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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1999
FILE NO. 1-15313
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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. 1
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HUTTIG BUILDING PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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)
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(314) 216-2600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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Securities to be registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- - - - - ----------------------------------------------- -------------------------------
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Common Stock, par value $.01 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
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Securities to be registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
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[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. The spin-off of Huttig common stock will be
registered by book-entry accounts established for all Crane shareholders, and
so you will not receive a stock certificate but rather an account statement
stating the number of shares of Huttig common stock received by you in the
spin-off.
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
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PRELIMINARY INFORMATION STATEMENT DATED , 1999 -- FOR INFORMATION ONLY
INFORMATION STATEMENT
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CRANE CO.'S SPIN-OFF
OF
HUTTIG BUILDING PRODUCTS, INC.
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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.
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The date of this Information Statement is , 1999.
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TABLE OF CONTENTS
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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 ........................................... 36
ARRANGEMENTS WITH CRANE RELATING TO THE SPIN-OFF ....................................... 36
Distribution Agreement ............................................................... 37
Employee Matters Agreement ........................................................... 38
Tax Allocation Agreement ............................................................. 39
THE ACQUISITION TRANSACTIONS ........................................................... 40
Share Exchange Agreement ............................................................ 40
The Registration Rights Agreement ................................................... 43
Transition Services Agreement ....................................................... 44
MANAGEMENT ............................................................................. 46
Directors ............................................................................ 46
Committees of the Board of Directors ................................................. 47
Compensation of Directors ............................................................ 48
Executive Officers ................................................................... 48
BENEFICIAL OWNERSHIP OF HUTTIG COMMON STOCK BY DIRECTORS AND MANAGEMENT ................ 50
PRINCIPAL STOCKHOLDERS OF HUTTIG ....................................................... 51
COMPENSATION OF EXECUTIVE OFFICERS ..................................................... 52
Summary Compensation Table ........................................................... 52
Option Grants In Last Fiscal Year .................................................... 53
Aggregate Option Exercises In Last Fiscal Year and Fiscal Year-End Option Values ..... 54
Retirement Benefits .................................................................. 54
Other Agreements and Information ..................................................... 55
DESCRIPTION OF HUTTIG CAPITAL STOCK .................................................... 56
Common Stock ......................................................................... 56
Preferred Stock ...................................................................... 56
Rights Plan .......................................................................... 56
Certain Provisions of Huttig's Governing Documents ................................... 59
Anti-takeover Legislation ............................................................ 59
Transfer Agent and Registrar ......................................................... 60
LIABILITY AND INDEMNIFICATION OF HUTTIG OFFICERS AND DIRECTORS ......................... 60
Elimination of Liability ............................................................. 60
Indemnification of Officers and Directors ............................................ 60
WHERE YOU CAN FIND MORE INFORMATION .................................................... 61
INDEX TO FINANCIAL STATEMENTS .......................................................... F-1
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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 59.
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 32 and 39, 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 businesses of Huttig and the acquired distribution
centers of Rugby USA; and
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o have total assets of approximately $378.7 million and initial
long-term debt of approximately $100.0 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
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Why is Huttig being spun off by o Huttig is being spun off for the following reasons:
Crane?
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 to the extent permitted by the Registration
Rights Agreement with Rugby.
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 if o Yes. The spin-off will occur on , 1999. After the spin-off,
the acquisition of Rugby USA cannot be Huttig will complete the acquisition of Rugby USA if all of the
completed? pre-conditions in the Share Exchange Agreement with Rugby have been
satisfied.
When will the acquisition of Rugby USA o Huttig expects the acquisition to occur immediately after the spin-off
take place? is completed. However, Huttig and Rugby generally have until January 31,
2000 to complete the acquisition under the Share Exchange Agreement.
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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. For example, if you
own 100 shares of Crane common stock, you will receive 22.22 shares of
Huttig common stock. 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.
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, Huttig expects
outstanding after the spin-off and that there will be approximately 21.6 million Huttig shares
the acquisition of Rugby USA? 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.
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.
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Is the spin-off taxable for United States o No. Crane has requested a tax ruling from the Internal Revenue Service
federal income tax purposes? 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 accompany each share
of the rights plan? 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 consummation 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.
Will Huttig be related to Crane in any o The board of directors of Huttig consists of six directors, five of whom
way after the spin-off? 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."
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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 matters discussed in
Huttig common stock? 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 individuals,
Directors? 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."
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."
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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
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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.
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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.
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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
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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
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<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
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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
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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
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believes that further opportunities to realize purchasing economies
exist 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.
<TABLE>
<CAPTION>
1998 1997
------ -----
<S> <C> <C>
Doors ................. 37% 37%
Specialty Building
Materials .......... 20 21
Windows ............... 19 21
Moldings .............. 12 15
Lumber and Other
Commodity
Products ........... 12 6
</TABLE>
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
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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.
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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:
<TABLE>
<S> <C>
Dealers .......................... 62%
Home Centers and Buying Groups 15
Builders and Contractors ......... 13
Industrial and Manufactured
Housing ....................... 10
</TABLE>
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,
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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:
<TABLE>
<S> <C>
Distribution centers ......... 1,574
Manufacturing ................ 443
Field sales .................. 234
Officers and corporate
administrative ............ 77
</TABLE>
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>
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Doors ................................. 20% 19%
Specialty Building Materials .......... 37 39
Windows ............................... 10 10
Moldings .............................. 8 7
Lumber and Other Commodity
Products ........................... 25 25
</TABLE>
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:
<TABLE>
<S> <C>
Dealers ................................. 81%
Home Centers and Buying Groups .......... 15
Industrial/Manufactured Housing ......... 4
</TABLE>
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:
<TABLE>
<S> <C>
Distribution centers ............. 834
Field sales ...................... 191
Corporate administrative ......... 65
</TABLE>
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 Hutting.
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 an
estimated market capitalization of $140 million. There can be no assurances
that the acquisition of Rugby USA will be completed.
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 $455,930 $ -- $1,194,633
Cost of sales ........................ 606,993 22,850 371,009 -- 1,000,852
Selling, general and administrative 67,900 6,664 69,598 -- 144,162
Depreciation and amortization ........ 5,586 239 4,094 (3,728)(b) 6,191
Income from assets being
distributed ......................... -- -- 4,899 (4,899)(c) --
-------- ------- -------- ---------- ----------
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 PRO FORMA
------------ ----------- ADJUSTMENTS ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales ......................................... $ 594,914 $346,076 $ 940,990
Cost of sales ..................................... 516,085 281,854 797,939
Selling, general and administrative ............... 54,428 50,106 104,534
Depreciation and amortization ..................... 4,860 3,648 (4,086)(b) 4,422
Income from assets being distributed .............. 4,474 (4,474)(c)
-------- ------
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 (15,357)(h) 34,986
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 $ (82,542) $331,561
======== ======== =========== ========
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
Equity ....................................... 36,183 132,960 (54,599)(l) 114,544
-------- -------- ----------- --------
Total liabilities and equity .............. $217,720 $196,383 $ (82,542) $331,561
======== ======== =========== ========
</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 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 negative goodwill ........... (583) (438)
Rugby USA depreciation and amortization ............... (4,094) (3,648)
-------- --------
Net decrease in depreciation and amortization ......... $ (3,728) $ (4,086)
======== ========
</TABLE>
(c) Certain assets of Rugby USA will be distributed to its shareholder
prior to the acquisition by Huttig. This adjustment reflects 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%. An increase of
1/8 of a percentage point would result in an increase of interest
expense of $125. The latter 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.
(g) This adjustment reflects the net decrease in Cash due to:
<TABLE>
<S> <C>
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)
=========
</TABLE>
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<PAGE>
(h) Reflects the net decrease in Other assets due to:
<TABLE>
<S> <C>
Negative goodwill (deferred credit) resulting from the Rugby USA acquisition (see
note (i)) ...................................................................... $ (8,752)
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 .................................................... $ (15,357)
=========
</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 as computed as follows:
<TABLE>
<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 included in Other assets ............................... 8,752
---------
Application of negative goodwill from the Rugby USA acquisition ........ $ 24,178
=========
</TABLE>
(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>
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>
<S> <C>
Capital contribution by Crane ............................... $ 33,561
Assumed value of equity issued to acquire Rugby USA ......... 44,800
Elimination of Rugby USA historical equity .................. (132,960)
----------
Net change in Equity ........................................ $ (54,599)
==========
</TABLE>
31
<PAGE>
The pro forma book equity consists of the following:
<TABLE>
<S> <C>
Capital contribution by Crane ............................... $ 33,561
Assumed value of equity issued to acquire Rugby USA ......... 44,800
Huttig historical equity .................................... 36,183
--------
$114,544
========
</TABLE>
(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.
<TABLE>
<S> <C>
(p) Reflects the net increase in deferred taxes due to: ..........................
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>
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 to the extent
permitted by the Registration Rights Agreement with Rugby discussed
under the caption "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.
Since Huttig will use a direct registration system to implement the
spin-off, the distribution agent will credit the shares of Huttig common stock
distributed on the date of the spin-off, including fractional interests for
those stockholders who receive at least one whole share of Huttig common stock,
to book-entry accounts established for all Crane stockholders and will mail an
account statement to each stockholder stating the number of shares of Huttig
common stock, including such fractional interests, received by such stockholder
in the spin-off. Following the spin-off, stockholders may request transfer to a
brokerage or other account or physical stock certificates for their shares of
Huttig common stock.
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 directly with
your stockbroker, bank or other nominee to confirm the particular arrangements
relating to your account. Following the spin-off, you may instruct your
stockbroker, bank or other nominee to transfer your shares of Huttig common
stock into your own name to be held in book-entry form through the direct
registration system operated by the distribution agent.
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<PAGE>
If a stockholder owns 4.5 or fewer shares of Crane common stock and
therefore is entitled to receive less than one whole share of Huttig common
stock, that stockholder will receive cash instead of a fractional share of
Huttig common stock. If a stockholder requests physical certificates for shares
of Huttig common stock, that stockholder will receive physical certificates for
all whole shares of Huttig common stock and cash instead of any fractional
share interest. 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.
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
will be credited to such stockholder through the book-entry system.
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,
34
<PAGE>
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 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."
35
<PAGE>
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
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
36
<PAGE>
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 a number of shares of Huttig common
stock equal to the number of shares of Crane common stock issued and
outstanding as of the record date divided by 4.5. Crane will instruct the
distribution agent to make book-entry credits on the date of the spin-off or as
soon thereafter as practicable for each holder of record of Crane common stock
as of the record date for a number of shares of Huttig common stock equal to
the quotient obtained by dividing (i) the number of shares of Crane common
stock held by that holder of record as of the record date by (ii) 4.5.
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.
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 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.
37
<PAGE>
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.
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
38
<PAGE>
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 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,
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<PAGE>
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.
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
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<PAGE>
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.
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. This repayment facility is expected to aggregate $100
million.
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.
Prior to the exchange, Rugby will 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 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.
The Exchange Agreement contains customary representations and warranties
of the parties. It 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.
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.
The obligations of the parties to the Exchange Agreement to effect the
spin-off and the exchange are subject to the satisfaction or
41
<PAGE>
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.
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 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.
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;
42
<PAGE>
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, 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.
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.
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
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<PAGE>
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 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.
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.
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.
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.
TRANSITION SERVICES AGREEMENT
At the closing of the exchange, Huttig and Rugby will enter into a
Transition Services
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<PAGE>
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.
Huttig will provide, or cause to be provided, any or all of the
following categories 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. 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.
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<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., Southdown Corporation.
</TABLE>
46
<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.
<TABLE>
<CAPTION>
HUTTIG COMMON STOCK
EXPECTED TO BE
BENEFICIALLY OWNED (1)
-----------------------
<S> <C>
Director Whose Term Will Expire In 2000
[ ] ............................. [ ]
Director Whose Term Will Expire In 2001
[ ] ............................. [ ]
Director Whose Term Will Expire In 2002
[ ] ............................. [ ]
</TABLE>
- - - - - ----------------------
(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.
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<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: D. R. Gardner and E.T.
Bigelow, Jr.; 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.
48
<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).
49
<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>
SHARES
UNDER SHARES IN
RESTRICTED STOCK OPTIONS COMPANY
SHARES STOCK EXERCISABLE SAVINGS PLAN
OWNED PLANS(1) WITHIN 60 DAYS (401(K))
--------- ------------ ---------------- --------------
<S> <C> <C> <C> <C>
Non-Employee
Directors as a
Group (8
persons) (3) 466,078 560 -- 1,978
Barry J. Kulpa ........ -- 48,279 120,807 88
Carl A. Liliequist..... -- -- 72,094 1,576
David A. Giffin ....... 17 -- 58,780 427
David Dean ............ -- -- 3,897 233
Other Executive
Officers (4
persons) ............. -- -- -- 116
Sub-total --
Directors and
Executive
Officers as a
Group (16
persons) ............. 466,095 48,839 255,578 4,418
Key Employees
(6 persons) .......... 183 -- 24,681 1,835
Total ................. 466,278 48,839 280,259 6,253
======= ====== ======= =====
<CAPTION>
% OF SHARES
OUTSTANDING AS OF (2)
----------------------------------------
TOTAL SHARES
BENEFICIALLY IMMEDIATELY AFTER ASSUMING COMPLETION
OWNED(2) THE SPIN-OFF OF THE ACQUISITION
-------------- ------------------- --------------------
<S> <C> <C> <C>
Non-Employee
Directors as a
Group (8
persons) (3) 468,616 3.2% 2.2%
Barry J. Kulpa ........ 169,174 1.1 *
Carl A. Liliequist..... 73,760 * *
David A. Giffin ....... 59,224 * *
David Dean ............ 4,130 * *
Other Executive
Officers (4
persons) ............. 116 * *
Sub-total --
Directors and
Executive
Officers as a
Group (16
persons) ............. 774,930 5.2% 3.6%
Key Employees
(6 persons) .......... 26,699 * *
Total ................. 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.
50
<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 6,910,260 32.0%
Crown House
Rugby CV212 DT
England
Common Stock The Crane Fund(1) 1,728,537 8.0%(2)
100 First Stamford Place
Stamford, CT 06902
</TABLE>
- - - - - ----------
(1) 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.
(2) 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.
51
<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,
52
<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 $11.01 per share for each option granted.
The estimated values assume a risk-free rate of return of 5.60% based
upon the 100-year Treasury (adjusted for constant maturities) from the
Federal Reserve Statistical Release H.15(519), stock price volatility of
24.22%, a dividend payout ratio of .92% and an option duration of 5.29
years. The actual value, if any, that an executive may realize will
depend upon the excess of the stock price over the exercise price on the
date the option is exercised, and so the value realized by an executive
may be more or less than the value estimated by the Black-Scholes model.
53
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS(1) AT OPTIONS/SARS (1) AT
FISCAL YEAR-END (#) FISCAL YEAR-END ($)(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
12/3% 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 12/3% 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."
54
<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
55
<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
56
<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).
57
<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.
58
<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
59
<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 662/3% 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
60
<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.
61
<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 two 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 ........................................ $ 346,076 $ 337,396 $ 455,930 $ 475,138 $ 479,254
Cost of goods sold ............................... 281,854 275,881 371,009 398,611 398,733
--------- --------- --------- --------- ---------
Gross profit .................................. 64,222 61,515 84,921 76,527 80,521
Operating expenses ............................... 53,754 56,072 73,692 78,791 85,349
--------- --------- --------- --------- ---------
Income (loss) before income from assets
being distributed/sold ....................... 10,468 5,443 11,229 (2,264) (4,828)
Income from assets being distributed/sold ........ 4,474 3,301 4,899 168 (2,086)
--------- --------- --------- --------- ---------
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 ................ 3,648 3,058 4,094 6,066 7,251
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 .......... (12,759) 2,513 (1,128) 802 14,542
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. 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:
<TABLE>
<CAPTION>
YEARS
-------------------------
<S> <C>
Buildings ........................ 20 - 40
Machinery and equipment .......... 3 - 10
Leasehold improvements ........... The shorter of 10 or the
remainder of the lease.
</TABLE>
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.
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 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
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)
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Accounts receivable ..................... $ 46,891 $ 37,987
Allowance for doubtful accounts ......... (2,237) (2,183)
-------- --------
$ 44,654 $ 35,804
======== ========
</TABLE>
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
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
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
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
========= =========
</TABLE>
Depreciation expense of $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:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- ---------
<S> <C> <C>
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
====== ======
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets are comprised of the following amounts:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
------------ ----------
<S> <C> <C>
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
========= ========
</TABLE>
Amortization expense of $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:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- ------------
<S> <C> <C>
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
======== ========
</TABLE>
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:
<TABLE>
<S> <C>
1999 .................... $ 6,073
2000 .................... 71,032
2001 .................... --
2002 .................... --
2003 .................... --
Thereafter .............. 50,495
--------
$127,600
========
</TABLE>
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:
<TABLE>
<S> <C>
1999 ......................... $ 6,457
2000 ......................... 5,729
2001 ......................... 4,017
2002 ......................... 2,742
2003 ......................... 2,140
2004 and later years ......... 2,182
-------
$23,267
=======
</TABLE>
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.
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 company has reflected the assets and liabilities identified in the plan as
net assets held for sale and the results of operations as income (loss) from
assets being distributed.
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:
<TABLE>
<CAPTION>
ASSETS TO BE ASSETS TO
DISTRIBUTED BE SOLD
-------------- ----------
<S> <C> <C>
1999 ......................... $ 3,377 $ 3
2000 ......................... 2,260 --
2001 ......................... 1,234 --
2002 ......................... 718 --
2003 ......................... 145 --
2004 and later years ......... 84 --
------- ---
$ 7,818 $ 3
======= ===
</TABLE>
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
<TABLE>
<S> <C>
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
===========
</TABLE>
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.
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- - - - - --------------------------------------- -------------
<S> <C>
1998 $ 614,597
1999 539,940
2000 467,212
2001 193,935
2002 13,445
----------
Total minimum lease payments $1,829,129
==========
</TABLE>
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.
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. (filed
herewith)
2.2 Share Exchange Agreement among The Rugby Group PLC, Crane Co. and Huttig Building Products,
Inc. (filed herewith)
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.*
4.2 Form of Rights Agreement between Huttig Building Products, Inc. and the rights agent named
therein (filed herewith)
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.
(filed herewith).
10.3 Form of the EVA Incentive Compensation Plan of Huttig Building Products, Inc. (filed herewith)
10.4 Form of Non-Employee Director Restricted Stock Plan (previously filed).
10.5 Form of Stock Incentive Plan (filed herewith)
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 (filed herewith)
10.8 Form of Registration Rights Agreement between The Rugby Group PLC and Huttig Building
Products, Inc. (filed herewith)
10.9 Form of Transition Services Agreement between Huttig Building Products, Inc. and The Rugby
Group PLC. (filed herewith)
10.10 The Crane Fund Letter Agreement between the Crane Fund and the Rugby Group PLC (filed
herewith).
21.1 Subsidiaries of Huttig Building Products, Inc. (filed herewith)
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 (filed herewith).
</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: October 29, 1999 By: /s/ Barry J. Kulpa
-------------------------------
Name: Barry J. Kulpa
Title: President and Chief
Executive Officer
<PAGE>
DISTRIBUTION AGREEMENT
by and between
CRANE CO.
AND
HUTTIG BUILDING PRODUCTS, INC.
[ ], 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS...................................................................................1
ARTICLE II THE DISTRIBUTION............................................................................10
Section 2.1 The Distribution.......................................................................10
Section 2.2 Cooperation Prior to the Distribution..................................................10
Section 2.3 Crane Board Action; Conditions to the Distribution.....................................11
Section 2.4 Waiver of Conditions...................................................................12
Section 2.5 Disclosure.............................................................................12
ARTICLE III TRANSACTIONS RELATING TO THE DISTRIBUTION..................................................12
Section 3.1 Intercorporate Transfers...............................................................12
Section 3.2 Crane Group Obligations Relating to the Building Products Business.....................13
Section 3.3 Company Group Obligations Relating to the Crane Group..................................14
Section 3.4 Intercompany Accounts and Arrangements.................................................15
Section 3.5 Cash Management........................................................................16
Section 3.6 The Company Board......................................................................16
Section 3.7 Resignations; Transfer of Stock Held as Nominee........................................16
Section 3.8 Rights Plan............................................................................17
Section 3.9 Insurance..............................................................................17
Section 3.10 Use of Names, Trademarks, etc.........................................................19
Section 3.11 Consents..............................................................................21
ARTICLE IV MUTUAL RELEASE; INDEMNIFICATION.............................................................22
Section 4.1 Mutual Release.........................................................................22
Section 4.2 Indemnification by Crane...............................................................22
Section 4.3 Indemnification by the Company.........................................................23
Section 4.4 Limitations on Indemnification Obligations.............................................24
Section 4.5 Procedures Relating to Indemnification.................................................24
i
<PAGE>
Section 4.6 Remedies Cumulative....................................................................27
Section 4.7 Survival of Indemnities................................................................27
Section 4.8 Exclusivity of Tax Allocation Agreement................................................27
ARTICLE V ACCESS TO INFORMATION........................................................................27
Section 5.1 Access to Information..................................................................27
Section 5.2 Production of Witnesses................................................................28
Section 5.3 Retention of Records...................................................................29
Section 5.4 Confidentiality........................................................................29
ARTICLE VI MISCELLANEOUS...............................................................................30
Section 6.1 Entire Agreement; Construction.........................................................30
Section 6.2 Survival of Agreements.................................................................30
Section 6.3 Expenses...............................................................................30
Section 6.4 Governing Law..........................................................................30
Section 6.5 Notices................................................................................31
Section 6.6 Consent to Jurisdiction................................................................31
Section 6.7 Amendments.............................................................................32
Section 6.8 Assignment.............................................................................32
Section 6.9 Captions; Currency.....................................................................32
Section 6.10 Severability..........................................................................32
Section 6.11 Parties in Interest...................................................................32
Section 6.12 Schedules.............................................................................33
Section 6.13 Termination...........................................................................33
Section 6.14 Waivers; Remedies.....................................................................33
Section 6.15 Further Assurances....................................................................33
Section 6.16 Counterparts..........................................................................33
Section 6.17 Performance...........................................................................33
</TABLE>
ii
<PAGE>
ANNEXES
Annex A - Employee Matters Agreement
Annex B - Tax Allocation Agreement
SCHEDULES
Schedule 1.1(b) - Company Subsidiaries
Schedule 1.1(c) - Huttig Bank Accounts
Schedule 1.1(d) - Huttig Financial Instruments
Schedule 1.1(e) - Huttig Litigation
Schedule 3.4(a)(i) - Intercompany Accounts
Schedule 3.4(b)(ii) - Intercompany Agreements
Schedule 3.5(c) - Funds Transfer Instructions
Schedule 3.7 - Continuing Directors and Officers
Schedule 4.2 - Certain Form 10 Sections
iii
<PAGE>
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT (this "Agreement"), dated as of [ ], 1999, by and
between CRANE CO., a Delaware corporation ("Crane"), and HUTTIG BUILDING
PRODUCTS, INC., a Delaware corporation and, as of the date hereof, an indirect
wholly owned subsidiary of Crane (the "Company").
WHEREAS, the Crane Board (as defined herein) has determined that it is
appropriate and desirable to distribute all outstanding shares of Huttig Common
Stock (as defined herein) on a pro rata basis to the holders of Crane Common
Stock (as defined herein); and
WHEREAS, Crane and the Company have determined that it is appropriate and
desirable to set forth the principal corporate transactions required to effect
such distribution and certain other agreements that will govern certain matters
relating to such distribution;
NOW, THEREFORE, in consideration of the premises and of the respective
agreements and covenants contained in this Agreement, the parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Acquisition Notes" shall have the meaning ascribed thereto in Section
3.1(b).
"Actions" means, with respect to any Person, any actual or threatened or
future action, suit, arbitration, inquiry, proceeding or investigation by or
before any Governmental Entity or any claims or other legal matters that have
been or may be asserted by or against, or otherwise affect, such Person.
"Affiliate" means, with respect to any specified Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person; provided,
however, that for purposes of this Agreement, following the Time of Distribution
no member of either Group shall be deemed to be an Affiliate of any member of
the other Group. For purposes of the immediately preceding sentence, the term
"control" (including, with correlating meanings, the terms "controlled by" and
"under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through
ownership of voting securities, by contract or otherwise.
"Agreement" shall have the meaning ascribed thereto in the preamble.
"Ancillary Agreements" means, collectively, the Employee Matters Agreement
and the Tax Allocation Agreement.
<PAGE>
"Assets" means any and all assets, properties and rights, whether tangible
or intangible, real, personal or mixed, fixed, contingent or otherwise, and
wherever located (other than ownership interests in Subsidiaries).
"Assigning Party" shall have the meaning ascribed thereto in Section 3.11.
"Building Products Business" means (i) the business engaged in at all times
prior to the Time of Distribution by the Company Group of distribution and
manufacturing of doors, windows, millwork and other building products and
activities related thereto, and (ii) Former Businesses managed or operated with
any of the foregoing or operationally or otherwise related to any of the
foregoing.
"Cash" means all cash, cash on hand, cash in transit, cash equivalents,
funds, certificates of deposit, similar instruments and other short-term
investments held by Crane and its Subsidiaries and Affiliates (including,
without limitation, members of the Company Group) at the Time of Distribution
(it being understood that cash equivalents do not include intercompany cash
management balances which will be eliminated as of the Time of Distribution
pursuant to Section 3.4(a)).
"Change in Control" means, with respect to any party, any of the following
events or circumstances: (a) the first purchase of shares pursuant to a tender
offer or exchange offer for all or part of that party's common stock or any
securities convertible into such common stock, (b) the receipt by that party of
a Schedule 13D or other advice indicating that a Person is the "beneficial
owner" (as that term is defined in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended) of 20% or more of that party's common stock calculated as
provided in paragraph (d) of said Rule 13d-3, (c) the date of approval by
stockholders of that party of an agreement providing for any consolidation or
merger of that party in which that party will not be the continuing or surviving
corporation or pursuant to which shares of common stock of that party would be
converted into cash, securities or other property, other than a merger of that
party in which the holders of its common stock immediately prior to the merger
would have the same proportion of ownership of common stock of the surviving
corporation immediately after the merger, (d) the date of the approval by
stockholders of that party of any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all or substantially all
the assets of that party, (e) the adoption of any plan or proposal for the
liquidation (but not a partial liquidation) or dissolution of that party, or (f)
the date on which Continuing Directors cease for any reason to constitute at
least a majority of the board of directors of that party.
"Claims Administration" means the processing of claims made under the
Policies, including, without limitation, the reporting of claims to the
insurance carrier, management and defense of claims, and providing for
appropriate releases upon settlement of claims.
"Claims Made Policies" shall have the meaning ascribed thereto in Section
3.9(a).
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor legislation.
-2-
<PAGE>
"Commission" means the Securities and Exchange Commission.
"Company" shall have the meaning ascribed thereto in the preamble.
"Company Board" means the Board of Directors of the Company.
"Company Group" means the Company and the Company Subsidiaries.
"Company Subsidiary" means each Person listed on Schedule 1.1(b) which is a
direct or indirect Subsidiary of the Company as of the Time of Distribution.
"Consents" means consents, approvals, waivers, clearances, exemptions,
allowances, novations, authorizations, filings, registrations and notifications.
"Continuing Director" means, with respect to either party, any member of
such party's board of directors who either (i) is a member of such board as of
the Time of Distribution or (ii) is thereafter elected to such board, or
nominated for election by stockholders, by a vote of at least three-quarters of
the directors who are Continuing Directors at the time of such vote.
"Contracts" means agreements, leases, contracts, memoranda of
understanding, letters of intent, sales orders, purchase orders, open bids and
other commitments and all rights therein and Liabilities thereunder, including,
without limitation, in each case, all amendments, modifications and supplements
thereto and waivers and consents thereunder.
"Crane" shall have the meaning ascribed thereto in the preamble.
"Crane Assets" means, collectively, all Assets which immediately prior to
the Time of Distribution are owned by Crane or any of its Subsidiaries
(including, without limitation, members of the Company Group), other than the
Huttig Assets. Anything contained herein to the contrary notwithstanding, Crane
Retained Assets shall be included in Crane Assets.
"Crane Board" means the Board of Directors of Crane or a duly authorized
committee thereof.
"Crane Common Stock" means the Common Stock, par value $1.00 per share, of
Crane.
"Crane Financial Instruments" means all credit facilities, guaranties,
foreign currency forward exchange contracts, comfort letters, letters of credit
and similar instruments related to the Crane Group obligations under which any
member of the Company Group has any primary, secondary, contingent, joint,
several and other liability.
"Crane Group" means Crane and its Affiliates, whether now or hereafter
existing, other than members of the Company Group.
"Crane Indemnitees" means Crane, each Affiliate of Crane, including the
Crane Subsidiaries, each of their respective Representatives and each of the
heirs, executors, successors and assigns of any of the foregoing.
-3-
<PAGE>
"Crane International" means Crane International Holdings, Inc., a Delaware
corporation and a wholly-owned subsidiary of Crane.
"Crane Retained Accounts" means all bank accounts of Crane and its
Subsidiaries and Affiliates (including, without limitation, members of the
Company Group), other than Huttig Bank Accounts.
"Crane Retained Assets" means the following:
(i) all (A) Crane Retained Accounts and (B) Cash, including, without
limitation, all Cash contained in the Crane Retained Accounts;
(ii) all Policies and all rights therein and related thereto, other
than the benefits of Occurrence Basis Policies and Claims Made Policies to
the extent described in Section 3.8(a);
(iii) all rights in and use of the name, trademark, trade name and
service mark "Crane" and all corporate symbols and logos related thereto
and all names, trademarks, trade names and service marks which include the
word "Crane" or any derivative thereof (other than as provided for in
Section 3.9);
(iv) all assets with respect to pension plans of Crane and its
Subsidiaries (including, without limitation, members of the Company Group);
(v) all assets that are used by Crane and its Subsidiaries and
Affiliates in providing corporate, insurance and administrative services to
Subsidiaries, divisions or operating units of the Crane Group not included
in the Building Products Business (whether or not the same or similar
services are provided to the Building Products Business); and
(vi) all rights, choses in action, causes of action and claims arising
out of any asset described in clauses (i) through (v) above.
"Crane Subsidiary" means any Subsidiary of Crane other than the Company or
any Company Subsidiary.
"Declaration" means the declaration of the Distribution by the Crane Board.
"Debt Financing" means (i) a working capital facility of $30 million or
such other amount as the Company Board shall determine to be necessary or
desirable for the Company, (ii) an acquisitions facility of $20 million or such
other amount as the Company Board shall determine to be necessary or desirable
for the Company and (iii) a credit facility or other credit arrangement to lend
such additional amount as shall be consistent with a rating of not less than
NAIC-2 for the Company's indebtedness.
"Distribution" means the distribution, on the basis provided for in Section
2.11, to holders of Crane Common Stock of the shares of Huttig Common Stock
owned by Crane on the Distribution Date.
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"Distribution Agent" means ChaseMellon Shareholder Services, L.L.C. in its
capacity as the agent selected by Crane to distribute Huttig Common Stock in
connection with the Distribution.
"Distribution Date" means the date determined by the Crane Board as the
date on which the Distribution will be effected.
"Employee Matters Agreement" means the Employee Matters Agreement between
Crane and the Company, substantially in the form attached hereto as Annex A,
with such changes as are permitted under the terms of the Exchange Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agreement" means the Share Exchange Agreement dated as of October
19, 1999 among Crane, the Company and Rugby pursuant to which, following the
Distribution, Rugby will contribute to the Company all of the issued and
outstanding capital stock of Rugby USA in exchange for a number of new shares of
Huttig Common Stock.
"Form 10" means the registration statement on Form 10 filed by the Company
with the Commission to effect the registration of the Huttig Common Stock
pursuant to the Exchange Act, including, without limitation, all amendments
thereto filed by the Company with the Commission prior to the Time of
Distribution.
"Former Business" means any corporation, partnership, entity, division,
business unit, business, assets, plants, product line, operations or contract
(including, without limitation, any assets and liabilities comprising the same)
that has been sold, conveyed, assigned, transferred or otherwise disposed of or
divested (in whole or in part) by any member of the Pre-Distribution Group or
the operations, activities or production of which has been discontinued,
abandoned, completed or otherwise terminated (in whole or in part) by any member
of the Pre-Distribution Group.
"Governmental Entity" means any government or any court, arbitral tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency, whether Federal, state, local, domestic, foreign or
international.
"Group" means the Crane Group or the Company Group, as the context
requires.
"Huttig Assets" means, collectively, all Assets (other than Crane Retained
Assets) which immediately prior to the Time of Distribution are owned by Crane
or any of its Subsidiaries (including, without limitation, members of the
Company Group) and which are used primarily in or relate primarily to the
Building Products Business, as the same shall exist as of such time, including,
without limitation, (except as otherwise provided pursuant to any Transaction
Agreement) all assets reflected in the Huttig Balance Sheet, as such assets may
have been added to or sold or otherwise changed since the date thereof.
"Huttig Balance Sheet" means the balance sheet of the Company as of
September 30, 1999 contained in the Form 10.
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"Huttig Bank Accounts" means all bank accounts set forth on Schedule
1.1(c).
"Huttig Common Stock" means, collectively, the Common Stock, par value $.01
per share, of the Company and the related Rights.
"Huttig Financial Instruments" means all credit facilities, guaranties,
foreign currency forward exchange contracts, comfort letters, letters of credit
and similar instruments related to the Building Products Business under which
any member of the Crane Group has any primary, secondary, contingent, joint,
several or other Liability, including, without limitation, those set forth on
Schedule 1.1(d).
"Huttig Indemnitees" means the Company, each Affiliate of the Company,
including the Company Subsidiaries, each of their respective Representatives and
each of the heirs, executors, successors and assigns of any of the foregoing.
"Huttig Liabilities" means (i) all Liabilities of any member of the Company
Group under any Transaction Agreement to which it is or becomes a party, (ii)
all Liabilities for which any member of the Company Group is made responsible
pursuant to any Transaction Agreement and (iii) all Liabilities based upon,
arising out of, relating to or otherwise in connection with the Huttig Assets or
the Building Products Business, whether based upon, arising out of, relating to
or otherwise in connection with events, actions, occurrences, omissions,
circumstances or conditions occurring, existing or asserted before, at or after
the Time of Distribution, including, without limitation: (A) all Liabilities
reflected (or of the type reflected) on the Huttig Balance Sheet or described
(or of the type described) in the notes thereto (as such Liabilities may have
been reduced or added to or otherwise changed since the date thereof), (B) all
Liabilities in respect of checks outstanding as of the Time of Distribution
relating to the Building Products Business, (C) all Liabilities in respect of
workers' compensation, automobile, general liability, products liability,
intellectual property liability and other claims and matters (whether direct or
by indemnification of any Person or otherwise) relating to the Building Products
Business, (D) all Liabilities in respect of all Actions relating to the Building
Products Business, including, without limitation, those Actions set forth on
Schedule 1.1(e), (E) all Liabilities in respect of salary, bonuses, incentive
payments, severance payments and other compensation payments for current or
former employees of the Building Products Business and all Taxes and
withholdings related thereto, (F) except for those Liabilities expressly assumed
by the Crane Group pursuant to the Employee Matters Agreement, all Liabilities
in respect of employee welfare and fringe benefits relating to the Building
Products Business (including, without limitation, claims for medical and
disability benefits), (G) all Liabilities for environmental matters based upon,
arising out of, relating to or otherwise in connection with the Building
Products Business, including, without limitation, Liabilities in respect of any
facility to the extent relating to the Building Products Business presently or
formerly owned or operated by any member of the Pre-Distribution Group, (H) all
Liabilities based upon, arising out of, relating to or otherwise in connection
with Contracts related to the Building Products Business, including, without
limitation, Liabilities to make payments or otherwise in connection with the
termination thereof as a result of the transactions contemplated hereby or
otherwise, and (I) all Liabilities relating to the credit facilities and other
debt instruments to which any member of the Company Group is a party at the
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Time of Distribution, including, without limitation, all indebtedness
outstanding thereunder and interest and fees payable with respect thereto.
"Indemnifiable Losses" means, subject to Section 4.4, any and all losses,
Liabilities, claims, damages, deficiencies, obligations, fines, payments, Taxes,
Liens, costs and expenses, matured or unmatured, absolute or contingent, accrued
or unaccrued, liquidated or unliquidated, known or unknown, whenever arising and
whether or not resulting from Third Party Claims (including, without limitation,
the costs and expenses of any and all Actions; all amounts paid in connection
with any demands, assessments, judgments, settlements and compromises relating
thereto; interest and penalties recovered by a third party with respect thereto;
out-of-pocket expenses and reasonable attorneys', accountants' and other
experts' fees and expenses reasonably incurred in investigating, preparing or
defending against any such Actions or in asserting, preserving or enforcing an
Indemnitee's rights hereunder; and any losses that may result from the granting
of injunctive relief as a result of any such Actions).
"Indemnifying Party" shall have the meaning ascribed thereto in Section
4.4.
"Indemnitee" means any of the Crane Indemnitees or the Huttig Indemnitees
who or which may seek indemnification under this Agreement.
"Indemnity Reduction Amounts" shall have the meaning ascribed thereto in
Section 4.4(a).
"Information" means all records, books, contracts, instruments, computer
data and other data and information (in each case, in whatever form or medium,
including, without limitation, electronic media).
"Information Statement" means the information statement sent to the holders
of Crane Common Stock in connection with the Distribution.
"Insurance Proceeds" means monies (a) received by an insured from an
insurance carrier, (b) paid by an insurance carrier on behalf of an insured or
(c) received from any third party in the nature of insurance, contribution or
indemnification in respect of any Liability.
"IRS" means the Internal Revenue Service.
"Liabilities" means any and all claims, debts, liabilities, commitments and
obligations of whatever nature, whether fixed, contingent or absolute, matured
or unmatured, liquidated or unliquidated, accrued or not accrued, known or
unknown, due or to become due, whenever or however arising (including, without
limitation, those arising out of any contract or tort, whether based on
negligence, strict liability or otherwise) and whether or not the same would be
required by generally accepted accounting principles to be reflected as a
liability in financial statements or disclosed in the notes thereto, including,
without limitation, all costs and expenses relating thereto and those claims,
debts, liabilities, commitments and obligations arising under any law, rule,
regulation, Action, order or consent decree of any Governmental Entity or any
award of any arbitrator of any kind, and those arising under any Contract.
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"Licenses" means licenses, permits, authorizations, consents, certificates,
registrations, variances, franchises and other approvals from any Governmental
Entity, including, without limitation, those relating to environmental matters.
"Lien" means any lien, security interest, pledge, mortgage, charge,
restriction, claim, retention of title agreement or other encumbrance of
whatever nature.
"NYSE" means the New York Stock Exchange, Inc.
"Occurrence Basis Policies" shall have the meaning ascribed thereto in
Section 3.8(a).
"Ordinary Course Intercompany Arrangements" shall have the meaning ascribed
thereto in Section 3.3(b)(ii).
"Parent Note" shall have the meaning ascribed thereto in Section 3.1(b).
"Person" means any individual, partnership, joint venture, corporation,
limited liability entity, trust, unincorporated organization or other entity
(including, without limitation, a Governmental Entity).
"Policies" means all insurance policies and insurance contracts of any kind
of the Pre-Distribution Group which include the Company, the Company
Subsidiaries and/or the Building Products Business within the definition of the
named insured and which were or are in effect at any time at or prior to the
Time of Distribution, including, without limitation, primary, excess and
umbrella policies, commercial general liability policies, fiduciary liability,
product liability, automobile, aircraft, property and casualty, directors and
officers liability, workers' compensation and employee dishonesty insurance
policies, bonds and captive insurance company arrangements, together with all
rights, benefits and privileges thereunder.
"Pre-Distribution Group" means (i) each of Crane, the Crane Subsidiaries
existing immediately prior to the Time of Distribution (including, without
limitation, members of the Company Group) and the former Crane Subsidiaries,
(ii) each of the predecessors of each of the foregoing and (iii) each of the
present and former Subsidiaries and other Affiliates of each of the foregoing,
and their predecessors.
"Privileged Information" means, with respect to either Group, Information
regarding a member of such Group, or any of its operations, employees, assets or
Liabilities (whether in documents or stored in any other form or known to its
employees or agents) that is or may be protected from disclosure pursuant to the
attorney-client privilege, the work product doctrine or other applicable
privileges, that a member of the other Group may come into possession of or
obtain access to pursuant to this Agreement or otherwise.
"Recipient Party" shall have the meaning ascribed thereto in Section 3.10.
"Record Date" means the close of business on the date determined by the
Crane Board as the record date for the Distribution.
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"Representative" means, with respect to any Person, any of such Person's
directors, officers, employees, agents, consultants, advisors, accountants,
attorneys and representatives.
"Rights" means the Rights to be issued pursuant to the Rights Plan.
"Rights Plan" means the rights agreement entered into on or prior to the
Distribution Date between the Company and ChaseMellon Shareholder Services,
L.L.C., as rights agent, substantially in the form filed as an exhibit to the
Form 10.
"Rugby" means The Rugby Group PLC, a company registered in England and
Wales under company number 206971.
"Rugby USA" means Rugby USA, Inc., a Georgia corporation and a wholly owned
subsidiary of Rugby.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Exchange" means the exchange by Rugby of all of the issued and
outstanding capital stock of Rugby USA for, among other things, a number of new
shares of Huttig Common Stock, as contemplated by the Exchange Agreement.
"Subsidiary" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which such Person or
any Subsidiaries of such Person controls or owns, directly or indirectly, more
than 50% of the stock or other equity interest, or more than 50% of the voting
power entitled to vote on the election of members to the board of directors or
similar governing body; provided, however, that for purposes of this Agreement
neither the Company nor any Company Subsidiary shall be deemed to be a Crane
Subsidiary (as defined herein).
"Tax" shall have the meaning ascribed thereto in the Tax Allocation
Agreement.
"Tax Allocation Agreement" means the Tax Allocation Agreement between Crane
and the Company, substantially in the form attached hereto as Annex B, with such
changes as are permitted under the terms of the Exchange Agreement.
"Tax Ruling" means a private letter ruling issued by the IRS in form and
substance satisfactory to Crane (in its sole discretion) indicating that the
Distribution will qualify as a tax-free spin-off to the stockholders of Crane
for federal income tax purposes under Section 355 of the Code.
"Third Party Claim" shall have the meaning ascribed thereto in Section
4.5(a).
"Time of Distribution" means 12:01 a.m., New York City time, on the
Distribution Date.
"Transaction Agreements" means, collectively, this Agreement and each
Ancillary Agreement.
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ARTICLE II
THE DISTRIBUTION
Section 2.1 The Distribution.
(a) Subject to Section 2.3, on or prior to the Distribution Date,
Crane will deliver to the Distribution Agent, for the benefit of holders of
record of Crane Common Stock as of the Record Date, a certificate or
certificates, endorsed by Crane in blank, representing, in the aggregate
(and rounded up to the nearest whole share), a number of shares of Huttig
Common Stock equal to the number of shares of Crane Common Stock issued and
outstanding as of the Record Date (excluding treasury shares held by Crane)
divided by 4.5, and Crane will instruct the Distribution Agent to make
book-entry credits on the Distribution Date or as soon thereafter as
practicable for each holder of record of Crane Common Stock as of the
Record Date, or the designated transferee or transferees of such holder,
for a number of shares (including fractional shares) of Huttig Common Stock
equal to the quotient obtained by dividing (i) the number of shares of
Crane Common Stock so held by such holder of record as of the Record Date
divided by (ii) 4.5. The Distribution will be effective as of the Time of
Distribution.
(b) Crane and the Company will each provide to the Distribution Agent
all information (including, without limitation, information necessary to
make appropriate book-entry credits) and share certificates, in each case,
as may be required in order to complete the Distribution on the basis of
one share of Huttig Common Stock for every 4.5 shares of Crane Common Stock
issued and outstanding as of the Record Date (excluding treasury shares
held by Crane).
Section 2.2 Cooperation Prior to the Distribution. Prior to the
Distribution:
(a) Crane and the Company will prepare, and Crane will mail, promptly
after effectiveness of the Form 10, to the holders of Crane Common Stock,
the Information Statement, which will set forth appropriate disclosures
concerning the Company, the Distribution, Rugby USA, the Share Exchange and
such other matters as Crane and the Company may determine. Crane and the
Company will prepare, and the Company will file with the Commission, the
Form 10, which will include or incorporate by reference the Information
Statement. The Company will use its reasonable best efforts to cause the
Form 10 to become effective under the Exchange Act as soon as practicable
following the filing thereof.
(b) Crane and the Company will cooperate in preparing, filing with the
Commission and causing to become effective any registration statements or
amendments thereof which are required to reflect the establishment of, or
amendments to, any employee benefit and other plans contemplated by the
Employee Matters Agreement.
(c) Crane and the Company will take all such action as may be
necessary or appropriate under the securities or "blue sky" laws of the
states or other political subdivisions of
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the United States and the securities laws of any applicable foreign countries or
other political subdivisions thereof in connection with the transactions
contemplated by this Agreement.
(d) Crane and the Company will cause to be prepared, and the Company
will file and use its reasonable best efforts to have approved, an
application for listing on the NYSE the Huttig Common Stock to be
distributed in the Distribution.
Section 2.3 Crane Board Action; Conditions to the Declaration. The
Crane Board will, in its discretion and, if applicable, consistent with the
Exchange Agreement, establish the Record Date and make the Declaration and
establish all appropriate procedures in connection with the Distribution, but in
no event will the Declaration occur prior to such time as each of the following
conditions shall have been satisfied or shall have been waived by the Crane
Board in accordance with Section 2.4:
(a) Crane shall have received the Tax Ruling and the Tax Ruling shall
be in full force and effect;
(b) All applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, shall have been terminated
or expired;
(c) Crane shall have received copies of commitments for the Debt
Financing in form and substance satisfactory to Crane;
(d) all material Consents of Governmental Entities that are required
to effect the Distribution, if applicable, and the Share Exchange shall
have been obtained, where the failure to obtain such Consents, individually
or in the aggregate, could reasonably be expected to result in a Material
Adverse Effect on the Company (within the meaning of the Exchange
Agreement) or a Material Adverse Effect on Rugby USA (within the meaning of
the Exchange Agreement);
(e) the Form 10 shall have become effective under the Exchange Act and
no stop order suspending the effectiveness of the Form 10 shall have been
issued, and no proceedings for that purpose shall have been initiated or
threatened by the Commission;
(f) the Huttig Common Stock shall have been approved for listing on
the NYSE, subject to official notice of issuance;
(g) the Requisite Rugby Vote (within the meaning of the Exchange
Agreement) shall have been obtained; and
(h) no order shall have been entered and shall have remained in effect
in any action or proceeding before any Governmental Entity that would
prohibit or make illegal the Distribution or the Exchange;
provided that the satisfaction of such conditions will not create any obligation
on the part of Crane pursuant to this Agreement to effect or seek to effect the
Distribution or in any way limit
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Crane's right to terminate this Agreement as set forth in Section 6.13 or alter
the consequences of any such termination from those specified in such Section.
Section 2.4 Waiver of Conditions. Any or all of the conditions set forth in
Section 2.3 may be waived, in whole or in part, in the sole discretion of the
Crane Board.
Section 2.5 Disclosure. If at any time after the date hereof either of the
parties shall become aware of any circumstances that will or may prevent any or
all of the conditions contained in Section 2.3 from being satisfied, it will
promptly give to the other party written notice of those circumstances.
ARTICLE III
TRANSACTIONS RELATING TO THE DISTRIBUTION
Section 3.1 Intercorporate Transfers.
(a) Prior to the Distribution Date, Crane and the Company will take
all actions necessary to cause all of the outstanding shares of Huttig
Common Stock to be distributed by Crane International to Crane and to
increase the outstanding shares of Huttig Common Stock so that, immediately
prior to the Distribution, Crane will hold a number of shares of Huttig
Common Stock (rounded up to the nearest whole share) equal to the number of
shares of Crane Common Stock issued and outstanding as of the Record Date
(excluding treasury shares held by Crane) divided by 4.5.
(b) Prior to the Time of Distribution, the Company will (i) arrange
the Debt Financing, (ii) pay to Crane (from time to time and on the day
prior to the Distribution Date) in reduction of intercompany indebtedness
the Company's net cash balances on hand, (iii) on the day prior to the
Distribution Date, issue to Crane a Note (the "Parent Note") in a principal
amount equal to the Parent Cash Amount (as defined in the Exchange
Agreement) in exchange for a like principal amount of existing indebtedness
and (iv) from time to time upon advances by Crane to fund acquisitions,
issue notes in the principal amount (not to exceed an aggregate of $15
million) of such advances (the "Acquisition Notes"). On the day prior to
the Distribution Date, subsequent to effecting (iv) above, contribute or
cause to be contributed to the capital of the Company or otherwise settle
or eliminate as provided in Section 3.3(a) all indebtedness of the Company
to Crane, other than the Parent Note and the Acquisition Notes.
(c) The parties acknowledge that the Company Group currently is
conducting the Building Products Business and that all or substantially all
of the Huttig Assets and Huttig Liabilities are owned or are obligations of
members of the Company Group. Pursuant to the Distribution, the Huttig
Assets and Huttig Liabilities are intended to be allocated entirely to the
Company Group and the Crane Assets and Liabilities of Crane, and any Crane
subsidiary are intended to be allocated entirely to the Crane Group.
Accordingly, in the event that at any time or from time to time (whether
prior to or after the Time of Distribution) either party (or any member of
such party's respective Group) shall receive or otherwise possess any Asset
that is allocated to any other Person pursuant to this Agreement or any
Ancillary Agreement, such party
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will promptly transfer, or cause to be transferred, such Asset to the
Person so entitled thereto. Prior to any such transfer, the Person
receiving or possessing such Asset will hold such Asset in trust for the
benefit of the Person entitled thereto (at the expense of the Person
entitled thereto). If at any time or from time to time (whether prior to or
after the Time of Distribution) either Crane or the Company determines that
the other party (or any member of such other party's respective Group)
shall not have unconditionally assumed any Liabilities that are allocated
to such other party (or a member of such other party's respective Group)
pursuant to this Agreement or any Ancillary Agreement, such other party
will promptly execute and deliver, or cause to be executed and delivered,
all such documents and instruments and will take, or cause to be taken, all
such actions as the requesting party may reasonably request to
unconditionally assume, or cause to be unconditionally assumed, such
Liabilities.
(d) Each of Crane (on behalf of itself and each member of the Crane
Group) and the Company (on behalf of itself and each member of the Company
Group) understands and agrees that, except as expressly set forth in the
Exchange Agreement or any Transaction Agreement, no party to any
Transaction Agreement or any other agreement or document contemplated by
any Transaction Agreement either has represented or warranted, or is
representing or warranting in any way, in such agreement or otherwise, (i)
as to the Assets, Subsidiaries, businesses or Liabilities owned at the date
hereof by such party or retained, transferred or assumed as contemplated
hereby or thereby, (ii) as to any consents or approvals required in
connection with the transactions contemplated by the Transaction
Agreements, (iii) as to the value or freedom from any Lien of, or any other
matter concerning, any Assets or Subsidiaries of either party, or (iv) as
to the absence of any defenses or rights of setoff or freedom from
counterclaim with respect to any claim or other Assets or Subsidiaries of
either party. Except as may expressly be set forth in any Transaction
Agreement, all Assets and Subsidiaries owned at the date hereof or being
transferred or retained as contemplated by any Transaction Agreement or any
other agreement or document contemplated by any Transaction Agreement are
held, or are being transferred or retained, on an "as is", "where is" basis
and the respective owners or transferees shall bear the economic and legal
risks that the title to any Asset or Subsidiary shall be other than good
and marketable and free and clear of any Lien.
Section 3.2 Crane Group Obligations Relating to the Building Products
Business.
(a) The Company will, at its expense, take or cause to be taken all
commercially reasonable actions and enter into (or cause its Subsidiaries
to enter into) such agreements and arrangements as shall be necessary to
effect the release of and substitution for each member of the Crane Group,
effective as of the Time of Distribution, from all primary, secondary,
contingent, joint, several and other Liabilities in respect of Huttig
Financial Instruments (it being understood that all Liabilities in respect
of Huttig Financial Instruments are Huttig Liabilities). The Company will
reimburse Crane for any reimbursements made by Crane pursuant to any Huttig
Financial Instruments and that remain outstanding at the Distribution Date.
(b) The Company will, at its expense, use its reasonable best efforts
to take or cause to be taken all actions and to enter into (or cause its
Subsidiaries to enter into) such agreements and arrangements as shall be
necessary to effect the release of and substitution for
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each member of the Crane Group, effective as of the Time of Distribution,
from all primary, secondary, contingent, joint, several and other
Liabilities in respect of bonds, indemnities, assurances and Contracts
(other than the Exchange Agreement and Huttig Financial Instruments, which
are covered by paragraph (a) above) under which any member of the Crane
Group has any primary, secondary, contingent, joint, several or other
Liability arising out of or relating to the Building Products Business
which by their terms will be outstanding or in effect as of or at any time
following the Time of Distribution; provided, however, that the Company
shall not be obligated to pay any consideration therefor to any third party
(it being understood that all Liabilities in respect of such bonds,
indemnities, assurances and Contracts are Huttig Liabilities).
(c) The Company's obligations under this Section 3.2 will continue to
be applicable to all Huttig Financial Instruments, bonds, indemnities,
assurances and Contracts identified at any time by Crane, whether before,
at or after the Time of Distribution.
Section 3.3 Company Group Obligations Relating to the Crane Group.
(a) Crane will, at its expense, take or cause to be taken all
commercially reasonable actions and enter into (or cause its Subsidiaries
to enter into) such agreements and arrangements as shall be necessary to
effect the release of and substitution for each member of the Company
Group, effective as of the Time of Distribution, from all primary,
secondary, contingent, joint, several and other Liabilities in respect of
Crane Financial Instruments (it being understood that all Liabilities in
respect of Crane Financial Instruments are Liabilities of Crane or its
Subsidiaries).
