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EXHIBIT 2.1
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[LETTERHEAD OF U.S. INDUSTRIES, INC.]
, 2000
Dear Stockholder:
I am pleased to enclose a copy of the information statement describing LCA
Group Inc. ('LCA'), the company through which we intend to spin-off our lighting
and industrial tools businesses to our stockholders. When the spin-off is
completed, LCA will be a New York Stock Exchange-listed company entirely
separate from USI. It will own and operate Lighting Corporation of America, the
fourth largest lighting fixture manufacturer in the United States, SiTeco, a
major European lighting fixture manufacturer, and Spear & Jackson, an
international manufacturer of industrial hand tools.
You will receive 1 share of LCA common stock for every 10 shares of USI
common stock you hold at the close of business on , 2000. You will
not be required to make any payment or take any other action to receive your LCA
common stock. For tax purposes, you should not be required to pay any additional
Federal income tax on your receipt of LCA common stock, other than taxes
required on the receipt of any cash paid in lieu of fractional shares.
The spin-off is conditioned upon completion of the new financing
arrangements for LCA described in the information statement. Subject to this,
the spin-off is expected to occur, and regular way NYSE trading in LCA common
stock is expected to commence, on , 2000.
Our Board of Directors approved the spin-off following a full review of
various alternatives to improve company performance. The Board concluded that
repositioning USI as a company focused on consumer-oriented, branded building
products -- such as Jacuzzi, Ames, True Temper, Sundance Spas and Zurn -- would
achieve greater stockholder value over time.
Following the spin-off, we believe our lighting and industrial tools
businesses will be better able to develop along an independent strategic path
with increased senior management attention. We would like to thank Jim O'Leary
and the members of his team who are leaving USI for their many contributions to
our company and wish them tremendous success at LCA.
Sincerely,
David H. Clarke
Chairman and Chief Executive Officer
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Information contained herein is subject to completion or amendment. A
registration statement on Form 10 relating to these securities has been filed
with the Securities and Exchange Commission. These securities will not be issued
prior to the time the registration statement becomes effective. This preliminary
information statement shall not constitute an offer to sell or the solicitation
of an offer to buy these securities.
ANNEX A
PRELIMINARY COPY, DATED DECEMBER 18, 2000
SUBJECT TO COMPLETION OR AMENDMENT
INFORMATION STATEMENT
LCA GROUP INC.
COMMON STOCK
(INCLUDING ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
[LOGO]
You should consider carefully the risk factors beginning on page 8 of this
information statement.
The spin-off does not require approval by USI stockholders. Therefore, USI is
not asking you for a proxy and requests that you do not send USI a proxy.
This information statement is not an offer to sell, or a solicitation of an
offer to buy, any of our securities or those of USI.
We have prepared this information statement to provide you with information
regarding the proposed spin-off to U.S. Industries, Inc. stockholders of all of
our shares of common stock. At the time of the spin-off, we will own and operate
the lighting and industrial tools businesses of USI.
If you are a USI stockholder at the close of business on , 2000, you
will receive 1 share of our common stock for every 10 shares of USI common stock
you hold at that time (together with cash instead of any fraction of a share
to which you would be entitled). The spin-off will take effect on ,
2000. You will not be required to make any payment for the shares of our common
stock that you will receive in the spin-off. However, you may be required to pay
tax on the shares you receive.
If you have any questions regarding the spin-off, you may call Mellon
Investor Services LLC, telephone number 1-877-870-2360.
No public market currently exists for our common stock. However, we are
seeking to list our common stock on the New York Stock Exchange. If the shares
of our common stock are accepted for listing on the New York Stock Exchange, we
expect that a 'when-issued' market will develop on or shortly before the record
date for the spin-off and regular way trading will begin on the first business
day after the effective date of the spin-off.
Proposed New York Stock Exchange Trading Symbol
'LXA'
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OUR COMMON STOCK, OR DETERMINED IF THIS
INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
We first mailed this information statement to USI stockholders on ,
2000.
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TABLE OF CONTENTS
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Questions and Answers About the
Spin-off............................ ii
Summary............................... 1
Risk Factors.......................... 8
Forward Looking Statements............ 12
The Spin-off.......................... 13
Capitalization........................ 19
Selected Combined Financial Data...... 20
Unaudited Pro Forma Combined Condensed
Financial Data...................... 21
Pro Forma Combined Condensed Statement
of Operations....................... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 29
Management............................ 35
Executive Compensation................ 37
Projected Ownership of Our Stock
Immediately after the Spin-off...... 45
Description of Capital Stock.......... 47
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Rights Plan........................... 48
Purposes and Effects of Certain
Provisions of Certificate of
Incorporation, By-Laws and Delaware
Statutory Law....................... 51
Limitation on Liability and
Indemnification of Officers and
Directors........................... 54
Additional Information................ 55
Index to Combined Financial
Statements.......................... F-1
ANNEX
A Form of Amended and Restated
Certificate of Incorporation of LCA
Group Inc.......................... A-1
B LCA Group Inc. Stock Incentive
Plan............................... B-1
C Material Federal Income Tax
Consequences of Awards and Material
Federal Income, Estate and Gift Tax
Consequences Relating to the
Transfer of Options Under Our Stock
Incentive Plan..................... C-1
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QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF
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WHAT IS THE SPIN-OFF? USI intends to pay a dividend to its stockholders consisting
of all of our shares of common stock. The dividend is known
as a spin-off. At the time of the spin- off, we will own and
operate the lighting and industrial tools businesses of USI.
WHY IS USI SPINNING-OFF USI performed a full review of various alternatives to
LCA? improve company performance. The Board of Directors of USI
concluded that repositioning USI as a company focused on
consumer-oriented, branded building products -- such as
Jacuzzi, Ames, True Temper, Sundance Spas and Zurn -- would
achieve greater stockholder value over time. Following the
Spin-off, LCA will be better able to develop the lighting
and industrial tools businesses along an independent
strategic path with increased senior management attention.
WHAT WILL I RECEIVE IN For every 10 shares of USI stock that you hold at the close
THE SPIN-OFF? of business on , 2000, you will receive 1 share of
our common stock. You will receive cash (net of applicable
fees) instead of any fraction of a share to which you would
be entitled. You will receive these automatically without
any required payment or other action on your part. Under our
direct registration program, unless you give us instructions
to do otherwise, your ownership of our common stock will be
recorded electronically on our books and records rather than
evidenced by a physical stock certificate.
WHEN WILL THE SPIN-OFF The spin-off will be completed as soon as possible after the
OCCUR? conditions to the spin-off are met. These conditions
include:
USI's receipt of the opinions of Cadwalader, Wickersham &
Taft and Ernst & Young LLP to the effect that the spin-off
should be tax-free to USI's stockholders and to USI for
Federal income tax purposes, and
Availability of proceeds under our new credit facility.
DO I HAVE TO PAY TAXES The spin-off is conditioned upon the receipt by USI of the
ON THE RECEIPT OF opinions of Cadwalader, Wickersham & Taft and Ernst & Young
LCA COMMON STOCK? LLP that for Federal income tax purposes the spin-off should
qualify as a tax-free spin-off under Section 355 of the
Internal Revenue Code of 1986, as amended (the 'Code'), no
gain or loss with respect to our shares should be recognized
by USI on the spin-off and the receipt of our shares by USI
stockholders should be tax-free. Cash received by
stockholders in lieu of fractional shares will be treated as
payment in exchange for such shares and may be taxable to
the stockholder. Such opinions are subject to certain
assumptions and the accuracy and completeness of certain
factual representations and statements. No ruling has been
or will be sought from the Internal Revenue Service with
respect to the Federal income tax consequences of the
spin-off. The opinions of Cadwalader, Wickersham & Taft and
Ernst & Young LLP are not binding on the Internal Revenue
Service and no assurance can be given that the Internal
Revenue Service or the courts will agree with their
opinions. See 'The Spin-off -- Federal Income Tax
Consequences of the Spin-off.'
WILL LCA COMMON We do not expect to pay cash dividends on our stock for the
STOCK PAY DIVIDENDS? foreseeable future.
WILL MY LCA We anticipate that our common stock will be traded on the
COMMON STOCK BE LISTED NYSE under the symbol 'LXA,' subject to official notice of
ON THE NEW YORK STOCK issuance.
EXCHANGE?
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WHAT WILL HAPPEN TO USI will continue to own and operate its other
USI AND MY EXISTING USI businesses -- including USI Bath and Plumbing, and USI
COMMON STOCK? Hardware and Tools. USI stock will continue to trade on the
NYSE under the symbol 'USI.' The spin-off will not affect
the number of outstanding shares of USI stock or any rights
of USI stockholders.
WHAT WILL HAPPEN TO THE Beginning on or about , 2000, and continuing through
TRADING OF USI AND , 2000, you will only be able to sell your USI stock
LCA COMMON STOCK? with due bills for our stock. This means that you will give
up your right to receive our stock if you sell your stock
during this time.
Beginning on , 2000, we expect that regular way
trading in our stock will begin on the NYSE.
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SUMMARY
This summary highlights selected information from this information
statement, but does not contain all details concerning the spin-off of our
common stock to USI stockholders, including information that may be important to
you. To better understand the spin-off and our business and financial position,
you should carefully review this entire document. References to 'LCA,' 'the
Company,' 'we,' 'us' or 'our' mean LCA Group Inc. and its subsidiaries and
assume the spin-off has already occurred. References to 'USI' mean U.S.
Industries, Inc. and its subsidiaries (excluding, if the reference is to a date
or period of time after the spin-off, LCA and its subsidiaries). References to
'fiscal' are to the applicable fiscal year ended September 30.
THE COMPANY
LCA, currently a wholly owned subsidiary of USI, is a major manufacturer and
distributor of lighting fixtures and industrial tools. In fiscal 2000, we had
net sales of $936.9 million.
We are a leading producer of lighting fixtures in North America and Europe.
Collectively, the lighting businesses produce and market a complete offering of
indoor and outdoor lighting for the commercial, institutional and residential
markets. Our business has in excess of 5,700 employees worldwide. It has
manufacturing facilities in six U.S. states, California, Connecticut, South
Carolina, Ohio, Arkansas and Pennsylvania, in addition to operations in Mexico,
Puerto Rico, Germany, Slovenia and Austria. The lighting business's sales
organization consists of both independent manufacturers' sales representatives
(agents) and its own factory sales force employees. Our division sells products
through a variety of distribution channels, including electrical distributors,
lighting showrooms, home centers and national accounts. The lighting business's
major brands hold substantial market positions within each of the product
segments in which they participate. Our lines cover the full range from
specification grade products, which meet the particular performance and design
standards of architects and other professional lighting specifiers, to commodity
grade products, which satisfy general requirements for varied applications.
Our industrial tools business was acquired by USI in 1997 through the
acquisition of Spear & Jackson, a leading European hand tools manufacturer
founded in 1760. Our industrial tools business manufactures and distributes a
broad range of industrial tools, metrology products and magnetic products. The
division has over 1,375 employees worldwide. Products are sold through various
distribution channels, including in-house sales managers and merchandisers,
independent sales agents and industrial and engineering distributors, as well as
direct sales to retailers and end users. Our industrial tools business's major
brands hold substantial market positions within many of the product segments in
which they participate.
The following table presents our major brands and product offerings:
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LIGHTING
Progress Leading single source supplier of residential and light
commercial decorative lighting fixtures. Product offering
consists of over 3,000 stock keeping units including:
chandeliers, hall and foyer, pendants, close-to-ceiling,
bath and vanity, sconces, modular fluorescent, undercabinet,
outdoor, landscape, track and recessed lighting.
Kim Premier specification product line of architectural outdoor
lighting fixtures and equipment for the commercial and
residential markets. Product categories include:
pole-mounted luminaires, bollards, parking garage
luminaires, flood lights, wall-mounted luminaries and
landscape fixtures.
Spaulding Outdoor lighting systems for the commercial market. Products
include outdoor area luminaires and poles, canopy lights,
low level lights and flood lights.
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1
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Architectural Period-style and contemporary site lighting fixtures for the
Area Lighting commercial outdoor market. Product categories include: pole
and wall-mounted luminaires, concrete bollards and custom
fixtures/poles.
Dual-Lite; Complete offering of life safety lighting products for
Prescolite Life Safety commercial and institutional applications. Products include:
exit signage, emergency back-up lighting, high frequency
'powerpack' inverters and central AC inverter systems.
Columbia Full line of specification and commodity grade fluorescent
lighting fixtures for use in commercial and institutional
applications. Products include parabolic and lensed
troffers, strip lights, wraparounds and a variety of
recessed surface and specialty units.
Alera Linear fluorescent indirect, direct/indirect and direct
lighting systems.
Prescolite Extensive line of specification grade recessed downlighting,
track lighting and surface-mounted lighting for the
commercial and residential markets.
Moldcast High performance oriented rugged commercial outdoor
luminaires. Products include a broad selection of
contemporary and period style outdoor lighting fixtures with
precise optics.
SiTeco Major European source of technical lighting systems and
services including: industrial lighting, task lighting,
roadway lighting and sports arena lighting. Product lines
are 'Siemens,' 'SiTeco,' 'Knoblich Licht' and 'Elektrokovina
Svetilke' serving the commercial and industrial market.
INDUSTRIAL TOOLS
Spear & Jackson Extensive line of high quality lawn and garden and hand
tools including digging and cultivating tools, cutting and
shear tools, striking tools, contractor tools, agricultural
tools, pliers, retail hand tools, screwdrivers, hammers and
plumbers tools.
Eclipse Full line of top quality hand tools including: hacksaws,
frames and blades, riveters and engineer tools.
Eliot Lucas Pliers, woodsaws and builder tools.
Bowers; Moore & Wright Precision tools, measuring instruments and calibration
services.
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ADDRESS AND TELEPHONE NUMBER
We are a Delaware corporation. Our principal executive offices will be
located at Iselin, New Jersey and our telephone number at that address will be
(732) 767-0700.
2
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THE SPIN-OFF
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Company Doing the Spin-off........... U.S. Industries, Inc., a Delaware corporation.
Company Resulting from the
Spin-off........................... LCA Group Inc., a Delaware corporation.
Conditions to the Spin-off........... Completion of the spin-off is subject to the following
conditions.
USI's receipt of the opinions of Cadwalader, Wickersham &
Taft and Ernst & Young LLP to the effect that the spin-off
should be tax-free to USI's stockholders and to USI for
Federal income tax purposes, and
Availability of proceeds under our new credit facility.
Spin-off Ratio....................... 1 share of our common stock for every 10 shares of USI
common stock held of record on the spin-off record date.
Spin-off Record Date................. , 2000 (5:00 p.m. New York City time).
Spin-off Effective Date.............. , 2000.
Trading in USI Common Stock from the
Spin-off Record Date up to and
Including the Spin-off Effective
Date............................... During this period, USI stock will trade on the NYSE with
due bills attached. The due bills will entitle a purchaser
of USI stock during this period to receive 1 share of our
stock for every 10 shares purchased. If the spin-off
conditions are not satisfied and the spin-off is not
completed, the due bills will become null and void.
Our Outstanding Stock................ Based on approximately 77 million shares of USI common stock
outstanding at the close of business on , 2000,
approximately 7.7 million shares of our stock will be
distributed in the spin-off. These shares will constitute
all of our capital stock that will be outstanding
immediately following the spin-off. After the spin-off, we
will recommend the issuance to our executive officers and
other key employees of a total of 252,000 shares of our
common stock, which will be subject to certain restrictions.
After taking into account these issuances, we will have
approximately 7.96 million shares of common stock
outstanding. After the spin-off, we will also recommend the
issuance of 211,500 options to purchase our common stock to
our executive officers and other key employees at the fair
market value of our common stock on the date of grant. See
'Executive Compensation -- Stock Incentive Plan.'
Interests in Fractions of
Shares............................. Fractions of shares of our common stock will not be issued
directly to stockholders in the spin-off. Instead, fractions
of shares will be aggregated by the dividend agent and sold
on the NYSE. The net cash proceeds of these sales will be
paid ratably to USI stockholders otherwise entitled to
fractions of shares. See 'The Spin-off -- Fractions of
Shares.'
Direct Registration.................. Upon completion of the spin-off, we will issue the
appropriate number of shares of our common stock to you
through direct registration rather than issuing a physical
stock certificate unless you give specific instructions to
do otherwise. See 'The Spin-off -- Direct Registration of
Our Common Stock.'
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Dividend Agent....................... The dividend agent is Mellon Investor Services LLC. Its
address, telephone number and website are:
Mellon Investor Services
Overpeck Centre
85 Challenger Rd.
Ridgefield Park, N.J. 07660
Phone: 1-877-870-2360
Material Federal Income Tax
Consequences to USI Stockholders... The spin-off is conditioned upon the receipt by USI of the
opinions of Cadwalader, Wickersham & Taft and Ernst & Young
LLP that for Federal income tax purposes the spin-off should
qualify as a tax-free spin-off under Section 355 of the
Code, no gain or loss with respect to our shares should be
recognized by USI on the spin-off and the receipt of our
shares by USI stockholders should be tax-free. Cash received
by stockholders in lieu of fractional shares will be treated
as payment in exchange for such shares and may be taxable to
the stockholder. Such opinions are subject to certain
assumptions and the accuracy and completeness of certain
factual representations and statements. No ruling has been
or will be sought from the Internal Revenue Service with
respect to the Federal income tax consequences of the
spin-off. The opinions of Cadwalader, Wickersham & Taft and
Ernst & Young LLP are not binding on the Internal Revenue
Service and no assurance can be given that the Internal
Revenue Service or the courts will agree with their
opinions. See 'The Spin-off -- Federal Income Tax
Consequences of the Spin-off.'
Trading Market and Symbol for Our
Common Stock....................... We are seeking to list our common stock on the NYSE under
the symbol 'LXA.' Prior to the spin-off, we do not expect
there to be any public trading market for our common stock
except that our common stock is expected to trade on a
'when-issued' basis on the NYSE beginning on ,
2000, for settlement on , 2000. If the spin-off
is not completed, all 'when-issued' trading in our common
stock will be null and void. If the spin-off is completed,
we expect that 'regular way' trading in our common stock on
the NYSE will commence at 9:30 a.m. New York City time, on
, 2000, subject to official notice of issuance.
See 'Risk Factors -- There Is No Trading History For Our
Common Stock and We Do Not Expect to Pay Dividends' and 'The
Spin-off -- Listing and Trading of Our Common Stock.'
Transfer Agent and Registrar for the
Common Stock....................... The transfer agent and registrar for our common stock will
be Mellon Investor Services.
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Agreements between LCA and USI and
Relationship after the Spin-off.... After the spin-off, we and USI will operate independently of
each other as separate public companies. Neither we nor USI
will own each other's stock (except, in the near-term, for a
limited number of shares held in employee benefit plan
trusts). All directors, executives and employees of USI who
join us will cease to be directors, executives or employees
of USI. See 'The Spin-off -- Agreements between LCA and USI
and Relationship after the Spin-off.'
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SUMMARY COMBINED FINANCIAL DATA
The historical selected combined financial data of the Company set forth
below for each of the years in the four-year period ended September 30, 2000 are
derived from the audited combined financial statements of the Company, the last
three years of which are included elsewhere in this information statement. The
historical selected combined financial data for the year ended September 30,
1996 is unaudited but, in our opinion, has been prepared on a basis consistent
with that for the four-year period ended September 30, 2000. Historical
financial information may not be indicative of our future performance as an
independent company. Furthermore, the historical financial data presented below
do not reflect certain pro forma adjustments giving effect to the spin-off which
are reflected in 'Unaudited Pro Forma Combined Condensed Financial Data.' The
information set forth below should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the Combined Financial Statements and notes thereto. See 'Index to Combined
Financial Statements.' Historical basic and diluted earnings per share and
dividend data have not been presented, as the capital structure of the
businesses that comprise the Company prior to the spin-off is not indicative of
its capital structure following the spin-off.
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FISCAL YEAR ENDED
SEPTEMBER 30,
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2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $936.9 $917.5 $856.1 $537.7 $ 508.1
Cost of products sold.......................... 638.6 628.7 590.5 374.3 356.1
Selling, general and administrative expenses... 249.2 234.3 203.9 119.5 116.1
Goodwill impairment and restructuring
charges...................................... 84.0 -- 2.3 -- --
Operating income (loss)(A)..................... (39.5) 46.6 51.1 34.7 29.6
Net income (loss).............................. (65.2) 20.2 23.1 13.0 12.9
Pro-forma basic and diluted loss per
share(B)..................................... $(8.48)
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents...................... $ 7.8 $ 9.1 $ 12.4 $ 0.1 $ 0.1
Working capital................................ 240.0 231.9 214.4 122.5 118.5
Total assets................................... 602.2 688.1 617.3 285.5 280.5
Total debt(C).................................. 205.5 205.8 201.7 195.0 195.0
Invested capital............................... 202.8 290.1 234.1 17.1 12.9
OTHER DATA:
Capital expenditures........................... 19.7 31.2 23.7 12.6 10.5
Depreciation and amortization.................. 26.2 23.8 21.0 9.8 9.0
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(A) Fiscal 1998 includes restructuring charges of $2.3 million and other
related charges of $0.5 million related to the closing of a manufacturing
and distribution facility in the lighting segment. Fiscal 2000 includes
goodwill impairment charges of $84.0 million related to Spear & Jackson.
(B) Basic and diluted loss per share have been determined assuming that
7,690,000 shares of our common stock will be issued upon the spin-off. One
share of our common stock will be issued for every ten USI shares.
(C) Amounts primarily represent intercompany notes payable to affiliates.
6
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SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following summary unaudited pro forma combined condensed financial data
reflect the spin-off as if it occurred as of September 30, 2000 for unaudited
pro forma combined condensed balance sheet purposes and October 1, 1999 for the
unaudited pro forma combined condensed statement of operations. The unaudited
pro forma combined condensed financial data reflect our expected capitalization
as a result of the spin-off, the incurrence of a total of approximately $200.0
million of indebtedness under the new credit facility and interest expense
(including amortization of capitalized costs) relating to such borrowings. This
data does not necessarily reflect our results of operations or financial
position had the spin-off actually been completed as of the dates shown. Also,
these data are not necessarily indicative of our future results of operations or
future financial position. See 'Capitalization' and 'Unaudited Pro Forma
Combined Condensed Financial Data.'
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FISCAL YEAR ENDED
SEPTEMBER 30, 2000
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(IN MILLIONS, EXCEPT
PER SHARE DATA)
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PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS DATA:
Net sales............................................... $936.9
Operating loss(A)....................................... (40.9)
Interest expense........................................ (19.4)
Net loss(A)............................................. (69.3)
Basic and diluted loss per share........................ (9.01)
Shares outstanding...................................... 7.7
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AT SEPTEMBER 30, 2000
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(IN MILLIONS, EXCEPT
PER SHARE DATA)
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PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 7.8
Working capital......................................... 243.9
Total assets............................................ 609.2
Total debt.............................................. 200.0
Total liabilities....................................... 370.2
Stockholders' equity.................................... 239.0
Book value per share.................................... 31.08
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(A) Fiscal 2000 includes goodwill impairment charges of $84.0 million related
to Spear & Jackson with no related tax benefit.
empty footnote
7
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RISK FACTORS
You should carefully consider the following risk factors relating to the
ownership of common stock in our company.
WE WILL HAVE SUBSTANTIAL INDEBTEDNESS
As of September 30, 2000, after giving pro forma effect to the spin-off,
including our expected initial borrowings under the new credit facility we would
have had combined indebtedness of approximately $200.0 million and stockholders'
equity of approximately $239.0 million. After giving pro forma effect to the
additional interest expense and other changes in expenses expected after the
spin-off, we would have had loss per share of $(9.01) for fiscal 2000 instead of
loss per share of $(8.48) based on the assumed number of shares outstanding of
7,690,000. See 'Capitalization' and 'Unaudited Pro Forma Combined Condensed
Financial Data.' The new credit facility will require us to repay $70 million
principal amount of term loans on or before December 30, 2005. Accordingly, our
excess cash flow from operations (after capital expenditures) during this period
will be dedicated in substantial part to meeting debt service and amortization
requirements, thereby reducing the availability of our cash flow to fund working
capital, capital expenditures and other general corporate purposes. Our ability
to generate cash available for the repayment of debt will depend upon numerous
business factors, many of which are outside our control. See 'Forward Looking
Statements.'
We believe that our cash flow from operations, available cash and available
borrowings under our new credit facility will be adequate to meet our liquidity
needs for at least the next twelve months. We cannot assure you, however, that
our business will generate sufficient cash flow from operations or that future
borrowings will be available to us under the new credit facility in an amount
sufficient to enable us to fund our liquidity needs. To the extent that cash
flow from operations is insufficient to cover our working capital, capital
expenditure and debt service requirements, we, in order to pay such expenses,
may seek to obtain funds from additional borrowings, sell a portion of our
businesses, engage in sale/leaseback transactions and/or raise equity capital.
We cannot assure you of the availability or accessibility of these or other
similar transactions, or that these or other similar transactions could be
accomplished on terms favorable to us. To the extent we engage in any of the
above referenced activities stockholders may be subject to a decrease in the
value of their shares or dilution of their equity interest in the Company. We
cannot assure you that we will be able to refinance any of our indebtedness on
commercially reasonable terms or at all.
In addition, the new credit facility will contain covenants restricting,
among other things, our ability to incur additional indebtedness and create
liens. These restrictions could have important consequences to us. For example,
they could:
increase our vulnerability to general adverse economic and industry
conditions;
limit our flexibility in planning for, or reacting to, changes in our
businesses and the industries in which we operate;
place us at a competitive disadvantage compared to our competitors that
have less debt; and/or
limit, along with the financial and other restrictive covenants of our
indebtedness, among other things, our ability to borrow additional
funds.
See 'Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources -- New Credit Facility.'
THERE IS NO TRADING HISTORY FOR OUR COMMON STOCK AND WE DO NOT EXPECT TO PAY
DIVIDENDS
Although we are seeking to list our common stock on the New York Stock
Exchange, there is no existing market for our common stock. We cannot assure you
as to the trading prices for our common stock either in the 'when issued' market
or after 'regular way' trading begins. Until our common stock is fully
distributed and an orderly market develops, the trading prices for our common
stock may be adversely affected by the sale of a substantial number of shares.
Prices for our common stock may also be influenced by the depth and liquidity of
the market for our common stock, investor perceptions
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about us and our businesses, our future financial results, the absence of cash
dividends on our common stock and general economic and market conditions.
We do not expect to pay cash dividends on our common stock for the
foreseeable future. We will be restricted from paying dividends under the terms
of our new credit facility.
WE ARE A NEW COMPANY AND OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE USEFUL
IN PREDICTING FUTURE RESULTS.
The historical financial information included in this Information Statement
is that of USI's lighting and industrial tools businesses (i.e., those parts of
USI being distributed to LCA) and not of LCA and may not necessarily reflect the
results of operations, financial position and cash flows had LCA operated as a
separate stand-alone entity during the periods presented. This historical
financial information does not reflect any changes that may occur in the funding
and operations of LCA as a result of the spin-off.
OUR BUSINESSES OPERATE IN HIGHLY COMPETITIVE MARKETS AND COMPETE WITH MANY
LARGER AND BETTER CAPITALIZED COMPANIES
Generally, our operating companies are subject to competition from a
substantial number of regional, national and international competitors, many of
which have greater financial, manufacturing, engineering and other resources
than our operating companies. Many of these competitors can be expected to
continue to improve the design and performance of their products and to
introduce new products with competitive price and performance characteristics.
Many of our subsidiaries' products are not protected by any proprietary rights
such as patents, either because such rights are not available or because we do
not believe such protection is necessary. Although we believe that our operating
companies have certain advantages over their competitors, realizing and
maintaining such advantages will require continued and, in some cases, increased
investment by our operating companies in manufacturing, research and
development, quality standards, marketing and customer service and support. We
cannot assure you that our operating companies will have sufficient resources to
continue to make such investments or that they will be successful in maintaining
such advantages. Failure to make such investments or to maintain such advantages
could have a material adverse effect on our business, financial condition and
results of operations.
THERE ARE NUMEROUS RISKS ASSOCIATED WITH CONDUCTING OPERATIONS IN INTERNATIONAL
MARKETS
Our operating companies manufacture and assemble products at numerous
facilities, some of which are located outside the United States. We also obtain
components and finished goods from suppliers located outside the United States.
Although we have not experienced significant problems conducting operations in
or obtaining supplies from these areas, changes in local economic or political
conditions could affect our manufacturing, assembly and distribution
capabilities and have a material adverse effect on our business, financial
condition and results of operations. Additional risks inherent in our
international business activities generally include unexpected changes in
regulatory requirements, tariffs and other trade barriers, changes in local
economic or political conditions, longer accounts receivable payment cycles,
difficulties in managing international operations, potentially adverse tax
consequences, restrictions on repatriation of earnings and the burdens of
complying with a wide variety of foreign laws. In fiscal 2000, we derived
approximately 34.7% of our net sales from customers outside the United States.
At September 30, 2000, we held approximately $223.8 million of assets outside of
the United States.
WE DO NOT USE DERIVATIVE PRODUCTS TO HEDGE AGAINST FOREIGN CURRENCY EXCHANGE
RISK
Decreases in the value of foreign currencies relative to the U.S. dollar
could result in losses from foreign currency conversions. Subsequent to the
spin-off, we may borrow in foreign currencies to effectively hedge a portion of
our net investment in our foreign subsidiaries.
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WE ARE DEPENDENT ON CERTAIN INDUSTRIES
A significant portion of our lighting business's sales are made to customers
in the new construction, renovation and remodeling industries. These industries
are cyclical in nature and subject to changes in general economic conditions. In
addition, sales of the industrial tools division are dependent on the retail,
wholesale and industrial markets for our product line. Economic downturns and
the potential declines in construction and demand for industrial tools may have
a material adverse effect on our net sales and operating income.
AN INCREASE IN THE PRICE OF RAW MATERIALS OR FINISHED GOODS COULD ADVERSELY
AFFECT OUR OPERATIONS
Our operating companies require certain raw materials for their products,
including plastics, aluminum, copper, nickel, cobalt, molybdenum, tungsten,
certain grades of steel, wood, glass, corregated packaging and petroleum. We
purchase most of these raw materials on the open market, and rely on third
parties for the sourcing of finished goods. As such, our cost of products sold
may be affected by changes in the market price of the above-mentioned raw
materials or sourcing services and finished goods. We do not engage in commodity
hedging transactions for raw materials. Significant increases in the prices of
our operating companies' products due to increases in the cost of raw materials
or sourcing could have a negative effect on demand for their respective products
and on profitability as well as a material adverse effect on our business,
financial condition and results of operations.
OUR BUSINESS COULD SUFFER IN THE EVENT OF A WORK STOPPAGE BY OUR UNIONIZED LABOR
FORCE
We believe that we have satisfactory relations with our unions and,
therefore, anticipate reaching new agreements on satisfactory terms as existing
agreements expire. However, new agreements may not be reached without a work
stoppage or strike or reached on terms satisfactory to us. A prolonged work
stoppage or strike could have a material adverse effect on our results of
operations.
WE FACE ENVIRONMENTAL REGULATION OF OUR OPERATIONS
Our businesses are subject to a variety of federal, state, local and foreign
governmental regulations relating to the use, transportation, storage,
discharge, emission or disposal of hazardous substances and wastes, remediation
of contamination associated with releases of hazardous substances at our
facilities and at off-site disposal locations, and worker health and safety.
These regulations are complex, change frequently and have tended to become more
stringent over time.
Based on our experience to date, we believe that the future cost of
compliance with existing environmental regulations and the future cost of
necessary investigation or remediation of contamination will not have a material
adverse effect on our business, financial condition or results of operations.
Nevertheless, future events, such as discovery of unknown contamination,
compliance with more stringent regulations, or more vigorous enforcement
policies by regulatory agencies or stricter or different interpretations of
existing regulations, could require us to make material expenditures. See
'Business -- Governmental Regulation.'
WE HAVE NO OPERATING HISTORY AS AN INDEPENDENT PUBLIC COMPANY
We do not have an operating history as an independent public company. Our
businesses have historically relied on USI for certain administrative services
and financial support. After the spin-off, this will no longer be the case.
Therefore, we cannot assure you that we will be able to successfully put in
place the financial, administrative and managerial structure necessary to
operate as an independent company, or that the development of such a structure
will not require a significant amount of management's time or result in
significant additional operating costs, either of which could cause our results
of operations to suffer.
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WE ARE DEPENDENT ON KEY PERSONNEL
Our success as an independent public company depends to a significant extent
on the continued services of our senior management and other members of
management. We could be adversely affected if any of these persons were
unwilling or unable to continue in our employ. We will therefore enter into
employment agreements with the individuals who will be executive officers of
LCA. Additionally, these executive officers and selected key executives of our
subsidiaries will be awarded options and restricted stock which will not be
completely vested until several years in the future (four years for options and
seven years for restricted stock), thereby incentivizing these key executives to
continue in their employment.
WE WILL BE SUBJECT TO CERTAIN PROVISIONS THAT COULD DELAY OR PREVENT A CHANGE OF
CONTROL
Prior to the spin-off we will enter into a rights agreement under which
preferred stock purchase rights will attach to our presently outstanding shares
of common stock and to all shares of common stock to be issued afterwards
(including common stock that will trade on a 'when issued' basis) until the
rights expire. The rights may cause substantial dilution to a person or group
that acquires 15% or more of our common stock unless the rights are first
redeemed by our board of directors. Unless earlier redeemed, the rights will
expire in January 2011. In addition, provisions of our charter and by-laws may
discourage, delay or prevent a merger or acquisition that our stockholders may
consider favorable, including transactions in which you might otherwise receive
a premium for your shares. For example, these provisions: (i) authorize the
issuance of 'blank check' preferred stock without any need for action by
stockholders; (ii) provide for a classified board of directors with staggered
three-year terms; (iii) require supermajority stockholder voting to approve
certain business combinations and to effect various amendments to our by-laws;
(iv) eliminate the ability of stockholders to call special meetings of
stockholders; (v) prohibit stockholder action by written consent; and
(vi) establish advance notice requirements for nominations for election to the
board of directors or for proposing matters that can be acted on by stockholders
at stockholder meetings. Our agreements with our executive officers and certain
other key employees may have the effect of making a change of control more
expensive. See 'Executive Compensation,' 'Rights Plan,' and 'Purposes and
Effects of Certain Provisions of Certificate of Incorporation, By-Laws and
Delaware Statutory Law.'
CERTAIN TAX RISKS OF THE SPIN-OFF
The spin-off is conditioned upon the receipt by USI of the opinions of
Cadwalader, Wickersham & Taft and Ernst & Young LLP that for Federal income tax
purposes the spin-off should qualify as a tax-free spin-off under Section 355 of
the Code, no gain or loss with respect to our shares should be recognized by USI
on the spin-off and the receipt of our shares by USI stockholders should be tax
free. See 'The Spin-off -- Federal Income Tax Consequences of the Spin-off.' No
ruling has been or will be sought from the Internal Revenue Service with respect
to the Federal income tax consequences of the spin-off. The opinions of
Cadwalader, Wickersham & Taft and Ernst & Young LLP are not binding on the
Internal Revenue Service and no assurance can be given that the Internal Revenue
Service or the courts will agree with their opinions. Each opinion is subject to
certain assumptions and the accuracy and completeness of certain factual
representations and statements made by us and USI. If these assumptions,
representations or statements are incorrect or incomplete in any material
respect, the conclusions set forth in the opinions may not be correct. Neither
we nor USI are aware of any facts or circumstances which would cause such
representations or assumptions to be untrue. We would be obligated to indemnify
USI on an after-tax basis for any corporate level tax attributable to the
spin-off, including any tax arising under Sections 355(d) or (e) of the Code,
primarily attributable to (i) our actions or omissions after the spin-off
(including any cessation, transfer to affiliates or disposition of our active
trades or businesses, and any issuance or reacquisition of stock and payments of
extraordinary dividends), (ii) breach of one or more representations or the
inaccuracy or incompleteness of one or more statements made to Cadwalader,
Wickersham & Taft and Ernst & Young LLP in connection with their opinions
regarding the spin-off, (iii) any acquisition of our stock or assets following
the spin-off, (iv) any issuance or change of ownership of our stock that causes
Section 355(d) of the Code to apply to the spin-off, or (v) 50% or more of our
outstanding stock being acquired directly or indirectly (or
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deemed to be acquired pursuant to certain transactions involving our stock or
assets) as part of a plan or series of related transactions that includes the
spin-off (a 'Change in Control Transaction'); for purposes of this clause (v),
acquisitions (including acquisitions which are neither planned nor accepted or
recommended by us) within two years after the spin-off would be presumed to be
part of such a plan or series of related transactions, although we may be able
to rebut such presumption. See 'Agreements between LCA and USI and Relationship
After the Spin-off -- Tax Sharing and Indemnification Agreement.' The corporate
level tax would be based on the excess of the fair market value of the shares of
our common stock at the time of the spin-off over USI's adjusted basis for such
shares. The tax liability arising from such corporate level tax could be
substantial and there is no assurance that we would be able to satisfy our
indemnification obligation. See 'Agreements between LCA and USI and Relationship
After the Spin-off -- Tax Sharing and Indemnification Agreement.' In addition,
under the consolidated return regulations we will be severally liable to the
Internal Revenue Service for the full amount of any corporate level tax arising
on the spin-off that is not paid by USI.
Furthermore, if the spin-off were not to qualify as a tax-free spin-off
under Section 355 of the Code, each holder of USI common stock who receives
shares of our common stock in the spin-off would generally be treated as if such
stockholder received a taxable distribution in an amount equal to the fair
market value of the stock received, which would result in a dividend to the
extent paid out of USI's current and accumulated earnings and profits (as
increased to reflect any after-tax USI gain on a taxable spin-off as discussed
above).
FORWARD LOOKING STATEMENTS
We have made forward-looking statements in this information statement.
Forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements. Forward-looking statements are statements, other than statements of
historical facts, that address activities, events or developments that we expect
or anticipate will or may occur in the future, including such items as business
strategy and measures to implement strategy, competitive strengths, objectives,
goals, growth of our business and operations, plans and references to future
success.
Forward-looking statements also include any other statements that include
words such as 'anticipate,' 'believe,' 'plan,' 'estimate,' 'intend' and other
similar expressions.
Forward-looking statements are based on certain assumptions and analyses we
have made in light of our experience and our perception of historical trends,
current conditions, expected future developments and other factors that we
believe are appropriate. Whether actual results and developments will conform
with our expectations and predictions is subject to a number of risks and
uncertainties, including, among others noted in this information statement, the
following:
interest rates,
foreign currency exchange rates,
instability in domestic and foreign markets,
consumer spending patterns,
availability of consumer and commercial credit,
the effect of changes in domestic and foreign laws and regulations
(including government subsidies, tariffs and international trade
regulations), and
product initiatives and other actions taken by competitors, changes in
raw material costs and our suppliers' continuing ability to fulfill our
purchasing requirements.
All of the forward-looking statements made in this information statement are
qualified by these cautionary statements, and we cannot assure you that the
results or developments we have anticipated will be realized. Even if the
results and developments in our forward-looking statements are substantially
realized, we cannot assure you that they will have the expected consequences to,
or effects on us, or our business or operations.
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THE SPIN-OFF
MANNER OF EFFECTING THE SPIN-OFF
The spin-off will be effected by a stock dividend paid to holders of record
of USI common stock. The spin-off ratio will be 1 share of our common stock for
every 10 shares of USI common stock outstanding on the spin-off record date. USI
stockholders will not be required to pay for shares of our common stock received
in the spin-off or to surrender or exchange USI common stock in order to receive
shares of our common stock. All shares of our common stock received by USI
stockholders in connection with the spin-off will be fully paid and
non-assessable. USI stockholders do not have any appraisal rights in connection
with the spin-off.
During the period beginning on or about , 2000 and continuing through
, 2000, USI common stock will trade on the NYSE with due bills attached.
The due bills will entitle a purchaser of USI common stock during this period to
receive 1 share of our common stock for every 10 shares purchased. If the
spin-off is not completed, all due bills attached to USI common stock will
become null and void.
In order to be entitled to receive shares of our common stock in the
spin-off, USI stockholders must be holders of record of USI common stock at 5:00
p.m. New York time on the spin-off effective date, which is expected to be
, 2000.
The dividend agent is Mellon Investor Services LLC. We have a direct
registration (book entry) program with respect to ownership of our common stock.
Upon completion of the spin-off, we will issue the appropriate shares of our
common stock to you through direct registration rather than issuing a physical
stock certificate unless you give specific instructions to do otherwise. See
' -- Direct Registration of Our Common Stock.'
