory.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation and amortization are provided over the estimated useful lives of
the assets using primarily the straight-line method for financial statement
purposes and accelerated methods for income tax purposes.
Estimated useful lives for property and equipment are as follows:
YEARS
-----
Buildings ........................ 20 - 40
Machinery and equipment .......... 3 - 10
Leasehold improvements ........... The shorter of 10 or the
remainder of the lease.
INTANGIBLE ASSETS -- Intangible assets include a non-compete agreement and
goodwill which are amortized on a straight-line basis over periods ranging from
3 to 15 years.
IMPAIRMENT OF LONG-LIVED ASSETS -- Management periodically reviews
long-lived assets for impairment. When assets are determined to be impaired, an
evaluation of recoverability is performed, using the estimated future
undiscounted cash flows associated with the asset, compared to the asset's
carrying amount. Based on the Company's estimate of future undiscounted cash
flows, the Company has determined no such evaluation is required in 1998.
F-19
<PAGE>
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
INCOME TAXES -- The Company accounts for income taxes using an asset and
liability approach, which requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of other assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying values of cash,
accounts receivable, accounts payable and accrued liabilities approximate fair
value due to the short-term nature of these assets and liabilities. The
carrying value of long-term debt approximates fair value which is estimated
based on discounted expected cash flows at rates currently offered to the
Company for similar debt, as advised by the Company's banks.
MANAGEMENT ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
RATIONALIZATION EXPENSES -- The Company records costs associated with the
rationalization of its operations in accordance with the guidance set forth in
the consensus reached by the FASB's Emerging Issues Task Force in their
abstract issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity" and related
pronouncements.
Expenses of $6,539, $9,646, and $0 for December 31, 1998, 1997 and 1996,
respectively, have been recorded in the accompanying financial statements as
they meet the criteria for recognition contained in the pronouncements cited
above. No accruals were recorded at December 31, 1998, 1997 and 1996 as the
rationalization expenses incurred did not qualify for liability recognition.
CAPITALIZATION OF SOFTWARE COSTS -- In 1998, the Company adopted SOP 98-1,
"Accounting for the Costs of Computer Software Developed and Obtained for
Internal Use." SOP 98-1 requires computer software costs that are incurred in
the preliminary project stage to be expensed as incurred. After the preliminary
project stage, certain costs are to be capitalized, which include external
costs of materials and services consumed in developing, modifying or obtaining
internal-use computer software and payroll and payroll related costs for
employees who are directly associated with and who devote time to the
internal-use computer software project. Certain costs are to be expensed as
incurred, which include training costs and certain data conversion costs. The
capitalized costs will be amortized on a straight-line basis, over a period not
to exceed 5 years. In 1998, the Company capitalized $5,728 in connection with
the adoption of SOP 98-1, of which $4,648 was capitalized by Pioneer.
VALUATION OF LONG-LIVED ASETS -- The Company annually reviews its goodwill
recoverability by assessing historical profitability and expectations as to
future nondiscounted cash flows and net income. Based upon its most recent
analysis, the Company believes there is no impairment of goodwill at December
31, 1998.
REPORTING COMPREHENSIVE INCOME -- In 1998, the Company adopted FAS 130,
"Reporting Comprehensive Income." This statement establishes rules for the
reporting of comprehensive income and its components which includes, among
other items, net income and foreign currency translation adjustments. The
Company does not have any components of comprehensive income other than net
income.
SEGMENT REPORTING -- In fiscal 1998, Rugby adopted Statement of Financial
Accounting Standard FAS 131, "Disclosures about Segments of an Enterprise and
Related Information." FAS 131
F-20
<PAGE>
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
supercedes FAS 14, "Financial Reporting for Segments of a Business Enterprise,"
replacing the "industry segment" approach with the "management" approach. The
management approach reports segment information based on how the internal
organization makes operating decisions and assesses performance. FAS 131 also
requires disclosure about products and services, geographic areas of business
and major customers. During 1998, 1997 and 1996, the Company was comprised of
two operating segments, building supply distribution through its subsidiary RBP
and high and low pressure laminates manufacturing through its subsidiary
Pioneer. As discussed in Note 13, Pioneer was sold on February 18, 1999.
