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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 27, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to ______
Commission File Number 1-13736
U.S. INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 22-3369326
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
101 WOOD AVENUE SOUTH
ISELIN, NEW JERSEY 08830
(Address of principal executive offices) (Zip Code)
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(732) 767-0700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past ninety days: Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
Aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant at November 1, 1997 (based on the last reported
sale price of such stock on the New York Stock Exchange on such
date): $1,936,465,789
On November 1, 1997, the registrant had outstanding 74,537,964 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934 in connection with the
annual meeting of stockholders of the registrant to be held on February 6, 1998
are incorporated by reference into Part III of this Report.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
Disclosure Concerning Forward-Looking Statements.................................................... 3
1. Business............................................................................................ 3
2. Properties.......................................................................................... 13
3. Legal Proceedings................................................................................... 13
4. Submission of Matters to a Vote of Security Holders................................................. 13
PART II
5. Market for Registrant's Common Equity and Related Shareholder Matters............................... 14
6. Selected Financial Data............................................................................. 15
7. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 16
8. Financial Statements and Supplementary Data......................................................... 24
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 51
PART III
10. Directors and Executive Officers of the Registrant.................................................. 51
11. Executive Compensation.............................................................................. 51
12. Security Ownership of Certain Beneficial Owners and Management...................................... 51
13. Certain Relationships and Related Transactions...................................................... 51
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................... 52
Signatures.......................................................................................... 55
FINANCIAL STATEMENT SCHEDULES
U.S. Industries, Inc. Valuation and Qualifying Accounts............................................. 56
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PART I
DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in the
Letter of the Chairman of the Board and Chief Executive Officer and President
included in the Annual Report to Stockholders and in this Form 10-K, including
without limitation the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business", are, or may be
deemed to be, forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 (the "Exchange Act"). Various economic and competitive factors could cause
actual results to differ materially from those discussed in such forward-looking
statements, including factors which are outside of the control of the Company,
such as interest rates, inflation rates, consumer spending patterns,
availability of consumer credit, levels of residential and commercial
construction, levels of automotive production and changes in raw material costs,
along with the other factors noted in this Form 10-K with respect to the
Company's businesses.
ITEM 1. BUSINESS
GENERAL
U.S. Industries, Inc. (with its subsidiaries, the "Company") manufactures
and distributes a broad range of consumer and industrial products. The Company
manages its businesses on a decentralized basis as independent business units,
subject to strict financial controls and performance-based incentives. The
Company's long-term strategy is to enhance shareholder value through internal
growth, focused on developing its larger businesses with major market positions
and better recognized names, and through selective acquisitions.
The Company made four significant acquisitions during fiscal 1997, for total
consideration of $88 million, to strengthen its core businesses. The assets of
IXL Manufacturing, a U.S. and Canadian manufacturer of fiberglass and wood
handles for tools, and of Woodings-Verona Tool Works, a manufacturer of
hot-forged heavy striking tools, were acquired for the Company's AMES
non-powered tool business. Britains Petite Limited, a U.K. manufacturer of
military soldier collectibles and metal and plastic models, was acquired for the
Company's ERTL collectibles and models business. The assets of the outdoor
casual furniture division of Sunbeam Corporation (renamed SUNLITE) were acquired
for the Company's JACUZZI bath and outdoor products business. Subsequent to
fiscal year-end, the assets of Siemens AG's European commercial lighting
operations, subsequently renamed SiTeco Beleuchtungstechnik GmbH ("SiTeco"),
were acquired for the Company's Lighting Corporation of America for $67 million.
SiTeco operates facilities in Germany, Austria and Slovenia. Including the
Siemens lighting asset purchase, acquisition expenditures since October 1, 1996
have totaled $155 million.
During fiscal 1997, the Company received $334 million of proceeds from the
sales of Tube-Tex, QPF, SCM Metals, Sunbeam Resin Furniture and Odyssey Golf
businesses and its equity investment in Ground Round Restaurants, Inc.
Subsequent to fiscal year-end, the Company completed the sale of its Tommy
Armour Golf business. The Company also received $28 million of consideration
from the sale of surplus real estate assets in fiscal 1997.
These transactions enabled the Company to complete the programs to reduce
debt and focus operations which were established in connection with the
Company's demerger (i.e., spin-off) from Hanson PLC ("Hanson") on May 31, 1995
(the "Demerger"). At the time of the Demerger, the Company was capitalized with
$1.4 billion of bank debt, had a ratio of debt net of cash ("net debt") to
capitalization of 78% and held 34 diverse businesses. At the end of fiscal 1997,
prior to the SiTeco acquisition, the
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Company had $500 million of net debt, its net debt-to-capitalization ratio was
41% and it operated a select group of consumer and industrial businesses.
During fiscal 1997, the Company implemented a three-for-two stock split in
the form of a Common Stock dividend and initiated a quarterly cash dividend
policy. All per share amounts in this Report give effect to the stock split.
During fiscal 1996 and 1997, the Company received three separate authorizations
of $50 million from its Board of Directors permitting it to purchase Common
Stock. As of November 1, 1997, the Company had purchased a total of 6,778,629
shares of Common Stock at a total cost of $115 million.
References in this Report to a fiscal year are to the applicable fiscal year
ended on the Saturday nearest September 30 and reflect a 52-week period. This
Report references trademarks of the Company such as JACUZZI, AMES, RAINBOW, ERTL
AND KELLER, as well as other trade names and product names.
The Company's principal executive offices are located at 101 Wood Avenue
South, Iselin, New Jersey 08830; its telephone number at that address is (732)
767-0700. The Company also has executive offices located at 17 Mount Street,
Mayfair W1Y 5RA, London, England; its telephone number at that address is
(011)(44-171) 99-8766.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company's operations are grouped into two segments: Consumer and
Industrial Products. During fiscal 1997, the Bath and Outdoor Products
Operations were reclassified to the Consumer Group and the Lighting Products
Operations were reclassified to the Industrial Group. Within the Consumer Group,
the Footwear Operations and the Recreation and Leisure Operations were combined
into the Other Consumer Operations. These reclassifications resulted from
acquisition and divestiture activity. The outdoor furniture operations, acquired
in March 1997, are included in the Bath and Outdoor Products Operations. The
results of all operations sold or classified as discontinued operations are
discussed separately in Management's discussion and Analysis of Financial
Condition and Results of Operations under "Discontinued Operations and
Extraordinary Items". See Note 4 to the Consolidated (Combined) Financial
Statements.
CONSUMER GROUP
The Consumer Group includes companies engaged in the manufacture and
distribution of products principally used in and around the home (the
"Housewares Products Operations"), bath and outdoor furniture products (the
"Bath and Outdoor Products Operations"), and collectible toys, footwear products
and textile products (the "Other Consumer Operations"). The Consumer Group
contributed 59% of the Company's net sales in both fiscal 1997 and fiscal 1996
and 58% in fiscal 1995.
HOUSEWARES PRODUCTS OPERATIONS
The Housewares Operations includes companies that manufacture and distribute
tools, ladders and vacuum cleaners.
TOOLS AND LADDERS. O. Ames Co., together with related subsidiaries
("Ames"), is a leading manufacturer and distributor of non-powered lawn, garden
and industrial hand tools, striking tools and ladders for residential and
commercial use. Ames sells its products under the brand names Ames, Eagle,
Woodings-Verona, Keller, Garant and, to a lesser extent, various private labels.
Ames product lines include regular tools (shovels, spades, forks, cutting
tools, lawn and garden accessories and garden tools); winter tools (snow
shovels, pushers and scoops); and wheelbarrows and
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other wheeled goods. In July 1996, the Company purchased the ladder assets of
Keller Industries, Inc. ("Keller"), a manufacturer of wood, aluminum and
fiberglass ladders for residential and commercial markets. The Company also
purchased Keller's window manufacturing assets. In January 1997, the Company
purchased the assets of Woodings-Verona Tool Works, Inc., a manufacturer of
heavy striking tools, including sledge hammers, axes, bows, picks and railroad
tools. In July 1997, the Company purchased IXL Manufacturing Company, Inc., a
manufacturer of fiberglass and wood handles for striking tools and lawn and
garden tools.
Ames manufactures its products at its facilities in Parkersburg, West
Virginia; Elyria and Cambridge, Ohio; Swainsboro, Georgia; Merced, California;
Milford, Virginia; Bernie and St. Genevieve, Missouri; and St. Francois, Canada.
Ames' sales are primarily concentrated in North America. Sales are seasonal,
with a substantial portion made in spring and fall, and weather fluctuations can
have a short-term impact on results. Ames distributes its products primarily
through independent wholesale distributors, warehouse centers and other mass
merchants, and large buying groups including cooperatives. Sales have become
increasingly concentrated among warehouse centers and other mass merchants.
VACUUM CLEANERS. Rexair Inc. ("Rexair") is a leading manufacturer of
premium vacuum cleaners. Its Rainbow vacuum cleaners collect dirt particles by
means of a combination water filtration and separator system rather than the bag
used in traditional vacuum cleaners.
Rexair manufactures its products at its Cadillac, Michigan facility.
Rexair's marketing and administrative functions are located at its facility in
Troy, Michigan. Rexair sells the Rainbow and its accessories exclusively to
independent authorized distributors. Rexair's proportion of international unit
sales to total sales increased from 46% in fiscal 1995 to 56% in fiscal 1996,
and to 58% in fiscal 1997. In fiscal 1997, Rexair sold its products in over 70
foreign countries and its principal international markets included Poland,
Austria, the Czech Republic and Japan. As discussed under "International
Operations" below, export sales are subject to the usual risks of doing business
abroad.
The direct sales vacuum cleaner industry is mature and competition is based
on quality, sales technique, personnel, marketing and distribution approaches.
Rexair does not compete on the basis of price with mass market vacuum cleaners.
Sales to consumers are made by distributors and their subdistributors through
in-the-home demonstrations typically set up by referrals from other consumers.
Substantially all of Rexair's sales to distributors are for cash. However, the
Company estimates that approximately 66% of domestic distributors' and
subdistributors' sales to consumers are financed by third parties; thus,
Rexair's business could be adversely affected by a decreased availability of
consumer credit or increased consumer finance rates.
BATH AND OUTDOOR PRODUCTS OPERATIONS
BATH PRODUCTS. Jacuzzi Inc., together with related subsidiaries
("Jacuzzi"), is a leading worldwide manufacturer and distributor of whirlpool
bath products, spas, shower systems, non-jetted baths, swimming pool equipment
and water systems products.
Whirlpool bath products are offered in three distinct lines: the Designer
Series, serving the top-end of the highly stylized luxury segment of the market;
the Builder Group, serving the mass residential and commercial construction and
warehouse centers segment; and the Asteria Line, providing a more basic private
label product. Products offered also include portable spas, a complete range of
sizes and shapes of non-jetted bath tubs, a variety of faucets and valves, and a
complete line of shower systems. Shower products include the J-Dream and
J-Shower Tower/Bath combination family of shower systems which are
self-contained systems combining hydrotherapy, steam and other amenities.
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In April 1996, Jacuzzi purchased a leading Canadian manufacturer of
above-ground swimming pools and equipment. Jacuzzi also produces a complete line
of pumps, filtration systems, pool equipment systems and other parts for
residential and commercial swimming pool applications. Its water systems
products include irrigation systems, as well as submersible, centrifugal and jet
water pumps.
Jacuzzi's whirlpool bath, spa and shower product lines are sold to wholesale
distributors (which sell to plumbers, remodelers, builders, and retailers),
specialized dealers and home centers. Jacuzzi's swimming pool equipment and
water systems product lines are sold to original equipment manufacturers,
builders, retailers and wholesale distributors, who sell to pool builders,
retailers, contractors, well drillers and service companies.
International markets, including Europe, South America, the Middle East and
Asia, accounted for approximately 44% of Jacuzzi's fiscal 1997 sales. Jacuzzi
Europe, located in Pordenone, Italy, produces a full range of whirlpool and
non-jetted baths and shower systems for the European market. Jacuzzi Europe is a
leader in whirlpool products in the Italian market and holds a large market
share in Spain, France and Sweden. Jacuzzi also has manufacturing and
distribution affiliates in Brazil, Chile and Canada. Jacuzzi commenced
operations at a new facility located in Singapore in the first quarter of 1998
to provide products specifically designed for Asian markets.
OUTDOOR FURNITURE. The Company's outdoor furniture operation manufactures
aluminum and wrought iron outdoor furniture in the U.S. It distributes its
products primarily through specialty pool and patio stores and mass merchants.
The outdoor furniture division has manufacturing facilities in Paragould,
Arkansas and Sarasota, Florida.
OTHER CONSUMER OPERATIONS
The Other Consumer Operations include companies that manufacture, market and
distribute collectible toys and model kits, footwear products and textile
products.
COLLECTIBLE TOYS AND MODEL KITS. The Ertl Company, Inc. ("Ertl")
manufactures, markets and distributes agricultural toys, miniature die-cast
toys, collectible die-cast replicas and plastic model kits. Ertl is
headquartered in Dyersville, Iowa. Agricultural toys consist primarily of
die-cast scale model replicas of tractors and other farm implements for children
and adults. Miniature die-cast toys include die-cast metal products based on
licensed characters which are targeted to young children, including Thomas the
Tank Engine, and collectible scale cars marketed under the American Muscle
brand, as well as die-cast replicas which are targeted to adults. Ertl's model
kits are marketed under the brand names AMT, Snap Fast and Snap Fast Plus.
In April 1997, the Company purchased Britains Petite Limited ("Britains"),
based in Nottingham, England, a leading manufacturer of military soldier
collectibles, metal and plastic models of agricultural vehicles, figures,
animals, buildings and accessories and preschool plastic toys. Britains key
brands include William Britain collectibles, Britains agricultural toys and
Petite preschool toys.
Promotional toy sales were a significant part of Ertl's business in and
prior to fiscal 1996. Due to rapid changes in consumer preferences, even
successful promotional toys require heavy advertising expenditures and are
generally marketed for only one to three years. Ertl withdrew from this market
during fiscal 1996 and the first quarter of fiscal 1997. During fiscal 1997,
Ertl focused efforts on its stable collectible toy and model kit product lines.
Ertl's products are sold through to toy retailers, mass merchants,
independent toy and hobby shops and hobby distributors. Agricultural toys are
also sold to original equipment manufacturers, such as John Deere and J.I. Case,
whose dealers resell them in dealer showrooms. Ertl Collectibles are products
which
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are customized for, and generally sold directly to companies, for promotional
purposes, or decorated with well-known logos such as those of professional
sports franchises, universities and major corporations and sold directly to
retailers.
The toy industry experiences significant seasonal fluctuations in results
due to the heavy demand for toys during the Christmas season. This seasonality
has been accentuated by the prominence of promotional toys; however, due to
Ertl's withdrawal from this market, seasonality is expected to be slightly less
pronounced in future periods. During each of the last three fiscal years, over
60% of Ertl's net sales and over 70% of its operating income have been realized
during its first and fourth fiscal quarters.
In fiscal 1997, Ertl manufactured approximately 35% of its products at its
facility in Tijuana, Mexico, and relied on contract manufacturing in the Far
East, principally in China and Macau, to manufacture much of the balance
(approximately 46%). As discussed under "International Operations" below,
foreign manufacturing and sourcing is subject to certain risks.
Many of Ertl's products are manufactured under licenses with original
equipment vehicle manufacturers that permit Ertl to manufacture and market
die-cast replicas and model kits of the vehicles and to use the brand and model
names of the original equipment manufacturer. These licenses may also permit the
use of the manufacturer's name or trademark on non-replica products, such as
coin banks. These license agreements generally are non-exclusive and have terms
of one to five years. These license agreements often require advances or
guaranteed minimum royalties and, in certain cases, the license agreements are
terminable at will by the licensors.
FOOTWEAR PRODUCTS. Georgia Boot Inc. ("Georgia Boot") markets and
distributes work, hiking, hunting and western boots under the brand names
Georgia Boot, Northlake and Durango. The Georgia Boot line consists of
protective footwear for various workplace environments. The Northlake line of
outdoor/sport footwear is marketed to consumers through independent retailers
and outdoor specialty stores. The Durango line of western work boots and
western-style fashion footwear is marketed through farm and western stores,
truck stops, shoe stores, department stores and independent dealers. Georgia
Boot's principal facilities are located in Franklin, Tennessee.
Lehigh Safety Shoe Company ("Lehigh") markets and distributes a full line of
protective safety shoes that are generally purchased by industrial companies for
their employees. Lehigh distributes its products primarily through a network of
company-owned and independent shoe centers, often located near industrial sites,
and shoe-mobiles which visit industrial locations. A portion of Lehigh's sales
are derived from direct mail and telemarketing efforts.
Trimfoot Co. ("Trimfoot") manufactures, imports and markets footwear
products for infants and children. Trimfoot products are distributed through
major department stores, mass merchants and discount chains in the United
States.
TEXTILES. Native Textiles manufactures lace and tricot products. Sales are
made to bra, lingerie and active sportswear manufacturers primarily in the
United States.
INDUSTRIAL GROUP
The Industrial Group includes companies manufacture and distribute indoor
and outdoor lighting products (the "Lighting Products Operations") and products
for the automotive industry and other industrial products (the "Other Industrial
Products Operations"). The Industrial Group contributed 41% of the Company's net
sales in both fiscal 1997 and fiscal 1996, and 42% in fiscal 1995.
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LIGHTING PRODUCTS OPERATIONS
The Lighting Products Operations manufacture indoor and outdoor lighting
fixtures and lighting controls for commercial, industrial and residential
markets in the United States and Canada. During fiscal 1997, sales of commercial
and residential products accounted for approximately 80% and 20%, respectively,
of the total revenues of the Lighting Products Operations.
Outdoor lighting products are sold under the Kim, Spaulding, Moldcast and
Architectural Area Lighting names and, since the acquisition of SiTeco, the
Siemens name. These products include street, area, parking garage and landscape
lighting products, as well as floodlights. Outdoor lighting products are sold to
electrical distributors, national accounts and utility companies. National
accounts include service stations, automobile dealerships and fast food
restaurants. Sales of outdoor lighting products are seasonal to a minor degree,
with inclement weather affecting outdoor installation.
Indoor commercial/industrial grade lighting products are sold under the
Columbia and Prescolite names and, since the acquisition of SiTeco, the Siemens
name. These products include standard and custom designed parabolic-type and
other fluorescent lighting fixtures, incandescent and high intensity discharge
lighting fixtures and lighting controls. Sales are made through electrical
distributors, national accounts and DIY accounts.
Residential lighting products are sold under the Progress name and include
chandeliers, hall and foyer sconces, pendants, bath and vanity, ceiling,
fluorescent, under-cabinet, track, and outdoor and landscape lighting.
Residential lighting products are sold principally in the United States and
Canada to lighting showrooms and electrical distributors, who in turn, sell to
builders, electrical contractors and consumers; however, sales to DIY accounts
are becoming a more important portion of this business. Sales of residential
lighting products are seasonal to a degree, with inclement weather affecting
residential construction.
OTHER INDUSTRIAL PRODUCTS OPERATIONS
Garden State Tanning, Inc. ("Garden State Tanning") manufactures high
quality leather for installation as automotive seating and trim. Garden State
Tanning produces precision cut "sets" that are shipped to automotive industry
customers' facilities where they are sewn and attached to automobile seats and
other vehicle parts. Specifications for automotive leather are more demanding
than those for other leather products requiring, for example, that automotive
leather remain durable, supple and color-fast when subjected to extreme
temperature ranges. Hides purchases comprise approximately one-half of Garden
State Tanning's finished leather costs. Over two-thirds of the hides used in the
production of finished leather are purchased from one supplier.
Huron Inc. ("Huron") manufactures precision metal products used in
automobile systems including screw machine parts, tubular assemblies, dowels,
fittings, shafts and air conditioning and fuel manifolds. Huron supplies its
precision metal products to domestic automotive OEMs and foreign automobile
manufacturers with United States assembly plants and their suppliers located in
North America and Europe.
Leon Plastics, Inc. ("Leon Plastics") manufactures molded plastic parts and
assemblies for automotive interiors, including plastic interior sidewall,
console and instrument panel trim components such as armrests, assist handles,
cupholders, glove box doors and large interior trim panels. Leon Plastics
distributes its products directly to automotive assembly plants and automotive
interior trim manufacturers.
Bearing Inspection, Inc. ("Bearing") overhauls and reconditions aircraft
engine bearings.
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Jade Technologies Singapore Pte. Ltd. ("Jade Singapore") manufacturers
leadframes for the electronics industry. In January 1997, an initial public
offering of 25% of the shares of Jade Singapore was completed. Its shares are
listed on the Stock Exchange of Singapore Dealing and Automated Quotation System
(SESDAQ).
INVESTMENT
In July 1996, the Company joined a consortium of companies which acquired an
equity interest in United Pacific Industries Limited ("UPI"), a limited
liability company incorporated in Bermuda and listed on the Stock Exchange of
Hong Kong. UPI manufactures voltage converters and other electronic components.
In fiscal 1997, the Company purchased additional shares in UPI. The Company's
investment of approximately $12 million results in beneficial ownership of 22.3%
of UPI. The Company accounts for this investment using the equity method of
accounting.
COMPETITION
The Company operates in mature and highly competitive industries. The
Company's businesses compete on the basis of brand identification, quality,
price, marketing and distribution approaches. In some industries, some of the
Company's competitors have greater market share or product availability in a
given market or have greater financial resources than the Company.
REAL ESTATE
The Company develops and manages certain properties for its sole benefit and
in joint ventures with others through its wholly-owned subsidiary, USI
Properties, Inc. ("USI Properties"). USI Properties is responsible for the
development, management and ultimate disposition of certain excess properties
located in the United States.
INTERNATIONAL OPERATIONS
Certain of the Company's businesses generate revenue from exports sales
and/or revenue from operations conducted outside the United States. Export sales
amounted to approximately 13%, 14%, and 13% of total revenues in fiscal 1997,
1996 and 1995, respectively, principally reflecting sales by Rexair to foreign
distributors of Rainbow products in numerous countries, and sales by Garden
State Tanning to Japanese automobile manufacturers. Revenue from foreign
operations amounted to approximately 12%, 11% and 10% of total revenues in
fiscal 1997, 1996 and 1995, respectively, principally reflecting certain Jacuzzi
operations. Identifiable assets of foreign operations represented approximately
13% and 12% of total identifiable assets at September 30, 1997 and 1996,
respectively, principally reflecting certain Jacuzzi assets. In addition, Ertl
obtains a significant amount of finished goods from unaffiliated suppliers in
the Far East, particularly China and Macau, and has a manufacturing facility in
Mexico.
The Company's export sales and foreign manufacturing and sourcing are
subject to certain risks including currency fluctuation, transportation delays,
political and economic instability, restrictions on the transfer of funds, the
imposition of duties, tariffs and import and export controls, and changes in
governmental policies. In particular, if China lost the "Most Favored Nation"
status currently accorded to it by the United States or if the United States
Trade Representative imposed retaliatory trade sanctions on China, among other
things, the cost of imports from China could increase significantly.
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EMPLOYEES
As of September 30, 1997, the Company had approximately 18,000 employees
(excluding employees of companies in which the Company holds equity interests).
Approximately 46% of such employees were represented by unions. The Company
believes that the relations of its operating subsidiaries with employees and
unions are satisfactory.
GOVERNMENTAL REGULATION
The Company's operating units are subject to numerous federal, state and
local laws and regulations concerning such matters as zoning, health and safety
and protection of the environment. The Company believes that its operating units
are currently operating in substantial compliance with, or under approved
variances from, various federal, state and local laws and regulations.
Certain present and former operating sites, or portions thereof, currently
or previously owned and/or leased by current or former operating units of the
Company are the subject of investigations, monitoring or remediation under the
federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "superfund"), the federal Resource Conservation and Recovery Act or
comparable state statutes or agreements with third parties. These proceedings
are in various stages ranging from initial investigations to active settlement
negotiations to implementation of the clean-up or remediation of sites. The
Company does not believe that any of these proceedings will have a material
adverse effect on its financial condition, results of operations or cash flows.
A number of present and former operating units of the Company have been
named as Potentially Responsible Parties ("PRPs") at 15 off-site disposal sites
under CERCLA or comparable state statutes in a number of federal and state
proceedings. In each of these matters the operating unit of the Company is
working with the governmental agencies involved and other PRPs to address
environmental claims in a responsible and appropriate manner. Under CERCLA and
other similar statutes, any generator of hazardous waste sent to a hazardous
waste disposal site is potentially responsible for the clean-up, remediation and
response costs required for such site in the event the site is not properly
closed by its owner or operator, irrespective of the amount of waste which the
generator sent to the site. The Company does not believe that any of these
proceedings will have a material adverse effect on its financial condition,
results of operations, or cash flows.
From time to time, the Company may receive notices of violation or may be
denied its applications for certain licenses or permits on the basis that the
practices of the operating unit are not consistent with regulations or
ordinances. In some cases, the relevant operating unit may seek to meet with the
agency to determine mutually acceptable methods of modifying or eliminating the
practice in question. The Company believes that its operating units will comply
with the applicable regulations and ordinances in a manner which will not have a
material adverse effect on its financial condition, results of operations or
cash flows.
The Company's subsidiaries have made capital and maintenance expenditures
over time to comply with zoning, water, air and solid and hazardous waste
regulations. While the amount of expenditures in future years will depend on
legal and technological developments which cannot be predicted at this time,
these expenditures may progressively increase if regulations become more
stringent. Future costs for compliance cannot be predicted with precision and
there can be no certainty with respect to any costs the Company may be forced to
incur in connection with historical on-site or off-site waste disposal. 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.
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At September 30, 1997, the Company had accrued approximately $15 million for
various environmental related liabilities of which the Company is aware. The
Company believes that the range of liability which is reasonable for such
matters is between approximately $5 million and $17 million. The Company cannot
predict whether future developments in laws and regulations concerning
environmental protection or unanticipated enforcement actions, particularly with
respect to environmental standards, will require material capital expenditures
or otherwise affect its financial condition, results of operation or cash flow
in a materially adverse manner or whether its operating units will be successful
in meeting future demands of regulatory agencies in a manner which will not have
a material adverse effect on the Company's financial condition, results of
operations or cash flows.
PATENTS AND TRADEMARKS
The Company has numerous United States and foreign patents, patent
applications, registered trademarks and trade names, and licenses with regard
thereto, that relate to various businesses. The Company believes that certain of
the trademarks and trade names, some of which are mentioned above, are of
material importance to the businesses to which they relate and may be of
material importance to the Company as a whole, including Ames, Jacuzzi, Keller,
Rainbow, Ertl, Georgia Boot, Durango, Lehigh, Progress, Prescolite and Columbia.
None of such trademarks or trade names are subject to limitations on their
duration which are material to the Company as a whole. The patents are subject
to limitations on their duration, but none of such limitations are material to
the Company as a whole.
LITIGATION
The Company and its subsidiaries are parties to legal proceedings, including
product liability claims, that are considered to be either ordinary, routine
litigation incidental to the business of present and former operations or not
material to the Company's financial position, results of operations or cash
flows. For a discussion of matters involving environmental laws and regulations,
see "Governmental Regulation".
EXECUTIVE OFFICERS
At September 30, 1997, the executive officers of the Company were as
follows:
<TABLE>
<CAPTION>
NAME POSITION
- --------------------------------------------------- ------------------------------------------------------------
<S> <C>
David H. Clarke.................................... Chairman of the Board and Chief Executive Officer
John G. Raos....................................... President, Chief Operating Officer and Director
Frank R. Reilly.................................... Senior Vice President, Chief Financial Officer and Director
George H. MacLean.................................. Senior Vice President, General Counsel and Secretary
John F. Bendik..................................... Group Vice President
John A. Mistretta.................................. Group Vice President
John S. Oldford.................................... Group Vice President
Robert M. Brier.................................... Vice President-Finance and Treasurer
Richard A. Buccarelli.............................. Vice President-Corporate Development
Diana E. Burton.................................... Vice President-Investor Relations
James O'Leary...................................... Vice President and Corporate Controller
Dorothy Sander..................................... Vice President-Administration
</TABLE>
David H. Clarke, 56, has served as Chairman of the Board and Chief Executive
Officer of the Company since the Demerger. Mr. Clarke was Vice Chairman of
Hanson from 1993 until the Demerger,
11
<PAGE>
Deputy Chairman and Chief Executive Officer of Hanson Industries, the U.S. arm
of Hanson, from 1992 until the Demerger and a Director of Hanson from 1989 until
May 1996. Mr. Clarke is a director of Fiduciary Trust International, a public
company engaged in investment management and administration of assets for
individuals, and serves on the National Advisory Board of The Chase Manhattan
Bank. Mr. Clarke is also a director of UPI.