(b) Crane will, at its expense, use its reasonable best efforts to
take or cause to be taken all actions and to enter into (or cause its
Subsidiaries to enter into) such agreements and arrangements as shall be
necessary to effect the release of and substitution for each member of the
Company Group, effective as of the Time of Distribution, from all primary,
secondary, contingent, joint, several and other Liabilities in respect of
bonds, indemnities, assurances and Contracts (other than the Exchange
Agreement and Crane Financial Instruments, which are covered by paragraph
(a) above) under which any member of the Company Group has any primary,
secondary, contingent, joint, several or other Liability arising out of or
relating to businesses of the Pre-Distribution Group other than the
Building Products Business which by their terms will be outstanding or in
effect as of or at any time following the Time of Distribution; provided,
however, that Crane shall not be obligated to pay any consideration
therefor to any third party (it being understood that all Liabilities in
respect of such bonds, indemnities, assurances and Contracts are
Liabilities of Crane or its Subsidiaries).
(c) Crane's obligations under this Section 3.3 will continue to be
applicable to all Crane Financial Instruments, bonds, indemnities,
assurances and Contracts identified at any time by the Company, whether
before, at or after the Time of Distribution.
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Section 3.4 Intercompany Accounts and Arrangements.
(a) Elimination of Intercompany Accounts.
(i) Except as set forth in Section 3.4(a)(ii) or on Schedule
3.4(a)(i) and except for the Parent Note and the Acquisition Notes,
the Company, on behalf of itself and each other member of the Company
Group, on the one hand, and Crane, on behalf of itself and each other
member of the Crane Group, on the other hand, hereby agree to settle
and eliminate, by cancellation or transfer to a member of the other
Group (whether to cancel or transfer and the manner thereof will be
determined by Crane), effective immediately prior to the Time of
Distribution, all intercompany receivables, payables and other
balances (including, without limitation, intercompany loans and cash
management balances) between the Company and/or any Company
Subsidiary, on the one hand, and Crane and/or any Crane Subsidiary, on
the other hand.
(ii) The provisions of Section 3.4(a)(i) will not apply to any
intercompany receivables, payables and other balances incurred in
connection with the payment by any party of any expenses which are
required to be paid by the other party pursuant to Section 6.3.
(b) Intercompany Agreements.
(i) Except as set forth in Section 3.4(b)(ii), in furtherance of
the releases and other provisions of Section 4.1, the Company, on
behalf of itself and each other member of the Company Group, on the
one hand, and Crane, on behalf of itself and each other member of the
Crane Group, on the other hand, hereby terminate any and all
agreements, arrangements, commitments or understandings in existence
as of the Time of Distribution, whether or not in writing, between or
among the Company and/or any Company Subsidiary, on the one hand, and
Crane and/or any Crane Subsidiary, on the other hand, effective as of
the Time of Distribution. No such terminated agreement, arrangement,
commitment or understanding (including, without limitation, any
provision thereof which purports to survive termination) shall be of
any further force or effect after the Time of Distribution.
(ii) The provisions of Section 3.4(b)(i) will not apply to any of
the following agreements, arrangements, commitments or understandings
(or to any of the provisions thereof): (A) the Transaction Agreements
(and each other agreement, instrument or document expressly
contemplated by any Transaction Agreement to be entered into by any of
the parties hereto or any of the members of their respective Group);
(B) any agreement, arrangement, commitment or understanding relating
to any matter described in Section 3.4(a)(ii); (C) any agreements,
arrangements, commitments or understandings listed or described on
Schedule 3.4(b)(ii); (D) any agreements, arrangements, commitments or
understandings to which any Person other than the parties hereto and
their respective Affiliates is a party; (E) any other agreements,
arrangements, commitments or understandings that any of the
Transaction Agreements expressly contemplates will survive the Time of
Distribution; (F) the Exchange Agreement; and (G) any agreements,
arrangements, commitments or understandings between the Company and/or
any Company Subsidiary, on the one hand, and Crane and/or any Crane
Subsidiary, on the other hand, for the purchase or sale of goods or
services of a type which the provider thereof provides to unaffiliated
third parties in the ordinary course of business ("Ordinary Course
Intercompany Arrangements"); provided, however, that in the event any
such Ordinary Course Intercompany Arrangements do not, as of the Time
of Distribution, contain
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commercially reasonable arm's-length terms of a type to which
unaffiliated parties would reasonably agree or do not include terms
which would normally appear in such arrangements between unaffiliated
parties, Crane and the Company will cause such Ordinary Course
Intercompany Arrangements to be amended so that they will contain
terms which are, as of the Time of Distribution, commercially
reasonable arm's-length terms of a type to which unaffiliated parties
would reasonably agree.
Section 3.5 Cash Management.
(a) Bank Accounts. All Huttig Bank Accounts will constitute Huttig
Assets and all Crane Retained Accounts will constitute Crane Assets.
(b) Crane Customer Payments. The Company will, and will cause its
Subsidiaries and Affiliates to, forward promptly to Crane (for the account
of Crane or its applicable Subsidiary) any customer payments in respect of
accounts receivable owed to any member of the Crane Group received by the
Company or any of its Subsidiaries or Affiliates after the Time of
Distribution, whether received in lock boxes, via wire transfer or
otherwise. Such amounts will be forwarded by wire transfer (to Crane's bank
account at ___________________, Account No. ________) in the case of
customer payments received within thirty days after the Distribution Date
and by check in the case of customer payments received thereafter.
(c) Company Customer Payments. Crane will, and will cause its
Subsidiaries and Affiliates to, forward promptly to the Company (for the
account of the Company or its applicable Subsidiary) any customer payments
in respect of accounts receivable owed to any member of the Company Group
received by Crane or any of its Subsidiaries or Affiliates after the Time
of Distribution, whether received in lock boxes, via wire transfer or
otherwise. Such amounts will be forwarded by wire transfer in the case of
customer payments received within thirty days after the Distribution Date
and by check in the case of customer payments received thereafter.
Section 3.6 The Company Board. The Company and Crane will take all
actions which may be required to elect or otherwise appoint as directors of the
Company, prior to the Time of Distribution, the persons named in the Form 10 to
constitute the Company Board at the Time of Distribution.
Section 3.7 Resignations; Transfer of Stock Held as Nominee.
(a) Crane will cause all of its employees and directors and all of the
employees and directors of each other member of the Crane Group to resign,
not later than the Time of Distribution, from all boards of directors or
similar governing bodies of the Company or any other member of the Company
Group on which they serve, and from all positions as officers of the
Company or any other member of the Company Group in which they serve,
except as otherwise specified on Schedule 3.7. The Company will cause all
of its employees and directors and all of the employees and directors of
each other member of the Company Group to resign, not later than the Time
of Distribution, from all boards of directors or similar governing bodies
of Crane or any other member of
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the Crane Group on which they serve, and from all positions as officers of
Crane or any other member of the Crane Group in which they serve, except as
otherwise specified on Schedule 3.6.
(b) Crane will cause each of its employees and each of the employees
of the other members of the Crane Group to revoke or withdraw their express
written authority, if any, to act on behalf of any Company Group entity as
an agent or representative therefor after the Time of Distribution. The
Company will cause each of its employees and each of the employees of the
other members of the Company Group to revoke or withdraw their express
written authority, if any, to act on behalf of any Crane Group entity as an
agent or representative therefor after the Time of Distribution.
Section 3.8 Rights Plan. Prior to the Time of Distribution, the
Company Board will adopt the Rights Plan and declare a dividend of the Rights so
that each share of Huttig Common Stock issued and outstanding as of the Time of
Distribution will initially have one Right attached thereto.
Section 3.9 Insurance.
(a) Coverage. Coverage of the Company and the Company Subsidiaries
under all Policies shall cease as of the Time of Distribution. From and
after the Time of Distribution, the Company and the Company Subsidiaries
will be responsible for obtaining and maintaining all insurance coverages
in their own right. All Policies will constitute Crane Retained Assets and
will be retained by Crane and the Crane Subsidiaries (with Crane and the
Crane Subsidiaries being the only named insureds thereunder), together with
all rights, benefits and privileges thereunder (including, without
limitation, the right to receive any and all return premiums with respect
thereto). The Company and the Company Subsidiaries will have no rights with
respect to any Policies, except that (i) the Company will have the right to
assert claims (and Crane will use reasonable best efforts to assist the
Company in asserting claims) for any loss, liability or damage with respect
to Huttig Assets under Policies with third-party insurers which are
"occurrence basis" Policies ("Occurrence Basis Policies") arising out of
insured incidents occurring from the date coverage thereunder first
commenced until the Time of Distribution to the extent that the terms and
conditions of any such Occurrence Basis Policies and agreements relating
thereto so allow and (ii) the Company will have the right to continue to
prosecute claims properly asserted with the insurance carrier prior to the
Time of Distribution (and Crane will use reasonable best efforts to assist
the Company in connection therewith) under Policies with third-party
insurers which are Policies written on a "claims made" basis ("Claims Made
Policies") arising out of insured incidents occurring from the date
coverage thereunder first commenced until the Time of Distribution to the
extent that the terms and conditions of any such Claims Made Policies and
agreements relating thereto so allow, provided that, in the case of both
clauses (i) and (ii) above, (A) all of Crane's and each Crane Subsidiary's
reasonable costs and expenses incurred in connection with the foregoing are
promptly paid by the Company, (B) Crane and the Crane Subsidiaries may, at
any time, without liability or obligation to the Company or any Company
Subsidiary (other than as set forth in Section 3.8(b)), amend,
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commute, terminate, buy-out, extinguish liability under or otherwise modify
any Occurrence Basis Policies or Claims Made Policies (and such claims
shall be subject to any such amendments, commutations, terminations,
buy-outs, extinguishments and modifications), (C) such claims will be
subject to (and recovery thereon will be reduced by the amount of) any
applicable deductibles, retentions, self-insurance provisions or any
payment or reimbursement obligations of Crane, any Crane Subsidiary or any
Affiliate of Crane or any Crane Subsidiary in respect thereof and (D) such
claims will be subject to exhaustion of aggregate limits. Crane's
obligation to use reasonable best efforts to assist the Company in
asserting claims under Occurrence Basis Policies will include using
reasonable best efforts in assisting the Company to establish its right to
coverage under Occurrence Basis Policies (so long as all of Crane's costs
and expenses in connection therewith are promptly paid by the Company).
None of Crane or the Crane Subsidiaries will bear any Liability for the
failure of an insurance carrier to pay any claim under any Occurrence Basis
Policy or Claims Made Policy. It is understood that any Claims Made
Policies will not provide any coverage to the Company and the Company
Subsidiaries for any incident occurring prior to the Time of Distribution
but as to which a Claim is asserted with the insurance carrier after the
Time of Distribution, except and to the extent that coverage is provided
under discovery coverage purchased by the Company (at the Company's
expense) with respect to Crane's excess general liability Claims Made
Policies.
(b) Crane Actions. If Crane or any Crane Subsidiary proposes to amend,
commute, terminate, buy-out, extinguish liability under or otherwise modify
any Occurrence Basis Policies or Claims Made Policies under which the
Company has rights to assert claims pursuant to Section 3.9(a) in a manner
that would adversely affect any such rights of the Company, (i) Crane will
give the Company prior notice thereof and consult with the Company with
respect to such action (it being understood that the decision to take any
such action will be in the sole discretion of Crane) and (ii) Crane will
pay to the Company its equitable share (based on the amount of premiums
paid by or allocated to the Company in respect of the applicable Policy) of
any net proceeds actually received by Crane from the insurance carrier of
the applicable Policy as a result of such action by Crane (after deducting
Crane's reasonable costs and expenses incurred in connection with such
action).
(c) Administration. From and after the Time of Distribution:
(i) Crane will be responsible for the Claims Administration with
respect to claims of Crane and the Crane Subsidiaries under Occurrence
Basis Policies and Claims Made Policies; and
(ii) The Company or a Company Subsidiary, as appropriate, will be
responsible for the Claims Administration with respect to the claims
of the Company and the Company Subsidiaries under Occurrence Basis
Policies and Claims Made Policies.
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(d) Insurance Premiums.
(i) Crane will pay all premiums (retrospectively-rated or
otherwise) as required under the terms and conditions of the
respective Policies in respect of periods prior to the Time of
Distribution, whereupon the Company will upon receipt of evidence
thereof, forthwith reimburse Crane for that portion of such premiums
paid by Crane as are attributable to the Company.
(ii) In addition, Huttig will reimburse Crane for claims and
related expenses (paid by insurance carriers which are reimbursed by
Crane) for claims against Huttig arising out of an occurrence prior to
the time of Distribution. Crane will supply to Huttig evidence of such
claims and related expense in the manner provided in 3.9(d)(i) above.
(e) Agreement for Waiver of Conflict and Shared Defense. In the event
that an Occurrence Basis Policy or Claims Made Policy provides coverage for
both Crane and/or a Crane Subsidiary, on the one hand, and the Company
and/or a Company Subsidiary, on the other hand, relating to the same
occurrence, Crane and the Company agree to defend jointly and to waive any
conflict of interest necessary to the conduct of that joint defense.
Nothing in this Section 3.9(e) will be construed to limit or otherwise
alter in any way the indemnity obligations of the parties to this
Agreement, including, without limitation, those created by this Agreement,
by operation of law or otherwise.
(f) Directors' and Officers' Insurance. Crane will use its reasonable
best efforts to cause the persons currently serving as directors and/or
officers of Crane or any Subsidiary of Crane who will be or become,
effective as of the Time of Distribution, directors and/or officers of the
Company or any Company Subsidiary to be covered for a period of six years
from the Time of Distribution with respect to claims arising from facts or
events that occurred prior to the Time of Distribution by the directors'
and officers' liability insurance policies maintained by Crane during such
six-year period following the Time of Distribution for all persons who
served as directors and/or officers of Crane or any Crane Subsidiary prior
to the Time of Distribution.
Section 3.10 Use of Names, Trademarks, etc.
(a) From and after the Time of Distribution, Crane will have all
rights in and use of the name "Crane" and all corporate symbols and logos
related thereto and all derivatives thereof and the Company will have all
rights in and use of the name "Huttig" and all corporate symbols and logos
related thereto and all derivatives thereof. Prior to or promptly after the
Time of Distribution (but in no event later than 90 days after the
Distribution Date in the case of United States Persons and 180 days after
the Distribution Date in the case of non-United States Persons), the
Company will change the name of any Subsidiary or other Person under its
control to eliminate therefrom the name "Crane" and all derivatives thereof
and Crane will change the name of any Subsidiary or other Person under its
control to eliminate therefrom the name "Huttig" and all derivatives
thereof.
(b) From and after the Time of Distribution, the Company Group will
not use or have any rights to the name "Crane" or any derivatives thereof
or any other trademark, trade
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name, service mark or logo of the Crane Group constituting Crane Assets, or
any corporate symbol or logo related thereto or to any thereof or any name
or mark which includes the words "Crane" or any derivative thereof or name
or mark confusingly similar thereto, or any special script, type font,
form, style, logo, design, device, trade dress or symbol used or possessed
by the Crane Group before or after the Time of Distribution which contains
the trademark, trade name or service mark "Crane" or any derivative thereof
or any name or mark confusingly similar thereto and the Company Group will
not hold itself out as having any affiliation with the Crane Group.
(c) From and after the Time of Distribution, the Crane Group will not
use or have any rights to the name "Huttig" or any derivatives thereof or
any other trademark, trade name, service mark or logo of the Company Group
constituting Huttig Assets, or any corporate symbol or logo related thereto
or to any thereof or any name or mark which includes the words "Huttig" or
any derivative thereof or name or mark confusingly similar thereto, or any
special script, type font, form, style, logo, design, device, trade dress
or symbol used or possessed by the Company Group before or after the Time
of Distribution which contains the trademark, trade name or service mark
"Huttig" or any derivative thereof or any name or mark confusingly similar
thereto and the Crane Group will not hold itself out as having any
affiliation with the Company Group.
(d) The Company will not, and will cause each other member of the
Company Group not to, challenge or contest the validity of the trademarks,
trade names, corporate symbols or logos described in Section 3.10(b), the
registration thereof or the ownership thereof by the Crane Group. The
Company will not, and will cause each other member of the Company Group not
to, apply anywhere at any time for any registration as owner or exclusive
licensee of such trademarks, trade names, corporate symbols or logos. If,
notwithstanding the foregoing, any title or interest in or to the use of
any such trademarks, trade names, corporate symbols or logos in any
jurisdiction, or any goodwill incident thereto, the Company will, upon the
request of Crane, and for a nominal consideration of one dollar, assign or
cause to be assigned to Crane or any designee of Crane, all right, title
and interest in and to the use of such trademarks, trade names, corporate
symbols or logos in any and all jurisdictions, together with any goodwill
incident thereto.
(e) Crane will not, and will cause each other member of the Crane
Group not to, challenge or contest the validity of the trademarks, trade
names, corporate symbols or logos described in Section 3.10(c), the
registration thereof or the ownership thereof by the Company Group. Crane
will not, and will cause each other member of the Crane Group not to, apply
anywhere at any time for any registration as owner or exclusive licensee of
such trademarks, trade names, corporate symbols or logos. If,
notwithstanding the foregoing, any member of the Crane Group develops,
adopts or acquires, directly or indirectly, any right, title or interest in
or to the use of any such trademarks, trade names, corporate symbols or
logos in any jurisdiction, or any goodwill incident thereto, Crane will,
upon the request of the Company, and for a nominal consideration of one
dollar, assign or cause to be assigned to the Company or any designee of
the Company, all right, title and interest in and to the use of such
trademarks, trade names, corporate symbols or logos in any and all
jurisdictions, together with any goodwill incident thereto.
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(f) The Company will cause each member of the Company Group to comply
with the provisions of this Section 3.10 and Crane will cause such member
of the Crane Group to comply with the provisions of this Section 3.10.
Nothing in this Section 3.10 will prevent any member of the Crane Group
from enforcing the provisions of this Section 3.10 against any member of
the Company Group or any member of the Company Group from enforcing the
provisions of this Section 3.10 against any member of the Crane Group.
Section 3.11 Consents. Prior to and after the Distribution Date, Crane and
the Company will, and will cause their respective Subsidiaries to, use their
reasonable best efforts (as requested by the other party) to obtain, or to cause
to be obtained, all Consents and to resolve any impracticalities of assignments
or transfers necessary for the transfer of all Assets, Subsidiaries and
Liabilities contemplated to be transferred pursuant to this Article III;
provided, however, that none of Crane or the Company or their respective
Subsidiaries shall be obligated to pay any consideration or offer or grant any
financial accommodation in connection therewith. Anything contained herein to
the contrary notwithstanding, this Agreement shall not constitute an agreement
to assign any Contract, License or Asset if an assignment or attempted
assignment of the same without the Consent of any other party or parties thereto
or other required Consent would constitute a breach thereof or of any applicable
law or in any way impair the rights of any member of the Crane Group or the
Company Group thereunder. If any such Consent is not obtained or if an attempted
assignment would be ineffective or would impair any member of either Group's
rights under any such Contract, License or Asset so that the contemplated
assignee hereunder (the "Recipient Party") would not receive all such rights,
then (x) the party contemplated hereunder to assign such Contract, License or
Asset (the "Assigning Party") will use reasonable best efforts (it being
understood that such efforts shall not include any requirement of the Assigning
Party to pay any consideration or offer or grant any financial accommodation) to
provide or cause to be provided to the Recipient Party, to the extent permitted
by law, the benefits of any such Contract, License or Asset and the Assigning
Party will promptly pay or cause to be paid to the Recipient Party when received
all moneys and properties received by the Assigning Party with respect to any
such Contract, License or Asset and (y) the Recipient Party will pay, perform
and discharge on behalf of the Assigning Party all of the Assigning Party's
Liabilities thereunder in a timely manner and in accordance with the terms
thereof. In addition, the Assigning Party will take such other actions (at the
Recipient Party's expense) as may reasonably be requested by the Recipient Party
in order to place the Recipient Party, insofar as reasonably possible, in the
same position as if such Contract, License or Asset had been transferred as
contemplated hereby and so all the benefits and burdens relating thereto,
including, without limitation, possession, use, risk of loss, potential for gain
and dominion, control and command, shall inure to the Recipient Party. If and
when such Consents are obtained, the transfer of the applicable Contract,
License or Asset shall be effected as promptly following the Time of
Distribution as shall be practicable in accordance with the terms of this
Agreement. To the extent that any transfers and assumptions contemplated by this
Article III shall not have been consummated on or prior to the Time of
Distribution, the parties shall cooperate to effect such transfers as promptly
following the Time of Distribution as shall be practicable, it nonetheless being
agreed and understood by the parties that neither party shall be liable in any
manner to the other party for any failure of any of the transfers contemplated
by this Article III to be consummated prior to the Time of Distribution.
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ARTICLE IV
MUTUAL RELEASE; INDEMNIFICATION
Section 4.1 Mutual Release. Effective as of the Time of Distribution and
except as otherwise specifically set forth in the Transaction Agreements, each
of Crane, on the one hand, and the Company, on the other hand, on its own behalf
and on behalf of each of its respective Subsidiaries, hereby releases and
forever discharges the other and its Subsidiaries, and its and their respective
officers, directors, agents, Affiliates, record and beneficial security holders
(including, without limitation, trustees and beneficiaries of trusts holding
such securities), advisors and Representatives (in their respective capacities
as such) and their respective heirs, executors, administrators, successors and
assigns, of and from all debts, demands, actions, causes of action, suits,
accounts, covenants, contracts, agreements, damages, claims and Liabilities
whatsoever of every name and nature, both in law and in equity, that the
releasing party has or ever had, that arise out of or relate to events,
circumstances or actions taken by such other party or any conditions existing at
or prior to the Time of Distribution; provided, however, that the foregoing
general release shall not apply to (i) any Liabilities (including, without
limitation, Liabilities with respect to indemnification or contribution) under
the Transaction Agreements or assumed, transferred, assigned, allocated or
arising under any of the Transaction Agreements (including, without limitation,
any Liability that the parties may have with respect to indemnification or
contribution pursuant to any Transaction Agreement for claims brought against
the parties by third Persons) and will not affect any party's right to enforce
the Transaction Agreements in accordance with their terms, (ii) any Liability
arising from or relating to any agreement, arrangement, commitment or
undertaking described in Section 3.4(b)(ii) (including, without limitation,
Ordinary Course Intercompany Arrangements) or (iii) any Liability the release of
which would result in the release of any Person other than a Person released
pursuant to this Section 4.1 (provided that the parties agree not to bring suit
or permit any of their Subsidiaries to bring suit against any Person with
respect to any Liability to the extent such Person would be released with
respect to such Liabilities by this Section 4.1 but for this clause (iii)).
Section 4.2 Indemnification by Crane. Except as otherwise specifically
provided in any Transaction Agreement and subject to the provisions of this
Article IV, Crane shall indemnify, defend and hold harmless the Huttig
Indemnitees from and against, and pay or reimburse, as the case may be, the
Huttig Indemnitees for, all Indemnifiable Losses, as incurred or suffered by any
Huttig Indemnitee based upon, arising out of, relating to or otherwise in
connection with:
(a) businesses of Crane, the Crane Subsidiaries and their respective
predecessors (other than the Building Products Business) engaged in at or
prior to the Time of Distribution, the Crane Assets or Liabilities of Crane
or any Crane Subsidiary as of the Time of Distribution which are not Huttig
Liabilities (including, without limitation, the failure by Crane or any
other member of the Crane Group to pay, perform or otherwise discharge such
Liabilities
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in accordance with their terms), whether such Indemnifiable Losses are
based upon, arise out of or relate to or are otherwise in connection with
events, occurrences, actions, omissions, facts, circumstances or conditions
occurring, existing or asserted before, at or after the Time of
Distribution;
(b) any untrue statement or alleged untrue statement of a material
fact contained in the sections of the Form 10 listed on Schedule 4.2, or
any omission or alleged omission to state in such sections a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
but only in each case with respect to information relating to the Crane
Group provided by Crane expressly for use in the sections of the Form 10
listed on Schedule 4.2;
(c) the breach by any member of the Crane Group of any agreement or
covenant contained in a Transaction Agreement which does not by its express
terms expire at the Time of Distribution; or
(d) the enforcement by the Huttig Indemnitees of their rights to be
indemnified, defended and held harmless under this Agreement.
Section 4.3 Indemnification by the Company. Except as otherwise
specifically provided in any Transaction Agreement and subject to the provisions
of this Article IV, the Company and the Company Subsidiaries shall indemnify,
defend and hold harmless the Crane Indemnitees from and against, and pay or
reimburse, as the case may be, the Crane Indemnitees for, all Indemnifiable
Losses, as incurred, suffered by any Crane Indemnitee based upon, arising out
of, relating to or otherwise in connection with:
(a) the Building Products Business, the Huttig Assets or the Huttig
Liabilities (including, without limitation, (i) any guarantees or
obligations to assure performance or perform given or made by, or other
Liabilities of, Crane or any Crane Subsidiary with respect to the Building
Products Business, and (ii) the failure by the Company or any other member
of the Company Group to pay, perform or otherwise discharge Huttig
Liabilities in accordance with their terms, whether such Indemnifiable
Losses are based upon, arise out of or relate to or are otherwise in
connection with events, occurrences, actions, omissions, facts,
circumstances or conditions occurring, existing or asserted before, at or
after the Time of Distribution;
(b) any untrue statement or alleged untrue statement of a material
fact contained in the Form 10, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except in each case with respect to information
relating to the Crane Group provided by Crane expressly for use in the
sections of the Form 10 listed on Schedule 4.2;
(c) the breach by any member of the Company Group of any agreement or
covenant contained in a Transaction Agreement which does not by its express
terms expire at the Time of Distribution;
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(d) any Action or other claim alleging that any Liability was
improperly allocated to the Company Group or that any Asset was improperly
withheld from the Company Group, in each case pursuant to any of the
Transaction Agreements; or
(e) the enforcement by the Crane Indemnitees of their rights to be
indemnified, defended and held harmless under this Agreement.
Section 4.4 Limitations on Indemnification Obligations.
(a) The amount that any party (an "Indemnifying Party") is or may be
required to pay to an Indemnitee in respect of Indemnifiable Losses or
other Liability for which indemnification is provided under this Agreement
shall be reduced by any amounts actually received (including, without
limitation, Insurance Proceeds actually received) by or on behalf of such
Indemnitee (net of increased insurance premiums and charges related
directly and solely to the related Indemnifiable Losses and costs and
expenses (including, without limitation, reasonable legal fees and
expenses) incurred by such Indemnitee in connection with seeking to collect
and collecting such amounts) in respect of such Indemnifiable Losses or
other Liability (such net amounts are referred to herein as "Indemnity
Reduction Amounts"). If any Indemnitee receives any Indemnity Reduction
Amounts in respect of an Indemnifiable Loss for which indemnification is
provided under this Agreement after the full amount of such Indemnifiable
Loss has been paid by an Indemnifying Party or after an Indemnifying Party
has made a partial payment of such Indemnifiable Loss and such Indemnity
Reduction Amounts exceed the remaining unpaid balance of such Indemnifiable
Loss, then the Indemnitee shall promptly remit to the Indemnifying Party an
amount equal to the excess (if any) of (A) the amount theretofore paid by
the Indemnifying Party in respect of such Indemnifiable Loss, less (B) the
amount of the indemnity payment that would have been due if such Indemnity
Reduction Amounts in respect thereof had been received before the indemnity
payment was made. An insurer or other third party who would otherwise be
obligated to pay any claim shall not be relieved of the responsibility with
respect thereto or, solely by virtue of the indemnification provisions
hereof, have any subrogation rights with respect thereto, it being
expressly understood and agreed that no insurer or any other third party
shall be entitled to any benefit they would not be entitled to receive in
the absence of the indemnification provisions by virtue of the
indemnification provisions hereof.
(b) In determining the amount of any Indemnifiable Losses, such amount
shall be (i) reduced to take into account any net Tax benefit realized by
the Indemnitee arising from the incurrence or payment by the Indemnitee of
such Indemnifiable Losses and (ii) increased to take into account any net
Tax cost incurred by the Indemnitee as a result of the receipt or accrual
of payments hereunder (grossed-up for such increase), in each case
determined by treating the Indemnitee as recognizing all other items of
income, gain, loss, deduction or credit before recognizing any item arising
from such Indemnifiable Losses.
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Section 4.5 Procedures Relating to Indemnification.
(a) If a claim or demand is made against an Indemnitee, or an
Indemnitee shall otherwise learn of an assertion, by any Person who is not
a party to this Agreement (or an Affiliate thereof) as to which an
Indemnifying Party may be obligated to provide indemnification pursuant to
this Agreement (a "Third Party Claim"), such Indemnitee will notify the
Indemnifying Party in writing, and in reasonable detail, of the Third Party
Claim reasonably promptly (and in any event within 20 business days) after
becoming aware of such Third Party Claim; provided, however, that failure
to give such notification will not affect the indemnification provided
hereunder except to the extent the Indemnifying Party shall have been
actually prejudiced as a result of such failure (except that the
Indemnifying Party will not be liable for any expenses incurred during the
period in which the Indemnitee failed to give such notice). Thereafter, the
Indemnitee will deliver to the Indemnifying Party, promptly after the
Indemnitee's receipt thereof, copies of all notices and documents
(including, without limitation, court papers) received or transmitted by
the Indemnitee relating to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnitee, the
Indemnifying Party will be entitled to participate in or to assume the
defense thereof (in either case, at the expense of the Indemnifying Party)
with counsel selected by the Indemnifying Party and reasonably satisfactory
to the Indemnitee. Should the Indemnifying Party so elect to assume the
defense of a Third Party Claim, the Indemnifying Party will not be liable
to the Indemnitee for any legal or other expenses subsequently incurred by
the Indemnitee in connection with the defense thereof; provided that, if in
the Indemnitee's reasonable judgment a conflict of interest exists in
respect of such claim or if the Indemnifying Party shall have assumed
responsibility for such claim with any reservations or exceptions, such
Indemnitee will have the right to employ separate counsel reasonably
satisfactory to the Indemnifying Party to represent such Indemnitee and in
that event the reasonable fees and expenses of such separate counsel (but
not more than one separate counsel for all Indemnitees similarly situated)
shall be paid by such Indemnifying Party. If the Indemnifying Party assumes
the defense of any Third Party Claim, the Indemnitee will have the right to
participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by the Indemnifying Party, it
being understood that the Indemnifying Party will control such defense. The
Indemnifying Party will be liable for the fees and expenses of counsel
employed by the Indemnitee for any period during which the Indemnifying
Party has failed to assume the defense thereof (other than during any
period in which the Indemnitee shall have failed to give notice of the
Third Party Claim as provided above). If the Indemnifying Party assumes the
defense of any Third Party Claim, the Indemnifying Party will promptly
supply to the Indemnitee copies of all correspondence and documents
relating to or in connection with such Third Party Claim and keep the
Indemnitee fully informed of all developments relating to or in connection
with such Third Party Claim (including, without limitation, providing to
the Indemnitee on request updates and summaries as to the status thereof).
If the Indemnifying Party chooses to defend a Third Party Claim, the
parties hereto will cooperate in the defense thereof (such cooperation to
be at the expense, including, without limitation, reasonable legal fees and
expenses, of the Indemnifying Party), which cooperation shall include the
retention in accordance with this Agreement and (upon the Indemnifying
Party's request) the provision to the Indemnifying Party of records and
information that are reasonably relevant to such Third Party Claim, and
making employees available on a
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mutually convenient basis to provide additional information and explanation
of any material provided hereunder.
(c) No Indemnifying Party will consent to any settlement, compromise
or discharge (including the consent to entry of any judgment) of any Third
Party Claim without the Indemnitee's prior written consent (which consent
will not be unreasonably withheld); provided, that if the Indemnifying
Party assumes the defense of any Third Party Claim, the Indemnitee will
agree to any settlement, compromise or discharge of such Third Party Claim
that the Indemnifying Party may recommend and that by its terms obligates
the Indemnifying Party to pay the full amount of Indemnifiable Losses in
connection with such Third Party Claim and unconditionally and irrevocably
releases the Indemnitee completely from all Liability in connection with
such Third Party Claim; provided, however, that the Indemnitee may refuse
to agree to any such settlement, compromise or discharge (x) that provides
for injunctive or other nonmonetary relief affecting the Indemnitee or (y)
that, in the reasonable opinion of the Indemnitee, would otherwise
materially adversely affect the Indemnitee. Whether or not the Indemnifying
Party shall have assumed the defense of a Third Party Claim, the Indemnitee
will not (unless required by law) admit any liability with respect to, or
settle, compromise or discharge, such Third Party Claim without the
Indemnifying Party's prior written consent (which consent will not be
unreasonably withheld).
(d) Any claim on account of Indemnifiable Losses that does not involve
a Third Party Claim will be asserted by reasonably prompt written notice
given by the Indemnitee to the Indemnifying Party from whom such
indemnification is sought. The failure by any Indemnitee so to notify the
Indemnifying Party will not relieve the Indemnifying Party from any
liability that it may have to such Indemnitee under this Agreement, except
to the extent that the Indemnifying Party shall have been actually
prejudiced by such failure. Any notice pursuant to this Section 4.5(d) will
contain a statement, in prominent and conspicuous type, that if the
Indemnifying Party does not dispute its liability to the Indemnitee with
respect to the claim made in such notice by notice to the Indemnitee prior
to the expiration of a 30-calendar-day period following the Indemnifying
Party's receipt of the second notice of such claim, the claim shall be
conclusively deemed a liability of the Indemnifying Party. If the
Indemnitee has provided the Indemnifying Party two such notices not less
than 30 days apart and the Indemnifying Party does not notify the
Indemnitee prior to the expiration of a 30-calendar-day period following
its receipt of the second such notice that the Indemnifying Party disputes
its liability to the Indemnitee under this Agreement, such claim specified
by the Indemnitee in such notice will be conclusively deemed a liability of
the Indemnifying Party under this Agreement and the Indemnifying Party will
pay the amount of such liability to the Indemnitee on demand or, in the
case of any notice in which the amount of the claim (or any portion
thereof) is estimated, on such later date when the amount of such claim (or
such portion thereof) becomes finally determined. If the Indemnifying Party
has timely disputed its liability with respect to such claim, as provided
above, the Indemnifying Party and the Indemnitee will proceed in good faith
to negotiate a resolution of such dispute and, if not resolved through
negotiations by the 120th day after notice of such claim was given to the
Indemnifying Party, the Indemnifying Party and the Indemnitee will be free
to pursue such remedies as may be available to such parties under this
Agreement or under applicable law.
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(e) In the event of payment in full by an Indemnifying Party to any
Indemnitee in connection with any Third Party Claim, such Indemnifying
Party will be subrogated to and shall stand in the place of such Indemnitee
as to any events or circumstances in respect of which such Indemnitee may
have any right or claim relating to such Third Party Claim against any
claimant or plaintiff asserting such Third Party Claim or against any other
Person. Such Indemnitee will cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense of such Indemnifying Party,
in prosecuting any subrogated right or claim.
Section 4.6 Remedies Cumulative. The remedies provided in this Article IV
shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any and all other remedies against any
Indemnifying Party.
Section 4.7 Survival of Indemnities. The obligations of each of Crane and
the Company under this Article IV will not terminate at any time and will
survive the sale or other transfer by any party of any assets or businesses or
the assignment by any party of any Liabilities with respect to any Indemnifiable
Losses of the other related to such assets, businesses or Liabilities.
Section 4.8 Exclusivity of Tax Allocation Agreement. Notwithstanding
anything in this Agreement to the contrary and except as provided in the
Exchange Agreement, the Tax Allocation Agreement will be the exclusive agreement
among the parties with respect to all Tax matters, including, without
limitation, indemnification in respect of Tax matters.
ARTICLE V
ACCESS TO INFORMATION
Section 5.1 Access to Information. From and after the Time of Distribution,
Crane will, and will cause each Crane Subsidiary to, afford to the Company and
its Representatives (at the Company's expense) reasonable access and duplicating
rights during normal business hours and upon reasonable advance notice to all
Information within Crane's possession or control or in the possession or control
of a Crane Subsidiary relating to the Company, any Company Subsidiary or the
Building Products Business, insofar as such access is reasonably required by the
Company or any Company Subsidiary, subject to the provisions below regarding
Privileged Information. From and after the Time of Distribution, the Company
will, and will cause each Company Subsidiary to, afford to Crane and its
Representatives (at Crane's expense) reasonable access and duplicating rights
during normal business hours and upon reasonable advance notice to all
Information within the Company's possession or control or in the possession or
control of a Company Subsidiary relating to Crane, any Crane Subsidiary or the
businesses of the Pre-Distribution Group, insofar as such access is reasonably
required by Crane or any Crane Subsidiary, subject to the provisions below
regarding Privileged Information. Without limiting the foregoing, Information
may be requested under this Article V for audit, accounting, claims, litigation,
insurance, environmental and safety and tax purposes, as well as for purposes of
fulfilling disclosure and reporting obligations and for performing this
Agreement and the transactions contemplated hereby.
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In furtherance of the foregoing:
(a) Each party acknowledges that (i) each of Crane and the Company
(and the members of the Crane Group and the Company Group, respectively)
has or may obtain Privileged Information; (ii) there are a number of
Actions affecting one or more of the members of the Crane Group and the
Company Group; (iii) the parties may have a common legal interest in
Actions, in the Privileged Information, and in the preservation of the
confidential status of the Privileged Information, in each case relating to
the business of the Crane Group or the Company Group; and (iv) both Crane
and the Company intend that the transactions contemplated by the
Transaction Agreements and any transfer of Privileged Information in
connection therewith shall not operate as a waiver of any potentially
applicable privilege.
(b) Each of Crane and the Company agrees, on behalf of itself and each
member of the Group of which it is a member, not to disclose or otherwise
waive any privilege attaching to any Privileged Information relating to the
business of the Company Group or the Crane Group, respectively, without
providing prompt written notice to and obtaining the prior written consent
of the other, which consent will not be unreasonably withheld. In the event
of a disagreement between any member of the Crane Group and any member of
the Company Group concerning the reasonableness of withholding such
consent, no disclosure will be made prior to a final, nonappealable
resolution of such disagreement.
(c) Upon any member of the Crane Group or any member of the Company
Group receiving any subpoena or other compulsory disclosure notice from a
court, other Governmental Entity or otherwise that requests disclosure of
Privileged Information, in each case relating to the business of the
Company Group or the Crane Group, respectively, the recipient of the notice
will promptly provide to the other party (following the notice provisions
set forth herein) a copy of such notice, the intended response, and all
materials or information relating to the other Group that might be
disclosed. In the event of a disagreement as to the intended response or
disclosure, unless and until the disagreement is resolved as provided in
Section 5.1(b), the parties will cooperate to assert all defenses to
disclosure claimed by either Group, at the cost and expense of the Group
claiming such defense to disclosure, and shall not disclose any disputed
documents or information until all legal defenses and claims of privilege
have been finally determined.
Section 5.2 Production of Witnesses. Subject to Section 5.1, after the Time
of Distribution, each of Crane and the Company will, and will cause each member
of the Crane Group and the Company Group, respectively, to, make available to
the other party and its Subsidiaries, upon written request and at the cost and
expense of the party so requesting, its officers, employees and agents as
witnesses to the extent that any such Person may reasonably be required (giving
consideration to business demands of such Representatives) in connection with
any Actions or other proceedings in which the requesting party may from time to
time be involved, provided that the same shall not unreasonably interfere with
the conduct of business by the Group of which the request is made.
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Section 5.3 Retention of Records. Except as otherwise required by law or
agreed to in writing, if any Information relating to the business, assets or
Liabilities of a member of a Group is retained by a member of the other Group,
each of Crane and the Company will, and will cause the members of the Group of
which it is a member to, retain for the period required by the applicable Crane
records retention policy in effect immediately prior to the Time of Distribution
all such Information in such Group's possession or under its control. In
addition, after the expiration of such required retention period, if any member
of either Group wishes to destroy or dispose of any such Information, prior to
destroying or disposing of any of such Information, (1) Crane or the Company, on
behalf of the member of its Group that is proposing to dispose of or destroy any
such Information, will provide no less than 30 days' prior written notice to the
other party, specifying in reasonable detail the Information proposed to be
destroyed or disposed of, and (2) if, prior to the scheduled date for such
destruction or disposal, the recipient of such notice requests in writing that
any of the Information proposed to be destroyed or disposed of be delivered to
such requesting party, the party whose Group is proposing to dispose of or
destroy such Information promptly will arrange for the delivery of the requested
Information to a location specified by, and at the expense of, the requesting
party.
Section 5.4 Confidentiality. Subject to Section 5.1, which shall govern
Privileged Information, from and after the Time of Distribution, each of Crane
and the Company shall hold, and shall use reasonable efforts to cause its
Affiliates and Representatives to hold, in strict confidence all Information
concerning the other party's Group in its possession or control or furnished to
it by such other party's Group pursuant to the Transaction Agreements or the
transactions contemplated thereby and will not release or disclose such
Information to any other Person, except its Affiliates and Representatives, who
will be bound by the provisions of this Section 5.4; provided, however, that any
member of the Crane Group or the Company Group may disclose such Information to
the extent that (a) disclosure is compelled by judicial or administrative
process or, in the opinion of such Person's counsel, by other requirements of
law (in which case the party required to make such disclosure will notify the
other party as soon as practicable of such obligation or requirement and
cooperate with the other party to limit the Information required to be disclosed
and to obtain a protective order or other appropriate remedy with respect to the
Information ultimately disclosed), or (b) such Person can show that such
Information was (i) available to such Person on a nonconfidential basis (other
than from a member of the other party's Group) prior to its disclosure by such
Person, (ii) in the public domain through no fault of such Person or (iii)
lawfully acquired by such Person from another source after the time that it was
furnished to such Person by the other party's Group, and not acquired from such
source subject to any confidentiality obligation on the part of such source
known to the acquirer, or on the part of the acquirer. Each party acknowledges
that it will be liable for any breach of this Section 5.4 by its Representatives
to whom such Information is disclosed by such party. Notwithstanding the
foregoing, each of Crane and the Company will be deemed to have satisfied its
obligations under this Section 5.4 with respect to any
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Information (other than Privileged Information) if it exercises the same care
with regard to such Information as it takes to preserve confidentiality for its
own similar Information.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Entire Agreement; Construction. This Agreement, the Ancillary
Agreements and the Exchange Agreement, including, without limitation, any
annexes, schedules and exhibits hereto or thereto, and other agreements and
documents referred to herein and therein, will together constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and will supersede all prior negotiations, agreements and understandings
of the parties of any nature, whether oral or written, with respect to such
subject matter. Notwithstanding any other provisions in the Transaction
Agreements to the contrary, in the event and to the extent that there is a
conflict between the provisions of this Agreement and the provisions of the
Employee Matters Agreement or the Tax Allocation Agreement, the provisions of
the Employee Matters Agreement or the Tax Allocation Agreement, as appropriate,
will control.
Section 6.2 Survival of Agreements. Except as otherwise contemplated by the
Transaction Agreements, all covenants and agreements of the parties contained in
the Transaction Agreements will remain in full force and effect and survive the
Time of Distribution.
Section 6.3 Expenses. Except as otherwise set forth in any Transaction
Agreement and the Exchange Agreement, all costs and expenses incurred through
the Time of Distribution in connection with the Distribution, the preparation,
execution and delivery of the Transaction Agreements and the consummation of the
transactions contemplated thereby will be charged to and paid by Crane (other
than (i) the costs and expenses of the Company's credit facilities and other
financings and (ii) costs and expenses to the extent the same relate to
operations of the Building Products Business (whether the costs and expenses
described in clauses (i) or (ii) are incurred and/or paid before, at or after
the Time of Distribution), which costs and expenses described in clauses (i) and
(ii) will be charged to and paid by the Company). Except as otherwise set forth
in any Transaction Agreement or the Exchange Agreement, all costs and expenses
incurred following the Time of Distribution in connection with implementation of
the transactions contemplated by the Transaction Agreements will be charged to
and paid by the party for whose benefit the expenses are incurred, with any
expenses that cannot be allocated on such basis to be split equally between the
parties.
Section 6.4 Governing Law. This Agreement will be governed by and construed
in accordance with the internal laws of the State of Delaware applicable to
contracts made and to be performed entirely within such State, without regard to
the conflicts of law principles of such State.
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Section 6.5 Notices. All notices, requests, claims, demands and other
communications required or permitted to be given hereunder will be in writing
and will be delivered by hand or telecopied or sent, postage prepaid, by
registered, certified or express mail or reputable overnight courier service and
will be deemed given when so delivered by hand or telecopied, or three business
days after being so mailed (one business day in the case of express mail or
overnight courier service). All such notices, requests, claims, demands and
other communications will be addressed as set forth below, or pursuant to such
other instructions as may be designated in writing by the party to receive such
notice:
(a) If to Crane:
Crane Co.
100 First Stamford Place
Stamford, CT 06902
Attention: Corporate Secretary
Telecopy: (203) 363-7350
with a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, PA 15222-2312
Attention: Janice C. Hartman
Telecopy: (412) 355-6501
(b) If to the Company:
Huttig Building Products, Inc.
14500 South Outer Forty Road
Suite 400
Chesterfield, MO 63017
Attention: President
Telecopy: (314) 216-2601
Section 6.6 Consent to Jurisdiction. Each of Crane and the Company
irrevocably submits to the exclusive jurisdiction of (i) the Court of Chancery
in and for the State of Delaware and the Superior Court in and for the State of
Delaware and (ii) the United States District Court for the District of Delaware,
for the purposes of any suit, action or other proceeding arising out of the
Transaction Agreements or any transaction contemplated thereby (and agrees not
to commence any action, suit or proceeding relating thereto except in such
courts). Each of Crane and the Company further agrees that service of any
process, summons, notice or document hand delivered or sent by U.S. registered
mail to such party's respective address set forth in Section 6.5 will be
effective service of process for any action, suit or proceeding in Delaware with
respect to any matters to which it has submitted to jurisdiction as set forth in
the immediately preceding
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sentence. Each of Crane and the Company irrevocably and unconditionally waives
any objection to the laying of venue of any action, suit or proceeding arising
out of the Transaction Agreements or the transactions contemplated thereby in
(i) the Court of Chancery in and for the State of Delaware and the Superior
Court in and for the State of Delaware or (ii) the United States District Court
for the District of Delaware, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum.
Section 6.7 Amendments. This Agreement cannot be amended, modified or
supplemented except by a written agreement executed by Crane and the Company.
Section 6.8 Assignment. Neither party to this Agreement will convey, assign
or otherwise transfer any of its rights or obligations under this Agreement
without the prior written consent of the other party in its sole and absolute
discretion, except that other than as expressly provided herein any party may
(without obtaining any consent) assign any of its rights hereunder to a
successor to all or substantially all of its business. Any such conveyance,
assignment or transfer requiring the prior written consent of another party
which is made without such consent will be void ab initio. No assignment of this
Agreement will relieve the assigning party of its obligations hereunder.
Section 6.9 Captions; Currency. The article, section and paragraph captions
herein and the table of contents hereto are for convenience of reference only,
do not constitute part of this Agreement and will not be deemed to limit or
otherwise affect any of the provisions hereof. Unless otherwise specified, all
references herein to numbered articles or sections are to articles and sections
of this Agreement and all references herein to annexes or schedules are to
annexes and schedules to this Agreement. Unless otherwise specified, all
references contained in this Agreement, in any annex or schedule referred to
herein or in any instrument or document delivered pursuant hereto to dollars or
"$" shall mean United States Dollars.
Section 6.10 Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, will remain in full force and effect and will in no way be
affected, impaired or invalidated thereby. If the economic or legal substance of
the transactions contemplated hereby is affected in any manner adverse to any
party as a result thereof, the parties will negotiate in good faith in an effort
to agree upon a suitable and equitable substitute provision to effect the
original intent of the parties.
Section 6.11 Parties in Interest. This Agreement is binding upon and is for
the benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement is not made for the benefit of any Person not a party
hereto, and no Person other than the parties hereto or their respective
successors and permitted assigns will acquire or have any benefit, right, remedy
or claim under or by reason of this Agreement,
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except that the provisions of Sections 4.2 and 4.3 hereof shall inure to the
benefit of the Persons referred to therein.
Section 6.12 Schedules. All annexes and schedules attached hereto are
hereby incorporated in and made a part of this Agreement as if set forth in full
herein. Capitalized terms used in the schedules hereto but not otherwise defined
therein will have the respective meanings assigned to such terms in this
Agreement.
Section 6.13 Termination. Subject to the provisions of the Exchange
Agreement, this Agreement may be terminated and the Distribution abandoned at
any time prior to the Time of Distribution by and in the sole discretion of the
Crane Board without the approval of the Company or of Crane's stockholders. In
the event of such termination, no party will have any liability of any kind to
any other party on account of such termination other than as provided in the
Exchange Agreement.
Section 6.14 Waivers; Remedies. The conditions to Crane's obligation to
consummate the Distribution are for the sole benefit of Crane and may be waived
in writing by Crane in whole or in part in Crane's sole discretion. No failure
or delay on the part of either Crane or the Company in exercising any right,
power or privilege hereunder will operate as a waiver thereof, nor will any
waiver on the part of either Crane or the Company of any right, power or
privilege hereunder operate as a waiver of any other right, power or privilege
hereunder, nor will any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies which the parties may otherwise have at law or in equity.
Section 6.15 Further Assurances. From time to time after the Distribution,
as and when requested by either party hereto, the other party shall execute and
deliver, or cause to be executed and delivered, all such documents and
instruments and shall take, or cause to be taken, all such actions as the
requesting party may reasonably request to consummate the transactions
contemplated by the Transaction Agreements.
Section 6.16 Counterparts. This Agreement may be executed in separate
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts will together constitute the same agreement.
Section 6.17 Performance. Each party will cause to be performed and hereby
guarantees the performance of all actions, agreements and obligations set forth
herein to be performed by any Subsidiary or Affiliate of such party.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties as of the date first above written.
CRANE CO.
By:
------------------------------------
Name:
Title:
HUTTIG BUILDING PRODUCTS, INC.
By:
------------------------------------
Name:
Title:
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EXECUTION COPY
SHARE EXCHANGE AGREEMENT
AMONG
THE RUGBY GROUP PLC
CRANE CO.
AND
HUTTIG BUILDING PRODUCTS, INC.