FRACTIONS OF SHARES
No certificates representing fractions of shares will be issued directly as
part of the spin-off. Instead of receiving a fraction of a share, each USI
Stockholder of record on the spin-off effective date who would otherwise be
entitled to receive a fraction of a share will receive cash. As soon as
practicable after the spin-off effective date, Mellon Investor Services will
aggregate and sell all fractions of shares of our common stock on the NYSE at
then prevailing market prices and distribute the aggregate proceeds (net of
fees) ratably to stockholders entitled to them. See ' -- Federal Income Tax
Consequences of the Spin-off' below for a discussion of the federal income tax
treatment of the sale of interests in fractions of shares.
RESULTS OF THE SPIN-OFF
Following the spin-off, we will be a separate, publicly-traded company that
holds the USI lighting and industrial tools businesses. Immediately after the
spin-off, based on the number of outstanding shares of USI common stock and the
number of record holders on November 27, 2000, we expect to have approximately
7.7 million shares of common stock outstanding, held by approximately 14,400
record holders (excluding 252,000 shares of our common stock that we anticipate
will be issued, subject to certain restrictions, to executive officers and other
key employees as described under 'Executive Compensation'). The actual number of
shares of our common stock to be issued will be determined as of the spin-off
effective date.
Following the spin-off, USI will continue to own and operate its other
businesses -- including USI Bath and Plumbing, and USI Hardware and Tools. The
spin-off will not affect the number of outstanding shares of USI common stock or
any rights of USI stockholders.
LISTING AND TRADING OF OUR COMMON STOCK
Our common stock has been authorized for listing on the NYSE under the
symbol 'LXA', subject to official notice of issuance. Prior to the spin-off, we
do not expect any public trading market for our common stock to exist except
that, beginning on , 2000, our common stock is expected to trade on a
'when-issued' basis on the NYSE for settlement when our common stock is issued
on ,
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2000. The term 'when-issued' means trading in shares prior to the time
certificates are actually available or issued. If the spin-off conditions are
not satisfied and the stock dividend is not paid, all such 'when-issued' trading
will become null and void. If the spin-off conditions are satisfied and the
stock dividend is paid on the spin-off effective date, it is expected that
'regular way' trading in our common stock on the NYSE will commence at 9:30 a.m.
New York time on , 2000, subject to official notice of issuance.
The shares of our common stock issued to USI stockholders will be freely
transferable, except for shares received by persons who may be deemed to be our
'affiliates' under the Securities Act. Persons who may be deemed to be our
affiliates after the spin-off generally include individuals or entities that
control, are controlled by, or are under common control with us and may include
certain of our officers and directors. Persons who are our affiliates will be
permitted to sell their shares of our common stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as the exemptions afforded
by Section 4(1) of the Securities Act and Rule 144 under the Securities Act
(with the exemption under Rule 144 not available until 90 days after the date of
this information statement).
Certain USI subsidiaries, including certain of the subsidiaries to be
transferred to us, presently maintain tax-qualified profit-sharing and savings
plans that hold, among other assets, USI common stock. Certain of our
subsidiaries will continue to maintain these plans or establish new plans to
which liabilities and assets, including USI common stock, will be transferred in
connection with the spin-off. Based upon their ownership of USI common stock on
the spin-off record date after giving effect to these transfers, USI plans and
our plans are expected to hold approximately and shares of our common
stock, respectively, and our plans are expected to hold approximately
shares of USI common stock. The trustees of the USI plans presently intend to
dispose of all of our common stock acquired in the spin-off. We expect that
participants in our plans will be permitted to redirect any investments in USI
common stock to other permitted investments under such plans for a period of
time. However, after such time, the trustees of our plans intend to dispose of
all USI common stock held in our plans and invest the net proceeds of such
dispositions in shares of our common stock, subject to the exercise of the
trustee's fiduciary duties under applicable law. The dispositions will be made
on behalf of participating employees and subject to the exercise of the
trustees' fiduciary duties under applicable law. The timing of dispositions and
acquisitions will be determined by plan administrators and trustees or by their
independent institutional investment managers, subject to their exercise of
fiduciary duties under applicable law. We and USI cannot predict the timing of
dispositions and acquisitions, but we expect that they will occur during the
first few months following the spin-off. Dispositions are expected to be made,
to the extent practicable by exchanges of our common stock and USI common stock
between plans at prices based upon publicly-reported trading prices and also by
open market sales. See 'Projected Ownership of Our Stock Immediately after the
Spin-off.'
For a discussion of certain uncertainties that should be considered when
trading in our common stock, see 'Risk Factors -- There is No Trading History
for Our Common Stock and We Do Not Expect to Pay Dividends.'
DIRECT REGISTRATION OF OUR COMMON STOCK
We will have a direct registration (book entry) program with respect to
record ownership of our common stock. Direct registration is a service that
allows shares to be owned, reported and transferred electronically without
having a physical stock certificate issued. Persons who acquire shares of our
common stock will not receive a physical stock certificate (unless certificates
are requested); rather, ownership of the shares is recorded in the names of such
persons electronically on our books and records. Direct registration is intended
to alleviate problems relating to stolen, misplaced or lost stock certificates
and to reduce the paperwork relating to the transfer of ownership of our common
stock.
Under direct registration, the voting, dividend and other rights and
benefits of holders of our common stock remain the same as with holders of
certificates.
Upon completion of the spin-off, we will mail you a statement confirming the
issuance to you of the appropriate shares of our common stock through direct
registration, rather than issuing a physical stock
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certificate unless you give specific instructions to do so. The mailing will
explain how to obtain a physical certificate, if you wish.
The requirements for transferring book entry shares are the same as for
shares represented by a physical stock certificate except that, with direct
registration, there is no certificate to surrender. Our common stock owned
through the direct registration program may be sold and transferred through a
stock broker or through Mellon Investor Services, the transfer agent for our
common stock.
In order to utilize the services of a stock broker, you must first add the
appropriate stock broker information to the direct registration account
maintained by the transfer agent. Thereafter, you may by telephone transfer our
common stock to a brokerage account with such stock broker and then may sell or
transfer such shares by giving instructions to the broker.
Alternatively, shares of our common stock owned through direct registration
may be sold or transferred through the services of the transfer agent. Sales
will be made through the transfer agent when practicable, but at least once each
week. The transfer agent cannot accept instructions to sell shares on a specific
day or at a specific price. The price per share will be the average price per
share of all of our common stock sold during the period by the transfer agent
for holders of book entry shares.
AGREEMENTS BETWEEN LCA AND USI AND RELATIONSHIP AFTER THE SPIN-OFF
After the spin-off, we and USI will operate independently of each other as
separate public companies. Neither we nor USI will have any beneficial stock
ownership interest in the other (although employee benefits plan trusts
sponsored by us and USI and/or certain of our or their subsidiaries will hold
certain of the other company's shares for up to two years following the
spin-off). All directors, executives and employees of USI who join us will cease
to be directors, executives or employees of USI.
We will enter into agreements with USI providing for the transfer of the USI
lighting and industrial tools businesses to us prior to the spin-off. We will
also enter into agreements with USI that will define our responsibilities
regarding the following:
indemnification against certain liabilities, including liabilities for
taxes; and
corporate transitional matters, including the provision of services and
the transfer of assets and liabilities under employee benefit plans.
These agreements will be negotiated before the spin-off and thus will be
negotiated between affiliated parties. Accordingly, we cannot assure you that
any of these agreements, or that any of the transactions provided for in these
agreements, will be effected on terms at least as favorable to us or to USI as
could have been obtained from unaffiliated third parties.
Following the spin-off, additional or modified agreements, arrangements and
transactions may be entered into by us and USI. Any such future agreements,
arrangements and transactions will be determined through arm's-length
negotiation between the parties.
The following is a summary of certain agreements, arrangements and
transactions to be entered into between us and USI and our and its respective
subsidiaries. Certain of these agreements will be filed as exhibits to this
information statement, and the following descriptions are qualified in their
entirety by reference to such exhibits.
Agreements to Effect the Transfer of the Lighting and Industrial Tools
Businesses of USI. The assets and liabilities of USI's lighting and industrial
tools businesses will be transferred by USI and its subsidiaries to us. We and
USI will each agree to execute and deliver such further assignments, documents
of transfer, deeds and instruments as may be necessary for the more effective
implementation of such transfers.
Distribution and Indemnification Agreement. In connection with the spin-off,
we will enter into a distribution and indemnification agreement with USI. Under
the agreement, subject to certain exceptions, we will agree to indemnify USI
against all liabilities, litigation and claims arising out of USI's lighting and
industrial tools businesses (including liabilities for claims relating to or
arising out of the assets, businesses and operations previously conducted by
these businesses or their predecessors, subject to certain exceptions). USI will
agree to indemnify us against (1) all liabilities, litigation and claims arising
out of all USI operations other than the lighting and industrial tools
businesses,
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(2) liabilities (including liabilities under the Securities Exchange Act of
1934) for statements included in this information statement and USI's prior SEC
filings and (3) certain other liabilities pertaining to USI's demerger from
Hanson plc. Neither we nor USI will be entitled to a recovery to the extent any
liability is covered by proceeds received by it from any third-party insurance
policy. In circumstances in which the potential liability is joint, we and USI
will share responsibility for the liability on a mutually agreed basis
consistent with the principles established in the indemnification agreement.
The distribution and indemnification agreement will set forth procedures for
notification and payment of claims, use and preservation of records and
resolution of disputes. Liability for tax-related matters will be governed by
the tax sharing and indemnification agreement described below.
Tax Sharing and Indemnification Agreement. We will enter into a tax sharing
and indemnification agreement with USI that will govern the allocation between
us of federal, state, local and foreign tax liabilities and related tax matters,
such as the preparation and filing of tax returns and the conduct of audits and
other tax proceedings, for taxable periods before and after the spin-off.
In general, the tax sharing agreement will provide that (1) USI will be
responsible for, and will indemnify us and our subsidiaries against, tax
liabilities that relate to the period up to and including the date of the
spin-off and (2) we will be responsible for, and will indemnify USI and its
subsidiaries against, our tax liabilities for taxable periods beginning after
the date of the spin-off. See 'Federal Income Tax Consequences of the Spin-Off.'
Transition Services Agreement. Coincident with, and following, the spin-off,
USI will be establishing new corporate headquarters. We will be assuming most of
the obligations and staff of USI's Iselin, NJ office and establishing this
facility as our corporate office. We will enter into a transition services
agreement with USI, pursuant to which we will perform for USI several services
on a transitional basis until its new headquarters is established. These
services will include, financial reporting, payroll, stock options, employee
benefits and certain risk management administration, and treasury services,
which includes cash management. The corporate transition agreement will be for a
term of no greater than 12 months, terminable in whole or in part by USI upon 30
days notice. LCA will provide these services for USI in light of the fact that a
majority of the people who are responsible for performing the services under the
Transition Services Agreement will be leaving USI to be employed by LCA. As a
result, it is more efficient to have LCA, and those who have historically
performed such services, continue to perform such services throughout the
transition period. Effective on the spin-off one of our subsidiaries will enter
into a distribution and supply agreement with a USI subsidiary. Pursuant to this
agreement the two parties will contract to supply components and finished goods
to each other through September 30, 2001. Our subsidiary will also distribute in
certain international markets finished products manufactured by a USI
subsidiary.
Following the spin-off, we will sublease from USI our corporate headquarters
in Iselin, NJ. In addition, USI will continue to be obligated under certain
letters of credit outstanding with respect to certain LCA business until the
expiration of such letters of credit. LCA will reimburse USI for any amounts
withdrawn under such letters of credit. After the spin-off, we and USI may have
arms length negotiated business relationships, which relationships will be
described in contracts, agreements and other documents entered into in the
normal course of business. Such documents may include agreements by us and USI
and our respective subsidiaries to supply materials, products and services after
the spin-off.
FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
The following discussion summarizes the material U.S. Federal income tax
consequences resulting from the spin-off. This discussion is based upon the U.S.
Federal income tax laws and regulations now in effect and as currently
interpreted and does not take into account possible changes in such tax laws or
such interpretations, any of which may be applied retroactively.
The spin-off is conditioned upon the receipt by USI of opinions from
Cadwalader, Wickersham & Taft and Ernst & Young LLP that for Federal income tax
purposes:
1. The spin-off should qualify as a tax-free spin-off under Section
355(a)(1) of the Internal Revenue Code of 1986, as amended (the 'Code').
16
<PAGE>
2. No gain or loss with respect to our shares should be recognized by USI on
the spin-off.
3. No gain or loss should be recognized by (and no amount should be included
in the income of) the holders of USI common stock solely as a result of
their receipt of our shares in the spin-off.
4. The tax basis of the USI common stock and our stock (including any
fractional shares for which cash is received) held immediately after the
spin-off by any holder should equal such holder's tax basis in its USI
common stock immediately before the spin off, allocated in proportion to
the relative fair market values of the USI common stock and our shares on
the Distribution Date.
5. The holding period of shares of our stock received in the spin-off
(including any fractional shares for which cash is received) will include
the holding period of the shares of USI common stock with respect to
which our shares were distributed, provided that such shares of USI
common stock are held as a capital asset on the Distribution Date.
6. Cash received in lieu of fractional shares will be treated as payment in
exchange for such shares. The difference between the amount of cash
received and basis allocable to such fractional shares will be a capital
gain or loss (long-term if the USI common stock has been held for more
than one year), as the case may be, provided that the shares of USI
common stock is held as a capital asset on the Distribution Date.
The opinions of Cadwalader, Wickersham & Taft and Ernst & Young LLP are
subject to certain assumptions and the accuracy and completeness of certain
factual representations and statements made by us and USI. Neither we nor USI
are aware of any present facts or circumstances that would cause such
assumptions, representations or statements to be untrue or incomplete. No ruling
has been or will be sought from the Internal Revenue Service with respect to the
Federal income tax consequences of the spin-off. The opinions of Cadwalader,
Wickersham and Taft and Ernst & Young LLP will represent their views as to the
interpretation of existing tax law and accordingly, such opinions are not
binding on the Internal Revenue Service and no assurance can be given that the
Internal Revenue Service or the courts will agree with their opinions.
If the spin-off were not to qualify as a tax-free spin-off under
Section 355 of the Code, (i) the corporate level tax would be based on the
excess of the fair market value of the shares of our stock on the Distribution
Date, over USI's adjusted tax basis for such shares on such date, and (ii) each
holder of USI common stock who receives our stock in the spin-off would
generally be treated as receiving a taxable distribution in an amount equal to
the fair market value of such shares on the Distribution Date, taxed first as a
dividend to the extent of such holder's pro rata share of USI's current and
accumulated earnings and profits (as increased to reflect any after-tax USI gain
on a taxable spin-off as discussed above), and then as a nontaxable return of
capital to the extent of such holder's basis in the shares of USI common stock,
with any remaining amount being taxed as capital gain (provided that the USI
common stock was held by the stockholder as a capital asset on the date of the
spin-off). Stockholders which are corporations may be subject to additional
special provisions dealing with taxable spin-offs, such as the dividends
received deduction and the extraordinary dividend rules.
Even if the spin-off qualifies as a tax-free spin-off under Sections 355 of
the Code, USI (but not USI stockholders) also would recognize taxable gain on
the spin-off pursuant to Section 355(e) of the Code (determined as if USI had
sold all of the shares of our stock for fair market value on the Distribution
Date) if 50% or more of the shares of our or USI's outstanding stock were
acquired directly or indirectly (or deemed to be acquired pursuant to certain
transactions involving our or USI's stock or assets) as part of a plan or series
of related transactions that includes the spin-off (a Change in Control
Transaction). For those purposes, any acquisition (including acquisitions which
are neither planned nor accepted or recommended by the management of the company
whose stock was acquired) of the shares of our stock or the stock of USI within
the period beginning two years prior to the Distribution Date and ending two
years after the Distribution Date would be presumed to be part of such a plan or
series of related transitions, although we or USI as the case may be, may be
able to rebut such presumption.
Pursuant to the Tax Sharing Agreement, USI will bear any corporate level tax
attributable to the spin-off or transactions undertaken in preparation for the
spin-off, except that (a) we will be obligated to indemnify USI on an after-tax
basis for 100% of such corporate level tax if such tax is primarily
17
<PAGE>
attributable to our (i) actions or omissions after the spin-off (including any
cessation, transfer to affiliates or disposition of active trade or business,
and any issuance or reacquisition of stock and payments of extraordinary
dividends), (ii) breach of one or more representations or the inaccuracy or
incompleteness of one or more statements made to Cadwalader, Wickersham & Taft
and Ernst & Young LLP in connection with their opinions regarding the spin-off,
(iii) stock or assets being acquired following the spin-off, (iv) issuance or
change of ownership of stock that causes Section 355(d) of the Code to apply to
the spin-off, or (v) involvement in a Change in Control Transaction, and
(b) such corporate level tax will be equally shared if both we and USI were
responsible for any actions, omissions, involvement, breaches or inaccuracies
described in (i)-(v) above, and the imposition of such corporate level tax was
not primarily attributable to either party. Notwithstanding the Tax Sharing
Agreement, under the consolidated return regulations, we and USI will each be
severally liable to the Internal Revenue Service for the full amount of any
corporate level tax attributable the spin-off or transactions undertaken in
preparation for the spin-off that is not paid by the other party. Neither we nor
USI will indemnify any holder of shares of USI common stock who receives shares
of our stock in the spin-off for any tax liabilities.
It is not expected that the corporate level tax attributable to the
transactions undertaken in preparation for the spin-off will be material, and
USI will adequately provide for all anticipated liabilities prior to the
spin-off.
Current U.S. Treasury Regulations require each holder of shares of USI
common stock who receives our common stock pursuant to the spin-off to attach to
his or her U.S. Federal income tax return for the year in which the spin-off
occurs a detailed statement setting forth such data as may be appropriate in
order to show the applicability of Section 355 to the spin-off. Following the
spin-off, USI will convey the appropriate information to each holder of record
of USI common stock as of the Record Date.
This discussion of the anticipated Federal income tax consequences of the
spin-off is for general information only and may not be applicable to
stockholders who received their shares of USI common stock through the exercise
of an employee stock option or otherwise as compensation or who are not citizens
or residents of the United States or who are otherwise subject to special
treatment under the Code. USI stockholders should consult their own advisers as
to the specific tax consequences of the spin-off, including the effects of
foreign, state and local tax laws and the effect of possible changes in tax
laws. See also 'Risk Factors -- Certain Tax Risks of the Spin-off.'
REASONS FOR FURNISHING THIS INFORMATION STATEMENT
This information statement is being furnished by USI solely to provide
information to USI stockholders about, subject to the satisfaction of the
spin-off conditions, the receipt of our common stock pursuant to the spin-off.
It is not, and is not to be construed as, an inducement or encouragement to buy
or sell any of our securities or those of USI. The information contained in this
information statement is believed by us and USI to be accurate as of the date
set forth on its front cover. Changes may occur after that date, and neither we
nor USI will update the information except in the normal course of our
respective public disclosure practices.
18
<PAGE>
CAPITALIZATION
The following table, which is unaudited, sets forth, as of September 30,
2000, our capitalization as adjusted to reflect the spin-off and the incurrence
of indebtedness under the new credit facility, as if these transactions had
occurred as of that date. This data should be read in conjunction with
'Unaudited Pro Forma Combined Condensed Financial Data,' 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the Combined Financial Statements and notes. See 'Index to Combined Financial
Statements.'
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
--------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
------ ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Long-Term Debt (including current portion):
Notes payable......................................... $ 3.9 $ (3.9) $ --
New credit facility................................... -- 200.0 200.0
Notes and interest payable to affiliates.............. 225.3 (225.3) --
------ ------- ------
Total long-term debt (including current
portion)........................................ $229.2 $ (29.2) $200.0
Invested Capital/Stockholders' Equity
Common stock, 23,000,000 shares authorized, par value
$0.01 per share, 7,961,486 shares issued and
outstanding (as adjusted)........................... $ -- $ -- $ --
Preferred stock, 2,000,000 shares authorized, none
issued and outstanding.............................. -- -- --
Paid-in-Capital....................................... -- 239.0 (A) 239.0
Invested Capital...................................... 202.8 (202.8) --
------ ------- ------
Total invested capital/stockholders' equity....... 202.8 36.2 239.0
------ ------- ------
Total capitalization.......................... $432.0 $ 7.0 $439.0
------ ------- ------
------ ------- ------
</TABLE>
---------
(A) To reflect the net effect on invested capital.
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Invested Capital............................................ $202.8
Portion of notes and interest payable to affiliate forgiven. 25.3
Payment of notes payable by USI............................. 3.9
Payment of debt issue costs by USI.......................... $ 7.0
------
$239.0
------
------
</TABLE>
19
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The historical selected combined financial data of the Company set forth
below for each of the years in the four-year period ended September 30, 2000 are
derived from the audited combined financial statements of the Company, the last
three years of which are included elsewhere in this information statement. The
historical selected combined financial data for the year ended September 30,
1996 is unaudited but, in our opinion, has been prepared on a basis consistent
with that for the four-year period ended September 30, 2000. Historical
financial information may not be indicative of our future performance as an
independent company. Furthermore, the historical financial data presented below
do not reflect certain pro forma adjustments giving effect to the spin-off which
are reflected in 'Unaudited Pro Forma Combined Condensed Financial Data.' The
information set forth below should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the Combined Financial Statements and notes thereto. See 'Index to Combined
Financial Statements.' Historical basic and diluted earnings per share and
dividend data have not been presented, as the capital structure of the
businesses that comprise the Company prior to the spin-off is not indicative of
its capital structure following the spin-off.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
FISCAL YEAR ENDED
SEPTEMBER 30,
-----------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales.................................... $936.9 $917.5 $856.1 $537.7 $508.1
Cost of products sold........................ 638.6 628.7 590.5 374.3 356.1
Selling, general and administrative
expenses................................... 249.2 234.3 203.9 119.5 116.1
Goodwill impairment and restructuring
charges.................................... 84.0 -- 2.3 -- --
Operating income (loss)(A)................... (39.5) 46.6 51.1 34.7 29.6
Net income (loss)............................ (65.2) 20.2 23.1 13.0 12.9
Pro-forma basic and diluted loss per
share(B)................................... $(8.48)
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents.................... $ 7.8 $ 9.1 $ 12.4 $ 0.1 $ 0.1
Working capital.............................. 240.0 231.9 214.4 122.5 118.5
Total assets................................. 602.2 688.1 617.3 285.5 280.5
Total debt(C)................................ 205.5 205.8 201.7 195.0 195.0
Invested capital............................. 202.8 290.1 234.1 17.1 12.9
OTHER DATA:
Capital expenditures......................... 19.7 31.2 23.7 12.6 10.5
Depreciation and amortization................ 26.2 23.8 21.0 9.8 9.0
</TABLE>
---------
(A) Fiscal 1998 includes restructuring charges of $2.3 million and other
related charges of $0.5 million related to the closing of a manufacturing
and distribution facility in the lighting segment. Fiscal 2000 includes
goodwill impairment charges of $84.0 million related to Spear & Jackson.
(B) Basic and diluted loss per share have been determined assuming that
7,690,000 shares of our common stock will be issued upon the spin-off. One
share of our common stock will be issued for every ten USI shares.
(C) Amounts primarily represent intercompany notes payable to affiliates.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed financial data reflect
the spin-off as if it occurred as of September 30, 2000 for unaudited pro forma
combined condensed balance sheet purposes and as of October 1, 1999 for the
unaudited pro forma combined condensed statement of operations. The unaudited
pro forma combined condensed financial data reflect our expected capitalization
as a result of the spin-off, the incurrence of indebtedness under the new credit
facility and interest expense (including amortization of capitalized costs)
relating to such borrowings. This data do not necessarily reflect our results of
operations or financial position had the indebtedness actually been incurred and
the spin-off actually been consummated as of such dates. Also, this data are not
necessarily indicative of our future results of operations or future financial
position.
The pro forma combined condensed financial data will be revised in the
definitive information statement to reflect the information that will depend
upon market conditions at the time of the spin-off, including the amount and
other terms of the indebtedness we will incur under a new credit facility.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
--------------------------------
PRO-FORMA
ACTUAL ADJUSTMENTS PRO-FORMA
------ ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 7.8 $ $ 7.8
Trade receivables, net................................. 171.7 171.7
Inventories............................................ 165.8 165.8
Deferred income taxes.................................. 9.3 9.3
Other current assets................................... 10.7 10.7
------ ------- ------
Total current assets............................... 365.3 -- 365.3
Property, plant and equipment, net......................... 158.0 158.0
Pension assets............................................. 6.7 6.7
Other assets............................................... 2.1 7.0 (A)(C) 9.1
Goodwill, net.............................................. 70.1 70.1
------ ------- ------
$602.2 $ 7.0 $609.2
------ ------- ------
------ ------- ------
LIABILITIES AND INVESTED CAPITAL
Current liabilities:
Notes payable.......................................... $ 3.9 $ (3.9)(C) $ --
Trade accounts payable................................. 59.5 59.5
Accrued expenses and other liabilities................. 57.1 57.1
Income taxes payable................................... 4.8 4.8
------ ------- ------
Total current liabilities.......................... 125.3 (3.9) 121.4
Long term debt............................................. 200.0 (B) 200.0
Deferred income taxes...................................... 5.3 5.3
Other liabilities.......................................... 43.5 43.5
Notes payable to affiliates................................ 201.6 (201.6)(B)(C) --
Interest payable to affiliates............................. 23.7 (23.7)(C) --
------ ------- ------
Total liabilities.................................. 399.4 (29.2) 370.2
Commitments and contingencies..............................
Invested capital/Stockholders' equity...................... 202.8 36.2 (C) 239.0
------ ------- ------
$602.2 $ 7.0 $609.2
------ ------- ------
------ ------- ------
</TABLE>
---------
(A) To capitalize the cost of obtaining financing under the new credit
facility, which will be amortized over a five year period.
(B) To reflect initial borrowings of $200 million under the new credit
facility, which will be utilized for the repayment of notes payable to
affiliates.
(C) To reflect the amount of notes and interest payable to affiliates that
would be forgiven by USI assuming $200 million in borrowings, the payment
by USI of $7 million in debt financing costs and the $3.9 million repayment
of notes payable by USI.
21
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30, 2000
------------------------------------
PRO-FORMA
ACTUAL ADJUSTMENTS PRO-FORMA
------ ----------- ---------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net Sales................................................... $936.9 $936.9
Operating costs and expenses:
Cost of products sold................................... 638.6 638.6
Selling, general and administrative expenses............ 249.2 6.0 (A) 255.2
Management fee and divisional overhead.................. 4.6 (4.6)(A) --
Goodwill impairment charges............................. 84.0 84.0
------ ------ ------
Operating loss.............................................. (39.5) (1.4 ) (40.9)
Interest expense to affiliates.............................. (13.1) 13.1 (B) --
Interest expense............................................ (0.8) (17.2)(B) (19.4)
(1.4)(C)
Interest income............................................. 0.7 -- 0.7
------ ------ ------
Loss before income taxes.................................... (52.7) (6.9) (59.6)
Provision for income taxes.................................. (12.5) 2.8 (D) (9.7)
------ ------ ------
Net loss.................................................... $(65.2) $ (4.1) $(69.3)
------ ------ ------
------ ------ ------
Basic and diluted loss per share(E)......................... $(8.48) $(9.01)
------ ------
------ ------
</TABLE>
---------
(A) To eliminate management fees allocated from USI and divisional overhead,
and to record selling, general and administrative expenses that we
expect to incur following the spin-off, which includes approximately $6
million in expenses for which the Company is committed, principally
compensation expense and leases for the corporate headquarters and related
equipment. In addition, the Company expects to incur approximately
$4 million in professional fees, outside services, bonuses,
travel and administrative services that are not subject to binding
commitments of the Company and thus not included in the pro-forma
adjustment.
(B) To reflect interest expense on initial borrowings under the new credit
facility at an assumed interest rate of 9% per year and eliminate interest
cost on notes payable to affiliates and existing third party debt. For each
1/8% change in the assumed interest rate, pro forma interest expense would
change by approximately $0.3 million per year.
(C) To amortize the cost of obtaining financing ($7.0 million) over the term of
the credit facility.
(D) To reflect tax effects of above adjustments (A through C) at a tax rate of
40% (inclusive of federal, state and local taxes).
(E) Basic and diluted loss per share have been determined assuming that
7,690,000 shares of our common stock will be issued upon the spin-off. One
share of our common stock will be issued for every ten USI shares.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We operate and manage lighting and industrial tools businesses. Our
operating companies are divided into two business groups: Lighting and
Industrial Tools.
The following table presents, for each of the last three fiscal years, net
sales and operating income (loss) of our two business groups. This historical
financial information may not be indicative of our future financial performance
as an independent company and does not reflect the pro forma adjustments giving
effect to the spin-off presented in 'Unaudited Pro Forma Combined Financial
Data.'
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
---------------------------
2000 1999 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
NET SALES
Lighting................................................ $813.5 $804.0 $765.5
Industrial Tools........................................ 123.4 113.5 90.6
------ ------ ------
Total net sales..................................... $936.9 $917.5 $856.1
------ ------ ------
------ ------ ------
OPERATING INCOME (LOSS)
Lighting(A)............................................. $ 43.4 $ 48.3 $ 53.5
Industrial Tools(B)..................................... (78.3) 6.2 5.9
Management fees and divisional overhead................. (4.6) (7.9) (8.3)
------ ------ ------
Total operating income (loss)....................... $(39.5) $ 46.6 $ 51.1
------ ------ ------
------ ------ ------
</TABLE>
---------
(A) In fiscal 1998, operating income includes restructuring charges of $2.3
million and other related charges of $0.5 million. See Note 4 to the
Combined Financial Statements.
(B) In fiscal 2000, operating loss includes goodwill impairment charges of $84.0
million. See Note 4 to the Combined Financial Statements.
RESULTS OF OPERATIONS
FISCAL 2000 COMPARED TO FISCAL 1999
Net Sales and Operating Income
We had total net sales of $936.9 million and total operating loss of $39.5
million for the fiscal year ended September 30, 2000, a sales increase of $19.4
million (2.1%) and a decrease in operating income of $86.1 million from fiscal
1999. Included in the fiscal 2000 operating loss was a goodwill impairment
charge of $84.0 million relating to Spear & Jackson. Excluding the impairment
charge, operating income decreased $2.1 million (4.5%) from fiscal 1999.
Lighting had net sales of $813.5 million and operating income of $43.4
million for the fiscal year ended September 30, 2000, an increase in sales of
$9.5 million (1.2%) and a decrease in operating income of $4.9 million (10.1%)
from the same period last year. Sales increased due to the full year inclusion
of Dual-Lite which was acquired in March 1999 and higher volume at the
commercial and institutional outdoor division. This was offset by sales
decreases in the residential division, where certain unprofitable product lines
were discontinued, and a decrease at the European division which was negatively
impacted by currency translation. The decrease in operating income is mainly the
result of discontinuing certain residential product lines, which resulted in
nonrecurring charges of $2.0 million, primarily related to inventory and
accounts receivable write-offs and $1.2 million of operating losses during the
wind down period. In addition, the residential division incurred approximately
$1 million in costs associated with moving some production offshore. Our
commercial and institutional indoor
23
<PAGE>
division reported lower operating income as a result of inventory write-offs
from a SKU rationalization program and lower pricing due to competition. These
decreases were partially offset by an increase at the European division, despite
negative currency translation.
Industrial Tools had net sales of $123.4 million and operating income of
$5.7 million for the fiscal year ended September 30, 2000, excluding a goodwill
impairment charge of $84.0 million. Sales increased $9.9 million (8.7%) and
operating income decreased $0.5 million (8.1%) from the same period last year.
The increase in sales is mainly related to the first time inclusion of S&J
France acquired in December 1999 and the full year inclusion of Bowers plc
acquired in January 1999. These increases were partially offset by the
unfavorable translation effect of converting UK results into US dollars. Also,
sales and operating income have been negatively impacted by severe competition
in the United Kingdom market due to lower cost imports from the Far East,
declining margins on exports and a general slowdown in the industrial sector.
Management fees and divisional overhead costs of $4.6 million, decreased
$3.3 million (41.8%) from prior year due to the elimination of the lighting
divisional office in November 1999 and the prior year included a severance
charge of $1.4 million related to division management.
In December 1997, the Company purchased Spear & Jackson plc ('Spear &
Jackson') for $11.1 million in cash and $95.6 million in USI's common stock
(3,685,520 shares), resulting in initial goodwill of approximately $63.5
million. Spear & Jackson manufactures and distributes hand tools, saws, cutting
and industrial tools. The purchase price was subject to a cash contingency,
payable on or before June 2000. The cash contingency was based upon certain
performance criteria and the market value of USI's stock. The results of Spear &
Jackson are included in the Industrial Tools segment. In June 2000, upon
expiration of the contingency period related to the December 1997 acquisition of
Spear & Jackson, USI made additional cash payments of `L'47 million ($71
million), to the former owners of Spear & Jackson. The share purchase agreement
provided for possible additional cash payments by USI to the former shareholders
of Spear & Jackson if the value of USI's common stock issued as consideration in
the transaction at the closing was not equal to the value of USI's stock at the
end of the thirtieth month after the transaction date (which period ended
June 3, 2000) and (1) if Spear & Jackson met certain sales targets during that
same thirty-month contingency period, or (2) upon certain other factors. The
other factors included the failure (a) of USI to use Spear & Jackson to
distribute internationally the products of Ames, a subsidiary of USI, (b) of
Ames to use Spear & Jackson as a preferred supplier of products not manufactured
by Ames, but manufactured by Spear & Jackson, or (c) of USI to retain the
services of a person approved by the former shareholders as the chief executive
of Spear & Jackson.
At the end of a thirty month contingency period, the market value of USI's
stock, which was computed in accordance with the stock purchase agreement by
averaging USI's stock price on the NYSE during the last five trading days of the
contingency period, was below the guaranteed amount (i.e. the market value of
USI's stock at the acquisition date), which required USI to make a $36 million
payment. This portion of the payment was recorded as an adjustment to invested
capital as it was based upon the market value of USI's common stock price. The
remainder of the cash payment ($35 million) was recorded as additional goodwill
as it was made in satisfaction of additional contingent consideration based on
other criteria set forth in the purchase agreement.
Goodwill Impairment
Due to indications of impairment based on the additional consideration paid
for Spear & Jackson and its current operating results, the Company evaluated the
recoverability of the Spear & Jackson goodwill in accordance with its accounting
policy as described in Note 2. In evaluating for impairment under its accounting
policy, the Company first reviewed for impairment under the requirements of SFAS
No. 121. The Company's estimate of undiscounted future cash flows of Spear &
Jackson indicated there was no impairment of Spear & Jackson's long-lived assets
and associated goodwill, however, the enterprise level assessment of the
recoverability of Spear & Jackson's goodwill indicated the goodwill was
impaired. In arriving at the fair value of Spear & Jackson, the Company
considered a number of factors including 1) competition from less expensive
imports; 2) declining margins on exports; 3) general decline in the industrial
sector in the United Kingdom; 4) Spear & Jackson's long-term financial plan and
5) analysis of values for similar companies. In determining the amount of the
impairment, the
24
<PAGE>
Company compared the net book value to the estimated fair values of Spear &
Jackson. Based on the above, the Company recorded an impairment charge to the
goodwill of Spear & Jackson of $84 million in September 2000. The effect of this
charge will reduce future goodwill amortization by approximately $2.2 million
per annum.
Interest and Taxes
Total interest expense of approximately $13.9 million for the fiscal year
ended September 30, 2000, increased $0.5 million (3.7%) from fiscal 1999. The
increase reflects higher levels of outstanding notes payable to affiliates.
Interest income was less than $1 million in both periods reflecting
short-term investments of excess cash at foreign operations.
Our provision for income taxes was $12.5 million on pre-tax loss of $(52.7)
million for the fiscal year ended September 30, 2000. The fiscal 2000 provision
for income taxes does not include any tax benefit from the goodwill impairment
charge of $84 million. Excluding the $84 million charge, the fiscal 2000 pre-tax
income was $31.3 million with a provision for income taxes of $12.5 million,
resulting in an effective tax rate of 39.9%. The fiscal year ended
September 30, 1999 provision for income taxes was $13.6 million on pre-tax
income of $33.8 million (a 40.2% effective rate).
FISCAL 1999 COMPARED TO FISCAL 1998
Net Sales and Operating Income
We had total net sales of $917.5 million and total operating income of $46.6
million for the fiscal year ended September 30, 1999, a sales increase of $61.4
million (7.2%) and a decrease in operating income of $4.5 million (8.8%) from
the same period in the prior year. Included in the fiscal 1998 operating income
were restructuring and other related costs of $2.8 million relating to the
closure of a manufacturing and distribution facility in the commercial and
institutional indoor division.
Lighting had net sales of $804.0 million and operating income of $48.3
million for the fiscal year ended September 30, 1999, a sales increase of $38.5
million (5.0%) and a decrease in operating income of $5.2 million (9.7%) from
the prior year. The increase in sales is mainly related to the first time
inclusion of the Dual-Lite safety division acquired in March 1999. Residential
lighting sales to the home center market and outdoor lighting were also higher.
The decrease in operating income is mainly the result of difficult conditions in
the commercial and institutional indoor markets, which were impacted by pricing
pressures and inventory write-downs relating to the exit of the light controls
product lines. The fiscal 1998 results included $2.8 million of restructuring
and other related costs. In addition, the European business reported a decrease
in operating income resulting from price declines and start-up costs to open new
sales offices in other European countries. These decreases were partially offset
by higher income from residential and outdoor lighting products and the first
time inclusion of Dual-Lite.
Industrial Tools had net sales of $113.5 million and operating income of
$6.2 million for the fiscal year ended September 30, 1999, reflecting a sales
increase of $22.9 million (25.3%) and an increase in operating income of $0.3
million (5.1%). The increase in sales is mainly related to the first time
inclusion of Bowers plc which was acquired in January 1999. This was partially
offset by generally lower margins resulting from pricing pressure of cheaper
imports into the UK market.
Management fees and divisional overhead costs of $7.9 million decreased $0.4
million (4.8%), mainly due to a decrease in the allocation from USI as a result
of lower USI corporate costs. Included in the fiscal 1999 costs is approximately
$1.4 million related to severance costs attributable to division management.
Restructuring
In June 1998, USI adopted a plan to improve efficiency and enhance
competitiveness at some of our operations. The restructuring plan included the
closing of a manufacturing and distribution facility in our Lighting segment.
The restructuring did not have a significant impact on our ongoing operations
during the periods that manufacturing was transitioned from the facility closed.
The expected benefits
25
<PAGE>
we expect from the restructuring are primarily reduced fixed costs associated
with leased facilities and reduced compensation costs.
The principal, pre-tax components of the fiscal 1998 restructuring charge
were $1.3 million in lease obligations and $1.0 million in severance costs.
During fiscal 1998 the Company made cash payments of $1.1 million, with the
remaining $1.2 million paid in fiscal 1999. In addition, we also incurred $0.5
million of product change costs related to the elimination of product lines.
After an income tax benefit of $1.1 million, the charges detailed above reduced
net income for the period ended September 30, 1998 by $1.7 million.
Interest and Taxes
Total interest expense of $13.4 million for the fiscal year ended
September 30, 1999, decreased $0.3 million (2.2%) from the comparable period of
fiscal 1998. The decrease reflects lower levels of third party debt outstanding,
as the interest expense to affiliates remained the same as the prior year.
Interest income was less than $1 million in both periods reflecting short-term
investments of excess cash at foreign operations.
The provision for income taxes was $13.6 million on pre-tax income of $33.8
million (a 40.2% effective rate) for the fiscal year ended September 30, 1999
compared to $15.3 million on pre-tax income of $38.4 million (a 39.8% effective
rate) for the fiscal year ended September 30, 1998.
FISCAL 1998 COMPARED TO FISCAL 1997
Net Sales and Operating Income
We had total net sales of $856.1 million and total operating income of $51.1
million for the fiscal year ended September 30, 1998, reflecting a sales
increase of $318.4 million (59.2%) and an operating income increase of $16.4
million (47.3%) from the same period in the prior year.
Lighting had net sales of $765.5 million and operating income of $53.5
million for the fiscal year ended September 30, 1998, reflecting a sales
increase of $227.8 million (42.4%) and an operating income increase of $9.6
million (21.9%) from the same period last year. The increase in sales is mainly
related to the first time inclusion of the European division acquired in October
1997. Residential and outdoor lighting product sales and operating income both
increased due to further market penetration. However, these improvements were
offset by weakness in the commercial and institutional indoor market which was
negatively impacted by pricing pressures associated with competitive market
conditions.