Therefore, in accordance with FAS 131, only the building supply distribution
segment is disclosed for 1998, 1997 and 1996.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- The unaudited
interim consolidated financial statements as of September 30, 1999 and for the
nine-month periods then ended were prepared in accordance with the SEC rules
and regulations for interim financial statements. In the opinion of management,
the interim financial statements reflect all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentation. The accounting
principles applied in preparation of the interim financial statements are
consistent with those applied in the annual financial statements. Results of
operations for the nine-month period ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31,1999.
3. ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
Accounts receivable ..................... $ 46,891 $ 37,987
Allowance for doubtful accounts ......... (2,237) (2,183)
-------- --------
$ 44,654 $ 35,804
======== ========
4. INVENTORIES
Inventories consist of the following:
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
Finished goods ........................... $ 58,324 $ 60,457
Obsolescence and shrink reserves ......... (3,083) (4,307)
-------- --------
55,241 56,150
LIFO reserve ............................. (7,515) (8,316)
-------- --------
$ 47,726 $ 47,834
======== ========
The replacement value of inventory determined on a weighted average FIFO
basis at December 31, 1998 and 1997 is $55,241 and $56,150, respectively.
The liquidation of certain LIFO layers decreased cost of goods sold by
$831, $77 and $0 in 1998, 1997 and 1996, respectively.
F-21
<PAGE>
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
5. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
Land and buildings ....................... $ 26,146 $ 26,604
Machinery and equipment .................. 25,578 28,757
--------- ---------
51,724 55,361
Less -- accumulated depreciation ......... (25,776) (28,335)
--------- ---------
$ 25,948 $ 27,026
========= =========
Depreciation expense for the assets listed above is $3,537, $3,471 and
$3,986 has been recorded for 1998, 1997 and 1996, respectively.
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
--------------------
1998 1997
-------- ---------
Accrued operating costs .......................... $ 193 $ 773
Accrued payroll and other employee costs ......... 7,110 5,168
Accrued taxes other than income .................. 687 831
Other ............................................ 460 2,093
------ ------
$8,450 $8,865
====== ======
7. INTANGIBLE ASSETS
Intangible assets are comprised of the following amounts:
DECEMBER 31,
-------------------------
1998 1997
------------ ----------
Goodwill ................................. $ 12,428 $ 12,428
Non-compete agreement .................... 6,093 6,093
--------- --------
18,521 18,521
Less -- accumulated amortization ......... (10,514) (9,955)
--------- --------
$ 8,007 $ 8,566
========= ========
Amortization expense for the assets listed above is $557, $2,595 and $3,265
has been recorded for 1998, 1997 and 1996, respectively.
F-22
<PAGE>
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
8. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
--------------------
1998 1997
-------- --------
Unsecured line of credit ............................ $ 6,000 $ 16,000
Mortgage notes at various interest rates ranging from
6.8% to 9% due in monthly principal and interest
instalments, maturing in 1998 to 2000 .............. 105 320
Subordinated loan notes due to Rugby and its
affiliates ......................................... 121,495 121,495
Capital lease obligations ........................... -- 27
Less -- current portion of long-term debt ........... (6,073) (308)
-------- --------
$121,527 $137,534
======== ========
The Company has a $40,000 unsecured line of credit with a bank which
expires on July 25, 2000 at which time the outstanding principal is due. The
borrowings bear interest at adjustable rates based on the London InterBank
Offered Rate ("LIBOR"). The rates prevailing at December 31, 1998 and 1997 were
5.2% and 6.0%, respectively. At December 31, 1998 and 1997, the Company had
borrowed $6,000 and $16,000, respectively, on this line of credit.
Additionally, the Company has demand lines of credit totaling $25,000 from
a certain lending institution. Interest on borrowings under the line is based
upon the federal funds rate in effect at the date of the borrowing plus .35%
(6.10% at December 31, 1998). At December 31, 1998 there were no borrowings
under this facility.
Property and equipment with a net book value of $1,015 has been pledged to
collateralize the mortgage notes.
Subordinated loan notes due to Rugby and its affiliates consist of three
notes of $71,000, $42,495 and $8,000 bearing interest at a fixed rate of 9.5%
per annum. The note for $71,000 is due in 2000. The remaining notes are due in
2004.