DATED AS OF OCTOBER 19, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 CERTAIN DEFINITIONS 3
1.1 Certain Definitions 3
ARTICLE 2 THE TRANSACTIONS 6
2.1 Preliminary Actions 6
2.2 Share Exchange 6
2.3 Simultaneous Transactions 7
2.4 Closing 7
2.5 Deliveries at the Closing 7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF
PARENT AND THE COMPANY 9
3.1 Organization and Qualification; Subsidiaries 9
3.2 Certificate of Incorporation and By-Laws 9
3.3 Capitalization 10
3.4 Authority 11
3.5 No Conflict 11
3.6 Required Filings and Consents 11
3.7 Permits; Compliance with Law 12
3.8 SEC Filings; Financial Statements 13
3.9 Absence of Certain Changes or Events 14
3.10 Employee Benefits 15
3.11 Employment and Labor Matters 16
3.12 Contracts; Debt 17
3.13 Litigation 17
3.14 Environmental Matters 17
3.15 Intellectual Property 17
3.16 Taxes 19
3.17 Brokers 19
3.18 Certain Statutes 20
3.19 Vote Required 20
3.20 Investment 20
3.21 No Existing Discussions 20
3.22 Title to Assets 20
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF RUBY 21
4.1 Organization and Qualification; Subsidiaries 21
4.2 Certificate of Incorporation and By-Laws 22
4.3 Capitalization 22
4.4 Authority 22
4.5 No Conflict 23
4.6 Required Filings and Consents 24
4.7 Permits; Compliance with Law 24
4.8 SEC Filings; Financial Statements 24
4.9 Absence of Certain Changes or Events 25
4.10 Employee Benefits 26
4.11 Employment and Labor Matters 27
4.12 Contracts; Debt 28
4.13 Litigation 28
4.14 Environmental Matters 28
4.15 Intellectual Property 28
4.16 Taxes 29
4.17 Brokers 29
4.18 Certain Statutes 30
4.19 Vote Required 30
4.20 Investment 30
4.21 No Existing Discussions 30
4.22 Title to Assets 30
ARTICLE 5 COVENANTS 31
5.1 Conduct of Business of the Company 31
5.2 Conduct of Business of Rugby USA 33
5.3 Other Actions 36
5.4 Notification of Certain Matters 36
5.5 SEC Filings 36
5.6 Stockholders' Meeting 38
5.7 Access to Information; Confidentiality 38
5.8 Employee Benefits Matters 38
5.9 Directors' and Officers' Indemnification and Insurance 39
5.10 Reasonable Best Efforts 40
5.11 Consents; Filings; Further Action 40
5.12 Company Rights Plan 41
5.13 Public Announcements 41
5.14 Stock Exchange Listing 42
5.15 Expenses 42
5.16 Retention of Records; Cooperation in Litigation 42
5.17 Corporate Name 42
5.18 Intercompany Agreements 43
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5.19 Officers and Directors of the Company 43
5.20 Exclusivity 43
5.21 Best Efforts 44
5.22 Tax Payment 44
5.23 Return Filing and Preparation 44
5.24 Tax Refunds 44
ARTICLE 6 CONDITIONS TO CLOSING 44
6.1 Conditions Precedent to Obligation of Parent
to Consummate the Spin-Off 44
6.2 Conditions Precedent to Obligations of the Company and Rugby 45
6.3 Additional Conditions Precedent to Obligations of Rugby 46
6.4 Additional Conditions Precedent to Obligations of the Company 47
ARTICLE 7 INDEMNIFICATION 47
7.1 By Rugby 47
7.2 By Parent 48
7.3 Notice of Claim 48
7.4 Third Party Claims 48
7.5 Subrogation 49
7.6 Offset 49
ARTICLE 8 TERMINATION 49
8.1 Termination 49
8.2 Effect of Termination 51
8.3 Expenses Following Certain Termination Events 51
ARTICLE 9 BOARD ACTIONS 52
9.1 Rugby Board Actions 52
9.2 Parent Board Actions 52
ARTICLE 10 MISCELLANEOUS 53
10.1 Survival 53
10.2 Waiver 53
10.3 Assignment 54
10.4 Notices 55
10.5 Governing Law, Venue and Waiver of Jury Trial 55
10.6 Further Assurances 56
10.7 Severability 56
10.8 Counterparts 56
10.9 Construction 56
10.10 Entire Agreement; Amendment 56
10.11 No Third Party Beneficiaries 57
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EXHIBITS
Exhibit A Crane Fund Letter Agreement
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Transition Services Agreement
Exhibit D Form of Company Rights Plan
Exhibit E Form of Distribution Agreement
Exhibit F Form of Tax Allocation Agreement
Exhibit G Form of Employee Matters Agreement
ANNEXES
Annex 1 Excluded Assets and Liabilities of Rugby USA
Annex 2 Manner of disposition of Excluded Assets and Liabilities
Annex 3 List of persons for purposes of determining Knowledge
Annex 4 Terms and conditions of Company's use of the "Rugby Building
Products" name
Annex 5A Certain liabilities of Rugby USA
Annex 5B Certain liabilities of the Company
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Index of Additional Defined Terms
Terms Sections
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Acquisitions Facility Recital (h)
Acquisition Funding Amount 1.1
Acquisition Notes Recital (c)
Acquisition Notes Repayment Recital (c)
Additional SEC Documents 5.5(a)
Affiliate 1.1
Agreement Preamble
Amendment 5.5(a)
Benefit Plan 3.10(a)
Blue Sky Laws 3.6
Business Day 1.1
Circular 5.6
Claim 3.13
Claim Note 7.3(b)
Closing 2.4
Closing Date 2.4
Code 1.1
Company Preamble
Company Acquisition 3.21
Company Acquisition Proposal 5.20
Company Affiliate 3.10(a)
Company Common Stock Recital (b)
Company Critical Computer Systems 3.15(d)
Company Disclosure Letter Article 3-Preamble
Company Employees 3.10(a)
Company Intellectual Property 3.15(b)
Company Parties 7.1
Company Party 7.1
Company Permits 3.7
Company Plan 3.10(a)
Company Plans 3.10(a)
Company Restricted Stock 3.3(b)
Company Rights 3.3(b)
Company Rights Plan 3.3(a)
Company Stock Plan 3.3(b)
Company Subsidiaries 3.1(a)
Company Year 2000 Plan 3.15(d)
Confidentiality Agreement 5.7(b)
Contract 3.5(a)
Debt Financing 1.1
Election Period 7.4(a)
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Environmental Claim 3.14
Environmental Compliance Costs 1.1
Environmental Laws 1.1
ERISA 3.10(a)
Exchange Recital (b)
Exchange Act 1.1
Excluded Assets and Liabilities Recital (e)
Expenses 8.3(a)
Financing Commitments 1.1
Form 10 3.8(a)
GAAP 3.8(b)
Governmental Authority 1.1
HSR Act 3.6
Indemnified Party 7.3(a)
Indemnified Parties 5.9(a)
Indemnifying Party 7.3(a)
Intellectual Property 3.15(a)
Junior Preferred Stock 3.3(a)
Knowledge 1.1
Law 3.5(a)
Leases 3.22
Letter Agreement Recital (i)
Liens 3.3(c)
Loss 1.1
Mark Annex 4
Material Adverse Effect on Rugby USA 4.1(a)
Material Adverse Effect on the Company 3.1(a)
Multiemployer Plan 3.10(d)
New Company Shares 2.2
Parent Preamble
Parent Board 9.2
Parent Cash Amount 1.1
Parent Cash Repayment 2.1(g)
Parent Common Stock 3.3(a)
Parent Financial Advisor 3.17
Parent Note Recital (c)
Parent Note Repayment Recital (c)
Parent Preferred Stock 3.3(a)
Parties Preamble
Party Preamble
Person 1.1
Preliminary Actions 2.1(h)
Records 5.16(a)
Registration Rights Agreement Recital (i)
Representatives 5.7(a)
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Requisite Rugby Vote 4.4
Rugby Preamble
Rugby Board 5.6
Rugby Cash Amount 1.1
Rugby Cash Distribution 2.1(e)
Rugby Disclosure Letter Article 4-Preamble
Rugby Financial Advisors 4.17
Rugby Intercompany Amount 1.1
Rugby Note Recital (d)
Rugby Note Repayment Recital (d)
Rugby Shareholders Meeting 5.6
Rugby Tax Amount 1.1
Rugby USA Recital(b)
Rugby USA Acquisition 4.21
Rugby USA Acquisition Proposal 5.20
Rugby USA Affiliate 4.10(a)
Rugby USA Common Stock Recital (b)
Rugby USA Credit Line Balance 2.1(h)
Rugby USA Critical Computer Systems 4.15(c)
Rugby USA Employees 4.10(a)
Rugby USA Intellectual Property 4.15
Rugby USA Permits 4.7
Rugby USA Plan 4.10(a)
Rugby USA Plans 4.10(a)
Rugby USA Receivable Elimination Recital (f)
Rugby USA Shares 2.2
Rugby USA Subsidiaries 4.1(a)
Rugby USA Year 2000 Plan 4.15(c)
SEC 3.8(a)
Securities Act 1.1
SLB 4 5.5(a)
Spin-Off Recital (a)
Spin-Off Agreements 7.2
Spin-Off Ruling 1.1
Software 3.15(a)
Subsidiary 1.1
Superior Company Acquisition 9.2
Superior Rugby USA Acquisition 9.1
Takeover Statue 3.18
Tax 1.1
Taxes 1.1
Tax Sharing Agreement Amounts 1.1
Technology 3.15(a)
Term Annex 4
Termination Date 8.1(c)
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Territory Annex 4
Third Party Claim 7.4(a)
Transition Services Agreement Recital (i)
Total Cash Amount 1.1
Working Capital Facility Recital (h)
Year 2000 Compliant 3.15(d)
Year 2000 Compliance 3.15(d)
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SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (this "AGREEMENT") is entered
into as of this 19th day of October, 1999 among The Rugby Group PLC, a company
registered in England and Wales under company number 206971, and having its
registered office at Crown House, Rugby, CV212DT England ("RUGBY"), Crane Co., a
Delaware corporation ("PARENT"), and Huttig Building Products, Inc., a Delaware
corporation and an indirect wholly-owned subsidiary of Parent (the "COMPANY").
Rugby, Parent and the Company are referred to collectively herein as the
"PARTIES" and individually as a "PARTY."
RECITALS
a. The Board of Directors of each of Parent and the Company
have determined that it is in the best interests of Parent, the Company and
Parent's stockholders that, subject to the receipt of a Spin-Off Ruling from the
Internal Revenue Service, and the satisfaction of certain other conditions
precedent, Parent declare and make a dividend to its stockholders consisting of
all of the outstanding common stock of the Company, such that the Company will
become a separate publicly-held corporation owned directly by the stockholders
of Parent to whom such dividend is made (the "SPIN-OFF").
b. The Board of Directors of each of the Company and Rugby
have determined that it is in the best interest of their respective corporations
and stockholders that, subject to satisfaction of the terms and conditions
specified in this Agreement, following the Spin-Off, Rugby contribute to the
Company all of the outstanding Class A Common Shares, Class B Common Shares and
Class C Common Shares, each having a par value of $50.00 per share
(collectively, the "RUGBY USA COMMON STOCK") of Rugby's wholly-owned subsidiary,
Rugby USA, Inc., a Georgia corporation ("RUGBY USA"), and in exchange therefor,
the Company issue to Rugby a number of new shares of common stock of the
Company, par value $.01 per share ("COMPANY COMMON STOCK") as will constitute,
after giving effect to such issuance, 32% of the issued and outstanding Company
Common Stock, excluding, for purposes of calculating the 32%, the Company
Restricted Stock (as defined below) (such transactions being referred to,
collectively, as the "EXCHANGE").
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c. Prior to completion of the Spin-Off, the Company will issue
(i) a promissory note (the "PARENT NOTE") to Parent in a principal amount equal
to the Parent Cash Amount, in exchange for cancellation of a like principal
amount outstanding under the Company's existing note in favor of Parent, and
(ii) from time to time one or more promissory notes (the "ACQUISITION NOTES") in
the respective principal amounts of advances made by Parent to the Company to
fund asset acquisitions by the Company (but not to exceed an aggregate principal
amount of $15 million). Upon and simultaneous with the Exchange, the Company
shall repay to Parent all amounts then owing under the Parent Note (the "PARENT
NOTE REPAYMENT") and the Acquisition Notes (the "ACQUISITION NOTES REPAYMENT"),
which amounts shall be in full satisfaction of all obligations with respect to
all outstanding intercompany indebtedness owed by the Company to Parent.
d. Prior to completion of the Exchange, Rugby USA will declare
and make a distribution to Rugby consisting of a promissory note (the "RUGBY
NOTE"), payable by Rugby USA to Rugby, in a principal amount equal to the Rugby
Cash Amount. Upon and simultaneous with completion of the Exchange, the Company
shall, on behalf of Rugby USA (which then will be a wholly-owned subsidiary of
the Company), repay all amounts then owing under the Rugby Note to Rugby, which
amount shall be in full satisfaction of all obligations with respect to
intercompany indebtedness owed by Rugby USA to Rugby (the "RUGBY NOTE
REPAYMENT").
e. Prior to and as a condition to completion of the Exchange,
Rugby shall cause Rugby USA to dispose of the assets and liabilities described
on Annex 1 attached hereto (the "EXCLUDED ASSETS AND LIABILITIES") in a manner
described on Annex 2 attached hereto.
f. Prior to completion of the Exchange, Rugby shall take all
necessary actions to effect the elimination of the Rugby USA receivable from
Rugby of up to $9.0 million in respect of the proceeds of the sale by Rugby USA
of the stock of Pioneer Plastics Corporation without affecting the net cash
balances of Rugby USA (the "RUGBY USA RECEIVABLE ELIMINATION").
g. On the day prior to the Spin-Off, the Company will make the
Parent Cash Repayment (as defined below). On the day prior to the Closing Date,
Rugby USA will make the Rugby Cash Distribution (as defined below).
h. Prior to completion of the Spin-Off, the Company shall use
its best efforts to arrange financing reasonably satisfactory to Rugby with
banks or other financing sources to provide at Closing (i) a working capital
facility of $30 million or such other amount as the Board of Directors of the
Company shall determine to be necessary or desirable for the Company (the
"WORKING CAPITAL FACILITY"), (ii) an acquisitions facility of $20 million or
such other amount as the Board of Directors of the Company shall determine to be
necessary or desirable for the Company, but not less than the Acquisition
Funding Amount (as defined
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below) (the "ACQUISITIONS FACILITY"), and (iii) a credit facility or other
credit arrangements to fund the Parent Note Repayment and the Rugby Note
Repayment.
i. Simultaneous with the execution and delivery of this
Agreement by the Parties, Rugby and the Crane Fund are entering into a letter
agreement regarding certain matters relating to the governance of the Company
(the "LETTER AGREEMENT"), which shall become effective only upon the completion
of the Exchange A copy of the Letter Agreement is attached to this Agreement as
Exhibit A. At the Closing, Rugby and the Company shall enter into a Registration
Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT") in the form attached to
this Agreement as Exhibit B. At the Closing, Rugby and the Company shall enter
into a Transition Services Agreement (the "TRANSITION SERVICES AGREEMENT") in
the form attached to this Agreement as Exhibit C.
NOW, THEREFORE, in consideration of the promises and of the
mutual representations, warranties and covenants herein contained, and other
good and valuable consideration, the receipt of which are hereby acknowledged,
the Parties hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 Certain Definitions. Capitalized terms not otherwise
defined herein used in this Agreement shall, solely for purposes of this
Agreement, the Annexes attached hereto, the Company Disclosure Letter and the
Rugby USA Disclosure Letter, have the meanings ascribed to them in this Article
1. Capitalized terms defined elsewhere in this Agreement, in such Annexes and in
such disclosure letters are set forth in an "Index of Defined Terms" immediately
following the Table of Contents.
"ACQUISITION FUNDING AMOUNT" shall mean an amount equal to the
aggregate amount of funds (but not to exceed $15 million), if any, provided to
the Company by Parent by intercompany loan to fund certain asset acquisitions by
the Company.
"AFFILIATE" shall mean with respect to any Person, any other
Person which, directly or indirectly, controls, is controlled by, or is under a
common control with, such Person. The term "control" (including the terms
"controlled by" and "under common control with") as used in the preceding
sentence means the possession, directly or indirectly, of the power to direct or
cause the direction of management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
"BUSINESS DAY" shall mean any day other than a day on which
banks in the State of New York or in the United Kingdom are authorized or
obligated to be closed.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
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"DEBT FINANCING" shall mean the Working Capital Facility, the
Acquisitions Facility and the financing for the Total Cash Amount.
"ENVIRONMENTAL COMPLIANCE COSTS" means any Losses necessary to
cause a company's operations, real property, assets, equipment or facilities to
be in compliance with any and all requirements of Environmental Laws or
principles of common law relating to pollution, protection of the environment or
health and safety.
"ENVIRONMENTAL LAWS" means all Laws relating to pollution,
protection of the environment, responsibility for investigation or remediation
of contamination or damage to natural resources or health and safety.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
"FINANCING COMMITMENTS" shall mean commitments of banks or
other financing sources reasonably acceptable to the Parent and Rugby to provide
the Debt Financing.
"GOVERNMENTAL AUTHORITY" shall mean, collectively, the United
States, the United Kingdom, the European Union, any state, county, city, local,
provincial or other United States, United Kingdom, European Union or other
foreign political subdivision or any agency, commission, authority, tribunal,
court or instrumentality of any of the foregoing or any self-regulatory body.
"KNOWLEDGE" means, with respect to any Party, the actual
knowledge of the individuals listed under the name of such Party on Annex 3
attached hereto.
"LOSS" shall mean, collectively, all debts, liabilities,
losses, penalties, fines, assessments, settlements, judgments, costs (including,
but not limited to, remediation costs) and expenses.
"PARENT CASH AMOUNT" shall mean an amount equal to 68% of the
Total Cash Amount.
"PERSON" shall mean any individual, firm, partnership,
association, corporation, limited liability company, trust, entity, public body
or Governmental Authority.
"RUGBY CASH AMOUNT" shall mean an amount equal to 32% of the
Total Cash Amount.
"RUGBY TAX AMOUNT" shall mean Rugby USA's estimated U.S.
federal and state income taxes (within the meaning of Code Section 6655 and all
similar state statutes and
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determined without regard to Code Section 338(h)(13)) for the period beginning
January 1, 1999 and ending on the Closing Date.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and rules promulgated thereunder.
"SPIN-OFF RULING" shall mean a letter ruling from the U.S.
Internal Revenue Service, in form and substance satisfactory to Parent in its
reasonable judgment, substantially to the effect that the Spin-Off will be
treated as a tax-free distribution by Parent under section 355 of the Code.
"SUBSIDIARY" of a specified Person shall mean any corporation,
partnership, limited liability company, joint venture or other legal entity of
which the specified Person (either alone and/or through and/or together with any
other Subsidiary) owns, directly or indirectly, 50% or more of the stock or
other equity or partnership interests the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such legal entity or of which the specified Person controls the
management.
"TAX" or "TAXES" means any and all taxes, duties, levies,
imposts, or withholdings of any nature whatsoever (including, without
limitation, income, franchise, gross receipts, sales, rental, use, turnover,
value added, property (tangible or intangible), windfall profit, goods and
services, excise and stamp taxes), together with any and all assessments,
penalties, fines, additions and interest relating thereto, imposed by any taxing
authority (domestic or foreign).
"TAX SHARING AGREEMENT AMOUNTS" shall mean amounts, other than
amounts being contested in good faith, required to paid on or before the date of
this Agreement with respect to Taxes as a result of any tax sharing agreement or
similar arrangement.
"TOTAL CASH AMOUNT" shall mean the maximum amount of Company
financing (i) that is determined by Parent, when taken in combination with the
Working Capital Facility and the Acquisitions Facility, to be consistent with a
rating of not less than NAIC-2 for the Company's indebtedness and (ii) that is
in fact available to be drawn down by the Company simultaneous with completion
of the Exchange. It is the expectation of the Parties, but not a condition to
the transactions contemplated hereunder, that the Total Cash Amount will be at
least $100 million. The Parties also expressly acknowledge that the Total Cash
Amount contemplated in the Financing Commitments may differ from the actual
Total Cash Amount included in the Debt Financing at the Closing.
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ARTICLE 2
THE TRANSACTIONS
2.1 Preliminary Actions. Subject to the terms and conditions
set forth in this Agreement, prior to the consummation of the Exchange, the
following actions shall be taken:
(a) The Company shall obtain the Financing Commitments.
(b) Parent shall cause the Company to issue the Parent
Note.
(c) Rugby shall cause Rugby USA to declare and make a
distribution to Rugby consisting of the Rugby Note.
(d) Rugby shall, and shall cause Rugby USA to, complete
the disposition of the Excluded Assets and Liabilities in the manner set forth
on Annex 2 to this Agreement.
(e) Rugby shall effect the Rugby USA Receivable
Elimination.
(f) As promptly as practicable (but in no event more than
five business days) following the satisfaction or waiver of all of the
conditions set forth in Section 6.1, Parent shall establish a record date for
purposes of determining the stockholders of Parent entitled to receive the
Company Common Stock in the Spin-Off, declare the dividend of the Company Common
Stock, notify the New York Stock Exchange, Inc. of such declaration and fix a
date agreed to by Rugby upon which the Spin-Off will be consummated.
(g) On the day prior to the date on which the Spin-Off is
consummated, the Company will repay to Parent (the "PARENT CASH REPAYMENT") in
reduction of outstanding intercompany indebtedness the Company's net cash
balance on hand at the close of the business on such date.
(h) On the day prior to the date on which the Exchange is
consummated, Rugby USA will (i) make a distribution (the "RUGBY CASH
DISTRIBUTION") to Rugby of Rugby USA's net cash balance on hand at the close of
business on such date less any amount outstanding at such time under Rugby USA's
existing third party working capital line of credit (the "RUGBY USA CREDIT LINE
BALANCE"), and (ii) repay the Rugby USA Credit Line Balance.
The actions contemplated by this Section 2.1 of this Agreement shall be
collectively referred to herein as the "PRELIMINARY ACTIONS."
2.2 Share Exchange. Subject to the terms and conditions set
forth in this Agreement, as soon as practicable following the consummation of
the Spin-Off and
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simultaneous with the consummation of the transactions described in Section 2.3,
(a) Rugby shall transfer and assign to the Company, free and clear of all Liens,
all of its right, title and interest in and to all issued and outstanding shares
of Rugby USA Common Stock (the "RUGBY USA SHARES") and (b) Rugby shall subscribe
for and the Company shall issue to Rugby, free and clear of all Liens, a number
of shares of Company Common Stock that, after giving effect to the Exchange
constitutes 32% of the issued and outstanding shares of Company Common Stock
excluding, for purposes of calculating the 32%, the Company Restricted Stock
(the "NEW COMPANY SHARES"), together with one Company Right for each New Company
Share issued to Rugby.
2.3 Simultaneous Transactions. Subject to the terms and
conditions set forth in this Agreement, simultaneous with the consummation of
the Exchange, the following transactions shall be consummated:
(a) The Company shall consummate the Debt Financing.
(b) The Company shall make the Parent Note Repayment and
the Acquisition Notes Repayment by paying to Parent, by wire transfer pursuant
to written wire transfer instructions provided to the Company by Parent, in
immediately available funds, an amount equal to the Parent Cash Amount plus the
Acquisition Funding Amount and thereupon the Parent Note and the Acquisition
Notes, having been fully satisfied, shall be canceled and all obligations
thereunder extinguished.
(c) The Company shall make the Rugby Note Repayment by
paying to Rugby, by wire transfer pursuant to written wire transfer instructions
provided to the Company by Rugby, in immediately available funds, an amount
equal to the Rugby Cash Amount and thereupon the Rugby Note, having been fully
satisfied, shall be canceled and all obligations thereunder extinguished.
2.4 Closing. The closing of the transactions contemplated by
Sections 2.2 and 2.3 of this Agreement (the "CLOSING") shall take place at the
offices of Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York at 10:00
a.m., New York City time, on the day following the day on which the Spin-Off is
consummated, or at such other time as the Parties shall agree in writing. The
date upon which the Closing occurs shall be referred to herein as the "CLOSING
DATE."
2.5 Deliveries at the Closing.
(a) At the Closing, Rugby will, or will cause Rugby USA
to, deliver to the Company:
(i) written evidence satisfactory to Parent and the
Company, in their reasonable judgment, of the consummation of the Preliminary
Actions to be completed by Rugby or Rugby USA, as contemplated by Section 2.1
(with a copy to Parent);
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(ii) the certificate of an executive officer of Rugby
required to be delivered to the Company and Parent by Rugby pursuant to Section
6.4 of this Agreement (with a copy to Parent);
(iii) stock certificates representing all of the Rugby
USA Shares endorsed in blank or accompanied by one or more duly executed stock
powers;
(iv) the Rugby Note, marked to indicate that it has
been canceled; and
(v) a copy, executed by a duly authorized officer of
Rugby, of each of the Registration Rights Agreement and the Transition Services
Agreement.
(b) At the Closing, the Company and Parent will deliver to
Rugby:
(i) written evidence satisfactory to Rugby, in its
reasonable judgment, of the consummation of the Spin-Off and the other
Preliminary Actions to be completed by Parent or the Company, as contemplated by
Section 2.1;
(ii) the certificates of executive officers of each of
the Company and Parent required to be delivered to Rugby by the Company and
Parent, respectively, pursuant to Section 6.3 of this Agreement;
(iii) in respect of the Company only, stock
certificates representing all of the New Company Shares, issued in the name of
Rugby;
(iv) in respect of the Company only, by wire transfer,
as specified in Section 2.3(c), the Rugby Note Repayment;
(v) the Parent Note and the Acquisition Notes, if any,
each marked to indicate that it has been canceled; and
(vi) in respect of the Company only, a copy, executed
by a duly authorized officer of the Company, of each of the Registration Rights
Agreement and the Transition Services Agreement.
(c) At the Closing, the Company will deliver to Parent by
wire transfer, as specified in Section 2.3(b), the Parent Note Repayment and the
Acquisition Notes Repayment.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE COMPANY
Each of Parent and the Company hereby represents and warrants
to Rugby as follows, subject and except with respect to the matters set forth in
the disclosure letter delivered by Parent and the Company to Rugby on the date
hereof (the "COMPANY DISCLOSURE LETTER") and, provided that the disclosures made
on any section of the Company Disclosure Letter with respect to any
representation or warranty shall be deemed to be made with respect to any other
representation or warranty requiring the same or similar disclosure to the
extent that the relevance of such disclosure to other representations and
warranties is evident from the face of the applicable section of the Company
Disclosure Letter:
3.1 Organization and Qualification; Subsidiaries.
(a) Each of Parent and the Company and each Subsidiary of
the Company (collectively, the "COMPANY SUBSIDIARIES") has been duly organized
and is validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization, as the case may be, and has the requisite
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted. Each of the Company and each Company Subsidiary is duly qualified or
licensed to do business, and is in good standing, in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that, individually
or in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on the Company. For purposes of this
Agreement, "MATERIAL ADVERSE EFFECT ON THE COMPANY" means any change in or
effect on the business, assets, properties, results of operations or financial
condition of the Company or any Company Subsidiary that is or could reasonably
be expected to be materially adverse to the Company and the Company
Subsidiaries, taken as a whole, or that could reasonably be expected to
materially impair the ability of Parent or the Company to perform in any
material respect their respective obligations under this Agreement or, with
respect to the Company or the Registration Rights Agreement or consummate the
transactions contemplated hereby or, with respect to the Company, thereby.
(b) The Company Disclosure Letter sets forth a complete
and correct list of all of the Company Subsidiaries. Neither the Company nor any
Company Subsidiary holds any equity interest in any Person other than the
Company Subsidiaries so listed.
3.2 Certificate of Incorporation and By-Laws. The copies of
each of Parent's and the Company's certificate of incorporation and by-laws,
each as amended through the date of this Agreement, which, in the case of
Parent, are incorporated by reference in Parent's annual report on Form 10-K for
the year ended December 31, 1998 and which, in the case of the Company, have
been previously delivered by Parent or the Company to Rugby, are
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complete and correct copies of those documents. The respective certificates of
incorporation and by-laws of Parent and the Company and all comparable corporate
organizational documents of the Company Subsidiaries are in full force and
effect. Neither Parent nor the Company is in violation of any of the provisions
of its certificate of incorporation or by-laws.
3.3 Capitalization.
(a) The authorized capital stock of the Company consists
of (i) 50,000,000 shares of Company Common Stock and (ii) 5,000,000 shares of
preferred stock, par value $.01 per share, of which 200,000 shares will be
designated as Series A Junior Participating Preferred Stock ("JUNIOR PREFERRED
STOCK") and will be reserved for issuance in connection with the Rights
Agreement (the "COMPANY RIGHTS PLAN"), to be entered into between the Company
and the rights agent thereunder prior to the Spin-Off. As of the date of this
Agreement, (A) 1,000,000 shares of Company Common Stock were issued and
outstanding, all of which shares are owned beneficially and of record by Parent
and (B) no shares of preferred stock were issued or outstanding. Except as
described above in this Section 3.3(a) there are no shares of capital stock of
the Company authorized, issued or outstanding. The authorized capital stock of
Parent consists of 200,000,000 shares of common stock, par value $1.00 per share
("PARENT COMMON STOCK"), and 5,000,000 shares of preferred stock, par value $.01
per share ("PARENT PREFERRED STOCK"). On October 15, 1999, 66,396,862 shares of
Parent Common Stock were issued and outstanding and no shares of Parent
Preferred Stock were issued or outstanding. The Company has and will have as of
the time of the Spin-Off and the Closing, a sufficient number of authorized
shares to consummate the Spin-Off and the Exchange.
(b) Upon consummation of the Spin-Off, restricted shares
of Parent Common Stock held by employees of the Company will be canceled and
replaced by restricted shares of Company Common Stock of equivalent value (the
"COMPANY RESTRICTED STOCK") granted under a stock option and restricted stock
plan to be adopted by the Company ("COMPANY STOCK PLAN"). Except as specifically
contemplated by this Agreement and except for (i) the Company Restricted Stock
referred to above and options to purchase shares of Company Common Stock
aggregating not more than 4% of the outstanding Company Common Stock immediately
following the Exchange to be granted to employees of the Company pursuant to the
Company Stock Plan on or about the Closing Date and (ii) the rights to purchase
shares of Junior Preferred Stock (the "COMPANY RIGHTS") to be issued in
connection with the Company Rights Plan to the Company's shareholders upon
consummation of the Spin-Off and to Rugby in connection with the Exchange, there
are no options, warrants, conversion rights, stock appreciation rights,
redemption rights, repurchase rights or other rights, agreements, arrangements
or commitments of any character to which the Company or Parent is a party or by
which the Company or Parent is bound relating to the issued or unissued capital
stock of the Company or any Company Subsidiary or obligating Parent or the
Company or any Company Subsidiary to issue or sell any shares of capital stock
of, or other equity interests in, the Company or any Company Subsidiary. The
Company Disclosure Letter sets forth, as of the date of this Agreement, (x) the
number of shares of restricted Parent Common Stock outstanding and held by
employees of the Company, (y) the vesting schedule
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for such shares and (z) the conversion formula for issuing Company Restricted
Stock in replacement of such shares. None of the Company Stock Options which are
subject to vesting will vest as a result of the consummation of the transactions
contemplated by this Agreement.
(c) All New Company Shares, upon issuance to Rugby at
Closing, will be free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on voting
rights, charges and other encumbrances of any nature whatsoever (collectively,
"LIENS"), except as set forth in the Registration Rights Agreement, and will be
duly authorized, validly issued, fully paid and nonassessable and will not be
subject to preemptive rights. The New Company Shares will, after giving effect
to the Spin-Off and the Exchange, constitute 32% of the issued and outstanding
shares of Company Common Stock, excluding, for purposes of calculating the 32%,
Restricted Company Stock. There are no outstanding contractual obligations of
Parent, the Company or any Company Subsidiary to repurchase, redeem or acquire
any shares of Company Common Stock or any capital stock of any Company
Subsidiary. Each outstanding share of capital stock of each Company Subsidiary
is duly authorized, validly issued, fully paid, nonassessable and not subject to
preemptive rights and each such share owned by the Company or a Company
Subsidiary is free and clear of all Liens.
3.4 Authority. Each of Parent and the Company has all
necessary corporate power and authority to execute and deliver this Agreement
and, in the case of the Company, the Registration Rights Agreement and the
Transition Services Agreement, to perform its obligations under this Agreement
and, in the case of the Company, the Registration Rights Agreement and the
Transition Services Agreement and to consummate the Spin-Off, the Exchange and
the other transactions contemplated by this Agreement and the Registration
Rights Agreement (if it is a party thereto) and the Transition Services
Agreement (if it is a party thereto). The execution and delivery of this
Agreement by Parent and the Company and the Registration Rights Agreement and
the Transition Services Agreement by the Company and the consummation by Parent
and the Company of the transactions contemplated hereby and, in the case of the
Company, thereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Parent or the
Company are necessary to authorize this Agreement, the Registration Rights
Agreement and the Transition Services Agreement or to consummate such
transactions, except that the Spin-Off has not been declared by the Board of
Directors of Parent. This Agreement has been duly authorized and validly
executed and delivered by Parent, and constitutes a legal, valid and binding
obligation of Parent, enforceable against Parent in accordance with its terms.
3.5 No Conflict.
(a) The execution and delivery of this Agreement by Parent
and the Company, and of the Registration Rights Agreement and the Transition
Services Agreement by the Company do not, and the performance of this Agreement
by Parent and the Company and of the Registration Rights Agreement and the
Transition Services Agreement by the Company will not:
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(i) conflict with or violate any provision of Parent's
or the Company's certificate of incorporation or by-laws or any equivalent
organizational documents of any Company Subsidiary;
(ii) assuming that all consents, approvals,
authorizations and other actions described in Section 3.6 have been obtained and
all filings and obligations described in Section 3.6 have been made, conflict
with or violate any foreign or domestic law, statute, ordinance, rule,
regulation, order, judgment or decree ("LAW") applicable to Parent, the Company
or any Company Subsidiary or by which any property or asset of Parent, the
Company or any Company Subsidiary is or may be bound or affected, except for any
such conflicts or violations that, individually or in the aggregate, have not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on the Company; or
(iii) result in any breach of or constitute a default
(or an event which with or without notice or lapse of time or both would become
a default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien on any
property or asset of Parent, the Company or any Company Subsidiary under any
note, bond, mortgage, indenture, contract, agreement, commitment, lease,
license, permit, franchise or other instrument or obligation (collectively,
"CONTRACT") to which Parent, the Company or any Company Subsidiary is a party or
by which any of them or their assets or properties is or may be bound or
affected, except for such breaches, defaults or other occurrences which,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on the Company.
(b) The Company Disclosure Letter sets forth a correct and
complete list of Contracts to which Parent, the Company or any Company
Subsidiary is a party or by which they or their assets or properties is or may
be bound or affected under which consents or waivers are or may be required
prior to consummation of the transactions contemplated by this Agreement, the
failure of which to be obtained, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect on the Company.
3.6 Required Filings and Consents. The execution and delivery
of this Agreement by the Company or Parent, and the Registration Rights
Agreement and the Transition Services Agreement by the Company, do not, and the
performance of this Agreement by the Company or Parent, and of the Registration
Rights Agreement and the Transition Services Agreement by the Company, will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, except (i) for applicable
requirements of the Exchange Act, applicable requirements of the Securities Act,
applicable requirements of state securities or "blue sky" laws ("BLUE SKY
LAWS"), the rules and regulations of the New York Stock Exchange, Inc., the
pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR ACT"), and receipt of the Spin-Off Ruling and (ii) where
failure to obtain such consents, approvals,
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authorizations or permits, or to make such filings or notifications,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on the Company.
3.7 Permits; Compliance with Law. Each of the Company and the
Company Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Authority necessary for the Company or
any Company Subsidiary to own, lease and operate its properties or to carry on
its business as it is now being conducted (collectively, the "COMPANY PERMITS"),
except where the failure to have, or the suspension or cancellation of, any of
the Company Permits, individually or in the aggregate, has not resulted and
could not reasonably be expected to result in a Material Adverse Effect on the
Company, and, as of the date of this Agreement, no suspension or cancellation of
any of the Company Permits is pending or, to the knowledge of Parent or the
Company, threatened, except where the failure to have, or the suspension or
cancellation of, any of the Company Permits, individually or in the aggregate,
has not resulted and could not reasonably be expected to result in a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary is
in conflict with, or in default or violation of, (i) any Law applicable to the
Company or any Company Subsidiary or by which any property or asset of the
Company or any Company Subsidiary is or may be bound or affected or (ii) any
Company Permits, except for any such conflicts, defaults or violations that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on the Company.
3.8 SEC Filings; Financial Statements.
(a) The Registration Statement on Form 10 filed by the
Company under the Exchange Act in connection with the Spin-Off (the "FORM 10"),
as the same may be amended or supplemented from time to time (together with each
other filing made or to be made by Parent, with respect to the Spin-Off, or by
the Company under the Securities Act or the Exchange Act with the U.S.
Securities and Exchange Commission (the "SEC") on or prior to the Closing),
including any financial statements or schedules included or incorporated therein
by reference, (i) complies with the requirements of the Exchange Act applicable
to the Form 10 (and the requirements of the Securities Act and/or the Exchange
Act applicable to each such other document) and (ii) other than information
provided by Rugby or Rugby USA for inclusion in the Form 10, does not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated or necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
Upon completion of the Spin-Off and the Exchange, Parent and the Company shall
have made all filings required to be made in connection therewith pursuant to
the Securities Act and the Exchange Act, other than a Form 8-K relating to the
Spin-Off and the Form 8-K to be filed in connection with consummation of the
Exchange, which shall be filed at the times required by Form 8-K under the
Exchange Act.
(b) The consolidated balance sheets of the Company
included or incorporated by reference in the Form 10 (and, if applicable, in
each such other document
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referred to in Section 3.8(a)) (including the related notes and schedules)
fairly presented or will fairly present, in all material respects, the
consolidated financial position of the Company as of the dates set forth in that
consolidated balance sheet. The consolidated statements of income and of cash
flows of the Company included or incorporated by reference in the Form 10 (and,
if applicable, in each such other document referred to in Section 3.8(a))
(including any related notes and schedules) fairly presented or will fairly
present, in all material respects, the consolidated results of operations and
cash flows, as the case may be, of the Company for the periods set forth in
those consolidated statements of income and of cash flows (subject, in the case
of unaudited quarterly statements, to notes and normal year-end audit
adjustments that will not be material in amount or effect), in each case in
conformity with United States generally accepted accounting principles ("GAAP")
(except, in the case of unaudited quarterly information, as permitted by Form
10-Q) consistently applied throughout the periods indicated.
(c) Except as and to the extent set forth on the
consolidated balance sheet of the Company at September 30, 1999 set forth in the
Form 10, including the related notes, neither the Company nor any Company
Subsidiary has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on a
balance sheet or in the related notes prepared in accordance with GAAP, except
for liabilities or obligations incurred in the ordinary course of business since
September 30, 1999, that, individually or in the aggregate, have not resulted
and could not reasonably be expected to result in a Material Adverse Effect on
the Company.
3.9 Absence of Certain Changes or Events. Since September 30,
1999, the Company and the Company Subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
since such date, except for the transactions contemplated by this Agreement,
including, without limitation, the Spin-Off, any increase in the Parent
Receivable and the Parent Receivable Repayment there has not been:
(a) any Material Adverse Effect on the Company;
(b) any damage, destruction or other casualty loss with
respect to any asset or property owned, leased or otherwise used by it or any
Company Subsidiaries, whether or not covered by insurance, which damage,
destruction or loss, individually or in the aggregate, has resulted or could
reasonably be expected to result in a Material Adverse Effect on the Company;
(c) any material change by the Company in its or any
Company Subsidiary's accounting methods, principles or practices; or
(d) any declaration, setting aside or payment of any
dividend or distribution in respect of shares of Company Common Stock or any
redemption, purchase or other acquisition of any of the Company's securities.
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<PAGE>
3.10 Employee Benefits.
(a) Neither the Company nor any Company Subsidiary or
Parent or any other trade or business, whether or not incorporated, that would
be considered a single employer with any of the foregoing pursuant to Section
414(b), (c), (m), or (o) of the Code (a "COMPANY AFFILIATE") maintains or
contributes to or has any obligation to contribute to, or has any direct or
indirect liability, whether contingent or otherwise, under any Benefit Plan, in
which any employees of the Company or any Company Subsidiary (the "COMPANY
EMPLOYEES") participate or accrue or have accrued any rights (individually, a
"COMPANY PLAN," and collectively, the "COMPANY PLANS"). The term "BENEFIT PLAN"
shall mean any plan, program, arrangement, agreement or commitment which is an
employment, consulting or deferred compensation agreement, or an executive
compensation, incentive bonus or other bonus, employee pension, profit-sharing,
savings, retirement, stock option, stock purchase, severance pay, life, health,
disability or accident insurance plan, or vacation, or other employee benefit
plan, program, arrangement, agreement or commitment, including, without
limitation, any "employee benefit plan" as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Neither the Company nor any Company Affiliate
maintains or contributes to, or has within the preceding six years maintained or
contributed to, or has had during such period the obligation to maintain or
contribute to, or may have any liability that could reasonably be expected to
result in a Material Adverse Effect on the Company with respect to, any Company
Plan subject to Title IV of ERISA or Section 412 of the Code or any "multiple
employer plan" within the meaning of the Code or ERISA.
(c) With respect to each Company Plan, and except as
could not reasonably be expected to result in a Material Adverse Effect on the
Company (A) all payments due from the Company or any Company Affiliate to date
have been made when due and all amounts properly accrued to date or as of the
date of Closing as liabilities of the Company which have not been paid have been
properly recorded on the books of the Company; and (B) no event has occurred in
connection with which the Company or any Company Affiliate or any Company Plan,
directly or indirectly, could be subject to any material liability under ERISA,
the Code or any other law, regulation or governmental order applicable to any
Company Plan, including, without limitation, Section 406, 409, 502(i), 502(l) or
4069 of ERISA, or Section 4971, 4975 or 4976 of the Code.
(d) Section 3.10(d) of the Company Disclosure Letter
contains a true and complete list of each multiemployer plan (as defined in
Section 4001(a)(3) of ERISA) (a "MULTIEMPLOYER PLAN") to which the Company or
any Company Affiliate has now or in the past six years has had any liability or
obligation to contribute, and (A) none of the Company or any Company Affiliates
have incurred any withdrawal liability under Title IV of ERISA which remains
unsatisfied as of the date hereof, and (B) to the Company's knowledge, no such
Multiemployer Plan is in reorganization or insolvent (as defined in Sections
4241 and 4245 of ERISA, respectively).
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<PAGE>
(e) With respect to each Company Plan, and except as
could not reasonably be expected to result in a Material Adverse Effect on the
Company, (A) the Company and each Company Affiliate has complied with, and each
such Company Plan conforms in form and operation to, all applicable laws and
regulations, including, but not limited to, ERISA and the Code; (B) each such
Company Plan which is an "employee pension benefit plan" (as defined in Section
3(2) of ERISA) and intended to qualify under Section 401 of the Code has
received a favorable determination letter from the Internal Revenue Service with
respect to such qualification, its related trust has been determined to be
exempt from taxation under Section 501(a) of the Code, and nothing has occurred
since the date of such letter that has or is likely to adversely affect such
qualification or exemption; and (C) there are no actions, suits or claims
pending (other than routine claims for benefits) or threatened with respect to
such Company Plan or against the assets of such Company Plan.
(f) With respect to each Company Plan, the Company has
made available to Rugby a current, accurate and complete copy (or, to the extent
no such copy exists, an accurate description) thereof and, to the extent
applicable: (A) any related trust agreement or other funding instrument; (B) the
most recent IRS determination letter, if applicable; (C) any summary plan
description, if applicable, and for the most recent year (x) the Form 5500 and
attached schedules, (y) audited financial statement and (z) actuarial valuation
reports.
(g) The completion of the transactions contemplated
herein will not entitle any Company Employee or former employee to any payments
or provide any acceleration of payments or provide any other rights to any
Company Employee or former employee, whether or not such payment would
constitute a parachute payment within the meaning of Code Section 280G.
3.11 Employment and Labor Matters.
(a) Neither the Company nor any Company Affiliate is a
party to any collective bargaining agreements and there are no labor unions or
other organizations representing, purporting to represent, or attempting to
represent, any Company Employee. There are no strikes or lockouts affecting the
Company with respect to any collective bargaining units representing any Company
Employee.
(b) Neither the Company nor any Company Affiliate has
violated any provision of federal or state law or any governmental rule or
regulation, or any order, decree, judgment or arbitration award of any court,
arbitrator or any government agency regarding the terms and conditions of
employment of employees, former employees or prospective employees or other
labor related matters, including, without limitation, laws, rules, regulations,
orders, rulings, decrees, judgments and awards relating to discrimination, fair
labor standards and occupational health and safety, wrongful discharge or
violation of the personal rights of employees, former employees or prospective
employees where the violation has resulted or could reasonably be expected to
result in a Material Adverse Effect on the Company.
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<PAGE>
3.12 Contracts; Debt. Except for the Contracts listed in
Section 3.12 of the Company Disclosure Letter, there is no Contract that is
material to the business, financial condition or results of operations of the
Company and the Company Subsidiaries, taken as a whole. Neither the Company nor
any Company Subsidiary is in violation of or in default under (nor does there
exist any condition which with the passage of time or the giving of notice would
cause such a violation of or default under) any Contract to which it is a party
or by which it or any of its properties or assets is or may be bound or
affected, except for violations or defaults that, individually or in the
aggregate, have not resulted and could not reasonably be expected to result in a
Material Adverse Effect on the Company. Other than (x) the indebtedness to be
incurred by the Company in the Debt Financing, (y) the Parent Receivable and (z)
after giving effect to the Exchange, the Rugby Note, the Company and the Company
Subsidiaries will as of the Closing Date, after giving effect to transactions
contemplated by this Agreement, have no outstanding indebtedness for borrowed
money.
3.13 Litigation. There is no suit, claim, action, proceeding
or investigation (collectively, "CLAIM") pending or, to the knowledge of the
Company or Parent, threatened against Parent, the Company or any Company
Subsidiary before any Governmental Authority that, individually or in the
aggregate, has resulted or could reasonably be expected to result in a Material
Adverse Effect on the Company. None of Parent, the Company and any Company
Subsidiary is subject to any outstanding order, writ, injunction or decree
which, individually or in the aggregate, has resulted or could reasonably be
expected to result in a Material Adverse Effect on the Company.
3.14 Environmental Matters. Except as has not resulted in and
could not reasonably be expected to result in a Material Adverse Effect on the
Company, (i) the Company and the Company Subsidiaries are and have been in
compliance with all applicable Environmental Laws; (ii) there is no Claim
pursuant to Environmental Laws or principles of common law relating to
pollution, protection of the environment, responsibility for investigation or
remediation of contamination or damage to natural resources or health and safety
(an "ENVIRONMENTAL CLAIM") pending or threatened against the Company or any of
the Company Subsidiaries; (iii) there is no civil, criminal or administrative
judgment or notice of violation outstanding against the Company or any of the
Company Subsidiaries pursuant to Environmental Laws or principles of common law
relating to pollution, protection of the environment, responsibility for
investigation or remediation of contamination or damage to natural resources or
health and safety; and (iv) there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions or plans which may
prevent compliance of the Company or any of the Company Subsidiaries with
Environmental Laws, or which have given rise to or could reasonably be expected
to give rise to an Environmental Claim against the Company or any of the Company
Subsidiaries or to Environmental Compliance Costs incurred by the Company or any
of the Company Subsidiaries.
3.15 Intellectual Property.
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(a) For purposes of this Agreement, "INTELLECTUAL
PROPERTY" means all of the following as they exist in all jurisdictions
throughout the world: (i) patents, patent applications, and other patent rights;
(ii) trademarks, service marks, trade dress, trade names, brand names, Internet
domain names, designs, logos, or corporate names, whether registered or
unregistered, and all registrations and applications for registration thereof;
(iii) copyrights, including all renewals and extensions, copyright registrations
and applications for registration, and non-registered copyrights; (iv) trade
secrets, concepts, ideas, designs, research, processes, procedures, techniques,
methods, know-how, data, mask works, discoveries, inventions, modifications,
extensions, improvements, and other proprietary rights (whether or not
patentable or subject to copyright, mask work, or trade secret protection)
(collectively, "TECHNOLOGY"); and (v) computer software programs, including all
source code, object code, and documentation related thereto (the "SOFTWARE").
(b) The Company owns, free and clear of all Liens, or has
the unrestricted right to use, sell, or license, all Intellectual Property
necessary to operate the business of the Company and the Company Subsidiaries as
it is currently conducted ("COMPANY INTELLECTUAL PROPERTY"), except where the
absence of ownership, free and clear of all Liens, or of such rights,
individually or in the aggregate, has not resulted and could not reasonably be
expected to result in a Material Adverse Effect on the Company.
(c) None of Parent, the Company and any Company
Subsidiary has been, during the three years preceding the date of this
Agreement, a party to any Claim, nor, to the knowledge of Parent or the Company,
is any Claim threatened, that challenges the validity, enforceability,
ownership, or right to use, sell, or license any Company Intellectual Property,
except for Claims that, individually or in the aggregate, have not resulted and
could not reasonably be expected to result in a Material Adverse Effect on the
Company. To the Knowledge of Parent and the Company, no third party is
infringing upon any Company Intellectual Property, except for infringements
that, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on the Company.
(d) As part of the Company's Year 2000 project, the
Company has established a written plan concerning the Year 2000 Compliance of
all Company Critical Computer Systems (the "COMPANY YEAR 2000 PLAN"), details of
which have been disclosed to Rugby. The Company Year 2000 Plan was established
with the intention that the Company Critical Computer Systems would, before, on
and following January 1, 2000, be Year 2000 Compliant in all material respects.
To date the Company has implemented the Company Year 2000 Plan (insofar as it
relates to the Company Critical Computer Systems) with reasonable skill and care
and to the Knowledge of Parent and the Company there is no reason or
circumstance why the Company Year 2000 Plan may not be fully implemented in all
material respects prior to January 1, 2000; provided, that (i) the Company and
each of the Company Subsidiaries undertakes the action which is anticipated of
it under the Company Year 2000 Plan after the date hereof in a timely manner and
with reasonable skill and care, and (ii) no warranty is given that the Company
Critical Computer Systems will be Year 2000 Compliant. For the purposes of this
Agreement:
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(x) "YEAR 2000 COMPLIANT" means that neither performance
nor functionality is or will be affected by dates
prior to, during or after the year 2000 and in
particular (but without limitation):
(A) no value for current date causes or will
cause any interruption in operation;
(B) date-based functionability behaves and
will behave consistently for dates prior
to, during and after the year 2000;
(C) in all interfaces and data storage, the
century in any date is and will be
specified either explicitly or by
unambiguous algorithms or inferencing
rules; and
(D) the year 2000 is and will be recognized
as a leap year; and
(E) "YEAR 2000 COMPLIANCE" shall be
construed accordingly; and
(y) "COMPANY CRITICAL COMPUTER SYSTEMS" means all
computer systems used by the Company and/or any
Company Subsidiary, the failure of which reasonably
could be expected to result in a Material Adverse
Effect on the Company.
3.16 Taxes. Except to the extent that failure to do so,
individually or in the aggregate, has not resulted and could not reasonably be
expected to result in a Material Adverse Effect on the Company, the Company and
the Company Subsidiaries have filed all Tax returns and reports to be filed by
them and have paid, or established adequate reserves for, all Taxes and Tax
Sharing Agreement Amounts required to be paid by them. Except as, individually
or in the aggregate, has not resulted and could not reasonably be expected to
result in a Material Adverse Effect on the Company, no deficiencies for any
Taxes have been proposed, asserted or assessed against the Company or any
Company Subsidiaries, and no requests for waivers of the time to assess any such
Taxes are pending.
3.17 Brokers. No broker, finder or investment banker other
than Warburg Dillon Read (the "PARENT FINANCIAL ADVISOR") is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or the Company. Prior to the date of this Agreement, the
Company or Parent has made available to Rugby a complete and correct copy of all
agreements between Parent or the Company and the Parent Financial Advisor under
which the Parent Financial Advisor would be entitled to any payment relating to
such transactions.
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3.18 Certain Statutes. The Board of Directors of the Company
has taken or will take all appropriate and necessary actions to ensure that the
restrictions on business combinations in Section 203 of the GCL will not have
any effect on the transactions contemplated by this Agreement. No "fair price,"
"moratorium," "control share acquisition" or other similar state or federal
anti-takeover statute or regulation (each a "TAKEOVER STATUTE") is, as of the
date of this Agreement, applicable to the transactions contemplated by this
Agreement.
3.19 Vote Required. No vote of the holders of any class or
series of the Company's, Parent's or any Subsidiary of Parent's capital stock
(other than the declaration by the Board of Directors of Crane International
Holdings, Inc., the sole stockholder of the Company and a wholly owned
subsidiary of Parent, of the dividend of the Company Common Stock to Parent) is
necessary to approve this Agreement, the Registration Rights Agreement or the
transactions contemplated hereby or thereby.
3.20 Investment. The Company is not acquiring the Rugby USA
Shares with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act. The Company, together with its
directors and executive officers and advisors, is familiar with investments of
the nature of the Rugby USA Shares, understands that this investment involves
substantial risks, has adequately investigated Rugby USA and has substantial
knowledge and experience in financial and business matters such that it is
capable of evaluating, and has evaluated, the merits and risk inherent in
acquiring the Rugby USA Shares, and is able to bear the economic risks of such
investment.
3.21 No Existing Discussions. As of the date hereof, neither
Parent nor the Company is engaged, directly or indirectly, in any discussions or
negotiations with any other party with respect to any direct or indirect
acquisition or purchase of any material portion of the assets of the Company
(other than sales of assets of the Company in the ordinary course of business)
or any class of equity securities of the Company (other than issuances of
securities under the Company Stock Plan), other than the transactions
contemplated by this Agreement (a "COMPANY ACQUISITION").
3.22 Title to Assets. The Company and each of its Subsidiaries
has good and marketable title to its properties and assets (other than property
as to which it is a lessee) except for such defects in title that, individually
or in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on the Company. The Company Disclosure
Letter sets forth a true and complete list of all real property owned by the
Company or any Company Subsidiary and all leases ("LEASES") of real property by
the Company or any Company Subsidiary including, in the cases of Leases, the
name of the lessor, the date of the Lease and each amendment to the Lease, if
any, and the aggregate annual rental or other amounts payable under each Lease.
All such Leases are in full force and effect and are the valid and binding
obligations of the Company in accordance with their respective terms, and no
default or failure to be in full force and effect and the valid and binding
obligation of the Company exists thereunder, except where the existence of such
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default or failure, individually or in the aggregate, has not resulted and could
not reasonably be expected to result in a Material Adverse Effect on the
Company.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF RUBY
Rugby hereby represents and warrants to Parent and the Company
as follows, subject and except with respect to the matters set forth in the
disclosure letter delivered by Rugby to Parent and the Company on the date
hereof (the "RUGBY DISCLOSURE LETTER") and, provided that the disclosures made
on any section of the Rugby Disclosure Letter with respect to any representation
or warranty shall be deemed to be made with respect to any other representation
or warranty requiring the same or similar disclosure to the extent that the
relevance of such disclosure to other representations and warranties is evident
from the face of the applicable section of the Rugby Disclosure Letter:
4.1 Organization and Qualification; Subsidiaries.
(a) Each of Rugby, Rugby USA, and each subsidiary of
Rugby USA (collectively, the "RUGBY USA SUBSIDIARIES") has been duly organized
and is validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization, as the case may be, and has the requisite
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted. Each of Rugby USA and each Rugby USA Subsidiary is duly qualified or
licensed to do business, and is in good standing, in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that, individually
or in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on Rugby USA. For purposes of this
Agreement, "MATERIAL ADVERSE EFFECT ON RUGBY USA" means any change in or effect
on the business, assets, properties, results of operations or financial
condition of Rugby USA or any Rugby USA Subsidiary, other than with respect to
the Excluded Assets and Liabilities, that is or could reasonably be expected to
be materially adverse to Rugby USA and the Rugby USA Subsidiaries, other than
with respect to the Excluded Assets and Liabilities, taken as a whole, or that
could reasonably be expected to materially impair the ability of Rugby to
perform its obligations under this Agreement or the Registration Rights
Agreement or to consummate the transactions contemplated hereby or thereby.
(b) The Rugby Disclosure Letter sets forth a complete and
correct list of all of the Rugby USA Subsidiaries. Neither Rugby USA nor any
Rugby USA Subsidiary holds any equity interest in any person other than the
Rugby USA Subsidiaries so listed.
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4.2 Certificate of Incorporation and By-Laws. The copies of
Rugby USA's articles of incorporation and by-laws and of Rugby's articles of
association and memorandum of association, each as amended through the date of
this Agreement, that have previously been delivered to Parent or the Company by
Rugby are complete and correct copies of those documents. The comparable
corporate organizational documents of the Rugby USA Subsidiaries are in full
force and effect. Rugby USA is not in violation of any of the provisions of its
articles of incorporation or by-laws.
4.3 Capitalization.
(a) The authorized capital stock of Rugby USA consists of
(i) 1,000,000 Class A Common Shares, par value $50.00 per share, (ii) 10,000,000
Class B Common Shares, par value $50.00 per share, and (iii) 10,000,000 Class C
Common Shares, par value $50.00 per share. As of the date of this Agreement, (A)
10 Class A Common Shares, (B) 500,000 Class B Common Shares and (C) 625,000
Class C Common Shares were issued and outstanding, all of which were validly
issued and are fully paid, nonassessable and not subject to preemptive rights
and all of which are owned beneficially and of record by Rugby.