John G. Raos, 48, has served as President and Chief Operating Officer and a
Director of the Company since the Demerger. Mr. Raos was President and Chief
Operating Officer of Hanson Industries from 1992 until the Demerger and a
Director of Hanson from 1989 until the Demerger. Mr. Raos is a director of
TearDrop Golf Company and Jade Singapore.
Frank R. Reilly, 40, has served as Senior Vice President and Chief Financial
Officer and a Director of the Company since the Demerger. Mr. Reilly served as
an independent consultant to Hanson Industries from January 1995 to February
1995 and became an employee of a Hanson subsidiary in March 1995. He was Vice
President and Chief Financial Officer of Marine Harvest International, Inc.
("Marine Harvest"), a public company engaged in aquaculture, from January 1993
until its acquisition by Booker plc in November 1994. For the balance of the
past five years, Mr. Reilly served as Director-Acquisitions of Hanson
Industries.
George H. MacLean, 62, has served as Senior Vice President, General Counsel
and Secretary of the Company since the Demerger. For the balance of the past
five years, Mr. MacLean served as Vice President and Associate General Counsel
of Hanson Industries.
John F. Bendik, 45, has served as a Group Vice President of the Company
since June 1997. Mr. Bendik served as Director of Strategic Planning of the
Company since August 1995. For the balance of the past five years, Mr. Bendik
held various positions with Hanson subsidiaries including President and CEO of
Histaccount Corporation and Chief Financial Officer and Group Controller of SCM
Metal Products.
John A. Mistretta, 51, has served as a Group Vice President of the Company
since the Demerger. For the balance of the past five years, Mr. Mistretta served
as Chairman and Chief Executive Officer of Marine Harvest.
John S. Oldford, 54, has served as a Group Vice President of the Company
since the Demerger. For the balance of the last five years, Mr. Oldford served
as Group Vice President of the Chemicals and Automotive Group of Hanson
Industries.
Robert M. Brier, 38, has served as Vice President-Finance and Treasurer of
the Company since the Demerger. Mr. Brier served as Vice President-Finance of
Hanson Industries from June 1994 until the Demerger. For the balance of the past
five years, he was Treasurer of Hanson Industries.
Richard A. Buccarelli, 42, has served as Vice President-Corporate
Development of the Company since July 1997. Mr. Buccarelli served as Vice
President-Properties of the Company and President of USI Properties, Inc. from
the Demerger to July 1997. He served as President of Hanson Properties North
America for the balance of the past five years.
Diana E. Burton, 52, has served as Vice President-Investor Relations of the
Company since the Demerger. Ms. Burton served as a consultant to Hanson
Industries from January 1995 through February 1995, when she became an employee
of a Hanson subsidiary. For the balance of the past five years, she was Vice
President of Marine Harvest, with principal responsibility for administration
and investor relations.
12
<PAGE>
James O'Leary, 34, has served as Corporate Controller of the Company since
the Demerger and as Vice President since January 1996. Mr. O'Leary served as
Group Controller for certain consumer and industrial products businesses of
Hanson Industries from September 1994 until the Demerger. From May 1993 to
September 1994, he served as Assistant Corporate Controller and Director of
Financial Analysis and Reporting for Hanson Industries. For the balance of the
past five years, he was employed by Deloitte & Touche LLP as an Audit Manager.
Dorothy E. Sander, 44, has served as Vice President-Administration of the
Company since the Demerger. Ms. Sander served as Vice President-Administration
and Benefits of Hanson Industries from 1991 until the Demerger and as an
Associate Director of Hanson PLC from 1993 until the Demerger. She is a member
of the Advisory Council of the Prudential Insurance Company and the Board of
Editors of "HR-Law and Practice" magazine.
ITEM 2. PROPERTIES
The Company owns 61 and leases 96 properties, none of which has a value that
is significant in relation to the Company's assets as a whole.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to legal proceedings, including
product liability claims, that are considered to be either ordinary, routine
litigation incidental to the business of present and former operations or
immaterial to the Company's financial condition, results of operations or cash
flows.
For information concerning environmental proceedings, see
"Business-Government Regulation."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders
during the fourth quarter of fiscal 1997.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
(a) Market Information.
The Company's Common Stock is traded on the NYSE under the symbol USI. The
following table sets forth, for the fiscal periods indicated, the high and low
closing sales price per share of Common Stock as reported by the NYSE. The
following price per share information gives effect in all periods to a three-
for-two split of the Common Stock effected in the form of a stock dividend paid
on September 23, 1997 to holders of record on September 2, 1997.
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
--------- --------- --------- ---------
First Quarter.............................................................. $ 22.42 $ 17.50 $ 12.25 $ 9.83
Second Quarter............................................................. $ 26.17 $ 21.17 $ 13.83 $ 11.58
Third Quarter.............................................................. $ 25.50 $ 21.42 $ 16.33 $ 13.58
Fourth Quarter............................................................. $ 28.00 $ 23.71 $ 18.17 $ 14.50
</TABLE>
(b) Holders.
As of November 1, 1997, there were approximately 36,045 record holders of
Common Stock. The closing price per share of Common Stock as reported by the
NYSE on such date was $26 7/8.
(c) Dividends.
On August 14, 1997, the Board of Directors adopted a cash dividend policy
under which it intends to declare quarterly dividends totaling $0.20 per share a
year. On October 14, 1997, pursuant to this policy, the Company paid a cash
dividend of $0.05 per share of Common Stock to all holders of record of the
Common Stock on September 30, 1997. The payment of dividends is subject to the
Board of Directors' discretion and will depend upon the Company's overall
performance, general business conditions, legal and contractual restrictions and
other factors that the Board may deem relevant.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth summary consolidated (combined) financial
information as at and for the fiscal years ended September 30:
<TABLE>
<CAPTION>
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995(1) 1994 1993
--------- --------- --------- --------- ---------
INCOME STATEMENT DATA:
Net sales........................................................ $ 2,282 $ 2,011 $ 1,896 $ 1,846 $ 1,690
Operating income................................................. 241 206 77 176 134
Income (loss) from continuing operations......................... 113 82 (64) 34 12
Net income (loss)................................................ 236 133 (89) 78 61
Income from continuing operations per share (2).................. 1.50 1.04 -- -- --
Net income per share (2)......................................... 3.13 1.70 -- -- --
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents........................................ 56 45 51 28 27
Working capital.................................................. 510 588 547 1,003 1,149
Net assets held for disposition.................................. 10 131 297 543 728
Total assets..................................................... 1,831 1,776 1,837 2,193 2,261
Long-term debt (3)............................................... 551 717 832 985 985
Stockholders' equity/Invested capital............................ $ 705 $ 527 $ 412 $ 803 $ 902
DIVIDEND DATA:
Dividend per share............................................... $ 0.05 -- -- -- --
</TABLE>
Certain amounts have been restated from amounts previously reported to reflect
the disposal of businesses and the effect of the three for two stock split. (See
Notes 3, 4, 5, 11 and 12 to the Consolidated (Combined) Financial Statements
regarding transactions that affect the comparability of data.)
- ------------------------
(1) During fiscal 1995, subsequent to the Demerger, the Company's management
conducted a comprehensive review of its accounting policies in light of its
then current financial position and separate public company status. The
Company subsequently changed its accounting policy for evaluating goodwill
impairment during the third quarter of fiscal 1995, affecting comparability
between fiscal 1995 and previous fiscal years.
The Company adopted the fair value method of evaluating the recoverability
of goodwill and measuring for permanent impairment resulting in a charge of
$98 million to the Lighting Products Operations. These permanent impairments
to goodwill were associated with the original acquisitions of the Company's
commercial and consumer lighting products and result in reduced goodwill
amortization expense prospectively. Prior periods have not been restated.
Fiscal 1995 operating income includes charges of $2 million to close certain
underutilized facilities of the Lighting Products Operations. (See Notes 11
and 12 to the Consolidated (Combined) Financial Statements.)
(2) Prior to fiscal 1996, earnings per share information is not presented as
such information is not indicative of the Company's continuing capital
structure.
(3) Amounts in fiscal 1994 and 1993 primarily represent notes payable to Hanson.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company's operations are grouped into two segments: Consumer and
Industrial. The results of all operations sold or classified as held for
disposition are excluded from the table and discussion below. (See Note 4 to the
Consolidated (Combined) Financial Statements.)
<TABLE>
<CAPTION>
(IN MILLIONS)
FISCAL YEAR ENDED
SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
NET SALES
Consumer Group
Housewares......................................................................... $ 476 $ 411 $ 342
Bath and Outdoor Products.......................................................... 445 332 283
Other Consumer Products............................................................ 424 435 468
--------- --------- ---------
1,345 1,178 1,093
--------- --------- ---------
Industrial Group
Lighting Products.................................................................. 538 508 492
Other Industrial Products.......................................................... 399 325 311
--------- --------- ---------
937 833 803
--------- --------- ---------
TOTAL NET SALES.............................................................. $ 2,282 $ 2,011 $ 1,896
--------- --------- ---------
--------- --------- ---------
OPERATING INCOME (LOSS)
Consumer Group
Housewares Products................................................................ $ 88 $ 88 $ 67
Bath and Outdoor Products.......................................................... 56 55 49
Other Consumer Products............................................................ 43 25 37
--------- --------- ---------
187 168 153
--------- --------- ---------
Industrial Group
Lighting Products (1).............................................................. 42 36 (74)
Other Industrial Products.......................................................... 39 29 25
--------- --------- ---------
81 65 (49)
--------- --------- ---------
Operating Income before corporate expenses
and management fees................................................................ 268 233 104
Corporate expenses and management fees............................................... (27) (27) (27)
--------- --------- ---------
TOTAL OPERATING INCOME....................................................... $ 241 $ 206 $ 77
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Fiscal 1995 includes nonrecurring charges of $100 million related to the
Lighting Products Operation to adopt a new method of evaluating the
recoverability of goodwill and measuring for permanent impairment and to
close underutilized facilities. (See Notes 11 and 12 to the Consolidated
(Combined) Financial Statements.)
(2) Fiscal 1997 operating income includes $2 million of equity earnings from the
Company's investment in UPI. UPI is included in Other Industrial Products.
16
<PAGE>
FISCAL 1997 COMPARED TO FISCAL 1996
The Company had sales of $2,282 million and operating income of $241 million
in fiscal 1997, increases of $271 million (13.5%) and $35 million (17.0%),
respectively, from fiscal 1996.
CONSUMER GROUP
The Consumer Group had sales of $1,345 million and operating income of $187
million in fiscal 1997, increases of $167 million (14.2%) and $19 million
(11.3%), respectively, compared to fiscal 1996.
The Housewares Products Operations had sales of $476 million, an increase of
$65 million (15.8%). Operating income of $88 million was unchanged compared to
fiscal 1996. Operating income of $88 million, as compared to the prior year, was
unchanged primarily due to a difficult fourth quarter experienced by certain
operations. During the fourth quarter, adverse weather conditions in northern
Europe and general weakness in Italy and Japan led to reduced international
vacuum cleaner sales as compared to the fourth quarter of the prior fiscal year.
For the full year, domestic and international vacuum cleaner unit sales were
lower due to continued domestic weakness and weather-related international
weakness during the second half of the year. Additionally, fourth quarter sales
and operating profits declined in the ladder business, due to highly competitive
market conditions in the do-it-yourself ("DIY") distribution channels, which
also resulted in a negative profit comparison for the full year. Sales and
operating income from lawn and garden products increased as the Company
benefited from new product introductions in the wheeled goods category. Also
adding to results were contributions from the acquisition of the assets of
Woodings-Verona Tool Works, Inc., a manufacturer of striking tools acquired in
January 1997, and the acquisition of IXL Manufacturing, Inc. a manufacturer of
handles for tools, acquired in July 1997.
The Bath and Outdoor Products Operations had sales and operating income of
$445 million and $56 million, increases of $113 million (34.0%) and $1 million
(1.8%), respectively, over fiscal 1996. The increase in sales was primarily
attributable to the addition of the outdoor furniture operations, which were
acquired in March 1997, and strong domestic sales of bath products to large DIY
retailers. An increase in operating profits from domestic bath operations, and a
contribution from the recently acquired outdoor furniture operations, was
substantially offset by a decline in operating income in European bath products
operations. The contribution from European operations declined due to poor
economic conditions in Italy and a weaker Italian lira.
The Other Consumer Products Operations had sales and operating income of
$424 million and $43 million, a decrease of $11 million (2.5%) and an increase
of $18 million (72.0%), respectively, over fiscal 1996. Lower sales resulted
from difficult market conditions in the footwear market while the significant
increase in operating profits was due to an increase in operating profits in the
toy and textile operations. Toy profits rose significantly due to lower
advertising costs and the absence of one-time charges associated with the exit
from promotional toys, and reduced manufacturing costs from the expansion of
manufacturing operations in Mexico. Sales and profits also increased in the core
collectible and agricultural toy categories. Improved tricot sales, reduced lace
reserves and better manufacturing performance also contributed to the
improvement. Sales and operating income from the footwear operations suffered
from the absence of promotional programs in child and infant shoe categories
that positively affected fiscal 1996.
INDUSTRIAL GROUP
The Industrial Group had sales of $937 million and operating income of $81
million in fiscal 1997, increases of $104 million (12.5%) and $16 million
(24.6%), respectively, from fiscal 1996. Fiscal 1997 operating income includes
$2 million of equity earnings from the Company's investment in UPI.
The Lighting Products Operations had sales of $538 million and operating
income of $42 million, increases of $30 million (5.9%) and $6 million (16.7%),
respectively, from fiscal 1996. Particularly strong results were reported by the
Company's outdoor and residential lighting companies. The outdoor lighting
17
<PAGE>
companies benefitted from new product introductions and favorable market
conditions in the high-end architectural and commercial outdoor categories. In
the residential lighting segment, sales and profits increased due to the strong
housing market. In commercial indoor lighting, operating income was flat on
slightly increased sales as competitive pricing conditions continued.
The Other Industrial Products Operations had sales of $399 million and
operating income of $39 million, increases of $74 million (22.8%) and $10
million (34.5%), respectively, from fiscal 1996. Results reflect improved sales
in each of the Other Industrial Products Operations, with the largest increase
from sales of automotive leather products. The sharp increase in operating
profits was due primarily to the metal automotive components business and the
bearing refurbishment business. The automotive leather market was highly
competitive during the year and profitability was reduced by the poor quality of
hides available in the marketplace.
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
The Company had income from discontinued operations of $125 million in
fiscal 1997, consisting of gains on disposals of discontinued operations of $121
million, net of tax and income from operations of discontinued operations of $4
million. The gains resulted from the sales, in separate transactions, of Tubular
Textile Machinery Division, SCM Metal Products, Inc., QPF, Inc., the Company's
equity investment in Ground Round Restaurants, Inc. ("Ground Round"), SunLite
Casual Furniture, Inc.'s resin outdoor furniture business and Odyssey Golf for
total consideration of $334 million. The income from operations of discontinued
operations consisted of the above named companies, as well as Tommy Armour Golf
Company which was sold in November 1997.
In fiscal 1996, the Company had income from discontinued operations of $76
million, consisting of gains on disposals of discontinued operations of $66
million, net of taxes and income from operations of discontinued operations of
$10 million. The gains resulted from the sales, in separate transactions, of
Office Group America, Inc., Blue Mountain Industries, Farberware, Inc., Spartus
Electronics Corporation, Piedmont Moulding Corporation, Jade Holdings, Inc.,
Universal Gym Equipment, Inc., and Franklin Dyed Yarns for total cash
consideration of $241 million and notes of $6 million, which resulted in gains
of $68 million, net of tax. This was offset by a charge of $2 million, net of a
tax benefit of $1 million, to reduce the carrying value of the Company's equity
investment in Ground Round to its estimated realizable value. The income from
operations of discontinued operations consisted of the results of the above
named companies, as well as companies noted in the preceding paragraph.
In conjunction with the repayment of all outstanding indebtedness under a
prior credit agreement, during the first quarter of fiscal 1997, a net of tax,
non-cash, extraordinary charge of $2 million was incurred to write off
unamortized deferred financing costs and for previously deferred losses
associated with interest rate protection agreements. During the first quarter of
fiscal 1996, a net of tax, non-cash, extraordinary charge of $25 million was
incurred to write off unamortized deferred financing costs and previously
deferred losses associated with interest rate protection agreements.
INTEREST AND TAXES
Interest expense was $46 million for fiscal 1997, a $14 million (23.3%)
decrease from the prior fiscal year. The decrease reflects lower levels of debt
outstanding and lower borrowing costs in the first half of the year. Interest
income was $4 million for fiscal 1997, a $4 million (50%) decrease from fiscal
1996.
The provision for income taxes totaled $85 million for fiscal 1997 on
pre-tax income of $198 million (a 42.9% effective tax rate) compared to a $69
million provision on pre-tax income of $151 million for fiscal 1996 (a 45.7%
effective rate). The lower tax rate was primarily attributable to the increased
utilization of foreign tax credits.
18
<PAGE>
FISCAL 1996 COMPARED TO FISCAL 1995
The Company had sales of $2,011 million and operating income of $206 million
in fiscal 1996, increases of $115 million (6.1%) and $129 million (167.5%),
respectively, from fiscal 1995. During the third quarter of fiscal 1995, the
Company recorded non-recurring charges totaling $100 million to write-off
permanently impaired goodwill from previous acquisitions and to consolidate
certain underutilized Lighting Products Operations facilities. Excluding
non-recurring charges, operating income increased $29 million (16.4%) compared
to fiscal 1995.
CONSUMER GROUP
The Consumer Group had sales of $1,178 million and operating income of $168
million in fiscal 1996, increases of $85 million (7.8%) and $15 million (9.8%),
respectively, compared to fiscal 1995.
The Housewares Products Operations had sales of $411 million and operating
income of $88 million, increases of $69 million (20.2%) and $21 million (31.3%),
respectively, from fiscal 1995. Higher margin international sales of vacuum
cleaners increased dramatically compared to fiscal 1995, offsetting weaker
domestic sales. Fiscal 1996 also benefitted from favorable factory cost
absorption due to overall higher production rates as well as from higher
pricing. The Company's domestic garden tool operations performed well relative
to the prior year, more than offsetting weak results at its Canadian operation.
The improvement resulted from strong spring tool sales, successful product
introductions, lower raw material costs, favorable weather conditions and growth
at key DIY accounts. Fiscal 1996 results include a full year's contributions
from the Company's plastic injection molding operations (acquired in May 1995)
and a partial year's contribution from its ladder subsidiary (acquired in July
1996).
The Bath and Outdoor Products Operations had sales and operating income of
$332 million and $55 million, increases of $49 million (17.3%) and $6 million
(12.2%), respectively, over fiscal 1995. While domestic sales increased, market
competition resulted in reduced margins leading to flat domestic operating
income. Internationally, sales were down slightly but operating income increased
due to a shift in sales towards higher margin items and new products and the net
beneficial effect of a stronger lira. Fiscal 1996 results include a partial
year's contribution from a manufacturer of above-ground swimming pools (acquired
in April 1996).
The Other Consumer Products Operations had sales and operating income of
$435 million and $25 million, decreases of $33 million (7.1%) and $12 million
(32.4%), respectively, over fiscal 1995. Results at the Company's toy subsidiary
were substantially below those of the prior year due to the failure of, and
accelerated withdrawal from, the promotional toy category. This withdrawal,
which resulted in a number of charges for anticipated inventory mark-downs, was
undertaken to reposition and focus the subsidiary on its core product lines. The
core product lines performed favorably compared to the prior year. Additionally,
weak market conditions for high margin western footwear and resulting inventory
liquidations adversely affected results during fiscal 1996. In the textiles
market, softness experienced throughout fiscal 1996 caused shortfalls in sales
of both tricot and lace. A $1 million inventory charge taken during the third
quarter of fiscal 1995 resulted in a relative improvement in fiscal 1996.
INDUSTRIAL GROUP
The Industrial Group had sales of $833 million and operating income of $65
million in fiscal 1996, increases of $30 million (3.7%) and $114 million
(232.7%), respectively, from fiscal 1995. The fiscal 1995 results include
nonrecurring charges of $98 million to reflect the permanent impairment of
goodwill and $2 million to consolidate certain underutilized facilities.
Excluding the nonrecurring charges, operating income increased $14 million
(27.5%) over fiscal 1995.
The Lighting Products Operations had sales of $508 million and operating
income of $36 million, increases of $16 million (3.3%) and $110 million
(148.7%), respectively, from fiscal 1995. Fiscal 1995
19
<PAGE>
results include non-recurring charges of $98 million to reflect the permanent
impairment of goodwill and $2 million to consolidate certain underutilized
facilities. Excluding nonrecurring charges, operating income increased $10
million (38.5%) over fiscal 1995. Strong sales at the Company's outdoor lighting
subsidiaries, cost reductions and reduced goodwill amortization resulted in
increased operating income, despite soft construction market conditions
affecting the Company's commercial lighting subsidiaries.
The Other Industrial Products Operations had sales of $325 million and
operating income of $29 million, increases of $14 million (4.5%) and $4 million
(16.0%), respectively, from fiscal 1995. Fiscal 1996 results reflect weaker
performance at the Company's premium automotive leather business and weakness in
the semi-conductor dependent leadframe market, which were more than offset by
improvement at its plastic and metal automotive components businesses and
bearing refurbishment business. The automotive leather business showed improved
sales due to the recovery of foreign sales lost in fiscal 1995 resulting from
the threat of tariff sanctions against certain Japanese automobiles supplied by
the Company and the building of inventories by domestic automobile manufacturers
during the fourth quarter of fiscal 1996 in anticipation of a potential strike
by the United Auto Workers union. However, the volume increases were more than
offset by the negative impact of contractual hide price pass throughs, lower
prices for sales of split hides (excess leather produced when hides are "split"
during the production of automotive and other premium leather) and high price
concessions.
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS
In fiscal 1996, income from discontinued operations of $76 million consisted
of gains on disposals of discontinued operations of $66 million and income from
operations of discontinued operations of $10 million. The gains resulted from
the sales, in separate transactions, of Office Group America, Inc., Blue
Mountain Industries, Farberware, Inc., Spartus Electronics Corporation, Piedmont
Moulding Corporation, Jade Holdings, Inc., Universal Gym Equipment, Inc., and
Franklin Dyed Yarns for cash of $241 million and notes of $6 million, which
resulted in gains of $68 million, net of tax. This was offset by a charge of $2
million, net of a tax benefit of $1 million, to reduce the carrying value of the
Company's equity investment in Ground Round to its estimated realizable value.
The income from operations of discontinued operations consisted of the results
of the above named companies, as well as companies not yet disposed of as of
September 30, 1996.
In fiscal 1995, the Company had a loss from discontinued operations of $25
million consisting of losses on disposals of discontinued operations of $43
million and income from operations of discontinued operations of $18 million.
Losses on dispositions reflect non-cash charges of $53 million, net of tax,
recorded at the time of adoption of a formal plan of disposal to reduce the
carrying value of several discontinued operations to their expected net
realizable value, a $1 million loss, net of tax, related to the Company's
disposition of its equity investment in Beazer Homes USA, Inc., ("Beazer Homes")
and a gain of $11 million on the sale of Bear Archery, Inc., Valley Recreation
Products, Inc., Teters Floral Products, Inc., MW Manufacturers, Inc., Brown
Moulding Company, Inc. and Halkey-Roberts Corporation for $200 million. Income
from operations of discontinued operations consisted of the results of the
above-named companies, as well as companies not yet disposed of as of September
30, 1995.
During the first quarter of fiscal 1996, a net of tax, non-cash,
extraordinary charge of $25 million was incurred to write-off unamortized
deferred financing costs and accrue for previously deferred losses associated
with interest rate protection agreements.
INTEREST AND TAXES
Interest expense was $60 million for fiscal 1996, a $41 million (40.6%)
decrease from fiscal 1995. The decrease reflects lower levels of debt
outstanding and lower average interest rates. In fiscal 1995, prior to the
Demerger, outstanding indebtedness was comprised primarily of notes payable to
Hanson with interest
20
<PAGE>
at fixed rates which were higher than those incurred under the Company's credit
facilities. Interest income was $8 million for fiscal 1996, unchanged from
fiscal 1995.
The provision for income taxes totaled $69 million for fiscal 1996 on
pre-tax income of $151 million (a 45.7% effective tax rate) compared to a $42
million provision on a pre-tax loss of $22 million for fiscal 1995. The fiscal
1995 pre-tax loss included significant nondeductible non-recurring charges.
OUTLOOK
Management believes that the Company is well positioned to achieve
earnings-per-share growth of at least 15% during fiscal 1998. See "Disclosure
Concerning Forward-Looking Statements".
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources are cash
from operations, external borrowings and proceeds from sales of non-core
businesses and assets. For fiscal 1997, cash from operations and proceeds from
the sales of non-core businesses and assets exceeded the cash used for capital
expenditures, acquisitions and common stock repurchases, leading to an overall
decrease in outstanding indebtedness at year-end.
Net cash provided by operating activities was $56 million for fiscal 1997
compared to $137 million for fiscal 1996. Of these amounts, $94 million and $119
million, respectively, were provided by continuing operations.
Net cash provided by investing activities was $200 million for fiscal 1997
compared to $163 million for fiscal 1996. Fiscal 1997 included proceeds of $361
million from the sale of net assets held for disposition and real estate
transactions, partially offset by capital expenditures of $76 million and
acquisition of companies of $88 million.
Net cash used in financing activities was $240 million for fiscal 1997
compared to $306 million for fiscal 1996. Fiscal 1997 activity consists of
long-term debt and note repayments in excess of new borrowings totaling $178
million and the purchase of $67 million of Common Stock for treasury.
At September 30, 1997, the Company had current maturities of long-term debt
and short-term notes payable aggregating $5 million. The Company had $200
million of unused availability under uncommitted short-term lines of credit and
$400 million of unused credit available under the Existing Credit Facility (as
defined below) at September 30, 1997. The Company believes that cash provided by
operations, availability under the unused credit facilities and the net proceeds
from further dispositions of non-core businesses and assets will provide
adequate support for cash needs for working capital, capital expenditures for
existing businesses and future principal payments under the term loan facility.
Total stockholders' equity increased by $178 million from September 30, 1996
to September 30, 1997, principally due to net income for fiscal 1997, partly
offset by purchases of Common Stock for treasury for $67 million.
SENIOR NOTES AND CREDIT FACILITY
During the first quarter of fiscal 1997, USI American Holdings, Inc.