Minimum future principal payments on lines of credit, mortgage notes,
subordinated notes and capital lease obligations at December 31, 1998 are as
follows:
1999 .................... $ 6,073
2000 .................... 71,032
2001 .................... --
2002 .................... --
2003 .................... --
Thereafter .............. 50,495
--------
$127,600
========
F-23
<PAGE>
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
9. INCOME TAXES
The expense (benefit) for income taxes for the years ended December 31,
1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ------------ ------------
<S> <C> <C> <C>
Current tax expense (benefit)
Federal ........................ $1,523 $ (4,957) $ (2,934)
State .......................... (734) (1,025) (924)
Deferred tax expense
Federal ........................ 1,841 1,144 (2,096)
State .......................... 255 493 (460)
------ -------- --------
Total expense (benefit) ......... $2,885 $ (4,345) $ (6,414)
====== ======== ========
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory income tax rate to pretax
income, as a result of the following differences:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ------------ ------------
<S> <C> <C> <C>
Tax at U.S. statutory rate .......... $2,219 $ (4,274) $ (5,905)
State income taxes .................. 317 (611) (1,030)
Other permanent items, net .......... 349 540 521
------ -------- --------
Total expense (benefit) ............. $2,885 $ (4,345) $ (6,414)
====== ======== ========
</TABLE>
A summary of the components of deferred tax assets and liabilities, which
include deferred tax assets and liabilities of Pioneer, at December 31 are as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Deferred tax assets
Accounts receivable reserves .................. $ 2,033 $ 2,432
Inventory reserves ............................ 1,587 1,913
Inventory capitalization ...................... 1,797 1,825
Accrued liabilities ........................... 2,569 2,866
Non-compete amortization ...................... 2,233 2,442
Alternative minimum tax credits ............... 370 2,246
Other ......................................... -- 177
-------- -------
10,589 13,901
Deferred tax liabilities
Mark-to-market adjustment ..................... 1,881 2,505
Inventory purchase accounting step-up ......... 3,873 4,008
Depreciation .................................. 4,484 4,512
Other ......................................... 843 985
-------- -------
11,081 12,010
Deferred tax asset valuation allowance ......... (370) (370)
-------- -------
Net deferred tax assets (liabilities) .......... (862) 1,521
-------- -------
Current ....................................... 703 1,005
Long-term ..................................... (1,565) 516
-------- -------
$ (862) $ 1,521
======== =======
</TABLE>
F-24
<PAGE>
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
10. LEASE COMMITMENTS
The Company leases certain real properties and equipment under
noncancelable lease agreements which expire at various dates through 2020.
Total rental expense under these leases was approximately $6,593, $6,259 and
$6,760 in 1998, 1997 and 1996 respectively.
Minimum future payments for all non-cancelable leases of more than one
year are as follows for assets not held for sale or distribution:
1999 ......................... $ 6,457
2000 ......................... 5,729
2001 ......................... 4,017
2002 ......................... 2,742
2003 ......................... 2,140
2004 and later years ......... 2,182
-------
$23,267
=======
11. RETIREMENT PLANS
The Company sponsors defined contribution retirement plans covering
certain employees who meet specific service requirements. Contributions are
determined at the discretion of the Board of Directors. Amounts charged to
expense were $1,363, $1,179, and $1,985 in 1998, 1997 and 1996, respectively.
In addition, the Company sponsored a defined benefit pension plan for certain
of its employees. This defined benefit plan was terminated effective December
31, 1994. Benefits were distributed following the receipt of the determination
letter from the Internal Revenue Service, dated July 3, 1997, confirming the
tax qualified status of the terminated plan. Original estimated expenses of
$350 related to the plan termination were accrued in 1994. Additional expenses
of $837 related to the plan termination were recorded during 1997.
12. CONTINGENCIES
From time to time, the Company has had claims asserted against it by
regulatory agencies or private parties for environmental matters relating to
the generation or handling of hazardous substances by the Company or its
predecessor and has incurred obligations for investigations or remedial actions
with respect to certain of such matters. While the Company does not believe
that any such claims asserted or obligations incurred to date will result in a
material adverse effect upon the Company's financial position, results of
operations or liquidity, additional investigation will be, and remedial action
will or may be, required. There can be no assurance that activities at any
facility owned or operated by the Company or future facilities may not result
in additional environmental claims being asserted against the Company or
additional investigations or remedial actions being required.