(b) Except as provided for pursuant to this Agreement,
there are no options, warrants, conversion rights, stock appreciation rights,
redemption rights, repurchase rights or other rights, agreements, arrangements
or commitments of any character to which Rugby or Rugby USA is a party or by
which Rugby or Rugby USA is bound relating to the issued or unissued capital
stock of Rugby USA or any Rugby USA Subsidiary or obligating Rugby USA or any
Rugby USA Subsidiary to issue or sell any shares of capital stock of, or other
equity interests in, Rugby USA or any Rugby USA Subsidiary.
(c) All Rugby USA Shares, upon transfer and assignment to
the Company as provided in Section 2.2(a), will be free and clear of all Liens
and will be duly authorized, validly issued, fully paid and nonassessable and
will not be subject to preemptive rights. Except as specifically set forth in
this Agreement, there are no outstanding contractual obligations of Rugby, Rugby
USA or any Rugby USA Subsidiary to repurchase, redeem or otherwise acquire any
shares of Rugby USA Common Stock or any capital stock of any Rugby USA
Subsidiary. Each outstanding share of capital stock of each Rugby USA Subsidiary
is duly authorized, validly issued, fully paid, nonassessable and not subject to
preemptive rights and each such share owned by Rugby USA or a Rugby USA
Subsidiary is free and clear of all Liens.
4.4 Authority. Rugby has all necessary corporate power and
authority to execute and deliver this Agreement and the Registration Rights
Agreement and the Transition Services Agreement, to perform its obligations
under this Agreement and the Registration Rights Agreement and the Transition
Services Agreement and to consummate the Exchange and the other transactions
contemplated by this Agreement and the Registration Rights Agreement and the
Transition Services Agreement. The execution and delivery of this Agreement and
the Registration Rights Agreement and the Transition Services Agreement by
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Rugby and the consummation by Rugby of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
other than the passing by Rugby's shareholders at an Extraordinary General
Meeting of such holders as is required by the applicable rules and regulations
of the London Stock Exchange (the "REQUISITE RUGBY VOTE") and no other corporate
proceedings on the part of Rugby are necessary to authorize this Agreement or
the Registration Rights Agreement and the Transition Services Agreement or to
consummate such transactions, other than the Requisite Rugby Vote. This
Agreement has been duly authorized and validly executed and delivered by Rugby
and each constitutes a legal, valid and binding obligation of Rugby, enforceable
against Rugby in accordance with its terms.
4.5 No Conflict.
(a) Assuming the Requisite Rugby Vote is obtained, the
execution and delivery of this Agreement and the Registration Rights Agreement
and the Transition Services Agreement by Rugby does not, and the performance of
this Agreement or the Registration Rights Agreement and the Transition Services
Agreement by Rugby will not:
(i) conflict with or violate any provision of the
memorandum or articles of association of Rugby, the articles of incorporation or
by-laws of Rugby USA or any equivalent organizational documents of any Rugby USA
Subsidiary;
(ii) assuming that all consents, approvals,
authorizations and other actions described in Section 4.6 have been obtained and
all filings and obligations described in Section 4.6 have been made, conflict
with or violate any foreign or domestic Law applicable to Rugby, Rugby USA or
any Rugby USA Subsidiary or by which any property or asset of Rugby, Rugby USA
or any Rugby USA Subsidiary is or may be bound or affected, except for any such
conflicts or violations that, individually or in the aggregate, have not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on Rugby USA; or
(iii) result in any breach of or constitute a default
(or an event which with or without notice or lapse of time or both would become
a default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien on any
property or asset of Rugby, Rugby USA, or any Rugby USA Subsidiary under any
Contract to which Rugby, Rugby USA or any Rugby USA Subsidiary is a party or by
which any of them or their assets or properties is or may be bound or affected,
except for such breaches, defaults or other occurrences which, individually or
in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on Rugby USA.
(b) The Rugby Disclosure Letter sets forth a correct and
complete list of Contracts to which Rugby, Rugby USA or any Rugby USA Subsidiary
is a party or by which they or their assets or properties is or may be bound or
affected under which consents or waivers are or may be required prior to
consummation of the transactions contemplated by
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this Agreement, the failure of which to be obtained, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect
on Rugby USA.
4.6 Required Filings and Consents. The execution and delivery
of this Agreement and the Registration Rights Agreement and the Transition
Services Agreement by Rugby does not, and the performance of this Agreement and
the Registration Rights Agreement and the Transition Services Agreement by Rugby
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Authority except (i) for the
pre-merger notification requirements of the HSR Act and the applicable
requirements (including obtaining the Requisite Rugby Vote) of the London Stock
Exchange and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on Rugby USA.
4.7 Permits; Compliance with Law. Each of Rugby USA and the
Rugby USA Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions, consents,
certificates, approvals and orders of any Governmental Authority necessary for
Rugby USA or any Rugby USA Subsidiary to own, lease and operate its properties
or to carry on its business, other than with respect to the Excluded Assets and
Liabilities, as it is now being conducted (collectively, the "RUGBY USA
PERMITS"), except where the failure to have, or the suspension or cancellation
of, any of the Rugby USA Permits, individually or in the aggregate, has not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on Rugby USA, and, as of the date of this Agreement, no suspension or
cancellation of any of the Rugby USA Permits is pending or, to the knowledge of
Rugby, threatened, except where the failure to have, or the suspension or
cancellation of, any of the Rugby USA Permits, individually or in the aggregate,
has not resulted and could not reasonably be expected to result in a Material
Adverse Effect on Rugby USA. Neither Rugby USA nor any Rugby USA Subsidiary is
in conflict with, or in default or violation of, (i) any Law applicable to Rugby
USA or any Rugby USA Subsidiary or by which any property or asset of Rugby USA
or any Rugby USA Subsidiary is or may be bound or affected or (ii) any Rugby USA
Permits, except for any such conflicts, defaults or violations that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on Rugby USA.
4.8 SEC Filings; Financial Statements.
(a) None of the information to be supplied by Rugby or
Rugby USA for inclusion or incorporation by reference in the Form 10 (or any
other document required to be filed with the SEC in connection with the
transactions contemplated by this Agreement) will, at the time such document
becomes effective, contain any untrue statement of a material fact or omit to
state a material fact required to be stated in such document, or necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
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(b) The consolidated balance sheets of Rugby USA to be
included in the Form 10 (and, if applicable, in each such other document
referred to in Section 4.8(a)) (including the related notes and schedules) will
fairly present, in all material respects, the consolidated financial position of
Rugby USA, other than with respect to the Excluded Assets and Liabilities, as of
the dates set forth in such consolidated balance sheets. The consolidated
statements of income and of cash flows of Rugby USA to be included in the Form
10 (and, if applicable, in each such other document referred to in Section
4.8(a)) (including any related notes and schedules) will fairly present, in all
material respects, the consolidated results of operations and cash flows, as the
case may be, of Rugby USA, other than with respect to the Excluded Assets and
Liabilities, for the periods set forth in those consolidated statements of
income and of cash flows (subject, in the case of unaudited quarterly
statements, to notes and normal year-end audit adjustments that will not be
material in amount or effect), in each case in conformity with GAAP (except, in
the case of unaudited quarterly information, as permitted by Form 10-Q)
consistently applied throughout the periods indicated.
(c) Except as and to the extent set forth on the
consolidated balance sheet of Rugby USA, dated September 30, 1999, to be set
forth in the Form 10, including the related notes, neither Rugby USA nor any
Rugby USA Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on a balance sheet or in the related notes prepared in accordance with
GAAP, except for liabilities that are a part of the Excluded Assets and
Liabilities, for liabilities that may arise in connection with the sale of the
assets comprising Rugby USA's Augusta branch, for the Rugby Note, and for
liabilities or obligations incurred in the ordinary course of business since
September 30, 1999 that, individually or in the aggregate, have not resulted and
could not reasonably be expected to result in a Material Adverse Effect on Rugby
USA.
4.9 Absence of Certain Changes or Events. Since September 30,
1999, except as otherwise contemplated by this Agreement, Rugby USA and the
Rugby USA Subsidiaries have conducted their businesses, other than the Excluded
Assets and Liabilities, only in the ordinary course and in a manner consistent
with past practice and, since such date, except for the transactions
contemplated by this Agreement, including, without limitation, the distribution
of the Rugby Note, the Rugby Cash Distribution, the Rugby Note Repayment, the
sale, if consummated, of Rugby USA's Augusta branch and the Exchange, and except
with respect to the Excluded Assets and Liabilities, there has not been:
(a) any Material Adverse Effect on Rugby USA;
(b) any damage, destruction or other casualty loss with
respect to any asset or property owned, leased or otherwise used by Rugby USA or
any Rugby USA Subsidiaries, whether or not covered by insurance, which damage,
destruction or loss, individually or in the aggregate, has resulted or could
reasonably be expected to result in a Material Adverse Effect on Rugby USA;
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<PAGE>
(c) any material change by Rugby USA in its or any Rugby
USA Subsidiary's accounting methods, principles or practices; or
(d) other than the transactions described in Section 2.1,
any declaration, setting aside or payment of any dividend or distribution in
respect of Rugby USA Shares or any redemption, purchase or other acquisition of
any of Rugby USA's securities.
4.10 Employee Benefits.
(a) Neither Rugby nor Rugby USA nor any Rugby USA
Subsidiaries or any other trade or business, whether or not incorporated, that
would be considered a single employer with any of the foregoing pursuant to
Section 414(b), (c), (m), or (o) of the Code (a "RUGBY USA AFFILIATE") maintains
or contributes to or has any obligation to contribute to, or has any direct or
indirect liability, whether contingent or otherwise, under any Benefit Plan in
which any employees of Rugby USA or any Rugby USA Subsidiary (the "RUGBY USA
EMPLOYEES") participate or accrue or have accrued any rights (individually, a
"RUGBY USA PLAN", and collectively, the "RUGBY USA PLANS").
(b) Neither Rugby USA nor any Rugby USA Affiliate
maintains or contributes to, or has within the preceding six years maintained or
contributed to, or has had during such period the obligation to maintain or
contribute to, or may have any liability that could reasonably be expected to
result in a Material Adverse Effect on Rugby USA with respect to, any Rugby USA
Plan subject to Title IV of ERISA or Section 412 of the Code or any "multiple
employer plan" within the meaning of the Code or ERISA.
(c) With respect to each Rugby USA Plan, and except as
could not reasonably be expected to result in a Material Adverse Effect on Rugby
USA, (A) all payments due from Rugby USA or any Rugby USA Affiliate to date have
been made when due and all amounts properly accrued to date or as of the date of
Closing as liabilities of Rugby USA which have not been paid have been properly
recorded on the books of Rugby USA; and (B) no event has occurred in connection
with which Rugby USA or any Rugby USA Affiliate or any Rugby USA Plan, directly
or indirectly, could be subject to any material liability under ERISA, the Code
or any other law, regulation or governmental order applicable to any Rugby USA
Plan, including, without limitation, Section 406, 409, 502(i), 502(l) or 4069 of
ERISA, or Section 4971, 4975 or 4976 of the Code.
(d) Section 4.10(d) of the Rugby Disclosure Letter
contains a true and complete list of each Multiemployer Plan to which Rugby USA
or any Rugby USA Affiliate has now or in the past six years has had any
liability or obligation to contribute, and (A) none of Rugby USA or any Rugby
USA Affiliate has incurred any withdrawal liability under Title IV of ERISA
which remains unsatisfied as of the date hereof, and (B) to Rugby's knowledge,
no such Multiemployer Plan is in reorganization or insolvent (as defined in
Sections 4241 and 4245 of ERISA, respectively).
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(e) With respect to each Rugby USA Plan, and except as
could not reasonably be expected to result in a Material Adverse Effect on Rugby
USA, (A) Rugby USA and each Rugby USA Affiliate has complied with, and each such
Rugby USA Plan conforms in form and operation to, all applicable laws and
regulations, including, but not limited to, ERISA and the Code; (B) each such
Rugby USA Plan which is an "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) and intended to qualify under Section 401 of the Code has
received a favorable determination letter from the Internal Revenue Service with
respect to such qualification, its related trust has been determined to be
exempt from taxation under Section 501(a) of the Code, and nothing has occurred
since the date of such letter that has or is likely to adversely affect such
qualification or exemption; and (C) there are no actions, suits or claims
pending (other than routine claims for benefits) or threatened with respect to
such Rugby USA Plan or against the assets of such Rugby USA Plan.
(f) With respect to each Rugby USA Plan, Rugby has made
available to the Company or Parent a current, accurate and complete copy (or, to
the extent no such copy exists, an accurate description) thereof and, to the
extent applicable: (A) any related trust agreement or other funding instrument;
(B) the most recent IRS determination letter, if applicable; (C) any summary
plan description, if applicable, and for the most recent year (x) the Form 5500
and attached schedules, (y) audited financial statement and (z) actuarial
valuation reports.
(g) The completion of the transactions contemplated
herein will not entitle any Rugby USA Employee or former employee to any
payments or provide any acceleration of payments or provide any other rights to
any Rugby USA Employee or former employee, whether or not such payment would
constitute a parachute payment within the meaning of Code Section 280G.
4.11 Employment and Labor Matters.
(a) Neither Rugby USA nor any Rugby USA Affiliate is a
party to any collective bargaining agreements and there are no labor unions or
other organizations representing, purporting to represent, or attempting to
represent, any Rugby USA Employee. There are no strikes or lockouts affecting
Rugby USA with respect to any collective bargaining units representing any Rugby
USA Employee.
(b) Neither Rugby USA nor any Rugby USA Affiliate has
violated any provision of federal or state law or any governmental rule or
regulation, or any order, decree, judgment or arbitration award of any court,
arbitrator or any government agency regarding the terms and conditions of
employment of employees, former employees or prospective employees or other
labor related matters, including, without limitation, laws, rules, regulations,
orders, rulings, decrees, judgments and awards relating to discrimination, fair
labor standards and occupational health and safety, wrongful discharge or
violation of the personal rights of employees, former employees or prospective
employees where the violation has resulted in or could reasonably be expected to
result in a Material Adverse Effect on Rugby USA.
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4.12 Contracts; Debt. Except for the Contracts listed in
Section 4.12 of the Rugby Disclosure Letter, there is no Contract that is
material to the business, financial condition or results of operations of Rugby
USA and the Rugby USA Subsidiaries (other than the Excluded Assets and
Liabilities), taken as a whole. Neither Rugby nor any Rugby USA Subsidiary is in
violation of or in default under (nor does there exist any condition which with
the passage of time or the giving of notice would cause such a violation of or
default under) any Contract to which it is a party or by which it or any of its
properties or assets is or may be bound or affected, except for violations or
defaults that, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on Rugby USA.
Other than the Rugby Note, Rugby USA and the Rugby USA Subsidiaries will have no
outstanding indebtedness for borrowed money as of the Closing Date, after giving
effect to transactions contemplated by this Agreement.
4.13 Litigation. There is no Claim pending or, to the
knowledge of Rugby, threatened against Rugby, Rugby USA or any Rugby USA
Subsidiary before any Governmental Authority that, individually or in the
aggregate, has resulted or could reasonably be expected to result in a Material
Adverse Effect on Rugby USA. None of Rugby, Rugby USA and any Rugby USA
Subsidiary is subject to any outstanding order, writ, injunction or decree
which, individually or in the aggregate, has resulted or could reasonably be
expected to result in a Material Adverse Effect on Rugby USA.
4.14 Environmental Matters. Except as has not resulted in and
could not reasonably be expected to result in a Material Adverse Effect on Rugby
USA, (i) Rugby USA and the Rugby USA Subsidiaries are and have been in
compliance with all applicable Environmental Laws; (ii) there is no
Environmental Claim pending or threatened against Rugby USA or any of the Rugby
USA Subsidiaries; (iii) there is no civil, criminal or administrative judgment
or notice of violation outstanding against Rugby USA or any of the Rugby USA
Subsidiaries pursuant to Environmental Laws or principles of common law relating
to pollution, protection of the environment, responsibility for investigation or
remediation of contamination or damage to natural resources or health and
safety; and (iv) there are no past or present events, conditions, circumstances,
activities, practices, incidents, actions or plans which may prevent compliance
of Rugby USA or any of the Rugby USA Subsidiaries with Environmental Laws, or
which have given rise to or could reasonably be expected to give rise to an
Environmental Claim against Rugby USA or any of the Rugby USA Subsidiaries or to
Environmental Compliance Costs incurred by Rugby USA or any of the Rugby USA
Subsidiaries.
4.15 Intellectual Property.
(a) Rugby USA owns, free and clear of all Liens, or has
the unrestricted right to use, sell, or license, all Intellectual Property
necessary to operate the business of Rugby USA and the Rugby USA Subsidiaries
(other than the business conducted with respect to the Excluded Assets and
Liabilities) as it is currently conducted ("RUGBY USA INTELLECTUAL PROPERTY")
except where the absence of ownership, free and clear of all Liens, or
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of such rights, individually or in the aggregate, has not resulted and could not
reasonably be expected to result in a Material Adverse Effect on Rugby USA.
(b) None of Rugby, Rugby USA and any Rugby USA Subsidiary
has been, during the three years preceding the date of this Agreement, a party
to any Claim, nor, to the knowledge of Rugby, is any Claim threatened, that
challenges the validity, enforceability, ownership, or right to use, sell, or
license any Rugby USA Intellectual Property, except for Claims that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on Rugby USA. To the knowledge
of Rugby, no third party is infringing upon any Rugby USA Intellectual Property,
except for infringements that, individually or in the aggregate, have not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on Rugby USA.
(c) As part of Rugby USA's Year 2000 project, Rugby USA
has established a written plan concerning the Year 2000 Compliance of all Rugby
USA Critical Computer Systems (the "RUGBY USA YEAR 2000 PLAN"), details of which
have been disclosed to Parent and the Company. The Rugby USA Year 2000 Plan was
established with the intention that the Rugby Critical Computer Systems would,
before, on and following January 1, 2000, be Year 2000 Compliant in all material
respects. To date Rugby USA has implemented the Rugby USA Year 2000 Plan
(insofar as it relates to the Rugby USA Critical Computer Systems) with
reasonable skill and care and to the Knowledge of Rugby there is no reason or
circumstance why the Rugby USA Year 2000 Plan may not be fully implemented in
all material respects prior to January 1, 2000; provided, that (i) Rugby USA and
each of the Rugby USA Subsidiaries undertakes the action which is anticipated of
it under the Rugby USA Year 2000 Plan after the date hereof in a timely manner
and with reasonable skill and care and (ii) no warranty is given that the Rugby
USA Critical Computer Systems will be Year 2000 Compliant. For the purposes of
this Agreement, "RUGBY USA CRITICAL COMPUTER SYSTEMS" means all computer systems
used by Rugby USA and/or any Rugby USA Subsidiary, the failure of which
reasonably could be expected to result in a Material Adverse Effect on Rugby
USA.
4.16 Taxes. Except to the extent that failure to do so,
individually or in the aggregate, has not resulted and could not reasonably be
expected to result in a Material Adverse Effect on Rugby USA, Rugby USA and the
Rugby USA Subsidiaries have filed all Tax returns and reports to be filed by
them and have paid, or established adequate reserves for, all Taxes and Tax
Sharing Agreement Amounts required to be paid by them. Except as, individually
or in the aggregate, has not resulted and could not reasonably be expected to
result in a Material Adverse Effect on Rugby USA, no deficiencies for any Taxes
have been proposed, asserted or assessed against Rugby USA or any Rugby USA
Subsidiary, and no requests for waivers of the time to assess any such Taxes are
pending.
4.17 Brokers. No broker, finder or investment banker other
than Rothschild Inc. and Schroders (collectively, the "RUGBY FINANCIAL
ADVISORS") is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement (other than the
sale of Rugby USA's Augusta branch and
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other than with respect to the Excluded Assets and Liabilities) based upon
arrangements made by or on behalf of Rugby or Rugby USA. Prior to the date of
this Agreement, Rugby has made available to the Company or Parent a complete and
correct copy of the relevant portions of all agreements between Rugby and each
Rugby Financial Advisor under which each Rugby Financial Advisor would be
entitled to any payment from Rugby USA or any Rugby USA Subsidiary relating to
such transactions.
4.18 Certain Statutes. No Takeover Statute is, as of the date
of this Agreement, applicable to the transactions contemplated by this
Agreement.
4.19 Vote Required. The Requisite Rugby Vote is the only vote
of the holders of any class or series of Rugby's capital stock necessary to
approve this Agreement and the transactions contemplated by this Agreement.
4.20 Investment. Except as contemplated by the Registration
Rights Agreement, Rugby is not acquiring the New Company Shares with a view to
or for sale in connection with any distribution thereof within the meaning of
the Securities Act. Rugby, together with its directors and executive officers
and advisors, is familiar with investments of the nature of the New Company
Shares, understands that this investment involves substantial risks, has
adequately investigated the Company and has substantial knowledge and experience
in financial and business matters such that it is capable of evaluating, and has
evaluated, the merits and risk inherent in acquiring the New Company Shares, and
is able to bear the economic risks of such investment.
4.21 No Existing Discussions. As of the date hereof, neither
Rugby nor Rugby USA is engaged, directly or indirectly, in any discussions or
negotiations with any other party with respect to any direct or indirect
acquisition or purchase of any material portion of the assets of Rugby USA
(other than sales of assets of Rugby USA in the ordinary course of business) or
any class of equity securities of Rugby USA, other than with respect to the
Excluded Assets and Liabilities, the assets comprising Rugby USA's Augusta
branch and the transactions contemplated by this Agreement (a "RUGBY USA
ACQUISITION").
4.22 Title to Assets. Rugby USA and each Rugby USA Subsidiary
has good and marketable title to its properties and assets not a part of the
Excluded Assets and Liabilities (other than property as to which it is a lessee)
except for such defects in title that, individually or in the aggregate, have
not resulted and could not reasonably be excepted to result in a Material
Adverse Effect on Rugby USA. The Rugby Disclosure Letter sets forth a true and
complete list of all real property owned by Rugby USA or any Rugby USA
Subsidiary and all Leases by Rugby USA or any Rugby USA Subsidiary other than
those a part of the Excluded Assets and Liabilities including, in the case of
Leases, the name of the lessor, the date of the Lease and each amendment to the
Lease, if any, and the aggregate annual rental or other amounts payable under
each Lease. All such Leases are in full force and effect and are the valid and
binding obligations of Rugby USA or a Rugby USA Subsidiary, as the case may be,
in accordance with their respective terms, and no default or failure to be in
full force and effect and the valid and binding obligation of Rugby USA or a
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Rugby USA Subsidiary, as the case may be, exists thereunder, except where the
existence of such default or failure, individually or in the aggregate, has not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on Rugby USA.
ARTICLE 5
COVENANTS
5.1 Conduct of Business of the Company. Except as contemplated
by this Agreement, as disclosed in Section 5.1 of the Company Disclosure Letter
or with the prior written consent of Rugby, which consent shall not be
unreasonably withheld, during the period from the date of this Agreement to the
Closing, the Parent will cause the Company to, and each of Parent and the
Company will cause the Company Subsidiaries to conduct the operations of the
Company and the Company Subsidiaries only in the ordinary course of business
consistent with past practice and Parent and the Company will cause the Company
and each Company Subsidiary to use its reasonable best efforts to preserve
intact the business organization of the Company and each of the Company
Subsidiaries, to keep available the services of the present officers and key
employees of the Company and the Company Subsidiaries, and to preserve the good
will of customers, suppliers and all other persons having business relationships
with the Company and the Company Subsidiaries. Without limiting the generality
of the foregoing, and except as otherwise contemplated by this Agreement or
disclosed in Section 5.1 of the Company Disclosure Letter, prior to the Closing,
the Company will not, and will not permit any Company Subsidiary to, and Parent
will not permit any of them to, without the prior written consent of Rugby,
which consent shall not be unreasonably withheld:
(a) except as contemplated by Section 5.19, adopt any
amendment to the certificate of incorporation or by-laws of the Company or the
comparable organizational documents of any Company Subsidiary;
(b) except for issuances of capital stock of Company
Subsidiaries to the Company or a wholly owned Company Subsidiary or pursuant to
the Company Stock Plan and for the Spin-Off and the Exchange, issue, reissue,
transfer or sell, or authorize the issuance, reissuance or sale of (i) shares of
capital stock of any class, or securities convertible into capital stock of any
class, or any rights, warrants or options to acquire any convertible securities
or capital stock or (ii) any other securities in respect of, in lieu of, or in
substitution for, shares of Company Common Stock outstanding on the date hereof;
(c) declare, set aside or pay any dividend or other
distribution (whether in cash, securities or property or any combination
thereof) in respect of any class or series of its capital stock other than
between the Company and any wholly owned Company Subsidiary;
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(d) except for any stock split necessary to permit the
Company to complete the Spin-Off and the Exchange, split, combine, subdivide,
reclassify or redeem, purchase or otherwise acquire, or propose to redeem or
purchase or otherwise acquire, any shares of its capital stock, or any of its
other securities;
(e) except for (i) increases in salary, wages and
benefits of officers or employees of the Company or the Company Subsidiaries in
accordance with past practice, (ii) increases in salary, wages and benefits
granted to officers and employees of the Company or the Company Subsidiaries in
conjunction with new hires, promotions or other changes in job status or
increases in salary, wages and benefits to employees of the Company or the
Company Subsidiaries pursuant to collective bargaining agreements entered into
in the ordinary course of business, increase the compensation or fringe benefits
payable or to become payable to its directors, officers or employees (whether
from the Company or any Company Subsidiaries), or pay any benefit not required
by any existing plan or arrangement (including the granting of stock options,
stock appreciation rights, shares of restricted stock or performance units) or
grant any severance or termination pay to (except pursuant to existing
agreements, plans or policies), or enter into any employment or severance
agreement with, any director, officer or other employee of the Company or any
Company Subsidiaries or establish, adopt, enter into, or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, savings, welfare, deferred compensation,
employment, termination, severance or other employee benefit plan, agreement,
trust, fund, policy or arrangement for the benefit or welfare of any directors,
officers or current or former employees, except in each case to the extent
required by applicable Law; provided, however, that nothing in this Agreement
will be deemed to prohibit the payment of benefits as they become payable;
(f) acquire, sell, lease, license, transfer, pledge,
encumber, grant or dispose of (whether by merger, consolidation, purchase, sale
or otherwise) any assets, including capital stock of Company Subsidiaries (other
than the acquisition and sale of inventory or the disposition of used or excess
equipment and the purchase of raw materials, supplies and equipment, in either
case in the ordinary course of business consistent with past practice), or enter
into any material commitment or transaction outside the ordinary course of
business, other than transactions between a wholly owned Company Subsidiary and
the Company or another wholly owned Company Subsidiary and other than
acquisitions of building products warehousing and distribution businesses for
cash consideration having aggregate acquisition consideration payable by the
Company or a Company Subsidiary which does not exceed $15 million;
(g) (i) other than the Debt Financing, the Parent Notes
Repayment and the acquisition of the Rugby Note by acquiring the Rugby USA
Shares in the Exchange, incur, assume or prepay any long-term indebtedness or
incur or assume any short-term indebtedness (including, in either case, by
issuance of debt securities), (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person
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except in the ordinary course of business, (iii) make any loans, advances or
capital contributions to, or investments in, any other person except in the
ordinary course of business and except for loans, advances, capital
contributions or investments between any wholly owned Company Subsidiary and
Company or another wholly owned Company Subsidiary, (iv) change the terms on
which accounts receivable are collected other than in the ordinary course of
business consistent with past practice or (v) take any action that is
inconsistent with paying all payables in the ordinary course of business
consistent with past practice; provided, however, that none of the foregoing or
any other provision of this Agreement shall prevent intercompany advances and
repayments in the ordinary course of business consistent with past practice or
advances by Parent to fund acquisitions by the Company as permitted by
subsection (f) of this Section 5.1.
(h) terminate, cancel or request any material change in,
or agree to any material change in any Contract which is material to the Company
and the Company Subsidiaries taken as a whole, or enter into any Contract which
would be material to the Company and the Company Subsidiaries taken as a whole,
in either case other than in the ordinary course of business consistent with
past practice; or make or authorize any capital expenditure, other than capital
expenditures that are not, in the aggregate, for any fiscal year, in excess of
150% of the capital expenditures provided for in the Company's budget for the
Company and the Company Subsidiaries taken as a whole for such fiscal year (a
copy of which budget has been provided to Rugby);
(i) take any action with respect to accounting policies
or procedures, other than actions in the ordinary course of business and
consistent with past practice or as required pursuant to applicable Law or GAAP;
or
(j) authorize or enter into any formal or informal
written or other agreement or otherwise make any commitment to do any of the
foregoing.
5.2 Conduct of Business of Rugby USA. Except as contemplated
by this Agreement, as disclosed in Section 5.2 of the Rugby Disclosure Letter or
with the prior written consent of Parent or the Company, which consent shall not
be unreasonably withheld and except with respect to the Excluded Assets and
Liabilities, during the period from the date of this Agreement to the Closing,
Rugby will cause Rugby USA and each of the Rugby USA Subsidiaries to conduct its
operations only in the ordinary course of business consistent with past practice
and will cause Rugby USA and each Rugby USA Subsidiary to use their reasonable
best efforts to preserve intact the business organization of Rugby USA and each
of the Rugby USA Subsidiaries, to keep available the services of the present
officers and key employees of Rugby USA and the Rugby USA Subsidiaries, and to
preserve the good will of customers, suppliers and all other persons having
business relationships with Rugby USA and the Rugby USA Subsidiaries. Without
limiting the generality of the foregoing, and except as otherwise contemplated
by this Agreement or disclosed in Section 5.2 of the Rugby Disclosure Letter and
except with respect to the Excluded Assets and Liabilities, prior to the
Closing, Rugby will not permit Rugby USA or any Rugby USA Subsidiary to, without
the prior written consent of Parent or the Company, which consent shall not be
unreasonably withheld:
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(a) adopt any amendment to the articles of incorporation
or by-laws of Rugby USA or the comparable organizational documents of any Rugby
USA Subsidiary;
(b) except for issuances of capital stock of Rugby USA
Subsidiaries to Rugby USA or a wholly owned Rugby USA Subsidiary and for the
Exchange, issue, reissue, transfer or sell, or authorize the issuance,
reissuance or sale of (i) additional shares of capital stock of any class, or
securities convertible into capital stock of any class, or any rights, warrants
or options to acquire any convertible securities or capital stock or (ii) any
other securities in respect of, in lieu of, or in substitution for, shares of
Rugby USA Common Stock outstanding on the date hereof;
(c) except as contemplated by Section 2.1, declare, set
aside or pay any dividend or other distribution (whether in cash, securities or
property or any combination thereof) in respect of any class or series of its
capital stock other than between Rugby USA and any wholly owned Rugby USA
Subsidiary;
(d) split, combine, subdivide, reclassify or redeem
(other than in connection with the transactions described in Section 2.1),
purchase or otherwise acquire, or propose to redeem or purchase or otherwise
acquire, any shares of its capital stock, or any of its other securities;
(e) except for (i) increases in salary, wages and
benefits of officers or employees of Rugby USA or the Rugby USA Subsidiaries in
accordance with past practice, (ii) increases in salary, wages and benefits
granted to officers and employees of Rugby USA or the Rugby USA Subsidiaries in
conjunction with new hires, promotions or other changes in job status or
increases in salary, wages and benefits to employees of Rugby USA or the Rugby
USA Subsidiaries pursuant to collective bargaining agreements entered into in
the ordinary course of business, increase the compensation or fringe benefits
payable or to become payable to its directors, officers or employees (whether
from Rugby USA or any Rugby USA Subsidiaries), or pay any benefit not required
by any existing plan or arrangement (including the granting of stock options,
stock appreciation rights, shares of restricted stock or performance units) or
grant any severance or termination pay to (except pursuant to existing
agreements, plans or policies), or enter into any employment or severance
agreement with, any director, officer or other employee of Rugby USA or any
Rugby USA Subsidiaries or establish, adopt, enter into, or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, savings, welfare, deferred compensation,
employment, termination, severance or other employee benefit plan, agreement,
trust, fund, policy or arrangement for the benefit or welfare of any directors,
officers or current or former employees, except in each case to the extent
required by applicable Law; provided, however, that nothing in this Agreement
will be deemed to prohibit the payment of benefits as they become payable or the
establishment of employee benefit plans for Rugby USA Employees connected with
the Excluded Assets and Liabilities as listed on Annex 1 as long as such plan or
plans are substantially similar to plans currently sponsored or maintained by
Rugby USA and/or Rugby USA subsidiaries (collectively, the "Current
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Benefit Plans") and such plan or plans do not increase or otherwise alter any
benefits earned or accrued under the Current Benefit Plans;
(f) except as contemplated by Section 2.1, acquire, sell,
lease, license, transfer, pledge, encumber, grant or dispose of (whether by
merger, consolidation, purchase, sale or otherwise) any assets, including
capital stock of Rugby USA Subsidiaries (other than the acquisition and sale of
inventory or the disposition of used or excess equipment and the purchase of raw
materials, supplies and equipment, in either case in the ordinary course of
business consistent with past practice) or enter into any material commitment or
transaction outside the ordinary course of business, other than transactions
between a wholly owned Rugby USA Subsidiary and Rugby USA or another wholly
owned Rugby USA Subsidiary and other than the sale of assets comprising Rugby
USA's Augusta branch;
(g) (i) except for incurring obligations under the Rugby
Note, incur, assume or prepay any long-term indebtedness or assume any
short-term indebtedness (including, in either case, by issuance of debt
securities), except that Rugby USA and the Rugby USA Subsidiaries may incur,
assume or prepay indebtedness in the ordinary course of business consistent with
past practice under existing lines of credit, (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person except in the ordinary course
of business, (iii) make any loans, advances or capital contributions to, or
investments in, any other person except in the ordinary course of business and
except for loans, advances, capital contributions or investments between any
wholly owned Rugby USA Subsidiary and Rugby USA or another wholly owned Rugby
USA Subsidiary, (iv) change the terms on which accounts receivable are collected
other than in the ordinary course of business consistent with past practice or
(v) take any action inconsistent with paying all payables in the ordinary course
of business consistent with past practice;
(h) except as contemplated by Section 2.1, terminate,
cancel or request any material change in, or agree to any material change in any
Contract which is material to Rugby USA and the Rugby USA Subsidiaries taken as
a whole, or enter into any Contract which would be material to Rugby USA and the
Rugby USA Subsidiaries taken as a whole, in either case other than in the
ordinary course of business consistent with past practice; or make or authorize
any capital expenditure, other than capital expenditures that are not, in the
aggregate, for any fiscal year, in excess of 150% of the capital expenditures
provided for in Rugby USA's budget for Rugby USA and the Rugby USA Subsidiaries
taken as a whole for such fiscal year (a copy of which budget has been provided
to Parent or the Company);
(i) take any action with respect to accounting policies
or procedures, other than actions in the ordinary course of business and
consistent with past practice or as required pursuant to applicable Law or GAAP;
or
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(j) authorize or enter into any formal or informal
written or other agreement or otherwise make any commitment to do any of the
foregoing.
5.3 Other Actions. During the period from the date hereof to
the Closing, the Parties shall not, and shall not permit any of their respective
Subsidiaries to, take any action that would, or that could reasonably be
expected to, result in any of the conditions to the transactions contemplated by
this Agreement set forth in Article 6 hereof not being satisfied.
5.4 Notification of Certain Matters. Parent and the Company on
the one hand and Rugby on the other hand shall promptly notify the other of (a)
the occurrence or non-occurrence of any fact or event which could reasonably be
expected (i) to cause any representation or warranty contained in this Agreement
to be untrue or inaccurate in any material respect at any time from the date
hereof to the Closing, (ii) to cause any covenant, condition or agreement
hereunder not to be complied with or satisfied in all material respects or (iii)
to result in, in the case of the Company or Parent, a Material Adverse Effect on
the Company and, in the case of Rugby, a Material Adverse Effect on Rugby USA,
(b) any failure of the Company or Parent on the one hand and Rugby on the other
hand, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder in any material
respect; provided, however, that no such notification shall affect the
representations or warranties of any party or the conditions to the obligations
of any party hereunder, (c) any notice or other material communications from any
Governmental Authority in connection with the transactions contemplated by this
Agreement and (d) the commencement of any suit, action or proceeding that seeks
to prevent or seek damages in respect of, or otherwise relates to, the
consummation of the transactions contemplated by this Agreement.
5.5 SEC Filings.
(a) As promptly as practicable after the execution of
this Agreement, the Company shall prepare and file with the SEC an amendment
(the "AMENDMENT") to the Form 10 which, among other things, describes the
transactions contemplated by this Agreement. The Company and Parent will consult
with Rugby and its advisors in preparing the Amendment and it shall be in form
and substance satisfactory to Rugby in its reasonable judgment. Substantially
contemporaneously with the filing of the Amendment with the SEC, copies of the
Amendment shall be provided to the New York Stock Exchange, Inc. Parent, the
Company and Rugby each shall use its reasonable best efforts to cause the Form
10 to become effective as promptly as practicable. Parent and the Company shall
also prepare and file with the SEC, in consultation with and as reasonably
approved by Rugby, such additional documents as are required to be filed and
circulated to Parent's stockholders in connection with the Spin-Off in order to
satisfy the requirements of SEC Staff Legal Bulletin No. 4 ("SLB 4") regarding
exemption of the Spin-Off from the registration requirements of the Securities
Act (any such other documents the "ADDITIONAL SEC DOCUMENTS"). As promptly as
practicable, subject to the requirements of the SEC, the Exchange Act and the
Securities Act, Parent and the Company will cause to be distributed to
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Parent's stockholders the Form 10 as amended by the Amendment (in preliminary
form) and/or the Additional SEC Documents (as the Parties shall jointly
determine, in their reasonable judgment and in compliance with SEC requirements
including those under SLB 4) and shall use their reasonable best efforts to
cause the Spin-Off to meet the other requirements of SLB 4 regarding exemption
of the Spin-Off from the registration requirements of the Securities Act. Parent
and the Company shall cause the Form 10 and any Additional SEC Documents to
comply as to form and substance in all material respects with the applicable
requirements of (i) the Exchange Act, (ii) the Securities Act and (iii) the
rules and regulations of the New York Stock Exchange, Inc.
(b) No additional amendment or supplement to the Form 10
or any Additional SEC Document will be made without the approval of Rugby, which
approval shall not be unreasonably withheld or delayed. Each of Parent and the
Company will advise Rugby, promptly after it receives notice of the time when
the Form 10 has become effective or any supplement or amendment thereto or to
any Additional SEC Document has been filed, of the issuance of any stop order in
connection with the Spin-Off or of any request by the SEC or the New York Stock
Exchange, Inc. for amendment of the Form 10 or any Additional SEC Document or
comments thereon and responses thereto or requests by the SEC for additional
information.
(c) The information supplied by Parent and the Company
for inclusion in the Form 10, or any Additional SEC Document, shall not, at (i)
the time the Form 10 or such Additional SEC Document is declared effective, (ii)
the time the Form 10 or such Additional SEC Document is first distributed to the
stockholders of Parent and (iii) the time of the Spin-Off, contain any untrue
statement of a material fact or fail to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. If at any time
prior to the time of the Spin-Off, any event or circumstance relating to the
Company or any Company Subsidiary, or their respective officers or directors,
should be discovered by Parent or the Company that should be set forth in an
amendment or a supplement to the Form 10 or any Additional SEC Document, Parent
and the Company shall promptly inform Rugby. All documents that the Company is
responsible for filing with the SEC in connection with the transactions
contemplated hereby will comply as to form and substance in all material
respects with the applicable requirements of the Securities Act and the Exchange
Act.
(d) The information supplied by Rugby or Rugby USA for
inclusion in the Amendment, any further amendment or supplement to the Form 10
or any Additional SEC Document shall not, at (i) the time the Form 10 or such
Additional SEC Document is declared effective, (ii) the time the Form 10 or such
Additional SEC Document is first distributed to the stockholders of Parent and
(iii) the time of the Spin-Off, contain any untrue statement of a material fact
or fail to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading. If, at any time prior to
the time of the Spin-Off, any event or circumstance relating to Rugby USA or any
Rugby USA Subsidiary, or their respective officers or directors, should be
discovered by Rugby that should
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be set forth in an amendment or a supplement to the Form 10 or any Additional
SEC Document, Rugby shall promptly inform Parent or the Company.
5.6 Stockholders' Meeting. As promptly as practicable
following the satisfaction of the condition set forth in Section 6.1(a), Rugby
will take all action necessary to convene an extraordinary general meeting of
holders of Rugby Ordinary Shares for the purpose of considering resolutions to
approve the Exchange and the other transactions contemplated by this Agreement
(the "RUGBY SHAREHOLDERS MEETING") and will distribute any required circular to
such holders (the "CIRCULAR"); provided that Rugby shall not be required to hold
the Rugby Shareholders Meeting unless and until the Financing Commitments have
been received. Subject to Section 9.1, Rugby shall, through its Board of
Directors (the "RUGBY BOARD"), in the Circular, recommend that such holders vote
in favor of the adoption of the Exchange.
5.7 Access to Information; Confidentiality.
(a) Except as required under any confidentiality
agreement or similar agreement or arrangement to which Parent, the Company,
Rugby or Rugby USA or any of their respective subsidiaries is a party or under
applicable Law or the regulations or requirements of any securities exchange or
quotation service or other self regulatory organization with whose rules the
parties are required to comply, from the date of this Agreement to the Closing,
Parent and the Company on the one hand (with respect to the Company) and Rugby
on the other hand (with respect to Rugby USA) shall (and shall cause the
respective Subsidiaries of the Company and Rugby USA (as the case may be) to):
(i) provide to the other (and its officers, directors, employees, accountants,
consultants, legal counsel, financial advisors, investment bankers, agents and
other representatives (collectively, "REPRESENTATIVES")) access at reasonable
times upon prior notice to the officers, employees, agents, properties, offices
and other facilities of the other and its subsidiaries and to the books and
records thereof; and (ii) furnish promptly such information concerning the
business, properties, Contracts, assets, liabilities, personnel and other
aspects of the other party and its subsidiaries as the other party or its
Representatives may reasonably request. No investigation conducted under this
Section 5.7 shall affect or be deemed to modify any representation or warranty
made in this Agreement.
(b) The Parties shall comply with, and shall cause their
respective Representatives to comply with, all of their respective obligations
under the Confidentiality Agreement, dated as of July 26, 1999, between Rugby
and the Company, and the related letter from Parent to Rugby, dated as of
September 23, 1999 (such agreement and letter, collectively, the
"CONFIDENTIALITY AGREEMENT"), with respect to the information disclosed under
this Section 5.7.
5.8 Employee Benefits Matters.
(a) As of the Closing Date, Rugby USA and its
subsidiaries shall cease to be participating employers in the Rugby Group 1995
United States Savings-Related
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Share Option Scheme, and Rugby shall take, or cause to be taken all such action
as may be necessary to effect such cessation of participation.
(b) With respect to all Rugby USA Employees not connected
with the Excluded Assets and Liabilities as listed on Annex 1, the Company shall
maintain for at least one year following the Closing employee benefit plans
providing benefits that are substantially similar to those it provides the
Company's own employees during such period. The Company shall grant all Rugby
USA Employees credit for all service with Rugby USA or its subsidiaries or their
respective predecessors prior to the Closing for all purposes for which such
service was recognized by Rugby or Rugby USA, and the Company shall waive any
pre-existing condition exclusions. Rugby USA Employees shall be credited with
any deductible and other out-of-pocket expenses paid in the calendar year of the
Closing under Rugby USA's health plans for purposes of the Company's health
plans.
5.9 Directors' and Officers' Indemnification and Insurance.
(a) The Company agrees that all rights to indemnification
now existing in favor of any director or officer of Rugby USA and the Rugby USA
Subsidiaries (the "INDEMNIFIED PARTIES") as provided in their respective
articles of incorporation or by-laws or other organizational documents, in an
agreement between an Indemnified Party and Rugby USA or one of the Rugby USA
Subsidiaries, or otherwise in effect on the date hereof shall survive the
Closing and shall continue in full force and effect for a period of not less
than six years from the Closing Date; provided, that in the event any claim or
claims are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
final disposition of any and all such claims. The Company also agrees to
indemnify after the Closing all Indemnified Parties to the fullest extent
permitted by applicable law with respect to all acts and omissions arising out
of such individuals' services as officers, directors, employees or agents of
Rugby USA or any of the Rugby USA Subsidiaries or as trustees or fiduciaries of
any plan for the benefit of employees, or otherwise on behalf of, Rugby USA or
any of the Rugby USA Subsidiaries, occurring prior to the Closing, including the
transactions contemplated by this Agreement. Without limiting the foregoing, in
the event any such Indemnified Party is or becomes involved in any capacity in
any action, proceeding or investigation in connection with any matter, including
the transactions contemplated by this Agreement, occurring prior to, and
including, the Closing, after the Closing the Company will pay as incurred such
Indemnified Party's reasonable legal and other expenses (including the cost of
any investigation and preparation) incurred in connection therewith.
(b) The Company shall from and after the Closing cause to
be maintained in effect for not less than six years from the Closing Date the
current policies of the directors' and officers' liability insurance maintained
by Rugby USA; provided, that the Company may substitute therefor policies of at
least the same coverage containing terms and conditions which are no less
advantageous and provided that such substitution shall not result in any gaps or
lapses in coverage with respect to matters occurring prior to the Closing Date;
and provided, further, that the Company shall not be required to pay an annual
premium in
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excess of 150% of the last annual premium paid by Rugby USA prior to the date
hereof and if the Company is unable to obtain the insurance required by this
Section 5.9(b) it shall obtain as much comparable insurance as possible for an
annual premium equal to such maximum amount.
(c) The provisions of this Section 5.9 shall be
enforceable by the directors and officers of Rugby USA and the Rugby USA
Subsidiaries as third party beneficiaries.
5.10 Reasonable Best Efforts. Subject to the terms and
conditions provided in this Agreement and to applicable legal requirements, each
of the Parties agrees to use its reasonable best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, and to assist and cooperate
with the other Parties in doing, as promptly as practicable, all things
necessary, proper or advisable under applicable Laws to ensure that the
conditions set forth in Article 6 are satisfied and to consummate and make
effective the transactions contemplated by this Agreement including, but not
limited to, (a) Parent and the Company taking all preparatory steps necessary or
desirable to consummate the Spin-Off and the Exchange, including using their
reasonable best efforts to obtain a Spin-Off Ruling and the completion of any
required stock splits with respect to Company Common Stock, (b) Parent and the
Company using their best efforts to ensure consummation, at Closing, of the Debt
Financing such that net proceeds sufficient to make the Rugby Note Repayment,
the Parent Note Repayment and the Acquisition Notes Repayment at Closing are
received by the Company in the Debt Financing, (c) Rugby taking, and causing
Rugby USA to take, all reasonable steps necessary to dispose of the Excluded
Assets and Liabilities in the manner contemplated by Annex 2 and (d) subject to
Section 9.1, Rugby using its reasonable best efforts to obtain the Rugby
Shareholder Approval. If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, including
the execution of additional instruments, the proper officers and directors of
each Party to this Agreement shall take all such necessary action.
5.11 Consents; Filings; Further Action.
(a) Upon the terms and subject to the conditions hereof,
each of the Parties shall use its reasonable best efforts to (i) obtain from
Governmental Authorities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Parent, the Company
or Rugby or any of their subsidiaries in connection with the authorization,
execution and delivery of this Agreement, any Ancillary Agreement and the
consummation of the transactions contemplated hereby and thereby and (ii) make
all necessary filings, and thereafter make any other submissions either required
or deemed appropriate by each of the parties, with respect to this Agreement and
the transactions contemplated hereby required (A) under the Securities Act, the
Exchange Act and any other applicable federal or Blue Sky Laws, (B) under the
HSR Act, (C) any other applicable Law, and (D) the rules and regulations of the
New York Stock Exchange, Inc. The Parties shall cooperate and consult with each
other in connection with the making of all such filings, including by providing
copies of all such documents to the non-filing Party and its advisors
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prior to filing, and none of the Parties will file any such document if any of
the other parties shall have reasonably objected to the filing of such document.
No Party to this Agreement shall consent to any voluntary extension of any
statutory deadline or waiting period or to any voluntary delay of the
consummation of the transactions contemplated hereby at the behest of any
Governmental Authority without the consent and agreement of the other Parties to
this Agreement, which consent shall not be unreasonably withheld or delayed.
(b) Each Party hereto shall promptly inform the others of
any material communication from the Federal Trade Commission, the Department of
Justice or any other Governmental Authority regarding any of the transactions
contemplated by this Agreement. If any Party or any Affiliate thereof receives a
request for additional information or documentary material from any such
Governmental Authority with respect to the transactions contemplated by this
Agreement, then such Party will endeavor in good faith to make, or cause to be
made, as soon as reasonably practicable and after consultation with the other
Parties, an appropriate response in compliance with such request. Each Party
will advise the other Parties promptly in respect of any understandings,
undertakings or agreements (oral or written) which such Party proposes to make
or enter into with the Federal Trade Commission, the Department of Justice or
any other Governmental Authority in connection with the transactions
contemplated by this Agreement. In furtherance and not in limitation of the
foregoing, each Party shall use its reasonable best efforts to resolve such
objections, if any, as may be asserted with respect to the transactions
contemplated by this Agreement under any antitrust, competition or trade
regulatory Laws of any Governmental Authority, including, without limitation,
agreeing to sell, hold separate, divest, discontinue or limit, before or after
the Closing, any assets, businesses, or interest in any assets or businesses of
the Company or Rugby USA if requested by such Governmental Authority, so long as
such action would not reasonably be expected to materially and adversely impact
the economic or business benefits to the Company or Rugby of the transactions
contemplated by this Agreement or result in a Material Adverse Effect on Rugby
USA or a Material Adverse Effect on the Company.
5.12 Company Rights Plan. Prior to the consummation of the
Spin-Off, the Company shall take all action necessary to cause to become
effective the Company Rights Plan, which shall be in the form attached to this
Agreement as Exhibit D.
5.13 Public Announcements. Parent and the Company on the one
hand and Rugby on the other hand shall consult with each other before issuing
any press release or otherwise making any public statements with respect to this
Agreement or any of the transactions contemplated hereby and shall not issue any
such press release or make any such public statement prior to such consultation,
except to the extent required by applicable Law or the requirements of the New
York Stock Exchange, Inc. or the London Stock Exchange, in which case the
issuing party shall use its reasonable best efforts to consult with the other
Parties before issuing any such release or making any such public statement.
5.14 Stock Exchange Listing. The Company shall use its
reasonable best efforts to cause the Company Common Stock to be listed on the
New York Stock Exchange,
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Inc. as of the time of the consummation of the Spin-Off and for the New Company
Shares to be approved for listing thereon, subject to official notice of
issuance, prior to the Closing.
5.15 Expenses. Except as otherwise provided in Section 8.3,
whether or not the Exchange is consummated, all Expenses incurred in connection
with this Agreement and the Exchange and the other transactions contemplated
hereby shall be paid by the Party incurring such Expense, except that Expenses
incurred in connection with the filing fee under the HSR Act shall be shared
equally by Parent and Rugby.
5.16 Retention of Records; Cooperation in Litigation.
(a) The Company agrees (i) to hold Rugby USA's material
agreements, documents, books, records and files (including those on computer
disk) ("RECORDS") and not to destroy or dispose of any thereof for a period of
six years from the Closing Date; provided, that if the Company desires to
destroy or dispose of such Records during such period, it will first offer in
writing at least 90 days prior to such destruction or disposition to surrender
them to Rugby and if Rugby does not accept such offer within 60 days after
receipt of such offer, the Company may take such action and (ii) following the
Closing Date to afford Rugby and its accountants and counsel, during normal
business hours, upon reasonable request, at any time, reasonable access to the
Records and to Company or Company Subsidiary employees employed prior to the
Closing by Rugby USA or a Rugby USA Subsidiary to the extent that such access
may be requested for any legitimate purpose at no cost to Rugby (other than for
reasonable out-of-pocket expenses); provided, however, that such access will not
operate to cause the waiver of any attorney-client, work product or like
privilege; provided, further, that in the event of any litigation nothing herein
shall limit either party's rights of discovery under applicable Law.
(b) Following the Closing, and to the extent reasonably
necessary to permit Rugby to defend (including, without limitation, any related
investigation, appeal or settlement) any lawsuit, mediation, enforcement action,
arbitration, administrative hearing or other adjudicative proceeding which
exists at the Closing Date or which is brought thereafter, the Company agrees to
afford Rugby and its accountants and counsel, during normal business hours at no
cost to Rugby other than reasonable out-of-pocket expenses, (i) reasonable
access to all Company employees employed prior to the Closing by Rugby USA and
all witnesses subject to the control or direction of the Company or any of its
Affiliates and (ii) reasonable access to all documents and records within the
custody or subject to the control of the Company relating to Rugby USA;
provided, however, that such access will not operate to cause the waiver of any
attorney-client, work product or like privilege; provided further, that in the
event of any litigation nothing herein shall limit either party's rights of
discovery under applicable Law.
5.17 Corporate Name. For a period of two years from the
Closing Date, the Company will have the nonexclusive right to operate in the
United States under the name "Rugby Building Products," subject to the terms and
conditions set forth in Annex 4 to this Agreement.