Industrial Tools had net sales of $90.6 million and operating income of $5.9
million for the fiscal year ended September 30, 1998. Our Spear & Jackson
division was acquired in December 1997, and accordingly fiscal 1998 was the
first year of results for this division.
Interest and Taxes
Total interest expense of $13.7 million for the fiscal year ended September
30, 1998, increased $0.5 million (3.8%) from the comparable period in fiscal
1997. The increase reflects higher notes payable at the European lighting
division, which was acquired in October 1997. Interest income increased $1
million from fiscal 1997 due to the European lighting division investing excess
cash in short-term investments.
The provision for income taxes was $15.3 million on pre-tax income of $38.4
million (a 39.8% effective rate) for the fiscal year ended September 30, 1998
compared to $8.5 million on pre-tax income of $21.5 million (a 39.5% effective
rate) for the fiscal year ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Prior to and during the fiscal year ended September 30, 2000, we financed
our operations and capital and other expenditures from a combination of cash
generated from operations, notes, credit lines, and invested capital provided by
USI or its affiliates. This arrangement will continue to be in effect until the
consummation of the spin-off, after which we expect to meet all cash
requirements through internally-generated funds and borrowings under our new
credit facility and other available sources.
26
<PAGE>
Our ability to generate cash available for the repayment of debt will depend
upon numerous business factors, including conditions in the U.S. and world
economies, the level of demand for our products, changes in raw material costs,
the level of capital expenditures and working capital requirements. Excess cash
flow from operations (after capital expenditures) is expected to satisfy our
minimal amortization requirements under the new credit facility after the
spin-off. If our excess cash flow from operations (after capital expenditures),
together with any net disposition proceeds realized by us, is insufficient to
satisfy debt amortization requirements under the new credit facility, we will be
required to renegotiate the terms of, or refinance, the new credit facility. See
' -- New Credit Facility' below.
FISCAL 2000 COMPARED TO FISCAL 1999
Operating activities provided cash of $42.9 million for the fiscal year
ended September 30, 2000, compared with $34.0 million for the prior year. The
increase was primarily due to lower working capital requirements reflecting
lower accounts receivable and inventories.
Investing activities used cash of $91.9 million for the fiscal year ended
September 30, 2000, compared with $94.2 million for the prior year. The fiscal
2000 cash was used for the Spear & Jackson additional consideration and capital
expenditures. The fiscal 1999 cash was used for the acquisitions of Dual-Lite
and Bowers plc and capital expenditures.
Financing activities provided cash of $57.2 million for the fiscal year
ended September 30, 2000, compared with $60.9 million for the prior year. The
fiscal 2000 cash provided related to capital contributions from affiliates that
the Company used for the Spear & Jackson additional consideration. The fiscal
1999 cash provided related to capital contributions from affiliates that the
Company used for the Dual-Lite and Bowers acquisitions.
FISCAL 1999 COMPARED TO FISCAL 1998
Our operating activities provided cash of $34.0 million for fiscal 1999
compared with $9.3 million for the prior year. The increase was primarily due to
lower working capital requirements in fiscal 1999 as compared to fiscal 1998. In
fiscal 1998, we had to make working capital investments in the European lighting
division shortly after the October 1997 acquisition.
Investing activities used cash of $94.2 million for fiscal 1999, compared
with $61.2 million for the prior year. The fiscal 1999 cash was used for
acquisitions of Dual-Lite and Bowers plc and capital expenditures. The fiscal
1998 cash was used for capital expenditures and the acquisitions of the European
lighting division and Spear & Jackson.
Financing activities provided cash of $60.9 million for fiscal 1999,
compared with $62.7 million for the prior year. The fiscal 1999 cash provided
related to capital contributions from affiliates that the Company used for the
Dual-Lite and Bowers acquisitions. The fiscal 1998 cash provided related to
capital contributions from affiliates that the Company used for the European
lighting and Spear & Jackson acquisitions and repayment of long-term debt at
Spear & Jackson.
FISCAL 1998 COMPARED TO FISCAL 1997
Operating activities provided cash of $9.3 million for fiscal 1998 compared
with $21.9 million for the prior year. The decrease was primarily due to higher
working capital requirements in fiscal 1998 as compared to fiscal 1997. In
fiscal 1998, the Company had to make working capital investments in the European
lighting division shortly after the October 1997 acquisition.
Investing activities used cash of $61.2 million for fiscal 1998, compared
with $12.6 million for the prior year. The fiscal 1998 cash was used for capital
expenditures and for the acquisition of the European lighting division. The
fiscal 1997 cash was used for capital expenditures.
Financing activities provided cash of $62.7 million for fiscal 1998,
compared with cash used of $9.5 million for the prior year. The fiscal 1998 cash
provided related to capital contributions from affiliates that the Company used
for acquisitions and repayment of long-term debt at Spear & Jackson. The fiscal
1997 cash used related to net transfers with affiliates.
27
<PAGE>
NEW CREDIT FACILITY
USI received a commitment letter dated November 27, 2000 from Bank of
America, N.A. in which, subject to the satisfaction of certain conditions, Bank
of America will provide LCA financing at or about the time of the spin-off. At
such time, we will enter into a new credit facility with Bank of America as
administrative and collateral agent and a syndicate of lenders. The new credit
facility will consist of a term loan of up to $70 million for five (5) years and
a five year revolving credit line of up to $190 million.
All of our obligations under the new credit facility will be guaranteed on a
senior secured basis by each of our direct and indirect, existing and
subsequently acquired or organized domestic subsidiaries and parent companies.
The new credit facility will be secured by a first-priority perfected lien on
substantially all our assets and the assets of each guarantor. Borrowings by our
non-U.S. subsidiaries will be secured by the foreign law equivalent of a first
priority perfected lien on the assets of those non-U.S. subsidiaries.
Borrowings under the new credit facility will bear interest at a rate based
upon, at our option, Bank of America's reference rate or reserve adjusted LIBO
rate, plus, in each case, the applicable margins (as each is provided for in the
commitment letter). Pricing for the first year of the new credit facility will
be LIBOR + 2.50% and Reference Rate + 1.50%. After the first year, the
applicable margin will be adjusted quarterly based on the ratio of Funded Debt
to EBITDA, as provided for in the new credit facility. In addition to paying
interest on outstanding principal under the new credit facility, we will be
required to pay a commitment fee of 0.50% to the lenders on the unused portion
of the revolving credit line. Pricing under the new credit agreement is subject
to adjustment under 'market-flex' provisions if Bank of America cannot
successfully syndicate the credit facility to other lenders.
The term loan will be subject to scheduled quarterly amortization of
principal. Advances made under the revolving credit facility will be due and
payable in full at maturity. The new credit facility will contain mandatory
prepayment provisions, subject to certain exceptions to be agreed upon.
It is expected that the new credit facility will contain representations and
warranties, covenants (including maximum leverage ratio, minimum fixed charge
ratio and either minimum EBITDA amounts or minimal capital expenditures)
restrictions on: incurrence of additional debt; the making of dividends and
similar distributions; incurrence of sufferance of liens or other encumbrances;
the sale of assets or similar transfers (other than in the normal course of
business); the making of investments or acquisitions; mergers, consolidations or
other similar combinations; transactions with affiliates; and capital
expenditures, events of default and other provisions customary for credit
facilities of this type. We will pay the lenders certain facility, syndication
and administration fees, reimburse certain expenses and provide certain
indemnities, in each case which are customary for credit facilities of this type
including: failure to pay principal and interest; breach of any negative
covenants; breach of any affirmative covenants, with an appropriate grace
period; failure of the representations of the Company to be true in any material
respect; default under other specified debt agreements; bankruptcy and similar
events; invalidity of security documents; and judgement in excess of an amount
to be negotiated.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of doing business, we are exposed to the risks
associated with changes in interest rates and currency exchange rates. To limit
the risks from such fluctuations, USI has in the past entered into various
hedging transactions. Subsequent to the spin-off, we may borrow in foreign
currency-denominated borrowings to effectively hedge a portion of our net
investments in subsidiaries in foreign countries. We are also exposed to foreign
currency exchange risk related to our international operations and our U.S.
businesses, which import or export goods. We have not made use of financial
instruments to manage this risk.
EFFECT OF INFLATION
Because of the relatively low levels of inflation experienced in our
principal markets, inflation did not have a material impact on our results of
operations in fiscal 2000, 1999 or 1998.
28
<PAGE>
BUSINESS
GENERAL
LCA, currently a wholly owned subsidiary of USI, is a major manufacturer and
distributor of lighting fixtures and industrial tools. In fiscal 2000, we had
net sales of $936.9 million.
We are a leading producer of lighting fixtures in North America and Europe.
Collectively, the lighting businesses produce and market a complete offering of
indoor and outdoor lighting for the commercial, institutional and residential
markets. Our business has in excess of 5,700 employees worldwide. It has
manufacturing facilities in six U.S. states, California, Connecticut, South
Carolina, Ohio, Arkansas and Pennsylvania, in addition to operations in Mexico,
Puerto Rico, Germany, Slovenia and Austria. The lighting business's sales
organization consists of both independent manufacturers' sales representatives
(agents) and its own factory sales force employees. Our division sells products
through a variety of distribution channels, including electrical distributors,
lighting showrooms, home centers and national accounts. The lighting business's
major brands hold substantial market positions within each of the product
segments in which they participate. Our lines cover the full range from
specification grade products, which meet the particular performance and design
standards of architects and other professional lighting specifiers, to commodity
grade products, which satisfy general requirements for varied applications.
Our industrial tools business was acquired by USI in 1997 through the
acquisition of Spear & Jackson, a leading European hand tools manufacturer
founded in 1760. Our industrial tools business manufactures and distributes a
broad range of industrial tools, metrology products and magnetic products. The
division has over 1,375 employees worldwide. Products are sold through various
distribution channels, including in-house sales managers and merchandisers,
independent sales agents and industrial and engineering distributors, as well as
direct sales to retailers and end users. Our industrial tools business's major
brands hold substantial market positions within many of the product segments in
which they participate.
The following table presents our major brands and product offerings:
<TABLE>
<S> <C>
LIGHTING
Progress Leading single source supplier of residential and light
commercial decorative lighting fixtures. Product offering
consists of over 3,000 stock keeping units including:
chandeliers, hall and foyer, pendants, close-to-ceiling,
bath and vanity, sconces, modular fluorescent, undercabinet,
outdoor, landscape, track and recessed lighting.
Kim Premier specification product line of architectural outdoor
lighting fixtures and equipment for the commercial and
residential markets. Product categories include:
pole-mounted luminaires, bollards, parking garage
luminaires, flood lights, wall-mounted luminaries and
landscape fixtures.
Spaulding Outdoor lighting systems for the commercial market. Products
include outdoor area luminaires and poles, canopy lights,
low level lights and flood lights.
Architectural Period-style and contemporary site lighting fixtures for the
Area Lighting commercial outdoor market. Product categories include: pole
and wall-mounted luminaires, concrete bollards and custom
fixtures/poles.
Dual-Lite; Complete offering of life safety lighting products for
Prescolite Life commercial and institutional applications. Products include:
Safety exit signage, emergency back-up lighting, high frequency
'powerpack' inverters and central AC inverter systems.
Columbia Full line of specification and commodity grade fluorescent
lighting fixtures for use in commercial and institutional
applications. Products include parabolic and lensed
troffers, strip lights, wraparounds and a variety of
recessed surface and specialty units.
</TABLE>
29
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<TABLE>
<S> <C>
Alera Linear fluorescent indirect, direct/indirect and direct
lighting systems.
Prescolite Extensive line of specification grade recessed downlighting,
track lighting and surface-mounted lighting for the
commercial and residential markets.
Moldcast High performance oriented rugged commercial outdoor
luminaires. Products include a broad selection of
contemporary and period style outdoor lighting fixtures with
precise optics.
SiTeco Major European source of technical lighting systems and
services including: industrial lighting, task lighting,
roadway lighting and sports arena lighting. Product lines
are 'Siemens', 'SiTeco', 'Knoblich Licht' and 'Elektrokovina
Svetilke' serving the commercial and industrial market.
INDUSTRIAL TOOLS
Spear & Jackson Extensive line of high quality lawn and garden and hand
tools including digging and cultivating tools, cutting and
shear tools, striking tools, contractor tools, agricultural
tools, pliers, retail hand tools, screwdrivers, hammers and
plumbers tools.
Eclipse Full line of top quality hand tools including: hacksaws,
frames and blades, riveters and engineer tools.
Eliot Lucas Pliers, woodsaws and builder tools.
Bowers; Moore & Wright Precision tools, measuring instruments and calibration
services.
</TABLE>
LIGHTING
Our lighting business is international. We operate our domestic lighting
businesses through our Lighting Corporation of America subsidiary. We operate
our European lighting business through our SiTeco subsidiary.
LIGHTING CORPORATION OF AMERICA
Our domestic lighting businesses are collectively known as Lighting
Corporation of America. Lighting Corporation of America subsidiaries manufacture
and distribute indoor and outdoor lighting fixtures for markets in North
America.
Lighting Corporation of America's size, broad range of quality products and
strong distribution network allow it to compete as a major supplier in the
commercial/institutional and residential markets. Our outdoor lighting products
are sold under the Kim, Spaulding, Moldcast and Architectural Area Lighting
brand names. These products include street, area, parking garage and landscape
lighting. Outdoor lighting products are sold to electrical distributors and
national accounts. National customer accounts include service stations,
automobile dealerships and fast food restaurants. Indoor commercial/industrial
lighting products, which are sold under the Columbia, Prescolite and Dual-Lite
brand names through electrical distributors and national accounts, include
incandescent and compact fluorescent, down light fixtures, emergency and exit
lighting, and other fluorescent lighting fixtures. Our sales organization
includes independent manufacturer's sales representatives (agents) as well as
factory sales force employees. Most of our agents also represent a complementary
line of lighting products for industrial applications, allowing us access to
essentially all categories of customers for lighting fixtures. While some of the
products in this complementary line are similar to the products we manufacture,
we do not believe there is a significant amount of overlap. The agreements we
have with our agents restrict our agents from representing another manufacturer
that we consider to be a competitor in our product lines.
LCA is a major residential lighting manufacturer in North America,
principally selling under the Progress brand name. Progress' products include
chandeliers, hall and foyer sconces, pendants, bath and vanity, ceiling,
fluorescent, under-cabinet, track, outdoor and landscape lighting. Residential
lighting
30
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products are sold to home centers, lighting showrooms and electrical
distributors, who sell to builders, electrical contractors and consumers.
Sales of lighting products are seasonal to a degree, with weather affecting
construction and outdoor installation.
Progress Lighting, Inc. Progress is a leading supplier of residential and
light commercial decorative lighting fixtures in North America. Progress' sales
are primarily classified as non-portable residential lighting fixtures. The
current product offering consists of over 3,000 stock keeping units (SKU's)
including: chandeliers, hall and foyer, close-to-ceiling, sconces, pendants,
modular fluorescent, undercabinet, bath and vanity, outdoor, landscape, track
and recessed.
Progress' products are marketed principally with a factory sales force.
Targeted market segments include single family and multi-family residential
construction, light commercial construction and consumer. Targeted international
markets are principally in North and South America. Its products are sold
through several channels of distribution, primarily electrical distributors,
lighting showrooms and home centers.
Progress has an in-house product development group which introduces major
new products semi-annually. The company's manufacturing facilities are in
Cowpens, South Carolina and Baja, Mexico.
Kim Lighting, Inc./Architectural Area Lighting, Inc. Kim Lighting Inc.
(which consists of both Kim and the Architectural Areas Lighting Unit 'AAL')
manufactures products for the architectural outdoor lighting market, primarily
for projects which are specified by architects, lighting consultants, landscape
architects and engineering consultants. This market is characterized by a strong
emphasis on aesthetics, architectural relevance, performance and quality.
Approximately 80% of the business is new construction with the balance serving
the renovation market.
Kim is a recognized innovator in the industry. Its products are primarily
designed for contemporary architecture and intended to be aesthetically
compatible with surrounding structures and an integral part of the architectural
design. In addition to aesthetics, Kim products place great emphasis on quality
and performance.
AAL products are designed for contemporary and traditional architecture. AAL
products are often selected as an accent to the site and architecture. Many AAL
products utilize Kim optical systems.
Spaulding Lighting, Inc. Spaulding has a broad array of products for the
outdoor lighting markets. Spaulding's principal markets are commercial and
institutional large area parking such as shopping malls and supermarkets,
petroleum service station areas and canopy lighting, automobile dealership
exterior illumination and quick service restaurant and convenience store outdoor
lighting. Spaulding exterior lighting projects are prominently displayed in Las
Vegas, Atlantic City, New York and other major U.S. cities.
Spaulding was started in 1955 as Whiteway Manufacturing and initially served
as a quick service lighting supplier to gasoline service stations. Over time it
expanded into a national, full-line outdoor lighting company.
Dual-Lite Inc. Dual-Lite is a leader in the United States life safety
market, participating in all three market segments: emergency lighting, exit
signs, and central inverter systems. The company has two brands, Dual-Lite and
Prescolite Life Safety. Headquartered in Cheshire, Connecticut, the majority of
the company's manufacturing occurs in Naguabo, Puerto Rico, with some products
manufactured by third parties using company designs.
The company produces some of the industry's most popular products, such as
the Dual-Lite EZ-2 and the 'Liteforms' collection. The Prescolite EMAX and PCX
Series are also well known brands.
Dual-Lite generally sells its products via Lighting's commercial and
institutional combined sales force, relying on independently contracted
manufacturer's representatives to market its products to electrical
distributors, contractors, specifiers and end users.
Columbia Lighting, Inc. Columbia manufactures commercial and industrial
fluorescent lighting products. The company's manufacturing processes include
metal fabrication, finishing and final assembly. The company's products are sold
through independent lighting manufacturers/sales representatives and distributed
through electrical wholesalers and national accounts. End use applications are
primarily new commercial construction or renovation projects, which include
office,
31
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school, retail and institutional construction. Primary buying influences include
architects, consulting engineers, lighting designers, electrical wholesalers,
electrical contractors, building owners and facility managers.
Prescolite, Inc. Prescolite produces residential, light commercial and
specification grade point source lighting products for indoor lighting
applications. These products are segmented into residential and light commercial
downlighting, specification grade downlighting, track lighting, and surface
lighting product lines.
Prescolite's products are sold by commercial and industrial manufacturers
representatives to traditional electrical wholesalers/distributors for the
residential and light commercial markets. Primary buying influences for
Prescolite include lighting consultants and electrical engineers. Secondary
influences include architects, interior designers and contractors. Prescolite
was founded in 1944.
SiTeco
SiTeco, formerly Siemens Lighting, was acquired in October 1997 by USI.
SiTeco is a leading European provider of technical lighting systems and services
including industrial lighting, lighting solutions, task lighting, road lighting
and sports arena lighting. SiTeco is a major supplier of technical lighting
products, systems and services in Germany. In addition, SiTeco subsidiaries are
well established in most major southern and central European markets.
SiTeco is headquartered in Germany. It has manufacturing facilities in
Germany, Austria and Slovenia.
INDUSTRIAL TOOLS
We operate our industrial tools business through our Spear & Jackson
subsidiary. Spear & Jackson, established in 1760, is a leading European
manufacturer and distributor of a broad line of lawn and garden tools, hand
tools, metrology products, magnetic products, industrial saws and wood carving
tools. Products are sold under several brand names including Spear & Jackson,
Neill Tools, Eclipse, Bowers and Moore & Wright.
Spear & Jackson distributes products primarily through independent wholesale
distributors, home centers, mass merchants and large buying groups including
cooperatives.
RAW MATERIALS COSTS
Most of our businesses are dependent, to varying degrees, on the
availability of raw materials, including plastics, aluminum, copper, nickel,
cobalt, molybdenum, tungsten, certain grades of steel, wood, glass and
corrugated packaging materials as well as ballasts and sockets for lighting
fixtures. The impact of raw material price increases on the operating income of
our businesses depends on their ability to pass along cost increases to our
customers. Although raw material shortages or price increases from time to time
may have an adverse effect on the results of operations of our individual
businesses, we do not believe that these factors are material to us on a
consolidated basis.
COMPETITION
We will encounter competition in all areas of our business. The methods of
competition vary depending on the market into which we are selling. We compete
primarily on the basis of product quality, brand name, technology or innovation,
price, performance and customer service. No single company will compete directly
with us in all of our product lines, but various companies will compete with us
in one or more product lines. In total, we have many competitors varying in
size. Some have substantially greater sales and assets than us while other
companies are smaller than us.
EMPLOYEES
As of the date of this filing, we had approximately 5,700 employees in the
lighting business and 1,375 employees in the industrial tools business.
Approximately 51% of the employees in the lighting business were represented by
unions, and approximately 45% of the employees in the industrial tools
32
<PAGE>
business were represented by unions. We believe that our relations with
employees and unions generally are good.
GOVERNMENT REGULATION
Our businesses are subject to numerous federal, state, local and foreign
laws and regulations concerning such matters as zoning, health and safety and
protection of the environment. We believe that our businesses are currently
operating in substantial compliance with, or under approved variances from such
various federal, state, local and foreign laws and regulations.
Three of our present or former operating sites, or portions thereof are the
subject of investigations, monitoring or remediation under the Comprehensive
Environmental Response Compensation and Liability Act of 1980 ('CERCLA'), the
Federal Resource Conservation and Recovery Act or comparable foreign or state
statutes or agreements with third parties. These proceedings are in various
stages ranging from monitoring at one site to implementation of clean-up or
remediation of the other sites. We do not believe that any of these proceedings
will have a material adverse effect on our business or financial condition.
In addition, at four sites, certain of LCA's operating units have been named
as potentially responsible parties under CERCLA or comparable state statutes in
a number of federal and state proceedings. In each of these matters our
operating units are working with the claims in a responsible and appropriate
manner and the cleanup effort at each site is in the advanced stages of
remediation or monitoring. Under CERCLA and other similar statutes, any
generator of hazardous waste sent to a hazardous waste disposal site is
potentially responsible for all clean-up, remediation and response costs
required for such site, irrespective of the amount of waste which the generator
sent to the site. We do not believe that any of the pending proceedings will
have a material adverse effect on our business or financial condition.
LCA's operating units make significant capital and maintenance expenditures
to comply with zoning, water, air and solid hazardous waste and related
environmental and health and safety regulations. The amount of expenditures in
future years will depend on legal and technological developments which cannot be
predicted at this time. Future costs for environmental compliance cannot be
predicted with precision and there can be no certainty with respect to any
remedial investigations or cleanup of affected property.
Laws and regulations protecting the environment may in certain circumstances
impose 'strict liability', rendering a person liable for environmental damage
without regard to negligence or fault on the part of such person. In addition,
we cannot predict whether modifications of existing laws or regulations or the
adoption of new laws or regulations, or presently unidentified environmental
conditions or unanticipated enforcement actions, particularly with respect to
environmental standards, could require material capital expenditures or
otherwise have a material adverse effect on our business or financial condition.
At September 30, 2000, we had accrued approximately $4.4 million for various
known environmental related liabilities. We believe that the range of liability
for such matters is between $1.1 million and $5.2 million. We cannot predict
whether future developments in laws and regulations concerning environmental
protection will affect our earnings or cash flow in a materially adverse manner
or whether our operating units will be successful in meeting future demands of
regulatory agencies in a manner which will not have a material adverse effect on
our business or financial conditions.
33
<PAGE>
BACKLOG ORDERS
The Company's backlogs believed to be firm as of September 30, 2000 and 1999
were as follows:
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
---------------
2000 1999
---- ----
(IN MILLIONS)
<S> <C> <C>
Lighting.................................................... $78.8 $81.6
Industrial Tools............................................ 1.7 0.2
----- -----
Total Backlogs.............................................. $80.5 $81.8
----- -----
----- -----
</TABLE>
PATENTS AND TRADEMARKS
Our businesses have numerous United States and foreign patents, patent
applications, registered trademarks and trade names, and licenses. We believe
that certain of our trademarks and trade names are of material importance to us.
None of our material trademarks or trade names are of limited duration. Although
protection of the our patents and related technologies are important components
of our business strategy, none of our individual patents is material to the
company.
PROPERTIES
Our lighting business owns or leases approximately 50 plants and other
properties. Our industrial tools business owns or leases approximately 27 plants
and other properties. None of our individual properties is considered to have a
value that is significant in relation to our assets as a whole. We believe that
our properties are well maintained and are in good operating condition. Our
properties are deemed to be suitable and adequate for our present needs. We
believe that we have additional capacity available at most of our production
facilities and that we could significantly increase production without
substantial capital expenditures.
LEGAL PROCEEDINGS
We are a party to legal proceedings that are considered to be either
ordinary, routine litigation incidental to our business, or immaterial to our
financial condition, results of operations or our cash flows. For information
concerning environmental proceedings, see 'Business -- Governmental Regulation.'
34
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MANAGEMENT
DIRECTORS
After the spin-off, our board of directors will consist of five persons who
will be divided into three equal classes each having a three-year term. The
individuals who are expected to serve as directors after the spin-off are
presented below.
James O'Leary, 37, is the Company's Chairman and Chief Executive Officer. He
served USI as Executive Vice President since September 1, 1999 and as a Director
at USI since February 2000. He was Senior Vice President and Chief Financial
Officer at USI from June 1998. He served as Corporate Controller of USI from its
1995 demerger from Hanson PLC until June 1998 and was elected as a Vice
President in January 1996. Mr. O'Leary is a Director of Strategic Industries LLC
and Rexair Holdings Inc.
Brian C. Beazer, 65, has served as a director of U.S. Industries since
September 1996. He is Chairman of Beazer Homes USA, Inc., which designs, builds
and sells single family homes, a position he has held since 1993.
Clive Chajet, 62, has served as a director of Triarc Companies, the former
owner of Triarc Beverages and current franchiser of Arby's Restaurants since
June 1994. He is also on the board of Cambridge Companions, a home health care
provider and is on the advisory board of FrontLine Capital Inc., an Internet
incubator company. He is founder and Chairman of Chajet Consultancy, a corporate
brand identity and image specialist. Previously, Mr. Chajet was Chairman and CEO
of Lippincott & Margulies, now a subsidiary of Marsh & McLennan, from 1983 to
1997.
Edwin Silverstone, 58, served as a director, President and Chief Executive
Officer of Goltens Worldwide, a provider of ship repair services from January
1998 until December 2000. He was President of Fenway Holdings, LLC, the owner of
a variety of consumer and building products companies from September 1995 until
December 1997. Prior thereto, Mr. Silverstone was a Group Vice President at U.S.
Industries from June through September 1995. Prior thereto, he was a Group Vice
President for Hanson Industries and an Associate Director of Hanson PLC.
Robert R. Womack, 62, has served as a director of U.S. Industries since June
1998. Mr. Womack is currently a director and Chairman of Precision Partners, a
supplier of precision machine parts to the power systems, automotive and
aerospace industries, a position he has held since March 2000. He also serves as
a director of Ogden Corporation, an energy company, since June 2000. He is also
a director of Commercial Metals Company since May 1999. He served as a director,
Chairman and Chief Executive Officer of Zurn Industries from October 1994 until
December 31, 1999. Prior, Mr. Womack was an independent consultant, and is the
former Vice Chairman and Chief Executive Officer of IMO Industries, Inc., a
manufacturer of controls, pumps and engineered power products, and a former
director, President and Chief Operating Officer of Ranco, Inc.
Committees. After the spin-off, our board of directors is expected to
establish and designate a compensation committee and an audit committee.
Directors who are also our officers or employees will not be permitted to serve
on either committee. The functions of these standing committees will be as
follows:
Compensation Committee. The compensation committee will set the
compensation of all executive officers subject to the terms of their
employment agreements and administer and make awards under our stock
incentive plan and other incentive plans. The committee will also review the
competitiveness of management compensation and benefit programs and
principal employee relations policies and procedures. All of the members of
the compensation committee are intended to be 'non-employee directors'
within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934
('Rule 16b'), and 'outside directors' within the meaning of Section 162(m)
of the Internal Revenue Code ('Code Section 162(m)').
Audit Committee. The Audit Committee will be responsible for matters
relating to accounting policies and practices, financial reporting and
internal controls. Its functions will include recommending to the Board the
appointment of the Company's independent accountants; reviewing with
representatives of the independent accountants the scope of the audit of our
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financial statements, results of audits, audit costs, recommendations with
respect to internal controls and financial matters and non-audit services;
and periodically meeting with or receiving reports from our principal
financial and accounting officers.
Fees. Each non-employee director will be issued an initial grant of options
to purchase 1,000 shares of common stock at fair market value on the date he or
she begins service as a non-employee director. On an annual basis, non-employee
directors will receive a cash retainer of $20,000 plus $1,000 for each board
meeting and $1,000 for each committee meeting attended and reimbursement of all
reasonable expenses incurred in connection with such meetings. We will pay the
premiums on directors' and officers' liability and travel accident insurance
policies insuring directors. See 'Executive Compensation -- Stock Incentive
Plan'.
EXECUTIVE OFFICERS
The following individuals are expected to serve as our executive officers at
the time of the spin-off. Our board of directors may appoint additional
executive officers from time to time. We will name additional officers in an
amendment to this filing.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
James O'Leary Chairman and Chief Executive Officer
Joseph P. McPartland Group Vice President
Steven C. Barre Senior Vice President, General Counsel and Secretary
Diana E. Burton Vice President -- Corporate Communications
Nicola Rossi Corporate Controller
</TABLE>
For biographical information concerning Mr. O'Leary, see ' -- Directors'
above.
Joseph P. McPartland, 59, has served USI as Vice President and CFO of USI's
Hardware and Tools unit since June 1998. From July 1997 until June 1998 he
served as Executive Vice President and CFO of O. Ames Co., a USI Subsidiary.
From September 1996 until June 1997, he served on the corporate staff of USI
working on corporate development projects. Prior to September 1996,
Mr. McPartland was the President of Jade Corporation, then a USI subsidiary,
from March 1994 until September 1996.
Steven C. Barre, 41, has served USI as Vice President, General Counsel and
Secretary of USI since April 1, 2000. Previously, he served as Associate General
Counsel of USI since its 1995 demerger from Hanson in 1995. Prior thereto,
Mr. Barre served as Associate General Counsel of Hanson Industries, the U.S. arm
of Hanson PLC.
Diana E. Burton, 55, has served USI as Vice President -- Investor Relations
since USI's demerger from Hanson in 1995. Previously, she was a Vice President
of Marine Harvest International, Inc., a company engaged in the farming and
distribution of seafood products, with principal responsibility for
administration and investor relations.
Nicola Rossi, 34, has served at USI as Corporate Controller since April 1,
2000 and was Assistant Corporate Controller from June 1999. Previously, he was
Director of Corporate Accounting for the Great Atlantic & Pacific Tea Company,
Inc. from November 1995 through May 1999.
36
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EXECUTIVE COMPENSATION
The following is a description of the executive compensation arrangements
and benefit plans adopted or expected to be adopted by us, most of which are
substantially similar to those in effect at USI. After completion of the
spin-off, none of our officers will participate in any USI benefit plans, except
to the extent they are entitled to vesting in restricted stock and/or to
exercise any vested USI stock options pursuant to such plans for a period of
time following the spin-off. For information regarding our assumption of certain
liabilities and assets of the USI plans, see 'The Spin-off -- Agreements Between
LCA and USI and Relationship after the Spin-off -- Distribution and
Indemnification Agreement.'
We will disclose additional information with respect to our executive
compensation programs in an amendment to this filing.
EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS
The following is a summary of the employment agreements of each of the
individuals who is expected to become one of our five most highly compensated
executive officers after the spin-off.
The employment agreements provide for Messrs. O'Leary, McPartland, Barre,
Rossi and Ms. Burton to serve, commencing on the date of the spin-off (the
'Commencement Date'), respectively, as our Chairman, Chief Executive Officer and
Director; as Group Vice President; as Senior Vice President, General Counsel and
Secretary; as Corporate Controller; and as Vice President for Corporate
Communications. Unless terminated earlier as discussed below, the term of
employment under each agreement will expire on the second anniversary of the
Commencement Date subject to automatic extension for an additional year term on
each applicable anniversary unless either party gives at least 90 days' prior
written notice of non-extension (or, in the case of Mr. O'Leary, the term of
employment will expire on the third anniversary, subject to automatic extensions
for additional 3 year terms).
The employment agreements provide that we will pay Messrs. O'Leary,
McPartland, Barre, Rossi and Ms. Burton annual base salaries at rates of not
less than $500,000, $260,000, $225,000, $140,500 and $140,000, respectively.
Commencing with fiscal 2001, each executive will be eligible to receive an
annual cash bonus (the 'Target Bonus'), with a target bonus potential equal to
at least 100%, 70%, 70%, 55% and 55% of his or her base salary, respectively,
based on the achievement of a performance target established by the Compensation
Committee under a bonus plan qualifying the bonuses as 'performance-based' for
purposes of Code Section 162(m). Additionally, effective on the spin-off, the
following executive officers will be granted restricted stock and options
pursuant to the LCA Group Inc. Stock Incentive Plan as follows: for Mr. O'Leary:
90,000 shares of restricted stock and 95,000 options; for Messrs. McPartland and
Barre: 18,500 shares of restricted stock and 17,000 options; for Mr. Rossi and
Ms. Burton: 15,000 shares of restricted stock and 15,000 options.
Messrs. O'Leary, McPartland, Barre, Rossi and Ms. Burton will be eligible to
participate in any incentive plan established by us for which they are eligible
at such level and on such terms as we establish, in each case subject to full
vesting of all equity grants that are effective on or within 6 months after the
Commencement Date upon a termination of employment without Cause, for Good
Reason, as a result of death of Disability or upon a Change in Control (as each
such term is defined in the applicable employment agreement) (or, in the case of
Mr. O'Leary, all equity grants effective on or after the Commencement Date will
vest in the above situations).
The executives will be entitled to participate in all pension, retirement,
savings, welfare and other employee benefit plans, arrangements, fringe benefits
and perquisites that we maintain from time to time for comparable level
executives (in the case of Mr. O'Leary, such plans will provide a level of
benefits and coverage no less favorable in the aggregate than what was provided
to him immediately prior to the spin-off). For the 2 year period after a Change
in Control (as such term is defined in the applicable employment agreement),
while employed, the executives will have coverage and benefits at least as equal
in the aggregate and fringe benefits and perquisites of at least equal value to
those provided to the executives by us immediately prior to the Change in
Control (or, in the case of Mr. O'Leary, he will receive such levels of benefits
and coverage without regard to the 2 year period
37
<PAGE>
limitation). In addition, we will initially provide Messrs. McPartland, Barre,
Rossi and Ms. Burton with a leased automobile or an automobile allowance at a
level determined by us (or, in the case of Mr. O'Leary, we will continue to
provide him with a leased automobile or an allowance as exists on the
Commencement Date).
The employment agreements also provide that if an executive's employment
with us is terminated (1) by us other than for Cause, (2) by the Executive for
Good Reason, (3) in the case of Mr. O'Leary, for any reason or no reason during
the period commencing 6 months after a Change in Control through the second
anniversary of the Change in Control (as such terms are defined in the
applicable employment agreement), or (4) as a result of our giving notice of
non-extension at the end of any employment term, then the executive will be
entitled to receive accrued compensation and certain other payments and amounts.
The payments and benefits to be made in such situations are: (i) 24 equal
monthly installments in an amount aggregating 2 times base salary and the Target
Bonus, but if the termination of employment is after a Change in Control such
amount will be paid in lump sum (or, in the case of Mr. O'Leary, a lump sum
based on 3 times base salary and the Target Bonus), (ii) any unreimbursed
business expenses payable in lump sum, (iii) the value of 2 additional years of
service and compensation credit (or, in the case of Mr. O'Leary 3 years) for
qualified or nonqualified pension plan purposes, (iv) the value of 2 years (or,
in the case of Mr. O'Leary 3 years) of our maximum contribution under any type
of qualified or nonqualified 401(k) plan, (v) continuation of the executive and
his or her dependents' health coverage under our health plans until the earlier
of 24 months after termination of employment or the date the executive becomes
eligible for health coverage as a result of other employment (or in the case of
Mr. O'Leary, for the lesser of 3 years, or until he is eligible for the health
plan of another employer) and (vi) any other amounts or benefits due under any
employee benefit, long-term incentive or equity plans in which the executive
participates at that time in accordance with such plans (all such payments being
collectively referred to as the 'Severance Payment'). The amounts described in
(i) through (vi) above are subject to the execution of a release of claims by
each executive.
In addition, if the Severance Payment to any executive under his or her
employment agreement, together with other amounts paid to the executive, exceeds
certain threshold amounts and results from a change in ownership as defined in
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended, the
employment agreement provides that the executive will receive an additional
amount to cover the federal excise tax and any interest or penalties with
respect to the Severance Payment and such other amounts on a 'grossed up' basis.
The employment agreements also provide that if the executive's employment is
terminated as a result of his or her death, the executive will receive (i) any
earned but unpaid base salary and bonus, (ii) a lump sum equal to any accrued
vacation pay and unreimbursed business expenses, (iii) a pro-rata Target Bonus,
(iv) any other amounts or benefits owed to executive under any employee benefit
plans, long-term incentive plans or equity plans, (v) payment on a monthly basis
of 3 months of base salary (or, in the case of Mr. O'Leary 12 months) and (vi)
payment of the spouse's and dependent's applicable COBRA coverage but for no
more than 3 years. The employment agreement also provides that if employment is
terminated as a result of Disability, the executive will be entitled to receive
the payments and benefits to which the executive's representatives would be
entitled in the event of a termination of employment by reason of his or her
death, except that the payment of base salary will be reduced by the projected
amount the executive would receive under any long-term disability program or
policy maintained by us during the 3 month period (or, in the case of Mr.
O'Leary 6 month period) during which the base salary is being paid and COBRA
coverage will be limited to a maximum of 18 months.
The employment agreements provide that if the executive is terminated for
Cause or voluntarily resigns without Good Reason, the executive will only
receive accrued compensation through the date of termination and unreimbursed
business expenses.
The employment agreements also provide for (i) indemnification of the
executives for actions in their corporate capacity and directors and officers
liability insurance, (ii) coverage in most instances for legal fees incurred in
enforcing their rights under their respective employment agreements and
(iii) confidentiality and non-competition provisions applicable to the period
during and after the employment term and a provision prohibiting the
solicitation of our employees during the employment term and for a period of 2
years afterwards.
38
<PAGE>
ANNUAL PERFORMANCE INCOME PLAN
On December 4, 2000, our board of directors and USI, as our sole
stockholder, approved the LCA Group Inc. 2001 Annual Performance Incentive Plan
(the '2001 Performance Incentive Plan'). The following description of the 2001
Performance Incentive Plan is qualified in its entirety by reference to the 2001
Performance Incentive Plan.
The 2001 Performance Incentive Plan is designed, among other things, to
ensure that compensation which may be payable under the 2001 Performance
Incentive Plan to participants who are 'covered employees' as defined in Code
Section 162(m) and the applicable Treasury regulations thereunder will qualify
as tax-deductible pursuant to the performance-based compensation exception of
Code Section 162(m).
Purpose. The purpose of the 2001 Performance Incentive Plan is to attract,
retain and motivate key employees by providing cash performance awards to
designated executive employees of LCA or our subsidiaries. The 2001 Performance
Incentive Plan will take effect for Performance Awards (as defined below), if
any, payable with respect to fiscal years of the Company commencing with fiscal
2001.
Administration/Eligible Employees. The 2001 Performance Incentive Plan will
administered and interpreted by a committee of the board (the 'Committee'),
which is comprised of two or more individuals who qualify as 'outside directors'
under Code Section 162(m). The Committee will have authority, in its sole
discretion, to designate certain individuals from among LCA's or our
subsidiaries' executive employees as eligible to particpate in the 2001
Performance Incentive Plan for specified performance periods.