Although there are certain unasserted possible claims and assessments,
under the Company's accounting policy, amounts will usually be accrued when 1)
both litigation has commenced or a claim or an assessment has been asserted,
or, based on available information, commencement of litigation or assertion of
a claim or an assessment is probable and 2) based on available information, it
is probable that the outcome of such litigation, claim, or assessment will be
unfavorable. In 1994, Pioneer entered into a Settlement Agreement with
Pioneer's predecessor ("Predecessor"), whereby the Predecessor agreed to retain
unlimited liability with respect to investigating and remediating environmental
sites
F-25
<PAGE>
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
where environmental claims have been identified, except for those sites
discussed below. In the event that the Predecessor is unable to meet the
financial obligations of remediating the sites, there is a possibility that
Pioneer will be required to assume the Predecessor's obligation of remediation.
No amounts, other than noted below, have been recorded for this potential
obligation in the financial statements.
A portion of the land in Auburn, Maine, acquired from the Predecessor is
subject to a Compliance Order by Consent ("COC") dated May 5, 1993, issued by
the State of Maine Department of Environmental Protection ("DEP") with regard
to unauthorized discharges of hazardous substances into the environment. The
Company and the Predecessor, named in the COC, are required to investigate and,
as necessary, remediate the environmental contamination at the site. Because
the unauthorized discharges occurred during the time that the Predecessor owned
the land, the Predecessor has agreed to be responsible for compliance with the
COC. The Predecessor has completed and submitted to the State for its review, a
risk assessment. The nature and extent of remediation has not yet been
determined. The financial obligation of the Predecessor to
investigate/remediate is unlimited except with regard to a portion of the land
at Pioneer's Auburn, Maine facility, which is capped at $10,000. Pioneer has
recorded a reserve of $1,000 at December 31, 1998 and 1997, being Pioneer's
best estimate of its liability for site remediation costs in excess of costs
agreed to be assumed by the Predecessor. Pioneer could incur additional
obligations in excess of its reserve. It is possible that Pioneer's recorded
estimate of $1,000 may change over time. However, the Company does not believe
the amount of possible loss related to this matter will exceed the amount of
accrual recorded. Further, it is unknown at what point in the future the
recorded accrual will be paid.
The Company is involved in certain litigation arising in the ordinary
course of business, but management believes that none will have a material
effect on the Company's business or financial position. The Company's
management intends to defend all such matters.
13. SUBSEQUENT EVENTS, ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
On February 18, 1999, Panolam Industries, Inc. ("Buyer") purchased all of
the outstanding stock of Pioneer Plastics Corporation. The Buyer assumed
substantially all of Pioneer's assets and liabilities. Pursuant to the Stock
Purchase Agreement, the Buyer paid approximately $159,000 to the Company which
included $10,000 for a non-compete agreement with Rugby plus additional
consideration contingent upon the Buyer's financial performance during the
fiscal years 1999 through 2003.
On October 8, 1999, the Company entered into amendment to the sales
contract with Panolam. The amendment provided for settlement of all outstanding
claims between the parties for purchase price adjustments and additional
consideration contingent upon the buyer's financial performance during fiscal
years 1999 - 2003 provided for in the original agreement. As a result of the
amendment the Company is to receive $5,000.
In connection with the sale of Pioneer, the Company guarantees to the
buyer of Pioneer the due performance of the Predecessor of its obligations to
Pioneer with respect to the environmental matters discussed in Note 12. This
guarantee expires on February 18, 2009.
In February 1999, in connection with sale of Pioneer, the Company paid
approximately $4,497 to key employees of Pioneer for certain sale-related
liabilities.
Pioneer's gross sales were $185,018, $179,331 and $155,739 for the years
ended December 31, 1998, 1997 and 1996, respectively. Included in these gross
sales are to RBP of $34,821, $34,427 and $34,064 for the years ended December
31, 1998, 1997 and 1996, respectively. The results of operations for the years
ended December 31, 1998, 1997 and 1996 are reported as discontinued operations.