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5.18 Intercompany Agreements. Except for any action that would
affect in any respect the transactions provided for in Article 2 and except for
the Distribution Agreement, the Tax Allocation Agreement and the Employee
Matters Agreement, in substantially the form attached hereto as Exhibits E, F
and G, respectively, with such changes as may be agreed to by Parent and the
Company and (i) in the case of changes which could reasonably be expected to be
materially adverse to the Company, that are acceptable to Rugby, and (ii) in all
other cases that are reasonably acceptable to Rugby, each of which will be
entered into by Parent and the Company in connection with the Spin-Off
(collectively, the "SPIN-OFF AGREEMENTS"), and except for any arrangement or
agreement that any of the Spin-Off Agreements expressly provide will survive the
Spin-Off, (a) Parent and the Company shall cause the termination, as of the time
the Spin-Off is consummated, of all Contracts and intercompany indebtedness
between Parent or any of its Affiliates (other than the Company and the Company
Subsidiaries) on the one hand and the Company or a Company Subsidiary on the
other hand, other than the Parent Note and the Acquisition Notes and (b) Rugby
shall cause, and shall cause Rugby USA to take all action required to cause, the
termination, as of the Closing, of all Contracts and intercompany indebtedness
between Rugby or any of its affiliates (other than Rugby USA and the Rugby USA
Subsidiaries) on the one hand and Rugby USA or a Rugby USA Subsidiary on the
other hand, other than the Rugby Note and any agreements, arrangements,
commitments or understandings to which any Person other than Rugby, Rugby USA
and their respective Affiliates is a party.
5.19 Officers and Directors of the Company. The Company and
Parent, as sole stockholder of the Company, shall take all action necessary,
including the adoption of appropriate or necessary stockholder resolutions in
accordance with the Delaware General Corporation Law, to ensure that upon the
Closing, the Board of Directors of the Company is composed of nine directors,
three of whom shall be designated by Rugby, as provided for under the
Registration Rights Agreement. Parent and the Company, through its Board of
Directors, shall take all action necessary, including the adoption of
appropriate Board of Directors resolutions in accordance with the Delaware
General Corporation Law, to ensure that upon the Closing, the Chairman of the
Board of the Company shall continue to be R. Shell Evans, the Chief Executive
Officer and President of the Company shall continue to be Barry M. Kulpa and the
Chief Operating Officer of the Company shall be Stephen Brown (currently the
President of Rugby USA) and in that connection, Parent and the Company shall
cause the by-laws of the Company to be amended, as necessary, as of the Closing,
to make the position of "Chief Operating Officer" an officer of the Company
reporting to the Chief Executive Officer and President of the Company.
5.20 Exclusivity. Rugby shall not and shall cause Rugby USA
not to, directly or indirectly, and shall use its best efforts to cause its
officers, directors, employees, legal counsel, investment bankers and financial
or other advisers not to, (i) encourage any inquiries or proposals regarding a
Rugby USA Acquisition (a "RUGBY USA ACQUISITION PROPOSAL"), (ii) subject to
Section 9.1, engage in negotiations or discussions concerning, or provide any
non-public information to any Person relating to, any Rugby USA Acquisition
Proposal or (iii) subject to Section 9.1, agree to or approve or recommend any
Rugby USA
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Acquisition Proposal. Neither Parent nor the Company shall, directly or
indirectly, and shall use its best efforts to cause its officers, directors,
employees, legal counsel, investment bankers and financial or other advisers not
to, (x) encourage any inquiries or proposals regarding a Company Acquisition (a
"COMPANY ACQUISITION PROPOSAL"), (y) subject to Section 9.2, engage in
negotiations or discussions concerning, or provide any non-public information to
any Person relating to, any Company Acquisition Proposal or (z) subject to
Section 9.2, agree to or approve any Company Acquisition Proposal.
5.21 Best Efforts. Parent and the Company shall use their best
efforts to obtain the Financing Commitments and the Debt Financing, including,
for purposes of this obligation, financing of the Total Cash Amount consistent
with clause (i) of the definition of Total Cash Amount.
5.22 Tax Payment. Rugby shall pay or shall cause Rugby USA to
pay to the IRS, on or before the Closing Date, the Rugby Tax Amount.
5.23 Return Filing and Preparation. The Company shall promptly
prepare all returns or other reports with respect to Taxes required to be filed
by or with respect to Rugby USA and the Rugby USA Subsidiaries for any taxable
period (or portion thereof) ending on the Closing Date and shall present such
returns to Rugby no later than 30 days prior to the due date for such returns.
Thereafter the Company shall timely file such returns or cause such returns to
be timely filed; provided that no such return shall be filed without Rugby's
consent, which shall not be unreasonably withheld.
5.24 Tax Refunds. The Company shall promptly pay over to Rugby
any Tax refund received with respect to the assets and operations of Rugby USA
and the Rugby USA Subsidiaries for periods ending on or before the Closing Date.
ARTICLE 6
CONDITIONS TO CLOSING
6.1 Conditions Precedent to Obligation of Parent to Consummate
the Spin-Off. The obligation of Parent to consummate the Spin-Off shall be
subject to the fulfillment (or waiver by Parent in writing) upon or prior to
consummation of the Spin-Off of the following conditions:
(a) Spin-Off Ruling. Parent shall have received a
Spin-Off Ruling;
(b) Form 10. The SEC shall have declared effective the
Form 10 (and/or, any Additional SEC Documents filed in compliance with Section
5.5 which are required to be declared effective by the SEC under the Securities
Act or the Exchange Act) and no stop order suspending the effectiveness of the
Form 10 (or any such Additional SEC
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Document) shall have been issued, and no proceedings for that purpose shall have
been initiated or threatened by the SEC;
(c) NYSE Listing. The New York Stock Exchange, Inc. or
the Nasdaq Stock Market, Inc. shall have approved for listing, subject to
official notice of issuance, the shares of Company Common Stock to be
transferred to the stockholders of Parent in the Spin-Off;
(d) No Injunction. No order shall have been entered and
shall have remained in effect in any action or proceeding before any
Governmental Authority that would prohibit or make illegal the consummation of
the Spin-Off or the Exchange;
(e) Rugby Shareholder Approval. The Requisite Rugby Vote
shall have been obtained;
(f) HSR. All applicable waiting periods under the HSR Act
shall have been terminated or expired;
(g) Financing Commitments. Parent shall have received a
copy of the Financing Commitments in form and substance reasonably satisfactory
to Parent; and
(h) Governmental Consents. Any and all consents of
Governmental Authorities, if any, necessary to consummate the transactions
contemplated by this Agreement shall have been obtained, where the failure to
obtain such consents, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect on the Company or a Material
Adverse Effect on Rugby USA.
6.2 Conditions Precedent to Obligations of the Company and
Rugby. The respective obligations of each of the Company and Rugby to consummate
the Exchange and the Simultaneous Transactions shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) No Injunction. No order shall have been entered and
shall have remained in effect in any action or proceeding before any
Governmental Authority that would prohibit or make illegal the consummation of
the Exchange or the Simultaneous Transactions;
(b) Governmental Consents. Any and all consents of
Governmental Authorities, if any, necessary to consummate the transactions
contemplated by this Agreement shall have been obtained, where the failure to
obtain such consents, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect on the Company or a Material
Adverse Effect on Rugby USA;
(c) Rugby Shareholder Approval. The Requisite Rugby Vote
shall have been obtained; and
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(d) HSR. All applicable waiting periods under the HSR Act
shall have been terminated or expired.
6.3 Additional Conditions Precedent to Obligations of Rugby.
The obligations of Rugby to consummate the Exchange and the Simultaneous
Transactions are also subject to the fulfillment (or waiver in writing by Rugby)
at or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. Each of the
representations and warranties of Parent and the Company contained in Article 3
of this Agreement shall, to the extent qualified by materiality or material
adverse effect, be true and correct in all respects, in either case, and to the
extent not so qualified shall be true and correct in all material respects as of
the Closing Date (except for such representations and warranties as are made as
of a specified date, which shall be true and correct in all respects or all
material respects, as the case may be, as of such specified date);
(b) Covenants. All the covenants in this Agreement to be
complied with and performed by Parent or the Company on or before the Closing
Date shall have been duly complied with and performed in all material respects;
(c) Officer's Certificate. A certificate to the effect
that the conditions set forth in Sections 6.3(a) and (b) have been fulfilled,
dated the Closing Date and signed by an authorized executive officer of each of
Parent and the Company, on behalf of Parent or the Company (as the case may be),
shall have been delivered to Rugby;
(d) Spin-Off. All of the conditions set forth in Section
6.1 shall have been fulfilled and Parent shall have consummated the Spin-Off;
(e) Ancillary Agreements. The Letter Agreement shall as
of the time of Closing be in full force and effect and enforceable against the
Crane Fund and the Company shall have executed and delivered to Rugby each of
the Registration Rights Agreement in the form attached to this Agreement as
Exhibit B and the Transition Services Agreement in the form attached to this
Agreement as Exhibit C;
(f) NYSE Listing. The Company Common Stock shall be
approved for listing on the New York Stock Exchange, Inc. or the Nasdaq Stock
Market, Inc., subject to official notice of issuance;
(g) Officers and Directors. As of the Closing (i) the
Board of Directors of the Company shall have nine members of which there shall
include that number of persons designated to serve thereon by Rugby as is, as of
its execution and delivery, required pursuant to the Registration Rights
Agreement and (ii) Stephen Brown shall have been appointed Chief Operating
Officer of the Company and the by-laws of the Company shall have been amended as
specified in Section 5.19; and
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(h) Financing Commitments. Rugby shall have received a
copy of the Financing Commitments in form and substance reasonably satisfactory
to Rugby.
6.4 Additional Conditions Precedent to Obligations of the
Company. The obligations of the Company to consummate the Exchange and the
Simultaneous Transactions are also subject to the fulfillment (or waiver in
writing by the Company) at or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. Each of the
representations and warranties of Rugby contained in Article 4 of this Agreement
shall, to the extent qualified by materiality or material adverse effect, be
true and correct in all respects, in either case, and to the extent not so
qualified shall be true and correct in all material respects as of the Closing
Date (except for such representations and warranties as are made as of a
specified date, which shall be true and correct in all respects or in all
material respects, as the case may be, as of such specified date);
(b) Covenants. All the covenants in this Agreement to be
complied with and performed by Rugby on or before the Closing Date shall have
been duly complied with and performed in all material respects;
(c) Officer's Certificates. A certificate to the effect
that the conditions set forth in Sections 6.4(a) and (b) have been fulfilled,
dated the Closing Date and signed by an authorized executive officer of Rugby,
on behalf of Rugby, shall have been delivered to the Company;
(d) Ancillary Agreements. Rugby shall have executed and
delivered to the Company each of the Registration Rights Agreement in the form
attached to this Agreement as Exhibit B and the Transition Services Agreement in
the form attached to this Agreement as Exhibit C; and
(e) Rugby Tax Payment. Rugby shall have performed the
covenant set forth in Section 5.22.
ARTICLE 7
INDEMNIFICATION
7.1 By Rugby. Subject to the terms and conditions of this
Article 7, Rugby hereby agrees to indemnify, defend and hold harmless the
Company and its directors, officers and employees (each a "COMPANY PARTY" and
collectively, the "COMPANY PARTIES"), from and against all Claims and Losses
asserted against, imposed upon, or incurred by any Company Party, directly or
indirectly, by reason of, arising out of, or resulting from (a) the Excluded
Assets and Liabilities or (b) the liabilities of Rugby USA described on Annex 5A
attached hereto.
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7.2 By Parent. Subject to the terms and conditions of this
Article 7, and except as otherwise specifically provided in the Spin-Off
Agreements, Parent shall indemnify, defend and hold harmless the Company Parties
from and against, and pay or reimburse, as the case may be, the Company Parties
for, all Indemnifiable Losses (as defined on Annex 5B), as incurred or suffered
by any Company Party based upon, arising out of, relating or otherwise in
connection with the items described on Annex 5B attached hereto. This Section
7.2 and the Spin-Off Agreements shall be enforceable by Rugby, acting on behalf
of the Company.
7.3 Notice of Claim.
(a) For purposes of this Article 7, the term
"INDEMNIFYING PARTY" when used in connection with a particular Claim or Loss
shall mean the Party having an obligation to indemnify another Person with
respect to such Claim or Loss pursuant to this Article 7, and the term
"INDEMNIFIED PARTY" when used in connection with a particular Claim or Loss
shall mean the Person having the right to be indemnified with respect to such
Claim or Loss by another party pursuant to this Article 7.
(b) Promptly after any Indemnified Party becomes aware of
facts giving rise to a Claim by it for indemnification pursuant to this Article
7, such Indemnified Party will provide notice thereof in writing to the
Indemnifying Party (a "CLAIM NOTICE") specifying the nature and specific basis
for such Claim and a copy of all papers served with respect to such Claim (if
any). For purposes of this Section 7.3(b), receipt by a party of written notice
of any demand, assertion, claim, action or proceeding (judicial, administrative
or otherwise) by or from any Person other than a Party to this Agreement which
gives rise to a Claim an behalf of such party (including the commencement of any
Tax audit) shall constitute the discovery of facts giving rise to a Claim by it
and shall require prompt notice of the receipt of such matter as provided in the
first sentence of this Section 7.3(b). The failure by an Indemnified Party to
notify an Indemnifying Party shall not be a defense to any indemnification
obligation unless the Indemnifying Party is able to demonstrate that actual and
material prejudice was suffered by the Indemnifying Party as a result of such
failure to notify. Each Claim Notice shall set forth a reasonable description of
the Claim as the Indemnified Party shall then have and shall contain a statement
to the effect that the Indemnified Party giving the notice is making a claim
pursuant to and formal demand for indemnification under this Article 7. The
Claim Notice must set forth the particular provision in this Article 7 and any
related provision in this Agreement pursuant to which such indemnification claim
is made.
7.4 Third Party Claims.
(a) If an Indemnified Party shall have any Claim asserted
against such Indemnified Party by a Person that is not a Party to this Agreement
(a "THIRD PARTY CLAIM"), the Indemnified Party promptly shall transmit to the
Indemnifying Party a Claim Notice relating to such Third Party Claim. Prior to
the expiration of the 45-day period following the Indemnifying Party's receipt
of such notice (the "ELECTION PERIOD"),
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Indemnifying Party shall notify the Indemnified Party whether the Indemnifying
Party disputes its potential liability to the Indemnified Party under this
Article 7 with respect to such Third Party Claim.
(b) If an Indemnifying Party notifies an Indemnified
Party within the Election Period that the Indemnifying Party does not dispute
its potential liability to the Indemnified Party under this Article 7, the
Indemnifying Party shall assume the defense of the Third Party Claim, at its
sole cost and expense, and shall prosecute such defense diligently to a final
conclusion or settle such Third Party Claim at the discretion of the
Indemnifying Party in accordance with this Section 7.4(b). The Indemnifying
Party shall have full control of such defense and proceedings, including any
compromise or settlement THEREOF; provided, however, that the Indemnifying Party
shall not consent to entry of any judgment or enter into any settlement (in
either case without the written consent of the Indemnified Party) that does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a complete and unconditional release from all
liability in respect of such claim or litigation or the effect of which is to
permit any injunction, declaratory judgment, other order or other nonmonetary
relief to be entered directly or indirectly, against any Indemnified Party. If
requested by the Indemnifying Party, the Indemnified Party agrees to cooperate
fully with the Indemnifying Party and its counsel at the Indemnifying Party's
expense in contesting any Third Party Claim that the Indemnifying Party elects
to contest, including, without limitation, the making of any related
counterclaim against the Person asserting the Third Party Claim or any
cross-complaint against any Person. The Indemnified Party shall have the right
to participate in, but not control, any defense or settlement of any Third Party
Claim controlled by the Indemnifying Party pursuant to this Section 7.4(b) and
shall bear its own costs and expenses with respect to any such participation.
7.5 Subrogation. In the event that any Indemnified Party has a
right against a Third Party with respect to any damages, losses, costs or
expenses paid to or on behalf of such Indemnified Party by an Indemnifying
Party, then such Indemnifying Party shall, to the extent of such payment, be
subrogated to the right of such Indemnified Party.
7.6 Offset. Indemnity obligations of any Indemnifying Party
shall be reduced by any Tax deduction, Tax credit or other Tax benefit or any
insurance proceeds realized by any Indemnified Party with respect to any Claim
or Loss for which the Indemnified Party seeks indemnification under this
Article 7.
ARTICLE 8
TERMINATION
8.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned as follows:
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(a) by the mutual written consent of Parent and Rugby at
any time prior to the consummation of the Spin-Off and of the Company and Rugby
at any time prior to the Closing;
(b) by any Party if a final, non-appealable order to
restrain, obtain or otherwise prevent the consummation of the transactions
contemplated hereby shall have been entered by any Governmental Authority of
competent jurisdiction;
(c) by any Party if the Closing shall not have occurred
on or before January 31, 2000 (the "TERMINATION DATE"); provided, that a Party
shall not be entitled to terminate this Agreement pursuant to this Section
8.1(c) if the failure results primarily from the breach by such Party of any of
its representations, warranties or covenants contained in this Agreement (and
the Company and Parent shall be deemed a single Party for purposes of this
Section 8.1(c)); and provided further that no Party may terminate this Agreement
solely pursuant to this Section 8.1(c) if, prior to the Termination Date, the
Spin-Off has been declared by the Board of Directors of Parent;
(d) by any Party, if the Requisite Rugby Vote fails to be
obtained at the Rugby Shareholders Meeting, including any adjournment or
postponement thereof;
(e) by Rugby, if any of the conditions set forth in
Sections 6.2 or 6.3 becomes incapable of being fulfilled before the Termination
Date, despite the exercise by the Parties of their reasonable best efforts to
cause such condition to be fulfilled;
(f) by Parent, if any of the conditions set forth in
Section 6.1 becomes incapable of being fulfilled before the Termination Date,
despite the exercise by the Parties of their reasonable best efforts to cause
such condition to be fulfilled;
(g) by the Company, if any of the conditions set forth in
Sections 6.2 or 6.4 becomes incapable of being fulfilled before the Termination
Date, despite the exercise by the Parties of their reasonable best efforts to
cause such condition to be fulfilled;
(h) by Parent or the Company, if (i) the Rugby Board
withdraws, modifies or changes its approval or recommendation of this Agreement
or the Exchange in a manner adverse to Parent or the Company or shall have
resolved to do so, (ii) the Rugby Board shall have recommended to the
stockholders of Rugby a Rugby USA Acquisition Proposal or shall have resolved to
do so or (iii) Rugby has entered into a definitive agreement to consummate a
Rugby USA Acquisition Proposal; or
(i) by Rugby, if the Rugby Board shall, following receipt
of written advice of independent legal counsel (who may be Rugby's regularly
engaged independent legal counsel) that failure to so terminate would cause the
Rugby Board to breach its fiduciary duties under applicable Laws or if an
unsolicited proposal for a Superior Rugby USA Acquisition has been made and
Rugby or Rugby USA enters into a definitive agreement to consummate such
Superior Rugby USA Acquisition;
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(j) by Parent or the Company, if (x) the Board of
Directors of Parent determines not to consummate the Spin-Off, (y) an
unsolicited proposal for a Superior Company Acquisition has been made and (z)
Parent or the Company enters into a definitive agreement to consummate such
Superior Company Acquisition; or
(k) by Rugby, if (x) the Board of Directors of Parent
resolves not to consummate the Spin-Off or (y) Parent or the Company has entered
into a definitive agreement to consummate a Superior Company Acquisition.
8.2 Effect of Termination. Except as provided in Section 10.1,
in the event of termination of this Agreement pursuant to Section 8.1, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of the Parent, the Company or Rugby or any of their
respective Representatives, and all rights and obligations of each Party hereto
shall cease, subject to the remedies of the parties set forth in Section 8.3;
provided, however, that nothing in this Agreement shall relieve any Party from
liability for the willful breach of any of its representations and warranties or
the breach of any of its covenants or agreements set forth in this Agreement.
8.3 Expenses Following Certain Termination Events.
(a) Except as set forth in this Section 8.3, all Expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid in accordance with the provisions of Section 5.15. For
purposes of this Agreement, "EXPENSES" consist of all out-of-pocket expenses
(including, all fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a Party hereto and its Affiliates) incurred by a
Party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement, the
Ancillary Agreements, the preparation, printing, filing and mailing of Form 10,
any Additional SEC Documents, the solicitation of the Requisite Rugby Vote and
the preparation, printing, filing and mailing of documents in connection
therewith and all other matters related to the closing of the transactions
contemplated hereby.
(b) If (i) Parent or the Company terminates this
Agreement pursuant to Section 8.1(h), (ii) Rugby terminates this Agreement
pursuant to Section 8.1(i) or (iii) Parent, the Company or Rugby terminates this
Agreement pursuant to Section 8.1(d) and within six months of termination
pursuant to Section 8.1(d) Rugby shall have entered into an agreement relating
to a Rugby USA Acquisition Proposal, then Rugby shall pay to Parent $5,000,000.
If Parent or the Company terminates this Agreement pursuant to Section 8.1(j) or
Rugby terminates this Agreement pursuant to Section 8.1(k), then Parent shall
pay to Rugby $5,000,000.
(c) Each of the Parties agrees that the payments provided
for in Section 8.3(b) shall be the sole and exclusive remedy of the Parties upon
a termination of this Agreement pursuant to Sections 8.1(d), 8.1(h), 8.1(i),
8.1(j) and 8.1(k), as the case may be,
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and such remedy shall be limited to the payment stipulated in Section 8.3(b);
provided, however, that nothing in this Agreement shall relieve any party from
liability for the willful breach of any of its representations and warranties or
the breach of any of its covenants or agreements set forth in this Agreement.
(d) Any payment required to be made pursuant to Section
8.3(b) shall be made not later than two business days after delivery of demand
for payment by the Party receiving payment to the other Party and shall be made
by wire transfer of immediately available funds to an account designated by the
Party receiving payment.
ARTICLE 9
BOARD ACTIONS
9.1 Rugby Board Actions. Notwithstanding any provision of this
Agreement to the contrary, to the extent required by the fiduciary obligations
of the Rugby Board under applicable Law, as determined by the Rugby Board in
good faith based on a written opinion of outside counsel or if the Rugby Board
determines that an unsolicited Rugby USA Acquisition Proposal has been made
which the Rugby Board determines, in good faith, based in part on the written
advice of either Rugby Financial Advisor (or another U.S. or U.K. nationally
recognized investment banking firm), is more favorable to Rugby and its
shareholders than the Exchange from a financial point of view (a "SUPERIOR RUGBY
USA ACQUISITION"), Rugby may:
(a) disclose to its shareholders any information required
to be disclosed under applicable Law;
(b) in response to an unsolicited request therefor,
participate in discussions or negotiations with respect to, furnish information
with respect to pursuant to a confidentiality agreement on terms not less
favorable to Rugby USA than the Confidentiality Agreement or otherwise respond
to or deal with any Person in connection with a Rugby USA Acquisition Proposal
or such proposal for a Superior Rugby USA Acquisition, as the case may be;
(c) approve or recommend (and in connection therewith
withdraw or modify its approval or recommendation of this Agreement and the
Exchange) a Rugby USA Acquisition Proposal or such proposal for a Superior Rugby
USA Acquisition, as the case may be, or enter into an agreement with respect to
a Rugby USA Acquisition Proposal or such Superior Rugby USA Acquisition, as the
case may be.
9.2 Parent Board Actions. Notwithstanding any provision of
this Agreement to the contrary, if the Board of Directors of Parent (the "PARENT
BOARD") determines that an unsolicited proposal for a Company Acquisition
Proposal has been made which the Parent Board determines, in good faith, based
in part on the written advice of the
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Parent Financial Advisor (or another U.S. nationally recognized investment
banking firm), is more favorable to Parent and its shareholders than the
Spin-Off and the Exchange from a financial point of view (a "SUPERIOR COMPANY
ACQUISITION"), Parent or the Company may:
(a) in response to an unsolicited request therefor,
participate in discussions or negotiations with respect to or furnish
information with respect to pursuant to a confidentiality agreement on terms not
less favorable to the Company than the Confidentiality Agreement or otherwise
respond to or deal with any Person in connection with such Superior Company
Acquisition; or
(b) enter into an agreement with respect to such Superior
Company Acquisition.
ARTICLE 10
MISCELLANEOUS
10.1 Survival. The representations, warranties and agreements
in this Agreement and in any certificate delivered under this Agreement shall
terminate upon the Closing or upon the termination of this Agreement under
Section 8.1, as the case may be, except that the agreements set forth in
Sections 2.2, 2.3, 5.7(b), 5.8, 5.9, 5.10, 5.11, 5.15, 5.16, 5.17 and 5.18 and
Articles 7 and 10 shall survive the Closing, those set forth in Sections 5.7(b),
5.15, 8.2 and 8.3 and Article 10 shall survive termination of this Agreement and
those set forth in Section 5.13 shall survive for a period of one year after
termination of this Agreement. Each Party agrees that, except for the
representations and warranties contained in this Agreement (together with the
Company Disclosure Letter and the Rugby Disclosure Letter), no Party has made
any other representations and warranties, and each Party disclaims any other
representations and warranties, made by itself or any of its officers,
directors, employees, agents, financial and legal advisors or other
representatives with respect to the execution and delivery of this Agreement or
the transactions contemplated by this Agreement, notwithstanding the delivery of
disclosure to any other Party or any Party's Representatives of any
documentation or other information with respect to any one or more of the
foregoing.
10.2 Waiver. Except as expressly provided in this Agreement,
neither the failure nor any delay on the part of any Party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, or of any
other right, power or remedy; nor shall any single or partial exercise of any
right, power or remedy preclude any further or other exercise thereof, or the
exercise of any other right, power or remedy. Except as expressly provided
herein, no waiver of any of the provisions of this Agreement shall be valid
unless it is in writing and signed by the Party against whom the waiver is
sought to be enforced.
10.3 Assignment. Neither this Agreement nor any rights or
obligations hereunder shall be assigned or transferred in any way whatsoever by
the Parties hereto except with the prior written consent of the other Parties
hereto, which consent such other Parties shall be under no obligation to grant,
and any assignment or attempted assignment without
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such consent shall have no force or effect with respect to the non-assigning
Party. Subject to the preceding sentence, this Agreement shall be binding on and
inure to the benefit of the Parties hereto and their successors and permitted
assigns.
10.4 Notices. Any and all notices or other communications
required or permitted under this Agreement shall be given in writing and
delivered in Person or sent by United States certified or registered mail,
postage prepaid, return receipt requested, or by overnight express mail, or by
telex, facsimile or telecopy to the address of such party set forth below. Any
such notice shall be effective upon receipt or three days after placed in the
mail, whichever is earlier.
If to Rugby:
The Rugby Group PLC
Crown House
Rugby CV 212 DT
England
Attention:
Facsimile No.: 011-44-1788-546726
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: Toby S. Myerson, Esq.
Facsimile No.: (212) 757-3990.
If to Parent:
Crane Co.
100 First Stamford Place
Stamford, CT 06902
Attention:
Facsimile No.: (203) 363-7295
with a copy to:
Kirkpatrick and Lockhart LLP
1500 Oliver Building
Pittsburgh, PA 15222
Attention: Janice C. Hartman, Esq.
Facsimile No.: (412) 355-6501.
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<PAGE>
If to the Company:
Huttig Building Products, Inc.
14500 South Outer Forty Road
Chesterfield, MO 63017
Attention:
Facsimile No.: (314) 216-2601
with a copy to:
Kirkpatrick and Lockhart LLP
1500 Oliver Building
Pittsburgh, PA 15222
Attention: Janice C. Hartman, Esq.
Facsimile No.: (412) 355-6501.
Any Party may, by notice so delivered, change its address
for notice purposes hereunder.
10.5 Governing Law, Venue and Waiver of Jury Trial.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCLUDING ANY CHOICE OF LAW
RULES THAT MAY DIRECT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. The
parties irrevocably submit to the jurisdiction of the federal courts of the
United States of America located in the State of New York solely in respect of
the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and in respect of the transactions
contemplated by this Agreement and by those documents, and hereby waive, and
agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement of this Agreement or of any such document, that it
is not subject to this Agreement or that such action, suit or proceeding may not
be brought or is not maintainable in said courts or that the venue thereof may
not be appropriate or that this Agreement or any such document may not be
enforced in or by such courts, and the parties hereto irrevocably agree that all
claims with respect to such action or proceeding shall be heard and determined
in such a federal court. The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 9.5 or in such other
manner as may be permitted by law, shall be valid and sufficient service
thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
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<PAGE>
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.6.
10.6 Further Assurances. After the Closing each Party hereto
at the reasonable request of the other Party hereto and without additional
consideration, shall execute and deliver, or shall cause to be executed and
delivered, from time to time, such further certificates, agreements or
instruments of conveyance and transfer, assumption, release and acquittance and
shall take such other action as the other Party hereto may reasonably request,
to consummate or implement the transactions contemplated by this Agreement.
10.7 Severability. If any provision of this Agreement is
invalid, illegal or unenforceable, the balance of this Agreement shall remain in
full force and effect and this Agreement shall be construed in all respects as
if such invalid, illegal or enforceable provision were omitted. If any provision
is inapplicable to any Person or circumstance, it shall, nevertheless, remain
applicable to all other Persons and circumstances.
10.8 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and which together
shall constitute but one and the same instrument.
10.9 Construction. Any section headings in this Agreement are
for convenience of reference only, and shall be given no effect in the
construction or interpretation of this Agreement or any provisions thereof. No
provision of this Agreement will be interpreted in favor of, or against, any
Party by reason of the extent to which any such Party or its counsel
participated in the doing thereof or by reason of the extent to which any such
provision is inconsistent with any prior draft hereof or thereof.
10.10 Entire Agreement; Amendment. This Agreement, the
Ancillary Agreements, the Company Disclosure Letter, the Rugby Disclosure
Letter, the exhibits and annexes hereto, each of which is deemed to be a part
hereof, and any other agreements, instruments or documents executed and
delivered by the Parties (or their Subsidiaries) pursuant to the express terms
of this Agreement or the Ancillary Agreements, constitute the entire agreement
and understanding between the Parties, and it is understood and agreed that all
previous undertakings, negotiations and agreements between the Parties regarding
the
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<PAGE>
subject matter hereof are merged herein. This Agreement may not be modified
orally, but only by an agreement in writing signed by each of the Parties.
10.11 No Third Party Beneficiaries. Except as provided in
Sections 5.9 and 7.2, nothing in this Agreement shall provide any benefit to any
third party or entitle any third party to any claim, cause of action, remedy or
right of any kind, it being the intent of the Parties that this Agreement shall
not be construed as a third party beneficiary contract.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed and
delivered this Agreement on the date first written above.
THE RUGBY GROUP PLC
By /s/ D. A. Harding
------------------------------------
Name: David A. Harding
Title: Group Finance Director
CRANE CO.
By /s/ R. S. Evans
------------------------------------
Name: R. S. Evans
Title: Chairman & CEO
HUTTIG BUILDING PRODUCTS, INC.
By /s/ B. J. Kulpa
------------------------------------
Name: B. J. Kulpa
Title: President & CEO
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<PAGE>
HUTTIG BUILDING PRODUCTS, INC.
and
CHASEMELLON SHAREHOLDER SERVICES, L.L.C., as Rights Agent
RIGHTS AGREEMENT
Dated as of ________________, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Section 1. Certain Definitions................................................. 1
Section 2. Appointment of Rights Agent......................................... 4
Section 3. Issue of Right Certificates......................................... 4
Section 4. Form of Right Certificates.......................................... 5
Section 5. Countersignature and Registration................................... 6
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates....... 6
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights....... 7
Section 8. Cancellation and Destruction of Right Certificates.................. 8
Section 9. Availability of Preferred Shares.................................... 8
Section 10. Preferred Shares Record Date........................................ 9
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights.. 9
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.......... 15
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power 15
Section 14. Fractional Rights and Fractional Shares............................. 16
Section 15. Rights of Action.................................................... 17
Section 16. Agreement of Right Holders.......................................... 17
Section 17. Right Certificate Holder Not Deemed a Stockholder................... 18
Section 18. Concerning the Rights Agent......................................... 18
Section 19. Merger or Consolidation or Change of Name of Rights Agent........... 19
Section 20. Duties of Rights Agent.............................................. 19
Section 21. Change of Rights Agent.............................................. 21
Section 22. Issuance of New Right Certificates.................................. 22
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 23. Redemption......................................................... 22
Section 24. Exchange............................................................ 23
Section 25. Notice of Certain Events............................................ 24
Section 26. Notices............................................................. 24
Section 27. Supplements and Amendments.......................................... 25
Section 28. Successors.......................................................... 26
Section 29. Benefits of this Agreement.......................................... 26
Section 30. Severability........................................................ 26
Section 31. Governing Law....................................................... 26
Section 32. Counterparts........................................................ 26
Section 33. Descriptive Headings................................................ 26
Section 34. Administration...................................................... 26
</TABLE>
Exhibit A - Form of Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
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<PAGE>
RIGHTS AGREEMENT
Agreement, dated as of ___________, 1999, between Huttig Building
Products, Inc., a Delaware corporation (the "Company"), and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent (the "Rights Agent").
WHEREAS, the Board of Directors of the Company has authorized and
declared a dividend of one preferred share purchase right (a "Right") for each
Common Share (as hereinafter defined) of the Company outstanding at the Close of
Business (as hereinafter defined) on ___________, 1999 (the "Record Date"), each
Right representing the right to purchase one one-hundredth of a Preferred Share
(as hereinafter defined), upon the terms and subject to the conditions herein
set forth, and has further authorized and directed the issuance of one Right
with respect to each Common Share that shall become outstanding between the
Record Date and the earliest of the Distribution Date, the Redemption Date and
the Final Expiration Date (as such terms are hereinafter defined).
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions.
For purposes of this Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 20% or more of the Common Shares
of the Company then outstanding, but shall not include Rugby, any Subsidiary (as
such term is hereinafter defined) of Rugby, the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or any Subsidiary of the
Company, or any entity holding Common Shares of the Company for or pursuant to
the terms of any such plan, The Crane Fund or The Crane Fund for Widows and
Children; provided, however, that the foregoing exception for Rugby and any
Subsidiary of Rugby shall be effective only for so long as Rugby and its
Affiliates and Associates shall beneficially own no Common Shares of the Company
other than (i) Common Shares of the Company acquired by Rugby or a Subsidiary of
Rugby pursuant to the Share Exchange Agreement dated as of October __, 1999
among the Company, Crane Co., and Rugby ("Share Exchange Shares"); and/or (ii)
Common Shares of the Company issued as a dividend on Share Exchange Shares or
issued in a reclassification, subdivision, consolidation, or combination of
Share Exchange Shares and/or (iii) additional Common Shares of the Company in an
aggregate amount not exceeding 1% of the Common Shares of the Company
outstanding at the time of acquisition of any Common Shares. Notwithstanding the
foregoing, no Person shall become an "Acquiring Person" as the result of an
acquisition of Common Shares by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 20% or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person shall become the Beneficial
Owner of 20% or more of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and shall, after such
<PAGE>
share purchases by the Company, become the Beneficial Owner of any additional
Common Shares of the Company, then such Person shall be deemed to be an
"Acquiring Person". Notwithstanding the foregoing, if the Board of Directors of
the Company determines in good faith that a Person who would otherwise be an
"Acquiring Person", as defined pursuant to the foregoing provisions of this
paragraph (a), has become such inadvertently, and such Person divests as
promptly as practicable a sufficient number of Common Shares so that such Person
would no longer be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed to be an
"Acquiring Person" for any purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other than
these Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted
for purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security if the agreement, arrangement or understanding to
vote such security (l) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not
also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates
or Associates has any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of
securities) for the purpose of acquiring, holding, voting (except to
the extent contemplated by the proviso to Section l(c)(ii)(B)) or
disposing of any securities of the Company.
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<PAGE>
Notwithstanding anything in this definition of Beneficial Owner to the
contrary, the phrase "then outstanding," when used with reference to a Person's
beneficial ownership of securities of the Company, shall mean the number of such
securities then issued and outstanding together with the number of such
securities not then actually issued and outstanding which such Person would be
deemed to own beneficially hereunder.
Notwithstanding the foregoing, none of the Company's directors or
officers shall be deemed to be the Beneficial Owner of, or to beneficially own,
any Common Shares of the Company owned by any other director or officer of the
Company solely by virtue of such persons acting in their capacities as such,
including, without limitation, in connection with any formulation and
publication of the Board of Directors' recommendation of a position, and any
actions taken in furtherance thereof, with respect to any acquisition proposal
relating to the Company, a tender or exchange offer for any Common Shares of the
Company or any solicitation of proxies with respect to any Common Shares of the
Company.
(d) "Business Day" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in New York, New York are authorized or
obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M. New York
time, on such date; provided, however, that if such date is not a Business Day
it shall mean 5:00 P.M. New York time, on the next succeeding Business Day.
(f) "Common Shares" when used with reference to the Company shall mean
the shares of common stock, par value $.01 per share, of the Company. "Common
Shares" when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in Section
3(a) hereof.
(h) "Final Expiration Date" shall have the meaning set forth in Section
7(a) hereof.
(i) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
(j) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $.01 per share, of the Company having
the rights and preferences set forth in the Form of Certificate of Designations,
Preferences and Rights of Series A Junior Participating Preferred Stock, a copy
of which is attached to this Agreement as Exhibit A.
(k) "Purchase Price" shall have the meaning set forth in Section 7(b)
hereof.
(l) "Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.
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<PAGE>
(m) "Rugby" shall mean Rugby and any entity surviving or resulting from
the merger or consolidation of Rugby.
(n) "Shares Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person has
become such.
(o) "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
Section 2. Appointment of Rights Agent.
The Company hereby appoints the Rights Agent to act as agent for the Company and
the holders of the Rights (who, in accordance with Section 3 hereof, shall prior
to the Distribution Date also be the holders of the Common Shares) in accordance
with the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable.
Section 3. Issue of Right Certificates.
(a) Until the earlier of (i) the tenth day after the Shares Acquisition
Date or (ii) the tenth Business Day (or such later date as may be determined by
action of the Board of Directors prior to such time as any Person becomes an
Acquiring Person) after the date of the commencement by any Person (other than
the Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, any entity holding Common Shares
for or pursuant to the terms of any such plan, The Crane Fund or The Crane Fund
for Widows and Children) of, or of the first public announcement of the
intention of any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or of any Subsidiary of the Company,
any entity holding Common Shares for or pursuant to the terms of any such plan,
The Crane Fund or The Crane Fund for Widows and Children) to commence, a tender
or exchange offer the consummation of which would result in any Person becoming
an Acquiring Person (including any such date which is after the date of this
Agreement and prior to the issuance of the Rights; the earlier of such dates
being herein referred to as the "Distribution Date"), (x) the Rights will be
evidenced (subject to the provisions of Section 3(b) hereof) by the certificates
for Common Shares of the Company registered in the names of the holders thereof
(which certificates shall also be deemed to be Right Certificates) and not by
separate Right Certificates, and (y) the right to receive Right Certificates
will be transferable only in connection with the transfer of Common Shares of
the Company. As soon as practicable after the Distribution Date, the Company
will prepare and execute, the Rights Agent will countersign, and the Company
will send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Shares of the Company as of the Close of Business on the Distribution Date, at
the address of such holder shown on the records of the Company, a Right
Certificate, in substantially the form of Exhibit B hereto (a "Right
Certificate"), evidencing one Right for each Common Share of the
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<PAGE>
Company so held. As of the Distribution Date, the Rights will be evidenced
solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares of the
Company as of the Close of Business on the Record Date, at the address of such
holder shown on the records of the Company. With respect to certificates for
Common Shares of the Company outstanding as of the Record Date, until the
Distribution Date, the Rights will be evidenced by such certificates registered
in the names of the holders thereof together with a copy of the Summary of
Rights attached thereto. Until the Distribution Date (or the earlier of the
Redemption Date or the Final Expiration Date), the surrender for transfer of any
certificate for Common Shares outstanding on the Record Date, with or without a
copy of the Summary of Rights attached thereto, shall also constitute the
transfer of the Rights associated with the Common Shares of the Company
represented thereby.
(c) Certificates for Common Shares of the Company which become
outstanding (including, without limitation, reacquired Common Shares of the
Company referred to in the last sentence of this paragraph (c)) after the Record
Date but prior to the earliest of the Distribution Date, the Redemption Date or
the Final Expiration Date shall have impressed on, printed on, written on or
otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Huttig
Building Products, Inc. and ChaseMellon [Securities], dated as of
___________, 1999 (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 Huttig Building Products, Inc.
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. Huttig Building Products, Inc. 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.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares of the Company
represented by such certificates shall be evidenced by such certificates alone,
and the surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares of the Company
represented thereby. In the event that the Company purchases or acquires any
Common Shares of the Company after the Record Date but prior to the Distribution
Date, any Rights associated with such Common Shares of the Company shall be
deemed canceled and retired so that the Company shall not be entitled to
exercise any Rights associated with the Common Shares of the Company which are
no longer outstanding.
Section 4. Form of Right Certificates.
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<PAGE>
The Right Certificates (and the forms of election to purchase Preferred Shares
and of assignment to be printed on the reverse thereof) shall be substantially
the same as Exhibit B hereto and may have such marks of identification or
designation and such legends, summaries or endorsements printed thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any applicable law or with
any rule or regulation made pursuant thereto or with any rule or regulation of
any stock exchange on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of Section 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of one
one-hundredths of a Preferred Share as shall be set forth therein at the
Purchase Price, but the number of such one one-hundredths of a Preferred Share
and the Purchase Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration.
The Right Certificates shall be executed on behalf of the Company by its
Chairman of the Board, its Chief Executive Officer, its President, its Chief
Operating Officer, any of its Vice Presidents or its Treasurer, either manually
or by facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof, and shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. In case any officer of the
Company who shall have signed any of the Right Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Right Certificates, nevertheless, may
be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
Subject to the provisions of Section 14 hereof, at any time after the Close of
Business on the Distribution Date, and at or prior to the Close of Business on
the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share as the Right Certificate or
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<PAGE>
Right Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any Right
Certificate or Right Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchanged at the principal
office of the Rights Agent. Thereupon the Rights Agent shall countersign and
deliver to the Person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) The registered holder of any Right Certificate may, subject to the
second paragraph of Section 11(a)(ii), exercise the Rights evidenced thereby
(except as otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase on the reverse side thereof duly executed, to the Rights
Agent at the principal office of the Rights Agent, together with payment of the
Purchase Price for each one one-hundredth of a Preferred Share as to which the
Rights are exercised, at or prior to the earliest of (i) the Close of Business
on _______________ (the "Final Expiration Date"), (ii) the time at which the
Rights are redeemed as provided in Section 23 hereof (the "Redemption Date"), or
(iii) the time at which such Rights are exchanged as provided in Section 24
hereof.
(b) The Purchase Price for each one one-hundredth of a Preferred Share
purchasable pursuant to the exercise of a Right shall initially be $______, and
shall be subject to adjustment from time to time as provided in Sections 11 and
13 hereof and shall be payable in lawful money of the United States of America
in accordance with paragraph (c) below (the "Purchase Price").
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by wire transfer, certified
check, cashier's check, official bank check or money order payable to the order
of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition
from any transfer agent of the Preferred Shares certificates for the number of
Preferred Shares to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, or
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<PAGE>
(B) requisition from the depository agent depository receipts representing such
number of one one-hundredths of a Preferred Share as are to be purchased (in
which case certificates for the Preferred Shares represented by such receipts
shall be deposited by the transfer agent with the depository agent) and the
Company hereby directs the depository agent to comply with such request, (ii)
when appropriate, requisition from the Company the amount of cash to be paid in
lieu of issuance of fractional shares in accordance with Section 14 hereof,
(iii) after receipt of such certificates or depository receipts, cause the same
to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to
such holder's duly authorized assigns, subject to the provisions of Section 14
hereof.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent, shall be canceled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company, or shall, at the written request
of the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares.
The Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued Preferred Shares or any Preferred
Shares held in its treasury, the number of Preferred Shares that will be
sufficient to permit the exercise in full of all outstanding Rights in
accordance with Section 7. The Company covenants and agrees that it will take
all such action as may be necessary to ensure that all Preferred Shares
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such Preferred Shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a Person other than, or the
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issuance or delivery of certificates or depository receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depository receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax is due.
Section 10. Preferred Shares Record Date.
Each Person in whose name any certificate for Preferred Shares is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Preferred Shares represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes) was made; provided, however, that if the date of such
surrender and payment is a date upon which the Preferred Shares transfer books
of the Company are closed, such Person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Shares transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a holder of
Preferred Shares for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights.
The Purchase Price, the number of Preferred Shares or other securities covered
by each Right and the number of Rights outstanding are subject to adjustment
from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, such holder would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less
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than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any Person
becomes an Acquiring Person, each holder of a Right shall thereafter have a
right to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred Shares, such number of Common Shares of
the Company as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable and dividing that product by (y) 50% of
the then current per share market price of the Company's Common Shares
(determined pursuant to Section 11(d) hereof) on the date of the occurrence of
such event; provided, however, that if the transaction that would otherwise give
rise to the foregoing adjustment is also subject to the provisions of Section 13
hereof, then only the provisions of Section 13 hereof shall apply and no
adjustment shall be made pursuant to this Section 11(a)(ii). In the event that
any Person shall become an Acquiring Person and the Rights shall then be
outstanding, the Company shall not take any action which would eliminate or
diminish the benefits intended to be afforded by the Rights.
From and after the occurrence of such event, any Rights that are or
were acquired or beneficially owned by any Acquiring Person (or any Associate or
Affiliate of such Acquiring Person) shall be void and any holder of such Rights
shall thereafter have no right to exercise such Rights under any provision of
this Agreement. No Right Certificate shall be issued pursuant to Section 3 that
represents Rights beneficially owned by an Acquiring Person whose Rights would
be void pursuant to the preceding sentence or any Associate or Affiliate
thereof; no Right Certificate shall be issued at any time upon the transfer of
any Rights to an Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any Associate or Affiliate thereof or to any nominee of
such Acquiring Person, Associate or Affiliate; and any Right Certificate
delivered to the Rights Agent for transfer to an Acquiring Person whose Rights
would be void pursuant to the preceding sentence shall be canceled.
(iii) In the event that there shall not be sufficient Common Shares of
the Company issued but not outstanding or authorized but unissued to permit the
exercise in full of the Rights in accordance with the foregoing subparagraph
(ii), the Company shall take all such action as may be necessary to authorize
additional Common Shares of the Company for issuance upon exercise of the
Rights. In the event the Company shall, after good faith effort, be unable to
take all such action as may be necessary to authorize such additional Common
Shares of the Company, the Company shall substitute, for each Common Share of
the Company that would otherwise be issuable upon exercise of a Right, a number
of Preferred Shares or fraction thereof such that the current per share market
price of one Preferred Share multiplied by such number or fraction is equal to
the current per share market price of one Common Share of the Company as of the
date of issuance of such Preferred Shares or fraction thereof.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares
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having the same rights, privileges and preferences as the Preferred Shares
("equivalent preferred shares")) or securities convertible into Preferred Shares
or equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
then current per share market price of the Preferred Shares (as defined in
Section 11(d) hereof) on such record date, the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the number of Preferred Shares outstanding on such record date
plus the number of Preferred Shares which the aggregate offering price of the
total number of Preferred Shares and/or equivalent preferred shares so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price and the
denominator of which shall be the number of Preferred Shares outstanding on such
record date plus the number of additional Preferred Shares and/or equivalent
preferred shares to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible); provided,
however, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital stock
of the Company issuable upon exercise of one Right. In case such subscription
price may be paid in a consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent. Preferred Shares owned by
or held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such rights, options
or warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
current per share market price of the Preferred Shares; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
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(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the thirty (30) consecutive
Trading Days (as such term is hereinafter defined) which fall within the
one-year period ending on such date and have the lowest such average; provided,
however, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the issuer
of such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security and prior to the
expiration of thirty (30) Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other
system then in use, or, if on any such date the Security is not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Security selected by the
Board of Directors of the Company. The term "Trading Day" shall mean a day on
which the principal national securities exchange on which the Security is listed
or admitted to trading is open for the transaction of business or, if the
Security is not listed or admitted to trading on any national securities
exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "current per
share market price" of the Preferred Shares shall be determined in accordance
with the method set forth in Section 11(d)(i). If the Preferred Shares are not
publicly traded, the "current per share market price" of the Preferred Shares
shall be conclusively deemed to be the current per share market price of the
Common Shares of the Company as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by one hundred. If
neither the Common Shares of the Company nor the Preferred Shares are publicly
held or so listed or traded, "current per share market price" shall mean the
fair value per share as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a statement filed with
the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
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Preferred Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share (calculated to the nearest one one-millionth of a Preferred
Share) obtained by (i) multiplying (x) the number of one one-hundredths of a
share covered by a Right immediately prior to this adjustment by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such
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<PAGE>
record date Right Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Right
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Right Certificates evidencing
all the Rights to which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein and shall be registered in the
names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a Preferred Share issuable upon the exercise
of the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-hundredths of a
Preferred Share which were expressed in the initial Right Certificates issued
hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, dividends on
Preferred Shares payable in Preferred Shares or issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such stockholders.
(n) In the event that at any time after the date of this Agreement and
prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares of the Company payable in Common Shares of the
Company or (ii) effect a subdivision, combination or consolidation of the Common
Shares of the Company (by reclassification or
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otherwise than by payment of dividends in Common Shares of the Company) into a
greater or lesser number of Common Shares of the Company, then in any such case
(A) the number of one one-hundredths of a Preferred Share purchasable after such
event upon proper exercise of each Right shall be determined by multiplying the
number of one one-hundredths of a Preferred Share so purchasable immediately
prior to such event by a fraction, the numerator of which is the number of
Common Shares of the Company outstanding immediately before such event and the
denominator of which is the number of Common Shares of the Company outstanding
immediately after such event, and (B) each Common Share of the Company
outstanding immediately after such event shall have issued with respect to it
that number of Rights which each Common Share of the Company outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares of the
Company or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
In the event, directly or indirectly, at any time after a Person has become an
Acquiring Person, (a) the Company shall consolidate with, or merge with and
into, any other Person, (b) any Person shall consolidate with the Company, or
merge with and into the Company and the Company shall be the continuing or
surviving corporation of such merger and, in connection with such merger, all or
part of the Common Shares of the Company shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person other than the Company or one or more of its wholly-owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that (i) each holder of a Right (other than Rights which have become void
pursuant to Section 11(a)(ii) hereof) shall thereafter have the right to
receive, upon the exercise thereof at a price equal to the then current Purchase
Price multiplied by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of Preferred Shares, such number of Common Shares of such
other Person (including the Company as successor thereto or as the surviving
corporation) as shall equal the result obtained by (A) multiplying the then
current Purchase Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable and dividing that product by (B) 50% of
the then current per share market price of the Common Shares of such other
Person (determined pursuant to Section 11(d)
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<PAGE>
hereof) on the date of consummation of such consolidation, merger, sale or
transfer; (ii) the issuer of such Common Shares shall thereafter be liable for,
and shall assume, by virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Company pursuant to this Agreement; (iii) the
term "Company" shall thereafter be deemed to refer to such issuer; and (iv) such
issuer shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares to permit the exercise in full of all
outstanding Rights in accordance with this Agreement) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to the
Common Shares thereafter deliverable upon the exercise of the Rights. The
Company shall not consummate any such consolidation, merger, sale or transfer
unless prior thereto the Company and such issuer shall have executed and
delivered to the Rights Agent a supplemental agreement so providing. The Company
shall not enter into any transaction of the kind referred to in this Section 13
if at the time of such transaction there are any rights, warrants, instruments
or securities outstanding or any agreements or arrangements which, as a result
of the consummation of such transaction, would eliminate or substantially
diminish the benefits intended to be afforded by the Rights. The provisions of
this Section 13 shall similarly apply to successive mergers or consolidations or
sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred
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Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share). Fractions of Preferred Shares in integral multiples of
one one-hundredth of a Preferred Share may, at the election of the Company, be
evidenced by depository receipts, pursuant to an appropriate agreement between
the Company and a depository selected by it; provided, that such agreement shall
provide that the holders of such depository receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Preferred Shares represented by such depository receipts. In lieu of
fractional Preferred Shares that are not integral multiples of one one-hundredth
of a Preferred Share, the Company shall pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one Preferred
Share. For the purposes of this Section 14(b), the current market value of a
Preferred Share shall be the closing price of a Preferred Share (as determined
pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly
waives such holder's right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action.
All rights of action in respect of this Agreement, excepting the rights of
action given to the Rights Agent under Section 18 hereof, are vested in the
respective registered holders of the Right Certificates (and, prior to the
Distribution Date, the registered holders of the Common Shares of the Company);
and any registered holder of any Right Certificate (or, prior to the
Distribution Date, of the Common Shares of the Company), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares of the Company), may, in such
holder's own behalf and for such holder's own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, such holder's right to exercise the
Rights evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders.
Every holder of a Right, by accepting the same, consents and agrees with the
Company and the Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares of the Company;
- 17 -
<PAGE>
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent.
The Company agrees to pay to the Rights Agent reasonable compensation for all
services rendered by it hereunder and, from time to time, on demand of the
Rights Agent, its reasonable expenses and counsel fees and other disbursements
incurred by the Rights Agent in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability, obligation, damage or expense (including reasonable
attorneys' fees and other professional services) (collectively, "Losses"),
incurred without negligence, bad faith or willful misconduct on the part of the
Rights Agent, for anything done or omitted by the Rights Agent in connection
with the acceptance and administration of this Agreement, including, without
limitation, the costs and expenses of defending against any claim of liability
in the premises.
The Rights Agent shall be protected and shall incur no liability and
shall be indemnified for and held harmless against any and all Losses for, or in
respect of, any action taken, suffered or omitted by it in connection with, its
administration of this Agreement (i) in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified
- 18 -
<PAGE>
or acknowledged, by the proper person or persons, or (ii) otherwise upon the
advice of counsel as set forth in Section 20 hereof. Anything in this Agreement
to the contrary notwithstanding, in no event shall the Rights Agent be liable
for special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Rights Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation or other Person into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation or other Person resulting from any merger or consolidation to which
the Rights Agent or any successor Rights Agent shall be a party, or any
corporation or other Person succeeding to the stock transfer or corporate trust
business of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto;
provided, that such corporation or other Person would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent.