("USIAH"), a wholly owned subsidiary of the Company, issued $125 million
aggregate principal amount of 7.25% Senior Notes due December 1, 2006 (the
"Notes"). The net cash proceeds were $123 million after transaction fees and
discounts. The Notes bear interest at 7.25% payable semiannually on June 1 and
December 1, commencing June 1, 1997, and are redeemable at any time at the
option of USIAH in whole or in part, at a redemption price equal to the greater
of (i) 100% of the principal amount to be redeemed, or (ii) the sum of the
present values of the remaining scheduled payments of principal and interest on
the Notes to be redeemed, discounted at a rate based on the yield to maturity of
comparable U.S. Government securities plus 10 basis
21
<PAGE>
points, plus, in each case, accrued interest to the date of redemption. The
Notes are fully and unconditionally guaranteed by the Company. The Notes are
unsecured but the indenture places restrictions on, among other things, liens
and subsidiary indebtedness (which are generally limited, together, to 10% of
consolidated net tangible assets, as defined) and dividends and the purchase of
Common Stock for treasury (based on a formula set forth in the indenture). At
September 30, 1997, these restrictions limited dividends and purchases of Common
Stock to $157 million. USIAH has exchanged the Notes, which were not registered
under the Securities Act of 1933 at the time of issuance, for registered notes
having substantially the same terms as the Notes. See Note 17 to the
Consolidated (Combined) Financial Statements for summary financial information
of USIAH. The proceeds from the sale of the Notes were used to repay a portion
of the term loan under the Company's then existing credit agreement (the
"Previous Credit Agreement"), the remainder of which was repaid using proceeds
from the initial borrowing under a credit agreement dated as of December 12,
1996 (the "Credit Agreement").
The Credit Agreement consists of a five year unsecured revolving line of
credit of up to an aggregate amount of $750 million. The revolving credit
commitment will be permanently reduced by $100 million on December 12, 1999 and
by an additional $150 million on December 12, 2000. The Credit Agreement
includes (i) committed advances ("Committed Advances") and (ii) uncommitted bid
option advances. The Committed Advances are at lower borrowing spreads than the
previous credit agreement and bear interest based on, at the option of the
Company, (i) specified spreads over the London Interbank Offered Rate ("LIBOR")
or (ii) the higher of the rate of interest publicly announced by Bank of America
in San Francisco, California as its reference rate or 50 basis points above the
federal funds rate in effect on such date (the "Base Rate"). The spreads on the
LIBOR-based borrowings range between 15 and 62.5 basis points, based upon the
Company's senior unsecured debt ratings for the relevant period. At September
30, 1997 three-month LIBOR was 5.72% per annum and the spread over LIBOR was 25
basis points. A facility fee is payable on a quarterly basis in arrears under
the Credit Agreement on the full amount of the facility, regardless of the
amount utilized. The facility fee ranges between 7.5 and 25 basis points per
annum, based upon the Company's senior unsecured debt ratings for the relevant
period. At September 30, 1997, the facility fee was 12.5 basis points per annum.
Interest paid, including amounts under swap agreements, during fiscal 1997,
1996 and 1995 was $50 million, $63 million, and $90 million, respectively (which
included interest paid to Hanson of $60 million in 1995).
The Credit Agreement places restrictions on, among other things, mergers,
liens and additional indebtedness (which generally limit liens and subsidiary
indebtedness, together, to 10% of consolidated net tangible assets, as defined,
but permit $200 million of other unsecured indebtedness, along with the
indebtedness under the Notes). Its financial covenants require the Company to
comply with a maximum ratio of total funded debt to capital and a consolidated
leverage ratio. The maximum ratios are currently 0.65:1.00 and 3.5:1.0,
respectively. On January 1, 1998, the maximum ratio of total funded debt to
capital permitted will be reduced to 0.60:1.00.
In conjunction with the repayment of all outstanding indebtedness under the
Previous Credit Agreement, in the first quarter of fiscal 1997, a net-of-tax,
non-cash, extraordinary charge of $2 million was incurred to write-off
unamortized deferred financing costs and previously deferred losses associated
with interest rate protection agreements. In the first quarter of fiscal 1996,
in connection with entering into the Previous Credit Agreement, the Company
recorded a net-of-tax, non-cash extraordinary charge of $25 million to write-off
unamortized deferred financing costs and previously deferred losses associated
with interest rate protection agreements.
RISK MANAGEMENT
To manage its interest rate exposure the Company entered into interest rate
protection agreements to receive a floating rate based on three-month LIBOR and
pays a weighted average fixed rate. Currently, the
22
<PAGE>
fixed interest rates under the interest rate protection agreements range from
6.07% to 6.77% per annum. Net payments under the agreements amounted to
approximately $5 million, $7 million and $2 million for fiscal 1997, 1996 and
1995, respectively. All interest rate protection agreements are of notional
amounts and maturities that relate to specific portions of outstanding debt, and
accordingly, are accounted for as hedge transactions. The aggregate notional
amounts and periods covered by such agreements are as follows:
<TABLE>
<S> <C>
September 30, 1997 through May 28, 1999........................ $300 million
May 29, 1999 through September 30, 1999........................ $200 million
October 1, 1999 through September 30, 2000..................... $100 million
</TABLE>
To protect the U.S. dollar value of its anticipated profits denominated in
foreign currencies, from time to time, the Company purchases foreign currency
option contracts. The contracts are purchased and settled in U.S. dollars. The
Company has no exposure with respect to these foreign currency options contracts
other than the cost of such options. The cost of such foreign currency options
was not material and was charged to operations over the period of the options.
The interest rate protection agreements and foreign exchange options
described above were the only derivative instruments held or entered into by the
Company at or during fiscal 1997 and 1996. See Notes 2 and 5 to the Consolidated
(Combined) Financial Statements.
FOREIGN CURRENCY MATTERS
The functional currency of each of the Company's foreign operations is the
local currency, with the exception of Brazil. Because Brazil's economy
historically has been hyperinflationary, the functional currency of the
Company's operations in Brazil is the U.S. dollar. Effective October 1, 1997,
Brazil will no longer be considered hyperinflationary. Interest earned on
deposits in Brazil substantially offset foreign currency translation losses
incurred as a result of remeasurement, which were $1 million, $1 million and $2
million in fiscal 1997, 1996 and 1995, respectively. Historically, the net
impact of currency translation has not been material to the Company's financial
position. See "Risk Management" above for information concerning certain foreign
currency option contracts purchased to protect the U.S. dollar value of
anticipated foreign currency earnings.
EFFECT OF INFLATION
Because of the relatively low level of inflation experienced in the United
States, inflation did not have a material impact on its results of operations in
fiscal 1997, 1996 or 1995.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
U.S. Industries, Inc.
We have audited the accompanying consolidated balance sheets of U.S.
Industries, Inc. (The "Company") as of September 30, 1997 and 1996 and the
related consolidated/combined statements of operations, cash flows, and changes
in stockholders' equity/invested capital for each of the three years in the
period ended September 30, 1997. Our audits also included the financial
statement schedule listed in the index at Item 14(a). 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 did not audit the financial statements of
certain subsidiaries/combined companies (U.S. Industries Automotive Group and
Jacuzzi Companies in 1997 and 1996 and the Automotive Group Companies in 1995)
which statements reflect 31% of consolidated total assets as of September 30,
1997 and 1996 and 32%, 31% and 30% of consolidated/combined revenues for the
years ended September 30, 1997, 1996 and 1995, respectively. Those statements
and Schedule II information were audited by other auditors whose reports have
been furnished to us, and our opinion, insofar as it relates to data included
for these operations, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of U.S. Industries, Inc. at September 30,
1997 and 1996 and the consolidated/combined results of their operations and
their cash flows for each of the three years in the period ended September 30,
1997 in conformity with generally accepted accounting principles. Also, in our
opinion, based upon our audits and the reports of other auditors, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 11 to the financial statements, in 1995, the Company
changed its method of accounting for goodwill impairment.
/s/ Ernst & Young LLP
New York, New York
November 17, 1997
24
<PAGE>
REPORT OF PRICE WATERHOUSE LLP
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
U.S. Industries, Inc.
We have audited the accompanying combined balance sheets of the U.S.
Industries Automotive Group and Jacuzzi Companies as of September 30, 1997 and
1996, and the related combined statements of operations and cash flows for the
years then ended (not presented separately herein). Our audit also included
Financial Statement Schedule II of the U.S. Industries Automotive Group and
Jacuzzi Companies for the years ended September 30, 1997 and 1996 (not presented
separately herein). We have also audited the accompanying combined balance sheet
of the U.S. Industries Automotive Group as of September 30, 1995, and the
related combined statements of operations and cash flows for the year then ended
(not presented separately herein). Our audit also included Financial Statement
Schedule II of the U.S. Industries Automotive Group for the year ended September
30, 1995 (not presented separately herein). These financial statements and
schedules are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 combined financial statements audited by us present
fairly, in all material respects, the combined financial position of the U.S.
Industries Automotive Group and Jacuzzi Companies at September 30, 1997 and
1996, and the results of their operations and cash flows for the years then
ended and the combined financial position of the U.S. Industries Automotive
Group at September 30, 1995, and the results of their combined operations and
cash flows for the year then ended in conformity with generally accepted
accounting principles. Also, the financial statement schedules referred to
above, when considered in relation to the basic combined financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Morristown, New Jersey
November 14, 1997
25
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED (COMBINED) STATEMENTS OF OPERATIONS
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales............................................................................ $ 2,282 $ 2,011 $ 1,896
Operating costs and expenses:
Cost of products sold.............................................................. 1,565 1,363 1,289
Selling, general and administrative expenses....................................... 476 442 430
Goodwill impairment and non-recurring charges...................................... -- -- 100
--------- --------- ---------
Operating income................................................................. 241 206 77
Interest expense..................................................................... 46 60 101
Interest income...................................................................... (4) (8) (8)
Other expense, net................................................................... 1 3 6
--------- --------- ---------
Income (loss) before income taxes, discontinued operations and extraordinary loss.... 198 151 (22)
Provision for income taxes........................................................... 85 69 42
--------- --------- ---------
Income (loss) from continuing operations........................................... 113 82 (64)
--------- --------- ---------
Discontinued operations:
Income from operations of discontinued operations (net of income taxes of $2, $8
and $24, respectively)........................................................... 4 10 18
Gain (loss) on disposals of discontinued operations (net of income taxes of $71, $9
and $3).......................................................................... 121 66 (43)
--------- --------- ---------
Income (loss) from discontinued operations......................................... 125 76 (25)
--------- --------- ---------
Income (loss) before extraordinary loss.............................................. 238 158 (89)
Extraordinary loss from early extinguishment of debt (net of income tax benefits of
$1 and $16)........................................................................ (2) (25) --
--------- --------- ---------
Net income (loss).................................................................... $ 236 $ 133 $ (89)
--------- --------- ---------
--------- --------- ---------
Per Share:
Income from continuing operations.................................................... $ 1.50 $ 1.04
Income from discontinued operations.................................................. 1.66 .97
Extraordinary loss................................................................... (0.03) (0.31)
--------- ---------
Net income........................................................................... $ 3.13 $ 1.70
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated (combined) financial statements.
26
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................................... $ 56 $ 45
Trade receivables, net....................................................................... 388 355
Inventories.................................................................................. 401 359
Deferred income taxes........................................................................ 51 41
Other current assets......................................................................... 27 22
Net assets held for disposition.............................................................. 10 131
--------- ---------
Total current assets................................................................... 933 953
Property, plant and equipment, net............................................................. 343 283
Deferred income taxes.......................................................................... 6 23
Other assets................................................................................... 126 114
Goodwill, net.................................................................................. 423 403
--------- ---------
$ 1,831 $ 1,776
--------- ---------
--------- ---------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable................................................................................ $ 4 $ 1
Current maturities of long-term debt......................................................... 1 16
Trade accounts payable....................................................................... 156 155
Accrued expenses and other liabilities....................................................... 190 150
Income taxes payable......................................................................... 72 43
--------- ---------
Total current liabilities.............................................................. 423 365
Long-term debt................................................................................. 551 717
Other liabilities.............................................................................. 152 167
--------- ---------
Total liabilities............................................................................ 1,126 1,249
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock (par value $.01) per share, authorized 300,000,000 shares; issued 80,856,562 and
80,601,848, respectively; outstanding 74,592,615, and 77,088,002, respectively)............ 1 1
Paid in capital.............................................................................. 568 563
Retained earnings............................................................................ 261 29
Unearned restricted stock.................................................................... (16) (19)
Other equity................................................................................. (3) (2)
Treasury stock (6,263,947 and 3,513,846 shares, respectively) at cost........................ (106) (45)
--------- ---------
Total stockholders' equity............................................................. 705 527
--------- ---------
$ 1,831 $ 1,776
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated (combined) financial statements.
27
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED (COMBINED) STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
OPERATING ACTIVITIES:
Income (loss) from continuing operations.......................................... $ 113 $ 82 $ (64)
Adjustments to reconcile income (loss) from continuing operations to net cash
provided by operating activities of continuing operations:
Depreciation and amortization................................................... 62 56 53
Provision for deferred income taxes............................................. 12 11 11
Provision for doubtful accounts................................................. 1 4 10
Gain on sale of excess real estate, net......................................... (3) (5) (7)
Gain on sale of subsidiary stock................................................ (1) -- --
Goodwill impairment & non-recurring charges..................................... -- -- 100
Changes in operating assets and liabilities, excluding the effects of acquisitions
and dispositions:
(Increase) decrease in trade receivables........................................ (22) (24) 23
Increase in inventories......................................................... (9) (12) --
(Increase) decrease in other current assets..................................... (3) 7 3
Increase in other non-current assets............................................ (46) (8) (31)
(Decrease) increase in trade accounts payable................................... (3) 16 4
(Decrease) increase in income taxes payable..................................... (23) 3 29
Increase (decrease) in accrued expenses and other liabilities................... 12 (14) 13
Increase (decrease) in other non-current liabilities............................ 4 (1) 2
Other, net...................................................................... -- 4 5
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS.............. 94 119 151
--------- --------- ---------
Income (loss) from discontinued operations........................................ 125 76 (25)
Adjustments to reconcile income (loss) from discontinued operations to net cash
(used in) provided by discontinued operations:
(Gain) loss on disposal of discontinued operations.............................. (121) (66) 43
(Increase) decrease in net assets held for disposition.......................... (42) 8 (37)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS.......................... (38) 18 (19)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES....................................... 56 137 132
--------- --------- ---------
INVESTING ACTIVITIES:
Proceeds from sale of net assets held for disposition............................. 333 241 245
Proceeds from real estate transactions............................................ 28 31 55
Proceeds from sale of subsidiary stock............................................ 4 -- --
Proceeds from collection of other notes receivable................................ -- 7 2
Acquisition of companies, net of cash acquired.................................... (88) (61) (13)
Purchase of investments........................................................... (1) (12) --
Purchases of property, plant and equipment........................................ (76) (45) (61)
Proceeds from sale of property, plant and equipment............................... -- 2 1
--------- --------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES....................................... 200 163 229
--------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term debt...................................................... 1,489 1,028 1,423
Repayment of long-term debt....................................................... (1,671) (1,285) (470)
Proceeds from (repayment of) notes payable........................................ 4 (3) 4
Purchase of treasury stock........................................................ (67) (46) --
Proceeds from exercise of stock options........................................... 5 -- --
Net cash transfers from affiliate................................................. -- 90
Return of capital to Hanson, net of tax........................................... -- (477)
Repayment of debt to Hanson....................................................... -- (873)
Long-term debt issue costs........................................................ -- -- (33)
--------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES........................................... (240) (306) (336)
Effect of exchange rate changes on cash............................................. (5) -- (2)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ 11 (6) 23
Cash and cash equivalents at beginning of year...................................... 45 51 28
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR........................................ $ 56 $ 45 $ 51
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated (combined) financial statements.
28
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED (COMBINED) STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY/INVESTED CAPITAL
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
RETAINED UNEARNED
INVESTED COMMON PAID IN EARNINGS/ RESTRICTED OTHER
CAPITAL STOCK CAPITAL (DEFICIT) STOCK EQUITY
----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance September 30, 1994.................. $ 803
--
----------- ----- ----- ----- ---
Net income through date of Demerger......... 15
Net transfers--Hanson....................... 190
--
----------- ----- ----- ----- ---
Balance at date of Demerger................. 1,008
--
----------- ----- ----- ----- ---
Return of invested capital to Hanson--
Note 1.................................... (494)
Issuance of stock........................... (514) $ 1 $ 516 $ (3)
Issuance of restricted stock................ 26 $ (26)
Net loss.................................... $ (104)
Amortization of unearned restricted stock... 2
Translation adjustment...................... 1
Minimum pension liability adjustment........ (1)
--
----------- ----- ----- ----- ---
Balance at September 30, 1995............... $ -- $ 1 $ 542 $ (104) $ (24) $ (3)
--
----------- ----- ----- ----- ---
Net income.................................. 133
Amortization of unearned restricted stock... 7
Purchase of 3,581,386 shares of common
stock.....................................
Common stock issued (58,707 shares) upon
exercise of options....................... -- --
Common stock issued (35,993 shares) to
employee and directors.................... -- --
Treasury stock issued (93,000 shares) to
employees and directors................... 1 (2)
Forfeiture of 25,460 shares of unearned
restricted stock.......................... -- --
Deferred tax benefit--Note 9................ 20
Translation adjustment...................... --
Minimum pension liability adjustment........ 1
--
----------- ----- ----- ----- ---
Balance at September 30, 1996............... $ $ 1 $ 563 $ 29 $ (19) $ (2)
--
----------- ----- ----- ----- ---
Net income.................................. 236
Cash dividend declared ($0.05 per share).... (4)
Amortization of unearned restricted stock... 7
Purchase of 3,134,343 shares of common
stock.....................................
Common stock issued (254,714 shares) upon
exercise of options....................... -- 2
Treasury stock issued (550,307 shares) to
employees and directors................... 1 (5)
Forfeiture of 166,065 shares of unearned
restricted stock.......................... -- (1) 1
Income tax benefit relating to stock
plans..................................... 3
Translation adjustment...................... (2)
Minimum pension liability adjustment........ 1
--
----------- ----- ----- ----- ---
Balance at September 30, 1997............... $ $ 1 $ 568 $ 261 $ (16) $ (3)
--
--
----------- ----- ----- ----- ---
----------- ----- ----- ----- ---
<CAPTION>
TREASURY
STOCK TOTAL
----------- ---------
<S> <C> <C>
Balance September 30, 1994.................. $ 803
----- ---------
Net income through date of Demerger......... 15
Net transfers--Hanson....................... 190
----- ---------
Balance at date of Demerger................. 1,008
----- ---------
Return of invested capital to Hanson--
Note 1.................................... (494)
Issuance of stock........................... --
Issuance of restricted stock................ --
Net loss.................................... (104)
Amortization of unearned restricted stock... 2
Translation adjustment...................... 1
Minimum pension liability adjustment........ (1)
----- ---------
Balance at September 30, 1995............... $ -- $ 412
----- ---------
Net income.................................. 133
Amortization of unearned restricted stock... 7
Purchase of 3,581,386 shares of common
stock..................................... (46) (46)
Common stock issued (58,707 shares) upon
exercise of options....................... --
Common stock issued (35,993 shares) to
employee and directors.................... --
Treasury stock issued (93,000 shares) to
employees and directors................... 1 --
Forfeiture of 25,460 shares of unearned
restricted stock.......................... --
Deferred tax benefit--Note 9................ -- 20
Translation adjustment...................... --
Minimum pension liability adjustment........ 1
----- ---------
Balance at September 30, 1996............... $ (45) $ 527
----- ---------
Net income.................................. 236
Cash dividend declared ($0.05 per share).... (4)
Amortization of unearned restricted stock... 7
Purchase of 3,134,343 shares of common
stock..................................... (67) (67)
Common stock issued (254,714 shares) upon
exercise of options....................... 2
Treasury stock issued (550,307 shares) to
employees and directors................... 6 2
Forfeiture of 166,065 shares of unearned
restricted stock.......................... --
Income tax benefit relating to stock
plans..................................... 3
Translation adjustment...................... (2)
Minimum pension liability adjustment........ 1
----- ---------
Balance at September 30, 1997............... $ (106) $ 705
----- ---------
----- ---------
</TABLE>
See notes to consolidated (combined) financial statements.
29
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
U.S. Industries, Inc. (with its subsidiaries, the "Company") is a
diversified manufacturer of consumer and industrial products. The Company was
incorporated in Delaware in February 1995, and has been publicly-owned since May
31, 1995, at which time Hanson PLC ("Hanson") paid a dividend to its
shareholders of the Company's common stock. Regular way trading in the common
stock commenced on the New York Stock Exchange on June 1, 1995. Prior to May 31,
1995, the Company was a wholly-owned subsidiary of Hanson. Certain businesses,
assets and liabilities were transferred to the Company by Hanson pursuant to
transactions consummated on May 31, 1995 and June 5, 1995 (collectively, the
"Demerger").
For the periods prior to the Demerger, the financial statements of the
Company present the combined results, financial position and cash flows of the
individual businesses, real estate assets and equity investments that
subsequently were transferred to the Company. Subsequently, the financial
statements are presented on a consolidated legal entity basis. The financial
statements that include the period prior to the Demerger reflects management
fees that were paid by subsidiaries of the Company to Hanson for services.
Subsequently, all such services have been provided by the Company.
In January 1997, an initial public offering of 25% of the shares of Jade
Technologies Singapore Ltd ("Jade") was completed, generating proceeds of $4
million.
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-week periods ended on the Saturday nearest to September
30, but are presented as of such date for convenience.
PRINCIPLES OF CONSOLIDATION: The consolidated (combined) financial
statements include the accounts of the Company and its subsidiaries.
Intercompany accounts and transactions are eliminated. Companies which are 20%
to 50% owned are accounted for using the equity method of accounting.
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 investments which
have maturities of ninety days or less when purchased.
DEPRECIATION AND AMORTIZATION:
<TABLE>
<CAPTION>
(IN MILLIONS)
AT SEPTEMBER 30,
-------------------------------------
<S> <C> <C> <C>
1997 1996 1995
----- ----- -----
Depreciation............................................................. $ 43 $ 37 $ 33
Amortization of goodwill................................................. 13 12 16
Amortization of deferred financing costs................................. 1 2 2
Amortization of unearned restricted stock................................ 7 7 2
Amortization of deferred income.......................................... (2) (2) --
--- --- ---
$ 62 $ 56 $ 53
--- --- ---
--- --- ---
</TABLE>
30
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACCOUNTING POLICIES (CONTINUED)
TRADE RECEIVABLES AND CONCENTRATIONS OF CREDIT RISK:
<TABLE>
<CAPTION>
(IN MILLIONS)
AT SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Trade receivables.......................................................... $ 423 $ 391
Allowance for doubtful accounts............................................ (35) (36)
--------- ---------
$ 388 $ 355
--------- ---------
--------- ---------
</TABLE>
The Company operates in the United States and, to a lesser extent, in
Europe, South America, Canada and Asia. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Credit losses have consistently been within management's
expectations.
INVENTORIES:
<TABLE>
<CAPTION>
(IN MILLIONS)
AT SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Finished products.......................................................... $ 188 $ 185
In-process products........................................................ 96 77
Raw materials.............................................................. 117 97
--------- ---------
$ 401 $ 359
--------- ---------
--------- ---------
</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>
(IN MILLIONS)
AT SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Land and buildings........................................................ $ 179 $ 171
Machinery and equipment................................................... 547 464
Furniture and fixtures.................................................... 28 23
Accumulated depreciation.................................................. (411) (375)
--------- ---------
$ 343 $ 283
--------- ---------
--------- ---------
</TABLE>
Property, plant and equipment is stated on the basis of cost less
accumulated depreciation provided under the straight-line method.
OTHER ASSETS: Excess properties held for sale are included in other assets
and are carried at the lower of cost or net realizable value. The carrying value
of such properties was $44 million and $51 million as of September 30, 1997 and
1996, respectively.
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
31
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACCOUNTING POLICIES (CONTINUED)
its businesses to determine if there are indications that the carrying value of
an enterprise may be impaired. The fair value methodology is used by the Company
to ascertain the recoverability of the carrying value of an enterprise, when
there are indications of impairment. In the event that such fair value is below
the carrying value of an enterprise, for those companies with goodwill, the
Company first writes off the goodwill and then other long-lived assets to the
extent such differential exists.
The fair value methodology is applied to determine the recoverable value for
each business on a stand alone basis using ranges of fair values obtained from
independent appraisers. In developing these ranges, the independent appraisers
consider (a) publicly available information, (b) financial projections of each
business, (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 using the straightline method over forty years.
Accumulated amortization aggregated $289 million and $276 million, at September
30, 1997 and 1996, respectively. Amortization and adjustments to the carrying
value of goodwill amounted to $13 million, $12 million and $114 million for
fiscal 1997, 1996 and 1995, respectively.
FOREIGN CURRENCY TRANSLATION AND OPTIONS: The functional currency of each
of the Company's foreign operations is the local currency with the exception of
operations in Brazil which have historically operated in a hyperinflationary
economy. 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. Except for
companies operating in hyperinflationary economies, translation gains and losses
are reported as a component of Stockholders' Equity. Losses resulting from
foreign currency transactions and the translation of the financial statements of
companies operating in highly inflationary economies are included in Other
expense, net and aggregated $1 million, $1 million and $2 million for fiscal
1997, 1996, and 1995, respectively.
To protect the U.S. dollar value of its anticipated profits denominated in
foreign currencies, from time to time, the Company purchases foreign currency
option contracts. The contracts are purchased and settled in U.S. dollars. The
Company has no exposure with respect to these foreign currency options contracts
other than the cost of such options. The cost of such foreign currency options
was not material and was charged to operations over the period of the options.
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 files a consolidated federal income tax return. Prior to the
Demerger, the Company provided for income taxes as if it filed separate income
tax returns and included United States taxes currently payable in Invested
Capital. Pursuant to the Demerger, the Company entered into a tax sharing and
indemnification agreement in which Hanson generally agreed to indemnify the
Company for all federal and state income tax liabilities in respect to periods
prior to the Demerger.
32
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION: Revenue is recognized upon shipment of product to the
customer. Provisions are made for warranty and return costs at the time of sale.
Such provisions have not been material.
ADVERTISING COSTS: Advertising costs are expensed as incurred. Such amounts
totaled $40 million, $51 million and $51 million for fiscal 1997, 1996, and
1995, respectively.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed
as incurred. Such amounts totaled $13 million for fiscal 1997, 1996 and 1995.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of all short-term
financial instruments approximated their carrying value due to their short
maturity. The Company's 7.25% Senior Notes are currently trading at a price
which approximates par value based on quoted market prices for such securities.
The fair value of all other long-term financial instruments, excluding interest
rate protection agreements discussed below, approximated carrying value as they
were based on terms that continue to be available to the Company from its
lenders. Accordingly, fair value of these financial instruments approximates
book carrying amounts at each fiscal year-end, as they are based upon floating
rate interest.
The Company enters into interest rate protection agreements to manage
interest costs and risks associated with changing interest rates; these
agreements effectively convert underlying variable rate debt into fixed rate
date. At September 30, 1997, the Company had several such agreements covering
various periods. The notional amount of these agreements do not exceed $300
million for any future period. The Company would have been required to pay
approximately $3 million and $4 million to settle all outstanding agreements
based upon their fair value as of September 30, 1997 and 1996, respectively.
These fair values are based upon estimates received from financial institutions.
STOCK BASED COMPENSATION: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation", which establishes a
fair value based method of accounting for stock-based compensation plans. SFAS
123 encourages, but does not require, adoption of a fair value method; it allows
for a company to continue to report under Accounting Principles Board Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees". The Company
intends to continue to account for its stock-based compensation under APB 25.
See Note 10.
EARNINGS PER SHARE: Fiscal 1995 earnings per share information is not
presented in accordance with Accounting Principles Board Opinion No. 15,
"Earnings per share" ("APB 15"), as such information is not indicative of the
Company's continuing capital structure.
In February 1997, the FASB issued Statement No. 128 ("SFAS 128"), "Earnings
Per Share" which be adopted on December 31, 1997. At that time, the Company will
be required to restate all prior periods. The adoption of SFAS 128 will not have
a material impact on the earnings per share information currently presented.
Earnings per share are computed using the weighted average number of common
shares outstanding. The weighted average number of common and common equivalent
shares outstanding during the year ended September 30, 1997 and 1996 were
75,506,078 and 78,290,013, respectively.