F-26
<PAGE>
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
On October 19, 1999 Rugby adopted a plan to exchange all of its equity
shares in the Company for shares in an entity that is to be created by a
spin-off from a Securities and Exchange Commission registrant. The spin-off
company, upon completion of the necessary filings, shareholder approval and
Internal Revenue Service approval, will become a registrant with the Securities
and Exchange Commission. The Rugby plan requires its shareholders approval and
is subject to filings with regulatory authorities in the United Kingdom. As
part of this plan the Company adopted a plan to distribute certain assets to a
wholly-owned subsidiary of Rugby, to sell certain other assets and to declare a
dividend of $32,000 payable by note. In addition, the Company will declare a
cash dividend of all cash on hand at the date of the closing and eliminate all
intercompany indebtedness. The proceeds of the assets to be sold are also to be
declared as a dividend should they be sold prior to the closing of the share
exchange described above. The distribution of these certain assets to the
wholly-owned subsidiary will be a taxable transaction for United States income
tax purposes. The transaction is expected to take place by the end of 1999. The
company has reflected the assets and liabilities identified in the plan as net
assets held for sale.
The following table is a summary of the assets and liabilities included in
the plan and a summary of revenue and expense related thereto.
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net assets to be sold and distributed:
Current assets ......................................... $ 2,590 $ 1,629
Property, plant and equipment, net ..................... 398 250
Current liabilities .................................... (1,177) (643)
--------- ---------
Net assets to be sold and distributed ................ $ 1,811 $ 1,236
--------- ---------
Net assets to be distributed:
Current assets ......................................... $ 37,484 $ 39,315
Property, plant and equipment, net ..................... 1,934 2,709
Other assets ........................................... 1,487 1,628
Current liabilities .................................... (12,606) (7,920)
--------- ---------
Net assets to be distributed ......................... $ 28,299 $ 35,732
--------- ---------
Pioneer net assets held for sale:
Current assets ......................................... $ 41,756 $ 41,103
Property, plant and equipment, net ..................... 47,363 40,877
Other assets ........................................... 4,039 3,718
Current liabilities .................................... (16,028) (15,996)
--------- ---------
Pioneer net assets held for sale ..................... $ 77,130 $ 69,702
--------- ---------
Total net assets held for sale and distribution ......... $ 107,240 $ 106,670
========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenue .................... $ 144,279 $ 147,624 $ 151,711
Cost of goods sold ......... (104,447) (109,174) (114,095)
Operating expenses ......... (34,933) (38,282) (39,702)
---------- ---------- ----------
Operating profit ........... $ 4,899 $ 168 $ (2,086)
========== ========== ==========
</TABLE>
F-27
<PAGE>
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
Net assets to be sold and distributed consist of the net assets of the
Augusta distribution center.
Net assets to be sold and distributed include the net assets of
Indianapolis-BMS, Chicago, Columbus, Dallas, Denver, Hawaii, Houston, Las
Vegas, Northern California (Hayward and Sacramento), Phoenix , Tempe
(Industrial -- Corporate), Atlanta-Pioneer, Boston (Avon), Miami, Moonachie,
New York (Maspeth), Tampa, West Palm, San Antonio, Seattle, and Southern
California (Pomona and San Diego).
Lease commitments for assets to be distributed and sold:
ASSETS TO BE ASSETS TO
DISTRIBUTED BE SOLD
-------------- ----------
1999 ......................... $ 3,377 $ 3
2000 ......................... 2,260 --
2001 ......................... 1,234 --
2002 ......................... 718 --
2003 ......................... 145 --
2004 and later years ......... 84 --
------- ---
$ 7,818 $ 3
======= ===
During 1999, the Company lost two major suppliers. One supplier's product
line was pulled from the Company in June, 1999. This decision was based upon
the negotiations by Rugby to sell certain distribution centers to one of this
supplier's major competitors which was eventually not sold to the competitor.
Another supplier decided to change its product distribution model to smaller
distributors that primarily market its product.
F-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Consolidated Lumber Company, Inc.