Performance Awards. Participants in the 2001 Performance Incentive Plan will
be eligible to receive a performance award ('Performance Award') based on
attainment by the Company (or a subsidiary, division or other operational unit
of Company) of specified performance goals which have been established by the
Committee. These performance goals will be based on one or more of the following
criteria selected by the Committee: (i) the attainment of certain target levels
of, or a specified increase in, our enterprise value or value creation targets
(or that of any of our subsidiaries, divisions or other operational units); (ii)
the attainment of certain target levels of, or a percentage increase in, our
after-tax or pre-tax profits including, without limitation, that attributable to
our continuing and/or other operations (or that of any of the Company's
subsidiaries, divisions, or other operational units), (iii) the attainment of
certain target levels of, or a specified increase in, our operational cash flow
(or that of any of our subsidiaries, divisions or other operational units),
(iv) the attainment of a certain level of reduction of, or other specified
objectives with regard to limiting the level of increase in all or a portion of
bank debt or other of our long-term or short-term public or private debt or
other similar financial obligations, which may be calculated net of cash
balances and/or other offsets and adjustments as may be established by the
Committee, (v) the attainment of a specified percentage increase in earnings per
share or earnings per share from our continuing operations (or that of any of
our subsidiaries, divisions or other operational units), (vi) the attainment of
certain target levels of, or a specified percentage increase in, our net sales,
revenues, net income or earnings before income tax or other exclusions (or that
of any of our subsidiaries, divisions, or other operational units); (vii) the
attainment of certain target levels of, or a specified increase in, our return
on capital employed or return on invested capital (or that of any of our
subsidiaries, divisions or other operational units); (viii) the attainment of
certain target levels of, or a percentage increase in, our after-tax or pre-tax
return on stockholder equity (or that of any of our subsidiaries, divisions or
other operational units); (ix) the attainment of certain target levels in the
fair market value of our shares of common stock; and (x) the growth in the value
of an investment in our common stock assuming the reinvestment of dividends.
In addition, such performance goals may be based upon our attainment (or the
attainment by one of our subsidiaries, divisions or other operational units) of
specified levels of performance under one or more of the measures described
above relative to the performance of other corporations. To the extent, but only
to the extent, permitted under Code Section 162(m) (including, without
limitation, compliance with any requirements for stockholder approval), the
Committee may (i) designate additional business criteria upon which the
performance goals may be based, (ii) modify, amend or adjust the business
criteria specified in the 2001 Performance Incentive Plan or (iii) incorporate
in the performance goals
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<PAGE>
provisions for disregarding (or adjusting for) changes in accounting methods,
corporate transactions (including, without limitation, dispositions or
acquisitions) and similar events or circumstances.
No participant may receive or be credited with a Performance Award based on
the achievement of performance goals for any performance period (which period
may be one to three years, or in the case of the first year, from the date of
the spin-off to the end of that fiscal year) that exceeds $1,000,000 for each
year during the performance period. Performance periods may overlap and the
payments in any one year, as long as from different performance periods, may
exceed such amount.
Payment of Performance Awards. Performance Awards may be paid after the
Performance Period in which they are earned, as determined by the Committee but,
except as specifically provided in the 2001 Performance Incentive Plan with
regard to a Change in Control of the Company (as defined in the 2001 Performance
Incentive Plan) or certain termination events, not before the Committee
certifies in writing that the applicable performance goals were satisfied. The
Committee may defer payment of any Performance Award and may place such
additional conditions on payment thereof as it shall determine. The Committee
(i) may, in its sole discretion, award a pro-rata bonus to any participant whose
employment terminated during the applicable performance period and (ii) shall be
required to award at least a pro-rata bonus through the date of a Change in
Control to each participant who was a participant at the time of a Change in
Control.
Notwithstanding the attainment of performance goals, the Committee has the
discretion to reduce (but not increase) a Performance Award, except that the
Committee will not have such discretion for the performance period in which a
Change in Control takes place, or during such performance period with regard to
the prior performance period if the awards for the prior performance period have
not been made by the time of the Change in Control, with regard to participants
at the time of the Change in Control. In addition, upon a Change in Control the
Committee may in its sole discretion, subject to the limitations of
Section 162(m) of the Code, make an award (immediately payable) equal to a
pro-rata portion (through the date of the Change in Control) of the Performance
Award level payable upon achieving, but not surpassing, the target performance
goals for such performance period and, if it so elects, a corresponding long
term plan award (as discussed below). Any such payment shall be offset against
any other award made for such performance period under the 2001 Performance
Incentive Plan.
Long Term Plan Awards. Unless otherwise determined by the Committee with
regard to any performance period, a participant who receives a Performance Award
will be entitled to be credited (except as noted above) with a long term plan
award ('Long Term Incentive Plan Award') equal to 30% of his Performance Award,
provided that for any participant the credited amount of the Long Term Incentive
Plan Award does not exceed $300,000 for each year during a performance period
and that such Long Term Incentive Plan Award will thereafter (between the last
day of the fiscal year for which the award is made and the payment date) not
increase by an annual measuring factor greater than the rate of 30-year Treasury
bonds on the first business day of each fiscal year. The foregoing will not
limit the amount credited to a participant for any year so long as the amounts
are from different performance periods.
Long Term Incentive Plan Awards are allocated to unfunded bookkeeping
accounts maintained under the Long Term Incentive Plan or a successor plan,
retroactive to the end of the fiscal year for which they are awarded. A
participant will have no right to receive payment of his Long Term Incentive
Plan Award until such participant is entitled to receive a distribution under
the Long Term Incentive Plan.
Amendment and Termination. The Board (or an authorized committee thereof)
may, in its sole discretion, amend or terminate the 2001 Performance Incentive
Plan so long as such action does not adversely affect any rights or obligations
with respect to awards already outstanding under the 2001 Performance Incentive
Plan. However, without the prior approval of our stockholders, (to the extent
required under the performance-based compensation exception of Code
Section 162(m)), no amendment may increase the maximum amount per year which can
be awarded to any participant (except to the extent permitted under Code
Section 162(m) to substitute an approximately equivalent rate in the event that
the 30-year Treasury bond rate ceases to exist), materially change the business
criteria on which the performance goals are based, change the class of eligible
employees or make any
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<PAGE>
other change that would require stockholder approval under the exemption for
performance-based compensation under Code Section 162(m).
STOCK INCENTIVE PLAN
On October 26, 2000, our board of directors and USI, as our sole
stockholder, approved the LCA Group Inc. Stock Incentive Plan (the 'SIP'). The
following description of the SIP is qualified in its entirety by reference to
the SIP, which has been filed as an exhibit to the registration statement of
which this information statement is a part.
Purpose. The purpose of the SIP is to enhance our profitability and value
for the benefit of our stockholders by enabling us (i) to offer employees of,
and approved consultants to, LCA and our affiliates, stock options, restricted
stock and other stock-based awards, thereby creating a means to provide equity
based incentives in order to attract, retain and award such individuals and
strengthen the mutuality of interests between such individuals and our
stockholders and (ii) to pay non-employee directors a portion of their initial
retainer fee in the form of stock options and to make certain other awards of
our common stock, grants of stock options and other stock-based awards to
non-employee directors thereby attracting, retaining and rewarding such
non-employee directors, and strengthening the mutuality of interests between our
non-employee directors and stockholders. It is estimated that we and our
affiliates will have approximately 125 employees and we will have 4 non-employee
directors who will be eligible for participation in the SIP.
Administration. The provisions of the SIP, as applied to eligible employees
and consultants, will be administered and interpreted by a committee of the
board, which will consist of two or more non-employee directors, each of whom is
intended to be a non-employee director as defined in Rule 16b-3 and, to the
extent required by Code Section 162(m), an outside director as defined under
Code Section 162(m) (the 'Committee'). With respect to awards to non-employee
directors, the SIP will be administered by the board and references to the
Committee below will be deemed to refer to the board. Awards under the SIP may
not be made on or after the tenth anniversary of approval thereof, but awards
granted prior to such date may extend beyond that date.
Available Shares. The aggregate number of shares of our common stock subject
to awards under the SIP may not exceed 788,000 shares. The maximum number of
shares of common stock with respect to which any stock option which may be
granted under the SIP during any of our fiscal years to any individual will be
150,000 shares and of restricted stock available subject to performance goals
will be 90,000 shares. The maximum number of shares of common stock available as
other stock-based awards which may be granted under the SIP subject to specified
performance goals for any fiscal year to any individual will not exceed 90,000
shares; provided that the foregoing limit does not apply to other stock-based
awards used to make payments under any other of our plans or those of our
affiliates.
In general, upon the cancellation or expiration of an award, the unissued
shares of common stock subject to such awards will again be available for awards
under the SIP, but will not be available for the individual limits.
Options. Under the SIP, the Committee may grant non-qualified stock options
and incentive stock options ('ISOs') to purchase shares of our common stock.
ISOs may not, however, be granted to consultants, non-employee directors or
prospective employees. The Committee will determine the number of shares of
common stock subject to each option, the term of each option (which may not
exceed ten years (or five years in the case of an ISO granted to a 10% or
greater stockholder), the exercise price (which must equal 100% or, in the case
of an ISO granted to a 10% or greater stockholder, 110% of the fair market value
of our common stock at the time of grant), the time or times at which the option
may be exercised and the other material terms of each option. Payment of the
exercise price may be made (i) in cash or by check, bank draft or money order,
(ii) the delivery of irrevocable instructions to a broker to deliver promptly to
us an amount equal to the purchase price, or (iii) on such other terms and
conditions as may be acceptable to the Committee.
The SIP will authorize the Committee, if it decides in its sole discretion,
to permit 'reloads' of options exercised, including, without limitation,
permitting reloads under which options are granted for the same number of shares
as were used to pay the exercise price or withholding. The Committee may
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also at any time offer to buy out a recipient's option subject to such terms and
conditions as the Committee may determine.
Restricted Stock. The Committee may also award shares of restricted stock.
The Committee will determine the employees or consultants eligible for such
awards and the terms and conditions of such awards, including, without
limitation, the timing of such awards, the number of shares awarded, the vesting
schedule and the right to acceleration thereof. The Committee may condition the
grant or vesting of Restricted Stock upon the attainment of such factors as the
Committee may determine, in its sole discretion. Upon the award of any shares of
restricted stock, the recipient will have all rights of a stockholder with
respect to the shares, including voting, tender and dividend rights, subject to
the conditions and restrictions generally applicable to restricted stock or
specifically set forth in the recipient's restricted stock award agreement.
Recipients of restricted stock must enter into a restricted stock award
agreement with LCA, in such form as the Committee determines, which shall state
the restrictions to which the shares are subject and the date or dates on which
such restrictions will lapse.
Other Stock-Based Awards. The Committee may also grant other stock-based
awards under the SIP to eligible employees and consultants that are payable in,
valued in whole or in part by reference to, or otherwise based on or related to
shares of our common stock, including but not limited to, shares of common stock
awarded as a bonus or as payment of consultant fees, shares of our common stock
in payment of the amounts due under an incentive or performance plan sponsored
or maintained by us or any of our affiliates and stock appreciation rights
(either separately or in tandem with stock options), and stock equivalent units,
awards valued by reference to book value of shares of our common stock and loans
to be used to purchase shares of our common stock. Subject to the provisions of
the SIP, the Committee will have the authority to determine the recipients to
whom and the time or times at which such awards will be made, the number of
shares of common stock to be awarded pursuant to or referenced by such award and
all other conditions of the awards. The Committee may also provide for the grant
of such awards upon the completion of a specified performance period and/or
achievement of performance goals. The performance criteria that may be selected
by the Committee will be based on one or more of the following criteria:
(i) the attainment of certain target levels of, or a specified increase in, our
enterprise value or value creation targets (or that of any of our affiliates,
divisions or other operational units); (ii) the attainment of certain target
levels of, or a percentage increase in, our after-tax or pre-tax profits
including, without limitation, that attributable to our continuing and/or other
operations (or that of any of our affiliates, divisions, or other operational
units), (iii) the attainment of certain target levels of, or a specified
increase in, our operational cash flow (or that of any of our affiliates,
divisions or other operational units), (iv) the attainment of a certain level of
reduction of, or other specified objectives with regard to limiting the level of
increase in, all or a portion of our bank debt or other of our long-term or
short-term public or private debt or other similar financial obligations,
(v) the attainment of a specified percentage increase in earnings per share or
earnings per share from our continuing operations (or that of any of our
affiliates, divisions or other operational units), (vi) the attainment of
certain target levels of, or a specified percentage increase in, our net sales,
net income or earnings before income tax or other exclusions (or that of any of
our affiliates, divisions, or other operational units); (vii) the attainment of
certain target levels of, or a specified increase in, our return on capital
employed or return on invested capital (or that of any of our affiliates,
divisions or other operational units); (viii) the attainment of certain target
levels of, or a percentage increase in, our after-tax or pre-tax return on
stockholder equity (or that of any of our affiliates, divisions or other
operational units); (ix) the attainment of certain target levels in the fair
market value of our shares of common stock; and (x) the growth in the value of
an investment in our common stock assuming the reinvestment of dividends. Other
performance goals may be used to the extent such goals satisfy the requirements
of Code Section 162(m) or the award is not intended to satisfy the requirements
of Code Section 162(m).
Non-Employee Director Awards. Under the SIP, the Board will award each
non-employee director an initial grant of non-qualified stock options to
purchase 1,000 shares of our common stock, upon initially becoming a
non-employee director. The Board may, in its discretion, also make awards of our
common stock, additional non-qualified stock options and other stock-based
grants to non-employee directors. The exercise price of the non-qualified
options will be 100% of the fair market value of our common stock at the time of
grant (or the par value, if greater). Each initial option will be exercisable
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on or after 6 months and one day after the date of grant if the director is then
a director. If the Board makes grants of additional options, such options will
be exercisable in accordance with the terms and conditions of the applicable
option grant or agreement. Payment of the exercise price may be made as
described above with regard to options generally. If the Board makes awards of
our common stock, such shares of common stock will be legended and may be
subject to certain restrictions.
Change in Control. Unless determined otherwise by the Committee at the time
of grant, upon a Change in Control of LCA (as defined in the SIP), except as
provided in this paragraph, all conditions, restrictions and limitations in
effect with respect to the exercise of any option or any restricted stock award
will immediately lapse and no other conditions will be applied. However, no
acceleration of exercisability shall occur with regard to certain options that
the Committee determines in good faith prior to a Change in Control will be
honored or assumed or new rights substituted therefor by a participant's
employer immediately following the Change in Control, unless the Committee
determines otherwise at the time of grant. The award agreement issued in
connection with an other stock-based award will determine the effect of a Change
in Control on such award. Further, if the transaction constituting a Change in
Control is to be treated as a 'pooling of interests' for financial reporting
purposes, then there shall be no acceleration of exercisability, vesting or
lapse of the applicable restriction period to the extent LCA's independent
public accountants determine in good faith that such acceleration would preclude
'pooling of interests' accounting.
Amendment and Termination. The Board may at any time amend any or all of the
provisions of the SIP, or suspend or terminate it entirely, retroactively or
otherwise, except that unless otherwise required by law or specially provided in
the SIP, the rights of a participant with respect to awards granted prior to
such amendment, suspension or termination, may not be impaired without the
consent of such participant. In addition, without the approval of the
stockholders of LCA in accordance with Delaware law, to the extent required
under Code Section 162(m) or to the extent applicable to ISOs, Section 422 of
the Code, no amendment may be made which would: (1) increase the aggregate
number of shares of our common stock that may be issued; (2) increase the
maximum individual participant limitations for a fiscal year; (3) change the
classification of employees or consultants eligible to receive awards;
(4) extend the maximum option term; or (5) require stockholder approval in order
for the SIP to continue to comply with the applicable provisions of Code
Section 162(m) or, to the extent applicable to ISOs, Section 422 of the Code.
The Board may amend the provisions of the Plan applicable to non-employee
director awards to provide for additional or different awards to non-employee
directors or to effect any other amendment deemed appropriate.
Nontransferability. Awards granted under the SIP generally will be
nontransferable, except that the Committee may, in its sole discretion and
subject to certain limitations, permit the transfer of nonqualified stock
options at the time of grant or thereafter to certain 'family members' of the
recipient.
Federal Income Tax Consequences. For information concerning the federal
income tax consequences of Awards and related matters, please see Annex C.
Post Spin-off Awards. Employees and consultants who receive grants under the
SIP within the first 45 days following the spin-off are restricted from
receiving additional grants of stock options or other awards until the later of
(1) October 1, 2001 or (2) the date the SIP is approved by stockholders
following the spin-off.
RETIREMENT PROGRAM
We anticipate adopting a tax-qualified retirement program (equivalent to the
corresponding USI program) to provide pension benefits to our executive officers
and corporate office employees. Certain of our subsidiaries sponsor their own
pension benefit plans. Substantially all full-time U.S. employees who are at
least 21 years old and have completed at least one year of service with us or
our affiliates will be eligible to participate in the retirement program or
retirement programs of the operating company by which they are employed (each of
our subsidiaries provide their own retirement programs and plans to their
respective employees). Employees will become vested in their benefits under the
retirement programs after five years of service, reflecting service with USI or
its subsidiaries. Normal retirement
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typically will be the later of age 65 or five years of service; however,
employees who work beyond their normal retirement age will continue to accrue
benefits.
The assets currently maintained in the USI master pension trust for the tax
qualified retirement programs for the employees of our subsidiaries will be
transferred to a separate master trust sponsored by LCA, established prior to
the spin-off, and the assets attributable to all subsidiaries' plans, which are
currently all stand-alone plans, will have been transferred into the new master
trust prior to the Spin-off. Additionally, effective on the spin-off, assets
attributable to the liabilities for employees who will become LCA's corporate
office staff who were participants in the USI corporate office plan, will be
transferred to the LCA master pension trust in accordance with the Pension
Benefit Guaranty Corporation's spin-off Rules.
It is anticipated that we will also adopt a non-qualified, unfunded,
deferred compensation plan to be known as the LCA Group Supplemental Executive
Retirement Plan (the 'SERP') which will be similar to the corresponding USI
program. Certain of our subsidiaries also sponsor non-qualified, unfunded
deferred compensation plans for their employees. The purpose of the SERP will be
to maintain, as a minimum level of benefits, benefits which were provided while
employed by USI, including any benefits in excess of the Internal Revenue Code
Sections 415 and 401(a)(17) limitations. The defined terms in this paragraph
will have the same meanings as in the SERP, the retirement plan or as stated
herein.
Under our retirement program, comprised of a tax qualified pension plan and
the SERP, the annual retirement benefits of our executive officers will equal
the greater of (i) the product of (a) 66 2/3% of an employee's final average
earnings (base salary only) minus 50% of such employee's social security
benefit, reduced for credited service under 25 years. All defined terms have the
same meanings as in the retirement plan or SERP or as stated herein. The
following table shows the estimated annual retirement benefits that would be
payable under the retirement program to our executive officers, assuming
retirement at age 65 on the basis of a straight-life annuity. The table includes
benefits payable from the tax qualified retirement plan and the SERP.
<TABLE>
<CAPTION>
FINAL YEARS OF SERVICE
AVERAGE --------------------------------------------------------------------------
EARNINGS 10 15 20 25 30 35 40
-------- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000............. $ 23,200 $ 34,800 $ 46,400 $ 58,000 $ 58,000 $ 58,000 $ 58,000
200,000............. 49,900 74,850 99,800 124,750 124,750 124,750 124,750
300,000............. 76,600 114,900 153,200 191,500 191,500 191,500 191,500
400,000............. 103,300 154,950 206,600 258,250 258,250 258,250 258,250
500,000............. 130,000 195,000 260,000 325,000 325,000 325,000 325,000
600,000............. 156,700 235,050 313,400 391,750 391,750 391,750 391,750
</TABLE>
Messrs. O'Leary, McPartland, Barre, Rossi and Ms. Burton will be credited
with the following respective years of service as of the spin-off under the USI
retirement plan, rounded to the nearest one-tenth of a year: 7.6, 15.5, 12.2,
1.6., 13.9. Other of our officers will also be credited with their indicated
years of service as recognized under the USI Retirement Plan as of the spin-off.
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PROJECTED OWNERSHIP OF OUR STOCK IMMEDIATELY AFTER THE SPIN-OFF
The following table sets forth the projected beneficial ownership of our
common stock immediately after the spin-off by each of our directors, the
executive officers who are expected to be our five most highly compensated
executive officers in fiscal 2000 and all directors and executive officers as a
group. The projections are based upon available information concerning these
individuals' ownership of USI common stock at November 30, 2000. The projections
also assume the issuance of 252,000 shares of restricted common stock under the
SIP but do not take into account (1) any shares of USI common stock acquired
pursuant to the exercise of options previously granted under USI compensation
programs but not exercised as of November 30, 2000 or (2) any shares of our
common stock that may be issued upon the exercise of stock options expected to
be granted to executive officers and other key employees pursuant to the SIP
after the spin-off. See 'Executive Compensation -- Stock Incentive Plan.'
<TABLE>
<CAPTION>
NUMBER OF SHARES PROJECTED
TO BE BENEFICIALLY % OF SHARES
NAME OWNED OUTSTANDING(1)
---- ----- --------------
<S> <C> <C>
James O'Leary................................... 106,011 1.3
Steven C. Barre................................. 20,004 *
Joseph P. McPartland............................ 19,845 *
Diana E. Burton................................. 20,908 *
Nicola Rossi.................................... 16,085 *
All directors and executive officers as a group
(9) persons).................................. 201,572 2.5
</TABLE>
---------
(1) Based on 7,961,486 LCA shares outstanding immediately after the spin-off.
* Less than one half of one percent.
Based upon information available to USI concerning the ownership of USI
common stock at November 30, 2000, no person is projected to own beneficially
more than 5% of the outstanding common stock on the date of the spin-off except
as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PROJECTED
TO BE BENEFICIALLY % OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OUTSTANDING
------------------------------------ ----- -----------
<S> <C> <C>
Harris Associates L.P. ......................... 1,305,006(1) 16.4
Two North LaSalle Street, Suite 500
Chicago, Illinois 60602
Southeastern Asset Management, Inc. ............ 997,850(2) 12.5
6410 Poplar Avenue
Suite 900
Memphis, TN 38119
AXA-UAP ........................................ 989,413(3) 12.4
23, Avenue Matigon
75008 Paris France;
SASCO Capital, Inc. ............................ 489,833(4) 6.2
10 Sasco Hill Road
Fairfield, CT 06430
</TABLE>
---------
(1) Number of LCA shares shown is calculated by applying the dividend ratio for
the spin-off to the number of shares of USI common stock beneficially owned
by Harris Associated L.P. and Harris Associates, inc. (the sole general
partner of Harris Associated L.P.) as disclosed on Schedule 13G filed with
the SEC on July 10, 2000.
(2) Number of LCA shares shown is calculated by applying the dividend ratio for
the spin-off to the number of shares of USI common stock beneficially owned
by Southeastern Asset Management Inc. as disclosed on Schedule 13G filed
with the SEC on December 7, 2000.
(footnotes continued on next page)
45
<PAGE>
(footnotes continued from previous page)
(3) Number of LCA shares shown is calculated by applying the dividend ratio for
the spin-off to the number of shares of USI common stock beneficially owned
by AXA-UAP and affiliates as disclosed on Schedule 13G filed with the SEC on
February 14, 2000.
(4) Number of LCA shares shown is calculated by applying the dividend ratio for
the spin-off to the number of shares of USI common stock beneficially owned
by SASCO Capital, Inc. as disclosed on Schedule 13G filed with the SEC on
February 23, 1999.
For information concerning the projected beneficial ownership of our common
stock by our and USI's employee benefit plan trusts, see 'The
Spin-off -- Listing and Trading of Our Common Stock.'
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Under our certificate of incorporation that will be in effect at the time of
the spin-off, the form of which is attached as Annex A to this information
statement, we will have authority to issue a total of 25,000,000 shares of all
classes of stock, of which 2,000,000 may be shares of preferred stock, par value
$0.01 per share, and 23,000,000 may be shares of common stock, par value $0.01
per share.
Based on the number of shares of USI common stock outstanding as of
November 30, 2000 and the dividend ratio, it is expected that 7.7 million shares
of our common stock will be distributed to USI stockholders in the spin-off. All
of these shares will be fully paid and non-assessable. After giving effect to
the awards of 252,000 shares of restricted common stock to executive officers
and other key employees effective on the spin-off, the total expected number of
outstanding shares of common stock will be approximately 7.96 million. In
addition, effective on the spin-off, we will issue to executive officers and
other key employees options to purchase the 211,500 shares of common stock at
the fair market value of our common stock determined to be the average of the
highest and lowest trading values on the spin-off date; the number of shares
expected to be outstanding excludes any shares that may be issued upon exercise
of such options. See 'Executive Compensation -- Stock Incentive Plan.'
COMMON STOCK
Holders of our common stock are entitled to one vote for each share on all
matters voted on by stockholders. Holders of common stock do not have cumulative
voting rights in the election of directors. The first annual meeting of
stockholders is expected to be held during calendar 2002.
Holders of our common stock do not have subscription, redemption or
conversion privileges. Subject to the preferences or other rights of any
preferred stock that we may issue from time to time, holders of our common stock
are entitled to participate ratably in dividends on our common stock as declared
by our board of directors. Holders of our common stock are entitled to share
ratably in all assets available for distribution to our stockholders in the
event of liquidation or dissolution, subject to distribution of the preferential
amount, if any, to be distributed to holders of preferred stock.
PREFERRED STOCK
The certificate of incorporation that will be in effect at the time of the
spin-off will authorize our board of directors, without any vote or action by
the holders of our common stock, to issue up to 2,000,000 shares of preferred
stock from time to time in one or more series. Our board is authorized to
determine the number of shares and designation of any series of preferred stock
and the dividend rights, dividend rate, conversion rights and terms, voting
rights (full or limited, if any), redemption rights and terms, liquidation
preferences and sinking fund terms of any series of preferred stock. Issuances
of preferred stock would be subject to the applicable rules of the NYSE or other
organizations on whose systems the stock of may then be quoted or listed.
Depending upon the terms of preferred stock established by our board of
directors, any or all series of preferred stock could have preference over our
common stock with respect to dividends and other distributions and upon
liquidation. Issuance of any such shares with voting powers, or issuance of
additional shares of our common stock, would dilute the voting power of our
outstanding common stock. Series A preferred stock is issuable under the
circumstances described in 'Rights Plan' below. We have no other present plans
to issue any Preferred Stock.
NO PREEMPTIVE RIGHTS
No holder of any of our capital stock authorized at the time of the spin-off
will have any preemptive right to subscribe for or purchase any of our
securities of any class or kind.
TRANSFER AGENT AND REGISTRAR
Mellon Investor Services will be the transfer agent and registrar for our
common stock commencing upon the date of the Spin-off.
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RIGHTS PLAN
Our rights plan may have the effect of delaying or preventing a change of
control. See 'Risk Factors -- We Will Be Subject to Certain Provisions that
Could Delay or Prevent a Change of Control.' Each share of our common stock to
be issued from and after the date of this information statement (including
common stock that will trade on a 'when issued' basis) will have attached to it
one right to purchase from us one one-hundredth ( 1/100) of a share of our
series A preferred stock. The initial price per one one hundreth ( 1/100) of a
share of Series A preferred stock (the 'exercise price') will be based upon the
trading range of LCA stock during the 'when issued' trading period prior to the
effective date of the spin-off. Unless earlier redeemed, or extended, the rights
will expire in January 2011.
The rights, unless earlier redeemed, extended or modified by our board of
directors or extended or modified as described above, will become exercisable by
each record holder thereof, other than the Acquiring Person (as defined below),
upon the close of business on the day (the 'Rights Distribution Date') which is
the earlier of (1) the tenth day following a public announcement that a person
or group of affiliated or associated persons, with certain exceptions set forth
below, has acquired beneficial ownership of 15% or more of our outstanding
voting stock (an 'Acquiring Person') and (2) the tenth business day (or such
later date as may be determined by our board of directors prior to such time as
any person or group of affiliated or associated persons becomes an Acquiring
Person) after the date of the commencement or announcement of a person's or
group's intention to commence a tender or exchange offer the consummation of
which would result in the ownership of 15% or more of our outstanding voting
stock (even if no shares are actually purchased pursuant to such offer). Before
the rights distribution date, the rights will not be exercisable, will not be
represented by a separate certificate, and will not be transferable apart from
our common stock. An Acquiring Person does not include (A) prior to the
spin-off, USI, (B) us, (C) any of our subsidiaries, (D) any of our employee
benefit plans or employee stock plans or those of any of our subsidiaries, or
any trust or other entity organized, appointed, established or holding our
common stock for or pursuant to the terms of any such plan, (E) any person whose
ownership of 15% or more of the shares of our voting stock then outstanding
results solely from its ownership of 15% or more of the USI common stock
outstanding on the spin-off record date provided such person is not an Acquiring
Person within the meaning of the USI rights plan, or (F) any person or group
whose ownership of 15% or more of the shares of our voting stock then
outstanding results solely from (1) any action or transaction or transactions
approved by our board of directors before such person or group became an
Acquiring Person or (2) a reduction in the number of issued and outstanding
shares of our voting stock pursuant to a transaction or transactions approved by
our board of directors (provided that any person or group that does not become
an Acquiring Person by reason of clause (1) or (2) above shall become an
Acquiring Person upon acquisition of an additional 1% of our voting stock unless
such acquisition of additional voting stock will not result in such person or
group becoming an Acquiring Person by reason of such clause (1) or (2)). For
purposes of the foregoing, our outstanding voting stock includes our stock that
trades on a 'when issued' basis on a national securities exchange (such as the
NYSE), on the National Association of Securities Dealers' Automated Quotation
System or otherwise.
Our rights agreement provides that when a person or group of affiliated or
associated persons becomes an Acquiring Person (other than pursuant to a
Qualifying Tender Offer (as defined below)), the Acquiring Person's rights will
thereupon become null and void.
The rights agreement provides that until the Rights Distribution Date, the
rights will be transferred with and only with our common stock. Until the Rights
Distribution Date (or earlier redemption or expiration of the rights), our
common stock certificates will contain a legend incorporating the rights
agreement by reference. Until the Rights Distribution Date (or earlier
redemption or expiration of the rights), the surrender for transfer of any of
our common stock certificates will also constitute the transfer of the rights
associated with our common stock represented by such certificate. As soon as
practicable following the Rights Distribution Date, separate certificates
evidencing the rights ('Rights Certificates') will be mailed to holders of
record of our common stock as of the close of business on the Rights
Distribution Date and such separate certificates alone will evidence the rights
from and after the Rights Distribution Date.
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<PAGE>
Our series A preferred stock is nonredeemable and, unless otherwise provided
in connection with the creation of a subsequent series of preferred stock,
subordinate to any other series of our preferred stock. Our series A preferred
stock may not be issued except upon exercise of rights. Each share of our series
A preferred stock will be entitled to receive when, as and if declared, a
quarterly dividend in an amount equal to (i) 100 times the cash dividends
declared on our common stock and (ii) a preferential cash dividend, if any, in
preference to holders of common stock in an amount equal to $.10 per share of
preferred stock less the per share amount of all cash dividends declared or the
preferred stock pursuant to clause (i) since the immediately preceeding
quarterly dividend payment date. In addition, our series A preferred stock is
entitled to 100 times any non-cash dividends (other than dividends payable in
equity securities) declared on our common stock, in like kind. In the event of
our liquidation, the holders of our series A preferred stock will be entitled to
receive a payment in an amount equal to 100 times the payment made per share of
our common stock. Each share of our series A preferred stock will have
100 votes, voting together with our common stock. In the event of any merger,
consolidation or other transaction in which our common stock is changed,
exchanged or converted, each share of series A preferred stock will be entitled
to receive 100 times the amount received per share of our common stock. The
rights of our series A preferred stock as to dividends, liquidation and voting
are protected by anti-dilution provisions.
The number of shares of our series A preferred stock issuable upon exercise
of the rights is subject to certain adjustments from time to time in the event
of a stock dividend on, or a subdivision, combination or issuance of capital
stock in a reclassification of, our common stock. The exercise price for the
rights is subject to adjustment in certain circumstances, including certain
distributions of cash or other property to holders of our common stock.
Unless the rights are earlier redeemed, in the event that, at any time on or
after the Rights Distribution Date (except for any transaction approved by a
majority of the disinterested directors (as defined in the rights agreement)),
we were to be acquired in a merger or other business combination (in which any
shares of our common stock are changed or converted into or exchanged for other
securities or assets) or more than 50% of our assets or earning power and those
of our subsidiaries (taken as a whole) were to be sold or transferred in one or
a series of related transactions, the rights agreement provides that proper
provision will be made so that each holder of record of a right, other than the
Acquiring Person, will from and after that date have the right to receive, upon
payment of the exercise price, that number of shares of common stock of the
acquiring company having a market value at the time of such transaction equal to
two times the exercise price. In addition, unless the rights are earlier
redeemed, in the event that a person or group becomes the beneficial owner of
15% or more of our voting stock (other than pursuant to a tender or exchange
offer (a 'Qualifying Tender Offer') for all outstanding shares of our common
stock that is approved by our board of directors, after taking into account our
long-term value and all other factors they consider relevant), the rights
agreement provides that proper provision will be made so that each holder of
record of a right, other than the Acquiring Person, will thereafter have the
right to receive, upon payment of the exercise price, that number of shares of
our series A preferred stock having a market value at the time of the
transaction equal to two times the exercise price (such market value to be
determined with reference to the market value of our common stock as provided in
the rights agreement).
Fractions of shares of our series A preferred stock (other than fractions
which are integral multiples of one one-hundredth of a share) may, at our
election, be evidenced by depositary receipts. We may also issue cash in lieu of
fractional shares which are not integral multiples of one one-hundredth of a
share.
At any time on or prior to the close of business on the earlier of (1) the
tenth day after the time that a person has become or has announced an intention
to become or intention to commence to become an Acquiring Person (or such later
date as a majority of our board of directors and a majority of our disinterested
directors may determine) and (2) January 2011, we may redeem the rights in
whole, but not in part, at a price of $.01 per right, subject to adjustment (the
'Redemption Price'). The rights may be redeemed after the time that any person
has become an Acquiring Person (other than pursuant to a Qualifying Tender
Offer). Immediately upon the effective time of the action of our board of
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<PAGE>
directors authorizing redemption of the rights, the right to exercise the rights
will terminate and the only right of the holders of rights will be to receive
the Redemption Price.
For as long as the rights are then redeemable, we may, except with respect
to the Redemption Price or shortening the Final Expiration Time, amend the
rights in any manner, including an amendment to extend the time period in which
the rights may be redeemed. At any time when the rights are not then redeemable,
we may amend the rights in any manner that does not materially adversely affect
the interests of holders of the rights as such. Amendments to the rights
agreement from and after the time that any person becomes an Acquiring Person
(other than pursuant to a Qualifying Tender Offer) require the approval of a
majority of our directors.
Until a right is exercised, the holder, as such, will have no rights as a
holder of common stock, including, without limitation, the right to vote or to
receive dividends. Holders of our common stock may, depending upon the
circumstances, recognize taxable income should the rights become exercisable or
upon the occurrence of certain events thereafter.
A copy of the rights agreement has been filed as an exhibit to the
registration statement of which this information statement forms a part. This
summary description of the rights does not purport to be complete and is
qualified in its entirety by reference to the rights agreement which is
incorporated in this summary description herein by reference.
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PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF
CERTIFICATE OF INCORPORATION,
BY-LAWS AND DELAWARE STATUTORY LAW
GENERAL
The provisions of our Certificate of Incorporation, our By-Laws and Delaware
statutory law described in this section may delay or make it more difficult for
someone to acquire us without the approval of our board. These provisions could
have the effect of discouraging third parties from making acquisition proposals
although such proposals, if made, might be considered desirable by a majority of
our stockholders. These provisions may also have the effect of making it more
difficult for third parties to cause the replacement of our current management
without the concurrence of our board.
A copy of our form of Certificate of Incorporation is attached to this
Information Statement as Appendix A and is incorporated herein by reference. The
following description of certain provisions of our Certificate of Incorporation
and the By-Laws is qualified in its entirety by reference to the Certificate of
Incorporation and the By-Laws.
CLASSIFIED BOARD OF DIRECTORS
The Certificate of Incorporation provides for our board, effective upon
completion of the spin-off, to be divided into three classes of directors
serving staggered three year terms. As a result, approximately one-third of our
board will be elected each year. See 'Management -- Directors.'
We believe a classified board will help to assure the continuity and
stability of our board, and our business strategies and policies as determined
by our board, because a majority of the directors at any given time will have
prior experience as our directors. This provision should also help to ensure
that our board, if confronted with an unsolicited proposal from a third party
that has acquired a block of our voting stock, will have sufficient time to
review the proposal and appropriate alternatives and to seek the best available
result for all stockholders.
This provision could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of our board until the
second annual stockholders' meeting following the date the acquiror obtains the
controlling stock interest. This could have the effect of discouraging a
potential acquiror from making a tender offer or otherwise attempting to obtain
control of us and could thus increase the likelihood that incumbent directors
will retain their positions.
NUMBER OF DIRECTORS; REMOVAL; VACANCIES
The Certificate of Incorporation and the By-Laws provide that the number of
directors shall not be less than three and, except as may be provided in the
terms of any series of preferred stock created by resolutions of the board,
shall be determined from time to time exclusively by a vote of a majority of our
board then in office. The Certificate of Incorporation also provides that our
board shall have the exclusive right, except as may be provided in the terms of
any series of preferred stock created by resolutions of the board, to fill
vacancies, including vacancies created by expansion of our board. Furthermore,
except as may be provided in the terms of any preferred stock created by
resolution of our board with respect to the election of directors by the holders
of such series, directors may be removed by stockholders only for cause and only
by the affirmative vote of at least 80% of the voting power of all of the shares
of our capital stock then entitled to vote generally in the election of
directors, voting together as a single class. These provisions, in conjunction
with the provision of the Certificate of Incorporation authorizing our board to
fill vacant directorships, could prevent stockholders from removing incumbent
directors without cause and filling the resulting vacancies with their own
nominees.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Certificate of Incorporation provides that, except as may be provided in
the terms of any series of preferred stock created by resolution of our board,
stockholder action can be taken only at an annual or special meeting of
stockholders and cannot be taken by written consent in lieu of a meeting. The
51
<PAGE>
Certificate of Incorporation also provides that special meetings of the
stockholders can only be called by the Chairman of the Board or by the Secretary
pursuant to a resolution approved by a majority of our board then in office.
Stockholders are not permitted to call a special meeting of stockholders.
APPROVAL OF CERTAIN BUSINESS COMBINATIONS
The Certificate of Incorporation requires that certain business combinations
with a 'Related Person' (as such term is defined in the Certificate of
Incorporation) be approved by the affirmative vote of 80% of our outstanding
shares generally entitled to vote for the election of directors, unless (i) the
business combination has been approved by two-thirds of the Board of Directors;
or (ii) the amount of consideration to be received in the business combination
by the holders of Common Stock or any class or series of outstanding voting
stock, other than Common Stock, shall be equal to either: (i) the highest per
share price paid by the Related Person for any shares of our stock acquired
within the prior two years; or (ii) the fair market value (a such term is
defined in the Certificate of Incorporation) of our common stock.
ADVANCE NOTICE FOR RAISING BUSINESS OR MAKING NOMINATIONS AT MEETINGS
The By-Laws establish an advance notice procedure with regard to stockholder
proposals and nominations of individuals for election to the Board of Directors.
In general, notice of a stockholder proposal or a director nomination for an
annual meeting must be delivered to us at our executive offices not less than
120 nor more than 150 days before the date of the anniversary of the last annual
stockholders' meeting (unless the meeting is not held within 30 days before or
after such anniversary date, in which event the stockholder proposal or director
nomination shall be delivered to us no later than the close of business on the
10th day following the day on which notice of the meeting was given) and must
contain specified information and conform to certain requirements, as set forth
in the By-Laws. If the presiding officer at any stockholders' meeting determines
that a stockholder proposal or director nomination was not made in accordance
with the By-Laws, we may disregard such proposal or nomination.
A stockholder's notice for business other than the election of directors
must set forth as to each matter such stockholder proposes to bring before the
meeting (i) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting, (ii) the
name and record address of such stockholder and all persons or entities acting
in concert with the stockholder, (iii) the class or series and number of shares
of capital stock of the Company which are owned beneficially or of record by
such stockholder, together with evidence reasonably satisfactory to the
Secretary of such beneficial ownership, (iv) a description of all arrangements
or understandings between such stockholder and any other person or persons
(including their names) in connection with the proposal of such business by such
stockholder and any material interest of such stockholder in such business and
(v) a representation that such stockholder intends to appear in person or by
proxy at the annual meeting to bring such business before the meeting.