33
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--ACQUISITIONS
In July 1997, the Company purchased IXL Manufacturing, Inc. ("IXL") for $12
million and the assumption of $1.3 million of debt. IXL manufactures fiberglass
and wood handles for striking tools and lawn and garden tools. The transaction
has been accounted for as a purchase, resulting in goodwill of $6 million. The
results of IXL are included in the Housewares Operations.
In April 1997, the Company purchased Britains Petite Limited ("Britains")
for $9 million in cash. Britains, located in Nottingham, England, is a
manufacturer of military soldier collectibles, metal and plastic models of
agricultural vehicles, figures, animals, buildings and accessories and preschool
plastic toys. The transaction has been accounted for as a purchase, resulting in
goodwill of $5 million. The results of Britains are included in the Other
Consumer Operations.
In March 1997, the Company purchased certain assets of the outdoor furniture
division of Sunbeam Corporation for approximately $60 million in cash. The
acquired business, now known as SunLite Casual Furniture, Inc. ("SunLite"),
manufactures casual outdoor furniture. The transaction has been accounted for as
a purchase, resulting in goodwill of $14 million. The results of SunLite are
included in the Bath and Outdoor Products Operations.
In January 1997, the Company purchased the assets of Woodings-Verona Tool
Works, Inc. ("Woodings-Verona") for $5 million in cash plus the assumption of
$1.2 million of debt. Woodings-Verona manufactures hot-forged heavy striking
tools including sledge hammers, axes, bars, picks and railroad tools. The
transaction has been accounted for as a purchase. The results of Woodings-Verona
are included in the Housewares Operations.
In July 1996, the Company purchased the assets of Keller Industries, Inc.
("Keller"), for approximately $37 million in cash plus the assumption of certain
liabilities. Keller is a leading manufacturer and marketer of ladders in the
United States. The transaction has been accounted for as a purchase, resulting
in goodwill of $30 million. The results of Keller are included in the Housewares
Operations.
In July 1996, the Company joined a consortium of companies to acquire an
equity interest in United Pacific Industries Limited ("UPI"), a limited
liability company incorporated in Bermuda and listed on the Stock Exchange of
Hong Kong. UPI manufactures voltage converters and other electronic components.
In fiscal 1997, the Company purchased additional shares in UPI. The Company's
investment of approximately $12 million results in beneficial ownership of 22.3%
of UPI.
In April 1996, the Company purchased the assets of a Canadian manufacturer
of above-ground swimming pools and equipment for $12 million and the assumption
of $12 million in debt. The transaction has been accounted for as a purchase,
resulting in goodwill of $9 million. The results of the acquired business, now
known as Atlantic Pools, Inc. ("Atlantic"), are included in the Bath and Outdoor
Products Operations.
In May 1995, the Company acquired the assets of Southeastern Plastics, Inc.,
a plastic injection molder for $11 million, in a transaction accounted for as a
purchase. The transaction resulted in goodwill of $4 million. The result of
operations of Southeastern Plastics, Inc. are included in the Housewares
Operations.
In March 1995, the Company acquired Odyssey Sports, Inc. ("Odyssey"), a
manufacturer and marketer of golf putters, for $16 million in a transaction
accounted for as a purchase, resulting in goodwill of $14 million. Odyssey has
since been disposed of in a sale. See Note 4.
34
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--ACQUISITIONS (CONTINUED)
The pro forma effect of these acquisitions on the Company's operations is
not material.
NOTE 4--DISPOSITIONS AND DISCONTINUED OPERATIONS
In fiscal 1997, the Company adopted formal plans to dispose of SCM Metals
Products, Inc. ("SCM Metals"), QPF, Inc., Odyssey and Tommy Armour Golf Company
("Armour Golf"). The Company also decided to retain Bearing Inspection, Inc.
("Bearing"), which was previously designated a discontinued operation. During
fiscal 1996, the Company adopted formal plans to dispose of Farberware Inc.
("Farberware"), Franklin Dyed Yarn Division ("Franklin"), Tubular Textile
Machinery Division ("Tube-Tex") and its equity investment in Ground Round
Restaurants, Inc. ("Ground Round"). During fiscal 1995, the Company adopted a
formal plan to dispose of Jade Holdings, Inc., Piedmont Moulding Corporation,
Spartus Corporation, Universal Gym Equipment, Inc. and Halkey-Roberts
Corporation (collectively with Farberware, Franklin, Tube-Tex and Ground Round,
the "Discontinued Operations"). Each was sold prior to September 30, 1997 with
the exception of Armour Golf, which was sold in November 1997. At September 30,
1997, the Company has accrued $7 million for contingencies relating to the
discontinued operations. All businesses sold since Demerger meet the criteria
for classification as discontinued operations and have been classified as such
for all periods presented.
In fiscal 1997, the Company, in separate transactions, sold Tube-Tex, SCM
Metals, certain assets of QPF, Inc., Odyssey, SunLite resin furniture business
and the equity interest in Ground Round for an aggregate of $331 million in cash
and notes of $3 million and recorded gains of $121 million, net of tax.
In fiscal 1996, the Company, in separate transactions, sold the Office
Furniture Group and Blue Mountain Industries, Farberware, Spartus, Piedmont,
Jade, Universal and Franklin for an aggregate of $241 million in cash and notes
for $6 million and recorded gains of $68 million, net of tax. The Company also
entered into a non-compete agreement with the purchaser of the Office Furniture
Group for five years for $11 million. Also during fiscal 1996, the Company
recorded a charge of $2 million, net of a tax benefit of $1 million, to reduce
the carrying value of its equity investment in Ground Round to its estimated
realizable value.
In fiscal 1995, management estimated losses on disposals of these businesses
which designated as discontinued operations. The expected proceeds from the sale
of these operations were determined based on estimates of fair value obtained
from independent appraisers. The estimated net-of-tax loss on the disposal
totaled $50.4 million and was recorded during the third quarter of fiscal 1995.
The Company subsequently recorded an additional charge of $3 million,
net-of-tax, to revise its original estimate for phase-out losses. In September
1995, the Company sold Bear Archery, Inc. Valley Recreation Products, Inc.,
Teters Floral Products, Inc., MW Manufacturers, Inc., Brown Moulding Company,
Inc. and Halkey-Roberts Corporation for $200 million, resulting in a gain of $11
million, net-of-tax.
Prior to the Demerger, Hanson recorded a $10.5 million charge to reflect a
permanent impairment in its carrying value of Beazer Homes USA, Inc. ("Beazer
Homes"). In June 1995, the Company sold 1,000,000 shares of common stock of
Beazer Homes to Beazer Homes for $16 million, realizing a $3.1 million pre-tax
gain. The Company also sold Beazer Homes an option for $500,000 to purchase the
Company's remaining 1,749,267 shares at an agreed upon formula price. In August
1995, Beazer Homes exercised the option and purchased the remaining shares for
$28.2 million, resulting in an additional pre-tax gain of $5.7 million. The
cumulative net-of-tax impact of all of these events amounted to a loss of $1
million and is included in the loss from discontinued operations in fiscal 1995.
35
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--DISPOSITIONS AND DISCONTINUED OPERATIONS (CONTINUED)
Net assets held for disposition consists of the following:
<TABLE>
<CAPTION>
(IN MILLIONS)
AT SEPTEMBER 30,
----------------------
<S> <C> <C>
1997 1996
----- ---------
Net current assets....................................................... $ 10 $ 54
Property, plant and equipment............................................ -- 67
Other non-current assets and liabilities................................. -- 10
--- ---------
Net assets held for disposition.......................................... $ 10 $ 131
--- ---------
--- ---------
</TABLE>
The following summarizes the operating results of the businesses classified
as discontinued operations:
<TABLE>
<CAPTION>
(IN MILLIONS)
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Net sales....................................................... $ 119 $ 363 $ 982
Pre-tax income.................................................. 6 18 42
</TABLE>
NOTE 5--LONG-TERM DEBT
Long term debt is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
AT SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
7.25% Senior Notes, net.................................................... $ 123 $ --
Term loan.................................................................. -- 370
Revolving credit facility.................................................. 350 250
Other long-term debt....................................................... 79 113
--------- ---------
552 733
Less current maturities.................................................... 1 16
--------- ---------
Long term debt............................................................. $ 551 $ 717
--------- ---------
--------- ---------
</TABLE>
During fiscal 1997, USI American Holdings, Inc. ("USIAH"), a wholly owned
subsidiary of the Company, issued $125 million aggregate principal amount of
7.25% Senior Notes due December 1, 2006 (the "Notes"). The net cash proceeds
were $123 million after transaction fees and discounts. The Notes bear interest
at 7.25% payable semiannually on June 1 and December 1, commencing June 1, 1997,
and are redeemable at any time at the option of USIAH, in whole or in part, at a
redemption price equal to the greater of (i) 100% of the principal amount to be
redeemed, or (ii) the sum of the present values of the remaining scheduled
payments of principal and interest on the Notes to be redeemed, discounted at a
rate based on the yield to maturity of comparable U.S. Government securities
plus 10 basis points, plus, in each case, accrued interest to the date of
redemption. The Notes are fully and unconditionally guaranteed by the Company.
The Notes are unsecured but the indenture places restrictions on, among other
things, liens
36
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--LONG-TERM DEBT (CONTINUED)
and subsidiary indebtedness (which are generally limited, together, to 10% of
consolidated net tangible assets, as defined) and dividends and the purchase of
Common Stock for treasury (based on a formula set forth in the indenture). At
September 30, 1997, these restrictions limited dividends and purchases of Common
Stock to $157 million. USIAH has exchanged the Notes, which were not registered
under the Securities Act of 1933 at the time of issuance, for registered notes
having substantially the same terms as the Notes. See Note 17 for summary
financial information of USIAH. The proceeds from the sale of the Notes were
used to repay a portion of the term loan under the Company's then existing
credit agreement (the "Previous Credit Agreement"), the remainder of which was
repaid using proceeds from the initial borrowing under a credit agreement dated
as of December 12, 1996 (the "Credit Agreement").
The Credit Agreement consists of a five year unsecured revolving line of
credit of up to an aggregate amount of $750 million. The revolving credit
commitment will be permanently reduced by $100 million on December 12, 1999 and
by an additional $150 million on December 12, 2000. The Credit Agreement
includes (i) committed advances ("Committed Advances") and (ii) uncommitted bid
option advances. The Committed Advances are at lower borrowing spreads than the
Previous Credit Agreement and bear interest based on, at the option of the
Company, (i) specified spreads over the London Interbank Offered Rate ("LIBOR")
or (ii) the higher of the rate of interest publicly announced by Bank of America
in San Francisco, California as its reference rate or 50 basis points above the
federal funds rate in effect on such date (the "Base Rate"). The spreads on the
LIBOR-based borrowings range between 15 and 62.5 basis points, based upon the
Company's senior unsecured debt ratings for the relevant period. At September
30, 1997 three-month LIBOR was 5.72% per annum and the spread over LIBOR was 25
basis points. A facility fee is payable on a quarterly basis in arrears under
the Credit Agreement on the full amount of the facility, regardless of the
amount utilized. The facility fee ranges between 7.5 and 25 basis points per
annum, based upon the Company's senior unsecured debt ratings for the relevant
period. At September 30, 1997, the facility fee was 12.5 basis points per annum.
Interest paid, including amounts under swap agreements, during fiscal 1997,
1996 and 1995 was $50 million, $63 million, and $90 million, respectively (which
included interest paid to Hanson of $60 million in 1995).
The Credit Agreement places restrictions on, among other things, mergers,
liens and additional indebtedness (which generally limit liens and subsidiary
indebtedness, together, to 10% of consolidated net tangible assets, as defined,
but permit $200 million of other unsecured indebtedness, along with the
indebtedness under the Notes). Its financial covenants require the Company to
comply with a maximum ratio of total funded debt to capital and a consolidated
leverage ratio. The maximum ratios are currently 0.65:1.00 and 3.5:1.0,
respectively. On January 1, 1998, the maximum ratio of total funded debt to
capital permitted will be reduced to 0.60:1.00.
In conjunction with the fiscal 1997 repayment of outstanding indebtedness
under the Previous Credit Agreement, a net-of-tax, non-cash, extraordinary
charge of $2 million was incurred to write-off unamortized deferred financing
costs and previously deferred losses associated with interest rate protection
agreements. In fiscal 1996, in connection with entering into the Previous Credit
Agreement, the Company recorded a net-of-tax, non-cash extraordinary charge of
$25 million to write-off unamortized deferred financing costs and previously
deferred losses associated with interest rate protection agreements.
37
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--LONG-TERM DEBT (CONTINUED)
On December 12, 1996 the Company paid approximately $2 million to settle
interest rate protection agreements entered into in connection with the Notes.
This amount is being amortized over the life of the Notes as deferred financing
costs.
To manage its exposure to floating interest rates, the Company entered into
interest rate protection agreements with major banks whereby the Company
receives a floating rate based on three-month LIBOR and pays a weighted average
fixed rate. Currently the fixed interest rates under the interest rate
protection agreements range from 6.07% to 6.77% per annum. Net payments under
the agreements amounted to approximately $5 million, $7 million and $2 million
for the years ended September 30, 1997, 1996 and 1995, respectively. Such
amounts are included in interest expense. All interest rate protection
agreements are of notional amounts and maturities that relate to specific
portions of outstanding debt, and accordingly, are accounted for as hedge
transactions. The aggregate notional amounts and periods covered by such
agreements are as follows:
<TABLE>
<S> <C>
$300
September 30, 1997 through May 28, 1999........................ million
$200
May 29, 1999 through September 30, 1999........................ million
$100
October 1, 1999 through September 30, 2000..................... million
</TABLE>
Other long-term debt at September 30, 1997 includes $59 million of notes
payable with maturities due within one year which the Company expects to repay
using borrowings under the Credit Agreement. All of this amount was borrowed
under uncommitted short-term lines of credit. The amount of uncommitted
borrowings are limited based on restrictions on unsecured indebtedness under the
Credit Agreement. Availability for uncommitted short-term lines of credit at
September 30, 1997 is limited to $200 million. Subsequent to year-end, this
availability has been reduced to $133 million as a result of the Siemens
acquisition. See Note 18.
The Company had standby letters of credit of $18 million at September 30,
1997. The fair value of these letters of credit is estimated to be the same as
the contract value based on the nature of the fee arrangements with the issuable
banks.
NOTE 6--PENSION PLANS
DOMESTIC BENEFIT PLANS
The Company and its subsidiaries have noncontributory defined benefit
pension plans covering substantially all of its United States employees. The
benefits under these plans are based primarily on years of credited service and
compensation as defined under the respective plan provisions. 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 additional amounts as the Company may determine
to be appropriate from time to time.
The Company and its subsidiaries also sponsor defined contribution plans and
also participate in multiemployer plans, which provide defined benefits to union
employees of the Company's subsidiaries. Contributions relating to defined
contribution plans are made based upon the respective plans' provisions.
Contributions relating to multiemployer plans are based on negotiated collective
bargaining agreements.
38
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--PENSION PLANS (CONTINUED)
Net periodic pension cost for the Company's defined benefit plans covering
employees in the United States and the total contributions charged to pension
expense for defined contribution and multiemployer plans covering employees in
the United States are:
<TABLE>
<CAPTION>
(IN MILLIONS)
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Defined benefit plans:
Service cost--benefits earned during the period.................. $ 10 $ 11 $ 9
Interest cost on projected benefit obligation.................... 18 19 18
Actual return on plan assets..................................... (87) (39) (39)
Net amortization and deferral.................................... 58 12 13
--- --- ---
Net periodic pension (income) expense for defined benefit
plans...................................................... (1) 3 1
Defined contribution plans....................................... 4 6 6
Multiemployer plans.............................................. -- -- 1
--- --- ---
Total pension expense........................................ $ 3 $ 9 $ 8
--- --- ---
--- --- ---
</TABLE>
Assumptions used in the accounting for the defined benefit plans were as
follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Weighted average discount rates................................. 7.50% 7.75% 7.75%
Rates of increase in compensation levels........................ 4.5% 4.5% 4.5%
Expected long-term rate of return on assets..................... 9.0% 9.0% 9.0%
</TABLE>
The change in the weighted average discount rate from 7.75% for fiscal 1996
to 7.5% for fiscal 1997 and other actuarial assumptions caused the projected
benefit obligation at September 30, 1997 to increase by approximately $9
million.
39
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--PENSION PLANS (CONTINUED)
The funded status and amounts recognized in the consolidated balance sheets
at September 30, 1997 and 1996 for the Company's defined benefit pension plans
covering employees in the United States are:
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS BENEFITS ASSETS
--------------- ----------------- --------------- -----------------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation........................ $ (215) $ (16) $ (157) $ (53)
Nonvested benefit obligation..................... (11) (1) (5) (9)
----- --- ----- ---
Accumulated benefit obligation..................... (226) (17) (162) (62)
----- --- ----- ---
----- --- ----- ---
Projected benefit obligation....................... (250) (20) (184) (66)
Plan assets at fair value.......................... 398 11 273 49
----- --- ----- ---
Projected benefit obligation less than (or in
excess of) plan assets........................... 148 (9) 89 (17)
Add (deduct):
Unrecognized prior service cost.................. 8 4 2 10
Unrecognized net (gain) loss..................... (90) 3 (36) 2
Unrecognized net (asset) obligation at date of
adoption, net of amortization.................. (6) -- (9) 1
Adjustment required to recognize minimum
liability...................................... -- (4) -- (9)
----- --- ----- ---
Prepaid (accrued) pension costs.................... $ 60 $ (6) $ 46 $ (13)
----- --- ----- ---
----- --- ----- ---
</TABLE>
The plans' assets are primarily included in a master trust which principally
invests in listed stocks and bonds, including common stock of the Company which,
at market value, comprises 2.7% and less than 1% of the master trust's assets at
September 30, 1997 and 1996, respectively.
FOREIGN BENEFIT ARRANGEMENTS
Pension and other employee benefits of the Company's foreign subsidiaries
are primarily provided by government sponsored plans and are being accrued
currently over the period of active employment. The costs of such plans were not
significant during fiscal 1997, 1996 and 1995.
40
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS
NOTE 7--POSTRETIREMENT PLANS
The Company provides health care and life insurance benefits to certain
groups of retirees.
The following table presents the plan's unfunded status reconciled with
amounts recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
(IN MILLIONS)
AT SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................................... $ (10) $ (11)
Fully eligible active plan participants..................................... (2) (2)
Other active plan participants.............................................. (5) (5)
--- ---
Accrued (accumulated) postretirement benefit cost............................. $ (17) $ (18)
--- ---
--- ---
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
(IN MILLIONS)
FOR THE FISCAL YEARS ENDED SEPTEMBER
30,
-------------------------------------
<S> <C> <C> <C>
1997 1996 1995
----- ----- -----
Service cost.......................................................... $ 1 $ 1 $ 1
Interest cost......................................................... 1 1 1
-- -- --
Net periodic postretirement benefit cost.............................. $ 2 $ 2 $ 2
-- -- --
-- -- --
</TABLE>
The weighted average annual assumed rate of increase in the health care cost
trend rate is 10.5% for fiscal 1997 and is assumed to decrease .5% a year to
5.5%. The effect of increasing the assumed health care cost trend rate by 1% in
each year would increase the accumulated postretirement benefit obligation as of
September 30, 1997 by $2 million and the aggregate of service and interest
components of net periodic post retirement benefit for 1997 by $0.2 million.
The weighted average discount rate used was 7.50% and 7.75% at September 30,
1997 and 1996, respectively.
NOTE 8--LEASES
Rental expense for operating leases is:
<TABLE>
<CAPTION>
(IN MILLIONS)
FOR THE FISCAL YEARS ENDED SEPTEMBER
30,
-------------------------------------
<S> <C> <C> <C>
1997 1996 1995
----- ----- -----
Minimum rentals....................................................... 21 20 20
Contingent rentals.................................................... 1 2 1
-- -- --
22 22 21
-- -- --
-- -- --
</TABLE>
41
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LEASES (CONTINUED)
Future minimum rental commitments under noncancellable operating leases as
of September 30, 1997 are:
<TABLE>
<CAPTION>
(IN MILLIONS)
---------------
<S> <C>
1998............................................................................. $ 21
1999............................................................................. 15
2000............................................................................. 10
2001............................................................................. 6
2002............................................................................. 5
Thereafter....................................................................... 14
</TABLE>
NOTE 9--INCOME TAXES
Income (loss) before income taxes, discontinued operations and extraordinary
loss consists of:
<TABLE>
<CAPTION>
(IN MILLIONS)
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
United States.................................................... $ 147 $ 96 $ (74)
Foreign.......................................................... 51 55 52
--------- --------- ---
$ 198 $ 151 $ (22)
--------- --------- ---
--------- --------- ---
</TABLE>
The provisions for federal, foreign, and state income taxes attributable to
income (loss) from continuing operations consist of:
<TABLE>
<CAPTION>
(IN MILLIONS)
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Current:
Federal.......................................................... $ 48 $ 29 $ 6
Foreign.......................................................... 18 23 19
State............................................................ 7 6 6
--- --- ---
73 58 31
Deferred......................................................... 12 11 11
--- --- ---
$ 85 $ 69 $ 42
--- --- ---
--- --- ---
</TABLE>
42
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--INCOME TAXES (CONTINUED)
The Company's effective income tax provision attributable to continuing
operations differs from the statutory federal income tax provision (benefit) as
follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Computed "expected" income tax provision (benefit)................. $ 69 $ 53 $ (8)
Foreign income tax differential.................................... 2 4 1
State income taxes (net of federal benefit)........................ 5 4 4
Goodwill amortization.............................................. 4 4 6
Goodwill impairment................................................ -- -- 34
Miscellaneous...................................................... 5 4 5
--- --- ---
$ 85 $ 69 $ 42
--- --- ---
--- --- ---
</TABLE>
Significant components of deferred taxes are:
<TABLE>
<CAPTION>
(IN MILLIONS)
AT SEPTEMBER 30,
------------------------
1997 1996
----- -----
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment............................................... $ 18 $ 8
Inventory................................................................... -- 1
Net pension assets.......................................................... 17 13
Other....................................................................... 2 3
--- ---
Total deferred tax liabilities.............................................. 37 25
Deferred tax assets:
Accruals and allowances..................................................... 62 62
Inventory................................................................... 6 --
Postretirement benefits..................................................... 5 4
Deductible goodwill......................................................... 21 23
--- ---
Total deferred tax assets................................................... 94 89
--- ---
Net deferred tax asset...................................................... $ 57 $ 64
--- ---
--- ---
</TABLE>
In addition to the $12 million deferred tax provision in 1997, the deferred
taxes were effected by the impact of acquisitions and reclassifications of
discontinued businesses.
43
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--INCOME TAXES (CONTINUED)
The classification of such deferred tax balances is:
<TABLE>
<CAPTION>
(IN MILLIONS)
AT SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Current asset............................................................... $ 51 $ 42
Current liability........................................................... -- (1)
--- ---
51 41
--- ---
Noncurrent asset............................................................ 43 47
Noncurrent liability........................................................ (37) (24)
--- ---
6 23
--- ---
Net deferred tax asset...................................................... $ 57 $ 64
--- ---
--- ---
</TABLE>
As a result of the Demerger, certain tax liabilities with respect to
undistributed earnings of foreign subsidiaries arose which did not exist when
these subsidiaries were held by Hanson. Such amounts, approximating $17 million,
have been charged directly to paid in capital in fiscal 1995. The Demerger also
resulted in changes to the tax basis of the assets and liabilities received and
assumed. The determination of the full extent of the net tax benefit to be
realized was finalized in late fiscal 1996 and such benefit has been credited
directly to paid in capital in that year.
Income taxes paid during fiscal 1997 and fiscal 1996 were $92 million and
$62 million, respectively.
NOTE 10--STOCK OPTION PLAN
Prior to the Demerger, the Company adopted a stock incentive plan (the
"Stock Option Plan") providing for awards of restricted common stock and grants
of options to purchase common stock to key employees of the Company and its
designated subsidiaries, at prices equal to the fair market value of the shares
at the date of grant, and for formula grants of Common Stock to non-employee
directors of the Company.
In June 1995, a total of 2,764,995 restricted shares of Common Stock were
awarded to certain key employees and a total of 9,000 shares of common stock
were issued to non-employee directors. As holders of restricted stock have all
the rights of other stockholders, subject to certain restrictions and forfeiture
provisions, such restricted stock is considered to be issued and outstanding.
Restrictions on the shares will expire over seven years. Unearned restricted
stock of $26 million was recorded at June 8, 1995 based on the market value of
the shares on the date of issuance and is included as a separate component of
stockholders' equity.
In fiscal 1996, a total of 108,260 incentive shares were awarded to certain
key employees and a total of 20,733 shares of common stock were issued to
non-employee directors. The incentive shares are substantially identical in
terms of issuance and restrictions to the restricted stock discussed above.
Based on the market value of the shares on the various dates of issuance, $2
million of additional unearned restricted stock was recorded during fiscal 1996.
In fiscal 1997, a total of 195,750 restricted shares of Common Stock were
awarded to certain key employees. The restrictions on the shares will expire
after seven years. The expiration of the restrictions can be accelerated under
certain circumstances. Based on the market value of the shares on the various
44
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--STOCK OPTION PLAN (CONTINUED)
dates of issuance, $5 million of additional unearned restricted stock was
recorded during fiscal 1997. Additionally, 166,065 and 25,460 restricted shares
were forfeited in fiscal 1997 and 1996, respectively.
Under the Company's stock option plans, the independent directors, officers
and employees may be granted options to purchase the Company'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
the Company's stock option plan been determined based on the fair market value
at the grant date for awards in fiscal 1997 and 1996, consistent with the
provision of SFAS 123, the Company's net income and income per share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Net income--as reported.................................................. $ 236 $ 133
Net income--pro forma.................................................... $ 235 $ 133
Net income per common share--as reported................................. $ 3.13 $ 1.70
Net income per common share--as pro forma................................ $ 3.12 $ 1.70
</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>
<S> <C>
Expected dividend yield at date of grant........................... 0
Expected stock price volatility.................................... 36%
Risk-free interest rate:
1997........................................................... 5.85%
1996........................................................... 5.89%
Expected life of options........................................... 4 years
</TABLE>
The following information relates to options to purchase common stock under
the Stock Option Plan for the fiscal years ended September 30:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Options outstanding at beginning of year......................... 4,154,776 4,038,095
Granted.......................................................... 612,112 331,973 4,038,095
Exercised (at $8.75--$20.50 per share)........................... (600,723) (58,707)
Forfeited........................................................ (273,374) (134,538)
Purchased by Company............................................. (40,714) (22,047)
-------------- -------------- -------------
Options outstanding at end of year............................... 3,852,077 4,154,776 4,038,095
-------------- -------------- -------------
-------------- -------------- -------------
Exercise price per share of options outstanding.................. $ 8.75-$24.79 $ 8.75-$17.67 $ 8.75-$9.58
-------------- -------------- -------------
-------------- -------------- -------------
Exercisable...................................................... 1,371,998 967,895 --
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
Options granted under the Stock Option Plan vest in four equal installments
from the date of grant. The Company had authorization under the Stock Option
Plan to grant 455,309 additional options at the end of fiscal 1997.
45
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--CHANGE IN METHOD OF EVALUATING GOODWILL IMPAIRMENT
Prior to the Demerger, the recoverability of goodwill of the Company's
businesses was evaluated by Hanson using projected undiscounted cash flows. At
June 6, 1995, goodwill from acquisitions, prior to restatement for
discontinuance of operations, aggregated $616.2 million, net of accumulated
amortization of $238.3 million. During the quarter ended June 30, 1995, as a
result of a comprehensive review of accounting policies, the Company adopted a
new policy for evaluating the recoverability of goodwill and measuring its
impairment based on the fair value approach. The Company believes that, in its
circumstances, the fair value method of evaluating the recoverability of
goodwill and measuring its impairment is preferable to the projected
undiscounted cash flow method. At the time of adoption of this method, the
Company anticipated that some of its businesses would be sold to meet debt
repayment requirements and, therefore, would not be owned for a period of time
sufficient to recover their goodwill through operations. The Company has, in
fact, disposed of several businesses since adoption of this method. (See Note 4
to the Consolidated (Combined) Financial Statements.)