We have audited the accompanying statement of assets acquired and liabilities
assumed of Consolidated Lumber Company, Inc. (the Company) as of December 31,
1997, and the related statement of revenues and expenses associated with
operations acquired (as described in Note 1) for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
As described in Note 1, the financial statements referred to above have been
prepared in consideration of the terms of the Asset Purchase Agreement between
Consolidated Lumber Company, Inc. and Huttig Sash & Door Company (Huttig) for
the sale of certain assets, liabilities and business operations to Huttig and
is not intended to be a complete presentation of the Company's assets,
liabilities and results of operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets acquired and liabilities assumed of
Consolidated Lumber Company, Inc. at December 31, 1997, and the revenues and
expenses associated with the operations acquired for the year then ended,
pursuant to the terms of the Asset Purchase Agreement described in Note 1, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri
March 2, 1998, except Notes 1
and 2, as to which the date is
August 20, 1999
F-29
<PAGE>
CONSOLIDATED LUMBER COMPANY, INC.
STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
DECEMBER 31, 1997
ASSETS ACQUIRED (NOTE 2)
Current assets:
Accounts receivable ...................... $ 7,051,563
Inventories .............................. 7,809,052
Prepaid expenses ......................... 106,658
-----------
Total current assets ...................... 14,967,273
Property, plant and equipment, at cost:
Leasehold improvements ................... 334,387
Vehicles ................................. 1,717,382
Office and computer equipment ............ 487,021
Machinery and equipment .................. 465,473
-----------
3,004,263
Accumulated depreciation ................. 1,692,865
-----------
Net property, plant and equipment ......... 1,311,398
-----------
Total assets acquired ..................... 16,278,671
LIABILITIES ASSUMED (NOTE 2)
Current liabilities:
Accounts payable ......................... 2,661,224
Accrued expenses ......................... 1,098,679
-----------
Total current liabilities assumed ......... 3,759,903
-----------
Net assets acquired ....................... $12,518,768
===========
See accompanying notes.
F-30
<PAGE>
CONSOLIDATED LUMBER COMPANY, INC.
STATEMENTS OF REVENUES AND EXPENSES
ASSOCIATED WITH OPERATIONS ACQUIRED
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
YEAR ENDED -------------------------------
DECEMBER 31, 1997 1998 1997
------------------ -------------- --------------
<S> <C> <C> <C>
Net sales ............................................ $69,243,169 $31,253,000 $34,318,000
Cost of sales ........................................ 51,737,222 22,850,000 25,826,000
----------- ----------- -----------
Gross profit ......................................... 17,505,947 8,403,000 8,492,000
Selling, general and administrative expenses ......... 11,671,107 6,903,000 6,248,000
----------- ----------- -----------
Operating income ..................................... 5,834,840 1,500,000 2,244,000
Other income ......................................... 153,667 73,000 (76,000)
----------- ----------- -----------
Excess of revenues over expenses of operations
acquired ............................................ $ 5,988,507 $ 1,573,000 $ 2,168,000
=========== =========== ===========
</TABLE>
See accompanying notes.
F-31
<PAGE>
CONSOLIDATED LUMBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Effective July 1, 1998, Huttig Sash & Door Company (a subsidiary of Crane Co.)
acquired certain assets and assumed certain liabilities of Consolidated Lumber
Company, Inc. (the Company), a Kansas corporation. In the planned spin off of
Huttig Sash & Door Company (Huttig) from Crane Co., the financial statements of
the Company as of and for the year ended December 31, 1997, as described below,
are required for Huttig's filing of a registration statement on Form 10 with
the Securities and Exchange Commission.
The accompanying financial statements have been prepared from the books and
records of the Company and present the assets acquired and liabilities assumed
in the acquisition and the related revenues and expenses associated with the
operations acquired. The expenses include all costs directly involved in
revenue-producing activities of the assets acquired.
NATURE OF BUSINESS
The operations of the Company, acquired by Huttig, primarily consist of the
wholesale distribution of building materials to professional contractors
building in the single-family home market. The Company also sells value-added
items including prehung doors, fabricated roof trusses and preassembled
windows. The corporate office is in Merriam, Kansas with four lumber yards and
a millwork center located in Kansas and Missouri.
ACCOUNTS RECEIVABLE
The Company grants credit to certain customers who meet the Company's
preestablished credit requirements. Generally, the Company does not require
security when trade credit is granted to customers. Credit losses have
consistently been within management's expectations.