A stockholder's notice of the nomination of directors at the annual meeting
must set forth (i) as to each person whom the stockholder proposes to nominate
for election as a director, (A) the name, age, business address and residence
address of the person, (B) the business experience during the past five years of
such nominee, including his or her principal occupation or employment during
such period, the name and principal business of any corporation or other
organization in which such occupations and employment were carried on, and such
other information as to the nature of his or her responsibilites and level of
professional competence as may be sufficient to permit assessment of his or her
prior business experience, (C) the class or series and number of shares of
capital stock of the Company which are owned beneficially or of record by the
person and (D) any other information relating to the person that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder; and (ii) as to the stockholder giving the notice,
(A) the name and address of such stockholder and of all persons or entities
acting in concert with the stockholder, (B) the name and address of such person
as they appear on the Corporation's books (if they do appear), (C) the class or
series and number of shares of capital stock of the Company
52
<PAGE>
which are owned beneficially or of record by such stockholder, together with
evidence reasonably satisfactory to the Secretary of such beneficial ownership,
(D) a description of all arrangements or understandings between such stockholder
and each proposed nominee and any other person or persons (including their
names) pursuant to which the nomination(s) are to be made by such stockholder,
(E) a representation that such stockholder intends to appear in person or by
proxy at the meeting to nominate the persons named in its notice and (F) any
other information relating to such stockholder that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Exchange Act and the rules and regulations promulgated
thereunder. Such notice must be accompanied by a written consent of each
proposed nominee to being named as a nominee and serve as a director if elected.
AMENDMENTS TO BY-LAWS
The Certificate of Incorporation provides that our board or the holders of
at least 80% of the voting power of all shares of our capital stock then
entitled to vote generally in the election of directors, voting together as a
single class, have the power to amend or repeal our By-Laws.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
Any proposal to amend, alter, change or repeal any provision of the
Certificate of Incorporation, except as may be provided in the terms of any
preferred stock created by resolution of our board and which relate to such
series of preferred stock, generally requires approval by the affirmative vote
of both a majority of the members of our board then in office and a majority
vote of the voting power of all of the shares of our capital stock entitled to
vote generally in the election of directors, voting together as a single class.
However, any proposal to amend, alter, change or repeal the provisions of the
Certificate of Incorporation relating to (1) the classification of our board,
(2) removal of directors, (3) the prohibition of stockholder action by written
consent or stockholder calls for special meetings, (4) amendment of By-Laws, or
(5) amendment of the Certificate of Incorporation requires approval by the
affirmative vote of 80% of the voting power of all of the shares of our capital
stock entitled to vote generally in the election of directors, voting together
as a single class. The 'Certain Business Combinations' provision of our
Certificate of Incorporation may be amended, altered, changed, or repealed only
by the affirmative vote of the holders of at least 80% of the outstanding shares
of our voting stock voting unless the proposed amendment, alteration, change, or
repeal has been recommended to the stockholders by our directors with the
approval of at least two-thirds of the Directors, in which event the proposed
amendment, alteration, change, or repeal requires for approval the affirmative
vote of the holders of at least 66 2/3% of the outstanding shares of our voting
stock.
PREFERRED STOCK AND ADDITIONAL COMMON STOCK
Under the Certificate of Incorporation, our board will have the authority to
provide by resolution for the issuance of shares of one or more series of
preferred stock. Our board is authorized to fix by resolution the terms and
conditions of each such other series. See 'Description of Capital Stock --
Preferred Stock.'
We believe that the availability of our preferred stock, in each case
issuable in series, and additional shares of common stock could facilitate
certain financings and acquisitions and provide a means for meeting other
corporate needs which might arise. The authorized shares of our preferred stock,
as well as authorized but unissued shares of common stock will be available for
issuance without further action by our stockholders, unless stockholder action
is required by applicable law or the rules of any stock exchange on which any
series of our stock may then be listed, or except as may be provided in the
terms of any preferred stock created by resolution of our board.
These provisions give our board the power to approve the issuance of a
series of preferred stock, or additional shares of common stock, that could,
depending on its terms, either impede or facilitate the completion of a merger,
tender offer or other takeover attempt. For example, the issuance of new shares
of preferred stock might impede a business combination if the terms of those
shares include
53
<PAGE>
voting rights which would enable the holder(s) to block business combinations
or, alternatively, might facilitate a business combination if those shares have
general voting rights sufficient to cause an applicable percentage vote
requirement to be satisfied.
Moreover, shares of our Series A Preferred Stock are issuable under the
circumstances provided for in the rights agreement upon exercise of the rights.
See 'Rights Plan.'
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 of the Delaware General Corporations Laws (the 'DGCL'), provides
that, subject to certain exceptions specified therein, an 'interested
stockholder' of a Delaware corporation may not engage in any business
combination with the corporation for a three-year period following the time that
such stockholder becomes an 'interested stockholder' unless (1) prior to such
time, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
'interested stockholder', (2) upon consummation of the transaction which
resulted in the stockholder becoming an 'interested stockholder,' the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares), or
(3) at or subsequent to such time, the business combination is approved by the
board of directors of the corporation and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the 'interested stockholder.'
Except as otherwise specified in Section 203, an 'interested stockholder' is
defined to include (1) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the
relevant date and (2) the affiliates and associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an 'interested stockholder' to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Certificate of Incorporation does not exclude us from the
restrictions imposed under Section 203. The provisions of Section 203 may
encourage companies interested in acquiring us to negotiate in advance with our
board, since the stockholder approval requirement would be avoided if a majority
of the directors then in office approve either the business combination or the
transaction which results in the stockholder becoming an interested stockholder.
These provisions also may have the effect of preventing changes in our
management. It is possible that such provisions could make it more difficult to
accomplish transactions which stockholders may otherwise deem to be in their
best interests.
LIMITATION ON LIABILITY AND
INDEMNIFICATION OF OFFICERS AND DIRECTORS
LIMITATION ON LIABILITY OF DIRECTORS
Pursuant to authority conferred by Section 102 of the DGCL, Article VII of
our Certificate of Incorporation eliminates the personal liability of our
directors to us or our stockholders for monetary damages for breach of fiduciary
duty, including without limitation directors serving on committees of the board
of directors. Directors remain liable for:
(1) any breach of the duty of loyalty to us or our stockholders,
(2) any act or omission not in good faith or which involves intentional
misconduct or a knowing violation of law,
(3) any violation of Section 174 of the DGCL, which proscribes the
payment of dividends and stock purchases or redemptions under certain
circumstances, and
(4) any transaction from which directors derive an improper personal
benefit.
Article VII further provides that any future repeal or amendment of its
terms will not adversely affect any rights of directors existing thereunder with
respect to acts or omissions occurring prior to
54
<PAGE>
such repeal or amendment. Article VII also incorporates any future amendments to
Delaware law which further eliminate or limit the liability of directors.
INDEMNIFICATION AND INSURANCE
In accordance with Section 145 of the DGCL, which provides for the
indemnification of directors and officers under certain circumstances,
Article VII of our By-Laws grants our directors and officers a right to
indemnification, to the fullest extent permitted by law, for all expenses,
liabilities and losses relating to civil, criminal, administrative or
investigative proceedings to which they are a party (1) by reason of the fact
that they are or were our directors or officers or (2) by reason of the fact
that, while they are or were our directors or officers, they are or were serving
at our request as directors, officers, members, employees, fiduciaries or agents
of another corporation, partnership, joint venture, trust or enterprise.
Article VII further permits us to indemnify other employees and agents to the
fullest extent permitted by law, for all expenses, liabilities and losses
relating to civil, criminal, administrative or investigative proceedings to
which they are a party by reason of their employment or agency relationship.
Article VII further provides losses reasonably incurred by present officers and
directors in defending such proceedings shall be paid by the Corporation in
advance of their final disposition upon delivery to us by the indemnitee of an
undertaking to repay all amounts so advanced if it is ultimately determined that
such indemnitee is not entitled to be indemnified under Article VII.
Article VII further provides that expenses incurred by our former directors or
officers or other employees or agents in defending such proceedings may be paid
in advance of their final disposition upon such terms and conditions, if any, as
we deem appropriate. We may not indemnify or make advance payments to any person
in connection with proceedings initiated against us by such person without the
authorization of our board of directors, except with respect to compulsory
counterclaims, cross-claims, third-party claims or in connection with suits
seeking to enforce rights to indemnification or advancement of expenses as
otherwise ordered by a court of competent jurisdiction.
In addition, in the event that any successor provisions or amendments to the
DGCL provide indemnification rights broader than permitted prior thereto,
Article VII allows such broader indemnification rights to apply retroactively
with respect to any predating alleged action or inaction and also allows the
indemnification to continue after an indemnitee has ceased to be a director or
officer of the corporation and to inure to the benefit of the indemnitee's
heirs, executors and administrators.
Article VII further provides that the right to indemnification is not
exclusive of any other right which any indemnitee may have or thereafter acquire
under any statute, the Certificate of Incorporation or By-Laws, any agreement or
vote of stockholders or disinterested directors or otherwise, and allows us to
indemnify and advance expenses to any person whom the corporation has the power
to indemnify under the DGCL or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted for directors and officers and controlling persons pursuant to
the foregoing provisions, we have been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Our By-Laws authorize us to purchase insurance for our directors, officers
and employees, and persons who serve at our request as directors, officers,
members, employees, fiduciaries or agents of other enterprises against any
expense, liability or loss incurred in such capacity, whether or not we would
have the power to indemnify such persons against such expense or liability under
the By-Laws. We intend to maintain insurance coverage for our officers and
directors as well as insurance coverage to reimburse us for potential costs of
its corporate indemnification of directors and officers.
ADDITIONAL INFORMATION
We have filed the registration statement with the Commission with respect to
the common stock. This information statement does not contain all of the
information set forth in the registration statement and the exhibits thereto, to
which reference is hereby made. This information statement describes the
material terms and conditions of each contract, agreement or other document
referred to herein or filed as an exhibit to the registration statement;
however, with respect to each such contract, agreement or
55
<PAGE>
other document, reference is made to such exhibit for a more complete
description of the matter involved, and each description thereof contained in
this information statement shall be deemed qualified in its entirety by such
reference. The registration statement and the exhibits thereto filed by us with
the Commission may be inspected at the public reference facilities of the
Commission listed below.
After the spin-off, we will be subject to the information requirements of
the Exchange Act and, in accordance therewith, will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at its principal offices at
450 Fifth Street, N.W., Washington, D.C. 10549, and at its regional offices at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material may be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. Materials that we file electronically with the Commission are available
at the Commission's website (http://www.sec.gov), which contains reports,
proxies and information statements and other information regarding issuers that
file electronically with the Commission. Application has been made to list our
common stock on the NYSE and, if and when such common stock commences trading on
the NYSE, such reports, proxy statements and other information concerning LCA
will be available for inspection at the NYSE, 20 Broad Street, New York, New
York 10005.
-------------------
We intend to furnish our stockholders with annual reports containing
consolidated financial statements (beginning with fiscal 2001) audited by
independent accountants.
56
<PAGE>
LCA GROUP INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
COMBINED FINANCIAL STATEMENTS ----
<S> <C>
Report of Ernst & Young LLP................................. F-2
Combined Statement of Operations............................ F-3
Combined Balance Sheets..................................... F-4
Combined Statements of Cash Flows........................... F-5
Combined Statements of Changes in Invested Capital.......... F-6
Notes to Combined Financial Statements...................... F-7
Schedule II -- Valuation and Qualifying Accounts............ S-1
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
U.S. INDUSTRIES, INC.
We have audited the accompanying combined balance sheets of LCA Group Inc.
(the 'Company') as of September 30, 2000 and 1999, and the related combined
statements of operations, cash flows, and changes in invested capital for each
of the three years in the period ended September 30, 2000. Our audits also
included the financial statement schedule listed in the index to the combined
financial statements. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Company at
September 30, 2000 and 1999, and the combined results of its operations and its
cash flows for each of the three years in the period ended September 30, 2000,
in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
New York, New York
November 14, 2000
F-2
<PAGE>
LCA GROUP INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
---------------------------
2000 1999 1998
---- ---- ----
(IN MILLIONS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Net sales................................................... $936.9 $917.5 $856.1
Operating costs and expenses:
Cost of products sold................................... 638.6 628.7 590.5
Selling, general and administrative expenses............ 249.2 234.3 203.9
Management fee and divisional overhead.................. 4.6 7.9 8.3
Goodwill impairment and restructuring charges........... 84.0 -- 2.3
------ ------ ------
Operating income (loss)..................................... (39.5) 46.6 51.1
Interest expense to Affiliates.............................. (13.1) (12.7) (12.7)
Interest expense............................................ (0.8) (0.7) (1.0)
Interest income............................................. 0.7 0.6 1.0
------ ------ ------
Income (loss) before income taxes........................... (52.7) 33.8 38.4
Provision for income taxes.................................. (12.5) (13.6) (15.3)
------ ------ ------
Net income (loss)........................................... $(65.2) $ 20.2 $ 23.1
------ ------ ------
------ ------ ------
Pro-forma basic and diluted loss per share.................. $(8.48)
------
------
</TABLE>
See notes to combined financial statements.
F-3
<PAGE>
LCA GROUP INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------
2000 1999
---- ----
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 7.8 $ 9.1
Trade receivables, net.................................. 171.7 173.4
Inventories............................................. 165.8 172.8
Deferred income taxes................................... 9.3 9.1
Other current assets.................................... 10.7 8.6
------ ------
Total current assets................................ 365.3 373.0
Property, plant and equipment, net.......................... 158.0 176.4
Pension assets.............................................. 6.7 5.5
Other assets................................................ 2.1 1.6
Goodwill, net............................................... 70.1 131.6
------ ------
$602.2 $688.1
------ ------
------ ------
LIABILITIES AND INVESTED CAPITAL
Current liabilities:
Notes payable........................................... $ 3.9 $ 10.8
Trade accounts payable.................................. 59.5 62.7
Accrued expenses and other liabilities.................. 57.1 64.8
Income taxes payable.................................... 4.8 2.8
------ ------
Total current liabilities........................... 125.3 141.1
Deferred income taxes....................................... 5.3 2.5
Other liabilities........................................... 43.5 48.8
Notes payable to Affiliates................................. 201.6 195.0
Interest payable to Affiliates.............................. 23.7 10.6
------ ------
Total liabilities................................... 399.4 398.0
Commitments and contingencies
Invested capital............................................ 202.8 290.1
------ ------
$602.2 $688.1
------ ------
------ ------
</TABLE>
See notes to combined financial statements.
F-4
<PAGE>
LCA GROUP INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
---------------------------
2000 1999 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Operating activities:
Net income (loss)....................................... $(65.2) $ 20.2 $ 23.1
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................... $ 26.2 23.8 21.0
Provision (benefit) for deferred income taxes....... 3.0 (0.7) 0.5
Provision for doubtful accounts..................... 0.3 1.0 2.5
Goodwill impairment................................. 84.0 -- --
Changes in operating assets and liabilities, excluding
the effects of acquisitions and dispositions:
(Increase) decrease in trade receivables............ 3.5 (3.5) (20.9)
(Increase) decrease in inventories.................. 9.0 (1.1) (23.3)
(Increase) decrease in other current assets......... (1.9) 1.1 10.5
(Increase) decrease in other non-current assets..... (1.8) 0.2 (1.0)
Decrease in trade accounts payable.................. (5.7) (3.3) (3.2)
Increase (decrease) in income taxes payable......... 2.5 (2.2) 4.9
Decrease in accrued expenses and other
liabilities....................................... (7.7) (5.0) (8.0)
Increase (decrease) in other non-current
liabilities....................................... (4.6) 3.9 6.5
Other, net.......................................... 1.3 (0.4) (3.3)
------ ------ ------
Net cash provided by operating activities........... 42.9 34.0 9.3
Investing activities:
Acquisition of companies, net of cash acquired.......... (73.3) (64.9) (37.6)
Purchases of property, plant and equipment.............. (19.7) (31.2) (23.7)
Proceeds from sales of property, plant and equipment.... 1.1 1.9 0.1
------ ------ ------
Net cash used in investing activities............... (91.9) (94.2) (61.2)
Financing activities:
Proceeds from affiliate debt............................ 6.6 -- --
Proceeds from notes payable............................. 8.2 7.6 5.3
Repayment of notes payable.............................. (13.7) (3.0) (2.9)
Proceeds from long-term debt............................ -- -- 0.2
Repayment of long-term debt............................. -- -- (33.3)
Increase in interest payable to Affiliates.............. 13.1 10.6 --
Capital contributions from Affiliates................... 71.4 62.6 76.4
Dividends to Affiliates................................. (7.4) (10.1) (6.3)
Net transfers with Affiliates........................... (21.0) (6.8) 23.3
------ ------ ------
Net cash provided by financing activities........... 57.2 60.9 62.7
Effect of exchange rate changes on cash..................... (9.5) (4.0) 1.5
------ ------ ------
Net increase (decrease) in cash and cash
equivalents....................................... (1.3) (3.3) 12.3
Cash and cash equivalents at beginning of year.............. 9.1 12.4 0.1
------ ------ ------
Cash and cash equivalents at end of period.................. $ 7.8 $ 9.1 $ 12.4
------ ------ ------
------ ------ ------
</TABLE>
See notes to combined financial statements.
F-5
<PAGE>
LCA GROUP INC.
COMBINED STATEMENTS OF CHANGES IN INVESTED CAPITAL
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Balance at September 30, 1997............................... $ 17.1
Net income.................................................. $ 23.1
Translation adjustment...................................... 7.2
Minimum pension liability adjustment........................ (2.3)
------
Comprehensive income........................................ 28.0
Capital contributions from Affiliates....................... 172.0
Dividends to Affiliates..................................... (6.3)
Net transactions with Affiliates............................ 23.3
------
Balance at September 30, 1998............................... 234.1
Net income.................................................. 20.2
Translation adjustment...................................... (11.4)
Minimum pension liability adjustment........................ 1.5
------
Comprehensive income........................................ 10.3
Capital contributions from Affiliates....................... 62.6
Dividends to Affiliates..................................... (10.1)
Net transactions with Affiliates............................ (6.8)
------
Balance at September 30, 1999............................... 290.1
Net loss.................................................... (65.2)
Translation adjustment...................................... (28.9)
Minimum pension liability adjustment........................ (0.2)
------
Comprehensive loss.......................................... (94.3)
Capital contributions from Affiliates....................... 71.4
Dividends to Affiliates..................................... (7.4)
Payment for guarantee of USI stock.......................... (36.0)
Net transactions with Affiliates............................ (21.0)
------
Balance at September 30, 2000............................... $202.8
------
------
</TABLE>
See notes to combined financial statements.
F-6
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF COMPANY
The accompanying combined financial statements include the combined
operations of LCA Group Inc. (the 'Company'), which is comprised of subsidiaries
currently owned, directly or indirectly by U.S. Industries, Inc. (the 'Parent'
or 'USI'). The Company, through these USI subsidiaries, manufactures and
distributes indoor and outdoor lighting fixtures, hand tools, saws and cutting
and industrial tools for markets in North America and Europe. These subsidiaries
are grouped into two segments: Lighting (Lighting Corporation of America, Inc.,
Columbia Lighting Inc., Dual-Lite Inc., Kim Lighting Inc., Architectural Area
Lighting Inc., Spaulding Lighting Inc., Progress Lighting Inc., Prescolite Inc.
and SiTeco Holding GmbH) and Industrial Tools (Spear & Jackson plc and Bowers
Group plc).
In contemplation of the spin-off and distribution to its stockholders by USI
of the ownership in the Company, all the issued and outstanding common stock or
net operating assets of certain companies and other assets and interests will be
transferred to the Company (the 'Spin-off Transactions'). At September 30, 2000,
the Company had no separate legal status or existence as a combined group. These
financial statements are presented on a going concern basis as if the Company
had existed as a corporation separate from USI during the periods presented and
include the historical net assets and results of operations directly related to
the Company's operations.
USI and certain subsidiaries of USI (referred to herein as 'Affiliates')
have provided certain corporate general and administrative services to the
Company including legal, finance, tax, risk management and employee benefits. A
portion of the related costs has been allocated to the Company based on the
percentage of the Company's sales to the consolidated sales of USI as management
fees. The Company's management believes such amounts are reasonable; however,
they may not be indicative of the Company's ongoing costs as a separate public
entity. Additionally, the direct costs attributable to division management are
included in management fees and divisional overhead in the accompanying combined
financial statements.
NOTE 2. ACCOUNTING POLICIES
Fiscal Year: The Company's fiscal year ends on the Saturday nearest to
September 30. All fiscal year data contained herein reflect results of
operations for the 52, 52 and 53 week periods ended on the Saturday nearest to
September 30, 2000, 1999 and 1998, respectively, but are presented as of such
date for convenience of reference.
Principles of Combination: The combined financial statements include the
accounts of the Company and its subsidiaries. Intercompany accounts and
transactions are eliminated.
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.
Cash Equivalents: Cash equivalents represent short-term, highly liquid
investments, which have maturities of ninety days or less when purchased. Except
for certain cash balances owned by the Company, cash accounts have been
controlled on a centralized basis by an Affiliate. Accordingly, cash receipts
and disbursements have been made through Affiliates. The net results of cash
transactions between or on behalf of the Company, including intercompany
advances are included in the combined balance sheets as invested capital.
F-7
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and Amortization:
<TABLE>
<CAPTION>
FOR THE FISCAL
YEARS ENDED
SEPTEMBER 30,
---------------------
2000 1999 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Depreciation................................................ $22.6 $20.7 $18.7
Amortization of goodwill.................................... 3.6 3.1 2.3
----- ----- -----
$26.2 $23.8 $21.0
----- ----- -----
----- ----- -----
</TABLE>
Trade Receivables and Concentrations of Credit Risk:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------
2000 1999
---- ----
(IN MILLIONS)
<S> <C> <C>
Trade receivables........................................... $181.5 $184.3
Allowance for doubtful accounts............................. (9.8) (10.9)
------ ------
$171.7 $173.4
------ ------
------ ------
</TABLE>
The Company operates principally in the United States and Europe, and to a
lesser extent, in Mexico and Canada. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Credit losses have been within management's estimates.
Inventories:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------
2000 1999
---- ----
(IN MILLIONS)
<S> <C> <C>
Finished products........................................... $ 78.6 $ 78.6
In-process products......................................... 26.7 26.7
Raw materials............................................... 60.5 67.5
------ ------
$165.8 $172.8
------ ------
------ ------
</TABLE>
Inventories are valued at the lower of cost, determined under the first-in,
first-out method, or market.
Property, Plant and Equipment:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------
2000 1999
---- ----
(IN MILLIONS)
<S> <C> <C>
Land and buildings........................................ $ 109.6 $ 117.0
Machinery, equipment and furniture........................ 198.1 193.3
Accumulated depreciation.................................. (149.7) (133.9)
------- -------
$ 158.0 $ 176.4
------- -------
------- -------
</TABLE>
Property, plant and equipment are stated on the basis of cost less
accumulated depreciation provided under the straight-line method. Buildings are
depreciated based on lives ranging from twenty to forty years, and machinery,
equipment and furniture based on lives ranging from three to ten years.
Goodwill: Goodwill represents the excess of the purchase price over the fair
value of net assets acquired. The Company reviews operating results and other
relevant facts every fiscal quarter for each of its businesses to determine if
there are indications that the carrying value of its long-lived assets,
F-8
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
including goodwill, may be impaired. When there are indicators of impairment,
the Company first assesses the recoverability of goodwill associated with
long-lived assets in accordance with the requirements of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of, which require impairment losses to be recorded when the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amount of those assets. In addition, an enterprise level assessment
of the recoverability of any remaining goodwill is performed using the fair
value methodology, as permitted under APB No. 17. In the event that such fair
value is below the carrying value of an enterprise, for those companies with
goodwill, the Company reduces goodwill to the extent it is impaired based upon
fair value.
The fair value methodology is applied to determine the recoverable value for
each business on a stand-alone basis using ranges of fair values obtained from
independent appraisers. In developing these ranges, the independent appraisers
consider (a) publicly available information, (b) financial projections of each
business based on management's best estimate, (c) the future prospects of each
business as discussed with senior operating and financial management, (d)
publicly available information regarding comparable publicly traded companies in
each industry, (e) market prices, capitalizations and trading multiples of
comparable public companies and (f) other information deemed relevant. In
reviewing these valuations and considering the need to record a charge for
impairment of enterprise value and goodwill to the extent it is part of the
enterprise value, the Company also evaluates solicited and unsolicited bids for
the businesses of the Company.
Goodwill is amortized straight-line over forty years, which is the estimated
future period to be benefited. Accumulated amortization aggregated $166.3
million and $166.2 million at September 30, 2000 and 1999, respectively.
Amortization of goodwill amounted to $3.6 million, $3.1 million and $2.3 million
for fiscal 2000, 1999 and 1998, respectively.
Accrued Expenses and Other Liabilities:
Accrued Expenses and other liabilities, consist of the following:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------
2000 1999
---- ----
(IN MILLIONS)
<S> <C> <C>
Compensation related....................................... $23.0 $27.4
Other...................................................... 34.1 37.4
----- -----
$57.1 $64.8
----- -----
----- -----
</TABLE>
Foreign Currency Translation: The functional currency of each of the
Company's foreign operations is the local currency. Assets and liabilities of
foreign subsidiaries are translated at the exchange rates in effect at the
balance sheet dates, while revenue, expenses and cash flows are translated at
average exchange rates for the period. Translation gains and losses are included
in invested capital and comprehensive income.
Income Taxes: Deferred tax assets and liabilities are computed based on the
difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws. Deferred income tax expense or
benefit is based on the changes in the asset or liability from period to period.
The Company's United States earnings have been included in the consolidated
federal income tax return filed by USI. The Company provided for income taxes in
the accompanying financial statements as if it were a stand-alone entity and
filed separate income tax returns from USI. Federal taxes currently payable have
been included in Invested Capital. Income taxes paid to state, local and foreign
jurisdictions during fiscal 2000, 1999 and 1998 were $2.0 million, $7.1 million
and $1.1 million, respectively.
F-9
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Upon completion of the anticipated spin-off, such operations would no longer
qualify to be members of the USI consolidated group and, accordingly, will file
the applicable income tax returns in the appropriate jurisdictions. USI, the
Company and certain of its subsidiaries will enter into tax sharing and
indemnification agreements in which USI and certain of its subsidiaries
generally will agree to indemnify the Company and its subsidiaries for all
income tax liabilities in respect to periods prior to such spin-off.
Revenue Recognition: Revenue is recognized upon shipment of product to the
customer. Provisions are made for warranty and return costs at the time of sale.
Such provisions have not been material.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, 'Revenue Recognition in Financial Statements' (SAB
101). The Company believes the effect of the adoption will not be material to
its results of operations, financial position or cash flows.
Advertising Costs: Advertising costs are expensed as incurred. Such amounts
totaled $13.1 million, $12.4 million, and $12.6 million for fiscal 2000, 1999,
and 1998, respectively.
Research and Development Costs: Research and development costs are expensed
as incurred. Such amounts totaled $5.5 million, $6.1 million, and $6.4 million
for fiscal 2000, 1999 and 1998, respectively.
Fair Value of Financial Instruments: The fair value of all short-term
financial instruments approximate their carrying value due to their short
maturity. The fair value of the notes payable to Affiliates is also estimated to
approximate its carrying amount since it is contemplated that these notes will
be repaid at face value upon the completion of the spin-off.
Derivative Financial Instruments: In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, 'Accounting for Derivative Instruments and
Hedging Activities,' which establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires the Company to
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. It further provides criteria for
derivative instruments to be designated as fair value, cash flow, or foreign
currency hedges, and establishes accounting standards for reporting changes in
the fair value of the derivative instruments. Upon adoption, the Company will be
required to adjust hedging instruments to fair value in the balance sheet and
recognize the offsetting gains or losses as adjustments to be reported in net
income or other comprehensive income, as appropriate. The Company will adopt
SFAS No. 133 in the first quarter of fiscal 2001. Management does not believe
the adoption of SFAS No. 133 will have a material effect on the Company's
results of operations or financial position.
Segment Reporting: Operating segments are defined as components of an
enterprise for which separate financial information is available that is
evaluated regularly by chief operating decision makers in deciding how to
allocate resources in assessing performance. The Company's operations are
classified into two reportable business segments, Lighting and Industrial Tools.
Comprehensive Income: Comprehensive income is net income and other items,
which may include foreign currency translation adjustments, minimum pension
liability adjustments and unrealized gains and losses on marketable securities
classified as available-for-sale. Accumulated comprehensive income at September
30, 2000 and 1999 consists of ($29.2) million and ($0.3) million of cumulative
translation adjustment, respectively, and ($1.2) million and ($1.0) million of
additional minimum pension liability, respectively net of tax benefit.
Stock Based Compensation: The Company does not have stock-based compensation
plans separate from USI; however, the Company does participate in USI's
stock-based compensation plans. Consistent with USI, the Company accounts for
participation in these plans in accordance with Accounting Principles Board
Opinion No. 25 ('APB 25'), 'Accounting for Stock Issued to Employees' and
related interpretations in measuring compensation costs for its stock options
and discloses pro forma net income as if compensation costs had been determined
consistent with the SFAS No. 123, 'Accounting
F-10
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
for Stock-based Compensation'. The Company has no stock options outstanding as
of September 30, 2000.
Subsequent to the Spin-off, the Company anticipates issuing common stock
options to executive officers and other key employees. Such stock options will
be issued at a price that will equal its fair market value at date of grant. The
Company will account for its stock options under APB 25.
In March 2000, the FASB issued FIN No. 44 to APB 25 effective July 2000.
Management anticipates that this new interpretation will not have an effect on
earnings.
Earnings Per Share: Historical earnings per share are not presented because
the Company was comprised of direct or indirect subsidiaries of the Parent.
The pro-forma earnings per share were calculated assuming that 7,690,000
shares of the Company's common stock will be issued upon the Spin-off. One share
of the Company's common stock will be issued for every ten USI shares. The
pro-forma earnings per share do not include the effect of any options that might
be issued by the Company subsequent to the Spin-off.
Non-Cash Transactions: In fiscal 1998, the Company received a non-cash
capital contribution from USI of $95.6 million, which represents the 3,685,520
shares issued by USI for the acquisition of Spear & Jackson plc.
NOTE 3. ACQUISITIONS
In March 1999, the Company purchased the assets of the Dual-Lite business
('Dual-Lite') for approximately $46.1 million in cash, resulting in goodwill of
$36.4 million. Dual-Lite manufactures emergency lights and central inverter
systems. The results of Dual-Lite are included in the Lighting segment.
In January 1999, the Company purchased the Bowers Group PLC ('Bowers') for
approximately $15.6 million in cash, resulting in goodwill of $10.2 million.
Bowers manufactures metrology instruments. The results of Bowers are included in
Industrial Tools segment.
The proforma effect of the acquisitions and the aggregate assets acquired
and liabilities assumed detailed above is not material. These acquisitions have
been accounted for as purchases and their results of operations are included in
the financial statements from the date of acquisition.
In December 1997, the Company purchased Spear & Jackson plc ('Spear &
Jackson') for $11.1 million in cash and $95.6 million in USI's Common Stock
(3,685,520 shares), resulting in initial goodwill of approximately $63.5
million. Spear & Jackson manufactures and distributes hand tools, saws, cutting
and industrial tools. The purchase price was subject to a cash contingency,
payable on or before June 2000. The cash contingency was based upon certain
performance criteria and the market value of USI's stock. The results of
Spear & Jackson are included in the Industrial Tools segment. In June 2000, upon
expiration of the contingency period related to the December 1997 acquisition of
Spear & Jackson, USI made additional cash payments of `L'47 million ($71
million), to the former owners of Spear & Jackson. The share purchase agreement
provided for possible additional cash payments by USI to the former shareholders
of Spear & Jackson if the value of USI's common stock issued as consideration in
the transaction at the closing was not equal to the value of USI's stock at the
end of the thirtieth month after the transaction date (which period ended
June 3, 2000) and (1) if Spear & Jackson met certain sales targets during that
same thirty-month contingency period, or (2) upon certain other factors. The
other factors included the failure (a) of USI to use Spear & Jackson to
distribute internationally the products of Ames, a subsidiary of USI, (b) of
Ames to use Spear & Jackson as a preferred supplier of products not manufactured
by Ames, but manufactured by Spear & Jackson, or (c) of USI to retain the
services of a person approved by the former shareholders as the chief executive
of Spear & Jackson.
F-11
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
At the end of a thirty month contingency period, the market value of USI's
stock, which was computed in accordance with the stock purchase agreement by
averaging USI's stock price on the NYSE during the last five trading days of the
contingency period, was below the guaranteed amount (i.e. the market value of
USI's stock at the acquisition date), which required USI to make a $36 million
payment. This portion of the payment was recorded as an adjustment to invested
capital as it was based upon the market value of USI's common stock price. The
remainder of the cash payment ($35 million) was recorded as additional goodwill
as it was made in satisfaction of additional contingent consideration based on
other criteria set forth in the purchase agreement. See Note 4 -- Goodwill
Impairment and Restructuring.
In October 1997, the Company purchased the assets of Siemens AG's European
commercial lighting operations for $67.0 million. The acquired business is a
European manufacturer and marketer of standard and customized indoor and outdoor
lighting products for commercial and industrial use. The business, renamed
SiTeco, operates manufacturing facilities in Germany, Austria, and Slovenia. The
results of SiTeco are included in the Lighting segment.
The following summarizes the allocation of the consideration paid for Spear
& Jackson and SiTeco to the fair market value of the aggregate assets acquired
and liabilities assumed by the Company (in millions):
<TABLE>
<S> <C>
Assets, net of cash acquired................................ $ 212.7
Assumed liabilities......................................... (143.0)
Goodwill.................................................... 63.5
-------
$ 133.2
-------
-------
</TABLE>
These acquisitions have been accounted for as purchases and their results of
operations have been included in the financial statements from the date of
acquisition.
NOTE 4. GOODWILL IMPAIRMENT AND RESTRUCTURING
Due to indications of impairment based on the additional consideration paid
for Spear & Jackson and its current operating results, the Company evaluated the
recoverability of the Spear & Jackson goodwill in accordance with its accounting
policy as described in Note 2. In evaluating for impairment under its accounting
policy, the Company first reviewed for impairment under the requirements of SFAS
No. 121. The Company's estimate of undiscounted future cash flows of Spear &
Jackson indicated there was no impairment of Spear & Jackson's long-lived assets
and associated goodwill, however, the enterprise level assessment of the
recoverability of Spear & Jackson's goodwill indicated the goodwill was
impaired. In arriving at the fair value of Spear & Jackson, the Company
considered a number of factors including 1) competition from less expensive
imports; 2) declining margins on exports; 3) general decline in the industrial
sector in the United Kingdom 4) Spear & Jackson's long-term financial plan and
5) analysis of values for similar companies. In determining the amount of the
impairment, the Company compared the net book value to the estimated fair
values of Spear & Jackson. Based on the above, the Company recorded an
impairment charge to the goodwill of Spear & Jackson of $84 million in September
2000. The effect of this charge will reduce future goodwill amortization by
approximately $2.2 million per annum.
In June 1998, USI reviewed its long-term strategy and reviewed the operating
performance and future prospects of each of its businesses. As a result, USI
adopted a plan to improve efficiency and enhance competitiveness at some of the
Company's operations. The restructuring plan included the closing of a
manufacturing and distribution facility in the Lighting segment. The
restructuring did not have a significant impact on the ongoing operations during
the periods that manufacturing was transitioned from the facility closed. The
expected benefits from the restructuring are primarily reduced fixed costs
associated with leased facilities and reduced compensation costs.
F-12
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The principal, pre-tax components of the fiscal 1998 restructuring charge
were $1.3 million in lease obligations and $1.0 million in severance costs.
During fiscal 1998 the Company made cash payments of $1.1 million, with the
remaining $1.2 million paid in fiscal 1999. In addition, the Company also
incurred $0.5 million of product change costs related to the elimination of
product lines. After an income tax benefit of $1.1 million, the charges detailed
above reduced net income for the period ended September 30, 1998 by $1.7
million.
NOTE 5. NOTES PAYABLE
Notes Payable to Affiliates consists of the following:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------
2000 1999
---- ----
<S> <C> <C>
6.5% Notes Payable to Affiliates......................... $195.0 $195.0
6.25% Notes Payable to Affiliates........................ 6.6 --
------ ------
Notes payable to Affiliates.............................. $201.6 $195.0
------ ------
------ ------
</TABLE>
The 6.5% and 6.25% notes are unsecured and mature in fiscal 2005. Interest
paid was $0.0 million, $2.1 million and 12.7 million in fiscal 2000, 1999 and
1998, respectively.
The European lighting business maintains working capital lines of credit
guaranteed by USI of $23.5 million and $50.0 million at September 30, 2000 and
1999, respectively, primarily denominated in German Marks. Amounts outstanding
under these lines of credit at September 30, 2000 and 1999 were $2.7 million and
$7.9 million, respectively, with interest rates ranging from 2.8% to 5.5%.
Interest paid was $0.3 million, $0.3 million and $0.6 million in fiscal 2000,
1999 and 1998, respectively.
Spear & Jackson maintains short-term credit facilities of $5.2 and $9.8 at
September 30, 2000 and 1999, respectively, primarily denominated in French
francs, British pounds and Australian dollars of which $0.4 million and $0.6
million was guaranteed by USI at September 30, 2000 and 1999, respectively.
Amounts outstanding under these lines of credit at September 30, 2000 and 1999
were $1.2 million and $2.9 million, respectively, with interest rates ranging
from 4.0% to 12.0%. Interest paid was $0.5 million, $0.4 million and $0.3
million in fiscal 2000, 1999 and 1998, respectively. In addition, Spear &
Jackson maintains a line of credit guaranteed by USI of $4.4 million and $5.1
million at September 30, 2000 and 1999, respectively. No amounts were
outstanding on this line of credit at September 30, 2000 and 1999.
NOTE 6. PENSION AND OTHER POST-RETIREMENT BENEFITS
The Company has noncontributory defined benefit plans covering substantially
all of its United States employees. The benefits under these plans are based
primarily on years of credited service and compensation as defined under the
respective plan provisions. The Company's funding policy is to contribute
amounts to the plans sufficient to meet the minimum funding requirements set
forth in the Employee Retirement Income Security Act of 1974, plus such amounts
as the Company may determine to be appropriate from time to time. The Company
also provides health care and life insurance benefits for certain groups of
retirees. These plans are typically partially contributory by the retirees, but
are reflected as liabilities in the Company's balance sheets.
The Company sponsors defined contribution plans. Contributions relating to
defined contribution plans are made based upon the respective plans' provisions.
In the United States, the Company also participates in multi-employer plans,
which provide defined benefits to union employees of the Company's subsidiaries.
Contributions relating to multi-employer plans are based on negotiated
collective bargaining agreements.
F-13
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table provides a reconciliation of changes in the projected
benefit obligation, fair value of plan assets and the funded status of the
Company's U.S. defined benefit pension and post-retirement benefit plans with
the amounts recognized in the Company's balance sheet at September 30:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------ ---------------
2000 1999 2000 1999
---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Changes in projected benefit obligation:
Benefit obligation at beginning of year................. $73.8 $78.9 $ 4.5 $ 4.8
Service cost............................................ 3.1 3.4 -- 0.1
Interest cost........................................... 5.6 5.2 0.3 0.2
Actuarial (gain) loss................................... (3.6) (8.2) 0.7 (0.1)
Benefits paid........................................... (5.8) (5.5) (0.3) (0.5)
Plan amendments......................................... 0.6 -- -- --
----- ----- ----- -----
Benefit obligation at end of year................... $73.7 $73.8 $ 5.2 $ 4.5
----- ----- ----- -----
----- ----- ----- -----
Changes in fair value of plan assets:
Fair value of assets at beginning of year............... $75.8 $70.5 $-- $--
Actual return on plan assets............................ 5.9 10.2 -- --
Employer contributions.................................. 2.2 0.6 0.3 0.4
Benefits paid........................................... (5.8) (5.5) (0.3) (0.4)
----- ----- ----- -----
Fair value of assets at end of year................. $78.1 $75.8 $-- $--
----- ----- ----- -----
----- ----- ----- -----
Funded status of plans:
Plan assets greater (less) than projected benefit
obligation............................................ $ 4.4 $ 2.0 $(5.2) $(4.5)
Unrecognized transition asset........................... (0.1) (0.2) -- --
Unrecognized net actuarial (gain) loss.................. (6.4) (3.6) 2.8 2.2
Unamortized prior service cost (income)................. 2.3 1.8 (1.7) (1.9)
----- ----- ----- -----
Net amount recognized............................... $ 0.2 $-- $(4.1) $(4.2)
----- ----- ----- -----
----- ----- ----- -----
Amounts recognized in the balance sheet consist of:
Accrued benefits........................................ $(8.1) $(7.0) $(4.1) $(4.2)
Prepaid benefits........................................ 5.5 4.7 -- --
Intangible asset........................................ 1.1 0.8 -- --
Accumulated other comprehensive income.................. 1.7 1.5 -- --
----- ----- ----- -----
Total amount recognized............................. $ 0.2 $-- $(4.1) $(4.2)
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
The aggregate projected benefit obligation and the aggregate fair value of
plan assets, for the plans that have projected benefit obligation in excess of
plan assets, are $58.5 million and $54.1 million, respectively, in 2000 and
$60.5 million and $54.9 million, respectively, in 1999.