The Company believes that the fair value approach is a better indicator if
the extent to which the goodwill may not be recoverable and, therefore, may be
impaired. The change in the method of evaluating the recoverability of goodwill
resulted in the recording of a pre-tax charge to continuing operations of $98
million to reflect permanent goodwill impairment in the quarter ended June 30,
1995, resulting in a reduction in goodwill amortization expense of approximately
$1.65 million quarterly and approximately $6.6 million annually. See Note 2 for
discussion of the Company's policy on goodwill.
NOTE 12--NON-RECURRING CHARGES
During June 1995, the Company incurred nonrecurring charges aggregating $2
million associated with the closing of underutilized facilities of the Lighting
Products and Systems Operations. The charge includes accruals for lease costs of
vacated facilities and severance payments related to a facility that the Company
is closing.
NOTE 13--COMMITMENTS AND CONTINGENCIES
Certain present and former operating sites, or portions thereof, currently
or previously owned and/or leased by current or former operating units of the
Company are the subject of investigations, monitoring or remediation under the
Federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "superfund"), the Federal Resource Conservation and Recovery Act or
comparable state statutes or agreements with third parties. These proceedings
are in various stages ranging from initial investigations to active settlement
negotiations to implementation of the clean-up or remediation of sites.
A number of present and former operating units of the Company have been
named as Potentially Responsible Parties ("PRPs") at approximately 15 off-site
disposal sites under CERCLA or comparable state statutes in a number of federal
and state proceedings. In each of these matters the operating unit of the
Company is working with the governmental agencies involved and other PRPs to
address environmental claims in a responsible and appropriate manner.
At September 30, 1997, the Company had accrued approximately $15 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 $5 million and $17 million.
46
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 14--SEGMENT DATA
The Company's continuing operations are classified into two business
segments: consumer and industrial. These operations are conducted primarily in
the United States, and to a lesser extent, in other regions of the world. Export
sales represented 13%, 14% and 13% of the Company's total net sales for fiscal
years 1997, 1996 and 1995, respectively. The principal international markets
served by the Company include Europe, and to a lesser extent South America,
Canada and Asia.
<TABLE>
<CAPTION>
(IN MILLIONS)
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
NET SALES
Consumer Group
Housewares Products............................................ $ 476 $ 411 $ 342
Bath and Outdoor Products...................................... 445 332 283
Other Consumer Products........................................ 424 435 468
--------- --------- ---------
1,345 1,178 1,093
--------- --------- ---------
Industrial Group
Lighting Products.............................................. 538 508 492
Other Industrial Products...................................... 399 325 311
--------- --------- ---------
937 833 803
--------- --------- ---------
TOTAL NET SALES.................................................. $ 2,282 $ 2,011 $ 1,896
--------- --------- ---------
--------- --------- ---------
OPERATING INCOME (LOSS)
Consumer Group
Housewares Products............................................ $ 88 $ 88 $ 67
Bath and Outdoor Products...................................... 56 55 49
Other Consumer Products........................................ 43 25 37
--------- --------- ---------
187 168 153
--------- --------- ---------
Industrial Group
Lighting Products.............................................. 42 36 (74)
Other Industrial Products...................................... 39 29 25
--------- --------- ---------
81 65 (49)
--------- --------- ---------
Total Operating Income before corporate expenses and management
fees........................................................... 268 233 104
Corporate expenses and management fees........................... (27) (27) (27)
--------- --------- ---------
TOTAL OPERATING INCOME........................................... $ 241 $ 206 $ 77
--------- --------- ---------
--------- --------- ---------
</TABLE>
47
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--SEGMENT DATA (CONTINUED)
Fiscal 1995 operating income includes non-recurring charges of $100 million
related to the Lighting Products Operations. Fiscal 1997 operating income
includes $2 million of equity earnings from the Company's investment in UPI. UPI
is included in Other Industrial Products.
<TABLE>
<CAPTION>
(IN MILLIONS)
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
IDENTIFIABLE ASSETS AT SEPTEMBER 30
Consumer Group
Housewares Products............................................ $ 355 $ 320 $ 240
Bath and Outdoor Products...................................... 416 335 304
Other Consumer Products........................................ 382 358 369
--------- --------- ---------
1,153 1,013 913
--------- --------- ---------
Industrial Group
Lighting Products.............................................. 282 281 270
Other Industrial Products...................................... 260 240 204
--------- --------- ---------
542 521 474
Corporate...................................................... 126 111 153
--------- --------- ---------
Total for continuing operations................................ 1,821 1,645 1,540
Net assets held for disposition................................ 10 131 297
--------- --------- ---------
TOTAL IDENTIFIABLE ASSETS........................................ $ 1,831 $ 1,776 $ 1,837
--------- --------- ---------
--------- --------- ---------
DEPRECIATION AND GOODWILL AMORTIZATION
Consumer Group
Housewares Products............................................ $ 11 $ 8 $ 7
Bath and Outdoor Products...................................... 9 7 6
Other Consumer Products........................................ 16 15 14
--------- --------- ---------
36 30 27
--------- --------- ---------
Industrial Group
Lighting Products.............................................. 10 9 13
Other Industrial Products...................................... 10 10 9
--------- --------- ---------
20 19 22
--------- --------- ---------
TOTAL DEPRECIATION AND GOODWILL AMORTIZATION..................... $ 56 $ 49 $ 49
--------- --------- ---------
--------- --------- ---------
CAPITAL EXPENDITURES
Consumer Group
Housewares Products............................................ $ 12 $ 9 $ 11
Bath and Outdoor Products...................................... 18 8 4
Other Consumer Products........................................ 10 11 19
--------- --------- ---------
40 28 34
--------- --------- ---------
Industrial Group
Lighting Products.............................................. 13 10 8
Other Industrial Products...................................... 12 7 8
--------- --------- ---------
25 17 16
Corporate...................................................... 11 -- 11
--------- --------- ---------
TOTAL CAPITAL EXPENDITURES....................................... $ 76 $ 45 $ 61
--------- --------- ---------
--------- --------- ---------
</TABLE>
48
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--GEOGRAPHIC AREAS--FINANCIAL DATA
The following table presents certain data by geographic areas:
<TABLE>
<CAPTION>
(IN MILLIONS)
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
NET SALES
United States.................................................... $ 2,017 $ 1,789 $ 1,702
Foreign.......................................................... 265 222 194
OPERATING EARNINGS
United States.................................................... $ 193 $ 153 $ 33
Foreign.......................................................... 48 53 44
IDENTIFIABLE ASSETS
United States.................................................... $ 1,598 $ 1,564 $ 1,645
Foreign.......................................................... 233 212 192
</TABLE>
The Company's foreign operations are based predominantly in Europe and, to a
lesser extent, in South America, Canada and Asia. United States export sales to
customers throughout the world were $300 million, $272 million and $242 million
for the fiscal years ended September 30, 1997, 1996 and 1995, respectively.
NOTE 16--QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial information for the fiscal years ended
September 30, 1997 and 1996 is as follows (dollars in millions, except per share
data):
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
- --------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net sales.................................... $ 512 $ 549 $ 633 $ 588 $ 456 $ 490
Gross profit................................. 165 170 193 189 152 159
Income from continuing operations............ 21 24 34 34 13 15
Income before extraordinary loss............. 23 108 35 72 81 15
Net income................................... 21 108 35 72 56 15
Income from continuing operations per
share...................................... $ 0.28 $ 0.33 $ 0.45 $ 0.45 $ 0.16 $ 0.19
Income before extraordinary loss per share... $ 0.30 $ 1.43 $ 0.46 $ 0.97 $ 1.00 $ 0.20
Net income per share......................... $ 0.28 $ 1.43 $ 0.46 $ 0.97 $ 0.69 $ 0.20
<CAPTION>
<S> <C> <C>
QUARTER ENDED JUNE 30 SEPT. 30
- --------------------------------------------- ----------- -----------
Net sales.................................... $ 520 $ 545
Gross profit................................. 157 180
Income from continuing operations............ 20 34
Income before extraordinary loss............. 24 38
Net income................................... 24 38
Income from continuing operations per
share...................................... $ 0.24 $ 0.43
Income before extraordinary loss per share... $ 0.31 $ 0.48
Net income per share......................... $ 0.31 $ 0.48
</TABLE>
Certain of the amounts above have been restated from the amounts previously
reported in the Company's reports on Form 10-Q due to the disposal of
businesses. See Notes 3, 4 and 5 regarding transactions that affect
comparability of quarterly data.
49
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY
Separate consolidated financial statements of USIAH, the issuer of the
Notes, are not presented as management has determined that they would not be
material to the holders of the Notes. Summarized consolidated financial
information of USIAH is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Income Statement Data:
Net Sales...................................................... $ 2,282 $ 2,011 $ 1,896
Gross Profit................................................... 717 648 607
Income from continuing operations.............................. 116 84 (63)
Net income..................................................... 239 135 (88)
</TABLE>
<TABLE>
<CAPTION>
(IN MILLIONS)
AT SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Balance Sheet Data:
Current assets........................................................... $ 933 $ 953
Non-current assets....................................................... 898 823
Current liabilities...................................................... 419 365
Non-current liabilities.................................................. 703 884
</TABLE>
NOTE 18--SUBSEQUENT EVENTS (UNAUDITED)
In October 1997, the Company purchased Siemens Lighting, a division of
Siemens A.G., for $67 million. Siemens Lighting is a leading European
manufacturer and marketer of standard and customized indoor and outdoor lighting
products for commercial and industrial use. Siemens Lighting (renamed SiTeco
Beleuchtungstechnik GmbH)operates manufacturing facilities in Germany, Austria
and Slovenia.
In November 1997, the Company sold the assets of Tommy Armour Golf to
TearDrop Golf Company for $10 million cash, certain convertible preferred stock
of TearDrop Golf, and one million shares of Common Stock of TearDrop Golf.
50
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the caption "Executive Officers" in Item 1 of
this Annual Report on Form 10-K is incorporated herein by reference.
The information to be included under the caption "Election of Directors" in
the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A of the 1934 Act in connection with the annual meeting
of the Company's stockholders to be held on February 6, 1998 (the "Proxy
Statement") is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information to be included under the caption "Execution Compensation" in
the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information to be included under the caption "Ownership of Common Stock"
in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information to be included under the caption "Executive
Compensation--Compensation Committee Interlocks and Insider Transactions" in the
Proxy Statement is incorporated herein by reference.
51
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A) Listing of Documents
(1) FINANCIAL STATEMENTS. The Company's Consolidated (Combined) Financial
Statements included in Item 8 hereof, as required at September 30, 1997, 1996
and 1995, and for the years ended September 30, 1997, 1996 and 1995, consist of
the following:
Consolidated (Combined) Statements of Operations
Consolidated Balance Sheets
Consolidated (Combined) Statements of Cash Flows
Consolidated (Combined) Statements of Changes in Stockholders'
Equity/Invested Capital
Notes to Consolidated (Combined) Financial Statements
(2) FINANCIAL STATEMENT SCHEDULE. Financial Statement Schedule of the
Company appended hereto, as required for the years ended September 30, 1997,
1996 and 1995, consists of the following:
II. Valuation and Qualifying Accounts
(3) MANAGEMENT CONTRACTS AND COMPENSATORY PLANS AND ARRANGEMENTS.
<TABLE>
<S> <C> <C>
-- Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
Hanson Industries and David H. Clarke (filed as Exhibit 10.9 to the Company's
Registration Statement on Form 10, dated April 21, 1995 (the "Form 10")).*
-- First Amendment, dated June 12, 1995, to the Employment Agreement, dated February
22, 1995, between the Company and David H. Clarke (filed as Exhibit 10.19(b) to
the Company's Report on Form 10-K for the fiscal year ended September 30, 1995
(the "1995 10-K")).*
-- Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
Hanson Industries and John G. Raos (filed as Exhibit 10.10 to the Form 10).*
-- First Amendment, dated June 12, 1995, to the Employment Agreement, dated February
22, 1995, between the Company and John G. Raos (filed as Exhibit 10.20(b) to the
1995 10-K).*
-- Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
Hanson Industries and John S. Oldford (filed as Exhibit 10.11 to the Form 10).*
-- First Amendment, dated June 12, 1995, to the Employment Agreement, dated February
22, 1995, between the Company and John S. Oldford (filed as Exhibit 10.21(b) to
the 1995 10-K).*
-- Employment Agreement, dated May 1, 1995, among Hanson PLC, the Company, Hanson
Industries and John A. Mistretta (filed as Exhibit 10.23(a) to the 1995 10-K).*
-- First Amendment, dated June 12, 1995, to the Employment Agreement, dated May 1,
1995, between the Company and John A. Mistretta (filed as Exhibit 10.23(b) to the
1995 10-K).*
-- Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
Hanson Industries and George H. MacLean.
-- First Amendment, dated June 12, 1995, to the Employment Agreement, dated February
22, 1995, between the Company and George H. MacLean.
-- U. S. Industries, Inc. Amended Stock Option Plan.
-- U. S. Industries, Inc. 1997 Restricted Stock Plan (annexed as Exhibit A to the
Company's definitive Proxy Statement on Schedule 14A filed on December 16,
1996).*
-- U. S. Industries, Inc. Supplemental Retirement Plan (filed as Exhibit 10.14 to
the Form 10).*
-- U. S. Industries, Inc. Long-Term Incentive Plan (filed as Exhibit 10.15 to the
Form 10).*
- ---------
* Incorporated by reference
</TABLE>
52
<PAGE>
<TABLE>
<S> <C> <C>
(B) Reports on Form 8-K.
Not applicable.
(C) Exhibits.
3.1 -- Form of Amended and Restated Certificate of Incorporation (filed as Exhibit 1 to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 1,
1995
(the "Third Quarter 1994 10-Q")).*
-- Form of Certificate of Designations of the Series A Junior Preferred Stock (filed
as
Exhibit 2 to the "Third Quarter 1994 10-Q")).*
3.2 -- Amended and Restated By-laws of the Company (filed as Exhibit 3.2 to the Form
10).*
4.1 -- Specimen form of certificate representing shares of Common Stock of the Company
(filed as Exhibit 4.1 to the Form 10).*
4.2 -- Indenture, dated as of December 12, 1996, among USI American Holdings, Inc.
("USIAH"), U.S. Industries, Inc. and PNC Bank National Association, as Trustee
(filed as Exhibit 4.1 to the Registration Statement No. 333-2083 on Form S-4 of
USIAH and the Company (the "Form S-4")).*
10.1 -- Subscription Agreement, dated May 31, 1995, between Hanson PLC and the Company
(filed as Exhibit 10.10 to the 1995 10-K).*
10.2 -- Tax Sharing and Indemnification Agreement, dated May 30, 1995, among HM Anglo-
American Ltd., HM Holdings, Inc., Endicott Johnson Corporation, Kidde Industries,
Inc., HMB Holdings Inc., Kaiser Cement Corporation, Spartus Corporation, U.S.
Industries, Inc. and USI American Holdings, Inc. (Filed as Exhibit 10.14 to the
1995 10-K).*
10.3 -- Tax Sharing and Indemnification Agreement, dated May 30, 1995, among HM Anglo-
American Ltd., Quantum Chemical Corporation, Endicott Johnson Corporation,
Spartus Corporation, U.S. Industries, Inc. and USI American Holdings, Inc. (Filed
as Exhibit 10.15 to the 1995 10-K).*
10.4 (a) -- Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
Hanson Industries and David H. Clarke (filed as Exhibit 10.9 to the Form 10).*+
(b) -- First Amendment, dated June 12, 1995, to the Employment Agreement, dated February
22, 1995, between the Company and David H. Clarke (Filed as Exhibit 10.19(b) to
the 1995 10-K).*+
10.5 (a) -- Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
Hanson Industries and John G. Raos (filed as Exhibit 10.10 to the Form 10).*+
(b) -- First Amendment, dated June 12, 1995, to the Employment Agreement, dated February
22, 1995 between John G. Raos and the Company (filed as Exhibit 10.20(b) to the
1995 10-K).*+
10.6 (a) -- Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
Hanson Industries and John S. Oldford (filed as Exhibit 10.11 to the Form 10).*+
(b) -- First Amendment, dated June 12, 1995, to the Employment Agreement, dated February
22, 1995, between the Company and John S. Oldford (filed as Exhibit 10.21(b) to
the 1995 10-K).*+
10.7 (a) -- Employment Agreement, dated May 1, 1995, among Hanson PLC, the Company, Hanson
Industries and John A. Mistretta (filed as Exhibit 10.23(a) to the 1995 10-K).*+
(b) -- First Amendment, dated June 12, 1995, to the Employment Agreement, dated May 1,
1995, between the Company and John A. Mistretta (filed as Exhibit 10.23(b) to the
1995 10-K).*+
10.8 (a) -- Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
Hanson Industries and George H. MacLean+
(b) -- First Amendment, dated June 12, 1995, to the Employment Agreement, dated February
22, 1995, between the Company and George H. MacLean.+
10.9 -- U.S. Industries, Inc. Amended Stock Option Plan+
</TABLE>
53
<PAGE>
<TABLE>
<S> <C> <C>
10.10 -- U.S. Industries, Inc. Supplemental Retirement Plan (filed as Exhibit 10.14 to the
Form 10).*+
10.11 -- U. S. Industries, Inc. 1997 Restricted Stock Plan (annexed as Exhibit A to the
Company's definitive Proxy Statement on Schedule 14A filed on December 16,
1996).*
10.12 -- U.S. Industries, Inc. Long-Term Incentive Plan (filed as Exhibit 10.15 to the
Form 10).*+
10.13(a) -- Credit Agreement, dated December 12, 1996 (the "Credit Agreement"), among USIAH,
USI Funding, Inc., U.S. Industries, Inc. and Bank of America National Trust and
Savings Association, as Agent, and BA Securities, Inc., as Arranger (filed as
Exhibit 10.1 to the Form S-4).*
(b) -- First Amendment to the Credit Agreement, dated December 16, 1996 (filed as
Exhibit 10.16(d) to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 29, 1996).*
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Price Waterhouse LLP
27.1 -- Financial Data Schedule
</TABLE>
- ------------------------
* Incorporated by reference
+ Denotes a management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 14(c) of this Report.
(D) Financial Statement Schedules
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this amendment to be signed on its behalf
by the undersigned, thereunto duly authorized.
U.S. INDUSTRIES, INC.
By: /s/ DAVID H. CLARKE
-----------------------------------------
David H. Clarke
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
November 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, and on the date set forth above.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
/s/ DAVID H. CLARKE Chairman of the Board and Chief Executive Officer
------------------------------------------- (Principal Executive Officer)
David H. Clarke
/s/ JOHN G. RAOS Director, President and Chief Operating Officer
-------------------------------------------
John G. Raos
/s/ FRANK R. REILLY Director, Senior Vice President and Chief Financial
------------------------------------------- Officer (Principal Financial Officer)
Frank R. Reilly
/s/ BRIAN C. BEAZER Director
-------------------------------------------
Brian C. Beazer
/s/ JOHN J. MCATEE, JR. Director
-------------------------------------------
John J. McAtee, Jr.
/s/ THE HON. CHARLES H. PRICE II Director
-------------------------------------------
The Hon. Charles H. Price II
/s/ SIR HARRY SOLOMON Director
-------------------------------------------
Sir Harry Solomon
/s/ ROYALL VICTOR III Director
-------------------------------------------
Royall Victor III
/s/ MARK VORDER BRUEGGE Director
-------------------------------------------
Mark Vorder Bruegge
/s/ JAMES O'LEARY Vice President--Corporate Controller (Principal
------------------------------------------- Accounting Officer)
James O'Leary
</TABLE>
55
<PAGE>
SCHEDULE II
U.S. INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN C
ADDITIONS
COLUMN B ------------------------------------
BALANCE AT CHARGED TO CHARGED TO
COLUMN A BEGINNING OF COSTS OTHER COLUMN D
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS
- --------------------------------------------- --------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C>
Year ended September 30, 1995
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 28 $ 10 $ (6)(1)
Year ended September 30, 1996
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 32 $ 4
Year ended September 30, 1997
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 36 $ 1 $ (2)
<CAPTION>
COLUMN E
COLUMN A BALANCE AT
DESCRIPTION END OF PERIOD
- --------------------------------------------- -----------------
<S> <C>
Year ended September 30, 1995
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 32
Year ended September 30, 1996
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 36
Year ended September 30, 1997
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 35
</TABLE>
- ------------------------
(1) Uncollectible accounts written off, net of recoveries.
56
<PAGE>
Exhibit 10.8(a)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of February 22, 1995, by and between
HM Anglo-American Ltd., a Delaware corporation ("HM"), with its principal
office at 99 Wood Avenue South, Iselin, New Jersey 08830, a wholly owned
indirect subsidiary of Hanson PLC, a public limited company organized under
the laws of the United Kingdom ("PLC") with its principal office at 1
Grosvenor Place, London, England SW1X 7HD, U.S. Industries, Inc., a Delaware
corporation, with its principal United States office at 99 Wood Avenue South,
Iselin, New Jersey 08830 ("USI"), and George H. MacLean, residing at 16
Canterbury Lane, Summit, New Jersey 07901 ("Executive").
W I T N E S S E T H:
WHEREAS, Executive is currently employed as Vice President and
Associate General Counsel of HM;
WHEREAS, PLC and Hanson Industries ("HI"), a division of Tillotson
Commercial Motors Limited, a wholly owned indirect subsidiary of PLC, intend
to cause the transfer of certain of their non-core businesses in the United
States to USI, and to spin off USI to the shareholders of PLC pursuant to a
demerger (the "Spinoff");
WHEREAS, effective as of the consummation of the Spinoff (the
"Spinoff Date"), USI will employ Executive as its Senior Vice President,
General Counsel and Secretary;
<PAGE>
WHEREAS, it is the intention of the parties that, prior to the
Spinoff Date, Executive shall continue in his current positions at HM; and
WHEREAS, HM, USI and Executive desire to enter into an agreement
(the "Agreement") to make certain changes to the terms of his current
employment by HM and to embody the terms of Executive's prospective
employment by USI.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
1. Term of Employment; Assignment to USI. (a) Except for earlier
termination as provided in Section 7 hereof, Executive's employment under
this Agreement shall be for a two-year term (the "Employment Term")
commencing upon the announcement of PLC's intent to demerge USI (the
"Commencement Date"). Subject to Section 7 hereof, the Employment Term shall
be automatically extended for additional terms of successive two (2) year
periods unless the Company (as defined in (b) below) or Executive gives
written notice to the other at least ninety (90) days prior to the expiration
of the then current Employment Term of the termination of Executive's
employment hereunder at the end of such current Employment Term.
Notwithstanding the foregoing, if prior to September 30, 1995 neither the
Spinoff nor the Indirect Change in Ownership, as defined in Section 10(b)
hereof, occurs, this Agreement shall immediately cease to have any further
force or effect, except as to obligations hereunder that were accrued (even
if the amount thereof is determinable
2
<PAGE>
or payable thereafter) at September 30, 1995 (it being understood and agreed
that such cessation of force and effect of this Agreement shall not be deemed
a nonextension of the Employment Term for purposes of Section 8(c) hereof).
(b) Upon the Spinoff, this Agreement shall, without any further
action of the parties, be deemed assigned to, and assumed by, USI and HM
shall be released from all obligations hereunder, except as set forth in
Sections 4(e), 11 and 12 hereof or as otherwise existed immediately prior to
the Spinoff. Prior to the Spinoff and such deemed assignment, USI shall have
no obligations hereunder. Unless the context otherwise clearly requires,
subject to Section 14(d) hereof, the term "Company" as used herein shall be
deemed to refer to HM prior to the Spinoff and to USI after the Spinoff.
2. Positions. (a) Prior to the Spinoff Date, Executive shall
continue to serve as Vice President and Associate General Counsel of HM under
the terms of this Agreement.
(b) Effective as of the Spinoff Date, Executive shall serve as Senior
Vice President, General Counsel and Secretary of USI. If requested by the Board
of Directors of USI or the Chairman and so elected by the stockholders of USI,
Executive shall also serve on the Board of Directors of USI without additional
compensation. Executive shall also serve, if requested by the Board of
Directors of USI or the Chairman, as an executive officer and director of
subsidiaries and a director of associated companies of USI and shall comply with
the policy of the Compensation
3
<PAGE>
Committee of USI's Board of Directors (the "Compensation Committee") with
regard to retention or forfeiture of the director's fees.
(c) Executive shall report to any more senior officer of the
Company as designated by the Chairman or the President and shall have such
duties and authority, consistent with his position as Vice President and
Associate General Counsel of HM or Senior Vice President, General Counsel and
Secretary of USI (as applicable) as shall be assigned to him from time to
time by the Board or other managing body of the Company (the "Board), the
Chairman, the President or such other more senior officers of the Company.
(d) During the Employment Term, Executive shall devote
substantially all of his business time and efforts to the performance of his
duties hereunder; provided, however, that Executive shall be allowed, to the
extent that such activities do not materially interfere with the performance
of his duties and responsibilities hereunder, to manage his passive personal
investments and to serve on corporate, civic, or charitable boards or
committees. Notwithstanding the foregoing, the Executive shall not serve on
any corporate board of directors if such service would be inconsistent with
his fiduciary responsibilities to the Company.
3. Base Salary. During the Employment Term from and after the
Spinoff Date, the Company shall pay Executive a base salary at the annual rate
of not less than $210,000. Prior to the Spinoff Date the Executive's base
salary rate shall be his current annual base salary rate of $210,000. Base
salary shall be payable in each
4
<PAGE>
case in accordance with the usual payroll practices of the Company.
Executive's Base Salary shall be subject to annual review by the Board in
December of each year and may be increased, but not decreased, from time to
time upon recommendation of the Compensation Committee, except, prior to a
Change in Ownership, as defined in Section 10(c) hereof, it may be decreased
proportionately in connection with an across the board decrease applying to
all senior executives of the Company. The base salary as determined as
aforesaid from time to time shall constitute "Base Salary" for purposes of
this Agreement.
4. Incentive Compensation. (a) Bonus. For each fiscal year or
portion thereof during the Employment Term, beginning with the first full
fiscal year commencing after the Spinoff, Executive shall, subject to
shareholder approval as and to the extent required by Section 162(m) of the
Internal Revenue Code of 1986, as amended ("Section 162(m)"), be eligible to
participate in an incentive pay plan of the Company established upon
recommendation of the Compensation Committee that provides an annualized cash
bonus opportunity with a target bonus potential equal to at least 70% of Base
Salary. In addition, immediately prior to the Spinoff, HM shall pay
Executive in full satisfaction of HM's obligations to Executive with respect
to Executive's bonus amounts for HM's 1995 fiscal year under its bonus plan,
an amount equal to the product of (x) sixty percent (60%) of the Executive's
1995 rate of Base Salary with HM, multiplied by (y) a fraction, the numerator
of which is the number of days of the 1995 fiscal year during which the
Executive was employed by HM, and the denominator of which is 365. Further,
prior to December 31, 1995, USI shall pay
5
<PAGE>
Executive a bonus equal to (x) sixty percent (60%) of his 1995 rate of Base
Salary with HM prior to the Spinoff Date, less (y) the amount determined in
the prior sentence. In addition, USI shall assume HM's obligations to
Executive with regard to the account balances of Executive (including the
1995 fiscal year payment assuming the maximum permissible payment under such
plan) under the HM Long-Term Incentive Plan and shall continue such plan with
regard to Executive as to such account balances and HM shall pay over to USI
the aforesaid account balances of the Executive under such plan.