INVENTORIES
Inventories are carried at the lower of cost, determined using the average cost
method which approximates the first-in, first-out method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. When retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and the resulting gains or losses are taken into income. Additions,
improvements, renewals and expenditures which materially increase the life of
the property are capitalized. Maintenance and repairs are charged to expense as
incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from five to 39 years.
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.
UNAUDITED INTERIM STATEMENTS
The unaudited interim statements of revenues and expenses associated with
operations acquired for the six-month period ended June 30, 1998 and 1997 were
prepared in condensed format, in accordance
F-32
<PAGE>
CONSOLIDATED LUMBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
with the SEC rules and regulations for interim financial statements. In the
opinion of management, the interim financial statements reflect all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation. The accounting principles applied in preparation of the interim
financial statements are consistent with those applied in the annual financial
statements.
2. SALE TRANSACTION
On July 1, 1998, certain assets, liabilities and operations of the Company,
specifically excluding the lumber and millwork business operations and related
assets and liabilities located in Tucson, Arizona, were sold to Huttig for
approximately $40 million. In connection with the sale, all assets used in the
Company's business of manufacturing and selling lumber and millwork products at
its four facilities located in Kansas and Missouri, unless otherwise excluded,
and the current liabilities related thereto, excluding any line of credit debt,
notes payable or other long-term debt, were transferred to Huttig.
3. COMMITMENTS
The Company leases certain vehicles, office space and plant facilities under
long-term, noncancelable operating leases which expire on varying dates through
2002, certain facilities of which are leased from stockholders. Certain vehicle
lease agreements provide the Company with the option to purchase the related
vehicle upon expiration of the lease. Future minimum lease rentals under these
noncancelable operating leases are as follows:
YEAR ENDED DECEMBER 31 AMOUNT
- - - ---------------------- ----------
1998 $ 614,597
1999 539,940
2000 467,212
2001 193,935
2002 13,445
----------
Total minimum lease payments $1,829,129
==========
Rental expense for all operating leases was $668,456 for the year ended
December 31, 1997. In most cases, management expects that in the normal course
of business existing leases will be renewed or replaced by other leases.
Three of the operating leases, with aggregate annual rentals for the year ended
December 31, 1997 of approximately $390,000, are with companies controlled by
stockholders of the Company.
4. INCOME TAXES
The Company has elected to be treated as an S corporation for tax purposes.
Consequently, any income from the acquired business operations is included in
the income tax returns of the Company's stockholders, and no income taxes have
been provided herein.
5. CASH FLOWS
Cash flows provided by operating activities of the acquired operations for the
year ended December 31, 1997 were generated primarily by earnings. Cash flows
used in investing activities related primarily to capital expenditures for the
year. Because the operations acquired participated in shared resources with
those operations not acquired, it was not practicable to present a statement of
cash flows.
F-33
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
<S> <C>
2.1 Form of Distribution Agreement between Crane Co. and Huttig Building Products, Inc. (previously
filed)
2.2 Share Exchange Agreement among The Rugby Group PLC, Crane Co. and Huttig Building Products,
Inc. (previously filed)
3.1 Restated Certificate of Incorporation of Huttig Sash & Door Company (previously filed).
3.2 By-laws of Huttig Building Products, Inc. (previously filed).
4.1 Specimen certificate for Common Stock of Huttig Building Products, Inc. (filed herewith)
4.2 Form of Rights Agreement between Huttig Building Products, Inc. and the rights agent named
therein (previously filed)
10.1 Form of Tax Allocation Agreement between Crane Co. and Huttig Building Products, Inc.
(previously filed).
10.2 Form of Employee Matters Agreement between Crane Co. and Huttig Building Products, Inc.
(previously filed).
10.3 Form of the EVA Incentive Compensation Plan of Huttig Building Products, Inc. (previously filed)
10.4 Form of Non-Employee Director Restricted Stock Plan (previously filed).
10.5 Form of Stock Incentive Plan (previously filed)
10.6 Form of Indemnification Agreement for Executive Officers and Directors (previously filed).
10.7 Employment/Severance Agreement between Huttig Building Products, Inc. and Barry J. Kulpa dated
October 18, 1999 (previously filed)
10.8 Form of Registration Rights Agreement between The Rugby Group PLC and Huttig Building
Products, Inc. (previously filed)
10.9 Form of Transition Services Agreement between Huttig Building Products, Inc. and The Rugby
Group PLC. (previously filed)
10.10 The Crane Fund Letter Agreement between the Crane Fund and the Rugby Group PLC (previously
filed).