The aggregate accumulated benefit obligation and the aggregate fair value of
plan assets, for the plans that have accumulated benefit obligation in excess of
plan assets, are $14.9 million and $12.2 million, in 2000 and $16.5 million and
$14.0 million, respectively, in 1999.
The Company's plan assets in the pension plans are included in a master
trust managed by USI, which principally invests in listed stocks and bonds,
including common stock of USI. USI's common stock included in plan assets was
1,253,100 and 983,100 shares at September 30, 2000 and 1999, representing $12.5
million and $15.5 million of the master trust's assets for the same respective
periods. During 2000 and 1999, $0.2 million in dividends on USI stock was paid
to the master trust.
The assumptions used and the net periodic pension cost for the Company's
defined benefit plans, as well as the total contributions charged to pension
expense for the defined contribution plans covering employees in the United
States are presented below.
F-14
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------- -------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Weighted-average assumptions as of
September 30:
Discount rate....................... 8.00% 7.50% 6.75% 7.50% 7.50% 6.75%
Expected return on plan assets...... 9.50% 9.50% 9.50% -- -- --
Rate of compensation increase....... 4.50% 4.50% 4.25% -- -- --
Components of net periodic benefit cost:
Defined benefit plans:
Service cost........................ $ 3.1 $ 3.4 $ 2.7 $-- $ 0.1 $ 0.1
Interest cost....................... 5.6 5.2 4.7 0.3 0.2 0.2
Expected return on plan assets...... (6.9) (6.4) (6.0) -- -- --
Amortization on unrecognized
transition asset.................. (0.1) (0.1) (0.1) -- -- --
Prior service cost (income)......... 0.3 0.3 0.2 (0.2) (0.2) (0.2)
Net actuarial losses................ -- 0.2 -- 0.2 0.2 0.2
----- ----- ----- ----- ----- -----
Net periodic benefit cost for defined
benefit plans......................... 2.0 2.6 1.5 0.3 0.3 0.3
Defined contribution plans.............. 0.4 0.6 0.3 -- -- --
Multi-employer plans.................... 0.5 0.5 0.8 -- -- --
----- ----- ----- ----- ----- -----
Net periodic benefit cost............... $ 2.9 $ 3.7 $ 2.6 $ 0.3 $ 0.3 $ 0.3
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
The weighted average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., the health care cost trend rate) for the other
post-retirement benefit plans was 9.0% for 2000 and is assumed to decrease 0.5%
a year to 5.5%. A one-percentage-point change in the assumed health care cost
trend rate would have the following effects at, and for the year ended,
September 30, 2000 (in millions):
<TABLE>
<S> <C>
Effect of a 1% increase in the health care cost trend rate
on:
Service cost plus interest cost......................... $--
Accumulated post-retirement benefit obligation.......... 0.3
Effect of a 1% decrease in the health care cost trend rate
on:
Service cost plus interest cost......................... --
Accumulated post-retirement benefit obligation.......... (0.3)
</TABLE>
The tables above set forth the historical components of the net periodic
pension cost and a reconciliation of the funded status of the pension and other
post-retirement benefit plans for the employees associated with the Company and
is not necessarily indicative of the amounts to be recognized by the Company on
a prospective basis.
F-15
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Benefit Arrangements
The Company's foreign defined benefit pension plans cover substantially all
SiTeco's employees in Germany and Austria and Spear & Jackson's salaried
employees. The following table provides a reconciliation of changes in the
projected benefit obligation, the fair value of the plan assets and the funded
status of the Company's foreign defined benefit pension plans with the amounts
recognized in the Company's balance sheet as of September 30:
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------
2000 1999
---- ----
(IN MILLIONS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................. $143.9 $143.3
Service cost............................................ 3.6 4.0
Interest cost........................................... 7.9 8.5
Employee contributions.................................. 0.9 0.9
Foreign currency exchange rate changes.................. (16.7) (5.9)
Actuarial gain.......................................... (1.9) (0.1)
Benefits paid........................................... (6.3) (6.8)
Settlement/curtailments................................. (0.8) --
------ ------
Benefit obligation at end of year................... 130.6 143.9
------ ------
------ ------
Change in fair value of plan assets:
Fair value of assets at beginning of year............... 111.1 101.2
Actual return on plan assets............................ 8.2 17.5
Employer contributions.................................. 2.5 1.6
Employee contributions.................................. 0.9 0.6
Foreign currency exchange rate changes.................. (11.1) (3.0)
Benefits paid........................................... (6.3) (6.8)
------ ------
Fair value of assets at end of year................. 105.3 111.1
------ ------
------ ------
Funded status of plans:
Plan assets less than projected benefit obligation...... (25.3) (32.8)
Unrecognized net actuarial losses....................... 5.8 7.8
------ ------
Total recognized in the consolidated balance
sheet............................................. (19.5) (25.0)
------ ------
------ ------
Amounts recognized in the balance sheet consist of:
Prepaid benefits........................................ 0.1 --
Accrued benefits........................................ (19.6) (25.0)
------ ------
Total recognized in the consolidated balance
sheet............................................. $(19.5) $(25.0)
------ ------
------ ------
</TABLE>
The aggregate accumulated benefit obligation and the aggregate fair value of
plan assets, for plans that have an accumulated benefit obligation in excess of
plan assets are $14.8 million and $0.0 million, respectively in 2000 and $19.2
million and $0.0 million, respectively, in 1999.
F-16
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The assumptions used and net periodic cost for the Company's foreign defined
benefit plans are presented below (in millions, except percentages):
<TABLE>
<CAPTION>
PENSION BENEFITS
---------------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Weighted-average assumption as of
September 30:
Discount rate................... 6.0% to 6.5% 5.75% to 6.5% 6.0% to 6.5%
Rate of compensation increase... 2.5% to 4.0% 2.5% to 4.0% 2.5% to 4.5%
Expected long-term rate of
return on plan assets......... 9.0% 9.0% 9.0%
</TABLE>
<TABLE>
<CAPTION>
PENSION BENEFITS
---------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost............................................ $ 3.6 $ 4.0 $ 3.4
Interest cost........................................... 7.9 8.5 7.5
Expected return on plan assets.......................... (8.8) (9.1) (7.4)
Curtailments............................................ (0.1) -- --
----- ----- -----
Total periodic cost..................................... $ 2.6 $ 3.4 $ 3.5
----- ----- -----
----- ----- -----
</TABLE>
NOTE 7. LEASES
Rental expense for operating leases was $10.1 million, $8.9 million and $6.5
million for the fiscal years ended September 30, 2000, 1999, and 1998.
Future minimum rental commitments under noncancellable operating leases as
of September 30, 2000 are:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
2001............................................ $ 8.7
2002............................................ 6.8
2003............................................ 5.0
2004............................................ 3.1
2005............................................ 2.7
Thereafter...................................... 2.6
-----
Total minimum lease payments.................... $28.9
-----
-----
</TABLE>
NOTE 8. INCOME TAXES
Income before taxes consists of:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
ENDED SEPTEMBER 30,
----------------------
2000 1999 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
United States......................................... $ 17.4 $18.5 $22.3
Foreign............................................... (70.1) 15.3 16.1
------ ----- -----
$(52.7) $33.8 $38.4
------ ----- -----
------ ----- -----
</TABLE>
F-17
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The provisions (benefit) for federal, foreign, and state income taxes
consist of:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
ENDED SEPTEMBER 30,
---------------------
2000 1999 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Current:
Federal............................................ $ 4.8 $11.1 $ 8.8
Foreign............................................ 4.4 2.4 5.3
State.............................................. 0.3 0.8 0.7
----- ----- -----
9.5 14.3 14.8
Deferred........................................... 3.0 (0.7) 0.5
----- ----- -----
$12.5 $13.6 $15.3
----- ----- -----
----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
ENDED SEPTEMBER 30,
----------------------
2000 1999 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Statutory federal income tax provision................ $(18.4) $11.8 $13.4
Foreign income tax differential....................... 0.8 0.9 1.1
State income taxes (net of federal benefit)........... 0.2 0.5 0.4
Goodwill amortization................................. 0.3 0.3 0.3
Change in valuation allowance......................... 29.4 -- --
Miscellaneous......................................... 0.2 0.1 0.1
------ ----- -----
$ 12.5 $13.6 $15.3
------ ----- -----
------ ----- -----
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------
2000 1999
---- ----
(IN MILLIONS)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment.......................... $ (8.5) $(8.3)
Net pension assets..................................... (1.1) (1.0)
Other.................................................. (0.5) --
------ -----
Total deferred tax liabilities..................... (10.1) (9.3)
------ -----
Deferred tax assets:
Accruals and allowances................................ 10.8 11.2
Post retirement benefits............................... 2.0 1.8
Inventory.............................................. 1.3 1.3
Intangible assets...................................... 29.4 --
Other.................................................. -- 1.6
------ -----
Total deferred tax assets.......................... 43.5 15.9
Valuation allowance................................ (29.4) --
------ -----
Net deferred tax asset............................. $ 4.0 $ 6.6
------ -----
------ -----
</TABLE>
The classification of the deferred tax balances is:
<TABLE>
<S> <C> <C>
Current asset.............................................. $11.0 $10.0
Current liability.......................................... (1.7) (0.9)
----- -----
9.3 9.1
----- -----
Noncurrent asset........................................... 3.1 5.8
Noncurrent liability....................................... (8.4) (8.3)
----- -----
(5.3) (2.5)
----- -----
Net deferred tax asset................................. $ 4.0 $ 6.6
----- -----
----- -----
</TABLE>
F-18
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. STOCK COMPENSATION PLANS
Certain key employees of the Company participate in stock incentive plans of
USI that provide for awards of restricted stock and stock options to purchase
USI common stock at prices equal to the fair value of the underlying shares at
the date of grant. The compensation expense related to the award of USI
restricted stock to key employees of the Company was $0.1 million, $0.2 million
and $0.1 million for fiscal 2000, 1999 and 1998, respectively, and is included
in the combined financial statements of the Company. Options awarded to
employees of the Company under the USI plans vest 25% per year until fully
vested after four years. Restrictions on stock awarded to employees of the
Company under the USI plans lapse either in tranches periodically throughout a
seven-year period or at the expiration of the seven-year period. In October
2000, the USI Compensation Committee approved, upon a spin-off of the Company
from USI, the acceleration of vesting and the extension of terms for certain
grants of USI options for LCA employees. In addition, the vesting of USI
restricted stock awards held by LCA employees will be accelerated.
Under USI's compensation plans, the independent directors, officers and
employees may be granted options to purchase USI's stock at no less than the
fair market value of the date of the option grant. The Company has adopted the
disclosure-only provisions of SFAS 123. Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation cost for USI's
stock option plan been determined based on the fair market value at the grant
date for awards in fiscal 2000, 1999 and 1998, consistent with the provision of
SFAS 123, the Company's net income would have been adjusted to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
FOR THE FISCAL
YEARS ENDED
----------------------
2000 1999 1998
---- ---- ----
(IN MILLIONS, EXCEPT
PER SHARE)
<S> <C> <C> <C>
Net income (loss)-as reported......................... $(65.2) $20.2 $23.1
Net income (loss)-pro forma........................... (65.3) 20.0 23.0
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years. The fair
value for these options was estimated at the date of grant using the
Black-Scholes model with the following assumptions:
<TABLE>
<CAPTION>
USI PLANS
---------
<S> <C>
Expected dividend yield at date of grant:
2000.................................................... 1.73%
1999.................................................... 1.15%
1998.................................................... .74%
Expected stock price volatility:
2000.................................................... 35.90%
1999.................................................... 36.80%
1998.................................................... 40.40%
Risk-free interest rate:
2000.................................................... 6.55%
1999.................................................... 6.10%
1998.................................................... 5.83%
Expected life of options.................................... 4 years
</TABLE>
F-19
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted-average fair value of options, calculated using the
Black-Scholes option pricing model, granted during 2000, 1999 and 1998 is $3.76,
$5.47 and $9.96, respectively. A summary of the Company's stock option activity
and related information for employees who worked directly for the Lighting and
Industrial Tools businesses for the years ended September 30 follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of
year........................ 347,264 16.04 207,687 $15.38 233,248 $11.84
Granted....................... 17,500 11.56 168,000 16.97 46,750 27.03
Exercised..................... (11,416) 8.75 (9,435) 8.91 (53,869) 9.50
Cancelled/expired............. (40,576) 17.53 (18,988) 20.57 (18,442) 17.23
------- ------ ------- ------ ------- ------
Outstanding -- end of year.... 312,772 15.87 347,264 $16.04 207,687 $15.38
------- ------ ------- ------ ------- ------
------- ------ ------- ------ ------- ------
Exercisable -- end of year.... 107,257 16.43 135,271 $11.83 66,500 $10.51
------- ------ ------- ------ ------- ------
------- ------ ------- ------ ------- ------
</TABLE>
The following table summarizes the status of the stock options outstanding
and exercisable at September 30, 2000:
<TABLE>
<CAPTION>
STOCK OPTIONS
STOCK OPTIONS OUTSTANDING EXERCISABLE
-------------------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OF CONTRACTUAL EXERCISE OF EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
--------------- ------- ---- ----- ------- -----
<S> <C> <C> <C> <C> <C>
$8.75 to $11.56...................... 110,910 3.96 $ 9.21 36,725 $ 8.81
$16.13 to $17.00..................... 130,830 8.16 16.96 38,333 16.97
$20.50 to $28.00..................... 71,032 6.80 24.24 32,199 24.50
------- ---- ------ ------- ------
Total............................ 312,772 6.36 $15.87 107,257 $16.43
------- ---- ------ ------- ------
------- ---- ------ ------- ------
</TABLE>
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company is subject to a wide range of environmental protection laws. The
Company has remedial and investigatory activities underway at approximately
seven sites, of which the Company has been named as a Potentially Responsible
Party ('PRP') at four 'superfund' sites pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or comparable
statutes.
It is often difficult to estimate the future impact of environmental
matters, including potential liabilities. The Company accrues for losses
associated with environmental remediation obligations when such losses are
probable and reasonably estimable. This practice is followed whether the claims
are asserted or unasserted. Reserves for estimated losses from environmental
remediation are, depending on the site, based primarily upon internal or third
party environmental studies, and estimates as to the number, participation level
and financial viability of any other PRP's, the extent of contamination and the
nature of required remedial actions. Such accruals are adjusted as further
information develops or circumstances change. Costs of future expenditures for
environmental remediation obligations are not discounted to their present fair
value unless the aggregate amount of the obligation and the amount and timing of
the cash payments are fixed or readily determinable. The Company has not
discounted any obligations as these criteria have not been met. Recoveries of
environmental remediation costs from other parties are recognized as assets when
their receipt is deemed probable. Management expects that the amount reserved
will be paid out over the periods of remediation for the applicable sites which
range up to 30 years and that such reserves are adequate based on all current
data. Each of the sites in
F-20
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
question is at various stages of investigation or remediation; however, no
information currently available reasonably suggests that projected expenditures
associated with remedial action or compliance with environmental laws for any
single site or for all sites in the aggregate, will have a material adverse
affect on the Company's financial condition, results of operations or cash
flows.
At September 30, 2000, the Company had accrued approximately $4.4 million
for various environmental related liabilities of which the Company is aware. The
Company believes that the range of liability for such matters is between
approximately $1.1 million and $5.2 million.
Also, certain of the Company's subsidiaries are defendants or plaintiffs in
lawsuits that have arisen in the normal course of business. While certain of
these matters involve substantial amounts, it is management's opinion, based on
the advice of counsel, that the ultimate resolution of such litigation and
environmental matters will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
NOTE 11. SEGMENT DATA
The Company's operations are classified into two business segments: Lighting
and Industrial Tools. These operations are conducted primarily in the United
States, and to a lesser extent, in other regions of the world. The following
table presents certain information about the Company by segment:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------
NET SALES OPERATING INCOME (LOSS)
------------------------ ------------------------
2000 1999 1998 2000 1999 1998
------ ------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Business segments:
Lighting(1).............................. $813.5 $804.0 $765.5 $ 43.4 $ 48.3 $ 53.5
Industrial Tools(2)...................... 123.4 113.5 90.6 (78.3) 6.2 5.9
Management fees and divisional
overhead............................... -- -- -- (4.6) (7.9) (8.3)
------ ------ ------ ------ ------ ------
$936.9 $917.5 $856.1 (39.5) 46.6 51.1
------ ------ ------
------ ------ ------
Interest expense to Affiliates........... (13.1) (12.7) (12.7)
Interest expense......................... (0.8) (0.7) (1.0)
Interest income.......................... 0.7 0.6 1.0
------ ------ ------
Income (loss) before income taxes........ (52.7) 33.8 38.4
Provision for income taxes............... (12.5) (13.6) (15.3)
------ ------ ------
Net income (loss)........................ $(65.2) $ 20.2 $ 23.1
------ ------ ------
------ ------ ------
</TABLE>
---------
(1) Operating income for the year ended September 30, 1998 includes
restructuring charges of $2.3 million and other related charges of $0.5
million.
(2) Operating loss for the year ended September 30, 2000 includes goodwill
impairment charges of $84.0 million.
F-21
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents certain information about the Company by
segment:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
---------------------------
2000 1999 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Assets
Lighting................................................ $506.3 $525.9 $468.3
Industrial Tools........................................ 95.9 162.2 149.0
------ ------ ------
Total Assets........................................ $602.2 $688.1 $617.3
------ ------ ------
------ ------ ------
Depreciation and Goodwill Amortization
Lighting................................................ $ 21.4 $ 19.5 $ 17.6
Industrial Tools........................................ 4.8 4.3 3.4
------ ------ ------
Total Depreciation and Goodwill Amortization........ $ 26.2 $ 23.8 $ 21.0
------ ------ ------
------ ------ ------
Capital Expenditures
Lighting................................................ $ 17.7 $ 27.5 $ 19.0
Industrial Tools........................................ 2.0 3.7 4.7
------ ------ ------
Total Capital Expenditures.......................... $ 19.7 $ 31.2 $ 23.7
------ ------ ------
------ ------ ------
</TABLE>
NOTE 12. GEOGRAPHIC AREAS
The following table presents certain information about the Company by
geographic areas (in millions):
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
---------------------------
2000 1999 1998
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Net Sales
United States........................................... $612.1 $582.6 $567.3
Foreign
United Kingdom...................................... 61.6 53.7 45.6
Germany............................................. 129.3 131.9 138.9
Other............................................... 133.9 149.3 104.3
------ ------ ------
Total Net Sales................................. $936.9 $917.5 $856.1
------ ------ ------
------ ------ ------
Operating Income (Loss)(1)
United States........................................... $ 30.4 $ 30.8 $ 34.4
Foreign
United Kingdom...................................... (81.5) 2.9 3.0
Germany............................................. 8.7 6.9 10.9
Other............................................... 2.9 6.0 2.8
------ ------ ------
Total Operating Income (Loss)................... $(39.5) $ 46.6 $ 51.1
------ ------ ------
------ ------ ------
Long-lived Assets
United States........................................... $142.3 $146.8 $102.5
Foreign
United Kingdom...................................... 34.2 97.7 88.2
Germany............................................. 41.7 53.3 57.1
Other............................................... 9.9 10.2 11.9
------ ------ ------
Total long-lived assets......................... $228.1 $308.0 $259.7
------ ------ ------
------ ------ ------
</TABLE>
(footnote on next page)
F-22
<PAGE>
LCA GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(footnote from previous page)
(1) Operating loss for the year ended September 30, 2000 included goodwill
impairment charges of $84.0 million; all of those charges relate to United
Kingdom operating loss. Operating earnings for the year ended September 30,
1998 included restructuring charges of $2.3 million; all of these charges
relate to operating earnings within the United States.
NOTE 13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial information for the fiscal years ended
September 30, 2000 and 1999 is as follows (in millions):
<TABLE>
<CAPTION>
2000 1999
--------------------------------------- ---------------------------------------
QUARTER ENDED DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
------------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $225.2 $238.3 $235.4 $238.0 $217.0 $224.8 $235.2 $240.5
Gross profit............. 74.0 74.7 74.4 75.2 69.7 70.4 75.7 73.0
Net income (loss)(A)..... 3.8 3.2 3.0 (75.2) 4.7 3.9 5.8 5.8
</TABLE>
---------
(A) The quarter ended September 30, 2000 includes goodwill impairment charges
of $84.0 million related to Spear & Jackson with no related tax benefit.
All periods presented are 13 weeks.
F-23
<PAGE>
SCHEDULE II
LCA GROUP INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
<S> <C> <C> <C> <C> <C>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO NET BALANCE AT
BEGINNING OF COSTS AND OTHER ADDITIONS END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------------------------------------ ------------ ---------- ---------- ---------- ----------
(IN MILLIONS)
Year ended September 30, 1998
Deducted from asset accounts:
Allowance for doubtful
accounts...................... $ 5.5 $2.5 $ -- $ 1.9(a)(b) $ 9.9
Year ended September 30, 1999
Deducted from asset accounts:
Allowance for doubtful
accounts...................... $ 9.9 $1.0 $ -- $ --(a)(b) $10.9
Year ended September 30, 2000
Deducted from asset accounts:
Allowance for doubtful
accounts...................... $10.9 $0.3 $ -- $(1.4)(a)(b) $ 9.8
</TABLE>
---------
(a) Uncollectible accounts written off, net of recoveries.
(b) Amount in connection with acquisition.
S-1
<PAGE>
ANNEX A
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
LCA GROUP INC.
LCA Group Inc., a corporation organized and existing under the laws of the
State of Delaware, hereby certifies as follows:
1. The name of the Corporation is LCA Group Inc. (the 'Corporation'). The
Corporation was originally incorporated under the name Lighting Corporation of
America. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on September 30, 1987 under
the name HKID 14 Inc. There have been three Certificates of Amendment to the
Certificate of Incorporation filed with the Secretary of State of Delaware. On
April 4, 1988, the name of the Corporation was changed to JWSP Holdings, Inc. On
May 1, 1997 the name of the Corporation was changed to Lighting Corporation of
America and on November 2, 2000, the name of the Corporation was changed to
LCA Group Inc. This Amended and Restated Certificate of Incorporation restates
and further amends the Certificate of Incorporation of the Corporation, as
heretofore amended, and has been adopted and approved in accordance with the
provisions of Sections 245 and 242 of the Delaware General Corporation Law.
Stockholder approval of this Amended and Restated Certificate of Incorporation
was effected by written consent in accordance with Section 228 of the Delaware
General Corporation Law.
2. The text of the Certificate of Incorporation of the Corporation, as
heretofore amended, hereby is amended and restated to read in its entirety is as
follows:
ARTICLE I
NAME
The name of the Corporation is LCA Group Inc.
ARTICLE II
ADDRESS OF REGISTERED OFFICE;
NAME OF REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801. The name of its registered agent at
that address in the State of Delaware is The Corporation Trust Company.
ARTICLE III
PURPOSE AND POWERS
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may now or hereafter be organized under the Delaware
General Corporation Law ('Delaware Law'). It shall have all powers that may now
or hereafter be lawful for a corporation to exercise under Delaware Law.
ARTICLE IV
CAPITAL STOCK
SECTION 4.1 Total Number of Shares of Stock. The total number of shares of
capital stock of all classes that the Corporation shall have authority to issue
is 25,000,000 shares. The authorized capital stock is divided into 2,000,000
(Two Million) shares of preferred stock, of the par value of $.01 each (the
'Preferred Stock'), and 23,000,000 shares of common stock, of the par value of
$.01 each (the 'Common Stock').
A-1
<PAGE>
SECTION 4.2 Preferred Stock. (a) The shares of Preferred Stock of the
Corporation may be issued from time to time in one or more series thereof, the
shares of each series to have such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, as are stated and expressed herein or in the resolution or resolutions
providing for the issue of such series, adopted by the board of directors of the
Corporation (the 'Board of Directors') as hereinafter provided.
(b) Authority is hereby expressly granted to the Board of Directors, subject
to the provisions of this Article IV and to the limitations prescribed by
Delaware Law, to authorize the issue of one or more series of Preferred Stock
and with respect to each such series to fix by resolution or resolutions
providing for the issue of each series the voting powers, full or limited, if
any, of the shares of such series and the designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof. The authority of the Board of Directors
with respect to each series shall include, but not be limited to, the
determination or fixing of the following:
(i) the maximum number of shares to constitute such series (which may
subsequently be increased or decreased by resolutions of the Board of
Directors unless otherwise provided in the resolution providing for the
issue of such series), the distinctive designation thereof and the stated
value thereof if different than the par value thereof;
(ii) the dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the relation that such dividends
shall bear to the dividends payable on any other class or classes of stock
or any other series of any class of stock of the Corporation, and whether
such dividends shall be cumulative or noncumulative;
(iii) whether the shares of such series shall be subject to redemption,
in whole or in part, and if made subject to such redemption the times,
prices and other terms and conditions of such redemption, including whether
or not such redemption may occur at the option of the Corporation or at the
option of the holder or holders thereof or upon the happening of a specified
event;
(iv) the terms and amount of any sinking fund established for the
purchase or redemption of the shares of such series;
(v) whether or not the shares of such series shall be convertible into
or exchangeable for shares of any other class or classes of any stock or any
other series of any class of stock of the Corporation, and, if provision is
made for conversion or exchange, the times, prices, rates, adjustments, and
other terms and conditions of such conversion or exchange;
(vi) the extent, if any, to which the holders of shares of such series
shall be entitled to vote with respect to the election of directors or
otherwise;
(vii) the restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(viii) the rights of the holders of the shares of such series upon the
dissolution of, or upon the subsequent distribution of assets of, the
Corporation; and
(ix) the manner in which any facts ascertainable outside the resolution
or resolutions providing for the issue of such series shall operate upon the
voting powers, designations, preferences, rights and qualifications,
limitations or restrictions of such series.
SECTION 4.3 Common Stock. The shares of Common Stock of the Corporation
shall be of one and the same class. The holders of Common Stock shall have one
vote per share of Common Stock on all matters on which holders of Common Stock
are entitled to vote.
ARTICLE V
BOARD OF DIRECTORS
SECTION 5.1 Powers of Board of Directors. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors, which shall consist of not fewer than three or more than eleven
members. In furtherance, and not in limitation, of the powers conferred by
Delaware Law, the Board of Directors is expressly authorized to:
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(a) adopt, amend, alter, change or repeal the By-Laws of the
Corporation; provided, however, that no By-Laws hereafter adopted shall
invalidate any prior act of the directors that would have been valid if such
new By-Laws had not been adopted;
(b) determine the rights, powers, duties, rules and procedures that
affect the power of the Board of Directors to manage and direct the business
and affairs of the Corporation, including the power to designate and empower
committees of the Board of Directors, to elect, appoint and empower the
officers and other agents of the Corporation, and to determine the time and
place of, and the notice requirements for, Board meetings, as well as the
quorum and voting requirements for, and the manner of taking, Board action;
and
(c) exercise all such powers and do all such acts as may be exercised or
done by the Corporation, subject to the provisions of Delaware Law, this
Certificate of Incorporation, and the By-Laws of the Corporation.
SECTION 5.2 Number of Directors. Except as may be provided in a resolution
or resolutions providing for any series of Preferred Stock pursuant to Article
IV hereof with respect to any directors elected by the holders of such series,
and subject to Section 5.1 of this Certificate of Incorporation, the number of
directors constituting the Board of Directors shall be determined from time to
time exclusively by a vote of a majority of the Board of Directors in office at
the time of such vote.
SECTION 5.3 Classified Board of Directors. The directors shall be divided
into three classes, with each class to be as nearly equal in number as
reasonably possible, and with the initial term of office of the first class of
directors to expire at the 2002 annual meeting of stockholders, the initial term
of office of the second class of directors to expire at the 2003 annual meeting
of stockholders and the initial term of office of the third class of directors
to expire at the 2004 annual meeting of stockholders, in each case upon the
election and qualification of their successors. Commencing with the 2002 annual
meeting of stockholders, directors elected to succeed those directors whose
terms have thereupon expired shall be elected to a term of office to expire at
the third succeeding annual meeting of stockholders after their election, and
upon the election and qualification of their successors. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain or attain the number of directors in each class as
nearly equal as reasonably possible, but in no case will a decrease in the
number of directors shorten the term of any incumbent director.
SECTION 5.4 Vacancies. Except as may be provided in a resolution or
resolutions providing for any series of Preferred Stock pursuant to Article IV
hereof with respect to any directors elected by the holders of such series, any
vacancies in the Board of Directors for any reason and any newly created
directorship resulting by reason of any increase in the number of directors may
be filled only by the Board of Directors, acting by a majority of the remaining
directors then in office, although less than a quorum, or by a sole remaining
director, and any directors so appointed shall hold office until the next
election of the class of which such directors have been chosen and until their
successors are elected and qualified.
SECTION 5.5 Removal of Directors. Except as may be provided in a resolution
or resolutions providing for any series of Preferred Stock pursuant to Article
IV hereof with respect to any directors elected by the holders of such series,
any director, or the entire Board of Directors, may be removed from office at
any time, but only for cause, and only by the affirmative vote of the holders of
at least 80% of the voting power of all of the shares of capital stock of the
Corporation then entitled to vote generally in the election of directors, voting
together as a single class.
ARTICLE VI
STOCKHOLDER ACTIONS AND MEETINGS OF STOCKHOLDERS
Except as may be provided in a resolution or resolutions providing for any
class or series of Preferred Stock pursuant to Article IV hereof, any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of such holders and may not
be effected by any written consent in lieu of a meeting by such holders. Special
meetings of stockholders of the Corporation may be called only by the Chairman
of the Board or by the Secretary upon direction of the Board of Directors
pursuant to a resolution adopted by a majority of
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the members of the Board of Directors then in office. Elections of directors
need not be by written ballot, unless otherwise provided in the By-Laws. For
purposes of all meetings of stockholders, a quorum shall consist of a majority
of the shares entitled to vote at such meeting of stockholders, unless otherwise
required by law.
ARTICLE VII
LIMITATION ON LIABILITY OF DIRECTORS
No person shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, including
without limitation directors serving on committees of the Board of Directors;
provided, however, that the foregoing shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware Law, or (iv) for any transaction from which the
director derived an improper personal benefit. If Delaware Law is amended
hereafter to authorize corporate action further eliminating or limited the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
Delaware Law, as so amended. Any amendment, repeal or modification of this
Article VII shall not adversely affect any right or protection of a director of
the Corporation existing hereunder with respect to any act or omission occurring
prior to such amendment, repeal or modification.
ARTICLE VIII
CERTAIN BUSINESS COMBINATIONS
SECTION 8.1. Vote Required For Certain Business Combinations. Except as
otherwise expressly provided in Section 8.2, in addition to any affirmative vote
required by law or by any other provision of the Certificate of Incorporation of
the Corporation, the affirmative vote of the holders of not less than 80% of the
outstanding shares of 'Voting Stock' (as hereinafter defined) of the Corporation
voting together as a single class shall be required for the approval or
authorization of any 'Business Combination' (as hereinafter defined) of the
Corporation with any 'Related Person' (as hereinafter defined). For the purpose
of this Article:
(A) The term 'Business Combination' shall mean (1) any merger or
consolidation of the Corporation or a Subsidiary (as hereinafter defined) of
the Corporation with or into a Related Person or of a Related Person with or
into the Corporation or a Subsidiary of the Corporation; (2) any sale,
lease, exchange, transfer, or other disposition, including, without
limitation, a mortgage or any other hypothecation or transfer as collateral,
of all or any 'Substantial Part' (as hereinafter defined) of the assets
either of the Corporation (including, without limitation, any voting
securities of a Subsidiary) or of a Subsidiary of the Corporation to a
Related Person; (3) the issuance of any securities (other than by way of a
distribution to stockholders made pro rata to all holders of the class of
stock to receive the distribution) of the Corporation or a Subsidiary of the
Corporation to a Related Person; (4) the acquisition by the Corporation or a
Subsidiary of the Corporation of any securities of a Related Person;
(5) any recapitalization that would have the effect, directly or indirectly,
of increasing the voting power of a Related Person; (6) any merger of the
Corporation into a Subsidiary of the Corporation; or (7) any agreement,
contract, or other arrangement providing for any of the transactions
described in this definition of 'Business Combination.'
(B) The term 'Related Person' shall mean and include any individual,
corporation, partnership, or other person or entity which, together with its
'Affiliates' and 'Associates,' 'Beneficially Owns' (as hereinafter defined),
in the aggregate ten percent (10%) or more of the outstanding Voting Stock
of the Corporation, and any Affiliate or Associate of any such individual,
corporation, partnership, or other person or entity.
(C) The term 'Substantial Part' shall mean more than 80% of the book
value of the total consolidated assets of the Corporation as reported in the
consolidated financial statements of the
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Corporation and its subsidiaries as of the end of its most recent fiscal
year ending prior to the time as of which a 'Substantial Part' is to be
determined.
(D) The term 'Voting Stock' shall mean all outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors of the Corporation and each reference to a percentage of shares of
Voting Stock shall refer to such percentage of the votes entitled to be cast
by such shares.
(E) The terms 'Affiliate' and 'Associate' shall have the meanings set
forth in Rule 12b-2 under the Securities Exchange Act of 1934, as in effect
on the Effective Date (as defined in subsection 2.6).
(F) The term 'Beneficially Owns' shall have the meaning set forth in
Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on the
Effective Date (as defined in subsection 2.6), PROVIDED, HOWEVER, that, any
shares of Voting Stock of the Corporation that any Related Person has the
right to acquire pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise, shall be deemed Beneficially
Owned by the Related Person whether immediately exercisable or exercisable
within ten years of the date as of which Beneficial Ownership is to be
determined.
(G) The term 'Subsidiary' with respect to the Corporation shall mean any
corporation, partnership, limited liability company, business trust or
similar entity of which a majority of any class of any equity security is
owned directly or indirectly by the Corporation.
SECTION 8.2. When Higher Vote Is Not Required. The provisions of Section 8.1
shall not be applicable to any particular Business Combination and such Business
Combination shall require only such affirmative vote as may be required by law
or by any other provision of the Certificate of Incorporation of the
Corporation, if all of the conditions specified in either of the following
paragraphs (A) or (B) are met:
(A) the Business Combination shall have been approved by a vote of not
less than two-thirds of the Directors, or
(B) all of the following conditions shall have been met:
(1) the aggregate amount of cash and the Fair Market Value (as
hereinafter defined) as of the date of the consummation of the Business
Combination of the consideration, other than cash, to be received per
share by holders of Common Stock in such Business Combination shall be at
least equal to the highest of the following:
(a) if applicable, the highest price per share (including any
brokerage commissions, transfer taxes, and soliciting dealers' fees)
paid by the Related Person for any shares of Common Stock acquired by
it (i) within the two year period immediately prior to the first
public announcement of the proposal of the Business Combination (the
'Announcement Date') or (ii) in the transaction in which it became a
Related Person; or
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Related Person became a
Related Person (such latter date is referred to in this Article as
the 'Determination Date'), whichever is higher; and
(2) The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of the
consideration, other than cash, to be received per share by holders of
shares of any class or series of outstanding Voting Stock, other than
Common Stock, shall be at least equal to the highest of the following (it
being intended that the requirements of this subparagraph (B)(2) shall be
required to be met with respect to every class or series of outstanding
capital stock of the Corporation other than Common Stock, whether or not
the Related Person has previously acquired any shares of such class or
series of Voting Stock):
(a) if applicable, the highest per share price (including any
brokerage commission, transfer taxes, and soliciting dealers' fees)
paid by the Related Person for any shares of such class or series of
Voting Stock acquired by it (i) within the two year period
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immediately prior to the Announcement Date or (ii) in the transaction
in which it became a Related Person, whichever is higher; or
(b) if applicable, the Redemption Price (as hereinafter defined)
of the shares of such class or series, or if such shares have no
Redemption Price, the highest amount per share which such class or
series would be entitled to receive upon liquidation of the
Corporation on the Announcement Date or the Determination Date,
whichever is higher; or
(c) the Fair Market Value per share of such class or series of
Voting Stock on the Announcement Date or on the Determination Date,
whichever is higher; and
(3) the consideration to be received in such Business Combination by
holders of each class or series of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as the Related Person
has previously paid for shares of such class or series of Voting Stock;
PROVIDED, HOWEVER, that if the Related Person has paid for shares of any
class or series of Voting Stock with varying forms of consideration, the
form of consideration for such class or series of Voting Stock shall be
either cash or the form used to acquire the largest number of shares of
such class or series of Voting Stock previously acquired by it; and
(4) a proxy statement responsive to the requirements of the
Securities Exchange Act of 1934, as amended, shall have been mailed to
public stockholders of the Corporation for the purpose of soliciting
stockholder approval of the Business Combination and shall have contained
at the front thereof, in a prominent place, any recommendations as to the
advisability (or inadvisability) of the Business Combination that the
Directors, or any of them, may choose to state and, if deemed advisable
by a majority of the Directors, an opinion of a reputable investment
banking firm as to the fairness (or not) of the terms of the Business
Combination, from the point of view of the remaining public stockholders
of the Corporation (such investment banking firm to be selected by a
majority of the Directors and to be paid a reasonable fee for their
services by the Corporation upon receipt of the opinion).
SECTION 8.3. Certain Definitions And Additional Provisions. For the purposes
of this Article:
(A) 'Fair Market Value' shall mean:
(1) in the case of stock, the highest closing sale price during the
30-day period immediately preceding the date in question of a share of
such stock on the Composite Tape for New York Stock Exchange Listed
Stocks, or, if such stock is not quoted on the Composite Tape, on the New
York Stock Exchange, or, if such stock is not listed on such Exchange, on
the principal United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, on which such stock is
listed, or, if such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock during the
30-day period preceding the date in question on the NASDAQ National
Market or any quotations system then generally in use, or, if no such
quotations are available, the Fair Market Value on the date in question
of a share of such stock as determined by the Directors in good faith,
which determination shall be final; and
(2) in the case of property other than cash or stock, the Fair Market
Value of such property on the date in question as determined by the
Directors in good faith, which determination shall be final.
(B) The Board of Directors, with the approval of a majority of the total
number of Directors, shall have the power and duty to determine, on the
basis of information known to it after reasonable inquiry, all facts
necessary to determine compliance with this Article, including, without
limitation, (i) whether a person is a Related Person, (ii) the number of
shares of Voting Stock Beneficially Owned by any person, (iii) whether a
person is an Affiliate or Associate of another person, (iv) whether the
applicable conditions set forth in paragraph (B) of Section 2 have been met
with respect to any Business Combination, and (v) whether the proposed
transaction is a Business Combination. Any such determinations shall be
final.
SECTION 8.4. Amendment Of This Article. This Article may be amended,
altered, changed, or repealed only by the affirmative vote of the holders of at
least 80% of the outstanding shares of Voting
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Stock voting together as a single class unless the proposed amendment,
alteration, change, or repeal has been recommended to the stockholders by the
Board of Directors with the approval of at least two-thirds of the Directors, in
which event the proposed amendment, alteration, change, or repeal shall require
for approval the affirmative vote of the holders of at least 66 2/3% of the
outstanding shares of Voting Stock, voting as a single class.
ARTICLE IX
AMENDMENT OF BY-LAWS
The Board of Directors shall have the power to adopt, amend, alter, change
or repeal any By-Laws of the Corporation. In addition, the stockholders of the
Corporation may adopt, amend, alter, change or repeal any By-Laws of the
Corporation by the affirmative vote of the holders of at least 80% of the voting
power of all of the shares of capital stock of the Corporation then entitled to
vote generally in the election of directors, voting together as a single class
(notwithstanding the fact that a lesser percentage may be specified by Delaware
Law).
ARTICLE X
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation hereby reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation in any manner
permitted by Delaware Law and all rights and powers conferred upon stockholders,
directors, and officers herein are granted subject to this reservation. Except
as may be provided in a resolution or resolutions providing for any series of
Preferred Stock pursuant to Article IV hereof and that relate to such series of
Preferred Stock, any such amendment, alteration, change or repeal shall require
the affirmative vote of both (a) a majority of the members of the Board of
Directors then in office and (b) a majority of the voting power of all of the
shares of capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class; except that any
proposal to amend, alter, change or repeal the provisions of Article V,
Sections 5.3 and 5.5, Article VI, Article IX and this Article X shall require
the affirmative vote of 80% of the voting power of all of the shares of capital
stock entitled to vote generally in the election of directors, voting together
as a single class.