(b) Restricted Stock. After the Spinoff Date, USI shall recommend
to the Compensation Committee that, on or prior to the thirtieth business day
after the Spinoff Date, Executive be granted, pursuant to a restricted stock
plan satisfying the requirements of Rule 16b-3 of the Securities Exchange Act
of 1934 (the "Act"), 74,684 restricted shares (the "Restricted Stock") of
common stock of USI (the "Common Stock"), or such lesser amount as determined
by the Chairman. Except as otherwise specifically provided in this
Agreement, the grant shall provide that the Restricted Stock shall become
nonforfeitable ("vest") with respect to one third of such shares on each of
the third, fifth and seventh anniversaries of the Commencement Date provided
that Executive is employed by the Company on such vesting date. In addition,
the restricted stock plan and/or the grants shall provide that the Restricted
Stock and any other restricted stock that may hereafter be granted to
Executive, shall fully vest on a Change in Control, as defined in Section 10
hereof. Furthermore, such plan and/or the grants shall provide that if the
Executive retires (voluntarily or involuntarily other
6
<PAGE>
than for Cause) at or after his sixty-second (62nd) birthday with ten (10) or
more years of service with the Company or its predecessors (including without
limitation HM) and, in the case of voluntary retirement, the Executive gives
the Company at least six (6) months prior written notice of such retirement,
an additional portion of the Restricted Stock and any other restricted stock
that may hereafter be granted to the Executive shall become nonforfeitable
upon such retirement. To determine such additional portion of each grant,
the Executive's years and partial years of employment with the Company during
the applicable vesting period shall be multiplied by two (2) and applied to
the applicable vesting schedule. The additional portion of a grant that
shall become nonforfeitable upon such retirement shall be equal to the amount
calculated as aforesaid, less the portion of the applicable grant which
previously became nonforfeitable. Notwithstanding the foregoing, the
Compensation Committee may, in accordance with terms of the restricted stock
plan, vest a larger portion of such restricted stock upon retirement.
(c) Options. Pursuant to, and subject to shareholder approval of, a
stock option plan satisfying the requirements of Rule 16b-3 of the Act and, to
the extent required, Section 162(m), which USI agrees to adopt and cause to be
submitted for any required shareholder approval on a timely basis to satisfy the
foregoing requirements, USI shall, after the Spinoff Date, recommend to the
Compensation Committee that the Executive be granted within thirty (30) days
after the Spinoff Date nonqualified options (the "Options") to purchase that
number of shares of Common Stock determined by dividing $1,000,000 by the fair
market value of the Common
7
<PAGE>
Stock on the date of grant, or such lesser amount as determined by the
Chairman. The Options shall have an exercise price equal to such fair market
value. In addition, the Options shall have a duration of ten (10) years;
provided that, in the event of termination of employment, the remaining
duration, as determined by the Compensation Committee, shall be at least the
lesser of (x) the remainder of the ten (10) year term or (y) (A) one (1) year
on death, disability, termination without Cause, termination for Good Reason,
nonextension of the Employment Term by the Company, termination during the
Change in Control Protection Period or retirement satisfying the last
sentence of this Section 4(c), (B) thirty (30) days if the termination is a
voluntary resignation not covered by (A) above and (C) the day before the
date of a Notice of Termination for Cause is given to the Executive if the
termination is a Termination for Cause; and further provided that such
Options shall be subject to the provisions of the stock option plan with
regard to duration in the event of a corporate transaction. The stock option
plan and/or the grants thereunder shall provide that the Options shall become
exercisable with respect to 25% of such Options on each of the first four
anniversaries of the Commencement Date, provided that Executive is employed
by the Company on such vesting date, subject to acceleration as otherwise
specifically provided in this Agreement and shall, along with any other
options that may hereafter be granted to Executive, fully vest upon a Change
in Control, as defined in Section 10 hereof. In addition, such plan and/or
the grants thereunder shall provide that if the Executive retires
(voluntarily or involuntarily other than for Cause) at or after his
sixty-second (62nd) birthday with ten (10) or more years of service with the
Company or its predecessors (including without limitation HM) and, in the
case of
8
<PAGE>
voluntary retirement, the Executive gives the Company at least six (6) months
prior written notice of such retirement, all options granted to the Executive
shall fully vest on the date of such retirement.
(d) Other Compensation. The Company may, upon recommendation of
the Compensation Committee of its Board, award to the Executive such other
bonuses and compensation as it deems appropriate and reasonable.
(e) HM and PLC shall cause all options to purchase ordinary shares
of PLC stock held by Executive under the Hanson PLC Executive Share Option
Scheme "B" pursuant to such Scheme to become fully vested as of the Spinoff
Date or an Indirect Change in Ownership and to remain exercisable for the
longest period permitted under Section 4.2 of such Scheme.
5. Employee Benefits and Vacation. (a) During the Employment
Term, Executive shall be entitled to participate in all pension, retirement,
savings, welfare and other employee benefit plans and arrangements and fringe
benefits and perquisites generally maintained by the Company from time to
time for the benefit of the senior executives of the Company of a materially
comparable level, in accordance with their respective terms as in effect from
time to time (other than any special arrangement entered into by contract
with an executive). Notwithstanding the foregoing, after a Change in
Ownership, during the Employment Term, Executive shall be entitled to (i)
coverage and benefits at least equal in the aggregate to the benefits
provided under the benefit plans and programs, including, without limitation,
9
<PAGE>
any life insurance, medical insurance, disability, pension, savings,
incentive, retirement and other plans and programs, of the Company applicable
to Executive immediately prior to such Change in Ownership and any (ii)
fringe benefits and prerequisites of at least equal value to those provided
by the Company to the Executive immediately prior to the Change in Ownership.
If the Executive is currently provided with a leased automobile or an
automobile allowance with HM, the Company shall, as of the date hereof,
continue the same arrangement that currently exists, but reserves the right,
upon recommendation of the Compensation Committee, to modify the arrangement
or change the level of allowances in the future. To the extent permitted
under applicable law, the Company shall not treat as compensation to
Executive fringes and prerequisites provided to Executive or the items under
Section 6 below.
(b) During the Employment Term, Executive shall be entitled to
vacation each year in accordance with the Company's policies in effect from time
to time, but in no event less than four (4) weeks paid vacation per calendar
year. The Executive shall also be entitled to such periods of sick leave as is
customarily provided by the Company for its senior executive employees.
6. Business Expenses. The Company shall reimburse Executive for
the travel, entertainment and other business expenses incurred by Executive
in the performance of his duties hereunder, in accordance with the Company's
policies as in effect from time to time.
10
<PAGE>
7. Termination. (a) The employment of Executive under this
Agreement shall terminate upon the occurrence of any of the following events:
(i) the death of the Executive;
(ii) the termination of the Executive's employment by the Company
due to the Executive's Disability pursuant to Section 7(b) hereof;
(iii) the termination of the Executive's employment by the
Executive for Good Reason pursuant to Section 7(c) hereof;
(iv) the termination of the Executive's employment by the Company
without Cause;
(v) the termination of employment by the Executive without Good
Reason upon sixty (60) days prior written notice;
(vi) the termination of employment by the Executive with or
without Good Reason during the thirty (30) day period commencing one
(1) year after the Change in Control (such thirty (30) day period
being referred to herein as the "Change in Control Protection
Period"), provided that the Executive shall have a right to
terminate employment pursuant to this Section 7(a)(vi) and receive
the amounts under Section 8(c)(A)(i) and (ii) unless simultaneous
with the Change in Control the Company or the person or entity
triggering the Change in Control
11
<PAGE>
delivers to the Executive an irrevocable direct pay letter of credit
with regard to the amounts under Section 8(c)(A)(i) and (ii) and
satisfying the requirements of Section 7(g) hereof (and further
provided that the foregoing shall in no way affect full vesting of
Restricted Stock and Options, as well as other restricted stock and
options, if any, upon a Change in Control in accordance with Section
4 hereof);
(vii) the termination of the Executive's employment by
the Company for Cause pursuant to Section 7(e);
(viii) The retirement of the Executive by the Company at or after
his sixty-fifth birthday to the extent such termination is
specifically permitted as a stated exception from applicable federal
and state age discrimination laws based on position and retirement
benefits.
(b) Disability. If, by reason of the same or related physical or
mental reasons, Executive is unable to carry out his material duties pursuant
to this Agreement for more than six (6) months in any twelve (12) consecutive
month period, the Company may terminate Executive's employment for Disability
upon thirty (30) days prior written notice, by a Notice of Disability
Termination, at any time thereafter during such twelve (12) month period in
which Executive is unable to carry out his duties as a result of the same or
related physical or mental illness. Such termination shall not be effective
if Executive returns to the full time performance of his material duties
within such thirty (30) day notice period.
12
<PAGE>
(c) Termination for Good Reason. A Termination for Good Reason
means a termination by Executive by written notice given within ninety (90)
days after the occurrence of the Good Reason event. For purposes of this
Agreement, "Good Reason" shall mean the occurrence or failure to cause the
occurrenCe, as the case may be, without Executive's express written consent,
of any of the following circumstances, unless such circumstances are fully
corrected prior to the date of termination specified in the Notice of
Termination for Good Reason (as defined in Section 7(d) hereof): (i) Any
material diminution of Executive's positions, duties or responsibilities
hereunder (except in each case in connection with the termination of
Executive's employment for Cause or Disability or as a result of Executive's
death, or temporarily as a result of Executive's illness or other absence),
or, after a Change in Ownership, the assignment to Executive of duties or
responsibilities that are inconsistent with Executive's position as Senior
Vice President, General Counsel and Secretary; (ii) Removal of, or the
nonreelection of, the Executive from the officer positions with the Company
specified herein without election to a materially comparable or higher
position; (iii) A relocation of the Company's principal United States
executive offices to a location more than both thirty-five (35) miles from
Iselin, New Jersey and thirty-five (35) miles from his residence at the time
of the relocation, or a relocation of the Executive to a location more than
thirty-five (35) miles from the Company's principal United States executive
offices; (iv) After a Change in Ownership a failure by the Company (A) to
continue any bonus plan, program or arrangement in which Executive is
entitled to participate immediately prior to the Change in Ownership (the
"Bonus Plans"), provided that any such Bonus Plans may be modified at the
13
<PAGE>
Company's discretion from time to time but shall be deemed terminated if (x)
any such plan does not remain substantially in the form in effect prior to
such modification and (y) if plans providing Executive with substantially
similar benefits are not substituted therefor ("Substitute Plans"), or (B) to
continue Executive as a participant in the Bonus Plans and Substitute Plans
on at least the same basis as to potential amount of the bonus and
substantially the same level of criteria for achievability thereof as
Executive participated in immediately prior to any change in such plans or
awards, in accordance with the Bonus Plans and the Substitute Plans; (v) Any
material breach by the Company of any provision of this Agreement, including
without limitation Section 11 hereof, or any material breach by PLC of
Section 4(e) or, at or prior to the Spinoff, Section 11 hereof; (vi) If on
the Board at the time of a Change in Control, Executive's removal from or
failure to be reelected to the Board thereafter; or (vii) Except in the event
of the assignment as contemplated by Section 1(b), failure of any successor
to assume in a writing delivered to Executive upon the assignee becoming
such, the obligations of the Company hereunder.
(d) Notice of Termination for Good Reason. A Notice of Termination
for Good Reason shall mean a notice that shall indicate the specific
termination provision in Section 7(c) relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
Termination for Good Reason. The failure by Executive to set forth in the
Notice of Termination for Good Reason any facts or circumstances which
contribute to the showing of Good Reason shall not waive any right of
Executive hereunder or preclude Executive from asserting such fact
14
<PAGE>
or circumstance in enforcing his rights hereunder. The Notice of Termination
for Good Reason shall provide for a date of termination not less than ten
(10) nor more than sixty (60) days after the date such Notice of Termination
for Good Reason is given, provided that in the case of the events set forth
in Section 7(c)(ii) or (iii) the date may be two (2) days after the giving of
such notice.
(e) Cause. Subject to the notification provisions of Section 7(f)
below, Executive's employment hereunder may be terminated by the Company for
Cause. For purposes of this Agreement, the term "Cause" shall be limited to
(i) willful misconduct by Executive with regard to the Company or its
business; (ii) the refusal of Executive to follow the proper written
direction of the Board or a more senior officer of the Company, provided that
the foregoing refusal shall not be "Cause" if Executive in good faith
believes that such direction is illegal, unethical or immoral and promptly so
notifies the Board or the more senior officer (whichever is applicable);
(iii) substantial and continuing willful refusal by the Executive to attempt
to perform the duties required of him hereunder (other than any such failure
resulting from incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to the Executive by the Board
or a more senior officer of the Company which specifically identifies the
manner in which it is believed that the Executive has substantially and
continually refused to attempt to perform his duties hereunder; (iv) the
Executive being convicted of a felony (other than a felony involving a motor
vehicle); (v) the breach by Executive of any material fiduciary duty owed by
Executive to the Company; or (vi) Executive's dishonesty, misappropriation
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or fraud with regard to the Company (other than good faith expense account
disputes).
(f) Notice of Termination for Cause. A Notice of Termination for
Cause shall mean a notice that shall indicate the specific termination
provision in Section 7(e) relied upon and shall set forth in reasonable
detail the facts and circumstances which provide for a basis for Termination
for Cause. Further, a Notification for Cause shall be required to include a
copy of a resolution duly adopted by at least two-thirds of the entire
membership of the Board at a meeting of the Board which was called for the
purpose of considering such termination and which Executive and his
representative had the right to attend and address the Board, finding that,
in the good faith opinion of the Board, Executive engaged in conduct set
forth in the definition of Cause herein and specifying the particulars
thereof in reasonable detail. The date of termination for a Termination for
Cause shall be the date indicated in the Notice of Termination. Any
purported Termination for Cause which is held by a court not to have been
based on the grounds set forth in this Agreement or not to have followed the
procedures set forth in this Agreement shall be deemed a Termination by the
Company without Cause.
(g) The irrevocable direct pay letter of credit required to be
delivered pursuant to Section 7(a)(vi) or Section 10(b)(i) hereof shall be in
amount equal to the amount the Executive would be entitled to under Section
8(c)(A)(i) and (ii) hereof if he was terminated without Cause upon the Change
in Control or Indirect Change in Ownership, as the case may be (the
"Occurrence") and have an expiration date of no
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less than two (2) years after the Occurrence. The Executive shall be entitled
to draw on the letter of credit upon presentation to the issuing bank of a
demand for payment signed by the Executive that states that (i) (A) a Good
Reason event has occurred and the Executive would be entitled to payment
under Section 8(c) of his Employment Agreement if he elected to terminate
employment for Good Reason or (B) one (1) year and not more than one (1) year
and thirty (30) days has expired since the Occurrence or (C) the Executive is
entitled to payment under Section 8(c) of the Agreement and (ii) assuming the
event set forth in (i) entitled him to payment under Section 8(c) of his
Employment Agreement, the amount the Company would be indebted to him at the
time of presentation under Section 8(c)(A)(i) and (ii) if he then was
eligible to receive payments under Section 8(c). There shall be no other
requirements (including no requirement that the Executive first makes demand
upon the Company or that the Executive actually terminates employment) with
regard to payment of the letter of credit. To the extent the letter of
credit is not adequate to cover the amount owed to the Executive by the
Company under the Employment Agreement, is not submitted by the Executive or
is not paid by the issuing bank, the Company shall remain liable to the
Executive for the remainder owed the Executive pursuant to the terms of this
Agreement. To the extent any amount is paid under the letter of credit it
shall be a credit against any amounts the Company then or thereafter would
owe to the Executive under Section 8(c) of the Agreement. The letter of
credit shall be issued by a national money center bank with a rating of at
least A by Standard and Poors. The Company shall bear the cost of the letter
of credit.
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8. Consequences of Termination of Employment. (a) Death. If
Executive's employment is terminated during the Employment Term by reason of
Executive's death, the employment period under this Agreement shall terminate
without further obligations to the Executive's legal representatives under
this Agreement except for: (i) any compensation earned but not yet paid,
including and without limitation, any declared but unpaid bonus, any amount
of Base Salary or deferred compensation accrued or earned but unpaid, any
accrued vacation pay payable pursuant to the Company's policies and any
unreimbursed business expenses payable pursuant to Section 6 which amounts
shall be promptly paid in a lump sum to Executive's estate; (ii) the product
of (x) the target annual bonus for the fiscal year of the Executive's death,
multiplied by (y) a fraction, the numerator of which is the number of days of
the current fiscal year during which the Executive was employed by the
Company, and the denominator of which is 365, which bonus shall be paid when
bonuses for such period are paid to the other executives; (iii) subject to
Sections 4(b) and (c) hereof, full accelerated vesting under all outstanding
equity-based and long-term incentive plans (with options remaining
outstanding as provided under the applicable stock option plan and a pro rata
payment under any long term incentive plans based on actual coverage under
such plans at the time payments normally would be made under such plans);
(iv) subject to Section 9 hereof, any other amounts or benefits owing to
Executive under the then applicable employee benefit plans or policies of the
Company, which shall be paid in accordance with such plans or policies; (v)
payment on a monthly basis of six (6) months of Base Salary, which shall be
paid to Executive's spouse, or if he is not married or if she shall
predecease him,
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then to Executive's estate; and (vi) payment of the spouse's and dependent's
COBRA coverage premiums to the extent, and so long as, they remain eligible
for COBRA coverage, but in no event more than three (3) years. Section 11
hereof shall also continue to apply.
(b) Disability. If Executive's employment is terminated by reason
of Executive's Disability, Executive shall be entitled to receive the
payments and benefits to which his representatives would be entitled in the
event of a termination of employment by reason of his death, provided that
the payment of Base Salary shall be reduced by the projected amount he would
receive under any long-term disability policy or program maintained by the
Company during the six (6) month period during which Base Salary is being
paid. Section 11 hereof shall also continue to apply.
(c) Termination by Executive for Good Reason or for any Reason
During the Change in Control Protection Period or Termination by the Company
without Cause or Nonextension of the Term by the Company. If (i) outside of
the Change in Control Protection Period, Executive terminates his employment
hereunder for Good Reason during the Employment Term, (ii) if a Change in
Control occurs and during the Change in Control Protection Period Executive
terminates his employment for any reason, (iii) if Executive's employment
with the Company is terminated by the Company without Cause or (iv)
Executive's employment with the Company terminates as a result of the Company
giving notice of nonextension of the Employment Term pursuant to Section 1(a)
hereof, Executive shall be entitled to receive (A) subject to the second and
third from last sentences of this Section 8(c), in a lump sum within five (5)
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days after such termination (i) two (2) times Base Salary, (ii) two (2) times
the highest annual bonus paid or payable to Executive for any of the previous
two completed fiscal years by the Company and its predecessors (provided
that, if this Section 8(c) becomes applicable after the Spinoff Date, for any
fiscal year that Executive was employed by a predecessor, his bonus shall be
deemed to have been $147,000), (iii) any unreimbursed business expenses
payable pursuant to Section 6, and (iv) any Base Salary, Bonus, vacation pay
or other deferred compensation accrued or earned but not yet paid at the date
of termination; (B) subject to Sections 4(b) and (c) hereof, (i) vesting of
the number of restricted shares of each grant awarded to the Executive equal
to (I) the product of (x) the number of restricted shares awarded to the
Executive in the grant, multiplied by (y) a fraction, the numerator of which
is the number of months the Executive is employed by the Company during the
applicable vesting period, and the denominator of which is the total number
of months in the applicable vesting period, less (II) the number of
restricted shares previously vested with regard to such grant, provided that
the Compensation Committee may, in accordance with the terms of the
restricted stock plan, vest a larger portion of the restricted shares granted
to the Executive, (ii) all other equity-based compensation, including
Options, that has vested as of the date of termination in accordance with the
applicable vesting schedule and (iii) all benefits payable under the long
term incentive plans as determined in accordance with the terms of such
plans; (C) subject to Section 9 hereof, any other amounts or benefits due
Executive under the then applicable employee benefit plans of the Company as
shall be determined and paid in accordance with such plans, policies and
practices; (D) two (2) years of additional
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service and compensation credit (at his then compensation level) for pension
purposes under any defined benefit type qualified or nonqualified pension
plan or arrangement of the Company, which payments shall be made through and
in accordance with the terms of the nonqualified defined benefit pension
arrangement if any then exists, or, if not, in an actuarially equivalent lump
sum (using the actuarial factors then applying in the Company's defined
benefit plan covering Executive); (E) two (2) years of the maximum Company
contribution (assuming Executive deferred the maximum amount and continued to
earn his then current salary) under any type of qualified or nonqualified
401(k) plan (payable at the end of each such year); and (F) payment by the
Company of the premiums for the Executive and his dependents' health coverage
for two (2) years under the Company's health plans which cover the senior
executives of the Company or materially similar benefits. Payments under (F)
above may at the discretion of the Company be made by continuing
participation of Executive in the plan as a terminee, by paying the
applicable COBRA premium for Executive and his dependents, or by covering
Executive and his dependents under substitute arrangements. In the event
that the termination entitling Executive to payments under this Section 8(c)
occurs on or after the sixth (6th) anniversary of the Commencement Date, but
prior to a Change in Control, the amounts payable under subparts (A)(i) and
(ii) of this Section 8(c) beyond one times the amounts specified shall not be
paid in a lump sum, but shall be paid, subject to Section 9 hereof, in twelve
(12) equal monthly installments commencing one (1) year after such
termination. If there is a Change in Control thereafter, the amounts, if
any, remaining to be paid pursuant to the preceding sentence (and in
accordance with Section 9
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hereof) shall be paid in a lump sum within five (5) days thereafter. In the
circumstances of (i) through (iv) above, Section 11 hereof shall also
continue to apply.
(d) Termination with Cause or Voluntary Resignation without Good
Reason or Retirement. If Executive's employment hereunder is terminated (i)
by the Company for Cause, (ii) by Executive without Good Reason outside of
the Change in Control Protection Period, except as provided in Section 10(b)
hereof, or (iii) by the Company pursuant to Section 7(a)(viii) hereof, the
Executive shall be entitled to receive only his Base Salary through the date
of termination, any earned but unpaid bonus, and any unreimbursed business
expenses payable pursuant to Section 6. Subject to Section 4 hereof, all
other benefits (including without limitation restricted stock and options)
due Executive following such termination of employment shall be determined in
accordance with the plans, policies and practices of the Company.
9. No Mitigation; Set-Off. In the event of any termination of
employment under Section 8, Executive shall be under no obligation to seek
other employment and prior to the sixth (6th) anniversary of the Commencement
Date or after a Change in Control, there shall be no offset against any
amounts due Executive under this Agreement on account of any remuneration
attributable to any subsequent employment that Executive may obtain. In the
event of any termination of employment entitling the Executive to payments
under Section 8(c) hereof on or after the sixth (6th) anniversary of the
Commencement Date and before a Change in Control, there shall be no offset
against any amounts due Executive under this Agreement on account of any
remuneration that Executive receives during the one (1)
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year after the Executive's employment terminates (the "One-Year Period"); but
if, at any time after the One-Year Period, but prior to a Change in Control,
the Executive is employed on a substantially full time basis either as an
employee or independent contractor (other than self employed as an
independent contractor doing special projects for unrelated entities or
unrelated consulting firms with no project scheduled to extend, or extending,
on a substantially full-time basis for more than sixty (60) days after the
end of the One-Year Period) the amounts payable to him under Section
8(c)(A)(i) and (ii) hereof shall cease. Any amounts due under Section 8 are
in the nature of severance payments, or liquidated damages, or both, and are
not in the nature of a penalty. Such amounts are inclusive, and in lieu of
any amounts payable under any other salary continuation or cash severance
arrangement of the Company and to the extent paid or provided under any other
such arrangement shall be offset from the amount due hereunder.
10. Change in Ownership. (a) For purposes of this Agreement, the
term "Change in Control" shall mean (i) any "person" as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 ("Act")
(other than the Company, any trustee or other fiduciary holding securities
under any employee benefit plan of the Company, or any company owned,
directly or indirectly, by the stockholders of the Company in substantially
the same proportions as their ownership of Common Stock of the Company), is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing twenty-five
percent (25%) or more of the combined voting power of the
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Company's then outstanding securities; (ii) during any period of two
consecutive years (not including any period prior to the Spinoff Date),
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 clause (i), (iii), or (iv) of this paragraph) 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; (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however, that a
merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person acquires more than
twenty-five percent (25%) of the combined voting power of the Company's then
outstanding securities shall not constitute a Change in Control of the
Company; or (iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's
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assets other than the sale 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.
Notwithstanding the foregoing, neither the Spinoff nor an Indirect Change in
Ownership will constitute a Change in Control for purposes of this Agreement.
For the avoidance of doubt, it is understood and agreed that for purposes of
the definition of Change in Control, the term "Company" shall not mean PLC,
HI or HM.
(b) (i) If, in lieu of the Spinoff, HI consummates prior to
September 30, 1995, directly or indirectly, a transaction or transactions
involving a majority of the assets (without regard to liabilities) of the
non-core businesses of HI such that the aforementioned assets (the
"Transferred Assets") become owned by an entity or entities not controlled,
directly or indirectly, by PLC (an "Indirect Change in Ownership"), HM shall,
on or before such consummation, cause the acquiror of the majority of the
Transferred Assets to assume this Agreement pursuant to Section 14(d) and
deliver an irrevocable direct pay letter of credit to Executive that
satisfies Section 7(g). After such assumption Executive shall be obligated
to continue to perform his services under such Agreement (and subject to all
of its terms and conditions and all of his rights, including but not limited
to those under Section 7(c), but without the right to resign voluntarily
without Good Reason or the right to have issued Restricted Stock or Options
pursuant to Sections 4(b) and (c) hereof) for one (1) year after the Indirect
Change in Ownership, shall have his employment deemed terminated at the
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end of such one (1) year period and shall then receive the amounts and
benefits he would receive under Section 8(c) hereof, at such times as
specified therein, as if his employment was terminated by the Company at the
end of such one (1) year period without Cause.
(ii) (A) Upon the Indirect Change in Ownership, if Executive is then
employed by the Company, had previously been terminated without Cause or had
previously terminated his employment for Good Reason, HM shall cause (at the
times set forth in (B) below) a bonus or bonuses to be paid to Executive
aggregating to the amount (without regard to Section 16 of the Act, if
applicable) that Executive would have received (net of the aggregate exercise
price of the Options) if he (x) owned the Restricted Stock and the Options
that would have been granted to the Executive hereunder on a fully vested
basis immediately prior to the Indirect Change in Ownership in the amounts
specifically set forth in Sections 4(b) and (c) hereof without regard to the
Chairman's discretionary authority to reduce the relevant amounts at the time
of grant (and assuming the capitalization of USI on the date of the Indirect
Change in Ownership as contemplated on the date hereof), (y) had exercised
the Options upon the Indirect Change in Ownership, and (z) immediately after
the Indirect Change in Ownership sold the Restricted Stock and the Common
Stock issued upon exercise of the Options at fair market value. Fair market
value shall equal (x) with regard to the Transferred Assets, the value
received by PLC or its subsidiaries (including assumption of debt) in the
Indirect Change in Ownership, and (y) with regard to the other assets
remaining on October 1, 1995 that would have been
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involved in the Spinoff but were not involved in the Indirect Change in
Ownership, the fair market value thereof as determined by an investment
banking firm, accounting firm or other appraiser (the "Appraiser"). The
Appraiser shall be appointed by mutual agreement of the Executive and HM;
provided that, if this provision (or a similar provision with HI) applies
pursuant to the employment agreements of other executives contemplated to be
employed by USI after the Spinoff Date, the Appraiser will be appointed by HM
or HI, as the case may be, and the most senior executive affected or, if more
than one, by the majority vote of the most senior executives affected
(without recourse by the Executive against the appointer for the appointment
of the Appraiser) and the fair market value shall be determined by the
Appraiser for all concerned. The determination of the Appraiser shall be
final and binding. HM shall pay (or cause HI to pay) all costs relating to
the appraisal of such assets. If the parties cannot mutually agree on the
Appraiser, each party shall designate an appraiser and the designated firms
shall mutually agree on an Appraiser with appropriate experience. For the
avoidance of doubt, in no circumstances except those specifically set forth
in this Section 10(b)(ii)(A), shall Executive be entitled to a bonus or other
amounts based on ownership or deemed ownership of Restricted Stock or Options
prior to the date of actual grant of the Restricted Stock or Options.