The Rights Agent undertakes the duties and obligations imposed by this Agreement
upon the following terms and conditions, by all of which the Company and the
holders of Right Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with or in reliance on such
opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established
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<PAGE>
by the Company prior to taking, suffering or omitting any action hereunder, such
fact or matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate in form reasonably satisfactory to the Rights Agent signed by any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Treasurer or the Secretary of the Company and delivered
to the Rights Agent; and such certificate shall be full authorization to the
Rights Agent for any action taken, suffered or omitted to be taken in good faith
by it under the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in
the terms of the Rights (including the manner, method or amount thereof)
provided for in this Agreement, or the ascertaining of the existence of facts
that would require any such change or adjustment (except with respect to the
exercise of Rights evidenced by Right Certificates after actual notice that such
change or adjustment is required); nor shall it be responsible for any
determination of the market value of the Rights or any Common Shares of the
Company pursuant to the provisions hereof; nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any Preferred Shares to be issued pursuant to this Agreement or
any Right Certificate or as to whether any Preferred Shares will, when issued,
be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Secretary or the Treasurer of the Company, and to apply
to such officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken, or suffered or omitted by it in
good faith in accordance with instructions of any such officer or for any delay
in acting while waiting for those instructions.
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<PAGE>
(h) The Rights Agent and any stockholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
Section 21. Change of Rights Agent.
The Rights Agent or any successor Rights Agent may resign and be discharged from
its duties under this Agreement upon thirty (30) days' notice in writing mailed
to the Company and to each transfer agent of the Common Shares of the Company or
Preferred Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. The Company may remove the Rights Agent
or any successor Rights Agent upon thirty (30) days' notice in writing, mailed
to the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Shares of the Company or Preferred Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of thirty (30) days after giving notice of such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit such holder's Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be (i) a corporation organized and doing business under the laws of the
United States or of any state of the United States so long as such corporation
is authorized to do business as a banking institution under such laws, in good
standing, which is authorized under such laws to exercise corporate trust or
stock transfer powers and is subject to supervision or examination by federal or
state authorities and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million or (ii) an affiliate of an
institution that satisfies the requirements set forth in clause (i) of this
sentence. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights
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<PAGE>
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Shares of the
Company or Preferred Shares, and mail a notice thereof in writing to the
registered holders of the Right Certificates. Failure to appoint a successor
Rights Agent or to give any notice provided for in this Section 21, however, or
any defect therein, shall not affect the legality or validity of the resignation
or removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
Section 23. Redemption.
(a) The Board of Directors of the Company may, at its option, at any
time prior to such time as any Person becomes an Acquiring Person, redeem all
but not less than all the then outstanding Rights at a redemption price of $.01
per Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"). The redemption of the Rights
by the Board of Directors 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.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. The Company shall promptly
give public notice of any such redemption; provided, however, that the failure
to give, or any defect in, any such notice shall not affect the validity of such
redemption. Within ten (10) days after such action of the Board of Directors
ordering the redemption of the Rights, the Company shall mail a notice of
redemption to all the holders of the then outstanding Rights at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares of the Company. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any time in
any manner other than that specifically set forth in this Section 23 or in
Section 24 hereof, and other than in connection with the purchase of Common
Shares of the Company prior to the Distribution Date.
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<PAGE>
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its option, at any
time after any Person becomes an Acquiring Person, exchange all or part of the
then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 11(a)(ii) hereof) for
Common Shares of the Company at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time after any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or any such Subsidiary, or any entity
holding Common Shares of the Company for or pursuant to the terms of any such
plan, The Crane Fund or The Crane Fund for Widows and Children), together with
all Affiliates and Associates of such Person, becomes the Beneficial Owner of
50% or more of the Common Shares of the Company then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to paragraph (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares of the Company
equal to the number of such Rights held by such holder multiplied by the
Exchange Ratio. The Company shall promptly give public notice of any such
exchange; provided, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the Common Shares of the Company for
Rights will be effected and, in the event of any partial exchange, the number of
Rights which will be exchanged. Any partial exchange shall be effected pro rata
based on the number of Rights (other than Rights which have become void pursuant
to the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares of
the Company issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
Common Shares of the Company for issuance upon exchange of the Rights. In the
event the Company shall, after good faith effort, be unable to take all such
action as may be necessary to authorize such additional Common Shares of the
Company, the Company shall substitute, for each Common Share of the Company that
would otherwise be issuable upon exchange of a Right, a number of Preferred
Shares or fraction thereof such that the current per share market price of one
Preferred Share multiplied by such number or fraction is equal to the current
per share market price of one Common Share of the Company as of the date of
issuance of such Preferred Shares or fraction thereof.
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<PAGE>
(d) The Company shall not be required to issue fractions of Common
Shares of the Company or to distribute certificates which evidence fractional
Common Shares of the Company. In lieu of such fractional Common Shares, the
Company shall pay to the registered holders of the Right Certificates with
regard to which such fractional Common Shares of the Company would otherwise be
issuable an amount in cash equal to the same fraction of the current market
value of a whole Common Share of the Company. For the purposes of this paragraph
(d), the current market value of a whole Common Share shall be the closing price
of a Common Share of the Company (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose (i) to pay any dividend payable
in stock of any class to the holders of its Preferred Shares or to make any
other distribution to the holders of its Preferred Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares
rights or warrants to subscribe for or to purchase any additional Preferred
Shares or shares of stock of any class or any other securities, rights or
options, (iii) to effect any reclassification of its Preferred Shares (other
than a reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, or to effect
any sale or other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer), in one or more transactions, of 50% or more
of the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to, any other Person, (v) to effect the liquidation, dissolution or
winding up of the Company, or (vi) to declare or pay any dividend on the Common
Shares of the Company payable in Common Shares of the Company or to effect a
subdivision, combination or consolidation of the Common Shares of the Company
(by reclassification or otherwise than by payment of dividends in Common Shares
of the Company), then, in each such case, the Company shall give to each holder
of a Right Certificate, in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares of the Company and/or Preferred
Shares, if any such date is to be fixed, and such notice shall be so given in
the case of any action covered by clause (i) or (ii) above at least ten (10)
days prior to the record date for determining holders of the Preferred Shares
for purposes of such action, and in the case of any such other action, at least
ten (10) days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of the Common Shares of the Company
and/or Preferred Shares, whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices.
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<PAGE>
Notices or demands authorized by this Agreement to be given or made by the
Rights Agent or by the holder of any Right Certificate to or on the Company
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:
Huttig Building Products, Inc.
14500 South Outer Forty Road, Suite 400
Chesterfield, MO 63017
Attention: President
With a copy to:
[to be inserted]
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
ChaseMellon Shareholder Services, L.L.C.
450 West 33rd Street
New York, NY 10001
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments.
The Company may from time to time and the Rights Agent shall, if the Company so
directs, supplement or amend this Agreement without the approval of any holders
of Right Certificates in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provisions herein, or to make any other provisions with respect to the
Rights which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights (other than any
Acquiring Person and its Affiliates and Associates). Without limiting the
foregoing, the Company may at any time prior to such time as any Person becomes
an Acquiring Person amend this Agreement to (a) lower the thresholds set forth
in Sections l(a) and 3(a) hereof from 20% to not less than the greater of (i)
any percentage greater than the largest percentage of the outstanding Common
Shares of the Company then known by the Company to be beneficially owned by any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the
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<PAGE>
Company, any entity holding Common Shares of the Company for or pursuant to the
terms of any such plan or any Person who is not deemed an Acquiring Person) and
(ii) 10%, (b) fix a Final Expiration Date later than the date set forth in
Section 7 hereof, (c) reduce the Redemption Price or (d) increase the Purchase
Price.
Section 28. Successors.
All the covenants and provisions of this Agreement by or for the benefit of the
Company or the Rights Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
Section 29. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any Person other than
the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares of the
Company) any legal or equitable right, remedy or claim under this Agreement; but
this Agreement shall be for the sole and exclusive benefit of the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares of the Company).
Section 30. Severability.
If any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
Section 31. Governing Law.
This Agreement and each Right Certificate issued hereunder shall be deemed to be
a contract made under the laws of the State of Delaware and for all purposes
shall be governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such State.
Section 32. Counterparts.
This Agreement may be executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument.
Section 33. Descriptive Headings.
Descriptive headings of the several Sections of this Agreement are inserted for
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
Section 34. Administration.
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<PAGE>
The Board of Directors of the Company shall have the exclusive power and
authority to administer and interpret the provisions of this Agreement and to
exercise all rights and powers specifically granted to the Board of Directors of
the Company or to the Company or as may be necessary or advisable in the
administration of this Agreement. All such actions, calculations, determinations
and interpretations which are done or made by the Board of Directors of the
Company in good faith shall be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights and all other parties and shall not
subject the Board of Directors of the Company to any liability to the holders of
the Rights.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
HUTTIG BUILDING PRODUCTS, INC.
Attest:
By: By:
Title: Title:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
Attest:
By: By:
Title: Title:
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<PAGE>
Exhibit A
FORM
of
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
HUTTIG BUILDING PRODUCTS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
-------------------------------------------------
Huttig Building Products, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter called
the "Corporation"), hereby certifies that the following resolution was adopted
by the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on __________, 1999:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Restated
Certificate of Incorporation of the Corporation, the Board of Directors hereby
creates a series of Preferred Stock, par value $.01 per share (the "Preferred
Stock"), of the Corporation and hereby states the designation and number of
shares, and fixes the relative rights, preferences, and limitations thereof as
follows:
Series A Junior Participating Preferred Stock:
Section . Designation and Amount. The shares of this series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be ________. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any other stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends,
the holders of shares of Series A Preferred Stock, in preference to
the holders of Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the
<PAGE>
purpose, quarterly dividends payable in cash on the first day of
March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing
on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of
(a) $1 or (b) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends,
and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on
the Common Stock since the immediately preceding Quarterly Dividend
Payment Date or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on
the Series A Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common
Stock); provided that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date
for the first Quarterly Dividend Payment Date, in which case dividends
on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time
A-2
<PAGE>
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate
of Designations creating a series of Preferred Stock or any similar
stock, in the Restated Certificate of Incorporation of the Corporation
or by law, the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the
Corporation having general voting rights shall vote together as one
class on all matters submitted to a vote of stockholders of the
Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock;
A-3
<PAGE>
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except dividends paid ratably
on the Series A Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock, provided that the Corporation may at
any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the
Corporation ranking junior (as to dividends and upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A Preferred
Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith
will result in fair and equitable treatment among the respective
series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Restated Certificate of Incorporation, or in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall have received
$100 per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of
A-4
<PAGE>
stock ranking on a parity (upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of Preferred Stock.
Section 10. Amendment. The Restated Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
A-5
<PAGE>
IN WITNESS WHEREOF, Huttig Building Products, Inc. has caused this
Certificate of Designations of Series A Junior Participating Preferred Stock to
be duly executed by its President and Chief Executive Officer this ____ day of
___________, 1999.
Huttig Building Products, Inc.
-------------------------------------
Barry J. Kulpa
President and Chief Executive Officer
A-6
<PAGE>
Exhibit B
Form of Right Certificate
Certificate No. R- ____________ Rights
NOT EXERCISABLE AFTER _______________ OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT
AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER
CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
OWNED BY ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED
IN THE RIGHTS AGREEMENT) SHALL BECOME NULL AND VOID.
Right Certificate
HUTTIG BUILDING PRODUCTS, INC.
This certifies that _______________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of ___________, 1999 (the "Rights Agreement"),
between Huttig Building Products, Inc., a Delaware corporation (the "Company"),
and ChaseMellon [Securities] (the "Rights Agent"), to purchase from the Company
at any time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., Eastern time, on _______________ at the
principal office of the Rights Agent, or at the office of its successor as
Rights Agent, one one-hundredth of a fully paid non-assessable share of Series A
Junior Participating Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of the Company, at a purchase price of $____ per one one-hundredth of
a Preferred Share (the "Purchase Price"), upon presentation and surrender of
this Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Right Certificate (and the number of one
one-hundredths of a Preferred Share which may be purchased upon exercise hereof)
set forth above, and the Purchase Price set forth above, are the number and
Purchase Price as of ___________, 1999, based on the Preferred Shares as
constituted at such date. As provided in the Rights Agreement, the Purchase
Price and the number of one one-hundredths of a Preferred Share which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain events.
<PAGE>
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate (i) may be redeemed by the Company at a redemption price of
$.01 per Right or (ii) may be exchanged in whole or in part for Preferred Shares
or shares of the Company's Common Stock, par value $.01 per share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depository receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
B-2
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of _______________, ____.
ATTEST: HUTTIG BUILDING PRODUCTS, INC.
By
Countersigned:
ChaseMellon Shareholder Services, L.L.C.
By
----------------------------------
Authorized Signature
B-3
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if
such holder desires to transfer the Right
Certificate.)
FOR VALUE RECEIVED ________________________________ hereby sells,
assigns and transfers unto ________________________________
________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ____________________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: ____________, ____
------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible institution (a bank,
stockbroker, savings and loan association or credit union with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15 of the
Securities Exchange Act of 1934.
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
------------------------
Signature
B-4
<PAGE>
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise Rights represented by the Right
Certificate.)
To: HUTTIG BUILDING PRODUCTS, INC.
The undersigned hereby irrevocably elects to exercise ___________
Rights represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
________________________________________________________________
(Please print name and address)
________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________
(Please print name and address)
________________________________________________________________
Dated: ______________, ____
------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible institution (a bank,
stockbroker, savings and loan association or credit union with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15 of the
Securities Exchange Act of 1934.
B-5
<PAGE>
Form of Reverse Side of Right Certificate -- continued
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
------------------------
Signature
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
B-6
<PAGE>
Exhibit C
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS
AGREEMENT, RIGHTS OWNED BY ANY PERSON WHO IS OR BECOMES AN
ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) SHALL
BECOME NULL AND VOID
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On ___________, 1999 the Board of Directors of Huttig Building
Products, Inc. (the "Company") declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of common stock, par value
$.01 per share (the "Common Shares"), of the Company. The dividend is payable on
___________, 1999 (the "Record Date") to the stockholders of record on that
date. Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $.01 per share (the "Preferred Shares"), of the Company at a price of
$_______ per one one-hundredth of a Preferred Share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement dated as of ___________, 1999 (the "Rights Agreement")
between the Company and ChaseMellon [Securities], as Rights Agent (the "Rights
Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons have
acquired beneficial ownership of 20% (which percentage may be reduced pursuant
to the Rights Agreement) or more of the outstanding Common Shares of the Company
(an "Acquiring Person") or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any person
or group of affiliated persons 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 the beneficial
ownership by a person or group of 20% (which percentage may be reduced pursuant
to the Rights Agreement) or more of the outstanding Common Shares (the earlier
of such dates being called the "Distribution Date"), the Rights will be
evidenced, with respect to any of the Common Share certificates outstanding as
of the Record Date, by such Common Share certificate with a copy of this Summary
of Rights attached thereto. The Rights Agreement provides that subject to
specific terms set forth in the Rights Agreement, Rugby shall not be deemed an
Acquiring Person so long as it owns no Common Shares other than Common Shares
acquired pursuant to the Share Exchange Agreement dated as of October ___, 1999
and/or Common Shares issued as a dividend or in a reclassification, subdivision,
consolidation, or combination with respect to such Common Shares.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Record Date upon transfer or new issuance of Common Shares 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
<PAGE>
of any certificates for Common Shares outstanding as of the Record Date, even
without such notation or a copy of this Summary of Rights being attached
thereto, will also constitute the transfer of the Rights associated with the
Common Shares represented by such certificate. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Shares as of
the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on _______________ (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then-current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each Preferred
Share will have 100 votes, voting together with the Common Shares. Finally, in
the event of any merger, consolidation or other transaction in which Common
Shares are exchanged, each Preferred Share will be entitled to receive 100 times
the amount received per Common Share. These rights are protected by customary
antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one Common Share.
C-2
<PAGE>
In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, the Rights Agreement provides that 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 (subject to adjustment) upon exercise that
number of Common Shares 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 such person or group of 50% or more of the
outstanding Common Shares, the Board of Directors of the Company 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 Common Share, or
one one-hundredth of a Preferred Share (or of a share of a class or series of
the Company's preferred stock having equivalent rights, preferences and
privileges), per Right (subject to adjustment).
The Rights Agreement provides that none of the Company's directors or
officers shall be deemed to beneficially own any Common Shares owned by any
other director or officer by virtue of such persons acting in their capacities
as such, including in connection with the formulation and publication of the
Board of Directors recommendation of its position, and actions taken in
furtherance thereof, with respect to an acquisition proposal relating to the
Company or a tender or exchange offer for the Common Shares.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its 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 will thereafter have the
right to receive, upon the exercise thereof 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 such 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
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at the election of the Company, be evidenced by depository
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to such time as a Person becomes an Acquiring Person,
the Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time on such basis with such conditions
as the Board of Directors in its sole discretion may establish.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to (a) lower certain thresholds described above to not less than the greater of
(i) the largest percentage of the outstanding Common Shares then known to the
Company to be beneficially owned by any person or group of affiliated or
associated persons (other than persons not deemed an Acquiring Person)
C-3
<PAGE>
and (ii) 10%, (b) fix a Final Expiration Date later than _______________, (c)
reduce the Redemption Price or (d) increase the Purchase Price, except that from
and after such time as any person or group of affiliated or associated persons
becomes an Acquiring Person no such amendment may adversely affect the interests
of the holders of the Rights (other than the Acquiring Person and its affiliates
and associates).
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 10 dated
_______, 1999. A copy of the Rights Agreement is available free of charge from
the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is hereby incorporated herein by reference.
C-4
<PAGE>
EMPLOYEE MATTERS AGREEMENT
BETWEEN
CRANE CO.
AND
HUTTIG BUILDING PRODUCTS, INC.
DATED AS OF _______________, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I DEFINITIONS.............................................................................................1
1.1 Adverse Change.............................................................................................1
1.2 Affected Pension Plan Participants.........................................................................1
1.3 Agreement..................................................................................................1
1.4 ASO Contract...............................................................................................1
1.5 Award .....................................................................................................2
1.6 Benefit Liabilities........................................................................................2
1.7 Close of the Distribution Date.............................................................................2
1.8 COBRA .....................................................................................................2
1.9 Code ......................................................................................................2
1.10 Crane Entity..............................................................................................2
1.11 Crane Hourly Pension Plan.................................................................................2
1.12 Crane Restricted Stock Plan...............................................................................2
1.13 Crane Salaried Pension Plan...............................................................................2
1.14 Crane Savings Plan........................................................................................2
1.15 Crane Stock Option Plan...................................................................................2
1.16 Crane Stock Value.........................................................................................2
1.17 Distribution Agreement....................................................................................3
1.18 ERISA ....................................................................................................3
1.19 EVA Plan..................................................................................................3
1.20 Group Insurance Policies..................................................................................3
1.21 Group Life Program........................................................................................3
1.22 Health and Welfare Plans..................................................................................3
1.23 Huttig Employee Stock Purchase Plan.......................................................................3
1.24 Huttig Entity.............................................................................................3
1.25 Huttig Individual.........................................................................................3
1.26 Huttig Savings & Profit Sharing Plan......................................................................3
1.28 Huttig Stock Incentive Plan...............................................................................4
1.29 Huttig Stock Value........................................................................................4
1.30 Immediately After the Distribution Date...................................................................4
1.31 IRS ......................................................................................................4
1.32 Option ...................................................................................................4
1.32 Option Ratio..............................................................................................4
1.33 Plan .....................................................................................................4
1.34 Ratio ....................................................................................................4
ARTICLE II GENERAL PRINCIPLES.....................................................................................4
2.1 Assumption of Liabilities..................................................................................4
2.2 Establishment of Huttig Plans and Related Trusts...........................................................5
2.3 Terms of Participation by Huttig Individuals in Huttig Plans...............................................5
<PAGE>
ARTICLE III DEFINED BENEFIT PLANS.................................................................................5
3.1 Freezing of Pension Plan Benefits..........................................................................5
3.2 Vesting and Crediting Service Under Crane's Pension Plans..................................................6
ARTICLE IV DEFINED CONTRIBUTION PLANS.............................................................................6
4.1 Savings and Profit Sharing Plan............................................................................6
4.2 Other Defined Contribution Plans...........................................................................7
ARTICLE V HEALTH AND WELFARE PLANS................................................................................7
5.1 General Provisions.........................................................................................7
5.2 Vendor Contracts...........................................................................................8
5.3 Procedures for Amendments to Plans, Plan Designs, Administrative Practices, and Vendor
Contracts.........................................................................................9
5.4 COBRA ....................................................................................................10
5.5 Post-Distribution-Transitional Arrangements...............................................................10
ARTICLE VI STOCK AND INCENTIVE COMPENSATION BENEFITS AND EXECUTIVE BENEFITS......................................11
6.1 Crane Stock-Based Plans...................................................................................11
6.2 Crane EVA Plan............................................................................................12
6.3 Employee Stock Purchase Plan..............................................................................12
ARTICLE VII GENERAL AND ADMINISTRATIVE...........................................................................12
7.1 Non-Termination of Employment, No Third-Party Beneficiaries...............................................12
7.2 Beneficiary Designations..................................................................................13
7.3 Collective Bargaining.....................................................................................13
7.4 Consent of Third Parties..................................................................................13
7.5 Sharing of Participant Information........................................................................13
ARTICLE VIII MISCELLANEOUS.......................................................................................13
8.1 Effect if Distribution Does Not Occur.....................................................................13
8.2 Relationship of Parties...................................................................................13
8.3 Affiliates................................................................................................14
8.4 Governing Law.............................................................................................14
8.5 Entire Agreement, Construction............................................................................14
8.6 Expenses..................................................................................................14
8.7 Notices ..................................................................................................14
8.8 Consent to Jurisdiction...................................................................................15
8.9 Amendments................................................................................................15
8.10 Assignment...............................................................................................15
8.11 Captions.................................................................................................16
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8.12 Severability.............................................................................................16
8.13 Parties in Interest......................................................................................16
8.14 Schedules................................................................................................16
8.15 Waivers; Remedies........................................................................................16
8.16 Further Assurances.......................................................................................16
8.17 Counterparts.............................................................................................17
</TABLE>
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EMPLOYEE MATTERS AGREEMENT
___________________, 1999
The parties to this Employee Matters Agreement, dated as of the date
written above, are Crane Co., a Delaware corporation ("Crane"), and Huttig
Building Products, Inc., a Delaware corporation and, as of the date hereof, an
indirect wholly-owned subsidiary of Crane ("Huttig"). Capitalized terms used
herein and not otherwise defined shall have the respective meanings assigned to
them in Article I hereof or as assigned to them in the Distribution Agreement
(as defined below).
WHEREAS, the Board of Directors of Crane has determined that it is in
the best interests of Crane and its stockholders to separate Crane and its
subsidiary, Huttig, such that Huttig will be an independent business entity;
WHEREAS, in furtherance of the foregoing, Crane and Huttig have entered
into a Distribution Agreement, dated as of the date hereof (the "Distribution
Agreement"), and certain other agreements that will govern certain matters
relating to the Distribution and the relationship of Crane and Huttig, and their
respective Subsidiaries following the Distribution; and
WHEREAS, pursuant to the Distribution Agreement, Crane and Huttig have
agreed to enter into this agreement allocating between them the assets,
liabilities and responsibilities with respect to certain employee compensation
and benefit plans and programs.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement the following terms shall have the
following meanings:
1.1 Adverse Change is defined in Section 5.3(a).
1.2 Affected Pension Plan Participants is defined in Section 3.1.
1.3 Agreement means this Employee Matters Agreement, including all the
Schedules hereto.
1.4 ASO Contract is defined in Section 5.2(a)(i).
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1.5 Award means an award under the Crane Stock Option Plan, the Crane
Restricted Stock Plan, the EVA Plan or the Huttig Stock Incentive Plan. When
immediately preceded by "Crane," the term Award means an award under the
applicable Plan described in this Section 1.5 as established or maintained by
Crane. When immediately preceded by "Huttig," the term Award means an award
under the applicable Plan established or maintained by Huttig.
1.6 Benefit Liabilities means any Liabilities (as defined in the
Distribution Agreement) relating to any contributions, compensation or other
benefits accrued or payable under any profit sharing, pension, savings, deferred
compensation, fringe benefit, insurance, medical, medical reimbursement, life,
disability, accident, post-retirement health or welfare benefit, stock option,
stock purchase, sick pay, vacation, employment, severance, termination or other
compensation or benefit plan, agreement, contract, policy, trust fund or
arrangement.
1.7 Close of the Distribution Date means 11:59:59 P.M., Eastern
Standard Time or Eastern Daylight Time (whichever shall then be in effect), on
the Distribution Date.
1.8 COBRA means the continuation coverage requirements for "group
health plans" under Title X of the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, and as codified in Code Section 4980B and ERISA
Sections 601 through 608.
1.9 Code means the Internal Revenue Code of 1986, as amended, or any
successor federal income tax law. Reference to a specific Code provision also
includes any proposed, temporary, or final regulation in force under that
provision.
1.10 Crane Entity means any entity that is, at the relevant time, an
Affiliate of Crane, except that, for periods beginning Immediately After the
Distribution Date, the term "Crane Entity" shall not include Huttig or a Huttig
Entity.
1.11 Crane Hourly Pension Plan means the Crane Co. Master Pension Plan
for Hourly and Certain Non-Bargaining Employees (Plan C), effective December 31,
1987, as amended further effective January 1, 1994.
1.12 Crane Restricted Stock Plan means the Crane Co. Restricted Stock
Award Plan.
1.13 Crane Salaried Pension Plan means the Crane Co. Pension Plan for
Non-Bargaining Employees, effective December 31, 1987, as amended further
effective January 1, 1994.
1.14 Crane Savings Plan means the Crane Co. Savings and Investment
Plan, effective January 1, 1989, as amended further effective June 1, 1997.
1.15 Crane Stock Option Plan means the Crane Co. Stock Option Plan.
1.16 Crane Stock Value means the average of the high and low per-share
prices of the Crane Common Stock, regular way, as reported on the New York Stock
Exchange - Composite Transactions Tape on the trading day immediately prior to
the Distribution Date.
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1.17 Distribution Agreement is defined in the third paragraph of the
preamble of this Agreement.
1.18 ERISA means the Employee Retirement Income Security Act of 1974,
as amended. Reference to a specific provision of ERISA also includes any
proposed, temporary, or final regulation in force under that provision.
1.19 EVA Plan, when immediately preceded by "Crane," means the Crane
Co. Economic Value Added Incentive Compensation Plan for Executive Officers.
When immediately preceded by "Huttig," EVA Plan means the Economic Value Added
Incentive Compensation Plan to be established by Huttig pursuant to Section 2.2.
1.20 Group Insurance Policies is defined in Section 5.2(b)(i).
1.21 Group Life Program, when immediately preceded by "Crane," means
the Crane Co. group life programs, policies and arrangements. When immediately
preceded by "Huttig," Group Life Program means the life insurance programs,
policies and arrangements to be established by Huttig pursuant to Section 2.2
that correspond to the respective Crane Group Life Programs.
1.22 Health and Welfare Plans, when immediately preceded by "Crane,"
means the health and welfare plans listed on Schedule 1.22 established and
maintained by Crane for the benefit of employees and retirees of Crane and
certain Crane Entities, and such other welfare plans or programs as may apply to
such employees and retirees as of the Distribution Date. When immediately
preceded by "Huttig," Health and Welfare Plans means the health and welfare
plans to be established by Huttig pursuant to Section 2.2 that correspond to the
respective Crane Health and Welfare Plans.
1.23 Huttig Employee Stock Purchase Plan means the employee stock
purchase plan to be established by Huttig pursuant to Section 2.2.
1.24 Huttig Entity means any Person that is, at the relevant time, a
Subsidiary of Huttig or is otherwise controlled, directly or indirectly, by
Huttig.
1.25 Huttig Individual means any individual (i) who, Immediately After
the Distribution Date, is either actively employed by or on leave of absence
from Huttig or a Huttig Entity, or (ii) whose last employment within the
Pre-Distribution Group (as defined in the Distribution Agreement) was with
Huttig or a Huttig Entity.
1.26 Huttig Savings & Profit Sharing Plan means the defined
contribution plan established by Huttig pursuant to Section 2.2 and Article IV.
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1.27 Huttig Stock Incentive Plan means the plan or program established
by Huttig pursuant to Section 2.2 consisting of a stock option plan that
corresponds to the Crane Stock Option Plan and a restricted stock award plan
that corresponds to the Crane Restricted Stock Plan.
1.28 Huttig Stock Value means the average of the high and low per-share
prices of the Huttig Common Stock as reported on the New York Stock Exchange on
the first trading day after the Distribution Date.
1.29 Immediately After the Distribution Date means 12:00 A.M., Eastern
Standard Time or Eastern Daylight Time (whichever shall then be in effect), on
the day after the Distribution Date.
1.30 IRS means the Internal Revenue Service.
1.31 Option, when immediately preceded by "Crane," means an option to
purchase Crane Common Stock pursuant to the Crane Stock Option Plan. When
immediately preceded by "Huttig," Option means an option to purchase Huttig
Common Stock pursuant to the Huttig Stock Incentive Plan.
1.32 Option Ratio means the amount obtained by dividing the Crane Stock
Value by the average of the high and low sales prices of the Crane Common Stock
on the first trading day after the Distribution Date.
1.33 Plan, when immediately preceded by "Crane" or "Huttig," means any
plan, policy, program, payroll practice, on-going arrangement, contract, trust,
insurance policy or other agreement or funding vehicle providing benefits to
employees or former employees of Crane or a Crane Entity, or Huttig or a Huttig
Entity, as applicable.
1.34 Ratio means the amount obtained by dividing the Crane Stock Value
by the Huttig Stock Value.
ARTICLE II
GENERAL PRINCIPLES
2.1 Assumption of Liabilities. Except as otherwise expressly provided
in Article III, Huttig hereby assumes and agrees to pay, perform, fulfill and
discharge, in accordance with their respective terms, all of the following
(regardless of when or where such Benefit Liabilities arose or arise or were or
are incurred): (i) all Benefit Liabilities to or relating to Huttig Individuals,
and their respective dependents and beneficiaries, in each case relating to,
arising out of or resulting from employment by Crane, a Crane Entity, Huttig or
a Huttig Entity before the Distribution Date (including Benefit Liabilities
under Crane Plans and Huttig Plans); (ii) all other Benefit Liabilities to or
relating to Huttig Individuals, and their respective dependents and
beneficiaries, to the extent relating to, arising out of or resulting from
future, present or former employment with Huttig or a Huttig Entity (including
Benefit Liabilities under Crane Plans and Huttig Plans);
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(iii) all Benefit Liabilities relating to, arising out of or resulting from any
other actual or alleged employment relationship with Huttig or a Huttig Entity;
(iv) all Benefit Liabilities relating to, arising out of or resulting from the
imposition of withdrawal liability under Subtitle E of Title IV of ERISA as a
result of a complete or partial withdrawal of any Crane Entity from a
"multiemployer plan" within the meaning of ERISA Section 4021 which occurs
solely as a result of the Distribution; and (v) all other Benefit Liabilities
relating to, arising out of or resulting from obligations, liabilities and
responsibilities expressly assumed or retained by Huttig, a Huttig Entity, or a
Huttig Plan pursuant to this Agreement.
2.2 Establishment of Huttig Plans and Related Trusts. Effective prior
to or Immediately After the Distribution Date, Huttig shall adopt, or cause to
be adopted, the Huttig Savings and Profit Sharing Plan and its related trust,
the Huttig Employee Stock Purchase Plan, the Huttig Stock Incentive Plan, the
Huttig EVA Plan and the Huttig Health and Welfare Plans for the benefit of the
Huttig Individuals and other current and future employees of Huttig and the
Huttig Entities. Subject to the provisions of Section 4.1 regarding the Huttig
Savings and Profit Sharing Plan, Section 6.2 regarding the Huttig EVA Plan,
Section 6.3 regarding the Huttig Employee Stock Purchase Plan and Section 5.1(b)
regarding the Huttig Health and Welfare Plans, the foregoing Huttig Plans as in
effect Immediately After the Distribution Date shall be substantially identical
in all material respects to the corresponding Crane Plans as in effect as of the
Distribution Date.
2.3 Terms of Participation by Huttig Individuals in Huttig Plans. The
Huttig Plans shall be, with respect to Huttig Individuals, in all respects the
successors in interest to, and shall not provide benefits that duplicate
benefits provided by, the corresponding Crane Plans. Crane and Huttig shall
agree on methods and procedures, including amending the respective Plan
documents and/or requesting approvals or consents of Huttig Individuals where
the parties deem appropriate, to prevent Huttig Individuals from receiving
duplicative benefits from the Crane Plans and the Huttig Plans. With respect to
Huttig Individuals, each Huttig Plan shall provide that all service, all
compensation and all other benefit-affecting determinations that, as of the
Close of the Distribution Date, were recognized under the corresponding Crane
Plan shall, as of Immediately After the Distribution Date, receive full
recognition, credit, and validity and be taken into account under such Huttig
Plan to the same extent as if such items occurred under such Huttig Plan, except
to the extent that duplication of benefits would result.
ARTICLE III
DEFINED BENEFIT PLANS
3.1 Freezing of Pension Plan Benefits. Effective Immediately After the
Distribution Date, the accrued benefits with respect to Huttig Individuals who,
as of the Distribution Date, were participants under the Crane Salaried Pension
Plan or the Crane Hourly Pension Plan (collectively, the "Affected Pension Plan
Participants") shall be frozen and the Affected Pension Plan Participants shall
not accrue any additional benefits from and after the Distribution Date under
the Crane Salaried Pension Plan or the Crane Hourly Pension Plan, as the case
may be. The assets and Benefit Liabilities with respect to the Affected Pension
Plan Participants,
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determined as of the Distribution Date, shall be retained by the applicable
Crane Plan and its related trust and paid therefrom when due under the terms of
the applicable Crane Plan.
3.2 Vesting and Crediting Service Under Crane's Pension Plans.
Effective Immediately After the Distribution Date, notwithstanding anything
contained in the Crane Salaried Pension Plan or the Crane Hourly Pension Plan to
the contrary, the Affected Pension Plan Participants shall be fully vested in
their respective accrued benefits under the Crane Salaried Pension Plan or the
Crane Hourly Pension Plan, as the case may be. Affected Pension Plan
Participants shall continue to receive service credit for retirement benefit
eligibility purposes under the applicable Crane Plan for service with Huttig
after the Distribution Date.
ARTICLE IV
DEFINED CONTRIBUTION PLANS
4.1 Savings and Profit Sharing Plan.
(a) Establishment of Savings and Profit Sharing Plan and Trust. The
Huttig Savings and Profit Sharing Plan, established by Huttig pursuant to
Section 2.2, (i) shall be a qualified defined contribution plan within the
meaning of Code Section 401(a), (ii) except as provided under Section 4.1(c),
shall contain provisions, terms and conditions substantially similar to the
provisions, terms and conditions of the Crane Savings Plan, and (iii) shall
provide coverage from and after the Distribution Date with respect to Huttig
Individuals. The trust related to the Huttig Savings and Profit Sharing Plan,
established by Huttig pursuant to Section 2.2, shall be exempt from taxation
under Code Section 501(a).
(b) Assumption of Liabilities and Transfer of Assets.
(i) Effective Immediately After the Distribution Date:
(A) the Huttig Savings and Profit Sharing Plan shall assume and be solely
responsible for all Benefit Liabilities to or relating to Huttig Individuals
under the Crane Savings Plan, and (B) Crane shall cause an amount equal to the
aggregate account balances of the Huttig Individuals participating under the
Crane Savings Plan, whether such amounts are vested or unvested under the terms
of the Crane Savings Plan, which are held by the related trust as of the Close
of the Distribution Date to be transferred to the Huttig Savings and Profit
Sharing Plan, and its related trust, or such other qualified plan and trust
designated by Huttig, and Huttig shall cause such transferred accounts to be
accepted by such plan and trust. In Crane's sole and absolute discretion, the
amount so transferred may be in cash or in kind or a combination thereof;
provided, however, that the following shall be transferred in kind: (A) shares
of Crane Common Stock and shares of Huttig Common Stock allocated to
participants' accounts as a result of the Distribution; and (B) all promissory
notes reflecting participant loans to Huttig Individuals under the Crane Savings
Plan outstanding as of the Distribution Date.
(ii) If any benefit with respect to a Huttig Individual
under the Crane Savings Plan is subject to a qualified domestic relations order
at the time of transfer, all documentation
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concerning such qualified domestic relations order shall be assigned to the
Huttig Savings and Profit Sharing Plan.
(c) Retirement Benefit Feature of Savings and Profit Sharing Plan. The
Huttig Savings and Profit Sharing Plan shall contain provisions regarding
employer profit sharing contributions that, in the sole discretion of Huttig,
are appropriate retirement benefit provisions with respect to Huttig
Individuals.
(d) Vesting. Effective Immediately After the Distribution Date,
participants in the Huttig Savings and Profit Sharing Plan shall be fully vested
in any amounts transferred with respect to such participants from the Crane
Savings Plan and its related trust under Section 4.1(b).
4.2 Other Defined Contribution Plans. Effective Immediately After the
Distribution Date, Huttig shall retain sole responsibility for sponsorship and
administration of the Huttig Sash & Door Company Compensation and Investment
Plan (formerly known as the Palmer G. Lewis 401(k) Plan) (the "Lewis 401(k)
Plan"), the Huttig Sash & Door Company Tax-Sheltered Investment Plan (formerly
known as the American Pine Products 401(k) Profit Sharing Plan) (the "Prineville
401(k) Plan") and the Whittier-Ruhle Millwork Company's Employees' Savings and
Investment Plan (the "Whittier-Ruhle Plan"), including all Benefit Liabilities
arising under those plans prior to or after the Distribution Date, and Crane
shall have no responsibility or liability with respect to the Lewis 401(k) Plan,
the Prineville 401(k) Plan or the Whittier-Ruhle Plan.
ARTICLE V
HEALTH AND WELFARE PLANS
5.1 General Provisions.
(a) Assumption of Health and Welfare Plan Liabilities. Immediately
After the Distribution Date, all Benefit Liabilities to or relating to Huttig
Individuals under the Crane Health and Welfare Plans shall cease to be Benefit
Liabilities of the Crane Health and Welfare Plans and shall be assumed by the
corresponding Huttig Health and Welfare Plans.
(b) Postretirement Medical and Life Insurance Benefits.
(i) Effective Immediately After the Distribution Date,
Huttig may, but shall not be required to, alter or amend the postretirement
medical and life insurance benefits offered, or the manner in which such
benefits are offered, to Huttig Individuals as follows (subject to all terms and
conditions of the applicable Huttig Plan): (A) Huttig shall continue to
contribute 50% of the applicable premium or cost of coverage for postretirement
medical benefits for Huttig Individuals who are currently retired and
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participating in such coverage as of the Distribution Date, such contribution to
continue in each case only until such Huttig Individual attains age 65; (B)
Huttig shall make no contribution regarding the premium or other cost of
coverage for postretirement life insurance benefits for Huttig Individuals who
are currently retired and participating in such coverage as of the Distribution
Date; (C) Huttig shall make no contribution regarding the premium or other cost
of coverage for postretirement medical or life insurance benefits for Huttig
Individuals who are active employees of Huttig or a Huttig Entity Immediately
After the Distribution Date and who commenced employment with Huttig or a Huttig
Entity prior to 1992; and (C) Huttig shall not offer postretirement medical or
life insurance benefits to Huttig Individuals who are active employees of Huttig
or a Huttig Entity Immediately After the Distribution Date and who commenced
employment with Huttig or a Huttig Entity after 1991.
(ii) Crane agrees and acknowledges that any alteration or
amendment by Huttig of the postretirement medical and life insurance benefits
offered under one or more of the Huttig Health and Welfare Plans as described in
Section 5.1(b)(i) shall not be considered or otherwise deemed to be an Adverse
Change as defined under Section 5.3(a). Notwithstanding the foregoing, Huttig
acknowledges that any decision or action with respect to postretirement medical
or life insurance benefits offered under any Huttig Plan after the Distribution
Date shall be in the sole discretion of Huttig and Huttig shall be solely
responsible for such decision or action. Furthermore, Huttig acknowledges that
Crane shall in no way be considered or deemed to have consented to, agreed to or
otherwise to have been involved in, such decision or action of Huttig.
5.2 Vendor Contracts.
(a) Third-Party ASO Contracts.
(i) Crane shall use its reasonable efforts to amend each
administrative services only contract with a third-party administrator that
relates to any of the Crane Health and Welfare Plans (an "ASO Contract") in
existence as of the date of this Agreement to permit Huttig to participate in
the terms and conditions of such ASO Contract from Immediately After the
Distribution Date until the expiration of the financial fee guarantees in effect
under such ASO Contract as of the Close of the Distribution Date. Crane shall
use its reasonable efforts to cause all ASO Contracts into which Crane enters
after the date of this Agreement but before the Close of the Distribution Date
to allow Huttig to participate in the terms and conditions thereof effective
Immediately After the Distribution Date on the same basis as Crane.
(ii) Crane shall have the right to determine, and shall
promptly notify Huttig of, the manner in which Huttig's participation in the
terms and conditions of ASO Contracts as set forth above shall be effectuated.
The permissible ways in which Huttig's participation may be effectuated include
automatically making Huttig a party to the ASO Contracts or obligating the third
party to enter into a separate ASO Contract with Huttig providing for the same
terms and conditions as are contained in the ASO Contracts to which Crane is a
party. Such terms and conditions shall include the financial and termination
provisions, performance standards, methodology, auditing policies, quality
measures, reporting requirements and target claims. Huttig hereby authorizes
Crane to act on its behalf to extend to Huttig the terms and conditions of the
ASO Contracts. Huttig shall fully cooperate with Crane in such efforts, and
Huttig shall not perform any act, including discussing any alternative
arrangements with any third party, that would prejudice Crane's efforts.
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(b) Group Insurance Policies.
(i) This Section 5.2(b) applies to group insurance
policies not subject to allocation or transfer pursuant to the foregoing
provisions of this Article V ("Group Insurance Policies").
(ii) Crane shall use its reasonable efforts to amend each
Group Insurance Policy in existence as of the date of this Agreement for the
provision or administration of benefits under the Crane Health and Welfare Plans
to permit Huttig to participate in the terms and conditions of such policy from
Immediately After the Distribution Date until the expiration of the financial
fee and rate guarantees in effect under such Group Insurance Policy as of the
Close of the Distribution Date. Crane shall use its reasonable efforts to cause
all Group Insurance Policies into which Crane enters or which Crane renews after
the date of this Agreement but before the Close of the Distribution Date to
allow Huttig to participate in the terms and conditions thereof effective
Immediately After the Distribution Date on the same basis as Crane.
(iii) Huttig's participation in the terms and conditions of
each such Group Insurance Policy shall be effectuated by obligating the
insurance company that issued such insurance policy to Crane to issue one or
more separate policies to Huttig. Such terms and conditions shall include the
financial and termination provisions, performance standards and target claims.
Huttig hereby unconditionally and irrevocably authorizes Crane to act on its
behalf to extend to Huttig the terms and conditions of such Group Insurance
Policies. Huttig shall fully cooperate with Crane in such efforts, and Huttig
shall not perform any act, including discussing any alternative arrangements
with third parties, that would prejudice Crane's efforts.
(c) Effect of Change in Rates. Crane and Huttig shall use their
reasonable efforts to cause each of the insurance companies, point-of-service
vendors and third-party administrators providing services and benefits under the
Crane Health and Welfare Plans and the Huttig Health and Welfare Plans to
maintain the premium and/or administrative rates based on the aggregate number
of participants in both the Crane Health and Welfare Plans and the Huttig Health
and Welfare Plans through the expiration of the financial fee or rate guarantees
in effect as of the Close of the Distribution Date under the respective ASO
Contracts and Group Insurance Policies. To the extent they are not successful in
such efforts, Crane and Huttig shall each bear the revised premium or
administrative rates attributable to the individuals covered by their respective
Health and Welfare Plans.
5.3 Procedures for Amendments to Plans, Plan Designs, Administrative
Practices, and Vendor Contracts.
(a) Changes in Vendor Contracts, Group Insurance Policies, Plan Design,
and Administration Practices and Procedures. From Immediately After the
Distribution Date through the expiration of the respective financial fee or rate
guarantees in effect as of the Close of the Distribution Date under the
applicable ASO Contract or Group Insurance Policy, any party must comply with
Section 5.3(b) if that party seeks to materially amend, modify, alter or take
other action which would have a material effect on, any of the following items
that, in the reasonable
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opinion of the other party, shall have a material adverse impact on one or more
of the other party's Health and Welfare Plans (each such modification, an
"Adverse Change"): (i) the termination date, administration, or operation of (A)
an ASO contract between Crane or Huttig and a third-party administrator, or (B)
a Group Insurance Policy issued to Crane or Huttig, in each case, the material
terms and conditions of which contracts and policies are extended to Huttig or
to which Huttig becomes a party pursuant to Section 5.2; (ii) the design of
either a Crane Health and Welfare Plan or a Huttig Health and Welfare Plan; or
(iii) the financing, operation, administration or delivery of benefits under
either a Crane Health and Welfare Plan or a Huttig Health and Welfare Plan.
(b) Procedure for Implementing Changes. Unless the other party consents
in writing, neither Crane nor Huttig shall make any Adverse Change unless the
party intending to make the Adverse Change has: (i) given the other party
written notice of the intention to make the Adverse Change, accompanied by a
written description of the Adverse Change, at least 30 days in advance of the
proposed effective date of the Adverse Change; (ii) agreed to bear all of the
costs of implementing the Adverse Change which are incurred by all third-party
administrators, insurance companies and other vendors and passed through to one
or both of the parties; and (iii) certified to the other party, and provided to
the other party the written concurrence of each third-party administrator,
insurance company or other vendor associated with or performing services in
connection with the Health and Welfare Plan affected by the Adverse Change, that
(after taking into account the effect of clause (ii)) the proposed Adverse
Change will have no material adverse impact (financial, administrative or
otherwise) on the corresponding Health and Welfare Plan sponsored by the other
party.
5.4 COBRA. Effective Immediately After the Distribution Date, Huttig
shall solely be responsible for administering compliance with the health care
continuation coverage requirements of COBRA with respect to Huttig Individuals
under the Huttig Health and Welfare Plans.
5.5 Post-Distribution-Transitional Arrangements.
(a) Continuance of Elections, Co-Payments and Maximum Benefits.
(i) Huttig shall cause the Huttig Health and Welfare
Plans to recognize and maintain all coverage and contribution elections made by
Huttig Individuals under the Crane Health and Welfare Plans and apply such
elections under the Huttig Health and Welfare Plans for the remainder of the
period or periods for which such elections are by their terms applicable. The
transfer or other movement of employment from Crane to Huttig at any time before
the Close of the Distribution Date shall neither constitute nor be treated as a
"status change" under the Crane Health and Welfare Plans or the Huttig Health
and Welfare Plans.
(ii) Huttig shall cause the Huttig Health and Welfare
Plans to recognize and give credit for (A) all amounts applied to deductibles,
out-of-pocket maximums, and other applicable benefit coverage limits with
respect to which such expenses have been incurred by Huttig Individuals under
the Crane Health and Welfare Plans for the remainder of the year in which the
Distribution occurs, and (B) all benefits paid to Huttig Individuals under the
Crane
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<PAGE>
Health and Welfare Plans for purposes of determining when such persons have
reached their lifetime maximum benefits under the Huttig Health and Welfare
Plans.
(iii) Huttig shall use reasonable efforts to (A) provide
coverage to Huttig Individuals under the Huttig Group Life Program without the
need to undergo a physical examination or otherwise provide evidence of
insurability, and (B) recognize and maintain all irrevocable assignments and
accelerated benefit option elections made by Huttig Individuals under the Crane
Group Life Program.
(b) Health and Welfare Plans Subrogation Recovery. After the Close of
the Distribution Date, Crane shall pay to Huttig any amounts Crane recovers from
time to time through subrogation or otherwise for claims incurred by or
reimbursed to any Huttig Individual. If Huttig recovers any amounts through
subrogation or otherwise for claims incurred by or reimbursed to employees and
former employees of Crane or a Crane Entity and their respective beneficiaries
and dependents (other than Huttig Individuals), Huttig shall pay such amounts to
Crane.
ARTICLE VI
STOCK AND INCENTIVE COMPENSATION BENEFITS
AND EXECUTIVE BENEFITS
6.1 Crane Stock-Based Plans.
(a) Stock Options. Effective as soon as practicable after the
Distribution Date, Crane shall cause each Crane Option that is outstanding as of
the Close of the Distribution Date and is held by a Huttig Individual to be
adjusted to reflect the effect of the Distribution (each such Option shall be
called an "Adjusted Option"). Each Adjusted Option shall provide for the option
to purchase a number of shares of Crane Common Stock equal to the number of
shares of Crane Common Stock subject to the original Crane Option as of the
Close of the Distribution Date, multiplied by the Option Ratio, and then rounded
to the nearest whole share. The per-share exercise price of such Adjusted Option
shall equal the per-share exercise price of the original Crane Option as of the
Close of the Distribution Date divided by the Option Ratio. Each Adjusted Option
shall otherwise have the same terms and conditions as were applicable to the
original Crane Option as of the Close of the Distribution Date. Solely for
purposes of this Section 6.1(a), any Huttig Individual holding a Crane Option
(or an Adjusted Option) shall be considered to have incurred a termination of
employment with Crane for a reason other than (i) retirement, death or
disability or (ii) after a change in control for purposes of the Crane Stock
Option Plan and any option agreement or other contract evidencing the grant or
award of a Crane Option to such Individual. Such Crane Option (or Adjusted
Option) shall be exercisable and subject to termination as provided in such
agreement or contract.
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<PAGE>
(b) Restricted Stock. Effective as soon as administratively practicable
after the Distribution Date, Huttig shall cause the Restricted Stock Award held
by Mr. Barry Kulpa under the Crane Restricted Stock Plan as of the Distribution
Date, to the extent that vesting of shares granted under that Award is not
dependent upon any performance or market value criteria (i.e. time-based
restrictions), to be converted to a Restricted Stock Award under the Huttig
Stock Incentive Plan by multiplying the number of shares of Crane Restricted
Stock by the Ratio, and then rounding the product to the nearest whole share.
Such Huttig Restricted Stock Award shall have the same terms and conditions as
were applicable to the corresponding Crane Restricted Stock Award. Crane shall
use reasonable efforts to cancel any certificate in Mr. Kulpa's name with
respect to restricted shares of Crane Common Stock. To the extent that Mr.
Kulpa's Restricted Stock Award is not subject to conversion under the prior
provisions of this Section 6.1(b) (i.e. performance-based restrictions), the
parties shall use their reasonable efforts to cause that Restricted Stock Award
held by Mr. Barry Kulpa under the Crane Restricted Stock Plan to be replaced,
effective on or within a reasonable time after the Distribution Date, with an
Award consisting of restricted shares of Huttig Common Stock under the Huttig
Stock Incentive Plan and subject to such terms and conditions as the parties and
Mr. Kulpa may agree.
6.2 Crane EVA Plan. Effective Immediately After the Distribution Date,
Huttig shall assume all Benefit Liabilities to or relating to Huttig Individuals
under the Crane EVA Plan. The Huttig EVA Plan shall reflect appropriate
adjustments, as determined by Huttig in its sole discretion, of the cost of
capital and other factors that shall be applicable to the benefits under the
Huttig EVA Plan after the Distribution Date.
6.3 Employee Stock Purchase Plan. The Huttig Employee Stock Purchase
Plan, established pursuant to Section 2.2, shall provide employees of Huttig or
a Huttig Entity after the Distribution Date with an opportunity to purchase
Huttig Common Stock at current market prices.
ARTICLE VII
GENERAL AND ADMINISTRATIVE
7.1 Non-Termination of Employment, No Third-Party Beneficiaries. No
provision of this Agreement or the Distribution Agreement shall be construed to
create any right, or accelerate entitlement, to any compensation or benefit
whatsoever on the part of any Huttig Individual or other future, present or
former employee of Crane, a Crane Entity, Huttig, or a Huttig Entity under any
Crane Plan or Huttig Plan or otherwise. Without limiting the generality of the
foregoing: (i) except as expressly provided in Section 6.1(a), the Distribution
shall not cause any employee to be deemed to have incurred a termination of
employment which entitles such individual to the commencement of benefits under
any of the Crane Plans, any of the Huttig Plans, or any individual agreements;
and (ii) except as expressly provided in this Agreement, nothing in this
Agreement shall preclude Huttig, at any time after the Close of the Distribution
Date, from amending, merging, modifying, terminating, eliminating, reducing, or
otherwise altering in any respect any Huttig Plan, any benefit under any Plan or
any trust, insurance policy or funding vehicle related to any Huttig Plan.
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<PAGE>
7.2 Beneficiary Designations. All beneficiary designations made by
Huttig Individuals for Crane Plans shall be transferred to and be in full force
and effect under the corresponding Huttig Plans until such beneficiary
designations are replaced or revoked by the Huttig Individual who made the
beneficiary designation.
7.3 Collective Bargaining. To the extent any provision of this
Agreement is contrary to the provisions of any collective bargaining agreement
to which Crane or any Affiliate of Crane is a party, the terms of such
collective bargaining agreement shall prevail. Should any provisions of this
Agreement be deemed to relate to a topic determined by an appropriate authority
to be a mandatory subject of collective bargaining, Crane or Huttig may be
obligated to bargain with the union representing affected employees concerning
those subjects.
7.4 Consent of Third Parties. If any provision of this Agreement is
dependent on the consent of any third party (such as a vendor or a union) and
such consent is withheld, Crane and Huttig shall use their reasonable efforts to
implement the applicable provisions of this Agreement to the full extent
practicable. If any provision of this Agreement cannot be implemented due to the
failure of such third party to consent, Crane and Huttig shall negotiate in good
faith to implement the provision in a mutually satisfactory manner. The phrase
"reasonable efforts" as used herein shall not be construed to require the
incurrence of any non-routine or unreasonable expense or liability or the waiver
of any right.