ARTICLE XI
SEVERABILITY
In the event that any provision of this Certificate of Incorporation
(including any provision within a single Section, paragraph or sentence) is held
by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable, the remaining provisions are severable and shall remain
enforceable to the full extent permitted by law.
THE UNDERSIGNED, being the Senior Vice President, General Counsel and
Secretary of the Corporation, for the purpose of amending and restating the
Certificate of Incorporation of the Corporation pursuant to Delaware Law, does
make this Certificate, hereby declaring and certifying that this is the act and
deed of the Corporation and that the facts herein stated are true, and
accordingly have hereunto set my hand as of .
.....................................
STEVEN C. BARRE,
Senior Vice President, General Counsel
and Secretary
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ANNEX B
LCA GROUP INC.
STOCK INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. PURPOSE..................................................... B-1
ARTICLE II. DEFINITIONS................................................. B-1
ARTICLE III. ADMINISTRATION.............................................. B-5
ARTICLE IV. SHARE AND OTHER LIMITATIONS................................. B-7
ARTICLE V. ELIGIBILITY................................................. B-9
ARTICLE VI. EMPLOYEE AND CONSULTANT STOCK OPTION GRANTS................. B-9
ARTICLE VII. RESTRICTED STOCK AWARDS..................................... B-12
ARTICLE VIII. OTHER STOCK-BASED AWARDS.................................... B-13
NON-EMPLOYEE DIRECTOR STOCK AWARDS AND STOCK OPTION
ARTICLE IX. GRANTS.................................................... B-14
ARTICLE X. NON-TRANSFERABILITY......................................... B-15
ARTICLE XI. CHANGE IN CONTROL PROVISIONS................................ B-16
ARTICLE XII. TERMINATION OR AMENDMENT OF THE PLAN........................ B-17
ARTICLE XIII. UNFUNDED PLAN............................................... B-18
ARTICLE XIV. GENERAL PROVISIONS.......................................... B-18
ARTICLE XV. EFFECTIVE DATE OF PLAN...................................... B-20
ARTICLE XVI. TERM OF PLAN................................................ B-20
ARTICLE XVII. NAME OF PLAN................................................ B-20
</TABLE>
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LCA GROUP INC.
STOCK INCENTIVE PLAN
ARTICLE I.
PURPOSE
The purpose of this LCA Group Inc. Stock Incentive Plan (the 'Plan') is to
enhance the profitability and value of LCA Group Inc. (the 'Company') for the
benefit of its stockholders by enabling the Company (1) to offer employees of,
and Consultants to, the Company and its Affiliates, Stock Options, Restricted
Stock and Other Stock-Based Awards, thereby creating a means to raise the level
of stock ownership by employees and Consultants in order to attract, retain and
reward such individuals and strengthen the mutuality of interests between such
individuals and the Company's stockholders, and (2) to make an initial grant to
Non-Employee Directors of Stock Options upon their initial appointment and to
make certain other awards and grants of Common Stock, Stock Options and Other
Stock-Based Awards to Non-Employee Directors in order to attract, retain and
reward such Non-Employee Directors, and strengthen the mutuality of interests
between Non-Employee Directors and the Company's stockholders. The Plan is
effective as of the date set forth in Article XV.
ARTICLE II.
DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
2.1 'Acquisition Events' shall have the meaning set forth in
Section 4.2(d).
2.2 'Affiliate' shall mean other than the Company, (i) any corporation
in an unbroken chain of corporations beginning with the Company, or in the
event the Company is a Subsidiary, beginning with the Company's Parent,
which owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain; (ii) any corporation, trade or business
(including, without limitation, a partnership or limited liability company)
which is controlled fifty percent (50%) or more (whether by ownership of
stock, assets or an equivalent ownership interest or voting interest) by the
Company and/or its Affiliates; or (iii) any other entity, approved by the
Committee as an Affiliate under the Plan, in which the Company or any of its
Affiliates has a material equity interest.
2.3 'Award' shall mean any award under this Plan of any Stock Option,
Restricted Stock, Other Stock-Based Awards or Common Stock. All Awards shall
be confirmed by, and subject to the terms of, a written agreement executed
by the Company and the Participant or in the discretion of the Committee, a
grant letter from the Company.
2.4 'Board' shall mean the Board of Directors of the Company.
2.5 'Cause' shall mean, with respect to a Participant's Termination of
Employment or Termination of Consultancy: (1) in the case where there is no
employment agreement or consulting agreement between the Company or an
Affiliate and the Participant in effect at the time of the relevant grant or
where there is an employment agreement or consulting agreement in effect at
such time, but such agreement does not define cause (or words of like
import), termination due to a Participant's dishonesty, fraud,
insubordination, willful misconduct, refusal to perform services (for any
reason other than illness or incapacity) or materially unsatisfactory
performance of his or her duties for the Company or an Affiliate, as
determined by the Committee in its sole discretion; or (2) in the case where
there is an employment agreement or consulting agreement between the Company
or an Affiliate and the Participant in effect at the time of grant that
defines cause (or words of like import), termination that is or would be
deemed to be for cause (or words of like import) as defined under such
employment agreement or consulting agreement at the time of grant, as
determined by the Committee in its sole discretion; provided, that any
definition that is effective under an employment agreement or consulting
agreement after a Change in Control shall only be effective for purposes of
this Plan after a Change in Control. With respect to a Participant's
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Termination of Directorship, Cause shall mean an act or a failure to act
that constitutes 'cause' for removal of a director under applicable Delaware
law.
2.6 'Change in Control' shall have the meaning set forth in Article XI.
2.7 'Code' shall mean the Internal Revenue Code of 1986, as amended.
2.8 'Committee' shall mean (a) with respect to the application of this
Plan to Eligible Employees and Consultants, a committee of the Board
appointed from time to time by the Board, which committee shall be intended
to consist of two or more Non-Employee Directors, each of whom shall be
(i) to the extent required by Rule 16b-3, a 'non-employee director' as
defined in Rule 16b-3 and (ii) to the extent required by Section 162(m) of
the Code, an 'outside director' as defined under Section 162(m) of the Code
and (b) with respect to the application of this Plan to Non-Employee
Directors, the Board. Notwithstanding the foregoing, if and to the extent
that no Committee exists which has the authority to administer the Plan, the
functions of the Committee shall be exercised by the Board. If for any
reason the appointed Committee does not meet the requirements of Rule 16b-3
or Section 162(m) of the Code, such noncompliance with the requirements of
Rule 16b-3 or Section 162(m) of the Code shall not affect the validity of
the awards, grants, interpretations or other actions of the Committee.
2.9 'Common Stock' shall mean subject to Article IV hereof, the common
stock, $.01 par value per share, of the Company.
2.10 'Consultant' shall mean any individual who is engaged to perform
services for the Company and/or its Affiliates other than as an employee or
director of the Company or any Affiliate.
2.11 'Company' shall mean LCA Group Inc. and any successors and assigns.
2.12 'Detrimental Activity' shall mean (i) the disclosure to anyone
outside the Company or its Affiliates, or the use in other than the
Company's or its Affiliate's business, without written authorization from
the Company, of any confidential information or proprietary information,
relating to the business of the Company or its Affiliates, acquired by a
Participant prior to the Participant's Termination of Relationship;
(ii) activity while employed or retained that results, or if known could
result, in the Participant's Termination of Relationship that is classified
by the Company as a termination for Cause; (iii) any attempt, directly or
indirectly, to solicit, induce or hire (or the identification for
solicitation, inducement or hiring of) any non-clerical employee of the
Company or its Affiliates to be employed by, or to perform services for, the
Participant or any person or entity with which the Participant is associated
(including, but not limited to, due to the Participant's employment by,
consultancy for, equity interest in, or creditor relationship with such
person or entity) or any person or entity from which the Participant
receives direct or indirect compensation or fees as a result of such
solicitation, inducement or hire (or the identification for solicitation,
inducement or hire) without, in all cases, written authorization from the
Company; (iv) any attempt, directly or indirectly, to solicit in a
competitive manner any current or prospective customer of the Company or its
Affiliates without, in all cases, written authorization from the Company;
(v) the Participant's Disparagement, or inducement of others to do so, of
the Company or its Affiliates or their past and present officers, directors,
employees or products; (vi) without written authorization from the Company,
the rendering of services for any organization, or engaging, directly or
indirectly, in any business, which is competitive with the Company or its
Affiliates, or which organization or business, or the rendering of services
to such organization or business, is otherwise prejudicial to or in conflict
with the interests of the Company or its Affiliates, provided however that
competitive activities shall only be those competitive with any business
unit or Affiliate of the Company with regard to which the Participant
performed services at any time within the two (2) years prior to the
Termination of Relationship of the Participant; or (vii) any other conduct
or act determined by the Committee, in its sole discretion, to be injurious,
detrimental or prejudicial to any interest of the Company or its Affiliates.
For purposes of subparagraphs (i), (iii), (iv) and (vi) above, the Chief
Executive Officer and the General Counsel of the Company shall each have
authority to provide the Participant with written
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authorization to engage in the activities contemplated thereby and no other
person shall have authority to provide the Participant with such
authorization.
2.13 'Disability' shall mean: (1) in the case where there is no
employment agreement or consulting agreement between the Company or an
Affiliate and the Participant in effect at the time of the relevant grant,
or where there is an employment agreement or consulting agreement in effect
at such time, but such agreement does not define disability, total and
permanent disability, as defined in Section 22(e)(3) of the Code, as
determined by the Committee in its sole discretion; or (2) in the case where
there is an employment agreement or consulting agreement between the Company
or an Affiliate and the Participant at the time of the relevant grant that
defines disability, disability as defined under such employment agreement or
consulting agreement at the time of grant, as determined by the Committee in
its sole discretion.
2.14 'Disparagement' shall mean making comments or statements to the
press, the Company's or its Affiliates' employees or any individual or
entity with whom the Company or its Affiliates has a business relationship
which would adversely affect in any manner: (i) the conduct of the business
of the Company or its Affiliates (including, without limitation, any
products or business plans or prospects), or (ii) the business reputation of
the Company or its Affiliates, or any of their products, or their past or
present officers, directors or employees.
2.15 'Effective Date' shall mean the effective date of the Plan as
defined in Article XV.
2.16 'Eligible Employees' shall mean the employees of the Company and
its Affiliates, including Prospective Employees, who are eligible pursuant
to Article V to be granted Awards under this Plan. Notwithstanding the
foregoing, with respect to the grant of Incentive Stock Options, Eligible
Employees shall mean the employees of the Company, its Subsidiaries and its
Parent who are eligible pursuant to Article V to be granted Incentive Stock
Options under the Plan.
2.17 'Exchange Act' shall mean the Securities Exchange Act of 1934.
2.18 'Fair Market Value' for purposes of this Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, shall mean, as of any date, the last sales price reported for
the Common Stock on the applicable date, (i) as reported by the principal
national securities exchange in the United States on which it is then traded
or The Nasdaq Stock Market, Inc., or (ii) if not traded on any such national
securities exchange or The Nasdaq Stock Market, Inc., as quoted on an
automated quotation system sponsored by the National Association of
Securities Dealers, Inc., or if the Common Stock shall not have been
reported or quoted on such date, on the first day prior thereto on which the
Common Stock was reported or quoted; provided, that the Committee may modify
the definition of Fair Market Value to reflect any changes in the trading
practices of any exchange on which the Common Stock is listed or traded. For
purposes of the grant of any Stock Option, the applicable date shall be the
date on which the Option is granted. If the Common Stock is not readily
tradable on a national securities exchange, The Nasdaq Stock Market, Inc. or
any system sponsored by the National Association of Securities Dealers,
Inc., the method of determining Fair Market Value or the Fair Market Value
shall be set in good faith by the Committee on the advice of a registered
investment adviser (as defined under the Investment Advisers Act of 1940).
Notwithstanding the foregoing, with regard to grants of options made
effective on the spin-off (as defined in Section 2.29 hereof), Fair Market
Value shall mean the average of the highest and lowest trade on the
Distribution Date (as defined in the Distribution and Indemnification
Agreement between the Company and U.S. Industries, Inc.).
2.19 'Good Reason' shall mean, with respect to a Participant's
Termination of Employment or Termination of Consultancy: (1) in the case
where there is no employment agreement or consulting agreement between the
Company or an Affiliate and the Participant in effect at the time of the
relevant grant, or where there is an employment agreement or consulting
agreement in effect at such time, but such agreement does not define good
reason (or words of like import), a voluntary termination due to good
reason, as the Committee, in its sole discretion, decides to treat as a Good
Reason termination; or (2) in the case where there is an employment
agreement or consulting
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agreement between the Company or an Affiliate and the Participant in effect
at the time of the relevant grant that defines good reason (or words of like
import), a termination due to good reason (or words of like import), as
defined in such employment agreement or consulting agreement at the time of
grant, as determined by the Committee in its sole discretion; provided that
any definition that is effective under an employment agreement or consulting
agreement after a Change in Control shall only be effective for purposes of
this Plan after a Change in Control.
2.20 'Incentive Stock Option' shall mean any Stock Option awarded to an
Eligible Employee under this Plan intended to be and designated as an
'Incentive Stock Option' within the meaning of Section 422 of the Code.
2.21 'Non-Employee Director' shall mean a director of the Company who is
not an active employee of the Company or an Affiliate.
2.22 'Non-Qualified Stock Option' shall mean any Stock Option awarded
under this Plan that is not an Incentive Stock Option.
2.23 'Other Stock-Based Awards' shall mean any Award granted under
Article VIII.
2.24 'Parent' shall mean any parent corporation of the Company within
the meaning of Section 424(e) of the Code.
2.25 'Participant' shall mean a person to whom an Award has been made
pursuant to this Plan.
2.26 'Prospective Employee' shall mean an individual who has committed
to become an employee of the Company or an Affiliate within sixty (60) days
from the date an Award is to be granted to such individual.
2.27 'Restricted Stock' shall mean an award of shares of Common Stock
under the Plan that is subject to restrictions under Article VII.
2.28 'Restriction Period' shall have the meaning set forth in
Subsection 7.2(d) with respect to Restricted Stock for Eligible Employees or
Consultants.
2.29 'Retirement' shall mean Termination of Relationship of a
Participant (other than a Termination of Relationship for Cause or within
ninety (90) days after an event which would be grounds for a Termination of
Relationship for Cause) who has attained (1) at least age sixty-five (65);
(2) at least age sixty-two (62) and performed ten (10) or more years of
consecutive service with the Company (or, if the Participant was employed by
U.S. Industries, Inc. or its affiliates and on the spinoff of the Company to
the stockholders of U.S. Industries, Inc. (the 'Spinoff') the Participant
became employed by the Company or its Affiliates, service with U.S.
Industries, Inc., and in certain instances service with such other
predecessors as determined by the Committee) and/or an Affiliate; or
(3) such earlier date after age fifty-five (55) as approved by the Committee
with regard to such Participant.
2.30 'Rule 16b-3' shall mean Rule 16b-3 under Section 16(b) of the
Exchange Act as then in effect or any successor provisions.
2.31 'Section 162(m) of the Code' shall mean the exception for
performance-based compensation under Section 162(m) of the Code and any
Treasury regulations thereunder.
2.32 'Stock Option' or 'Option' shall mean any Option to purchase shares
of Common Stock granted to Eligible Employees or Consultants pursuant to
Article VI and Non-Employee Directors pursuant to Article IX.
2.33 'Subsidiary' shall mean any subsidiary corporation of the Company
within the meaning of Section 424(f) of the Code.
2.34 'Ten Percent Stockholder' shall mean a person owning stock
possessing more than 10% of the total combined voting power of all classes
of stock of the Company, its Subsidiaries or its Parent.
2.35 'Termination of Consultancy' shall mean the termination of a
Consultant's consultancy assignment with the Company and all Affiliates. In
the event an entity shall cease to be an Affiliate,
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there shall be deemed a Termination of Consultancy of any individual who is
not otherwise a Consultant to the Company or another Affiliate at the time
the entity ceases to be an Affiliate.
2.36 'Termination of Directorship' shall mean, with respect to a
Non-Employee Director, that the Non-Employee Director has ceased to be a
director of the Company.
2.37 'Termination of Employment,' except as provided in the next
sentence, shall mean (1) a termination of service (for reasons other than a
military or personal leave of absence granted by the Company) of a
Participant from the Company and its Affiliates; or (2) an entity that is
employing a Participant has ceased to be an Affiliate, unless the
Participant thereupon becomes employed by the Company or another Affiliate.
The Committee may otherwise define Termination of Employment in the Award
agreement or, if no rights of a Participant are reduced, may otherwise
define Termination of Employment thereafter.
2.38 'Termination of Relationship' shall mean no longer being an
Eligible Employee, a Consultant or a Non-Employee Director.
2.39 'Transfer' or 'Transferred' shall mean anticipate, alienate,
attach, sell, assign, pledge, encumber, charge or otherwise transfer.
ARTICLE III.
ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered and interpreted by the
Committee.
3.2 AWARDS. The Committee shall have full authority to grant, pursuant to
the terms of this Plan, Stock Options, Restricted Stock and Other Stock-Based
Awards to Eligible Employees and Consultants. The Board shall have full
authority to grant, pursuant to the terms of this Plan, Common Stock, Stock
Options and Other Stock-Based Awards to Non-Employee Directors in accordance
with Article IX hereof. In particular, the Committee (or the Board, as the case
may be) shall have the authority:
(a) to select the Eligible Employees, Consultants or Non-Employee
Directors to whom Awards may from time to time be granted hereunder;
(b) to determine whether and to what extent Awards, or any combination
thereof, are to be granted hereunder to one or more Eligible Employees,
Consultants and Non-Employee Directors;
(c) to determine the number of shares of Common Stock to be covered by
each Award to an Eligible Employee, Consultant or Non-Employee Director
granted hereunder;
(d) to determine the terms and conditions, not inconsistent with the
terms of this Plan, of any Award granted hereunder to an Eligible Employee,
Consultant or Non-Employee Director (including, but not limited to, the
share price, any restriction or limitation, any vesting schedule or
acceleration thereof, or any forfeiture restrictions or waiver thereof,
regarding any Award, and the shares of Common Stock relating thereto, based
on such factors, if any, as the Committee shall determine, in its sole
discretion);
(e) to determine whether and under what circumstances a Stock Option may
be settled in cash, Common Stock and/or Restricted Stock under
Subsection 6.3(d);
(f) to determine whether, to what extent and under what circumstances to
provide loans (which shall be on a recourse basis and shall bear a
reasonable rate of interest) to Eligible Employees, Consultants and
Non-Employee Directors in order to purchase shares of Common Stock under the
Plan;
(g) to modify, extend or renew a Stock Option, subject to Sections 12.1
and 6.3(g) hereof, provided, however, that if a Stock Option is modified,
extended or renewed and thereby deemed to be the issuance of a new Stock
Option under the Code or the applicable accounting rules, the exercise price
of such Stock Option may continue to be the original exercise price even if
less than the Fair Market Value of the Common Stock at the time of such
modification, extension or renewal;
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(h) to determine whether a Stock Option is an Incentive Stock Option or
Non-Qualified Stock Option; and
(i) to determine whether to require an Eligible Employee, Consultant or
Non-Employee Director as a condition of the granting of an Award, not to
sell or otherwise dispose of shares acquired pursuant to the exercise of an
Option or an Award for a period of time as determined by the Committee, in
its sole discretion, following the date of the acquisition of such Option or
Award.
3.3 GUIDELINES.
(a) Subject to Article XII hereof, the Committee (or the Board, as the case
may be) shall have the authority to adopt, alter and repeal such administrative
rules, guidelines and practices governing this Plan and perform all acts,
including the delegation of its administrative responsibilities, as it shall,
from time to time, deem advisable; to construe and interpret the terms and
provisions of this Plan and any Award issued under this Plan (and any agreements
relating thereto); and to otherwise supervise the administration of this Plan.
The Committee (or the Board, as the case may be) may correct any defect, supply
any omission or reconcile any inconsistency in this Plan or in any agreement
relating thereto in the manner and to the extent it shall deem necessary to
carry this Plan into effect. To the extent applicable, this Plan is intended to
comply with the applicable requirements of Rule 16b-3 and with regard to Options
and certain other Awards, the applicable provisions of Section 162(m) of the
Code and shall be limited, construed and interpreted in a manner so as to comply
therewith.
(b) Without limiting the foregoing, the Committee (or the Board, as the case
may be) shall have the authority to establish special guidelines, provisions and
procedures applicable to Awards granted to persons who are residing or employed
in, or subject to, the taxes of, countries other than the United States to
accommodate differences in applicable tax, securities or other local law. The
Committee (or the Board, as the case may be) may adopt supplements or amendments
to the Plan to reflect the specific requirements of local laws and procedures of
non-United States jurisdictions without affecting the terms of the Plan as then
in effect for any other purposes.
3.4 DECISIONS FINAL. Any decision, interpretation or other action made or
taken in good faith by or at the direction of the Company, the Board, or the
Committee (or any of its members) arising out of or in connection with the Plan
shall be within the absolute discretion of all and each of them, as the case may
be, and shall be final, binding and conclusive on the Company and all employees
and Participants and their respective heirs, executors, administrators,
successors and assigns.
3.5 PROCEDURES. If the Committee is appointed, the Board of Directors shall
designate one of the members of the Committee as chairman and the Committee
shall hold meetings, subject to the By-Laws of the Company, at such times and
places as the Committee shall deem advisable, including, without limitation, by
telephone conference or by written consent. A majority of the Committee members
shall constitute a quorum. All determinations of the Committee shall be made by
a majority of its members. Any decision or determination reduced to writing and
signed by all the Committee members in accordance with the By-Laws of the
Company, shall be fully as effective as if it had been made by a vote at a
meeting duly called and held. The Committee shall keep minutes of its meetings
and shall make such rules and regulations for the conduct of its business as it
shall deem advisable.
3.6 DESIGNATION OF ADVISORS/LIABILITY.
(a) The Committee may designate employees of the Company and professional
advisors to assist the Committee in the administration of the Plan and may grant
authority to employees to execute agreements or other documents on behalf of the
Committee.
(b) The Committee may employ such legal counsel, advisors and agents as it
may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or advisor and any computation received
from any such advisor or agent. Expenses incurred by the Committee or Board in
the engagement of any such counsel, advisor or agent shall be paid by the
Company. The Committee, its members and any person designated pursuant to
paragraph (a) above shall not be liable for any action or determination made in
good faith with respect to the Plan. To the maximum extent permitted by
applicable law, no officer or former officer of the Company or member or former
member of the Committee or of the Board shall be liable for any action or
determination made in good faith with respect to the Plan or any Award granted
under it. To the maximum extent
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permitted by applicable law and the Certificate of Incorporation and By-Laws of
the Company and to the extent not covered by insurance directly insuring such
person, each officer or former officer and member or former member of the
Committee or of the Board shall be indemnified and held harmless by the Company
against any cost or expense (including reasonable fees of counsel reasonably
acceptable to the Company) or liability (including any sum paid in settlement of
a claim with the approval of the Company), and advanced amounts necessary to pay
the foregoing at the earliest time and to the fullest extent permitted, arising
out of any act or omission to act in connection with the administration of the
Plan, except to the extent arising out of such officer's or former officer's,
member's or former member's own fraud or bad faith. Such indemnification shall
be in addition to any rights of indemnification the employee, officer, director
or member or former employee, officer, director or member may have under
applicable law or under the Certificate of Incorporation or By-Laws of the
Company or any Affiliate. Notwithstanding anything else herein, this
indemnification will not apply to the actions or determinations made by an
individual with regard to Awards granted to him or her under this Plan.
ARTICLE IV.
SHARE AND OTHER LIMITATIONS
4.1 SHARES.
(a) General Limitation. The aggregate number of shares of Common Stock that
may be the subject of Awards under this Plan at the time of any new grant (and
with no reduction of the outstanding Awards) shall be limited to 788,000 shares
(subject to any increase or decrease pursuant to Section 4.2) which may be
either authorized and unissued Common Stock or Common Stock held in or acquired
for the treasury of the Company or both. If either (i) any Option granted under
this Plan expires, terminates or is canceled for any reason without having been
exercised in full or (ii) the Company repurchases any Option pursuant to
Section 6.3(e) the number of underlying shares of Common Stock shall again be
available for the purposes of Awards under the Plan. If any shares of Restricted
Stock or any Other Stock Based Award awarded under this Plan to a Participant
are forfeited, repurchased, terminated or canceled by the Company for any reason
the number of forfeited, repurchased, terminated or canceled shares of
Restricted Stock or shares underlying the Other Stock Based Award shall again be
available for the purposes of Awards under the Plan. In addition, in determining
the number of shares of Common Stock available for Awards other than Awards of
Incentive Stock Options, if Common Stock has been exchanged by a Participant as
full or partial payment to the Company, or for required withholding, in
connection with the exercise of a Stock Option or the number of shares of Common
Stock otherwise deliverable has been reduced for withholding, the number of
shares of Common Stock exchanged as payment in connection with the exercise or
for withholding or reduced for withholding shall again be available under the
Plan.
(b) Individual Participant Limitations. (i) The maximum number of shares of
Common Stock subject to any Option which may be granted under this Plan during
any fiscal year of the Company to any Eligible Employee or Consultant shall not
exceed 150,000 shares (subject to any increase or decrease pursuant to
Section 4.2). There are no individual share limitations for Awards of Restricted
Stock or Other Stock-Based Awards, except as set forth in (ii) or (iii) below or
to the extent that Other Stock-Based Awards are used to make awards under
another plan which has such a limitation.
(ii) The maximum number of shares of Restricted Stock subject to specified
performance goals in accordance with Section 7.1 awarded in any fiscal year of
the Company to any Eligible Employee or Consultant shall not exceed 90,000
shares (subject to any increase or decrease pursuant to Section 4.2).
(iii) The maximum number of shares of Common Stock available as Other Stock
Based Awards granted under this Plan during any fiscal year of the Company to
any Eligible Employee or Consultant which are subject to performance goals shall
not exceed 90,000 shares (subject to increase or decrease pursuant to Section
4.2); provided the foregoing shall not apply to any Other Stock-Based Awards
used to make payments under any other plan of the Company or its Affiliates.
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4.2 CHANGES.
(a) The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company or its Affiliates, any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting Common Stock, the
dissolution or liquidation of the Company or its Affiliates, any sale or
transfer of all or part of its assets or business or any other corporate act or
proceeding.
(b) In the event of any such change in the capital structure or business of
the Company by reason of any stock dividend or distribution, stock split or
reverse stock split, recapitalization, reorganization, merger, consolidation,
split-up, combination or exchange of shares, non-cash distribution with respect
to its outstanding Common Stock of capital stock other than Common Stock,
reclassification of its capital stock, any sale or transfer of all or part of
the Company's assets or business, or any similar change affecting the Company's
capital structure or business and the Committee determines in good faith that an
adjustment is necessary or appropriate under the Plan to prevent substantial
dilution or enlargement of the rights granted to, or available for, Participants
under the Plan or as otherwise necessary to reflect the change, then the
aggregate number and kind of shares which thereafter may be issued under this
Plan, the number and kind of shares or other property (including cash) to be
issued upon exercise of an outstanding Option granted under this Plan and the
purchase price thereof, the number and kind of shares subject to other Awards
granted under this Plan and the number of shares of Common Stock to be awarded
pursuant to Article IX hereof shall be appropriately adjusted consistent with
such change, and such other changes in the Awards may be made in such manner as
the Committee may deem equitable to prevent substantial dilution or enlargement
of the rights granted to, or available for, Participants under this Plan or as
otherwise necessary to reflect the change, and any such adjustment determined by
the Committee in good faith shall be binding and conclusive on the Company and
all Participants and employees and their respective heirs, executors,
administrators, successors and assigns. Except as provided in this Section 4.2,
a Participant shall have no rights by reason of any issue by the Company of
stock of any class or securities convertible into stock of any class, any
subdivision or consolidation of shares of stock of any class, the payment of any
stock dividend, any other increase or decrease in the number of shares of stock
of any class, any sale or transfer of all or part of the Company's assets or
business or any other change affecting the Company's capital structure or
business.
(c) Fractional shares of Common Stock resulting from any adjustment in
Options pursuant to Section 4.2(a) or (b) shall be aggregated until, and
eliminated at, the time of exercise. No fractional shares of Common Stock shall
be issued under the Plan. The Committee must, in its sole discretion, pay cash
settlements in lieu of any fractional shares of Common Stock in settlement of
awards under the Plan. Notice of any adjustment shall be given by the Committee
to each Participant whose Option has been adjusted and such adjustment (whether
or not such notice is given) shall be effective and binding for all purposes of
the Plan. In the case of other Awards, fractional shares resulting from
adjustment pursuant to Sections 4.2(a) or (b) shall be awarded under the Plan
pursuant to the terms of the Plan.
(d) In the event of a merger or consolidation in which the Company is not
the surviving entity or in the event of any transaction that results in the
acquisition of substantially all of the Company's outstanding Common Stock by a
single person or entity or by a group of persons and/or entities acting in
concert, or in the event of the sale or transfer of all or substantially all of
the Company's assets (all of the foregoing being referred to as 'Acquisition
Events'), then the Committee may, in its sole discretion, terminate all
outstanding Options of Participants effective as of the date of the Acquisition
Event, by delivering notice of termination to each such Participant at least
twenty (20) days prior to the date of consummation of the Acquisition Event;
provided, that, unless otherwise determined at the time of grant, during the
period from the date on which such notice of termination is delivered to the
consummation of the Acquisition Event, each Participant shall have the right to
exercise in full all of his or her Options that are then outstanding (whether
vested or not vested and without regard to any limitations on exercisability
otherwise contained in the Option) but contingent on occurrence of the
Acquisition Event, and, provided that, if the Acquisition Event does not take
place within a specified period after giving such notice for any reason
whatsoever, the notice and exercise shall be null and void.
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If an Acquisition Event occurs, to the extent the Committee does not terminate
the outstanding Options pursuant to this Section 4.2(d), then the provisions of
Section 4.2(b) shall apply.
4.3 MINIMUM PURCHASE PRICE. Notwithstanding any provision of this Plan to
the contrary, if authorized but previously unissued shares of Common Stock are
issued under this Plan, such shares shall not be issued for a consideration
which is less than par value.
ARTICLE V.
ELIGIBILITY
5.1 GENERAL ELIGIBILITY. All Eligible Employees and Consultants of the
Company and its Affiliates shall be eligible for grants of Non-Qualified Stock
Options, Restricted Stock and Other Stock-Based Awards. Eligibility for the
grant of an Award and actual participation in this Plan shall be determined by
the Committee in its sole discretion. Notwithstanding the foregoing, Eligible
Employees or Consultants who receive grants under the Plan within the first
forty-five (45) days following the Spinoff are restricted from receiving
additional grants of Stock Options or other Awards under the Plan until the
later of: (x) October 1, 2001 and (y) the date the Plan is approved by
stockholders following the Spinoff.
5.2 INCENTIVE STOCK OPTIONS. All Eligible Employees of the Company, its
Subsidiaries and its Parent (if any) shall be eligible for grants of Incentive
Stock Options under this Plan. Eligibility for the grant of an Award and actual
participation in this Plan shall be determined by the Committee in its sole
discretion.
5.3 NON-EMPLOYEE DIRECTORS. Non-Employee Directors shall be eligible for
Common Stock awards and Stock Option grants in accordance with Article IX of the
Plan.
ARTICLE VI.
EMPLOYEE AND CONSULTANT STOCK OPTION GRANTS
6.1 OPTIONS. Each Stock Option granted hereunder shall be one of two types:
(i) an Incentive Stock Option intended to satisfy the requirements of
Section 422 of the Code; or (ii) a Non-Qualified Stock Option.
6.2 GRANTS. Subject to the provisions of Article V, the Committee shall have
the authority to grant to any Eligible Employee one or more Incentive Stock
Options, Non-Qualified Stock Options or any combination thereof and to grant any
Consultant one or more Non-Qualified Stock Options. To the extent that any Stock
Option does not qualify as an Incentive Stock Option (whether because of its
provisions or the time or manner of its exercise or otherwise), such Stock
Option or the portion thereof which does not so qualify, shall constitute a
separate Non-Qualified Stock Option.
6.3 TERMS OF OPTIONS. Options granted under this Plan shall be subject to
the following terms and conditions, and, shall be in such form and contain such
additional terms and conditions, not inconsistent with the terms of this Plan,
as the Committee shall deem desirable:
(a) Exercise Price. The exercise price per share of Common Stock subject
to an Incentive Stock Option shall be determined by the Committee at the
time of grant, but shall not be less than 100% of the Fair Market Value of a
Common Stock at the time of grant; provided, however, that if an Incentive
Stock Option is granted to a Ten Percent Stockholder, the exercise price
shall be no less than 110% of the Fair Market Value of a share of Common
Stock. The exercise price per share of Common Stock purchasable under a
Non-Qualified Stock Option shall be determined by the Committee but shall
not be less than 100% of the Fair Market Value of a share of Common Stock at
the time of grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten (10) years
after the date the Option is granted; provided, however, the term of an
Incentive Stock Option granted to a Ten Percent Stockholder shall not exceed
five (5) years. Unless the Committee determines otherwise at grant, all
Options
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shall be subject to termination by the Committee prior to a Change in
Control if the Participant engages in Detrimental Activity.
(c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee at grant. If the Committee provides, in its discretion, that any
Stock Option is exercisable subject to certain limitations (including,
without limitation, that it is exercisable only in installments or within
certain time periods), the Committee may waive limitations on the
exercisability at any time at or after grant in whole or in part (including,
without limitation, waiver of the installment exercise provisions or
acceleration of the time at which Options may be exercised), based on such
factors, if any, as the Committee shall determine, in its sole discretion
provided, that, unless otherwise determined by the Committee at grant, the
grant shall provide that (i) as a condition of the exercise of an Option,
the Participant shall be required to certify at the time of exercise in a
manner acceptable to the Company that the Participant is in compliance with
the terms and conditions of the Plan and that the Participant has not
engaged in, and does not intend to engage in, any Detrimental Activity and
(ii) in the event the Participant engages in Detrimental Activity prior to,
or during the one year period after, any exercise of the Option, the Company
shall be entitled to recover from the Participant at any time within two (2)
years after such exercise, and the Participant shall pay over to the
Company, any gain realized as a result of the exercise (whether at the time
of exercise or thereafter). The vesting and exercise of an Award granted to
a Prospective Employee are conditioned upon such individual actually
becoming an Eligible Employee.
(d) Method of Exercise. Subject to whatever installment exercise and
waiting period provisions apply under subsection (c) above, Stock Options
may be exercised in whole or in part at any time during the Option term, by
giving written notice of exercise to the Company specifying the number of
shares to be purchased accompanied by payment in full of the purchase price.
Such notice shall be accompanied by payment in full of the purchase price
(i) in cash or by check, bank draft or money order payable to the order of
Company; (ii) if the Common Stock is traded on a national securities
exchange, The Nasdaq Stock Market, Inc. or quoted on a national quotation
system sponsored by the National Association of Securities Dealers, Inc. and
the Committee authorizes this method of exercise, through the delivery of
irrevocable instructions to a broker approved by the Committee to deliver
promptly to the Company an amount equal to the purchase price; or (iii) on
such other terms and conditions as may be acceptable to the Committee (which
may include payment in full or part in the form of Common Stock owned by the
Participant for a period of at least six (6) months (and for which the
Participant has good title free and clear of any liens and encumbrances)
based on the Fair Market Value of the Common Stock on the payment date as
determined by the Committee or the surrender of vested Options owned by the
Participant). No shares of Common Stock shall be issued until payment, as
provided herein, therefor has been made or provided for.
(e) Buy Out and Settlement Provisions. The Committee may at any time on
behalf of the Company offer to buy out an Option previously granted, based
on such terms and conditions as the Committee shall establish and
communicate to the Participant at the time that such offer is made.
(f) Incentive Stock Option Limitations. To the extent that the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock
with respect to which Incentive Stock Options are exercisable for the first
time by an Eligible Employee during any calendar year under this Plan and/or
any other stock option plan of the Company, any Subsidiary or any Parent
exceeds $100,000, such Options shall be treated as Non-Qualified Stock
Options. In addition, if an Eligible Employee does not remain employed by
the Company, any Subsidiary or any Parent at all times from the time an
Incentive Stock Option is granted until three (3) months prior to the date
of exercise thereof (or such other period as required by applicable law),
such Stock Option shall be treated as a Non-Qualified Stock Option. Should
any provision of this Plan not be necessary in order for the Stock Options
to qualify as Incentive Stock Options, or should any additional provisions
be required, the Committee may amend this Plan accordingly, without the
necessity of obtaining the approval of the stockholders of the Company.
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(g) Form, Modification, Extension and Renewal of Options. Subject to the
terms and conditions and within the limitations of the Plan, an Option shall
be evidenced by such form of agreement as is approved by the Committee, and
the Committee may modify, extend or renew outstanding Options granted under
the Plan, and accept the surrender of outstanding Options (up to the extent
not theretofore exercised) and authorize the granting of new Options in
substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, an outstanding Option may not be modified to
reduce the exercise price thereof nor may a new Option at a lower price be
substituted for a surrendered Option, provided that the foregoing shall not
apply to adjustments or substitutions in accordance with Section 4.2; and
further provided, the foregoing limitations shall not apply until ninety
(90) days after the Spinoff.
(h) Other Terms and Conditions. Options may contain such other
provisions, which shall not be inconsistent with any of the foregoing terms
of the Plan, as the Committee shall deem appropriate including, without
limitation, permitting 'reloads' such that the same number of Options are
granted as the number of shares used to pay for the exercise price of
Options or shares used to pay withholding taxes ('Reloads'). With respect to
Reloads, the exercise price of the new Stock Option shall be the Fair Market
Value on the date of the 'reload' and the term of the Stock Option shall be
the same as the remaining term of the Options that are exercised, if
applicable, or such other exercise price and term as determined by the
Committee.
6.4 TERMINATION OF RELATIONSHIP. The following rules apply with regard to
Options upon the Termination of Relationship of a Participant, unless otherwise
determined by the Committee at grant or, if no rights of the Participant or in
the case of his death his estate are reduced, thereafter.
(a) Termination by Reason of Death. If a Participant's Termination of
Relationship is by reason of death, any Stock Option held by such Participant
may be exercised, to the extent exercisable at the Participant's death, by the
legal representative of the estate, at any time within a period of one (1) year
from the date of such death, but in no event beyond the expiration of the stated
term of such Stock Option.
(b) Termination by Reason of Disability. If a Participant's Termination of
Relationship is by reason of Disability, any Stock Option held by such
Participant, may be exercised, to the extent exercisable at the Participant's
termination, by the Participant (or the legal representative of the
Participant's estate if the Participant dies after termination) at any time
within a period of one (1) year from the date of such termination, but in no
event beyond the expiration of the stated term of such Stock Option provided,
however, that, if the Participant dies within such exercise period, any
unexercised Stock Option held by such Participant shall thereafter be
exercisable, to the extent to which it was exercisable at the time of death, for
a period of one (1) year from the date of such death, but in no event beyond the
expiration of the stated term of such Stock Option.
(c) Termination by Reason of Retirement. If a Participant's Termination of
Relationship is by reason of Retirement, any Stock Option held by such
Participant, may thereafter be exercised, to the extent exercisable at
Retirement, by the Participant at any time within a period of ninety (90) days
from the date of such termination, but in no event beyond the expiration of the
stated term of such Stock Option; provided, however, that, if the Participant
dies within such exercise period, any unexercised Stock Option held by such
Participant shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of one (1) year from the date of
such death, but in no event beyond the expiration of the stated term of such
Stock Option.
(d) Involuntary Termination Without Cause or Termination for Good Reason. If
a Participant's Termination of Relationship is by involuntary termination
without Cause or for Good Reason, any Stock Option held by such Participant, may
be exercised, to the extent exercisable at termination, by the Participant at
any time within a period of ninety (90) days from the date of such termination,
but in no event beyond the expiration of the stated term of such Stock Option.