(B) HM shall cause each acquiror of Transferred Assets to pay to
the Executive, on or prior to the consummation of its transaction, its
proportionate share of the amount determined under (ii)(A)(x) above (based
upon the percentage of Transferred Assets acquired by it), provided that, if
such transaction
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closes prior to sufficient transfers having been completed to qualify as an
Indirect Change in Ownership, such proportionate amount shall be due and
payable immediately upon the Indirect Change in Ownership occurring. Any
amount not paid when due shall bear interest at the "prime rate" of Bank of
America from the due date until such amount is paid. HM shall pay to
Executive the amounts determined under (ii)(A)(y) above promptly after
determination by the Appraiser of the appropriate amount with interest at the
"prime rate" of Bank of America from September 30, 1995 until such amount is
paid. The parties shall in good faith expeditiously select the Appraiser and
provide it with all information reasonably required by it so it can promptly
make its determination after September 30, 1995.
(c) A "Change in Ownership" shall mean either a Change in Control
or an Indirect Change in Ownership.
11. Indemnification. (a) USI, HM, PLC and any other entity that
becomes the Company agree that if Executive is made a party to or threatened
to be made a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he is or was a director or officer of PLC, HM, USI, such other
Company and/or any other affiliate of any of such companies, or is or was
serving at the request of any of such companies as a director, officer,
member,
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employee, fiduciary or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including, without limitation,
service with respect to employee benefit plans, whether or not the basis of
such Proceeding is alleged action in an official capacity as a director,
officer, member, employee, fiduciary or agent while serving as a director,
officer, member, employee, fiduciary or agent, he shall be indemnified and
held harmless by the applicable company to the fullest extent authorized by
Delaware law (or, if other than USI, the law applicable to such company), as
the same exists or may hereafter be amended, against all Expenses incurred or
suffered by Executive in connection therewith, and such indemnification shall
continue as to Executive even if Executive has ceased to be an officer,
director, member, fiduciary or agent, or is no longer employed by the
company, and shall inure to the benefit of his heirs, executors and
administrators. With respect to the obligations set forth in this Section
11, PLC and HM, jointly and singly, shall retain such obligations in respect
of any act, omission or circumstance that occurred on or prior to the
Spinoff, and USI shall become liable hereunder with respect to any Proceeding
which arises out of or relates to events occurring after the Spinoff, except
to the extent that the liability relates to service with or for another
assignee under Section 14(d) hereof.
(b) As used in this Agreement, the term "Expenses" shall include,
without limitation, damages, losses, judgments, liabilities, fines,
penalties, excise taxes, settlements and costs, attorneys' fees, accountants'
fees, and disbursements and costs of attachment or similar bonds,
investigations, and any expenses of establishing a right to indemnification
under this Agreement.
(c) Expenses incurred by Executive in connection with any
Proceeding shall be paid by the company in advance upon request of Executive
and the giving by the Executive of any undertakings required by applicable
law.
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(d) Executive shall give the company notice of any claim made
against him for which indemnity will or could be sought under this Agreement.
In addition, Executive shall give the company such information and
cooperation as it may reasonably require and as shall be within Executive's
power and at such times and places as are reasonably convenient for Executive.
(e) With respect to any Proceeding as to which Executive notifies
the company of the commencement thereof:
(i) The company will be entitled to participate therein at
its own expense; and
(ii) Except as otherwise provided below, to the extent that it
may wish, the company jointly with any other indemnifying party
similarly notified will be entitled to assume the defense thereof,
with counsel reasonably satisfactory to Executive. Executive also
shall have the right to employ his own counsel in such action, suit
or proceeding and the fees and expenses of such counsel shall be at
the expense of the company.
(f) The company shall not be liable to indemnify Executive under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The company shall not settle any
action or claim in any manner which would impose any penalty or limitation on
Executive without Executive's written consent. Neither the company nor
Executive will unreasonably withhold or delay their consent to any proposed
settlement.
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(g) The right to indemnification and the payment of expenses
incurred in defending a Proceeding in advance of its final disposition
conferred in this Section 11 shall not be exclusive of any other right which
Executive may have or hereafter may acquire under any statute, provision of
the certificate of incorporation or by-laws of the company, agreement, vote
of stockholders or idsinterested directors or otherwise.
(h) Each entity which is or becomes the Company hereunder agrees to
obtain Officer and Director liability insurance policies covering Executive
and shall maintain at all times following the Commencement Date and during
the Employment Term coverage under such policies in the aggregate with regard
to all officers and directors, including Executive, of an amount not less
than $20 million. PLC shall maintain for a six (6) year period commencing on
the Spinoff Date, Officer and Director liability insurance coverage for the
Executive with respect to events occurring on or prior to the Spinoff Date in
the same aggregate amount and under the same terms as are maintained for its
active officers and directors. USI and each other entity which becomes the
Company shall maintain for a six (6) year period commencing on the date the
Executive ceases to be an employee of such entity, Officer and Director
liability insurance coverage for events occurring during the period the
Executive was an employee or director of such entity in the same aggregate
amount and under the same terms as are maintained for its active officers and
directors. The phrase "in the aggregate amount and under the same terms"
shall include the same level of self-
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insurance by PLC or the Company as shall be maintained for active officers
and directors.
12. Special Tax Provision. (a) Anything in this Agreement to the
contrary notwithstanding, in the event that any amount or benefit paid,
payable, or to be paid, or distributed, distributable, or to be distributed
to or with respect to Executive by the Company (whether pursuant to the terms
of this Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a change of ownership covered by
Internal Revenue Code (the "Code") Section 280G(b)(2) or any person
affiliated with the Company or such person) as a result of a change in
ownership of the Company or a direct or indirect parent thereof (other than
in all instances PLC, HI or HM) covered by Code Section 280G(b)(2)
(collectively, the "Covered Payments") is or becomes subject to the excise
tax imposed by or under Section 4999 of the Code (or any similar tax that may
hereafter be imposed), and/or any interest or penalties with respect to such
excise tax (such excise tax, together with such interest and penalties, is
hereinafter collectively referred to as the "Excise Tax"), the Company shall
pay to Executive an additional amount (the "Tax Reimbursement Payment") such
that after payment by Executive of all taxes (including, without limitation,
any interest or penalties and any Excise Tax imposed on or attributable to
the Tax Reimbursement Payment itself), Executive retains an amount of the Tax
Reimbursement Payment equal to the sum of (i) the amount of the Excise Tax
imposed upon the Covered Payments, and (ii) without duplication, an amount
equal to the product of (A) any deductions disallowed for federal, state or
local income tax purposes because of the inclusion of the Tax Reimbursement
Payment in Executive's adjusted gross income, and (B) the highest applicable
marginal rate of
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federal, state or local income taxation, respectively, for the calendar year
in which the Tax Reimbursement Payment is made or is to be made. The intent
of this Section 12 is that (a) the Executive, after paying his Federal, state
and local income tax, will be in the same position as if he was not subject
to the Excise Tax under Section 4999 of the Code and did not receive the
extra payments pursuant to this Section 12 and (b) that Executive should
never be "out-of-pocket" with respect to any tax or other amount subject to
this Section 12, whether payable to any taxing authority or repayable to the
Company, and this Section 12 shall be interpreted accordingly. For the
avoidance of doubt, none of PLC, HI nor HM shall in any event be liable for
any payments due as a result of a change in ownership (within the meaning of
Code Section 280G(b)(2)) of USI after the Spinoff.
(b) Except as otherwise provided in Section 12(a), for purposes of
determining whether any of the Covered Payments will be subject to the Excise
Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as "parachute
payments" (within the meaning of Section 280G(b)(2) of the Code) and such
payments in excess of the Code Section 280G(b)(3) "base amount" shall be
treated as subject to the Excise Tax, unless, and except to the extent
that, the Company's independent certified public accountants appointed
prior to the change in ownership covered by Code Section 280G(b)(2) or
legal counsel (reasonably acceptable to Executive) appointed by such
public accountants (or, if the public accountants decline such
appointment and decline appointing such
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legal counsel, such independent certified public accountants as promptly
mutually agreed on in good faith by the Company and the Executive) (the
"Accountant"), deliver a written opinion to Executive, reasonably
satisfactory to Executive's legal counsel, that Executive has a
reasonable basis to claim that the Covered Payments (in whole or in part)
(A) do not constitute "parachute payments", (B) represent reasonable
compensation for services actually rendered (within the meaning of
Section 280G(b)(4) of the Code) in excess of the "base amount" allocable
to such reasonable compensation, or (C) such "parachute payments" are
otherwise not subject to such Excise Tax (with appropriate legal
authority, detailed analysis and explanation provided therein by the
Accountants); and
(ii) the value of any Covered Payments which are non-cash
benefits or deferred payments or benefits shall be determined by the
Accountant in accordance with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Tax Reimbursement
Payment, Executive shall be deemed:
(i) to pay federal, state and/or local income taxes at the
highest applicable marginal rate of income taxation for the calendar year
in which the Tax Reimbursement Payment is made or is to be made, and
(ii) to have otherwise allowable deductions for federal, state and
local income tax purposes at least equal to those disallowed due to
34
<PAGE>
the inclusion of the Tax Reimbursement Payment in Executive's adjusted
gross income.
(d) (i) (A) In the event that prior to the time the Executive has
filed any of his tax returns for the calendar year in which the change in
ownership event covered by Code Section 280G(b)(2) occurred, the Accountant
determines, for any reason whatever, the correct amount of the Tax
Reimbursement Payment to be less than the amount determined at the time the
Tax Reimbursement Payment was made, the Executive shall repay to the Company,
at the time that the amount of such reduction in Tax Reimbursement Payment is
determined by the Accountant, the portion of the prior Tax Reimbursement
Payment attributable to such reduction (including the portion of the Tax
Reimbursement Payment attributable to the Excise Tax and federal, state and
local income tax imposed on the portion of the Tax Reimbursement Payment
being repaid by the Executive, using the assumptions and methodology utilized
to calculate the Tax Reimbursement Payment (unless manifestly erroneous)),
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code.
(B) In the event that the determination set forth in (A) above
is made by the Accountant after the filing by the Executive of any of his
tax returns for the calendar year in which the change in ownership event
covered by Code Section 280G(b)(2) occurred but prior to one (1) year
after the occurrence of such change in ownership, the Executive shall
file at the request of the Company an amended tax return in accordance
with the Accountant's determination, but no
35
<PAGE>
portion of the Tax Reimbursement Payment shall be required to be refunded
to the Company until actual refund or credit of such portion has been made
to the Executive, and interest payable to the Company shall not exceed
the interest received or credited to the Executive by such tax authority
for the period it held such portion (less any tax the Executive must pay
on such interest and which he is unable to deduct as a result of payment
of the refund).
(C) In the event the Executive receives a refund
pursuant to (B) above and repays such amount to the Company, the Executive shall
thereafter file for refunds or credits by reason of the repayments to the
Company.
(D) The Executive and the Company shall mutually agree upon the
course of action, if any, to be pursued (which shall be at the expense of the
Company) if the Executive's claim for refund or credit is denied.
(ii) In the event that the Excise Tax is later determined by the
Accountants or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Tax Reimbursement Payment is made
(including by reason of any payment the existence or amount of which cannot
be determined at the time of the Tax Reimbursement Payment), the Company
shall make an additional Tax Reimbursement Payment in respect of such excess
(plus any interest or penalties payable with respect to such excess) once the
amount of such excess is finally determined.
36
<PAGE>
(iii) In the event of any controversy with the Internal
Revenue Service (or other taxing authority) under this Section 12, subject to
subpart (i)(D) above, the Executive shall permit the Company to control issues
related to this Section 12 (at its expense) provided that such issues do not
potentially materially adversely affect the Executive, but the Executive shall
control any other issues. In the event the issues are interrelated, the
Executive and the Company shall in good faith cooperate so as not to jeopardize
resolution of either issue, but if the parties cannot agree Executive shall make
the final determination with regard to the issues. In the event of any
conference with any taxing authority as to the Excise Tax or associated income
taxes, the Executive shall permit the representative of the Company to accompany
him and the Executive and his representative shall cooperate with the Company
and its representative.
(iv) With regard to any initial filing for a refund or any other
action required pursuant to this Section 12 (other than by mutual agreement)
or, if not required, agreed to by the Company and the Executive, the
Executive shall cooperate fully with the Company, provided that the foregoing
shall not apply to actions that are provided herein to be at the sole
discretion of the Executive.
(e) The Tax Reimbursement Payment, or any portion thereof, payable
by the Company shall be paid not later than the fifth (5th) day following the
determination by the Accountant, and any payment made after such fifth (5th)
day shall bear interest at the rate provided in Code Section 1274(b)(2)(B).
The Company shall use its best efforts to cause the Accountant to promptly
deliver the initial
37
<PAGE>
determination required hereunder and, if not delivered, within ninety (90)
days after the change in ownership event covered by Section 280G(b)(2) of the
Code, the Company shall pay the Executive the Tax Reimbursement Payment set
forth in an opinion from counsel recognized as knowledgeable in the relevant
areas selected by the Executive, and reasonably acceptable to the Company,
within five (5) days after delivery of such opinion. The amount of such
payment shall be subject to later adjustment in accordance with the
determination of the Accountant as provided herein.
(f) The Company shall be responsible for all charges of the
Accountant and if (e) is applicable the reasonable charges for the opinion
given by Executive's counsel.
(g) The Company and the Executive shall mutually agree on and
promulgate further guidelines in accordance with this Section 12 to the
extent, if any, necessary to effect the reversal of excessive or shortfall
Tax Reimbursement Payments. The foregoing shall not in any way be
inconsistent with Section 12(d)(i)(D) hereof.
13. Legal and Other Fees and Expenses. In the event that a claim for
payment or benefits under this Agreement is disputed, the Company shall pay
all reasonable attorney, accountant and other professional fees and
reasonable expenses incurred by Executive in pursuing such claim, provided
the Executive is successful with regard to a material portion of his claim.
38
<PAGE>
14. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey without
reference to principles of conflict of laws.
(b) Entire Agreement/Amendments. This Agreement and the
instruments contemplated herein, contain the entire understanding of the
parties with respect to the employment of Executive by the Company from and
after the Commencement Date and supersedes any prior agreements between the
Company and Executive (but not the terms of, or rights under, any PLC or HM
equity or benefits plans existing on the date hereof except to the extent
expressly provided herein). There are no restrictions, agreements, promises,
warranties, covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein and
therein. This Agreement may not be altered, modified, or amended except by
written instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be
considered a waiver of such party's rights or deprive such party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement. Any such waiver must be in writing and signed by Executive or
an authorized officer of the Company, as the case may be.
39
<PAGE>
(d) Assignment. This Agreement shall not be assignable by Executive.
This Agreement shall be assignable by the Company only (i) as contemplated in
Section 1(b), or (ii) after the Spinoff and then only to an acquiror of all or
substantially all of the assets of the Company, provided such acquiror promptly
assumes all of the obligations hereunder of the Company in a writing delivered
to the Executive and otherwise complies with the provisions hereof with regard
to such assumption. Notwithstanding the foregoing, in the event of an Indirect
Change in Ownership in accordance with Section 10(b)(i) hereof, HM may assign
this Agreement to the acquiror of the majority of the Transferred Assets
provided it delivers to the Executive a written assumption of the obligations
hereunder of the Company and an irrevocable direct pay letter of credit in
accordance with Section 7(g) hereof.
(e) Successors; Binding Agreement; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees legatees and permitted assignees of the parties hereto.
(f) Communications. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given (i) when faxed or delivered, or
(ii) two business days after being mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the initial page of this Agreement,
provided that all notices to the Company shall be directed to the attention
of the Chairman and Chief Executive Officer of the
40
<PAGE>
Company, or to such other address as any party may have furnished to the
other in writing in accordance herewith. Notice of change of address shall
be effective only upon receipt.
(g) Withholding Taxes. The Company may withhold from any and all
amounts payable under this Agreement such Federal, state and local taxes as
may be required to be withheld pursuant to any applicable law or regulation.
(h) Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of Executive's employment to
the extent necessary to the agreed preservation of such rights and
obligations.
(i) Counterparts. This Agreement may be signed in counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
(j) Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or
affect the meaning or construction of any provision of this Agreement.
(k) Executive's Representation. The Executive represents and
warrants to the Company that there is no legal impediment to him performing
his obligations under this Agreement and neither entering into this Agreement
nor performing his contemplated service hereunder will violate any agreement
to which he is a party or any other legal restriction.
41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
HM ANGLO-AMERICAN LTD.
By:/s/ George H. Hempstead III
--------------------------------
Name: George H. Hempstead III
Title: Vice President
HANSON PLC
(for purposes of Sections 4(e) and
Section 11 hereof only)
By:/s/ Graham Dransfield
--------------------------------
Name: Graham Dransfield
Title: Director
U.S. INDUSTRIES, INC.
By:/s/ Graham Dransfield
--------------------------------
Name: Graham Dransfield
Title: Director
/s/ George H. MacLean
-----------------------------
George H. MacLean
42
<PAGE>
FIRST AMENDMENT made this 12th day of June, 1995 to the Employment
Agreement dated as of February 22, 1995 by and between U.S. Industries, Inc.,
with its principal United States office at 101 Wood Avenue South, Iselin, New
Jersey 08830 (the "Company"), and George H. MacLean, residing at 16 Canterbury
Lane, Summit, New Jersey 07901 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and the Executive have previously entered into
the Employment Agreement; and
WHEREAS, the Company and the Executive desire to amend the Employment
Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 4(a) of the Employment Agreement is amended by the
deletion of the third sentence and the addition of the following sentence in
lieu thereof:
"Further, for the period beginning June 1, 1995 and ending
September 30, 1995, USI may, in its sole discretion, pay
Executive a bonus based on performance criteria to be
established by the Compensation Committee."
2. Section 8(c)(B)(i) of the Employment Agreement is amended to read
as follows:
"(i) vesting of the number of restricted shares of each
grant awarded to the Executive equal to (I) the product of
(x) the number of restricted shares awarded to the Executive
in the grant, multiplied by (y) a fraction, the numerator of
which is the number of months the Executive is employed by
the Company during the applicable vesting period, and the
denominator of which is the total number of months in the
applicable vesting period, less (II) the number of
restricted shares previously vested with regard to such
grant, provided that, however, if the Executive's employment
is terminated by the Company without Cause (but for no other
reason), the Executive shall be vested in the
<PAGE>
greater of the foregoing number of restricted shares and the
number of restricted shares that would otherwise be vested on the
next vesting date following the Executive's termination of
employment and, notwithstanding the foregoing, the Compensation
Committee may, at any time and in accordance with the terms of
the restricted stock plan, vest a larger portion of the
restricted shares granted to the Executive,"
3. The penultimate sentence of Section 12(a) of the Employment
Agreement is amended by the addition of the words "and any payroll taxes on
Executive" to follow the words "Federal, state and local income tax."
4. As amended, the Employment Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, the Company has caused this amendment to be
executed by its duly authorized officers and the Executive has hereunto set his
or her hand as of the date first above written.
U.S. INDUSTRIES, INC.
By /s/ JOHN G. RAOS
-----------------------
President
/s/ GEORGE H. MACLEAN
- ----------------------
George H. MacLean
<PAGE>
AMENDED
U.S. INDUSTRIES, INC.
STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
ARTICLE I PURPOSE....................................................... 1
ARTICLE II DEFINITIONS................................................... 1
ARTICLE III ADMINISTRATION................................................ 5
ARTICLE IV SHARE AND OTHER LIMITATIONS................................... 7
ARTICLE V ELIGIBILITY................................................... 10
ARTICLE VI EMPLOYEE STOCK OPTION GRANTS.................................. 11
ARTICLE VII RESTRICTED STOCK AWARDS....................................... 14
ARTICLE VIII NON-EMPLOYEE DIRECTOR STOCK AWARDS AND STOCK OPTION GRANTS.... 16
ARTICLE IX NON-TRANSFERABILITY........................................... 21
ARTICLE X CHANGE IN CONTROL PROVISIONS.................................. 21
ARTICLE XI TERMINATION OR AMENDMENT OF THE PLAN.......................... 23
ARTICLE XII UNFUNDED PLAN................................................. 24
ARTICLE XIII GENERAL PROVISIONS............................................ 24
ARTICLE XIV AMENDED EFFECTIVE DATE OF PLAN................................ 27
ARTICLE XV TERM OF PLAN.................................................. 27
ARTICLE XVI NAME OF PLAN.................................................. 27
i
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Amended U.S. Industries, Inc.
Stock Option Plan
ARTICLE I.
PURPOSE
The purpose of this Amended U.S. Industries, Inc. Stock Option Plan (the
"Plan") is to enhance the profitability and value of U.S. Industries, Inc. (the
"Company") for the benefit of its stockholders by enabling the Company (1) to
offer key employees of the Company and Designated Subsidiaries, Stock Options
and, during the Company's 1995 Fiscal Year, Restricted Stock in the Company,
thereby creating a means to raise the level of stock ownership by key employees
in order to attract, retain and reward such key employees and strengthen the
mutuality of interests between key employees and the Company's stockholders and
(2) to pay non-employee directors of the Company their current annual retainer
fee in the form of shares of Common Stock, and to make awards and grants of
Common Stock and Stock Options to non-employee directors thereby attracting,
retaining and rewarding such non-employee directors, and strengthening 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 XIV and
is an amendment and restatement of the U.S. Industries, Inc. Stock Option Plan
(the "Initial Plan"), which was initially effective April 13, 1995.
ARTICLE II.
DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
2.1 "Amended Effective Date" shall mean the effective date of the
Plan as defined in Article XIV.
2.2 "Award" shall mean any award under this Plan of any Stock Option,
Restricted Stock or, solely as provided in Article VIII, Common Stock. All
Awards, other than Common Stock awarded pursuant to Article VIII, shall be
confirmed by, and subject to the terms of, a written agreement executed by
the Company and the Participant.
2.3 "Board" shall mean the Board of Directors of the Company.
2.4 "Cause" shall mean, with respect to a Participant's
Termination of Employment, (1) in the case where there is no
employment agreement
<PAGE>
between the Company or a Designated Subsidiary and the Participant in
effect at the time of the relevant grant or where there is an employment
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 a Designated Subsidiary; or (2) in the case where there is an
employment agreement between the Company or a Designated Subsidiary 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 at the time of grant. With respect to a Participant's
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.
2.5 "Change in Control" shall have the meaning set forth in Article
X.
2.6 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.7 "Committee" shall mean 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, to the extent
required by Rule 16b-3 promulgated under Section 16(b) of the Exchange Act
as then in effect or any successor provisions ("Rule 16b-3") and for the
exceptions for performance based compensation under Section 162(m) of the
Code and any regulations thereunder ("Section 162(m) of the Code"), a
"non-employee director" as defined in Rule 16b-3 and an "outside director"
as defined under Section 162(m) of the Code, except that, 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.
2.8 "Common Stock" means the Common Stock, $.01 par value per share,
of the Company.
2.9 "Designated Subsidiary" shall mean a subsidiary as defined in
Section 424(f) of the Code, of the Company which has been designated from
time to time by the Board to participate in the Plan.
2.10 "Disability" shall mean (1) in the case where there is no
employment agreement between the Company or a Designated Subsidiary and the
Participant in effect at the time of the relevant grant, or where there is
an employment agreement in
2
<PAGE>
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; or
(2) in the case where there is an employment agreement between the
Company or a Designated Subsidiary and the Participant at the time of the
relevant grant that defines disability, disability as defined under such
employment agreement at the time of grant.
2.11 "Eligible Employees" shall mean the employees of the Company and
the Designated Subsidiaries who are eligible pursuant to Section 5.1 to be
granted Awards under this Plan.
2.12 "Exchange Act" shall mean the Securities Exchange Act of 1934.
2.13 "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 (ii) if not traded on any such national securities exchange, as
quoted on an automated quotation system sponsored by the National
Association of Securities Dealers, 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. If the Common Stock is not
readily tradable on a national securities exchange or any system sponsored
by the National Association of Securities Dealers, its 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).
2.14 "Good Reason" shall mean, with respect to a Participant's
Termination of Employment, (1) in the case where there is no employment
agreement between the Company or a Designated Subsidiary and the
Participant in effect at the time of the relevant grant, or where there is
an employment 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 between the Company or a Designated Subsidiary 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 at the time
of grant.
2.15 "1995 Fiscal Year" shall mean the Company's fiscal year ending
September 30, 1995.
2.16 "Participant" shall mean the following persons to whom an Award
has been made pursuant to this Plan: Eligible Employees of the Company and
Designated Subsidiaries and non-employee directors of the Company;
provided, however, that
3
<PAGE>
non-employee directors shall be Participants for purposes of the Plan
solely with respect to awards of shares of Common Stock and Stock Options
pursuant to Article VIII.
2.17 "Restricted Stock" shall mean an award of shares of Common Stock
under the Plan that is subject to restrictions under Article VII.
2.18 "Restriction Period" shall have the meaning set forth in
Subsection 7.3(a) with respect to Restricted Stock for Eligible Employees.
2.19 "Retirement" shall mean Termination of Employment without Cause
from the Company and/or a Designated Subsidiary by a Participant 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 service with the Company (or its
predecessors) and/or a Designated Subsidiary; or (3) such earlier date
after age fifty-five (55) as approved by the Committee with regard to such
Participant.
2.20 "Stock Option" or "Option" shall mean any Option to purchase
shares of Common Stock granted to Eligible Employees pursuant to Article VI
and non-employee directors pursuant to Article VIII.
2.21 "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.
2.22 "Termination of Employment" 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
subsidiaries, as defined under Section 424(f) of the Code; or (2) when an
entity which is employing a Participant ceases to be a subsidiary, as
defined under Section 424(f) of the Code, unless the Participant thereupon
becomes employed by the Company or another subsidiary.
2.23 "Transfer" or "Transferred" shall mean anticipate, alienate,
attach, sell, assign, pledge, encumber, charge or otherwise transfer.
2.24 "Withholding Election" shall have the meaning set forth in
Section 13.4.
4
<PAGE>
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 and Restricted Stock to Eligible
Employees. Common Stock and Stock Options shall be granted to non-employee
directors pursuant to Article VIII. In particular, the Committee shall have the
authority:
(a) to select the Eligible Employees to whom Stock Options and
Restricted Stock may from time to time be granted hereunder;
(b) to determine whether and to what extent Stock Options and
Restricted Stock, or any combination thereof, are to be granted hereunder
to one or more Eligible Employees;
(c) to determine the number of shares of Common Stock to be covered by
each Award to an Eligible Employee 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
(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 Stock Option or Restricted
Stock, 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 6.2(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 in order to purchase
shares of Common Stock under the Plan; and
(g) to determine whether to require an Eligible Employee, as a
condition of the granting of an Award, to not sell or otherwise dispose of
shares acquired pursuant to the exercise of an Option or as 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.
5
<PAGE>
3.3 Guidelines. Subject to Article XI hereof, the Committee 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 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 but only to the extent any such action
would be permitted under the applicable provisions of both Rule 16b-3 and
Section 162(m) of the Code. The Committee may adopt special guidelines and
provisions for persons who are residing in, or subject to, the taxes of,
countries other than the United States to comply with applicable tax and
securities laws. To the extent applicable, this Plan is intended to comply with
Section 162(m) of the Code and the applicable requirements of Rule 16b-3 and
shall be limited, construed and interpreted in a manner so as to comply
therewith.
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 Reliance on Counsel. The Company, the Board or the Committee may
consult with legal counsel, who may be counsel for the Company or other counsel,
with respect to its obligations or duties hereunder, or with respect to any
action or proceeding or any question of law, and shall not be liable with
respect to any action taken or omitted by it in good faith pursuant to the
advice of such counsel.
3.6 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 it shall deem advisable. 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.