7.5 Sharing of Participant Information. Crane and Huttig shall share,
Crane shall cause each applicable Crane Entity to share, and Huttig shall cause
each applicable Huttig Entity to share, with each other and their respective
agents and vendors (without obtaining releases) all participant information
necessary for the efficient and accurate administration of each of the Crane
Plans and the Huttig Plans. Crane and Huttig and their respective authorized
agents shall, subject to applicable laws on confidentiality, be given reasonable
and timely access to, and may make copies of, all information relating to the
subjects of this Agreement in the custody of the other party, to the extent
necessary for such administration. Until December 31, 2000, or such other date
as the parties may mutually agree, all participant information shall be provided
in a manner and medium that is compatible with the data processing systems of
Crane as in effect on the Close of the Distribution Date, unless otherwise
agreed to by Crane and Huttig.
ARTICLE VIII
MISCELLANEOUS
8.1 Effect if Distribution Does Not Occur. If the Distribution does not
occur, then all actions and events that are, under this Agreement, to be taken
or occur effective as of the Close of the Distribution Date, Immediately After
the Distribution Date, or otherwise in connection with the Distribution, shall
not be taken or occur except to the extent specifically agreed by Huttig and
Crane.
8.2 Relationship of Parties. Nothing in this Agreement shall be deemed
or construed by the parties or any third party as creating the relationship of
principal and agent, partnership or
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<PAGE>
joint venture between the parties, it being understood and agreed that no
provision contained herein, and no act of the parties, shall be deemed to create
any relationship between the parties other than the relationship set forth
herein.
8.3 Affiliates. Each of Crane and Huttig shall cause to be performed,
and hereby guarantees the performance of, all actions, agreements and
obligations set forth in this Agreement to be performed by a Crane Entity or a
Huttig Entity, respectively.
8.4 Governing Law. To the extent not preempted by applicable federal
law, this Agreement shall be governed by, construed and interpreted in
accordance with the laws of the State of Delaware, irrespective of the choice of
laws principles of the state of Delaware, as to all matters, including matters
of validity, construction, effect, performance and remedies.
8.5 Entire Agreement, Construction. This Agreement and the Ancillary
Agreements, including, without limitation, any annexes, schedules and exhibits
hereto or thereto, and other agreements and documents referred to herein and
therein, will together constitute the entire agreement between the parties with
respect to the subject matter hereof and thereof and will supersede all prior
negotiations, agreements and understandings of the parties of any nature,
whether oral or written, with respect to such subject matter. In the event and
to the extent that there is a conflict between the provisions of this Agreement
and the provisions of the Distribution Agreement, the Transition Services
Agreement or the Tax Allocation Agreement, the provisions of this Agreement
shall control.
8.6 Expenses. Except as expressly set forth in this Agreement, all
costs and expenses incurred through the Close of the Distribution Date with
respect to any employee matters described herein shall be charged to and paid by
Crane. Except as otherwise set forth in this Agreement, all costs and expenses
incurred following the Distribution Date with respect to any employee matters
described herein shall be charged to and paid by the party for whose benefit the
expenses are incurred, with any expenses that cannot be allocated on such basis
to be split equally between the parties.
8.7 Notices. All notices, requests, claims, demands and other
communications required or permitted to be given hereunder will be in writing
and will be delivered by hand or telecopied or sent, postage prepaid, by
registered, certified or express mail or reputable overnight courier service and
will be deemed given when so delivered by hand or telecopied, or three business
days after being so mailed (one business day in the case of express mail or
overnight courier service). All such notices, requests, claims, demands and
other communications will be addressed as set forth below, or pursuant to such
other instructions as may be designated in writing by the party to receive such
notice:
(a) If to Crane:
Crane Co.
100 First Stamford Place
Stamford, CT 06902
Attention: Augustus I. duPont
Telecopy: (203) 363-7350
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<PAGE>
with a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, PA 15222-2312
Attention: Janice C. Hartman
Telecopy: (412) 355-6501
(b) If to Huttig:
Huttig Building Products, Inc.
14500 South Outer Forty Road
Suite 400
Chesterfield, MO 63017
Attention:
Telecopy: (314) 216-2601
8.8 Consent to Jurisdiction. Each of Crane and Huttig irrevocably
submits to the exclusive jurisdiction of (i) the Court of Chancery in and for
the State of Delaware and the Superior Court in and for the State of Delaware
and (ii) the United States District Court for the District of Delaware, for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated thereby (and agrees not to commence any action,
suit or proceeding relating thereto except in such courts). Each of Crane and
Huttig further agrees that service of any process, summons, notice or document
hand delivered or sent by U.S. registered mail to such party's respective
address set forth in Section 8.6 will be effective service of process for any
action, suit or proceeding in Delaware with respect to any matters to which it
has submitted to jurisdiction as set forth in the immediately preceding
sentence. Each of Crane and Huttig irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement in (i) the Court of Chancery in and for the State of Delaware
and the Superior Court in and for the State of Delaware or (ii) the United
States District Court for the District of Delaware, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
8.9 Amendments. This Agreement cannot be amended, modified or
supplemented except by a written agreement executed by Crane and Huttig.
8.10 Assignment. Neither party to this Agreement will convey, assign or
otherwise transfer any of its rights or obligations under this Agreement without
the prior written consent of the other party in its sole and absolute
discretion, except that other than as expressly provided herein any party may
(without obtaining any consent) assign any of its rights hereunder to a
successor to all or any part of its business. Any such conveyance, assignment or
transfer requiring the prior written consent of another party which is made
without such consent will be
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<PAGE>
void ab initio. No assignment of this Agreement will relieve the assigning party
of its obligations hereunder.
8.11 Captions. The article, section and paragraph captions herein and
the table of contents hereto are for convenience of reference only, do not
constitute part of this Agreement and will not be deemed to limit or otherwise
affect any of the provisions hereof. Unless otherwise specified, all references
herein to numbered articles or sections are to articles and sections of this
Agreement and all references herein to annexes or schedules are to annexes and
schedules to this Agreement.
8.12 Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, will remain in full force and effect and will in no way be
affected, impaired or invalidated thereby. If the economic or legal substance of
the matters contemplated hereby is affected in any manner adverse to any party
as a result thereof, the parties will negotiate in good faith in an effort to
agree upon a suitable and equitable substitute provision to effect the original
intent of the parties.
8.13 Parties in Interest. This Agreement is binding upon and is for the
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement is not made for the benefit of any Person not a party
hereto, and no Person other than the parties hereto or their respective
successors and permitted assigns will acquire or have any benefit, right, remedy
or claim under or by reason of this Agreement.
8.14 Schedules. All annexes and schedules attached hereto are hereby
incorporated in and made a part of this Agreement as if set forth in full
herein. Capitalized terms used in the schedules hereto but not otherwise defined
therein will have the respective meanings assigned to such terms in this
Agreement.
8.15 Waivers; Remedies. No failure or delay on the part of either Crane
or Huttig in exercising any right, power or privilege hereunder will operate as
a waiver thereof, nor will any waiver on the part of either Crane or Huttig of
any right, power or privilege hereunder operate as a waiver of any other right,
power or privilege hereunder, nor will any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. The
rights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies which the parties may otherwise have at law or in equity.
8.16 Further Assurances. As and when requested by either party hereto,
the other party shall execute and deliver, or cause to be executed and
delivered, all such documents and instruments and shall take, or cause to be
taken, all such actions as the requesting party may reasonably request with
respect to the matters described herein.
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<PAGE>
8.17 Counterparts. This Agreement may be executed in separate
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts will together constitute the same agreement.
IN WITNESS WHEREOF, the parties have caused this Employee Matters
Agreement to be duly executed as of the day and year first above written.
CRANE CO.
By:
-----------------------------------
Title:
-----------------------------------
HUTTIG BUILDING PRODUCTS, INC.
By:
-----------------------------------
Title:
-----------------------------------
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<PAGE>
DRAFT
10/15/99
--------
HUTTIG BUILDING PRODUCTS, INC.
EVA INCENTIVE COMPENSATION PLAN
1. Purpose.
--------
Huttig Building Products, Inc., a Delaware corporation (the "Company") has
adopted an annual incentive compensation program based on the principles of
Economic Value Added ("EVA") throughout the Company. The purpose of the EVA
approach is to maximize stockholder value by aligning management's interests
with those of stockholders and rewarding management for sustainable and
continuous improvement in the business being managed.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), places limits on the deductibility of the compensation paid to the
executive officers who may be named in the compensation table of the Company's
proxy statement ("Named Executive Officers") to the extent such compensation
exceeds $1 million per calendar year for an individual unless the compensation
meets requirements set forth in Section 162(m) and the regulations issued
thereunder. This limit on deductibility does not apply to compensation paid to
any other executive officer, business unit president, key business unit
executive or other participant in the Company's incentive compensation programs.
In order to preserve the deductibility of incentive compensation paid to
Named Executive Officers in the future, the Company has created this EVA
Incentive Compensation Plan (the "Plan") for the Company's executive officers
and for any other employees who may become Named Executive Officers by reason of
the executive compensation disclosure rules under the Securities Exchange Act of
1934, as amended. The Plan is intended to satisfy the specific requirements of
Section 162(m) of the Code, as outlined in regulations issued by the Internal
Revenue Service. This Plan shall become effective upon the date of distribution
of the Company's Common Stock to the stockholders of Crane Co. (the "Effective
Date"). This Plan is intended to be, and shall be operated as, a successor to
Crane Co.'s EVA Incentive Compensation Plan with respect to the participation of
employees of the Company who were participating in such plan of Crane Co.
immediately prior to the Effective Date.
2. Administration.
---------------
The Plan will be administered by the Organization and Compensation
Committee of the Board of Directors (the "Committee"). The Committee's decisions
in the administration of the Plan shall be final and binding on all parties.
<PAGE>
3. Definition of EVA and Description of Formulae.
----------------------------------------------
EVA is defined as the difference between the return on total capital
invested in the business and the cost of capital, multiplied by total capital
employed ("EVA Calculation"). The Plan will be formula driven. The primary EVA
formula shall be for the Company as a whole but particular EVA formulas may be
tailored by the Committee to the size and unique characteristics of the business
unit or units for which a specific executive is responsible. The key elements of
the EVA formula applicable to any executive will be the Cost of Capital
(generally the cost of capital to the Company), the Return on Capital, the
Amount of Capital employed in the business unit, the net operating profit of the
unit after tax, and the prior year's EVA. Awards will be calculated on the basis
of year-end results.
Formulas may utilize both a percentage of the change in the EVA of the
Company or a business unit from the prior year, whether positive or negative,
plus a percentage of the positive EVA, if any, in the current year; the EVA
award may be calculated for the entire Company or an entire business unit and an
executive may receive a percentage of a unit's EVA award. When an executive is
responsible for more than one business unit, a formula may be based on a
percentage of the aggregate EVA, positive or negative, of the units reporting to
the executive or unit. The Committee has the discretion and authority to develop
other EVA based formulae or goals for utilization pursuant to this Plan in
future years. In any instance in which an executive participates in a unit EVA
award in which a group of employees participates, the executive's percentage of
the unit's EVA award will be specified.
4. Procedure.
----------
Before the beginning of each fiscal year, the Committee will establish and
set forth in writing the EVA formula applicable to each executive and each
potential Named Executive Officer of the Company for that year (including the
percentage of any business unit EVA award in which he may participate). The
Committee will retain discretion to revise formulas or an executive's percentage
participation in any unit EVA award if the Committee deems it appropriate as
circumstances develop during the year; provided, however, in the case of a Named
Executive Officer, such revision may only have a negative effect on the amount
of the Named Executive Officer's award for the year. As soon as is reasonably
practicable after the year ends the Committee will review the EVA calculation,
calculate the EVA award for each executive pursuant to the formula established
at the beginning of the year (revised downward if the Committee so determines),
and certify the EVA incentive compensation award for each executive to the Board
of Directors.
5. Bank Account and Payout.
------------------------
After the EVA award for a particular executive has been determined, it will
be credited whether positive or negative to the executive's account. The
executive will then
2
<PAGE>
be paid, if the account remains positive, a specified percentage of the account
balance in cash. The remainder of the account balance will represent that
individual's "equity" in the account for future years. If EVA awards are or have
been negative, an account balance may be negative. In such case, the executive
will receive no incentive compensation until the aggregate of subsequent EVA
awards results in a positive account balance. Each year, the Company will add
interest to a positive balance or charge interest on a negative balance at an
appropriate money market rate. In the event an executive leaves the Company by
reason of termination or resignation, his or her account balance will be treated
as follows:
<TABLE>
<CAPTION>
EVENT DISPOSITION OF ACCOUNT BALANCE
- - - - - ----- ------------------------------
<S> <C>
- - - - - - Terminate/quit Lose account balance
- - - - - - Removed from plan/demotion Account balance paid out in two
equal installments on the second
and third succeeding EVA payout
dates
- - - - - - Unit sold by Huttig Receive account balance in cash
- - - - - - Retirement(1)/death/disability Receive account balance in cash
- - - - - - Unit spun off No payout; account balance
continued with spun off company
- - - - - - Huttig acquired Receive account balance in cash
- - - - - - Transfer to another business unit Account balance transfers with
executive
</TABLE>
The entire account balance will become payable upon normal retirement (age
65), death, or disability, or a change-in-control. (The Committee will retain
the discretion to pay the entire account balance upon early retirement.) For
purposes of the Plan, the term "change in control" means (i) the first purchase
of shares pursuant to a tender offer or exchange offer (other than a tender
offer or exchange offer by the Company) for all or part of the Company's Common
Stock or any securities convertible into such Common Stock, (ii) the receipt by
the Company of a Schedule 13D or other advice indicating that a person is the
"beneficial owner" (as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), of 20% or more of the
Company's Common Stock calculated as provided in paragraph (d) of said Rule
13d-3, (iii) the date of approval by stockholders of the Company of an agreement
providing for any consolidation or merger of the Company in which the Company
will not be the continuing or surviving corporation or pursuant to which shares
of Common Stock of the
- - - - - -------------
1 Retirement is defined as normal retirement - age 65
3
<PAGE>
Company would be converted into cash, securities or other property, other than a
merger of the Company in which the holders of Common Stock of the Company
immediately prior to the merger would have the same proportion of ownership of
Common Stock of the surviving corporation immediately after the merger, (iv) the
date of the approval by stockholders of the Company of any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions) of
all or substantially all the assets of the Company or (v) the adoption of any
plan or proposal for the liquidation (but not a partial liquidation) or
dissolution of the Company or (vi) individuals who, as of the Effective Date,
constituted the Board of Directors of the Company (the "Board") generally and as
of the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the Directors
of Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Plan, considered as
though such person were a member of the Incumbent Board. If it is determined
that any payment of an account by the Company to an executive or Named Executive
Officer by reason of a change-in-control is subject to the excise tax imposed by
Section 4999 of the Code, the Company shall make additional cash payments to the
employee such that after payment of all taxes including any excise tax imposed
on such payments, the employee will retain an amount equal to the excise tax on
all the payments.
6. Plan Termination.
-----------------
The Board of Directors may modify, suspend or terminate the Plan at any
time.
<PAGE>
DRAFT 10/15/99
HUTTIG BUILDING PRODUCTS, INC.
1999 STOCK INCENTIVE PLAN
1. PURPOSE AND ADOPTION OF THE PLAN
The purpose of the Huttig Buildings Products, Inc. 1999 Stock Incentive
Plan (as the same may be amended from time to time, the "Plan") is (i) to
attract and retain key employees of Huttig Building Products, Inc., a Delaware
corporation (the "Company"), and its Subsidiaries (as defined below) who are and
will be contributing to the success of the business; (ii) to motivate and reward
key employees who have made significant contributions to the success of the
Company and encourage them to continue to give their best efforts to its future
success; (iii) to provide competitive incentive compensation opportunities; and
(iv) to further opportunities for stock ownership by such key employees in order
to increase their proprietary interest in the Company and their personal
interest in its continued success.
The Plan has been approved by the Board of Directors of the Company (the
"Board") and the stockholders of the Company to be effective as of the effective
date of the distribution by Crane Co. to its stockholders of the Company's
Common Stock (the "Effective Date"). The Plan shall remain in effect until
terminated by action of the Board; provided, however, that no Incentive Stock
Option (as defined below) may be granted hereunder after the tenth anniversary
of the Effective Date.
2. DEFINITIONS
For the purposes of this Plan, capitalized terms shall have the following
meanings:
(a) "Award" means any grant to a Participant of one or a combination of
Non-Qualified Stock Options or Incentive Stock Options described in Section 6
and Restricted Shares described in Section 8.
(b) "Award Agreement" means a written agreement between the Company and a
Participant or a written notice from the Company to a Participant specifically
setting forth the terms and conditions of an Award granted under the Plan.
(c) "Beneficiary" means an individual, trust or estate who or which, by a
written designation of the Participant filed with the Company or by operation of
law, succeeds to the rights and obligations of the Participant under the Plan
and an Award Agreement upon the Participant's death.
(d) "Board" shall have the meaning given to such term in Section 1(b).
<PAGE>
(e) "Change in Control" means the first to occur of the following events
after the Effective Date: (i) the first purchase of shares pursuant to a tender
offer or exchange offer (other than a tender offer or exchange offer by the
Company) for all or part of the Company's Common Stock or any securities
convertible into such Common Stock, (ii) the receipt by the Company of a
Schedule 13D or other advice indicating that a person is the "beneficial owner"
(as that term is defined in Rule 13d-3 under the Exchange Act) of 20% or more of
the Company's Common Stock calculated as provided in paragraph (d) of said Rule
13d-3, (iii) the date of approval by the stockholders of the Company of an
agreement providing for any Merger of the Company in which the Company will not
be the continuing or surviving corporation or pursuant to which shares of Common
Stock of the Company would be converted into cash, securities or other property,
other than a Merger of the Company in which the holders of Common Stock of the
Company immediately prior to the Merger would have the same proportion of
ownership of common stock of the surviving corporation immediately after the
Merger, (iv) the date of the approval by the stockholders of the Company of any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of the Company, (v)
the adoption of any plan or proposal for the liquidation (but not a partial
liquidation) or dissolution of the Company, (vi) the date upon which the
individuals who constitute the Board as of the Effective Date (the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board,
provided that any person becoming a director subsequent to such date whose
election, or nomination for election by the Company's stockholders, was approved
by a vote of at least three-quarters of the directors comprising the Incumbent
Board (other than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the Directors of the Company, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act)
shall, for purposes of this Plan, be considered as though such person were a
member of the Incumbent Board.
(f) "Code" means the Internal Revenue Code of 1986, as amended. References
to a section of the Code include that section and any comparable section or
sections of any future legislation that amends, supplements or supersedes said
section.
(g) "Committee" means the Organization and Compensation Committee of the
Board or such other committee composed of at least three members of the Board as
may be designated by the Board from time to time.
(h) "Company" shall have the meaning given to such term in Section 1.
(i) "Common Stock" means Common Stock, par value $.01 per share, of the
Company.
(j) "Date of Grant" means the date as of which the Committee grants an
Award. If the Committee contemplates an immediate grant to a Participant, the
Date of Grant shall be the date of the Committee's action. If the Committee
contemplates a date on which the grant is to be made other than the date of the
Committee's action, the Date of Grant shall be the date so contemplated
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and set forth in or determinable from the records of action of the Committee;
provided, however, that the Date of Grant shall not precede the date of the
Committee's action.
(k) "Effective Date" shall have the meaning given to such term in
Section 1.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(m) "Fair Market Value" means, as of any applicable date, for all purposes
in this Plan, the average of the high and low sales prices of the Common Stock
on the New York Stock Exchange-Composite Transactions Tape on the ten (10)
consecutive trading days ending on that day, or if no sale of stock has been
recorded on such day, then on the next preceding day on which a sale was so
made. In the event the Common Stock is not admitted to trade on a securities
exchange, the Fair Market Value as of any given date shall be as determined in
good faith by the Committee.
(n) "Incentive Stock Option" means a stock option within the meaning of
Section 422 of the Code.
(o) "Merger" means any merger, reorganization, consolidation, share
exchange, transfer of assets or other transaction having similar effect
involving the Company.
(p) "Non-Qualified Stock Option" means a stock option which is not an
Incentive Stock Option.
(q) "Options" means all Non-Qualified Stock Options and Incentive Stock
Options granted at any time under the Plan.
(r) "Participant" means a person designated to receive an Award under the
Plan in accordance with Section 5.
(s) "Permanent Disability" means a physical or mental disability or
infirmity that prevents the performance of a Participant's services for the
Company and its Subsidiaries lasting (or likely to last, based on competent
medical evidence presented to the Committee) for a period of six months or
longer. The Committee's reasoned and good faith judgment of Permanent Disability
shall be final and shall be based on such competent medical evidence as shall be
presented to it by such Participant or by any physician or group of physicians
or other competent medical expert employed by the Participant or the Company to
advise the Committee.
(t) "Plan" shall have the meaning given to such term in Section 1(a).
(u) "Purchase Price," with respect to Options, shall have the meaning set
forth in Section 6(b).
(v) "Restricted Shares" means Common Stock subject to restrictions imposed
in connection with Awards granted under Section 8.
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(w) "Retirement" means a Participant's retirement at or after age 65.
(x) "Subsidiary" means a subsidiary of the Company within the meaning of
Section 424(f) of the Code.
3. ADMINISTRATION
(a) This Plan shall be administered by the Committee; provided, however, if
any member of the Committee does not meet the qualifications for an "outside
director" established from time to time by Section 162(m) of the Code, and any
proposed or future regulations thereunder, or the qualifications for a
"non-employee director" established from time to time by rules or regulations of
the Securities and Exchange Commission under Section 16 of the Exchange Act, the
remaining members of the Committee (but not less than two) shall administer the
Plan. The Committee shall have the sole discretionary authority to interpret the
Plan, to establish and modify administrative rules for the Plan, to impose such
conditions and restrictions on Awards as it determines appropriate, and to take
such steps in connection with the Plan and Awards granted hereunder as it may
deem necessary or advisable. No member of the Committee shall be eligible to
participate in, and no person shall become a member of the Committee if within
one year prior thereto he or she shall have been eligible to participate in this
Plan or any other plan of the Company or its Subsidiaries (other than the Huttig
Building Products, Inc. 1999 Non-Employee Director Restricted Stock Plan)
entitling the participants therein to acquire stock, stock options, stock
appreciation rights or restricted stock of the Company or its Subsidiaries.
Decisions of the Committee in connection with the administration of the Plan
shall be final, conclusive and binding upon all parties, including the Company,
its stockholders and the Participants.
(b) The Committee may employ attorneys, consultants, accountants or other
persons and the Committee and the Company and its officers and directors shall
be entitled to rely upon the advice, opinions or valuations of any such persons.
All usual and reasonable expenses of the Committee shall be paid by the Company.
No Committee member shall receive compensation with respect to his or her
services for the Committee except as may be authorized by the Board. All actions
taken and all interpretations and determinations made by the Committee in good
faith shall be final and binding upon all employees who have received awards,
the Company and all other interested persons. No member of the Committee shall
be personally liable for any action, determination or interpretations taken or
made in good faith with respect to this Plan or Awards made hereunder, and all
members of the Committee shall be fully indemnified and protected by the Company
in respect of any such action, determination or interpretation.
4. SHARES
(a) The total number of shares of Common Stock authorized to be issued
under the Plan shall not exceed in the aggregate 7% of the issued and
outstanding shares of Common Stock immediately following the Effective Date;
provided that, if the number of issued and outstanding
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shares of Common Stock is increased after the Effective Date, the maximum number
of shares of Common Stock for which Awards may be granted under the Plan shall
be increased by 7% of such increase. Notwithstanding the foregoing provisions of
this Section 4(a), the maximum number of shares of Common Stock that may be
issued as Incentive Stock Options under the Plan shall be 2,000,000 shares. The
number of shares available for issuance under the Plan shall be subject to
adjustment in accordance with Section 9. The shares to be offered under the Plan
shall be authorized and unissued shares of Common Stock, or issued shares of
Common Stock which will have been reacquired by the Company, including shares
purchased in the open market.
(b) Subject to the provisions of Section 6(d), any shares subject to an
Option granted under this Plan that expires or is terminated for any reason
without having been exercised in full, shares of Common Stock forfeited as
provided in Section 8(h) and shares of Common Stock subject to any Award that
are otherwise surrendered by a Participant or terminated shall continue to be
available for future grants under this Plan. If any shares of Common Stock are
withheld from those otherwise issuable or are tendered to the Company, by
attestation or otherwise, in connection with the exercise of an Option, only the
net number of shares of Common Stock issued as a result of such exercise shall
be deemed delivered for purposes of determining the maximum number of shares
available for delivery under the Plan.
5. PARTICIPATION
Participants in the Plan shall be such key employees of the Company and its
Subsidiaries as the Committee, in its sole discretion, may designate from time
to time. For purposes of the Plan, "key employees" shall mean officers as well
as other employees (including officers and other employees who are also
directors of the Company or any Subsidiary) designated by the Committee in its
discretion upon the recommendation of management, but shall not include any
employee who, assuming the full exercise of such Option, would own more than 10%
of the combined voting power of all classes of stock of the Company or any
Subsidiary. Subject to adjustment in accordance with Section 9, the maximum
number of shares for which Awards may be granted under this Plan to any single
individual in any calendar year shall not exceed 1% of the total number of
outstanding shares of Common Stock as of the Date of Grant. Options under the
Plan may be Incentive Stock Options within the meaning of Section 422 of the
Code or Non-Qualified Stock Options. Awards granted hereunder shall be evidenced
by Award Agreements in such form as the Committee shall approve, which
Agreements shall comply with and be subject to the terms and conditions of this
Plan.
6. GRANT AND EXERCISE OF STOCK OPTIONS
(a) The purchase price of each share of Common Stock upon exercise of any
Options granted under the Plan shall not be less than 100% of the Fair Market
Value of the stock on the date the Options are granted (the "Purchase Price").
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(b) Each Option granted under this Plan shall be exercisable in whole or in
part (in lots of ten shares or any multiple thereof) from time to time beginning
from the date the Option is granted, subject to the provision that an Option may
not be exercised by the Participant, except as provided in Section 7, (i) more
than 90 days after the termination of the Participant's employment by the
Company or a Subsidiary or more than 10 years from the Date of Grant, whichever
period is shorter, or (ii) prior to the expiration of one year from the Date of
Grant; provided further, that, unless otherwise determined by the Committee, the
Option may not be exercised in excess of 50% of the total shares subject to such
Option during the second year after the Date of Grant, 75% during the third
year, and 100% thereafter.
(c) The Purchase Price of the shares purchased upon the exercise of an
Option shall be paid in full at the time of exercise in cash or, in whole or in
part, by tendering (either actually or by attestation) shares of Common Stock.
The value of each share of Common Stock delivered in payment of all or part of
the Purchase Price upon the exercise of an Option shall be the Fair Market Value
of the Common Stock on the date the Option is exercised. Exercise of Options
shall also be permitted, if approved by the Committee, in accordance with a
cashless exercise program under which, if so instructed by a Participant, shares
of Common Stock may be issued directly to the Participant's broker or dealer
upon receipt of an irrevocable written notice of exercise from the Participant.
(d) The Committee, upon such terms and conditions as it shall deem
appropriate, may (but shall not be obligated to) authorize on behalf of the
Company the acceptance of the surrender of the right to exercise an Option or a
portion thereof (but only to the extent and in the amounts that such Option
shall then be exercisable) and the payment by the Company therefor of an amount
equal to the excess of the Fair Market Value on the date of surrender of the
shares of Common Stock covered by such Option or portion thereof over the
aggregate option price of such shares. Such payment shall be made in shares of
Common Stock (valued at such Fair Market Value) or in cash, or partly in cash
and partly in shares of Common Stock, as the Committee shall determine. The
shares of Common Stock covered by any Option or portion thereof, as to which the
right to exercise shall have been so surrendered, shall not again be available
for the purposes of this Plan.
(e) Each Option granted under this Plan shall not be transferable by the
Participant otherwise than by will or the laws of descent and distribution, and
shall be exercisable, during the Participant's lifetime, only by the
Participant. Notwithstanding the foregoing, Non-Qualified Stock Options may be
transferable, without payment of consideration, to immediate family members of
the Participant or to trusts or partnerships for the benefit of such family
members.
(f) No Participant may be granted Incentive Stock Options under the Plan
(or any other plans of the Company and its Subsidiaries) that would result in
shares with an aggregate Fair Market Value (measured on the Date of Grant) of
more than $100,000 first becoming exercisable in any one calendar year.
(g) The Company shall have the right to require a Participant to pay to the
Company the cash amount of any taxes which the Company is required to withhold
upon the exercise of an
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Option granted hereunder, provided that anything contained herein to the
contrary notwithstanding, the Committee may, in accordance with such rules as it
may adopt, accept shares of Common Stock received in connection with the
exercise of the Option being taxed or otherwise previously acquired in
satisfaction of any withholding requirements or up to the entire tax liability
arising from the exercise of such Option.
(h) The Committee, in its sole discretion, shall have the right (but shall
not in any case be obligated), exercisable at any time after the Date of Grant,
to permit the exercise of any Option prior to the time such Option would
otherwise become exercisable under the terms of the Award Agreement.
(i) The Committee shall have the authority to specify, either at the time
of grant of an Option or at a later date, that upon exercise of all or a portion
of that Option (the "Original Option") a reload stock option ("Reload Option")
shall be granted under specified conditions. A Reload Option shall entitle the
Participant to purchase a number of shares equal to the shares delivered in
payment of all or part of the exercise price of the Original Option pursuant to
Section 6(c) plus the shares delivered or withheld to satisfy the tax liability
associated with such exercise pursuant to Section 6(g). The specific terms and
conditions applicable for Reload Options shall be determined by the Committee
and shall be set forth in rules adopted by the Committee or in agreements or
other documentation evidencing such Reload Options; provided, however, that (i)
the exercise price of the Reload Option shall be the Fair Market Value of the
Common Stock at the Date of Grant, (ii) the Reload Option shall not be
exercisable, except as provided in Section 7, earlier than six months after its
Date of Grant, and (iii) the expiration date of the Reload Option shall not be
later than the expiration date of the Original Option.
7. EXERCISE OF OPTIONS UPON TERMINATION OF EMPLOYMENT
(a) If a Participant shall retire or shall cease to be employed by the
Company or by a Subsidiary by reason of Permanent Disability or after a Change
in Control, all Options theretofore granted to such Participant, whether or not
previously exercisable, may be exercised in whole or in part, and/or the
Committee may authorize the acceptance of the surrender of the right to exercise
such Options or any portion thereof as provided in Section 6(d), at any time
within 90 days after such Retirement, termination by reason of Permanent
Disability, or termination after a Change in Control, but not after the
expiration of the term of the Option.
(b) If a Participant shall die while employed by the Company or by a
Subsidiary or within 90 days of the cessation or termination of such employment
under circumstances described in Section 7(a), all Options theretofore granted
to such Participant, whether or not previously exercisable, may be exercised in
whole or in part, and/or the Committee may authorize the acceptance of the
surrender of the right to exercise such Options or any portion thereof as
provided in Section 6(d), by the estate of such Participant (or by a person who
shall have acquired the right to exercise such Option by bequest or
inheritance), at any time within one year after the death of such Participant
but not after the expiration of the term of the Option.
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(c) If a Participant's employment is terminated for any reason other than
death, disability or retirement or after a Change in Control, such Participant
may exercise any Option in whole or in part, at any time within 90 days after
such termination of employment, but only to the extent such Option is
exercisable at the date of termination in accordance with Section 6(b). In no
event may any Option be exercised after the expiration of the term of the
Option.
8. GRANT OF RESTRICTED SHARES
(a) The Committee may grant to any Participant an Award of such number of
shares of Common Stock on such terms, conditions and restrictions, whether based
on performance standards, periods of service, retention by the Participant of
ownership of specified shares of Common Stock or other criteria, as the
Committee shall establish. With respect to performance-based Awards of
Restricted Shares intended to qualify for deductibility under the
"performance-based" compensation exception contained in Section 162(m) of the
Code, performance targets will include specified levels of one or more of the
following (in absolute terms or relative to one or more other companies or
indices): revenues, free cash flow, return on assets, operating income, return
on investment, economic value added, return on stockholders' equity, stock price
appreciation, total share return, earnings before interest, taxes, depreciation
and amortization, earnings per share and/or growth in earnings per share. The
terms of any Restricted Share Award granted under this Plan shall be set forth
in an Award Agreement which shall contain provisions determined by the Committee
and not inconsistent with this Plan.
(b) As soon as practicable after the Date of Grant of a Restricted Share
Award by the Committee, the Company shall cause to be transferred on the books
of the Company or its agent, shares of Common Stock, registered on behalf of the
Participant, evidencing the Restricted Shares covered by the Award, subject to
forfeiture to the Company as of the Date of Grant if an Award Agreement with
respect to the Restricted Shares covered by the Award is not duly executed by
the Participant and timely returned to the Company. All shares of Common Stock
covered by Awards under this Section 8 shall be subject to the restrictions,
terms and conditions contained in the Plan and the applicable Award Agreements
entered into by the appropriate Participants. Until the lapse or release of all
restrictions applicable to an Award of Restricted Shares the share certificates
representing such Restricted Shares may be held in custody by the Company, its
designee, or, if the certificates bear a restrictive legend, by the Participant.
Upon the lapse or release of all restrictions with respect to an Award as
described in Section 8(e), one or more share certificates, registered in the
name of the Participant, for an appropriate number of shares as provided in
Section 8(e), free of any restrictions set forth in the Plan and the related
Award Agreement shall be delivered to the Participant.
(c) Beginning on the Date of Grant of a Restricted Share Award and subject
to execution of the related Award Agreement as provided in Section 8(b), and
except as otherwise provided in such Award Agreement, the Participant shall
become a stockholder of the Company with respect to all shares subject to the
Award Agreement and shall have all of the rights of a stockholder, including,
but not limited to, the right to vote such shares and the right to receive
dividends; provided, however, that any shares of Common Stock or other
securities distributed as a dividend
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or otherwise with respect to any Restricted Shares as to which the restrictions
have not yet lapsed, shall be subject to the same restrictions as such
Restricted Shares and held or restricted as provided in Section 8(b).
(d) None of the Restricted Shares may be assigned or transferred (other
than by will or the laws of descent and distribution or to an inter vivos trust
with respect to which the Participant is treated as the owner under Sections 671
through 677 of the Code), pledged or sold prior to the lapse of the restrictions
applicable thereto.
(e) Upon expiration or earlier termination of the forfeiture period without
a forfeiture and the satisfaction of or release from any other conditions
prescribed by the Committee, or at such earlier time as provided under the
provisions of Section 8(i), the restrictions applicable to the Restricted Shares
shall lapse. As promptly as administratively feasible thereafter, subject to the
requirements of Section 8(k), the Company shall deliver to the Participant or,
in case of the Participant's death, to the Participant's Beneficiary, one or
more share certificates for the appropriate number of shares of Common Stock,
free of all such restrictions, except for any restrictions that may be imposed
by law.
(f) A Participant's Restricted Share Award shall not be contingent on any
payment by or consideration from the Participant other than the rendering of
services.
(g) The Committee will have the discretion, as to any Restricted Share
Award, to award a separate cash amount, payable to the Participant at the time
when the forfeiture restrictions on the Restricted Shares lapse or at such
earlier time as the Participant may elect to be taxed with respect to such
Restricted Shares equal to (i) the federal income tax and the Section 4999
golden parachute excise tax, if any, payable with respect to the lapse of such
restrictions or with respect to such election, divided by (ii) one (1) minus the
total effective federal income and excise tax rate applicable as a result of the
lapse of such restrictions or a result of such election.
(h) Subject to Sections 8(i) and 8(j), Restricted Shares shall be forfeited
and returned to the Company and all rights of the Participant with respect to
such Restricted Shares shall terminate unless the Participant continues in the
service of the Company or a Subsidiary until the expiration of the forfeiture
period for such Restricted Shares and satisfies any and all other conditions set
forth in the Award Agreement. The Committee shall determine the forfeiture
period (which may, but need not, lapse in installments) and any other terms and
conditions applicable with respect to any Restricted Share Award.
(i) Notwithstanding anything contained in this Section 8 to the contrary,
the Committee may, in its sole discretion, waive the forfeiture period and any
other conditions set forth in any Award Agreement under appropriate
circumstances (including the death, disability or Retirement of the Participant
or a material change in circumstances arising after the date of an Award) and
subject to such terms and conditions (including forfeiture of a proportionate
number of the Restricted Shares) as the Committee shall deem appropriate.
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(j) Unless otherwise provided by the Committee in the applicable Award
Agreement, in the event of a Change in Control, all restrictions applicable to
the Restricted Share Award shall terminate fully and the Participant shall
immediately have the right to the delivery of share certificates for such shares
in accordance with Section 8(e).
(k) The Company shall have the right to require a Participant to pay to the
Company the cash amount of any taxes which the Company is required to withhold
with respect to any amount payable and/or shares issuable under such
Participant's Award. The Company may defer payment of cash or issuance of shares
upon exercise or vesting of an Award unless indemnified to its satisfaction
against any liability for any such tax. The amount of such withholding or tax
payment shall be determined by the Committee and shall be payable by the
Participant at such time as the Committee determines.
9. ADJUSTMENTS TO REFLECT CAPITAL CHANGES
In the event that there is an increase in the number of issued shares of
the Common Stock by reason of any stock dividend, stock split, recapitalization
or other similar event, the total number of shares available for Awards under
the Plan, the maximum number of shares for which Options may be granted to any
single individual in any calendar year and the number of shares remaining
subject to purchase under each outstanding Option shall be increased and the
price per share of such outstanding Options shall be decreased, in proportion to
such increase in issued shares. Conversely, in case the issued shares of Common
Stock shall be combined into a smaller number of shares, the total number of
shares available for Awards under the Plan, the maximum number of shares for
which Options may be granted to any single individual in any calendar year and
the number of shares remaining subject to purchase under each outstanding Option
shall be decreased and the price per share of such outstanding Options shall be
increased, in proportion to such decrease in issued shares. In the event of any
Merger, the Committee may make such adjustment in the shares available for
Awards under the Plan, the maximum number of shares for which Options may be
granted to any single individual in any calendar year and the shares subject to
outstanding Awards and the price thereof, if applicable, as the Committee, in
its sole discretion, deems appropriate. In the event of an exchange of Common
Stock, or other securities of the Company convertible into Common Stock, for the
stock or securities of another corporation, the Committee may, in its sole
discretion, equitably substitute such new stock or securities for a portion or
all of the shares of Common Stock subject to outstanding Awards.
10. AMENDMENT AND TERMINATION
This Plan may be amended or terminated at any time by the Board except with
respect to any Awards then outstanding, and any Award granted under this Plan
may be terminated at any time with the consent of the Participant. The Board may
make such changes in and additions to this Plan as it may deem proper and in the
best interest of the Company; provided, however, that no such action shall,
without the consent of the Participant, materially impair any Award theretofore
granted under this Plan; and provided, further, that without the approval of the
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stockholders of the Company (i) the total number of shares that may be issued
under this Plan shall not be increased, and (ii) the minimum purchase price
shall not be changed. Notwithstanding the foregoing, the Board may amend or
revise this Plan to comply with applicable laws or governmental regulations.
11. GENERAL PROVISIONS
(a) Each Option granted under this Plan shall be evidenced by a written
Award Agreement containing such terms and conditions as the Committee may
require, and no person shall have any rights under any Award granted under this
Plan unless and until such agreement has been executed and delivered by the
Participant and the Company.
(b) In the event of any conflict between the terms of this Plan and any
provision of any Option agreement, the terms of this Plan shall be controlling.
(c) No Participant or other person shall have any claim of right to be
granted an Award under the Plan. Neither the Plan nor any action taken hereunder
shall be construed as giving any Participant any right to be retained in the
employ of the Company or any of its Subsidiaries. Unless otherwise agreed by
contract, the Company reserves the right to terminate its employment
relationship with any person at any time and for any reason.
(d) Income realized as a result of a grant or an exercise of any Award
under this Plan shall not be included in the Participant's earnings for the
purpose of any benefit plan in which the Participant may be enrolled or for
which the Participant may become eligible unless otherwise specifically provided
for in such plan.
(e) The obligation of the Company to sell and deliver shares of Common
Stock with respect to any Award granted hereunder shall be subject to, as deemed
necessary or appropriate by counsel for the Company, (i) all applicable laws,
rules and regulations and such approvals by any governmental agencies as may be
required, including, without limitation, the effectiveness of a registration
statement under the Securities Act of 1933, and (ii) the condition that such
shares shall have been duly listed on such stock exchanges as the Common Stock
is then listed.
(f) Anything in this Plan to the contrary notwithstanding, it is expressly
agreed and understood that if any one or more provisions of this Plan shall be
illegal or invalid such illegality or invalidity shall not invalidate this Plan
or any other provisions thereof, but this Plan shall be effective in all
respects as though the illegal or invalid provisions had not been included.
(g) All determinations made and actions taken pursuant to the Plan shall be
governed by the laws of the State of Delaware, other than the conflict of laws
provisions thereof, and construed in accordance therewith.
* * * * * *
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FORM A
HUTTIG BUILDING PRODUCTS, INC.
EMPLOYMENT/SEVERANCE AGREEMENT
AGREEMENT by and between HUTTIG BUILDING PRODUCTS, INC., a Delaware
corporation (the "Company"), and BARRY J. KULPA (the "Employee"), dated October
18, 1999.
The Board of Directors of the Company (the "Board"), on the advice of its
Organization and Compensation Committee, has determined that it is in the best
interests of the Company and its shareholders to assure that the Company will
have the continued dedication of the Employee as President and Chief Executive
Officer of the Company, notwithstanding the possibility, threat, or occurrence
of a Change of Control (as defined below) of the Company. The Board believes it
is imperative to diminish the inevitable distraction of the Employee by virtue
of the personal uncertainties and risks created by a pending or threatened
Change of Control, to encourage the Employee's full attention and dedication to
the Company currently and in the event of any threatened or pending Change of
Control, and to provide the Employee with compensation arrangements upon a
Change of Control which provide the Employee with individual financial security
and which are competitive with those of other corporations and, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
l. Certain Definitions.
(a) The "Effective Date" shall be the first date during the "Change of
Control Period" (as defined in Section l(b)) on which a Change of Control
occurs. Anything in this Agreement to the contrary notwithstanding, if the
Employee's employment with the Company is terminated prior to the date on
which a Change of Control occurs, and it is reasonably demonstrated that
such termination (l) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (2) otherwise
arose in connection with or anticipation of a Change of Control, then for
all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination.
(b) The "Change of Control Period" is the period commencing on the
date hereof and ending on the earlier to occur of (i) the third anniversary
of such date or (ii) the first day of the month next following the
Employee's normal retirement date ("Normal Retirement Date") under the
Huttig Building Products, Inc. Savings & Investment Plan, or any successor
retirement plan (the "Retirement Plan"); provided, however, that commencing
on the date one year after the date hereof, and on each annual anniversary
of such date (such date and each annual anniversary thereof is hereinafter
referred to as the "Renewal Date"), the Change of Control Period shall be
automatically extended so as to terminate on the earlier of (x) three years
from such Renewal Date or (y) the first day of the month coinciding with or
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following the Employee's Normal Retirement Date, unless at least 60 days
prior to the Renewal Date the Company shall give notice that the Change of
Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(i) The acquisition, other than from the Company, by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either the then outstanding shares of
common stock of the Company or the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of directors, but excluding, for this purpose, any such
acquisition by the Company or any of its subsidiaries, by The Rugby Group
plc or any direct transferee from The Rugby Group plc, or any employee
benefit plan (or related trust) of the Company or its subsidiaries, or any
corporation with respect to which, following such acquisition, more than
50% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or indirectly, by
substantially the same individuals and entities who were the beneficial
owners, respectively, of the common stock and voting securities of the
Company immediately prior to such acquisition in substantially the same
proportion as their ownership, immediately prior to such acquisition, of
the then outstanding shares of common stock of the Company or the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors, as the case may
be; or
(ii) Individuals who, as of the date hereof, constitute the Board (as
of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act); or
(iii) Approval by the stockholders of the Company of a reorganization,
merger or consolidation, in each case, with respect to which substantially
the same individuals and entities who were the respective beneficial owners
of the common stock and voting securities of the Company immediately prior
to such reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such
<PAGE>
reorganization, merger or consolidation, or a complete liquidation or
dissolution of the Company or of the sale or other disposition of all or
substantially all of the assets of the Company.
3. Employment Period. The Company hereby agrees to continue the Employee in
its employ, and the Employee hereby agrees to remain in the employ of the
Company, for the period commencing on the Effective Date and ending on the
earlier to occur of (a) the third anniversary of such date or (b) the first day
of the month coinciding with or next following the Employee's Normal Retirement
Date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Employee's position
(including status, offices, titles and reporting requirements) authority duties
and responsibilities shall be at least commensurate in all material respects
with those held, exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) the Employee's services shall
be performed at the location where the Employee was employed immediately
preceding the Effective Date or any office or location less than thirty-five
(35) miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Employee is entitled, the Employee agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Employee hereunder, to use the Employee's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. It is expressly understood and agreed that to the extent that
any outside activities have been conducted by the Employee prior to the
Effective Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere with the performance of the
Employee's responsibilities to the Company.
<PAGE>
(b) Compensation.
(i) Base Salary. During the Employment Period, the Employee shall
receive an annual base salary ("Base Salary") at a rate at least equal to twelve
times the highest monthly base salary paid or payable to the Employee by the
Company during the twelve-month period immediately preceding the month in which
the Effective Date occurs. During the Employment Period, the Base Salary shall
be reviewed at least annually and shall be increased at any time and from time
to time as shall be substantially consistent with increases in base salary
awarded in the ordinary course of business to other key employees of the Company
and its subsidiaries. Any increase in Base Salary shall not serve to limit or
reduce any other obligation to the Employee under this Agreement. Base Salary
shall not be reduced after any such increase.
(ii) Annual Bonus. In addition to Base Salary, the Employee shall
be eligible (but not entitled) to receive, for each fiscal year during the
Employment Period, an annual bonus (an "Annual Bonus") (either pursuant to any
incentive compensation plan maintained by the Company or otherwise) in cash on
the same basis as in the fiscal year immediately preceding the fiscal year in
which the Effective Date occurs or, if more favorable to the Employee, on the
same basis as awarded at any time thereafter to other key employees of the
Company and its subsidiaries.
(iii) Incentive, Savings and Retirement Plans. In addition to
Base Salary and Annual Bonus payable as hereinabove provided, the Employee shall
be entitled to participate during the Employment Period in all incentive,
savings and retirement plans, practices, policies and programs applicable to
other key employees of the Company and its subsidiaries.
Such plans, practices, policies and programs, in the aggregate, shall
provide the Employee with compensation, benefits and reward opportunities at
least as favorable in the aggregate as the most favorable of such compensation,
benefits and reward opportunities provided by the Company for the Employee under
such plans, practices, policies and programs as in effect at any time during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Employee, as provided at any time thereafter with respect to other key
employees of the Company and its subsidiaries.
(iv) Welfare Benefit Plans. During the Employment Period, the
Employee and/or the Employee's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its subsidiaries
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs), at least as favorable as the most
favorable of such plans, practices, policies and programs in effect at any time
during the 90-day period immediately preceding the Effective Date or, if more
favorable to the Employee and/or the
<PAGE>
Employee's family, as in effect at any time thereafter with respect to other key
employees of the Company and its subsidiaries.
(v) Expenses. During the Employment Period, the Employee shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Employee in accordance with the most favorable policies, practices and
procedures of the Company and its subsidiaries in effect at any time during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Employee, as in effect at any time thereafter with respect to other key
employees of the Company and its subsidiaries.
(vi) Fringe Benefits. During the Employment Period, the Employee
shall be entitled to fringe benefits, including use of an automobile and payment
of related expenses, in accordance with the most favorable plans, practices,
programs and policies of the Company and its subsidiaries in effect at any time
during the 90-day period immediately preceding the Effective Date or, if more
favorable to the Employee, as in effect at any time thereafter with respect to
other key employees of the Company and its subsidiaries.
(vii) Office and Support Staff. During the Employment Period, the
Employee shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other assistance, at
least equal to the most favorable of the foregoing provided to the Employee by
the Company and its subsidiaries at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the Employee,
as provided at any time thereafter with respect to other key employees of the
Company and its subsidiaries.
(viii) Vacation. During the Employment Period, the Employee shall
be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its subsidiaries as in
effect at any time during the 90-day period immediately preceding the Effective
Date or, if more favorable to the Employee, as in effect at any time thereafter
with respect to other key employees of the Company and its subsidiaries.
5. Termination.
(a) Death or Disability. This Agreement shall terminate
automatically upon the Employee's death. If the Company determines in good faith
that the Disability of the Employee has occurred (pursuant to the definition of
"Disability" set forth below), it may give to the Employee written notice (given
in accordance with Section 12(b) hereof) of its intention to terminate the
Employee's employment. In such event, the Employee's employment with the Company
shall terminate effective on the 30th day after receipt of such notice by the
Employee (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Employee shall not have returned to full-time
performance of the Employee's duties. For purposes of this Agreement,
"Disability" means disability which, at least 26 weeks after its commencement,
is determined to be total and permanent by a physician selected by the
<PAGE>
Company or its insurers and acceptable to the Employee or the Employee's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Company may terminate the Employee's employment for
"Cause." For purposes of this Agreement, "Cause" shall constitute either (i)
personal dishonesty or breach of fiduciary duty involving personal profit at the
expense of the Company (ii) repeated violations by the Employee of the
Employee's obligations under Section 4(a) of this Agreement which are
demonstrably willful and deliberate on the Employee's part and which are not
remedied in a reasonable period of time after receipt of written notice from the
Company or (iii) the commission of a criminal act related to the performance of
duties, or the furnishing of proprietary confidential information about the
Company to a competitor, or potential competitor, or third party whose interests
are adverse to those of the Company; (iv) habitual intoxication by alcohol or
drugs during work hours; or (v) conviction of a felony.
(c) Good Reason. The Employee's employment may be terminated by the
Employee for Good Reason. For purposes of this Agreement, "Good Reason" means:
(i) the assignment to the Employee of any duties inconsistent in
any respect with the Employee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Employee;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Employee;
(iii) the Company's requiring the Employee to be based at any
office or location other than that described in Section 4(a)(i)(B) hereof,
except for travel reasonably required in the performance of the Employee's
responsibilities;
(iv) any purported termination by the Company of the Employee's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Employee shall be conclusive. Anything in this Agreement to
the contrary notwithstanding, a termination by the Employee for any reason
during the 30-day period
<PAGE>
immediately following the first anniversary of the Effective Date shall be
deemed to be a termination for Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause or
by the Employee for Good Reason shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than fifteen (15) days after
the giving of such notice). The failure by the Employee to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason shall not waive any right of the Employee hereunder or preclude the
Employee from asserting such fact or circumstance in enforcing his rights
hereunder.
(e) Date of Termination. "Date of Termination" means the date of
receipt of the Notice of Termination or any later date specified therein, as the
case may be; provided, however, that (i) if the Employee's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Employee of such
termination and (ii) if the Employee's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Employee or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Death. If the Employee's employment is terminated by reason of the
Employee's death, this Agreement shall terminate without further obligations to
the Employee's legal representatives under this Agreement, other than those
obligations accrued or earned and vested (if applicable) by the Employee as of
the Date of Termination, including, for this purpose (i) the Employee's full
Base Salary through the Date of Termination at the rate in effect on the Date of
Termination or, if higher, at the highest rate in effect at any time from the
90-day period preceding the Effective Date through the Date of Termination (the
"Highest Base Salary"), (ii) the product of the Annual Bonus paid to the
Employee for the last full fiscal year and a fraction, the numerator of which is
the number of days in the current fiscal year through the Date of Termination,
and the denominator of which is 365 and (iii) any compensation previously
deferred by the Employee (together with accrued interest thereon, if any) and
not yet paid by the Company and any accrued vacation pay not yet paid by the
Company (such amounts specified in clauses (i), (ii) and (iii) are hereinafter
referred to as "Accrued Obligations"). All such Accrued Obligations shall be
paid to the Employee's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination. Anything in this Agreement to
the contrary notwithstanding, the Employee's family shall be entitled to receive
benefits at least equal to the most favorable benefits provided by the Company
and any of its subsidiaries to surviving families of employees of the Company
and such subsidiaries under such plans,
<PAGE>
programs, practices and policies relating to family death benefits, if any, in
accordance with the most favorable plans, programs, practices and policies of
the Company and its subsidiaries in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the Employee
and/or the Employee's family, as in effect on the date of the Employee's death
with respect to other key employees of the Company and its subsidiaries and
their families.
(b) Disability. If the Employee's employment is terminated by reason
of the Employee's Disability, this Agreement shall terminate without further
obligations to the Employee, other than those obligations accrued or earned and
vested (if applicable) by the Employee as of the Date of Termination, including
for this purpose, all Accrued Obligations. All such Accrued Obligations shall be
paid to the Employee in a lump sum in cash within 30 days of the Date of
Termination. Anything in this Agreement to the contrary notwithstanding, the
Employee shall be entitled after the Disability Effective Date to receive
disability and other benefits at least equal to the most favorable of those
provided by the Company and its subsidiaries to disabled employees and/or their
families in accordance with such plans, programs, practices and policies of the
Company and its subsidiaries in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the Employee
and/or the Employee's family, as in effect at any time thereafter with respect
to other key employees of the Company and its subsidiaries and their families.
(c) Cause; Other than for Good Reason. If the Employee's employment
shall be terminated for Cause, this Agreement shall terminate without further
obligations to the Employee other than the obligation to pay to the Employee the
Highest Base Salary through the Date of Termination plus the amount of any
compensation previously deferred by the Employee (together with accrued interest
thereon, if any). If the Employee terminates employment other than for Good
Reason, this Agreement shall terminate without further obligations to the
Employee, other than those obligations accrued or earned and vested (if
applicable) by the Employee through the Date of Termination, including for this
purpose, all Accrued Obligations. All such Accrued Obligations shall be paid to
the Employee in a lump sum in cash within 30 days of the Date of Termination.