(e) Termination Without Good Reason or By Mutual Agreement. If a
Participant's Termination of Relationship is voluntary but without Good Reason
or by mutual agreement between the Participant or the Company and occurs prior
to, or more than ninety (90) days after, the occurrence of an event which would
be grounds for Termination of Relationship by the Company for Cause (without
regard to any
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notice or cure period requirements), any Stock Option held by such Participant,
may be exercised, to the extent exercisable at termination, by the Participant
at any time within a period of thirty (30) days from the date of such
termination, but in no event beyond the expiration of the stated term of such
Stock Option.
(f) Other Termination. In the event the termination is for Cause or is a
voluntary termination without Good Reason within ninety (90) days after
occurrence of an event which would be grounds for Termination of Relationship by
the Company for Cause (without regard to any notice or cure period requirement),
any Stock Option held by the Participant at the time of occurrence of the event
which would be grounds for Termination of Relationship by the Company for Cause
shall be deemed to have terminated and expired upon occurrence of the event
which would be grounds for Termination of Relationship by the Company for Cause.
ARTICLE VII.
RESTRICTED STOCK AWARDS
7.1 AWARDS OF RESTRICTED STOCK. Shares of Restricted Stock may be issued to
Eligible Employees and Consultants, either alone or in addition to other Awards
under the Plan. The Committee shall determine the individuals eligible for
Restricted Stock Awards and the terms and conditions of any such Awards,
including without limitation, the timing of such Awards, the number of shares to
be awarded, the price (if any) to be paid by the recipient (subject to
Section 7.2), the time or times within which such Awards may be subject to
forfeiture, the vesting schedule and rights to acceleration thereof, and all
other terms and conditions of the Awards, provided, that, unless otherwise
determined by the Committee at grant, each Restricted Stock Award shall provide
that in the event a Participant engages in Detrimental Activity prior to, or
during the one (1) year period after, any vesting of Restricted Stock, the
Committee may direct (at any time within two (2) years thereafter) that all
unvested Restricted Stock shall be immediately forfeited to the Company and that
the Participant shall pay over to the Company an amount equal to the fair market
value at the time of vesting of any Restricted Stock which had vested in the
period referred to above. The Committee may condition the grant or vesting of
Restricted Stock upon the attainment of any performance goals specified in
Section 8.1 hereof or such other factors as the Committee may determine, in its
sole discretion.
7.2 AWARDS AND CERTIFICATES. An Eligible Employee or Consultant selected to
receive a Restricted Stock Award shall not have any rights with respect to such
Award, unless and until such Participant has delivered a fully executed copy of
the Restricted Stock Award agreement relating thereto and has otherwise complied
with the applicable terms and conditions of such Award. Further, such Award
shall be subject to the following conditions:
(a) Purchase Price. The purchase price of Restricted Stock shall be
fixed by the Committee. Subject to Section 4.3, the purchase price for
shares of Restricted Stock may be zero to the extent permitted by applicable
law, and, to the extent not so permitted, such purchase price may not be
less than par value.
(b) Legend. Each Participant receiving a Restricted Stock Award shall be
issued a stock certificate in respect of such shares of Restricted Stock,
unless the Committee elects to use another system, such as book entries by
the transfer agent, as evidencing ownership of a Restricted Stock Award.
Such certificate shall be registered in the name of such Participant, and
shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Award, substantially in the following form:
'The anticipation, alienation, attachment, sale, transfer,
assignment, pledge, encumbrance or charge of the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the LCA Group Inc. (the 'Company') Stock Incentive Plan
and an Agreement entered into between the registered owner and the
Company dated . Copies of such Plan and Agreement are on
file at the principal office of the Company.'
(c) Custody. If stock certificates are issued in respect of shares of
Restricted Stock, the Committee may require that the stock certificates
evidencing such shares be held in custody by the
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Company until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Stock Award, the Participant shall have
delivered a duly signed stock power, endorsed in blank, relating to the
Common Stock covered by such Award.
(d) Restriction Period. The Participant shall not be permitted to
Transfer shares of Restricted Stock awarded under this Plan during the
period or periods set by the Committee (the 'Restriction Period') commencing
on the date of such Award, as set forth in the Restricted Stock Award
agreement and such agreement shall set forth a vesting schedule and any
events which would accelerate vesting of the shares of Restricted Stock.
Within these limits, based on service, attainment of performance goals
pursuant to Section 8.1 below and/or such other factors or criteria as the
Committee may determine in its sole discretion, the Committee may provide
for the lapse of such restrictions in installments in whole or in part, or
may accelerate the vesting of all or any part of any Restricted Stock Award.
(e) Rights as a Stockholder. Except as provided in this subsection (e)
and subsection (c) above, the Participant shall have, with respect to the
shares of Restricted Stock, all of the rights of a holder of shares of
Common Stock of the Company including, without limitation, the right to
receive any dividends and the right to vote or tender such shares. The
Committee may, in its sole discretion, determine at the time of Award, that
payment of dividends shall be deferred until, and conditioned upon,
expiration of the Restriction Period.
(f) Lapse of Restrictions. Any stock certificates representing shares of
Restricted Stock awarded hereunder that (i) have not been forfeited and
(ii) have not previously been delivered to a Participant, shall be delivered
to the Participant upon expiration of the applicable Restriction Period. All
legends shall be removed from said certificates at the time of delivery to
the Participant, except as otherwise required by applicable law or other
limitations imposed by the Committee.
ARTICLE VIII.
OTHER STOCK-BASED AWARDS
8.1 OTHER STOCK-BASED AWARDS. The Committee is authorized to grant to
Eligible Employees and Consultants Other Stock-Based Awards that are payable in,
valued in whole or in part by reference to, or otherwise based on or related to
shares of Common Stock, including but not limited to, shares of Common Stock
awarded purely as a bonus and not subject to any restrictions or conditions,
shares of Common Stock in payment of the amounts due under an incentive or
performance plan sponsored or maintained by the Company or a Subsidiary, stock
appreciation rights (either separately or in tandem with Stock Options), stock
equivalent units, Awards valued by reference to book value of shares of Common
Stock and loans to be used to purchase shares of Common Stock. Subject to the
provisions of this Plan, the Committee shall have authority to determine the
persons to whom and the time or times at which such Awards shall be made, the
number of shares of Common Stock to be awarded pursuant to or referenced by such
Awards, and all other conditions of the Awards. Grants of Other Stock-Based
Awards may be subject to such conditions, restrictions and contingencies as the
Committee may determine which may include, but are not limited to, continuous
service with the Company or an Affiliate and/or the achievement of performance
goals. Except as provided in the last sentence of this Section 8.1, the
performance criteria that may be used by the Committee in granting Other
Stock-Based Awards contingent on performance goals shall consist of the
attainment of one or more of the following criteria: (i) the attainment of
certain target levels of, or a specified increase in, enterprise value or value
creation targets of the Company (or any Affiliate, division or other operational
unit of the Company); (ii) the attainment of certain target levels of, or a
percentage increase in, after-tax or pre-tax profits of the Company, including
without limitation that attributable to continuing and/or other operations of
the Company (or in either case an Affiliate, division, or other operational unit
of the Company); (iii) the attainment of certain target levels of, or a
specified increase in, operational cash flow of the Company (or an Affiliate,
division, or other operational unit of the Company); (iv) the attainment of a
certain level of reduction of, or other specified objectives with regard to
limiting the level of increase in, all or a portion of the Company's bank debt
or other long-term or short-term public or private debt or other similar
financial obligations of the Company, which may be calculated net of cash
balances and/or other offsets and adjustments as may be established by the
Committee; (v) the attainment of a specified
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percentage increase in earnings per share or earnings per share from continuing
operations of the Company (or an Affiliate, division or other operational unit
of the Company); (vi) the attainment of certain target levels of, or a specified
percentage increase in, net sales, net income or earnings before income tax or
other exclusions of the Company (or an Affiliate, division, or other operational
unit of the Company); (vii) the attainment of certain target levels of, or a
specified increase in, return on capital employed or return on invested capital
of the Company (or any Affiliate, division or other operational unit of the
Company); (viii) the attainment of certain target levels of, or a percentage
increase in, after-tax or pre-tax return on stockholder equity of the Company
(or any Affiliate, division or other operational unit of the Company); (ix) the
attainment of certain target levels in the fair market value of the shares of
the Company's Common Stock; and (x) the growth in the value of an investment in
the Company's Common Stock assuming the reinvestment of dividends. The Committee
may select one or more of the foregoing performance criteria for measuring
performance and the measuring may be stated in absolute terms or relative to
comparable companies. Other performance goals may be used to the extent such
goals satisfy Section 162(m) of the Code or the Award is not intended to satisfy
the requirements of Section 162(m) of the Code.
ARTICLE IX.
NON-EMPLOYEE DIRECTOR STOCK AWARDS AND STOCK OPTION GRANTS
9.1 STOCK OPTIONS. The terms of this Section 9.1 shall apply only to Options
granted to Non-Employee Directors.
(a)(i) Without further action by the Board or the stockholders of the
Company, each Non-Employee Director shall, subject to the terms of the Plan, be
granted on the date he or she begins service as a Non-Employee Director (even if
previously an employee director), Non-Qualified Stock Options to purchase 1,000
shares of Common Stock.
(ii) The Board shall have the authority to grant to any Non-Employee
Director additional Non-Qualified Stock Options, in such amount and upon such
terms as it may determine in accordance with the provisions of Section 3.2
hereof.
Notwithstanding the foregoing provisions of Section 9.1 no Option shall be
granted under this Section 9.1 if on the date of grant the Company has
liquidated, dissolved or merged or consolidated with another entity in such a
manner that it is not the surviving entity (unless the Plan has been assumed by
such surviving entity with regard to future grants).
(b) Option Agreement. Stock Options granted under this Section 9.1 shall be
Non-Qualified Stock Options. Such Options shall be evidenced by Option
agreements or grants.
(c) Terms of Options:
(i) Option Price. The purchase price per share ('Purchase Price')
deliverable upon the exercise of an Option shall be 100% of the Fair Market
Value of such Common Stock at the time of the grant of the Option, or the
par value of the Common Stock, whichever is greater.
(ii) Exercisability. Except as otherwise provided herein, each Option
granted under Section 9.1(a)(i) hereof shall be exercisable on or after six
(6) months and one (1) day after the date of grant if the director is then a
director. Each Option granted under Section 9.1(a)(ii) hereof shall be
exercisable as provided in the applicable Option agreement or grant.
(iii) Method for Exercise. A Non-Employee Director electing to exercise
one or more Options shall give written notice to the Company of such
election and of the number of Options he or she has elected to exercise.
Common Stock purchased pursuant to the exercise of Options shall be paid for
at the time of exercise (i) in cash, (ii) if the Common Stock is traded on a
national securities exchange, The Nasdaq Stock Market, Inc. or quoted on a
national quotation system sponsored by the National Association of
Securities Dealers, Inc. and the Committee authorizes this method of
exercise, through the delivery of irrevocable instructions to a broker
approved by the Committee to deliver promptly to the Company an amount equal
to the purchase price, or (iii) by delivery of unencumbered Common Stock
owned by the Non-Employee Director for at least six (6) months
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(or such longer period as required by applicable accounting standards to
avoid a charge to earnings) or a combination thereof.
(d) Expiration. Except as otherwise provided herein, if not previously
exercised each Option shall expire upon the tenth anniversary of the date of the
grant thereof.
(e) Termination of Directorship. The following rules apply with regard to
Options upon a Termination of Directorship, unless otherwise provided at grant:
(i) Death, Disability or Otherwise Ceasing to be a Director Other than
for Cause. Except as otherwise provided herein, upon the Termination of
Directorship, on account of Disability, death, resignation, failure to stand
for reelection or failure to be reelected or otherwise other than as set
forth in (ii) below, all outstanding Options then exercisable and not
exercised by the Participant prior to such Termination of Directorship shall
remain exercisable, to the extent exercisable at the Termination of
Directorship, by the Participant or, in the case of death, by the
Participant's estate or by the person given authority to exercise such
Options by his or her will or by operation of law, for a three (3) year
period commencing on the date of the Termination of Directorship, provided
that such three (3) year period shall not extend beyond the stated term of
such Options.
(ii) Cause. Upon removal, failure to stand for reelection or failure to
be renominated for Cause, or if the Company obtains or discovers information
after Termination of Directorship that such Participant had engaged in
conduct that would have justified a removal for Cause during such
directorship, all outstanding Options of such Participant shall immediately
terminate and shall be null and void.
(iii) Acceleration of Exercisability Upon Death or Disability. All
Options granted and not previously exercisable shall become fully
exercisable immediately upon a Termination of Directorship due to death or
Disability.
(iv) Cancellation of Options. Except as otherwise provided herein, no
Options that were not exercisable during the period such person serves as a
director shall thereafter become exercisable upon a Termination of
Directorship for any reason or no reason whatsoever, and such Options shall
terminate and become null and void upon a Termination of Directorship.
9.2 AWARDS FOR NON-EMPLOYEE DIRECTORS. The Board shall have authority, in
its sole discretion, to make grants to Non-Employee Directors of shares of
Common Stock, Stock Options, or Other Stock-Based Awards on such terms and
conditions as determined by the Board.
9.3 CHANGES AND SHARE LIMITATIONS. The Awards to a Non-Employee Director
shall be subject to Sections 4.2(a), (b), (c) and (d) of the Plan and this
Section 9.3. Notwithstanding anything else herein, if the grants to be made
under this Article IX would violate the limitations set forth in Sections 4.1(a)
or (b), such grants shall be proportionately reduced to an amount that would not
violate such limitation and, subject to the next sentence, an additional make-up
grant of the portion of any award that has not yet been granted shall be made on
the first day of the first month commencing at least twenty (20) days after such
limitation is no longer exceeded. Such make-up grant shall be made only to each
director who is Non-Employee Director of the Company at the time of such make-up
grant and shall be made in an amount equal to the prior reduction.
ARTICLE X.
NON-TRANSFERABILITY
10.1 NON-TRANSFERABILITY. Except as provided in the last sentence of this
Article X, no Stock Option or Other Stock-Based Award shall be Transferred by
the Participant otherwise than by will or by the laws of descent and
distribution. All Stock Options shall be exercisable, during the Participant's
lifetime, only by the Participant. No Stock Option shall, except as otherwise
specifically provided by law or herein, be Transferred in any manner, and any
attempt to Transfer any such Stock Option shall be void. Shares of Restricted
Stock under Article VII may not be Transferred prior to the date on which shares
are issued, or, if later, the date on which any applicable restriction,
performance or deferral period lapses. No Award shall in any manner be liable
for or subject to the debts, contracts, liabilities, engagements or torts of any
person who shall be entitled to such Award, nor shall it be subject to
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attachment or legal process for or against such person. Notwithstanding the
foregoing, the Committee may determine at the time of grant or thereafter that a
Non-Qualified Stock Option that is otherwise not Transferable pursuant to this
Article X is Transferable, in whole or in part, to a 'family member' as defined
in Securities Act Form S-8 and under such conditions as specified by the
Committee.
ARTICLE XI.
CHANGE IN CONTROL PROVISIONS
11.1 BENEFITS. In the event of a Change in Control of the Company (as
defined below), except as otherwise provided by the Committee upon the grant of
an Award, a Participant shall be entitled to the following benefits:
(a) Subject to paragraph (c) below with regard to Options granted to
Eligible Employees and Consultants and paragraph (e) below with regard to
all Options, all outstanding Stock Options of such Participant (whether an
Eligible Employee, Consultant or Non-Employee Director) granted prior to the
Change in Control shall be fully vested and immediately exercisable in their
entirety on the Change in Control. The Committee, in its sole discretion,
may provide for the purchase of any such Stock Options by the Company or an
Affiliate for an amount of cash equal to the excess of the Change in Control
price (as defined below) of the shares of Common Stock covered by such Stock
Options, over the aggregate exercise price of such Stock Options. For
purposes of this Section 11.1, Change in Control price shall mean the higher
of (i) the highest price per share of Common Stock paid in any transaction
related to a Change in Control of the Company, or (ii) the highest Fair
Market Value per share of Common Stock at any time during the sixty (60) day
period preceding a Change in Control.
(b) Subject to paragraph (e) below, the restrictions to which any shares
of Restricted Stock of such Participant granted prior to the Change in
Control are subject shall lapse as if the applicable Restriction Period had
ended upon such Change in Control.
(c) Notwithstanding anything to the contrary herein, unless the
Committee provides otherwise at the time an Option is granted to an Eligible
Employee or Consultant hereunder, no acceleration of exercisability shall
occur with respect to such Option if the Committee reasonably determines in
good faith, prior to the occurrence of the Change in Control, that the
Options shall be honored or assumed, or new rights substituted therefor
(each such honored, assumed or substituted option hereinafter called an
'Alternative Option'), by a Participant's employer (or the parent or a
subsidiary of such employer) immediately following the Change in Control,
provided that any such Alternative Option must meet the following criteria:
(i) the Alternative Option must be based on stock which is traded on
an established securities market, or which will be so traded within
thirty (30) days of the Change in Control;
(ii) the Alternative Option must provide such Participant with rights
and entitlements substantially equivalent to or better than the rights,
terms and conditions applicable under such Option, including, but not
limited to, an identical or better exercise schedule; and
(iii) the Alternative Option must have economic value substantially
equivalent to the value of such Option (determined at the time of the
Change in Control).
For purposes of Incentive Stock Options, any assumed or substituted
Option shall comply with the requirements of Treasury regulation ss.
1.425-1 (and any amendments thereto).
(d) As provided in the Award, with regard to Other Stock-Based Awards.
(e) If the Company and the other party to a transaction constituting a
Change in Control agree that such transaction shall be treated as a 'pooling
of interests' for financial reporting purposes, and if the transaction is in
fact so treated, then acceleration of exercisability, vesting or lapse of
the applicable Restriction Period shall not occur to the extent the
Company's independent public accountants determine in good faith that such
acceleration would preclude 'pooling of interests' accounting.
11.2 CHANGE IN CONTROL. A 'Change in Control' shall be deemed to have
occurred upon:
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(a) any 'person' as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (other than the Company, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, or any company
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of Common Stock of the
Company), is or becomes the 'beneficial owner' (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding securities;
(b) during any period of two (2) consecutive years, individuals who at
the beginning of such period constitute the Board of Directors, and any new
director (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in paragraph
(a), (c), or (d) of this section) whose election by the Board of Directors
or nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who either
were directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority of the Board of Directors;
(c) a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation;
provided, however, that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than twenty-five percent (25%) of the combined voting power of
the Company's then outstanding securities shall not constitute a Change in
Control of the Company; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or the consummation of the sale or disposition by
the Company of all or substantially all of the Company's assets other than
(x) the sale or disposition of all or substantially all of the assets of the
Company to a person or persons who beneficially own, directly or indirectly,
at least fifty percent (50%) or more of the combined voting power of the
outstanding voting securities of the Company at the time of the sale or
(y) pursuant to a spinoff type transaction, directly or indirectly, of such
assets to the stockholders of the Company.
ARTICLE XII.
TERMINATION OR AMENDMENT OF THE PLAN
12.1 TERMINATION OR AMENDMENT. Notwithstanding any other provision of this
Plan, the Board may at any time, and from time to time, amend, in whole or in
part, any or all of the provisions of the Plan (including any amendment deemed
necessary to ensure compliance with any regulatory requirement referred to in
Article XIV), or suspend or terminate it entirely, retroactively or otherwise;
provided, however, that, unless otherwise required by law or specifically
provided herein, the rights of a Participant with respect to Awards granted
prior to such amendment, suspension or termination, may not be impaired without
the consent of such Participant and, provided further, without the approval of
the stockholders of the Company in accordance with the laws of the State of
Delaware, to the extent required by the applicable provisions of Section 162(m)
of the Code, or to the extent applicable to Incentive Stock Options,
Section 422 of the Code, no amendment may be made that would (i) amend
Section 4.1(a) or any other plan provision to increase the aggregate maximum
number of shares of Common Stock that may be issued under the Plan;
(ii) increase the maximum individual Participant limitations under
Section 4.1(b); (iii) change the classification of employees or consultants
eligible to receive Awards under this Plan; (iv) extend the maximum option
period under Section 6.3; or (v) require stockholder approval in order for the
Plan to comply with the applicable provisions of Section 162(m) of the Code or
to the extent applicable to Incentive Stock Options, Section 422 of the Code. In
no event may the Plan be amended without the approval of the stockholders of the
Company in accordance with the applicable laws of the State of Delaware to
increase the aggregate number of
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shares of Common Stock that may be issued under the Plan or to make any other
amendment that would require stockholder approval under the rules of any
exchange or system on which the Company's securities are listed or traded at the
request of the Company.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but, subject to Article IV above or as otherwise
specifically provided herein, no such amendment or other action by the Committee
shall impair the rights of any holder without the holder's consent.
The Board may at any time or from time to time amend Article IX of the Plan
to provide additional or different Awards to Non-Employee Directors or to effect
any other amendment deemed appropriate.
ARTICLE XIII.
UNFUNDED PLAN
13.1 UNFUNDED STATUS OF PLAN. This Plan is intended to constitute an
'unfunded' plan for incentive and deferred compensation. With respect to any
payments as to which a Participant has a fixed and vested interest but which are
not yet made to a Participant by the Company, nothing contained herein shall
give any such Participant any rights that are greater than those of a general
creditor of the Company.
ARTICLE XIV.
GENERAL PROVISIONS
14.1 LEGEND. The Committee may require each person receiving shares pursuant
to an Award under the Plan to represent to and agree with the Company in writing
that the Participant is acquiring the shares without a view to distribution
thereof. In addition to any legend required by this Plan, the certificates for
such shares may include any legend which the Committee deems appropriate to
reflect any restrictions on Transfer.
All certificates for shares of Common Stock delivered under the Plan shall
be subject to such stock transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed or any national securities association system upon whose system the
Stock is then quoted, any applicable Federal or state securities law, and any
applicable corporate law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.
14.2 OTHER PLANS. Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
14.3 NO RIGHT TO EMPLOYMENT/CONSULTANCY/DIRECTORSHIP. Neither this Plan nor
the grant of any Award hereunder shall give any Participant or other employee
any right with respect to continuance of employment or consultancy by the
Company or any Affiliate, nor shall they be a limitation in any way on the right
of the Company or any Affiliate by which an employee is employed or a consultant
is retained to terminate his employment or consultancy at any time. Neither this
Plan nor the grant of any Award hereunder shall impose any obligations on the
Company to retain any Participant as a director nor shall it impose on the part
of any Participant to remain as a director of the Company.
14.4 WITHHOLDING OF TAXES. The Company shall have the right to deduct from
any payment to be made to a Participant, or to otherwise require, prior to the
issuance or delivery of any shares of Common Stock or the payment of any cash
hereunder, payment by the Participant of, any Federal, state or local taxes
required by law to be withheld. Upon the vesting of Restricted Stock or upon
making an election under Code Section 83(b), a Participant shall pay all
required withholding to the Company.
The Committee may permit any such statutorily required withholding
obligation with regard to any Participant to be satisfied by reducing the number
of shares of Common Stock otherwise deliverable or
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by delivering shares of Common Stock already owned. Any fraction of a share of
Common Stock required to satisfy such tax obligations shall be disregarded and
the amount due shall be paid in cash by the Participant.
14.5 LISTING AND OTHER CONDITIONS.
(a) Unless otherwise determined by the Committee, as long as the Common
Stock is listed on a national securities exchange or system sponsored by a
national securities association, the issue of any shares of Common Stock
pursuant to an Award shall be conditioned upon such shares being listed on such
exchange or system. The Company shall have no obligation to issue such shares
unless and until such shares are so listed, and the right to exercise any Option
with respect to such shares shall be suspended until such listing has been
effected.
(b) If at any time counsel to the Company shall be of the opinion that any
sale or delivery of shares of Common Stock pursuant to an Award is or may in the
circumstances be unlawful or result in the imposition of excise taxes on the
Company under the statutes, rules or regulations of any applicable jurisdiction,
the Company shall have no obligation to make such sale or delivery, or to make
any application or to effect or to maintain any qualification or registration
under the Securities Act of 1933, as amended, or otherwise with respect to
shares of Common Stock or Awards, and the right to exercise any Option shall be
suspended until, in the opinion of said counsel, such sale or delivery shall be
lawful or will not result in the imposition of excise taxes on the Company.
(c) Upon termination of any period of suspension under this Section 14.5,
any Award affected by such suspension which shall not then have expired or
terminated shall be reinstated as to all shares available before such suspension
and as to shares which would otherwise have become available during the period
of such suspension, but no such suspension shall extend the term of any Option.
(d) A Participant shall be required to supply the Company with any
certificates, representations and information that the Company requests and
otherwise cooperate with the Company in obtaining any listing, registration,
qualification, exemption, consent or approval the Company deems necessary or
appropriate.
14.6 GOVERNING LAW. This Plan shall be governed and construed in accordance
with the laws of the State of Delaware (regardless of the law that might
otherwise govern under applicable Delaware principles of conflict of laws).
14.7 CONSTRUCTION. Wherever any words are used in this Plan in the masculine
gender they shall be construed as though they were also used in the feminine
gender in all cases where they would so apply, and wherever any words are used
herein in the singular form they shall be construed as though they were also
used in the plural form in all cases where they would so apply.
14.8 OTHER BENEFITS. No Award payment under this Plan shall be deemed
compensation for purposes of computing benefits under any retirement plan of the
Company or its subsidiaries nor affect any benefits under any other benefit plan
now or subsequently in effect under which the availability or amount of benefits
is related to the level of compensation.
14.9 COSTS. The Company shall bear all expenses included in administering
this Plan, including expenses of issuing Common Stock pursuant to any Awards
hereunder.
14.10 NO RIGHT TO SAME BENEFITS. The provisions of Awards need not be the
same with respect to each Participant, and such Awards to individual
Participants need not be the same in subsequent years.
14.11 DEATH/DISABILITY. The Committee may in its discretion require the
transferee of a Participant to supply it with written notice of the
Participant's death or Disability and to supply it with a copy of the will (in
the case of the Participant's death) or such other evidence as the Committee
deems necessary to establish the validity of the transfer of an Option. The
Committee may also require that the agreement of the transferee to be bound by
all of the terms and conditions of the Plan.
14.12 SECTION 16(b) OF THE EXCHANGE ACT. All elections and transactions
under the Plan by persons subject to Section 16 of the Exchange Act involving
shares of Common Stock are intended to comply with all exemptive conditions
under Rule 16b-3. The Committee may establish and adopt written administrative
guidelines, designed to facilitate compliance with Section 16(b) of the Exchange
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Act, as it may deem necessary or proper for the administration and operation of
the Plan and the transaction of business thereunder.
14.13 SUCCESSOR AND ASSIGNS. The Plan shall be binding on all successors and
permitted assigns of a Participant, including, without limitation, the estate of
such Participant and the executor, administrator or trustee of such estate.
14.14 SEVERABILITY OF PROVISIONS. If any provision of the Plan shall be held
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provisions hereof, and the Plan shall be construed and enforced as if
such provisions had not been included.
14.15 HEADINGS AND CAPTIONS. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.
ARTICLE XV.
EFFECTIVE DATE OF PLAN
The Plan shall become effective upon adoption by the Board, subject to the
approval of this Plan by the stockholders of the Company in accordance with the
requirements of the laws of the State of Delaware or such later date as provided
in the adopting resolution; provided that no Stock Options or other Awards
subject to Section 162(m) shall be granted after the Company's first annual
stockholders' meeting held after twelve (12) months after the Company ceases to
be a subsidiary of U.S. Industries, Inc. unless at such meeting the Plan
provisions applicable to Stock Options or such other Awards, as the case may be
are approved by the stockholders to the extent required to qualify such awards
under Section 162(m) of the Code.
ARTICLE XVI.
TERM OF PLAN
No Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the earlier of the date this Plan is adopted or the date of
stockholder approval, but Awards granted prior to such tenth anniversary may
extend beyond that date.
ARTICLE XVII.
NAME OF PLAN
This Plan shall be known as the 'LCA Group Inc. Stock Incentive Plan.'
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ANNEX C
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF AWARDS AND
MATERIAL FEDERAL INCOME, ESTATE AND GIFT TAX CONSEQUENCES
RELATING TO THE TRANSFER OF OPTIONS
UNDER OUR STOCK INCENTIVE PLAN
The following discussions of the principal federal income tax consequences
with respect to options, restricted stock and non-employee director common stock
awards under the SIP and the income, estate and gift tax consequences relating
to the transfer of options are based on statutory authority and judicial and
administrative interpretations as of the date of this information statement,
which are subject to change at any time (possibly with retroactive effect). The
discussions are limited to the U.S. tax consequences to individuals who are
citizens or residents of the U.S. other than those individuals who are taxed on
a residence basis in a foreign country. U.S. tax law is technical and complex
and the discussion below represents only a general summary.
THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY AND
DOES NOT PURPORT TO ADDRESS ALL THE TAX CONSIDERATIONS THAT MAY BE RELEVANT.
EACH RECIPIENT OF A GRANT IS URGED TO CONSULT HIS OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES TO SUCH GRANTEE OF THE GRANT AND THE DISPOSITION OF
COMMON STOCK.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF AWARDS
Options. No income will be recognized by the recipient at the time of the
grant of a non-qualified stock option.
On exercise of a non-qualified stock option (and provided the common stock
issued is not restricted stock), the amount by which the fair market value of
the common stock on the date of exercise exceeds the option exercise price will
be taxable to the recipient as ordinary income. The recipient's tax basis in the
shares of common stock received upon exercise of an option will be equal to the
amount of cash paid on exercise, plus the amount of ordinary income recognized
as a result of the receipt of such shares. The subsequent disposition of shares
acquired upon exercise of a non-qualified stock option will ordinarily result in
capital gain or loss. If the common stock received upon exercise of an option is
restricted stock, the rules described below with regard to restricted stock will
apply.
A recipient who is an officer or director of ours or a beneficial owner of
more than ten percent (10%) of any class of registered equity securities of ours
should consult with his or her tax advisor as to whether, as a result of Section
16(b) of the Exchange Act and the rules and regulations thereunder that are
related thereto, the timing of income recognition is deferred for any period
following the exercise of an option (the 'Deferral Period'). If there is a
Deferral Period, absent a written election (pursuant to Section 83(b) of the
Code) filed with the Internal Revenue Service within 30 days after the date of
transfer of the shares of common stock pursuant to the exercise of the option to
include in income, as of the transfer date, the excess (on such date) of the
fair market value of such shares over their exercise price, recognition of
income by the recipient could, in certain instances, be deferred until the
expiration of the Deferral Period.
The ordinary income recognized by employees with respect to the transfer of
shares upon exercise of an option under the SIP will be subject to both wage
withholding and employment taxes.
We will generally be entitled, subject to the possible application of Code
Section 162(m) as discussed below and Section 280G of the Code as discussed
below, to a deduction in connection with the recipient's exercise of a stock
option in an amount equal to the income recognized by the recipient for the year
in which such recognition occurs.
A recipient who is granted an ISO generally does not recognize any taxable
income at the time of the grant or exercise of the option. Similarly, we
generally are not entitled to any tax deduction at the time of the grant or
exercise of the ISO. The aggregate fair market value of common stock (determined
at the date of grant) with respect to which ISOs can be exercisable for the
first time by a recipient
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during any calendar year cannot exceed $100,000. Any excess will be treated as a
non-qualified stock option. If the recipient makes no disposition of the shares
acquired pursuant to an ISO within two (2) years from the date of grant or
within one (1) year from the exercise of the option, any gain or loss recognized
on a subsequent disposition of the shares will be treated as a long-term capital
gain or loss. Under such circumstances, we will not be entitled to any deduction
for federal income tax purposes. If the recipient disposes of the shares before
the later of such dates, the recipient will generally have ordinary income equal
to the difference between the exercise price of the shares and the market value
of the shares on the date of exercise, and we will be entitled to a
corresponding tax deduction, subject to the application of Code Section 162(m)
of the Code and Section 280G of the Code.
Upon exercise of an ISO, the excess of the fair market value of the stock at
exercise over the exercise price is an adjustment in determining the recipient's
alternative minimum taxable income. The adjusted basis of the stock for
alternative minimum tax purposes will be the sum of the exercise price paid and
the amount included in the recipient's alternative minimum taxable income.
Unless the recipient was an employee of ours, or of any of our subsidiaries,
at all times during the period beginning on the date of grant of the option and
ending on the day three (3) months before the date of such exercise (twelve (12)
months in the case of an employee who becomes disabled, within the meaning of
Section 22(e)(3) of the Code), the option being exercised will be treated as a
non-qualified stock option, and not as an ISO.
Restricted Stock. The recipient of restricted stock (either by a restricted
stock award or pursuant to the exercise of an option) may elect under Section
83(b) of the Code, to include in ordinary income, as compensation at the time
restricted stock is first issued, the excess of the fair market value of such
shares at the time of issuance over the amount paid, if any, by the recipient
for such shares. Unless an election under Section 83(b) of the Code is timely
made (no later than the expiration of the 30 day period following the time of
issuance), no taxable income will be recognized by the recipient of restricted
stock until such shares are no longer subject to the restrictions or the risk of
forfeiture (collectively, the 'Restrictions'). However, when the Restrictions
lapse, the recipient will recognize ordinary income in an amount equal to the
excess of the fair market value of the common stock on the date of lapse over
the amount paid, if any, by the recipient for such shares. The ordinary income
recognized by an employee with respect to restricted stock awarded or purchased
pursuant to the SIP will be subject to both wage withholding and employment
taxes.
If an election under Section 83(b) of the Code is made, dividends received
on shares which are subject to Restrictions will be treated as dividend income.
If a recipient does not make an election under Section 83(b) of the Code,
dividends received on the common stock prior to the time the Restrictions on
such shares lapse will be treated as additional compensation, and not dividend
income, for federal income tax purposes, and will be subject to wage withholding
and employment taxes.
In general, a deduction will be allowed to us for federal income tax
purposes (subject to the discussion below regarding Code Sections 162(m) and
280G) in an amount equal to the ordinary income recognized by a recipient with
respect to restricted stock awarded or purchased pursuant to the SIP.
If, subsequent to the lapse of Restrictions on his or her common stock, the
recipient sells such shares, the difference, if any, between the amount realized
from such sale and the tax basis of such shares to the holder will ordinarily
constitute capital gain or loss. A recipient's tax basis in restricted stock
received pursuant to the SIP will be equal to the sum of the price paid for such
shares, if any, and the amount of ordinary income recognized by such recipient
of such shares on the lapse of Restrictions thereon.
If an election under Section 83(b) of the Code is made and, before the
Restrictions on the shares lapse, the shares which are subject to such election
are resold to us or are forfeited, (i) no deduction would be allowed to such
recipient for the amount included in the income of such recipient by reason of
such election under Section 83(b) of the Code, and (ii) the recipient would
recognize a loss in an amount equal to the excess, if any, of the amount paid
for such restricted stock over the amount received by the recipient upon such
resale or forfeiture (which loss would ordinarily be a capital loss). In such
event, we would be required to include in our income the amount of any deduction
previously allowable to us in connection with the transfer of such shares.
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Director's Common Stock Awards. The fair market value of an award of shares
of common stock will be includible in the non-employee director's income as
ordinary income at the time of the award, subject to the timely making of an
election under Section 83(b) of the Code, as discussed above, and will result in
deferral of income recognition to the extent that as a result of Section 16(b)
of the Exchange Act the timing of recognition is deferred for a period following
the award. The recipient should consult with his or her tax advisor with regard
to the extent of such deferral. We will be entitled to a deduction for the value
of such award when the non-employee director recognizes income, but such amounts
are not subject to wage withholding or employment taxes by us.
Parachute Payments. In the event that the payment or exercisability of any
award under the SIP is accelerated because of a change in ownership (as defined
in Section 280G(b)(2) of the Code) and the value of such payment or
exercisability of an award, either alone or together with any other payments
made to the recipient by us, constitute 'excess parachute payments' under
Section 280G of the Internal Revenue Code, then, subject to certain exceptions,
a portion of such payments would be nondeductible to us and the recipient would
be subject to a 20% excise tax on such portion of the payment.
Section 162(m) of the Code. Code Section 162(m) denies a deduction to any
corporation, whose common shares are publicly held, for compensation paid to
certain covered employees in a taxable year to the extent that any such
employee's compensation exceeds $1,000,000. Covered employees are a company's
chief executive officer on the last day of the taxable year and any other
individual whose compensation is required to be reported to shareholders under
the Exchange Act by reason of being among the four highest compensated officers
for the taxable year and who is employed on the last day of the taxable year.
The amount of ordinary income recognized by a recipient in the year of exercise
of a stock option is considered in determining whether a covered employee's
compensation exceeds $1,000,000. Compensation paid under certain qualified
performance based compensation arrangements, which (among other things) provide
for compensation based on pre-established performance goals established by a
compensation committee that is comprised solely of two or more outside directors
and which is disclosed to, and approved by, the majority of our stockholders, is
not considered in determining whether a covered employee's compensation exceeds
$1,000,000. It is intended that the options granted under the SIP (but not the
restricted stock), will satisfy the requirements of Code Section 162(m) so that
the awards will not be included in a covered employee's compensation for the
purposes of determining whether such covered employee's compensation exceeds
$1,000,000; however the effect of Code Section 162(m) on the deductibility of
such covered employees' compensation cannot be ascertained with certainty. As a
result, notwithstanding the foregoing discussion, no assurance can be given as
to the deductibility of the covered employees' compensation under Code Section
162(m).
MATERIAL FEDERAL INCOME, ESTATE AND GIFT TAX CONSEQUENCES RELATING TO THE
TRANSFER OF OPTIONS
Federal Income Taxation. The transfer of a non-qualified stock option by the
holder of a non-qualified stock option ('Optionee') to a permitted transferee
('Permitted Transferee') will not cause the Optionee to recognize taxable income
or gain at the time of transfer. If and when the Permitted Transferee
subsequently exercises the non-qualified stock option, the Optionee will
recognize taxable income at that time in an amount equal to the excess, if any,
of the fair market value of the common shares received by the Permitted
Transferee on exercise (determined on the exercise date) over the exercise price
of the non-qualified stock option. The Permitted Transferee's tax basis with
respect to the shares received upon exercise of the non-qualified stock option
will be equal to the fair market value of the shares on the date that the
non-qualified stock option is exercised (i.e., the exercise price plus the
amount of income recognized by the Optionee).
Federal Gift and Estate Taxation. An Optionee's transfer of a non-qualified
stock option by gift will be subject to federal gift tax except to the extent it
is excludible by the gift tax annual exclusion of $10,000 per donee, is within
the combined federal estate and gift tax exception discussed below, or is to a
person's spouse. In addition, upon the death of an Optionee, the value of an
option that has not previously been 'transferred' will be includible in the
Optionee's gross estate for federal estate tax purposes. Transfers to spouses
are not subject to such taxes, and there is combined lifetime gift and
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estate tax exclusion (known as the 'applicable exclusion amount'), which is
$675,000 per person in 2000 and increases incrementally to $1,000,000 in 2006
under current law).
In general, under IRS Revenue Ruling 98-21, the transfer to a family member,
for no consideration, of an option, is a completed gift on the later of (1) the
transfer or (2) the time when the donee's right to exercise the option is no
longer conditioned on the performance of services by the transferor. If the
option becomes exercisable in stages, each portion of the option that becomes
exercisable at a different time is treated as a separate option for the purpose
of applying this analysis.
Pursuant to IRS Revenue Procedure 98-34, the Internal Revenue Service will
treat an option as properly valued for gift (and estate) tax purposes, provided
that the employee follows a generally recognized option pricing model, such as
the Black-Scholes model or an accepted version of the binomial model. The
selected model, however, must consider (as of the valuation date) the following
factors: (1) the option's exercise price; (2) the option's expected life; (3)
the current trading price of the underlying stock; (4) the expected volatility
of the underlying stock; (5) the expected dividends on the underlying stock; and
(6) the risk-free interest rate over the remaining option term. The option
pricing model must be applied properly and reasonable factors must be used when
applying the option pricing model. In addition, a discount to the valuation
produced by the option pricing model must not be considered in order to rely on
Revenue Procedure 98-34.
Reliance on Revenue Procedure 98-34 for valuing options is not mandatory,
but provides a 'safe harbor.' Moreover, to rely on IRS Revenue Procedure 98-34
for valuing options, the factors used in the valuation must be computed in the
manner described in that Revenue Procedure, including the option's expected
life, the expected volatility factor of the underlying stock, the expected
dividends on the underlying stock with respect to the option and the factor used
for determining a risk-free interest rate.
Employees who use the methodology described in IRS Revenue Procedure 98-34
to value their options should write 'FILED PURSUANT TO REV. PROC. 98-34' on the
applicable gift (or estate) tax return.
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