6
<PAGE>
3.7 Designation of Consultants/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, consultants 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 consultant and any
computation received from any such consultant or agent. Expenses incurred
by the Committee or Board in the engagement of any such counsel, consultant
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 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 permitted
by applicable law or the Certificate of Incorporation or By-Laws of the
Company and to the extent not covered by insurance, each 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 Plan, except to
the extent arising out of such 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 officers, directors or members or former
officers, directors or members may have under applicable law or under the
Certificate of Incorporation or By-Laws of the Company or Designated
Subsidiary. 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 which may be issued under this Plan or with respect to which other
Awards may be granted shall not exceed 5.35 million shares (subject to any
increase or decrease pursuant to Section 4.2) which may be either
authorized and unissued Common Stock
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or Common Stock held in or acquired for the treasury of the Company or
both. If, before or after the Amended Effective Date, any Option granted
under this Plan shall expire, terminate or be cancelled for any reason
without having been exercised in full or if, before or after the Amended
Effective Date, the Company repurchases any Option pursuant to Section
6.2(e) or shares of Common Stock issued upon exercise of an Option, the
number of unpurchased shares of Common Stock and the repurchased shares
of Common Stock shall again be available for the purposes of Awards under
the Plan. If any shares of Restricted Stock awarded under this Plan to a
Participant are forfeited or repurchased by the Company for any reason,
whether before or after the Amended Effective Date, the number of
forfeited or repurchased shares of Restricted Stock shall again be
available for the purposes of Awards under the Plan.
(b) Individual Participant Limitations. The maximum number of shares
of Common Stock subject to any Option which may be granted under this Plan
to each Participant shall not exceed 150,000 shares (subject to any
increase or decrease pursuant to Section 4.2) during each fiscal year of
the Company during the entire term of the Plan other than the Company's
1995 Fiscal Year. With respect to the Company's 1995 Fiscal Year, the
maximum number of shares of Common Stock subject to any Option which may be
granted under this Plan during such fiscal year to each Participant shall
not exceed 1.2 million shares (subject to any increase or decrease pursuant
to Section 4.2). The maximum number of shares of Restricted Stock which
may be granted under this Plan to each Participant shall not exceed 510,000
shares (subject to any increase or decrease pursuant to Section 4.2) for
the Company's 1995 Fiscal Year. No awards of Restricted Stock may be
granted under this Plan after the Company's 1995 Fiscal Year. To the
extent that shares of Common Stock for which Options are permitted to be
granted to a Participant pursuant to Section 4.1(b) during a fiscal year
are not covered by a grant of an Option to a Participant issued in such
fiscal year (other than with respect to the 1995 Fiscal Year) such shares
of Common Stock shall automatically increase the number of shares available
for grant of Options to such Participant in the subsequent fiscal years
during the term of the Plan. To the extent that shares of Common Stock for
which Options are permitted to be granted to a Participant pursuant to
Section 4.1(b) during the 1995 Fiscal Year are not covered by a grant of an
Option issued in the 1995 Fiscal Year, such shares of Common Stock shall
not be available for grant or issuance to the Participant in any subsequent
fiscal year during the term of the Plan for a grant of Options.
(c) Additional Limitation. Notwithstanding the foregoing, no Awards
may be granted hereunder if such grant would cause the number of shares of
Common Stock which are (i) granted under this Plan and subject to a
Restriction Period, (ii) granted under the U.S. Industries, Inc. 1997
Restricted Stock Plan and subject to a Vesting Period (as defined in the
U.S. Industries, Inc. 1997 Restricted Stock Plan) or, (iii) in the case of
an Option granted under this Plan, may be acquired pursuant to an exercise
of such Option, to exceed 9.9 percent of the total number of shares of
Common Stock issued and outstanding (assuming full dilution for all other
outstanding Awards and
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other equity convertible into Common Stock, including, without limitation
warrants), determined as of the close of the most recent fiscal quarter
of the Company, in accordance with generally accepted accounting
principles.
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 Designated
Subsidiaries, any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting Common Stock, the dissolution or liquidation of
the Company or Designated Subsidiaries, 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,
distribution with respect to its outstanding Common Stock of capital stock
other than Common Stock, reclassification of its capital stock, issuance of
warrants or options to purchase any Common Stock or securities convertible
into Common Stock, or any similar change affecting the Company's capital
structure or business, 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 awards of Restricted Stock granted
under this Plan and the number of shares of Common Stock to be awarded
pursuant to Article VIII hereof shall be appropriately adjusted consistent
with such change 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, 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.
(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 by rounding-down for fractions less
than one-half (1/2) and rounding-up for fractions equal to or greater than
one-half (1/2). No cash settlements shall be made with respect to
fractional shares eliminated by rounding. 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.
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(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 Eligible Employees,
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 during the
period from the date on which such notice of termination is delivered to
the consummation of the Acquisition Event, each such Participant shall have
the right to exercise in full all of his or her Options that are then
outstanding (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.
Notwithstanding the foregoing, at the discretion of the Committee, the
provisions contained in this subsection shall be adjusted as they apply to
Options granted to Eligible Employees within six (6) months before the
occurrence of an Acquisition Event if the holder of such Award is subject
to the reporting requirements of Section 16(a) of the Exchange Act in such
manner as determined by the Committee, including without limitation,
terminating Options at specific dates after the Acquisition Event, in order
to give the holder the benefit of the Option. 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 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 Senior officers, senior management and key employees of the Company
and its Designated Subsidiaries are eligible to be granted Options and
Restricted Stock under this Plan. Eligibility under this Plan shall be
determined by the Committee.
5.2 Non-employee directors are eligible to receive an award of shares of
Common Stock and a grant of Stock Options in accordance with Article VIII of the
Plan.
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ARTICLE VI.
EMPLOYEE STOCK OPTION GRANTS
6.1 Options. Stock Options granted hereunder shall be non-qualified
Options and are not intended to be Incentive Stock Options that satisfy the
requirements of Section 422 of the Code. The terms of this Article VI shall
apply only to Options granted to Eligible Employees.
6.2 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) Option Price. The purchase price of shares subject to a
non-qualified Stock Option shall be determined by the Committee but shall
not be less than the par value of the shares of Common Stock.
(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.
(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 such limitations on the
exercisability at any time at or after grant in whole or in part
(including, without limitation, the Committee may waive the installment
exercise provisions or accelerate the time at which Options may be
exercised), based on such factors, if any, as the Committee shall
determine, in its sole discretion.
(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. Such notice shall be accompanied by payment in
full of the purchase price in such form, or such other arrangement for the
satisfaction of the purchase price, as the Committee may accept. If and to
the extent determined by the Committee in its sole discretion at or after
grant, payment in full or in part may also be made in the form of Common
Stock owned by the Participant (and for which the Participant has good
title free and clear of any liens and encumbrances) or Restricted Stock
based in each case on the Fair Market Value of the Stock on the payment
date as determined by the Committee (without regard to any forfeiture
restrictions applicable to such Restricted Stock). No shares of
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Common Stock shall be issued until payment, as provided herein, therefor
has been made or provided for. If payment in full or in part has been
made in the form of Restricted Stock an equivalent number of shares of
Common Stock issued on exercise of the Option shall be subject to the
same restrictions and conditions, during the remainder of the Restriction
Period applicable to the Restricted Stock surrendered therefor.
(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) 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, or 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, on or after
September 1, 1995, 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 of the Plan.
(g) 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 Options exercised, 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.
6.3 Termination of Employment. The following rules apply with regard to
Options upon the Termination of Employment of a Participant:
(a) Termination by Reason of Death. If a Participant's Termination of
Employment is by reason of death, any Stock Option held by such
Participant, unless otherwise determined by the Committee at grant or, if
no rights of the Participant's estate are reduced, thereafter, 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.
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(b) Termination by Reason of Disability. If a Participant's
Termination of Employment is by reason of Disability, any Stock Option held
by such Participant, unless otherwise determined by the Committee at grant
or, if no rights of the Participant are reduced, thereafter, 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.
(c) Termination by Reason of Retirement. If a Participant's
Termination of Employment is by reason of Retirement, any Stock Option held
by such Participant, unless otherwise determined by the Committee at grant,
or, if no rights of the Participant are reduced, thereafter, shall be fully
vested and may thereafter be exercised by the Participant 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 twelve (12) months (or such other period as
the Committee may specify at grant or, if no rights of the Participant's
estate are reduced, thereafter) 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 Employment is by involuntary
termination without Cause or for Good Reason, any Stock Option held by such
Participant, unless otherwise determined by the Committee at grant or, if
no rights of the Participant are reduced, thereafter, 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. If a Participant's Termination
of Employment is voluntary but without Good Reason and occurs prior to, or
more than ninety (90) days after, the occurrence of an event which would be
grounds for Termination of Employment by the Company for Cause (without
regard to any notice or cure period requirements), any Stock Option held by
such Participant, unless otherwise determined by the Committee at grant or,
if no rights of the Participant are reduced, thereafter, 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. Unless otherwise determined by the Committee
at grant or, if no rights of the Participant are reduced, thereafter, if a
Participant's Termination of Employment is for any reason other than death,
Disability, Retirement, Good
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Reason, involuntary termination without Cause or voluntary termination as
provided in subsection (e) above, any Stock Option held by such
Participant shall thereupon terminate and expire as of the date of
termination, provided that (unless the Committee determines a different
period upon grant or, if, no rights of the Participant are reduced,
thereafter) 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 Employment 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
Employment 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 Employment 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 either alone or in addition to other Awards granted under
the Plan. The Committee shall determine the eligible persons to whom, and the
time or times at which, grants of Restricted Stock will be made, 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. The Committee may condition the grant
of Restricted Stock upon the attainment of specified performance goals or such
other factors as the Committee may determine, in its sole discretion.
Notwithstanding anything herein to the contrary, no awards of Restricted Stock
may be granted under the Plan after the Company's 1995 Fiscal Year.
7.2 Awards and Certificates. The prospective Participant 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 evidencing the Award to the Company 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) Acceptance. Awards of Restricted Stock must be accepted
within a period of sixty (60) days (or such shorter period as the
Committee may specify
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at grant) after the Award date, by executing a Restricted Stock Award
agreement and by paying whatever price (if any) the Committee has
designated thereunder.
(c) 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 U.S. Industries, Inc. (the "Company") Stock Option
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."
(d) 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 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.
7.3 Restrictions and Conditions on Restricted Stock Awards. The shares of
Restricted Stock awarded pursuant to this Plan shall be subject to Article IX
and the following restrictions and conditions:
(a) Restriction Period; Vesting and Acceleration of Vesting.
The Restricted Stock awarded under this Plan shall be subject to
forfeiture (or, if a purchase price had been paid pursuant to Section
7.2(a) above, repurchase for the purchase price) during a period set
by the Committee commencing with the date of such Award (the
"Restriction Period") 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, performance 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 and/or
waive the deferral limitations for all or any part of such Award.
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(b) Rights as a Stockholder. Except as provided in this
subsection (b) and subsection (a) 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, in its sole discretion, as
determined at the time of Award, may permit or require the payment of
dividends to be deferred.
(c) Lapse of Restrictions. If and when the Restriction Period
expires without a prior forfeiture of the Restricted Stock subject to
such Restriction Period, the certificates for such shares shall be
delivered to the Participant. All legends shall be removed from said
certificates at the time of delivery to the Participant, except as
otherwise required by applicable law.
7.4 Termination of Employment for Restricted Stock. Subject to the
applicable provisions of the Restricted Stock Award agreement and this Plan,
upon a Participant's Termination of Employment for any reason during the
relevant Restriction Period, all Restricted Stock still subject to restriction
will vest or be forfeited in accordance with the terms and conditions
established by the Committee at grant or thereafter.
ARTICLE VIII.
NON-EMPLOYEE DIRECTOR STOCK AWARDS AND STOCK OPTION GRANTS
8.1 Common Stock Award for Non-Employee Directors. An award of shares of
Common Stock shall be made under this Plan to each non-employee director of the
Company. Except with respect to such award of shares of Common Stock and Stock
Options granted pursuant to this Article VIII, no other Award under the Plan
shall be made available to or granted to non-employee directors of the Company.
Notwithstanding anything contained herein to the contrary, the following
provisions shall apply to the award of shares of Common Stock to non-employee
directors of the Company:
(a) Initial Award. A non-employee director of the Company shall
receive an award of 1,000 shares of Common Stock upon the later of (i) the
date the non-employee director begins service as a non-employee director on
the Board (even if previously an employee director); or (ii) five (5)
business days after the Common Stock opens for regular trading on a
national securities exchange.
(b) Annual Awards. On the first business day of each calendar quarter
in each fiscal year of the Company commencing with the first calendar
quarter after the Amended Effective Date of the Plan, each non-employee
director who is a director of the Company on such date shall receive an
award of Common Stock pursuant to the Plan calculated by dividing $6,250 by
the Fair Market Value of the Common Stock on
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the first business day of the fiscal year. In the event that such
quotient is other than a whole number of Common Stock, the value of the
fractional Common Stock shall be paid to the non-employee director in
cash.
(c) Special Back Annual Award. On the Amended Effective Date of the
Plan, each non-employee director shall receive an award of Common Stock
pursuant to the Plan, calculated by dividing $8,334 by the Fair Market
Value of the Common Stock on September 29, 1995 plus an award of Common
Stock pursuant to the Plan calculated by dividing $12,500 by the Fair
Market Value of the Common Stock on October 2, 1995.
(d) Purchase Price. Subject to Section 4.3, the purchase price of a
share of Common Stock shall be zero to the extent permitted by applicable
law and, to the extent not so permitted, such purchase price shall be par
value.
(e) Legend. Each non-employee director receiving shares of Common
Stock under this Article VIII shall be issued a stock certificate in
respect of such shares of Common Stock. Such certificate shall be
registered in the name of such non-employee director, and shall bear an
appropriate legend, to the extent required by applicable law as the Company
may determine upon advice of counsel, referring to the legal restrictions
applicable to such shares. An award of shares of Common Stock shall be
subject to the requirements of Section 13.1.
8.2 Stock Options. The terms of this Section 8.2 shall apply only to
Options granted to non-employee directors.
(a) Without further action by the Board or the stockholders of the
Company, each non-employee director shall:
(i) subject to the terms of the Plan, be granted Options to
purchase 5,000 shares of Common Stock upon the later of (1) the date
the non-employee director begins service as a director on the Board
(even if previously an employee director); or (2) the Amended
Effective Date of the Plan as defined in Article XIV hereof; provided
that if such date in any year is a date on which the New York Stock
Exchange is not open for trading, the grant shall be made on the first
day thereafter on which the New York Stock Exchange is open for
trading;
(ii) subject to the terms of the Plan, on each Annual Date of
Grant (as hereinafter defined) be automatically granted Options to
purchase 2,500 shares of Common Stock (provided that the annual grant
to be made on June 1, 1996 and June 1, 1997 shall each be for 1000
shares of Common Stock);
(iii) subject to the terms of the Plan, on December 3, 1996 be
automatically granted Options to purchase 1,250 shares of Common
Stock;
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(iv) subject to the terms of the Plan, on June 1, 1997 be
automatically granted Options to purchase an additional 250 shares of
Common Stock; and
(v) notwithstanding the foregoing provisions of Sections
8.2(a)(i) through (a)(iv), no such Option shall be granted 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) Annual Date of Grant. Annual grants shall be made initially on
June 1, 1996 (the "Initial Grant Date") and on June 1, 1997. Thereafter,
annual grants shall be made on October 1, 1997 and each anniversary thereof
(the Initial Grant Date, June 1, 1997, October 1, 1997 and each anniversary
of October 1, 1997 being referred to as an "Annual Date of Grant");
provided that if such date in any year is a date on which the New York
Stock Exchange is not open for trading, the grant shall be made on the
first day thereafter on which the New York Stock Exchange is open for
trading and, further provided that if the grants would violate the
limitation set forth in Section 4.1(c), 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 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 non-employee director who is still a director of the
Company and shall be made only in the amount of the prior reduction. The
date of the make-up grant shall be considered an Annual Grant Date for all
purposes other than the amount of Options to be issued. Notwithstanding
the foregoing, in the event no Fair Market Value can be determined pursuant
to the provisions hereof (without regard to the last sentence of
Section 2.13), no annual grant shall be made for such fiscal year.
(c) Option Agreement. Stock Options granted under this Section 8.2
shall be non-qualified Options. Such Options shall be evidenced by Option
agreements in substantially the form annexed hereto as Exhibit A.
(d) 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 this Plan shall be exercisable on or after six
(6) months and one (1) day after the date of grant.
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(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 in cash or by delivery of
unencumbered Common Stock owned by the non-employee director for at
least six (6) months (or such longer period as required by applicable
accounting standards to avoid a charge to earnings) or a combination
thereof.
(e) 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.
(f) The following rules apply with regard to Options upon a
Termination of Directorship:
(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. All Options
granted and not previously exercisable shall become fully exercisable
immediately upon a Termination of Directorship due to death.
(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
19
<PAGE>
for any reason or no reason whatsoever, and such Options shall
terminate and become null and void upon a Termination of
Directorship.
8.3 Changes. (i) The Awards to a non-employee director shall be subject
to Sections 4.2(a), (b) and (c) of the Plan and this Section 8.3, but shall not
be subject to Section 4.2(d).
(ii) If the Company shall not be the surviving corporation in any
merger or consolidation, or if the Company is to be dissolved or
liquidated, then, unless the surviving corporation assumes the Options
or substitutes new Options which are determined by the Board in its
sole discretion to be substantially similar in nature and equivalent
in terms and value for Options then outstanding, upon the effective
date of such merger, consolidation, liquidation or dissolution, any
unexercised Options shall expire without additional compensation to
the holder thereof; provided, that, the Committee shall deliver notice
to each non-employee director at least twenty (20) days prior to the
date of consummation of such merger, consolidation, dissolution or
liquidation which would result in the expiration of the Options and
during the period from the date on which such notice of termination is
delivered to the consummation of the merger, consolidation,
dissolution or liquidation, such Participant shall have the right to
exercise in full effective as of such consummation all the Options
that are then outstanding (without regard to limitations on exercise
otherwise contained in the Options other than the requirements of
Article XIV) but contingent on occurrence of the merger,
consolidation, dissolution or liquidation, and, provided that, if the
contemplated transaction does not take place within a ninety (90) day
period after giving such notice for any reason whatsoever, the notice,
accelerated vesting and exercise shall be null and void and, if and
when appropriate, new notice shall be given as aforesaid.
Notwithstanding the foregoing, the Options held by persons subject to
Section 16(b) of the Exchange Act that would not have vested under the
Plan except pursuant to Section 10.1(a) prior to the effective date of
such merger, consolidation, liquidation or dissolution shall not
expire on such date if vesting or exercise on such date would result
in the loss of Rule 16b-3 protection with regard to such Option; but
shall expire thirty (30) days after they would have otherwise vested
under the Plan and shall after the effective date of such merger,
consolidation, liquidation or dissolution represent only the right to
receive the number and kind of shares of capital stock or other
property to which the Participant would have been entitled if
immediately prior to the effective date of such merger, consolidation,
liquidation or dissolution the Participant had been the holder of
record of the number of shares as to which such Option was then
exercisable.
8.4 Non-Employee Director Status. Notwithstanding anything contained
herein to the contrary, neither the Board, the Committee nor any person
designated to assist the Board or the Committee in the administration of the
Plan may take any action which would cause any
20
<PAGE>
non-employee director of the Company to cease to be a "non-employee director"
for purposes of Rule 16b-3 with regard to this Plan or any other stock option
or other equity plan of the Company. In particular, to the extent required
as aforesaid, neither the Board nor the Committee shall have any discretion
as to:
(i) the selection of non-employee directors who are eligible to
receive awards of Common Stock or Stock Options; or
(ii) the number of shares of Common Stock or Stock Options
awarded to any non-employee director.
ARTICLE IX.
NON-TRANSFERABILITY
No Stock Option shall be Transferable 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. 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. Notwithstanding the
foregoing, the Committee may determine at the time of grant or thereafter that
an Award that is otherwise not Transferable pursuant to this Article IX is
Transferable in whole or in part and in such circumstances, and under such
conditions, as specified by the Committee.
ARTICLE X.
CHANGE IN CONTROL PROVISIONS
10.1 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, the Participant shall be entitled to the following benefits:
(a) Subject to paragraph (c) below with regard to Options granted to
Eligible Employees, all outstanding Stock Options of such Participant
(whether an Eligible Employee or non-employee director) granted prior to
the Change in Control shall be fully vested and immediately exercisable in
their entirety. The Committee, in its sole discretion, may, subject to
Section 8.4, provide for the purchase of any such Stock Options by the
Company or Designated Subsidiary 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 10.1, Change in Control
price shall mean the higher of (i) the highest price per share of Common
Stock paid in any transaction
21
<PAGE>
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) 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 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).
10.2 Change in Control. A "Change in Control" shall be deemed to have
occurred upon:
(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 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 consecutive years (not including any
period prior to the date of the consummation of the spinoff of the Company
to shareholders of
22
<PAGE>
Hanson PLC pursuant to a demerger (the "Spinoff Date")), 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) the stockholders of the Company approve 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 an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets other than
the sale 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.
ARTICLE XI.
TERMINATION OR AMENDMENT OF THE PLAN
11.1 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 that the Company may comply with any regulatory requirement
referred to in Article XIII), 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 no amendment may
23
<PAGE>
be made which would (i) increase the maximum individual Participant
limitations under Section 4.1(b); (ii) change the classification of employees
eligible to receive Awards under this Plan; (iii) extend the maximum option
period under Section 6.2; or (iv) require stockholder approval in order for
the Plan to continue to comply with the applicable provisions of Section
162(m) 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 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.
Except with respect to the award of Common Stock and Options to
non-employee directors under Article VIII, 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.
With respect to the award of shares of Common Stock and Options to
non-employee directors under Article VIII hereof, the Board may at any time or
from time to time, subject to Section 8.4 and this Section 11.1, amend the Plan
to effect any amendment deemed appropriate.
ARTICLE XII.
UNFUNDED PLAN
12.1 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 XIII.
GENERAL PROVISIONS
13.1 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.
24
<PAGE>
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.
13.2 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.
13.3 No Right to Employment/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 by the Company or any subsidiary, nor
shall they be a limitation in any way on the right of the Company or any
subsidiary by which an employee is employed to terminate his employment 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.
13.4 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 withholding obligation with regard to any
Eligible Employee to be satisfied by reducing the number of shares of Common
Stock otherwise deliverable or by delivering shares of Common Stock already
owned.
13.5 Listing and Other Conditions.
(a) 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
25
<PAGE>
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
13.5, 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.
13.6 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).
13.7 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.
13.8 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.
13.9 Costs. The Company shall bear all expenses included in administering
this Plan, including expenses of issuing Common Stock pursuant to any Awards
hereunder.
13.10 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.
13.11 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.
26
<PAGE>
13.12 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
Act, as it may deem necessary or proper for the administration and operation of
the Plan and the transaction of business thereunder.
13.13 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.
13.14 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 XIV.
AMENDED EFFECTIVE DATE OF PLAN
The U.S. Industries, Inc. Stock Option Plan initially became effective on
April 13, 1995 and the Plan became effective on February 8, 1996. The Plan was
restated effective December 3, 1996. This restatement incorporating Amendment
Number Two and Amendment Number Three to the Plan is effective on February 6,
1997.
ARTICLE XV.
TERM OF PLAN
No Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the earlier of the date the Initial Plan is adopted or the date
of stockholder approval, but Awards granted prior to such tenth anniversary may
extend beyond that date.
ARTICLE XVI.
NAME OF PLAN
This Plan shall be known as the "Amended U.S. Industries, Inc. Stock Option
Plan."
27
<PAGE>
Exhibit 21.1
As of 9/27/97
U.S. Industries, Inc.
Subsidiaries
- ------------
Architectural Area Lighting Inc.
Arrow Consolidated Corporation
Artesanias Baja S.A. de C.V.
Asteria Company
Atlantic Pools, Inc.
BB Investments
Bearing Inspection Holdings Inc.
Bearing Inspection, Inc.
BiltBest of California, Inc.
BiltBest Products, Inc.
Britains Petite Limited
Carisbrook Industries Inc.
Columbia Lighting-LCA, Inc.
Columbia Lighting, Inc.
Durango Boot Company
EJ Footwear Corp.
The Ertl Company Inc.
Ertl de Mexico S.A. de C.V.
Ertl Italia S.r.l.
Ertl (Europe) Limited
Ertl (Hong Kong) Limited
Garden State Tanning de Mexico, S.A. De C.V.
Garden State Tanning Inc.
Garden State Tanning (Michigan) Inc.
Georgia Boot Inc.
HM Lehigh Safety Shoe Co., Inc.
Huron Inc.
Irondale Holdings, Inc.
Irondale Manufacturing Company, Inc.
IXL Manufacturing, Inc.
Jacuzzi Asia Pacific Pty Ltd
Jacuzzi do Brazil Industria e Commercio Ltda.
Jacuzzi Inc.
Jacuzzi Investments Ltd
Jacuzzi Outdoor Products, Inc.
Jacuzzi Singapore Pte Ltd
Jacuzzi Spain S.R.L.
<PAGE>
Jacuzzi Sweden, AB
Jacuzzi Universal S.A.
Jacuzzi Whirlpool Bath, Inc.
Jacuzzi Whirlpool GmbH
Jacuzzi (Chile) S.A.
Jacuzzi (Europe) S.p.A.
Jacuzzi (Ireland) Ltd.
Jacuzzi (U.K.) Limited
Jade Holdings Pte Ltd
Jade Technologies Singapore Pte Ltd.
JUSI Holdings, Inc.
Keller Ladders, Inc.
Keystone Lighting Inc.
Kim Lighting Inc.
Lehigh Safety Shoe Co.
Leon Plastics Inc.
Lighting Corporation of America
Lighting Corporation of the Americas S.A. de C.V.
Lokelani Development Corporation
Maili Kai Land Development Corporation
Meridian Furniture, Inc.
Native Textiles Inc.
Northlake Boot Company Inc.
O. Ames Co.
PH Property Development Company
Prescolite Lite Controls, Inc.
Prescolite-Moldcast Lighting Company
Progress Lighting Inc.
Redmont, Inc.
Rexair Holdings Inc.
Rexair, Inc.
SF Springs Properties, Inc.
SiTeco Beleuchtungstechnik GmbH
Spaulding Lighting, Inc.
Sunlite Casual Furniture, Inc.
SUSI Corporation
The Ertl Company, Inc.
Trimfoot Co.
USI American Holdings, Inc.
USI Asia-Pacific Pte Ltd
USI Canada Inc.
USI Capital, Inc.
USI Export Inc.
USI Funding, Inc.
USI Overseas Holdings Limited
<PAGE>
USI Properties, Inc.
USI Realty Corp.
Val Industria e Commercio Ltda
Wokingham Insurance Ltd.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 Nos. 33-92594, 33-92596, 33-92598, 33-92600, 33-92602, 33-92604,
33-92606, 33-92610, 33-92612, 33-92614, 33-92616, 33-92618, 33-92620,
33-92626, 33-92628, 33-92630, 33-92674, 33-93178, 333-19055, 333-22743,
333-24179, 333-30075, and 333-37003 of U.S. Industries, Inc. of our report
dated November 17, 1997 with respect to the consolidated/combined financial
statements and schedule of U.S. Industries, Inc. included in its Annual
Report on Form 10-K for the year ended September 30, 1997, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
November 25, 1997
<PAGE>
Exhibit 23.2
CONSENT OF PRICE WATERHOUSE LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 33-92594, 33-92596, 33-92598, 33-92600,
33-92602, 33-92604, 33-92606, 33-92610, 33-92612, 33-92614, 33-92616,
33-92618, 33-92620, 33-92626, 33-92628, 33-92630, 33-92674, 33-93178,
333-19055, 333-22743, 333-22995, 333-24179, 333-30075, 333-37003) of U.S.
Industries, Inc. of our report dated November 14, 1997 appearing on page 24
of the U.S. Industries, Inc. Annual Report on Form 10-K for the year ended
September 30, 1997.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Morristown, New Jersey
November 25, 1997
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