21.1 Subsidiaries of Huttig Building Products, Inc. (previously filed)
27.1 Financial Data Schedule for the year ended December 31, 1998 (previously filed).
27.2 Financial Data Schedule for the nine months ended September 30, 1999 (previously filed).
</TABLE>
- - - ----------
* To be filed by amendment.
[* Certain exhibits and schedules to the Exhibits attached hereto have been
omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any
omitted exhibit or schedule will be furnished to the commission upon
request.]
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment to registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
HUTTIG BUILDING PRODUCTS, INC.
(Registrant)
Date: November 12, 1999 By: /s/ Barry J. Kulpa
---------------------------
Name: Barry J. Kulpa
Title: President and Chief
Executive Officer
<PAGE>
Exhibit 4.1
[Specimen certificate for Common Stock of Huttig Building Products, Inc.]
[Front]
Common Stock
[Huttig Building Products Logo] Par Value $0.01
Number Shares
- - - ------ ------
This Certificate is Transferable
in New York, NY and Ridgefield Park, NJ
HUTTIG BUILDING PRODUCTS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 448451 10 4
See reverse for certain definitions.
- - - --------------------------------------------------------------------------------
THIS CERTIFIES THAT
IS THE OWNER OF
- - - --------------------------------------------------------------------------------
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
HUTTIG BUILDING PRODUCTS, INC. transferable on the books of the Corporation by
the holder hereof in person or by duly authorized attorney upon surrender of
this Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Corporation's Restated Certificate of Incorporation and By-laws, both as
amended, to all of which each holder by acceptance hereof assents. This
Certificate is not valid until countersigned by the transfer agent and
registered by the registrar.
Witness the facsimile seal of the Corporation and the facsimile signature of its
duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
ChaseMellon Shareholder Services, L.L.C.
BY: [Signature to Come]
TRANSFER AGENT PRESIDENT
AND REGISTRAR
[HUTTIG BUILDING PRODUCTS SEAL]
AUTHORIZED SIGNATURE [Signature to Come]
SECRETARY
<PAGE>
[Back]
HUTTIG BUILDING PRODUCTS, INC.
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER UPON REQUEST AND
WITHOUT CHARGE, A FULL STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK
OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - - as tenants in common
TEN ENT - - as tenants by the entireties
JT TEN - - as joint tenants with right of
survivorship and not as
tenants in common
UNIF GIFT MIN ACT - - Custodian
-------- --------
(Cust.) (Minor)
Under Uniform Gifts to Minors
Act
----------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
-------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- - - -------------------------------------------------------------------
- - - -------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
_________________________________________________________ Shares represented by
the within Certificate, and do hereby irrevocably constitute and appoint
_______________________________________________ Attorney to transfer the said
shares on the books of the within-named Corporation with full power of
substitution in the premises.
Dated,
-----------------------------
----------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THIS
CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHARGE WHATEVER.
SIGNATURE(S) GUARANTEED: ----------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17Ad-15.
This certificate also evidences and entitles the holder hereof to certain rights
set forth in a Rights Agreement between Huttig Building Products (the
"Corporation") and ChaseMellon Shareholder Services, L.L.C., dated [ ]
(the "Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices of
the Corporation. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. The Corporation will mail to the holder
of this certificate a copy of the Rights Agreement without charge after receipt
of a written request therefor. Under certain circumstances, as set forth in the
Rights Agreement, Rights issued to any Person who becomes an Acquiring Person
(as defined in the Rights Agreement) may become null and void.
<TABLE>
<CAPTION>
<S> <C>
- - - ----------------------------------- --------------------------------------------------
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR: BELINDA BECK: 215-830-2198
680 BLAIR MILL ROAD PROOF OF OCTOBER 14, 1999
HORSHAM, PA 19044 HUTTIG BUILDING PRODUCTS, INC.
(215) 657-3480 H 63316bk
SALES: LETICIA TOGLIA: 212-583-5700 OPERATOR: JW/HJ
NEW ZIP 9/HUTTIG 63316 REV 1
- - - ----------------------------------- --------------------------------------------------
</TABLE>