(d) Good Reason; Other Than for Cause or Disability. If, during the
Employment Period, the Company shall terminate the Employee's employment other
than for Cause, Disability, or death or if the Employee shall terminate his
employment for Good Reason:
(i) the Company shall pay to the Employee in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. to the extent not theretofore paid, the Employee's
Highest Base Salary through the Date of Termination; and
<PAGE>
B. the product of (x) the greater of the Annual Bonus paid
or payable (annualized for any fiscal year consisting of less than twelve full
months or for which the Executive has been employed for less than twelve full
months) to the Executive for the most recently completed fiscal year during the
Employment Period, if any, or the average bonus (annualized for any fiscal year
consisting of less than twelve full months or with respect to which the
Executive has been employed by the Company for less than twelve full months)
paid or payable to the Executive by the Company and its affiliated companies in
respect of the three fiscal years immediately preceding the fiscal year in which
the Effective Date occurs (the "Average Annual Bonus"), such greater amount
being hereafter referred to as the "Highest Annual Bonus," and (y) a fraction,
the numerator of which is the number of days in the current fiscal year through
the Date of Termination, and the denominator of which is 365;
C. the product of (x) three and (y) the sum of (i) the
Highest Base Salary and (ii) the Average Annual Bonus; and
D. in the case of compensation previously deferred by the
Employee, all amounts previously deferred (together with accrued interest
thereon, if any) and not yet paid by the Company, and any accrued vacation pay
not yet paid by the Company; and
(ii) for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide, the Company shall
continue benefits to the Employee and/or the Employee's family at least equal to
those which would have been provided to them as if the Employee's employment had
not been terminated, in accordance with the most favorable employee welfare
benefit plans (as such term is defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended) of the Company and its
subsidiaries (including health insurance and life insurance) during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Employee, as in effect at any time thereafter with respect to other key
employees and their families, and for purposes of eligibility for retiree
benefits pursuant to such employee welfare benefit plans, the Employee shall be
considered to have remained employed until the end of the Employment Period and
to have retired on the last day of such period.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any benefit, bonus,
incentive or other plans, programs, policies or practices, provided by the
Company or any of its subsidiaries and for which the Employee may qualify, nor
shall anything herein limit or otherwise affect such rights as the Employee may
have under any stock option, restricted stock, stock appreciation right, or
other agreements with the Company or any of its subsidiaries. Amounts which are
vested benefits or which the Employee is otherwise entitled to receive under any
plan, policy, practice or program of the Company or any of its subsidiaries at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program provided, however, that in the event the
terms of any such plan, policy, practice or program concerning the payment of
benefits thereunder shall conflict with any provision of this
<PAGE>
Agreement, the terms of this Agreement shall take precedence but only if and to
the extent the payment would not adversely affect the tax exempt status (if
applicable) of any such plan, policy, practice or program and only if the
employee agrees in writing that such payment shall be in lieu of any
corresponding payment from such plan, policy, practice or program.
8. Full Settlement. The Company's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Employee or
others. In no event shall the Employee be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Employee under any of the provisions of this Agreement. The Company agrees to
pay, to the full extent permitted by law, all legal fees and expenses which the
Employee may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Employee about
the amount of any payment pursuant to Section 9 of this Agreement), plus in each
case interest at the applicable Federal rate provided for in Section 7872(f)(2)
of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any economic benefit or payment or
distribution by the Company to or for the benefit of the Employee, whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (including, but not limited to, any economic benefit
received by the Employee by reason of the acceleration of rights under the
various option, restricted stock and stock appreciation right plans of the
Company, but excluding any other economic benefit which by the terms of the
agreement or other document providing for such economic benefit, is expressly
excluded from inclusion in the economic benefits covered by this Section 9(a))
(a "Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Employee shall be entitled to receive
an additional payment (a "Gross-Up-Payment") in an amount such that after
payment by the Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax imposed upon the
Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether a Gross-Up Payment
is required and the amount of such Gross-Up Payment, shall be made by the
Company's regular outside independent public accounting firm (the "Accounting
Firm") which shall provide detailed supporting calculations both to the Company
and the Employee within 15 business days of the Date of Termination, if
applicable, or such earlier time as is requested by the Company. The
<PAGE>
initial Gross-Up Payment, if any, as determined pursuant to this Section 9(b),
shall be paid to the Employee within 5 days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by the Employee, it shall furnish the Employee with an opinion that he
has substantial authority not to report any Excise Tax on his federal income tax
return. Any determination by the Accounting Firm shall be binding upon the
Company and the Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9(c) and the Employee
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Employee.
(c) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the later of either (i)
the date the Employee has actual knowledge of such claim, or (ii) ten days after
the Internal Revenue Service issues to the Employee either a written report
proposing imposition of the Excise Tax or a statutory notice of Deficiency with
respect thereto, and shall apprise the Company of the nature of such claim and
the date on which such claim is requested to be paid. The Employee shall not pay
such claim prior to the expiration of the thirty-day period following the date
on which it gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due). If the
Company notifies the Employee in writing prior to the expiration of such period
that it desires to contest such claim, the Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim,
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or
<PAGE>
income tax, including interest and penalties with respect thereto, imposed as a
result of such representation and payment of costs and expenses. Without
limitation of the foregoing provisions of this Section 9(c), the Company shall
control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Employee to request or accede to a
request for an extension of the statute of limitations with respect only to the
tax claimed, or pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Employee agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Employee to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Employee, on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax,
including interest or penalties with respect thereto, imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations requested
or acceded to by the Employee at the Company's request and relating to payment
of taxes for the taxable year of the Employee with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Employee shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 9(c), the Employee becomes entitled to receive any
refund with respect to such claim, the Employee shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify the Employee in writing of its intent to contest
such denial of refund prior to the expiration of thirty days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
(e) In the event that any state or municipality or subdivision thereof
shall subject any Payment to any special tax which shall be in addition to the
generally applicable income tax imposed by such state , municipality, or
subdivision with respect to receipt of such Payment, the foregoing provisions of
this Section 9 shall apply, mutatis mutandis, with respect to such special tax.
10. Confidential Information. The Employee shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its subsidiaries, and their
respective businesses, which shall have
<PAGE>
been obtained by the Employee during the Employee's employment by the Company or
any of its subsidiaries and which shall not be or become public knowledge (other
than by acts by the Employee or his representatives in violation of this
Agreement). After termination of the Employee's employment with the Company, the
Employee shall not, without the prior written consent of the Company,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. In no event shall an asserted
violation of the provisions of this Section 10 constitute a basis for deferring
or withholding any amounts otherwise payable to the Employee under this
Agreement.
11. Successors.
(a) This Agreement is personal to the Employee and without the prior
written consent of the Company shall not be assignable by the Employee otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Employee's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force and effect.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Employee:
Barry J. Kulpa
3 Glen Forest
St. Louis, MO 63124
<PAGE>
If to the Company:
Crane Co.
100 First Stamford Place
Stamford, CT 06902
Attention: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Employee's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
(f) This Agreement contains the entire understanding of the Company
and the Employee with respect to the subject matter hereof. This Agreement may
not be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(g) The Employee and the Company acknowledge that the employment of
the Employee by the Company is "at will," and, prior to the Effective Date, may
be terminated by either the Employee or the Company at any time. Upon a
termination of the Employee's employment or prior to the Effective Date, there
shall be no further rights under this Agreement.
(h) Notwithstanding any other provision in this Agreement, this
Agreement shall only become effective upon the distribution by Crane Co. of all
the outstanding shares of Common Stock of the Company to stockholders of Crane
Co. (the "Spin-Off"), and the Spin-Off shall not constitute a Change of Control
hereunder. If the Spin-Off does not occur for any reason, this Agreement shall
not have any force or effect.
<PAGE>
IN WITNESS WHEREOF, the Employee has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ BARRY J. KULPA
------------------------------
BARRY J. KULPA
HUTTIG BUILDING PRODUCTS, INC.
By /s/ R. S. Evans
---------------------------
R. S. Evans
Chairman
Attest: /s/ Gregory Lambert
---------------------------------
Secretary
<PAGE>
FORM OF
REGISTRATION RIGHTS AGREEMENT
BY AND BETWEEN
HUTTIG BUILDING PRODUCTS, INC.
AND
THE RUGBY GROUP PLC
DATED AS OF
_____________, 1999
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as
of _____________, 1999, between Huttig Building Products, Inc., a Delaware
corporation (the "Company") and The Rugby Group PLC (the "Purchaser"), a company
registered in England and Wales under company number 206971, with reference to
the shares of common stock, $.01 par value (the "Common Stock") of the Company
acquired on the date hereof by the Purchaser.
1. Certain Definitions.
As used in this Agreement, the following terms shall have the following
respective meanings:
"Affiliate" shall have the meaning set forth in Rule 12b-2
under the Exchange Act.
"Beneficial Ownership" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities
Act.
"DECS" shall have the meaning set forth in Section 3(a).
"DECS Offering" shall mean an offering of Registrable
Securities exchangeable for debt securities of a Holder.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"Holder" shall mean (i) the Purchaser or (ii) any successor to
or transferee of all of the Registrable Securities Beneficially Owned
by the Purchaser on the date of such succession or transfer; provided,
however, that no successor or transferee of all such Registrable
Securities shall be deemed to be a Holder under this Agreement unless
(a) such Registrable Securities constitute 10% or more of the Common
Stock outstanding at the date hereof and (b) such successor or
transferee agrees in writing to comply in all respects with the
provisions of this Agreement.
"Initial Block" shall mean _______ (1) Registrable Securities,
as adjusted for stock splits, stock dividends or recapitalizations on
or after the date hereof.
- - - - - --------
(1) The number of Registrable Securities constituting the Initial Block shall
equal 50% of the shares of Common Stock received by the Purchaser on the date of
this Agreement.
<PAGE>
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or
ordering of the effectiveness of such registration statement.
"Registrable Securities" shall mean the Shares, but shall not
include any Share (i) that has been registered and disposed of in
accordance with a registration statement covering such security or (ii)
that has been distributed to the public pursuant to Rule 144 (or any
successor provision then in effect) under the Securities Act.
"Registration Expenses" shall mean all expenses incurred by
the Company in connection with a registration under this Agreement,
including, without limitation, all registration, qualification and
filing fees, printing expenses, fees and disbursements of counsel for
the Company, blue sky fees and expenses, accounting fees incident to or
required by any such registration and all internal expenses of the
Company; provided, however, that Registration Expenses shall not
include any Selling Expenses.
"Restricted Securities" shall mean the securities of the
Company required to bear the legend set forth in paragraph (a) of
Section 19 hereof.
"Rights Agreement" shall mean the Rights Agreement dated as of
_____, 1999 between the Company and ChaseMellon [Securities], as rights
agent.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the
time.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the Shares
included in a registration by the Holder and all fees and disbursements
of counsel for the Holder.
"Shares" shall mean the ___________ (2) shares of Common Stock
acquired by the Purchaser on the date hereof, as adjusted for stock
splits, stock dividends, or recapitalizations on or after the date
hereof.
"Shelf Registration Statement" shall mean the registration
statement effecting the registration required by Section 4(a).
"Standstill Period" shall have the meaning set forth in
Section 17.
- - - - - --------
(2) The number of shares of Common Stock to be issued to the Purchaser on the
date of this Agreement shall equal 32% of the shares of Common Stock outstanding
(other than restricted shares) on the date of this Agreement.
2
<PAGE>
"Underwritten Offering" shall mean a sale of securities of the
Company to an underwriter or underwriters for re-offering to the
public, which shall include a road show and other customary selling
efforts.
"Voting Securities" means the Common Stock and any other
securities issued by the Company having the power to vote in the
election of directors of the Company.
2. Notice of Proposed Transfers. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities, unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the Holder shall give written notice to the Company of its intention
to effect such transfer, sale, assignment or pledge. Each such notice shall
describe the manner and circumstances of the proposed transfer, sale, assignment
or pledge in sufficient detail, and shall be accompanied by a written opinion of
legal counsel who is, and whose legal opinion shall be, reasonably satisfactory
to the Company, addressed to the Company, to the effect that the proposed
transfer of the Restricted Securities may be effected without registration under
the Securities Act, whereupon the Holder will be entitled to transfer such
Restricted Securities in accordance with the terms of its notice to the Company.
The Company will not require such a legal opinion in any transaction that
complies with Rule 144 (other than in cases where applicability of Rule 144(k)
is asserted). Each certificate evidencing the Restricted Securities transferred
as above provided shall bear, except if such transfer is made pursuant to Rule
144, the appropriate restrictive legend set forth in Section 20 below, except
that such certificate shall not bear such restrictive legend if in the opinion
of counsel for the Holder and the Company such legend is not required in order
to establish compliance with any provisions of the Securities Act. The Holder
will cause any proposed purchaser, assignee, transferee or pledgee of Restricted
Securities to agree to take and hold such Restricted Securities subject to the
provisions of this Section 2. The holder of each certificate representing
Restricted Securities by acceptance thereof agrees to comply in all respects
with the provisions of this Section 2.
3. Registration of Initial Block.
(a) If requested in writing by the Purchaser, not later than
the 120th day after the date hereof, the Company shall file a registration
statement on Form S-1(i) covering the sale of at least the Initial Block by the
Purchaser in a firm commitment Underwritten Offering or (ii) covering the
distribution of all of the Registrable Securities in exchange for debt
securities of the Purchaser ("DECS"). The Company shall use all reasonable
efforts to have such registration statement declared effective so as to permit
the offer and sale of the Initial Block or the commencement of the DECS
Offering, as the case may be, as soon as practicable on or after the 180th day
hereafter and to keep such registration statement effective (x) in the case of
the Underwritten Offering for 60 days or, if earlier, until the date on which
the entire Initial Block has been sold or (y) in the case of the DECS Offering,
for three years or, if earlier, the date that all the Shares registered for
exchange pursuant to the DECS have been so exchanged.
3
<PAGE>
(b) If the portion, if any, of the Initial Block not sold in
the Underwritten Offering provided for in Section 3(a) constitutes more than 2%
of the outstanding shares of Common Stock at the date hereof, the Company shall,
if requested in writing by the Purchaser prior to the twelfth full calendar
month after the date hereof, file as soon as practicable (but no later than 30
days after the date of such request) a registration statement on Form S-1
covering the sale by the Purchaser in a firm commitment Underwritten Offering of
at least those Registrable Securities constituting that portion of the Initial
Block not sold in the Underwritten Offering provided in Section 3(a); provided,
however, that the Company may, in its sole and absolute discretion, delay the
filing of the registration statement under this Section 3(b) for up to 120 days.
(c) Neither the Company nor any other Company shareholder
shall have the right to include securities in the registration statement filed
pursuant to Section 3(a) or Section 3(b) without the Purchaser's consent. Prior
to the earlier to occur of (i) the sale or other disposition of the entire
Initial Block by the Purchaser and (ii) the second anniversary hereof, the
Company will not cause to be offered or sold in a public offering any newly
issued Common Stock or securities convertible or exchangeable for Common Stock,
other than offers or sales (x) solely to employees or directors, (y) pursuant to
a dividend reinvestment plan or (z) in a business combination transaction
meeting the criteria set forth in the parenthetical included in the following
sentence; provided, however, that no more than $15 million in aggregate offering
price of Common Stock issued in any one business combination transaction shall
be permissible under this subsection (z). Prior to the earlier to occur of (i)
the completion of the Underwritten Offering provided in Section 3(a) and (ii)
270 days from the date of this Agreement, the Company will not cause to be
offered or sold in a private offering in connection with a business combination
transaction (including, without limitation, offers or sales in a business
combination transaction that would otherwise qualify as a private placement of
securities under Section 4(2) of the Securities Act and are issued pursuant to a
shelf registration statement on Form S-4 (or any successor form)) any newly
issued Common Stock or securities convertible or exchangeable for Common Stock.
4. Shelf Registration Statement.
(a) If, after the twelfth full calendar month after the date
hereof, the Company receives from the Holder a written request that the Company
effect a shelf registration with respect to the Registrable Securities, the
Company will within 60 days after such request file with the Commission a
registration statement on Form S-3 (or Form S-1 if Form S-3 is not then
available to the Company) and shall use all reasonable efforts to have such
registration statement declared effective in such form as would permit the sale
and distribution of the Registrable Securities then held by the Holder pursuant
to Rule 415 under the Securities Act, and to keep such registration statement
effective until the date the Registrable Securities then Beneficially Owned by
the Holder constitute less than 10% of the then outstanding Common Stock.
(b) Subject to compliance with Section 5 hereof, the Holder
shall be entitled to an aggregate of two Underwritten Offerings and/or DECS
Offerings in connection with a registration under Section 4(a); provided,
however, that if the Company has effected a registration pursuant to Section
3(b) then the Holder shall be entitled to only one Underwritten
4
<PAGE>
Offering or DECS Offering in connection with a registration under Section 4(a).
Otherwise, the distribution of Registrable Securities pursuant to a registration
under Section 4(a) shall be effected, from time to time or at one time, only by
or through such investment banking firm or firms (acting as broker, dealer,
agent, principal or otherwise) as may be reasonably acceptable to the Holder and
the Company.
(c) At least five days prior to any sale of Registrable
Securities pursuant to a registration under Section 4(a) (other than a sale in
an Underwritten Offering or a DECS Offering), the Holder shall advise the
Company in writing of the terms of its arrangements, if any, with any investment
banking firm or firms agreed upon in accordance with Section 4(b), including the
capacity in which such firm or firms will act, the proposed manner of
distribution of the Registrable Securities and compensation terms.
5. Underwritten Offerings and DECS Offerings.
(a) If the Company receives from the Holder a written notice
that the Holder desires to effect a distribution of a number of Registrable
Securities having a market value on the date of such notice of at least
$20,000,000 in an Underwritten Offering or DECS Offering pursuant to the Shelf
Registration Statement, the Company shall file with the Commission within 60
days after such notice (but, in the case of a DECS Offering, not before the date
a registration statement for the debt securities of the Holder is filed) a
prospectus supplement that satisfies the requirements of Rule 424 under the
Securities Act or a post-effective amendment to the Shelf Registration Statement
so as to permit the sale of such Registrable Securities in an Underwritten
Offering or the offering of such Registrable Securities in a DECS Offering.
Notwithstanding the foregoing, the Company will not be obligated to effect an
Underwritten Offering or a DECS Offering under the Shelf Registration Statement:
(i) If, at such time as a notice of an
Underwritten Offering or DECS Offering is
delivered to the Company pursuant to this
Section 5(a), (A) the Company has effected
(x) a registration pursuant to Section 3(a)
or Section 3(b) or an Underwritten Offering
or DECS Offering under the Shelf
Registration Statement within the four month
period prior to its receipt of such notice
or (y) three Underwritten Offerings and/or
DECS Offerings (including registrations
pursuant to Section 3(a) and Section 3(b))
or (B) a Holder has withdrawn a prior
request for an Underwritten Offering or DECS
Offering within the four month period prior
to the Company's receipt of such notice. For
purposes of Section 4(b) and this subsection
(a)(ii), an Underwritten Offering shall be
deemed to be effected upon the sale of any
Registrable Securities therein, a DECS
Offering shall be deemed to be effected upon
the sale of any debt securities for
5
<PAGE>
which the Registrable Securities are
exchangeable, and any request for an
Underwritten Offering or DECS Offering that
is withdrawn prior to the sale of
Registrable Securities or debt securities
therein, as the case may be, nonetheless
shall be deemed to be an Underwritten
Offering or DECS Offering, as the case may
be;
(ii) 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 the
Company as permitted by this Agreement
(other than a registration statement
relating to a business combination
transaction, an offering solely to employees
or directors or pursuant to a dividend
reinvestment plan or any other registration
which is not appropriate for the
registration of Shares); or
(iii) For a period of up to 30 days if the
Company's Board of Directors determines that
such a delay would be in the best interests
of the Company and its shareholders;
provided, however, that no such delay shall
occur more than once within any twelve month
period.
(b) The Company and the Company's other shareholders shall
have the right to include shares of Common Stock in any Underwritten Offering
effected pursuant to the Shelf Registration Statement, subject to the provisions
of Section 6.
6. Underwriting. If the Holder proposes to distribute Registrable
Securities registered pursuant to the Shelf Registration Statement by means of
an Underwritten Offering or a DECS Offering, and in connection with a
registration effected pursuant to Section 3, the Company and the Holder (and any
other holder of Common Stock participating in an Underwritten Offering) shall
enter into an underwriting agreement in customary form with the managing
underwriter or underwriters selected for such underwriting (i) by the Company in
the case of an Underwritten Offering (which managing underwriter(s) each shall
be a nationally recognized investment banking firm reasonably acceptable to the
Holder) or (ii) by the Holder in the case of a DECS Offering (which managing
underwriter(s) each shall be a nationally recognized investment banking firm
reasonably acceptableto the Company). Notwithstanding any other provision of
Sections 3, 4 or 5, if the lead managing underwriter advises the Holder and the
Company in writing on or before the date five days prior to the date then
scheduled for such offering that, in its opinion, the amount of Common Stock to
be included in such offering exceeds the amount which can be sold in such
offering without adversely affecting the distribution of the Common Stock being
offered, then such offering will include only the amount of Common Stock that
the lead managing underwriter has so advised can be sold in such
6
<PAGE>
offering; provided, however, that the Company shall be required to include first
in an Underwritten Offering pursuant to the Shelf Registration Statement all
Registrable Securities requested to be included by the Holder.
7. Incidental Registration.
(a) Notice of Registration. If, at any time or from time to
time (x) prior to the fifth anniversary of the date hereof and (y) after the
fifth anniversary of the date hereof if the Holder is not then eligible to sell
Registrable Securities pursuant to Rule 144(k) under the Securities Act, the
Company shall determine to register any of its Common Stock for sale in an
Underwritten Offering, either for its own account or the account of a security
holder or holders (other than the Holder) exercising their respective demand
registration rights as permitted by this Agreement, other than a registration
relating to a business combination transaction or an offering solely to
employees or directors or pursuant to a dividend reinvestment plan, the Company
will promptly give to the Holder written notice thereof, and include in such
registration (subject to Section 7(b)) all the Registrable Securities specified
in a written request made by the Holder within ten days after its receipt of
such written notice from the Company. The right of the Holder to have
Registrable Securities included in a registration pursuant to this Section 7(a)
shall be conditioned upon its entering into (together with the Company and the
other holders distributing their securities through such underwriting) an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by the Company (or by the
shareholders who have demanded such registration). The registration rights
granted pursuant to the provisions of this Section 7(a) shall be in addition to
the registration rights granted pursuant to the other provisions of this
Agreement.
(b) If the lead managing underwriter of an offering covered by
Section 7(a) shall advise the Company in writing (with a copy to the Holder) on
or before the date five days prior to the date then scheduled for such offering
that, in its opinion, the amount of Common Stock (including Registrable
Securities) requested to be included in such registration exceeds the amount
which can be sold in such offering without adversely affecting the distribution
of the Common Stock being offered, then (i) prior to the earlier to occur of the
second anniversary of this Agreement and the date on which the Registrable
Securities then Beneficially Owned by the Holder constitute less than 10% of the
outstanding Common Stock at the date hereof (the "Threshold Date") the Company
(A) in a registration for its own account, will include in such registration,
first, any shares proposed to be offered by the Company; second, Registrable
Securities requested to be registered by the Holder; and third, the other shares
requested to be included in such registration that the Company is so advised can
be sold in such offering and (B) in a registration for the account of a security
holder or holders other than the Holder exercising its or their respective
demand registration rights to the extent permitted by this Agreement, will
include in such registration, first, any shares requested to be registered by
the requesting security holder or holders; second, any shares (or, in the case
of the Holder, Registrable Securities) proposed to be offered by the Company and
the Holder, allocated evenly between the Company and the Holder; and third, the
other shares requested to be included in such registration that the Company is
so advised can be sold in such offering, allocated, if necessary, pro rata among
the holders thereof requesting such registration on the basis of the number of
the shares Beneficially Owned at the time by the holders requesting inclusion of
their shares and (ii) from and after the
7
<PAGE>
Threshold Date, the Company will include shares of Common Stock (including
Registrable Securities) in the same order of priority set forth in subsection
(i) of this Section 7(b), except that Registrable Securities shall be included
in any such registration on a parri passu basis with any holders of Common Stock
including shares in such registration by reason of their exercise of incidental
registration rights (allocated, if necessary, pro rata among the holders
(including the Holder) thereof requesting such registration on the basis of the
number of the shares (including Registrable Securities) Beneficially Owned at
the time by the holders (including the Holder) requesting inclusion of their
shares; provided, however, that in the event the Company will not, by virtue of
this paragraph, include in any such registration all of the Registrable
Securities requested to be included in such registration, the Holder may, upon
written notice to the Company given within three days of the time the Holder
first is notified of such matter, reduce the amount of Registrable Securities it
desires to have included in such registration, whereupon only the Registrable
Securities, if any, it desires to have included will be so included.
(c) The Company shall have the right to terminate or withdraw
any registration initiated by it under this Section 7 prior to the effectiveness
of such registration whether or not a Holder has elected to include Registrable
Securities in such registration.
8. Expenses of Registration. All Registration Expenses incurred in
complying with Section 3, Section 4 and Section 7 hereof shall be borne by the
Company. Notwithstanding the foregoing, any registration, qualification and
filing fees that relate to Shares in respect of which the Company has previously
paid a registration, qualification or filing fee shall be borne by the Holder.
All Selling Expenses shall be borne by the Holder.
9. Indemnification.
(a) The Company will indemnify to the fullest extent permitted
by law the Holder, each of its officers, directors, affiliates, employees,
advisors and agents and each person controlling the Holder within the meaning of
Section 15 of the Securities Act, with respect to which registration has been
effected pursuant to this Agreement, against all expenses, claims, losses,
damages or liabilities (or actions in respect thereof), including reasonable
costs of investigation and any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration, or based on
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances in which they were made, not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act or
any other federal, state or common law rule or regulation applicable to the
Company in connection with any such registration, and the Company will reimburse
the Holder, each of its officers, directors, affiliates, employees, advisors and
agents and each person controlling the Holder, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action; provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written
8
<PAGE>
information furnished to the Company by the Holder or other such person and
stated to be specifically for use therein.
(b) The Holder will, if Shares held by it are included in the
securities as to which such registration is being effected, indemnify the
Company, each of its directors, officers, affiliates, employees, advisors and
agents, each underwriter, if any, of the Company's securities covered by such a
registration statement and each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading and will reimburse the Company, each
underwriter and such directors, affiliates, officers, employees, advisors,
agents and control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by the Holder and stated to be specifically for use
therein; provided, however, that the obligation of the Holder shall be limited
to an amount equal to the net proceeds to the Holder from Shares sold in
connection with such registration.
(c) Each party entitled to indemnification under this Section
9 (the "Indemnified Party") shall give written notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, unless (i) the Indemnifying Party fails to
assume the defense of such action with counsel satisfactory to the Indemnified
Party in its reasonable judgment or (ii) the named parties to any such actions
(including any impleaded parties) have been advised by counsel that either (A)
representation of the Indemnified Party and the Indemnifying Party by the same
counsel would otherwise be inappropriate under applicable standards of
professional conduct or (B) there may be one or more legal defenses available to
the Indemnified Party that are different from or additional to those available
to the Indemnifying Party, in which event the Indemnifying Party shall pay for
one counsel (and any necessary additional local counsel) for the Indemnified
Party; and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation.
9
<PAGE>
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which any holder of
Shares exercising rights under this Agreement, or any officer, director,
affiliate, employee, advisors, agent or controlling person of any such holder,
makes a claim for indemnification pursuant to this Section 9 but it is
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 9 provides for indemnification in
such case, then, the Company and the Holder will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Holder is responsible
for the portion represented by the percentage that the public offering price of
its Shares offered by the registration statement bears to the public offering
price of all securities offered by such registration statement; and the Company
is responsible for the remaining portion; provided, however, that, in any such
case, (A) the Holder will not be required to contribute any amount in excess of
the net proceeds to the Holder from the sale of Shares offered by it pursuant to
such registration statement; and (B) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
10. Certain Restrictions.
(a) The Company will not grant registration rights with
respect to Common Stock that become exerciseable prior to the Threshold Date,
and the Company represents and warrants that is has not previously entered into
any such agreement. Nothing in this Agreement shall prohibit the Company from
granting registration rights that are exercisable from and after the Threshold
Date to any person who becomes an owner of shares of Common Stock after the date
hereof (including granting incidental registration rights with respect to any
Underwritten Offering required to be made hereunder other than pursuant to
Section 3).
(b) If requested by the lead managing underwriter in an
Underwritten Offering pursuant to the Shelf Registration Statement, the Company
agrees not to effect any registered sales in the public markets of Common Stock
for its own account (other than registrations relating to a business combination
transaction or an offering solely to employees or directors or pursuant to a
dividend reinvestment plan) during the period commencing on the date the Company
receives a notice from the Holder pursuant to Section 5(a) and continuing until
90 days after commencement of the Underwritten Offering (or such shorter period
as the lead managing underwriter shall request).
11. Obligations of the Company. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use all reasonable
efforts to have such registration statement declared effective.
10
<PAGE>
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement as may be necessary (i) to update and
keep such registration statement effective as provided in Section 11(a) above,
(ii) to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement and (iii)
to reflect a modification in the manner of distribution of the Registrable
Securities and, to the extent that such distribution is modified to employ an
underwriter, to supplement or amend the registration statement in the manner
required by such underwriter. Notwithstanding anything else to the contrary
contained herein, the Company shall not be required to disclose in any
prospectus or any amendment or supplement thereto prepared pursuant to Section 4
or Section 5(a) hereof (x) any confidential information concerning any matter
which is the subject of a notice given under Section 11(f) as to which the
Company has a bona fide interest in withholding disclosure, or (y) historical
financial statements or pro forma financial information required by Regulation
S-X of the Commission in connection with a business acquisition or disposition
prior to the date when such information would otherwise be required to be filed
with the Commission (including extensions pursuant to Item 7(a)(4) of Form 8-K).
(c) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus and any amendments or supplements
thereto, in conformity with the requirements of the Securities Act, and such
other documents as it may reasonably request in order to facilitate the
disposition of Registrable Securities owned by it.
(d) Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by the
Holder, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions unless it is already
subject to such jurisdiction.
(e) In the event of any Underwritten Offering or DECS
Offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter or
underwriters of such offering. The Holder shall also enter into and perform its
obligations under such an agreement.
(f) Notify the Holder, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
under which the prospectus is used.
(g) Take all such other actions (including, without
limitation, causing representatives of the Company to participate in any "road
show" or "road shows" in connection with an Underwritten Offering or DECS
Offering) as the Holder or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of such Registrable Securities.
11
<PAGE>
(h) In connection with an Underwritten Offering or DECS
Offering, obtain a "cold comfort" letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by "cold comfort" letters, as the Holder's counsel or the managing
underwriter reasonably request.
(i) Cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed.
(j) Use reasonable efforts to take all other steps necessary
to effect the registration of the Registrable Securities contemplated hereby.
12. Information by the Holder. The Holder shall furnish to the Company
such information regarding the Holder, the shares of Common Stock or other
securities of the Company held by it and the distribution proposed by it as the
Company may reasonably request in writing and as shall be reasonably required in
connection with any registration referred to in this Agreement.
13. Securities Law Compliance.
(a) The Holder covenants that it will comply with the
Securities Act and with the Exchange Act with respect to Registrable Securities
included in any registration pursuant to this Agreement, recognizing that under
certain circumstances set forth in Section 11(f) hereof, the Company may notify
the Holder that the registration statement is not then current.
(b) The Holder agrees that, immediately upon receipt of a
notification as referred to in subparagraph (a) of this Section 13, it will
refrain from selling Registrable Securities under the Shelf Registration
Statement until (i) subsequently notified by the Company that the Shelf
Registration Statement is current or (ii) receipt of a favorable opinion of
counsel as hereinbelow provided. The Company agrees that it will consult with
the Holder following the giving of any such notification, and that in the event
the Holder is of the view that its securities could be sold in compliance with
the Securities Act and the Exchange Act without disclosure of the nonpublic
information which is the subject of the notification, the parties hereto agree
to be bound by an opinion of counsel reasonably satisfactory both to the Holder
and to the Company as to whether such sales can be made without violation of the
Securities Act or the Exchange Act.
14. Standoff Agreement. The Holder agrees that, upon request of the
lead managing underwriter of any Underwritten Offering of the Company's
securities, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Shares (other than those included in
such registration), except in a private sale or transfer or pursuant to a tender
offer, without the prior written consent of the Company or such underwriter, as
the case may be, for such period of time (not to exceed 90 days) from the
effective date of such registration as may be requested by the Company or such
lead managing underwriter.
15. Rule 144 Requirements. The Company agrees to:
(a) comply with the requirements of Rule 144(c) under the
Securities Act with respect to current public information about the Company;
12
<PAGE>
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to the Holder upon request (i) a written statement
by the Company as to its compliance with the requirements of said Rule 144(c),
and the reporting requirements of the Securities Act and the Exchange Act, (ii)
a copy of the most recent annual or quarterly report of the Company, and (iii)
such other reports and documents of the Company as the Holder may reasonably
request to avail itself of any similar rule or regulation of the Commission
allowing itself to sell any such securities without registration.
16. Board Representation. The Company and the Purchaser acknowledge
that the nine-member Board of Directors of the Company on the date hereof
includes three designees of the Purchaser, and that it is intended that during
such time as the Registrable Securities Beneficially Owned by the Purchaser and
its Affiliates constitute at least 30%, 20%, or 10%, respectively, of the then
outstanding Common Stock, the Purchaser shall be entitled to designate for
nomination by the Board of Directors three, two and one director(s),
respectively, and to designate a successor in the case of any vacancy resulting
from the death, resignation or removal of any such designee prior to the
expiration of his or her term.
17. Voting
(a) During the period ending on the date that the Registrable
Securities Beneficially Owned by the Purchaser and its Affiliates constitute
less than 10% of the then outstanding Common Stock (the "Standstill Period"),
the Purchaser shall take such action as may be required so that all Voting
Securities owned by the Purchaser and its Affiliates are voted at any annual or
special meeting of the stockholders of the Company for the Board of Directors'
nominees for election to the Board of Directors of the Company (provided that
the Purchaser shall in any case be permitted to vote for its designees to be
nominated pursuant to Section 16 hereof).
(b) During the Standstill Period, the Purchaser, for itself
and its Affiliates, as holders of Voting Securities, agrees to be present, in
person or by proxy, at all meetings of stockholders of the Company so that all
Voting Securities beneficially owned by them may be counted for the purpose of
determining the presence of a quorum at such meetings.
18. Amendment of Rights Agreement. During the Standstill Period,
without the prior written consent of the Purchaser the Company shall not amend
the Rights Agreement so as to reduce below 20% the level at which a Person (as
defined in the Rights Agreement) shall become an Acquiring Person (as defined in
the Rights Agreement).
19. Notices Under Ancillary Agreements. During the Standstill Period
(so long as one designee of Purchaser is a member of the Company Board of
Directors), the Company shall provide copies to Purchaser of each written notice
sent or received by it under the notice provisions of the Distribution
Agreement, Employee Matters Agreement and Tax Allocation Agreement each between
Crane Co. and the Company dated _________, 1999.
13
<PAGE>
20. Restrictive Legends.
(a) Each certificate representing Shares or any securities
issued in respect of the Shares upon any stock split, stock dividend,
recapitalization, merger or similar event, shall (unless otherwise permitted by
the provisions of Section 2) be stamped with the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR
THE COMPANY) REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
(b) Each certificate representing Shares shall also be stamped
with the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF AN AGREEMENT BETWEEN THE SHAREHOLDER AND
THE COMPANY WHICH INCLUDES CERTAIN RESTRICTIONS ON SALES OF THE
SECURITIES. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON WRITTEN
REQUEST TO THE SECRETARY OF THE COMPANY.
(c) The Holder consents to the Company's making a notation on
its records and giving instructions to any transfer agent of the Shares in order
to implement the restrictions on transfer established in this Agreement. The
legend placed on any certificate pursuant to Section 20(a) and any notations or
instructions with respect to the Shares represented by such certificate will be
promptly removed, and the Company will promptly issue a certificate without such
legend to the Holder (x) if such Shares are registered under the Securities Act
in connection with a sale of such securities and a prospectus meeting the
requirements of Section 10 of the Securities Act is available, or (y) if the
Holder satisfies the requirements of Rule 144(k) and, where deemed necessary by
the Company in its sole discretion, provides the Company with an opinion of
counsel for the Holder who is, and whose legal opinion shall be, reasonably
satisfactory to the Company, to the effect that the Holder meets the
requirements of Rule 144(k).
21. Notices, etc. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered (by hand or courier service) with signed confirmation of
receipt, addressed as follows:
14
<PAGE>
if to the Purchaser:
Rugby PLC
Crown House
Rugby
CV212DT
England
Attn: Group Finance Director
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Toby S. Myerson, Esq.
Facsimile No.: (212) 757-3990
if to the Company:
Huttig Building Products, Inc.
Lakeview Center, Suite 400
14500 South Outer Forty Road
Chesterfield, Missouri 63017
Attn: Chief Executive Officer
with a copy to: General Counsel
or to such other address of a party of which such party has given notice to the
other parties pursuant to this Section.
22. Nontransferability. It is acknowledged and agreed by the Purchaser
that, except as expressly provided in this Agreement, its rights and benefits
hereunder may not be assigned or transferred to or held for the benefit of any
other person.
23. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws (other than those with respect to choice of law) of the
State of Delaware. Each of the parties hereto agrees that all claims in any
action or proceeding arising out of or related to this Agreement may be heard
and determined in any Delaware state court or federal court sitting in the State
of Delaware.
24. Severability. The provisions of this Agreement are severable, and
in the event that any one or more provisions are deemed illegal or
unenforceable, the remaining provisions shall remain in full force and effect.
25. Successors. This Agreement shall be binding upon, shall be
enforceable against and shall inure to the benefit of any successor of the
Purchaser.
15
<PAGE>
26. Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[remainder of page intentionally left blank]
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
HUTTIG BUILDING PRODUCTS, INC.
By:
---------------------------------
Name:
Title:
THE RUGBY GROUP PLC
By:
---------------------------------
Name:
Title:
17
<PAGE>
TRANSITION SERVICES AGREEMENT
This Transition Services Agreement ("AGREEMENT") between Huttig
Building Products, Inc., a Delaware corporation ("HUTTIG"), and The Rugby Group
PLC, a company registered in England and Wales under company number 206 971, and
having its registered office at Crown House, Rugby, United Kingdom ("RUGBY")
(each, a "PARTY" and, together, the "PARTIES") takes effect on the day of
, 1999 (the "EFFECTIVE DATE").
Capitalized terms used herein without definition shall have the
meaning ascribed to them in the Share Exchange Agreement, dated October 19,
1999, among Rugby, Crane Co., a Delaware corporation, and Huttig (the "SHARE
EXCHANGE AGREEMENT").
RECITALS
a. Pursuant to the Share Exchange Agreement, Rugby shall dispose of
the Excluded Assets and Liabilities and shall transfer to Huttig all the common
stock of Rugby's wholly-owned subsidiary, Rugby USA, Inc., a Georgia corporation
("RUGBY USA").
b. Pursuant to the Share Exchange Agreement, Huttig has agreed to
provide Rugby with certain transition services, as set forth herein, that Rugby
USA is currently providing to Rugby USA's industrial businesses (the "INDUSTRIAL
BUSINESS").
<PAGE>
NOW, THEREFORE, in consideration of the premises and covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as follows:
1. Transition Services. During the term of this Agreement, Huttig will
provide, or will cause Rugby USA or its Affiliates to provide, to Rugby or a
Subsidiary of Rugby designated by Rugby the services that are currently being
provided by Rugby USA to the Industrial Business as further described in Annex A
attached hereto (the "SERVICES") in a manner and at a level of service
consistent in all material respects with the services provided by Rugby USA to
the Industrial Business immediately prior to the date hereof. Services other
than those described on Annex A ("OTHER SERVICES") may be contracted for by
Rugby or a Subsidiary of Rugby on a project-by-project basis. The Services shall
be provided by Huttig to Rugby or a Subsidiary of Rugby for the fees set forth
on Annex A corresponding to the Service provided (the "FEES").
2. Billing and Payment. Huttig will invoice Rugby for the Fees for all
Services (plus the fees for Other Services, if any) rendered hereunder on a
monthly basis. All invoices shall be due and payable within thirty (30) days.
3. Term and Termination.
3.1 Term. Subject to Section 3.2, this Agreement shall commence on the
date hereof and shall terminate 6 months following the date hereof (the "TERM").
3.2 Early Termination. This Agreement may be terminated prior to the
end of the Term as follows:
2
<PAGE>
(a) Rugby Notice. Rugby may terminate any or all of the Services or
Other Services provided under this Agreement by giving fifteen (15) days prior
written notice to Huttig and by paying Huttig for any accrued but unpaid sums
for any Services or Other Services completed by Huttig for which Rugby has not
previously paid Huttig in full.
3.3 Delivery of Books and Records. At the end of the Term, or upon
early termination of this Agreement by Rugby pursuant to Section 3.2, Huttig
shall promptly deliver to Rugby any books, records, instruments or other
documentation in the possession of Huttig that relate exclusively to the
Industrial Business or the Services or Other Services provided by Huttig to
Rugby or a Subsidiary of Rugby pursuant to this Agreement.
4. Confidentiality. Each Party shall cause each of its Affiliates and each
of their officers, directors and employees to hold all information relating to
the business of the other Party disclosed to it by reason of this Agreement
confidential and will not disclose any of such information to any third party
unless legally compelled to disclose such information; provided, however, that
to the extent that either Party may become so legally compelled, they may only
disclose such information if they shall first have used reasonable efforts to,
and, if practicable, shall have afforded the other party the opportunity to
obtain, an appropriate protective order or other satisfactory assurance of
confidential treatment for the information required to be so disclosed.
3
<PAGE>
5. Assignments. This Agreement may not be assigned, in whole or in part, by
either Party without the prior written consent of the other Party, provided,
however, that Rugby may assign this agreement in connection with a sale of all
or substantially all of the assets of the Industrial Business through a merger,
consolidation, sale of assets, sale of stock or otherwise. Subject to the
limitations on assignment in this Section 5, the provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
6. Indemnification. Rugby will indemnify and hold Huttig harmless from and
against any and all obligations, liabilities, claims, demands, expenses and
costs (including reasonable attorneys' fees) for any loss or damage to property
or injuries to any persons which may be asserted against Huttig by reason, or as
a result, of any acts or omissions of Rugby related to provision of the Services
or Other Services hereunder, except to the extent that such obligations,
liabilities, claims, demands, expenses or costs are caused by the gross
negligence or willful misconduct of Huttig.
7. Relationship of Parties. Neither of the Parties shall act or represent
or hold itself out as having authority to act as an agent or partner of the
other Party, or in any way bind or commit the other Party to any obligations.
Nothing contained in this Agreement shall be construed as creating a
partnership, joint venture, agency, trust or other association of any kind, each
Party being individually responsible only for its obligations as set forth in
this Agreement.
8. Governing Law. This agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to the
provisions thereof relating to the conflict of laws.
4
<PAGE>
9. Cash Management.
9.1 Rugby Customer Payments. Huttig will, or will cause its
Subsidiaries to, forward promptly to Rugby (for the account of Rugby)
or a Subsidiary of Rugby designated by Rugby any customer payments in
respect of accounts receivable owed to Rugby or a Subsidiary of Rugby
and received by Huttig or a Subsidiary of Huttig, whether received in
lock boxes, via wire transfer or otherwise.
9.2 Huttig Customer Payments. Rugby will, or will cause its
Subsidiaries to, forward promptly to Huttig (for the account of Huttig)
or a Subsidiary of Huttig designated by Huttig any customer payments in
respect of accounts receivable owed to Huttig or a Subsidiary of Huttig
and received by Rugby or a Subsidiary of Rugby, whether received in
lock boxes, via wire transfer or otherwise.
10. Miscellaneous.
10.1 Notices. Any and all notices or other communications required or
permitted under this Agreement shall be given in writing and
delivered in person or sent by United States certified or
registered mail, postage prepaid, return receipt requested, or by
overnight express mail, or by telex, facsimile or telecopy to the
address of such party set forth below. Any such notice shall be
effective upon receipt or three days after placed in the mail,
whichever is earlier.
5
<PAGE>
If to Rugby:
The Rugby Group PLC
Crown House
Rugby CV212D
United Kingdom
Attention: Company Secretary
Facsimile No: 011-44-1788-54672
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: Toby S. Myerson, Esq.
Facsimile No.: 212-757-3990
If to Huttig:
Huttig Building Products, Inc.
Lakeview Center, Suite 400
14500 South Outer Forty Road
Chesterfield, Missouri 63017
Attention: Chief Executive Officer
Facsimile No: 314-216-2601
with a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, PA 15222
Facsimile No.: (412) 355-6501
Any Party may, by notice so delivered, change its address for notice
purposes hereunder.
10.2 Entire Agreement. This Agreement, together with all annexes
hereto, constitutes the entire agreement and understanding of the
Parties with respect to the subject matter of this Agreement and
supersedes all prior conversations, understandings, correspondence
and
6
<PAGE>
agreements between the Parties, both oral and written, with
respect to such subject matter.
10.3 Amendment. Neither this Agreement nor any part hereof may be
amended, modified or waived except by an express declaration in
writing signed by the Parties.
10.4 No Waiver. No delay or omission by either Party to exercise any
right or power occurring upon any noncompliance or default by the
other Party will impair any such right or power or may be
construed to be a waiver thereof. A waiver by either Party of any
provision of this Agreement may not be construed to be a waiver of
that provision at any other time or under any other circumstances.
10.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which is deemed an original, but all of
which together constitute one and the same agreement.
10.6 Headings. The section or paragraph headings used in this Agreement
are for convenience of reference only and shall not affect the
construction of this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the partners have duly executed and delivered this agreement
of the date first written above.
THE RUGBY GROUP PLC
By:
---------------------------------
Name:
Title:
HUTTIG BUILDING PRODUCTS, INC.
By:
---------------------------------
Name:
Title:
8
<PAGE>
ANNEX A TO THE TRANSITION SERVICES AGREEMENT
SERVICES
Huttig shall provide any or all of the following services to Rugby for the
following fees pursuant to the Agreement to which this Annex A is attached:
- - - - - --------------------------------------------------------------------------------
SERVICE FEE
- - - - - --------------------------------------------------------------------------------
1. General Accounting.
- - - - - --------------------------------------------------------------------------------
a. Providing daily general $6,000 per month for
ledger and fixed asset three months from
maintenance, preparing Effective Date
balance sheet
reconciliations, preparing $12,000 per month
journal entries as a part of thereafter
closing the general ledger
on a monthly basis and
preparing monthly internal
financial statements
- - - - - --------------------------------------------------------------------------------
2. Cash Management.
- - - - - --------------------------------------------------------------------------------
a. Managing the customer $5,000 per month
remittance procedure to three months from
lock boxes for credit to Effective Date
Rugby's accounts
$10,000 per month
thereafter
- - - - - --------------------------------------------------------------------------------
b. Managing payments to $4,000 per month for
vendors for all of Rugby's three months from
locations and managing the Effective Date
disbursing bank accounts
$8,000 per month
thereafter
- - - - - --------------------------------------------------------------------------------
c. Consolidating and investing $1,000 per month for
Rugby's surplus cash as three months from
directed by Rugby Effective Date
$2,000 per month
thereafter
- - - - - --------------------------------------------------------------------------------
1
<PAGE>
- - - - - --------------------------------------------------------------------------------
SERVICE FEE
- - - - - --------------------------------------------------------------------------------
3. Taxes.
- - - - - --------------------------------------------------------------------------------
a. Preparing monthly state and $1,500 per month for
local sales and use tax three months from
returns Effective Date
$3,000 per month
thereafter
- - - - - --------------------------------------------------------------------------------
b. Preparing annual state and $400 per month for three
local property tax returns months from Effective
Date
$800 per month
thereafter
- - - - - --------------------------------------------------------------------------------
c. Filing of annual federal, $6,000 per month for
state or local income tax three months from
returns, quarterly estimated Effective Date
payments and tax compliance
$12,000 per month
thereafter
- - - - - --------------------------------------------------------------------------------
4. Payroll.
- - - - - --------------------------------------------------------------------------------
a. Administering payroll $4,000 per month for
services (including, without three months from
limitation, preparation of Effective Date
payroll checks for
employees, maintenance of $8,000 per month
employee payroll records, thereafter
payroll-related tax filings,
data processing and record
keeping) as may be required
in the ordinary course of
business
- - - - - --------------------------------------------------------------------------------
5. Human Resources.
- - - - - --------------------------------------------------------------------------------
a. Administering benefits $4,000 per month for
(including, without three months from
limitation, health insurance, Effective Date
401(K) plan and Rugby
Share Option Plan) $8,000 per month
thereafter
- - - - - --------------------------------------------------------------------------------
2
<PAGE>
- - - - - --------------------------------------------------------------------------------
SERVICE FEE
- - - - - --------------------------------------------------------------------------------
b. Providing support to ensure $1,000 per month for
legal compliance with labor three months from
and other laws related to Effective Date
employees (including,
without limitation, workers' $2,000 per month
compensation) thereafter
- - - - - --------------------------------------------------------------------------------
6. Information Technology.
- - - - - --------------------------------------------------------------------------------
a. Providing certain computer $9,050 per month for
services, including technical three months from
support services of Effective Date
management consulting,
applications support, $18,100 per month
systems analysis and thereafter
programming support in all
the currently-existing Trend
applications.
- - - - - --------------------------------------------------------------------------------
b. Providing hardware, $5,050 per month for
network infrastructure and three months from
database support and Effective Date
maintaining necessary
licensing of software $10,100 per month
thereafter
- - - - - --------------------------------------------------------------------------------
7. Transportation.
- - - - - --------------------------------------------------------------------------------
a. Administering fleet of $1,000 per month for
leased trucks, tractors, three months from
trailers and passenger Effective Date
vehicles (including, without
limitation, compliance with $2,000 per month
DOT, state and federal thereafter
registration requirements)
- - - - - --------------------------------------------------------------------------------
3
<PAGE>
- - - - - --------------------------------------------------------------------------------
SERVICE FEE
- - - - - --------------------------------------------------------------------------------
8. Miscellaneous.
- - - - - --------------------------------------------------------------------------------
a. Administering insurance $2,000 per month for
coverage (including, three months from
without limitation, property Effective Date
and casualty insurance,
general liability insurance, $4,000 per month
officer and director liability thereafter
insurance, environmental
impairment liability
insurance, workers'
compensation insurance,
employee fidelity insurance,
automobile insurance, life
insurance, long term
disability insurance and
pension benefits)
- - - - - --------------------------------------------------------------------------------
4
<PAGE>
THE CRANE FUND
100 FIRST STAMFORD PLACE
STAMFORD, CT 06902
(203) 363-7300
October 19, 1999
The Rugby Group PLC
Crown House
Rugby
CV212DT
England
Re: Huttig Board Representation
Gentlemen:
Reference is made to the Share Exchange Agreement of even date herewith
among you, Crane and Huttig (the "Exchange Agreement") and the Registration
Rights Agreement between you and Huttig to be entered into pursuant to the
Exchange Agreement (the "Registration Rights Agreement"). Capitalized terms used
but not defined in this letter shall have the meanings ascribed thereto in the
Registration Rights Agreement.
We acknowledge that our delivery of this letter is a material inducement to
your entering into the Exchange Agreement. By executing this letter, we
acknowledge that the nine member Board of Directors of Huttig that will exist on
the date of the closing of the transactions contemplated by the Exchange
Agreement will include three members designated by you, and that it is intended
that during such time as the Registrable Securities Beneficially Owned by you
and your Affiliates constitute at least 30%, 20% or 10%, respectively, of the
then outstanding common stock of Huttig, you shall be entitled to designate for
nomination by the Board of Directors of Huttig three, two and one director(s),
repsectively, and to designate a successor in the case of any vacancy resulting
from the death, resignation or removal of any such designee prior to the
expiration of his or her term.
During the Standstill Period, the Crane Fund shall (i) vote, at any annual
or special meeting of the stockholders of Huttig, all shares of common stock of
Huttig (and any other securities issued by Huttig that have the right to vote in
the election of directors of Huttig) owned by it for the nominees designated by
you as provided above and (ii) be present, in person or by proxy, at all meeting
of stockholders of Huttig so that all voting securities beneficially owned by
the Crane Fund may be counted for the purpose of determining the presence of a
quorum at such meetings.
<PAGE>
The undersigned intends to be legally bound hereby.
Sincerely,
THE CRANE FUND
By: /s/ Augustus I. duPont
-------------------------------
Trustee
Receipt of this letter is
acknowledged by The Rugby Group PLC.
THE RUGBY GROUP PLC
By: D. A. Harding
-------------------------------
Title: Group Finance Director
----------------------------
Date: Oct. 19, 1999
-----------------------------
<PAGE>
Rondel's Inc.
CIPCO Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,003
<SECURITIES> 0
<RECEIVABLES> 80,453
<ALLOWANCES> 1,994
<INVENTORY> 52,720
<CURRENT-ASSETS> 135,794
<PP&E> 71,785
<DEPRECIATION> 32,597
<TOTAL-ASSETS> 217,720
<CURRENT-LIABILITIES> 79,946
<BONDS> 93,371
10
0
<COMMON> 0
<OTHER-SE> 36,173
<TOTAL-LIABILITY-AND-EQUITY> 217,720
<SALES> 594,914
<TOTAL-REVENUES> 594,914
<CGS> 516,085
<TOTAL-COSTS> 575,373
<OTHER-EXPENSES> 224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,789
<INCOME-PRETAX> 13,528
<INCOME-TAX> 5,075
<INCOME-CONTINUING> 8,453
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,453
<EPS-BASIC> 8,453
<EPS-DILUTED> 8,453
</TABLE>
